S. 234A to 234C is mandatory & can be levied even if assessment order is silent

As held in Anjum M.H. Ghaswala 252 ITR 1 (SC), interest u/s 234A to 234C is mandatory and interest under Section 234B/234C is mandatory in nature and there is no need for the AO to specifically recite in the assessment order that the said interest shall be levied. The Tribunal should consider whether the assessee is eligible for waiver of interest as per Notification No.F.No.400/234/95-IT(B), dated May 23, 1996

Karanvir Singh Gossal vs. CIT (Supreme Court)

Tax planning, the right way...

Tax planning probably sounds a bit weird now, because the tax filing season just got over and nobody is really thinking about it or doing anything. Tax consultants are going on holiday this month. But smart people will realise how important it is to do tax planning right now. To save tax, you are better off starting now than later because you will have a lot more options now, time to think and make the right decision and no HR person sitting on your head to do the needful as soon as possible.

Myths and reality

Many people still have this notion that tax planning is wrong and responsible citizens should pay their taxes and not cheat. Tax planning is not tax evasion or tax avoidance. Tax evasion or tax avoidance is illegal where the letter and spirit of the law are broken. Tax planning is done well within the framework of the law and the government actually encourages you to plan your taxes by seeking investment in tax saving bonds, giving benefits under various sections etc.

Another misconception about tax planning is that it is all about investing in 80C.

People ask which is better, PPF or ELSS for tax planning? Tax planning is much more than 80C investments. It requires thoughtful planning of how your income is accounted, how you spend and invest your money and a few more nitty gritties. It is also a myth that tax planning is cumbersome and quite tricky for an average person to comprehend. Of course the tax laws are complex and dynamic, but what is applicable to the normal common person is rather simple.

Tax planning has to be integrated with your overall financial plan. In everything you do, you have to find a tax efficient way of doing it. For eg: You can invest in liquid funds or short term debt funds for emergency needs. But depending on your tax bracket, the short term funds can be more advantageous than the liquid funds or vice versa.

How to save tax?

Invest your surplus savings or use your income in any of the following ways and your total taxable income will come down to that extent, subject to a maximum of Rs 1 lakh.

Repay your home loan – the principal portion can be claimed for deduction

Pay tuition fees for children's education (maximum 2 children)

Pay life insurance premium

Invest in national saving certificate.

Invest in public provident fund

Invest in equity linked savings schemes (ELSS)

Invest in banks and post office fixed deposits of five years.

You can claim tax exemption on house rent allowance received as part of your salary if you are staying in a rented house.

Home loan
If it is a self occupied property, you can claim upto R1.5 lakh paid as interest as loss on house property. That will bring down your overall taxable income. If your property is rented out, on one side you will have to add the rent with your other income and pay tax, meanwhile you can deduct all the interest amount (without any limit) from your overall income and bring down taxable income.

Education loan
The interest paid on an education loan taken for higher education of self, spouse or children can be deducted under Section 80E and thereby your total taxable income can come down.

Protect your health
If you pay premium for a medical insurance policy for self or spouse or dependent children/ parents you can claim tax rebate under Section 80D. And from the current year, a sum of R 5,000 can be claimed if you or your dependants do a preventive health check up.

Social cause
Under Section 80G donations to particular institutions/ funds get tax benefits. While it is true that tax planning is a critical activity, a financial decision to buy a house or make an investment should not be motivated by tax saving. It is the financial plan that should tell you what to do with your money, but within the options, you should choose the most tax efficient one to get the best benefits

Benefit of indexation available for redeemable preference shares

The Bombay High Court in the case of CIT vs. Enam Securities (P.) Ltd., reported
in 208 Taxman 54 held that, redemption of preference shares amounts to transfer
within the meaning of Section 2(47) of the Act. The High Court further held that,
redeemable preference shares are not bonds or debentures and therefore, at the
time of redemption of those shares, the assessee would be entitled to benefit of
indexation u/s.48 of the Act.

Two flats situated on different floors cannot constitute one house for purpose of benefit of exemption under section 54 where there was no unity of co

A bare perusal of clause (a) of section 55A indicates that theAssessing Officer is empowered to make a reference to a Valuation Officer forvaluing the capital asset if he is of the opinion that the value claimed by theassessee is otherwise in accordance with the estimate made by the registeredvaluer, but such value is less than its fair market value. Obviously, thisprovision is not applicable to the facts of the instant case inasmuch as theestimate of value made by the registered valuer was, in the opinion of theAssessing Officer, on a lower side. If he had been satisfied with the valueestimated by the registered valuer, there was no point in making reference tothe DVO. The only purpose of the AO in making reference to the DVO was to lowerthe fair market value of the property as on 1-4-1981 so that the cost ofacquisition may be reduced and, resultantly, the amount of capital gain may beenhanced.

