The Hindu Business Line : Set off of loss between businesses

A company is a multiplex theatre operator and has got income from rental as well as business. During the financial year 2007-08, the company entered into another business of dealing in shares (intraday and delivery-based buying and selling o f shares) and did the business for five months. Due to heavy losses, the company stopped that business. Whether the losses incurred in the share trading business can be set off against the income from other business (say theatre receipts) or the business of dealing in shares are to be considered as speculative business in terms of Section 73 of the Income-Tax Act. Whether the situation will change in case the assessee is a non-corporate assessee.

Muralidharan, email

The Explanation to Section 73 does deem losses of a company from buying and selling shares as speculative unless, among other things, the main source of income of such company is from income from house property. So everything boils down to this: Does rental income form the main source of income? Assuming it does not, you would be hit by the said Explanation and, accordingly, you cannot set off the loss from shares against income from multiplex. If you are not a company obviously you are not hit by this restriction.

TDS from payments to builder

I am assessed to income-tax as individual assessee having a sole proprietary business and am liable to tax audit under Section 44AB of the Income-Tax Act for my business income. I have booked a flat for my residential purpose with a builder, to whom payments are being made for undivided share of land and towards construction cost. I have withdrawn money from the business for payments made to the building contractor. Please let me know whether I have to deduct TDS from payments to the builder. If not liable, will it make any difference if portion of the flat is claimed to be used for my office, which is at present in a commercial complex on rental basis and if I want to shift it to a portion in my new flat when ready.

S. Vaidyanathan, Chennai

As per Section 194C, you are normally required to deduct tax at source on payments to contractors because your turnover is in excess of Rs 40 lakh. However, the section goes on to exempt you from the requirement of deducting tax at source if and only if the payment is exclusively for personal purposes. Everything therefore boils down to the intended use of the flat you are acquiring. If in future, it turns out that you have been using a part of the flat for your business needs, then you could be held accountable for not complying with the requirement with regard to TDS. The mere fact that you have paid out of business funds cannot result in any adverse inference to scuttle your claim of personal use.

PAN and stock market

Is the Securities and Exchange Board of India (SEBI) justified in insisting upon quotation of PAN (Permanent Account Number) by everyone operating in the capital market? Does this not affect one’s fundamental rights?

J. Venkatesh, Sivakasi

I do concede that PAN is not mandatory under the income-tax law for everyone. It is generally mandatory only for those who have got taxable income or whose turnover or gross receipts exceeds the specified threshold, etc. In the event, SEBI stand amounts to enlarging the scope of the requirement for obtaining PAN without the authority of law.

But then the Central Government has the power under the income-tax law to so enlarge the scope.

Nevertheless, I concede your point. If at all the market regulator wanted to keep a better tab on the share market participants, it could have urged the Central Government to usher in a scheme of national identity card for every citizen a la the social security number in the US. Maybe SEBI thought that this would be the best interim measure.

Brokerage charges

I have earned short-term capital gains (STCG) from recognised stock exchanges in India. My broker has charged his brokerage, service tax on brokerage, STT, stamp duty and other charges and paid me only the net amount. Can all these be deducted while computing STCG?

Mayank, email

Section 48 categorically disallows Securities Transactions Tax (STT) as a deduction while computing capital gains. I don’t know how he has charged stamp duty because it is normally to buyers’ account. Yes, brokerage and service tax thereon are very much deductible because they are expenditure incurred wholly and exclusively in connection with transfer of shares. I don’t understand what other charges have been recovered from you.

S. MURLIDHARAN

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