Now turning to clause (b) of section55A, it is noted that the Assessing Officer is empowered to make a reference tothe Valuation Officer where he is of the opinion that the fair market value ofthe capital asset exceeds the value of asset as claimed by the assessee by morethan such percentage of the value of the asset as so claimed or by more thansuch amount as may be prescribed. Rule 111AA provides percentage of value ofasset, at 15 per cent and the amount, at Rs. 25,000. Sub-clause (i) of clause(b) is not applicable in this case, as the Assessing Officer was inclined toreduce the estimate of fair market value as declared by the assessee and not toenhance it, which is otherwise the prescription of this provision. Thus, theapplicability of sub-clause (i) of clause (b) of section 55B is also ruled out.

Then comes sub-clause (ii) of clause(b) of section 55A, which is in the nature of residual provision for makingreference to a valuation officer where 'in the opinion of the AssessingOfficer', it is necessary to do so, having regard to the nature of the assetand the relevant circumstances. The mandate of this provision, for making areference to the DVO, is activated where the Assessing Officer is of theopinion that 'it is necessary so to do'. Before making a reference undersection 55A(b)(ii), it is necessary for the Assessing Officer to record the relevantcircumstances on the basis of which he forms the opinion that reference to theValuation Officer is called for. From the assessment order, it is manifest thatthere is no reference to any material on record prompting the Assessing Officerto from an opinion that reference to the DVO for ascertaining the fair marketvalue of asset was necessary having regard to the nature of the asset and otherrelevant circumstances. It is manifest from the Rajasthan High Court decisionin CIT v. HotelJoshi [2000] 242 ITR 478/108Taxman 199, and from the decision of Gujarat High Court in Hiaben Jayantilal Shah v. ITO [2009] 310 ITR 31/181 Taxman 191(Guj.), that unless the Assessing Officer has formed an opinion on the basis ofmaterial on record that reference to the DVO was necessary for ascertainingfair market value of the capital asset, such a reference under section55A(b)(ii) is invalid. In the instant case as, admittedly, the fair marketvalue of the property declared by the assessee as on 1-4-1981 is duly supportedby the report of the registered valuer and further there is no reference to anyfact in the assessment order as to the necessity of making a reference to theDVO, the Commissioner (Appeals) was not justified in adopting fair market valueas on 1-4-1981 of Rs. 6,85,800 as worked out by the DVO. The impugned order isset aside to this extent and it is directed that the fair market value of thefull property as on 1-4-1981 as shown by the assessee at Rs. 24.00 lacs, whichis backed by the report of the registered valuer should be adopted.

The other controversy is as towhether exemption under section 54 is available in respect of one house or morethan one house. In the instant case, the assessee was allotted two flats on twodifferent stories which he claimed as eligible for exemption under section 54.Admittedly there is no unity of construction between such flats. The SpecialBench of the Tribunal in the case of ITO v. SushilaM. Jhaveri[2007] 107 ITD 321/14 SOT 394 (Mum.) (SB), has categorically heldthat the exemption under section 54 is available only in respect of one houseand not more than one. It is not the case of the assessee that both the flatson different floors were used as one residential house. Naturally it could nothave been so for the reason that these two flats situated on different storiescannot constitute one house. Thus, the Commissioner (Appeals) was justified inrestricting the benefit of exemption under section 54 only in respect of oneflat.

In the result, the appeal is partly allowed.

RefCase:

ITAT MUMBAI BENCH 'B'

Smt. Myrtle D'Souza

v.

Income-tax Officer, Ward19(3)(4), Mumbai

No levy of capital gains tax on consideration received by a partner for reduction of his share in partnership firm on inclusion of new partners.

The Karnataka High Court in the case of CIT vs. P. N. Panjawani, reported in 208
Taxman 22, held that, there is no provision in the Act for levying capital gains tax
on consideration received by a partner for reduction of his share in partnership
firm on inclusion of new partners. In the said case on reconstitution of firm, new
partners were inducted, who contributed cash as their capital contribution and
erstwhile partners withdrew money brought in by incoming partners as drawings.
However, they continued to be the partners of the firm. Only their share got
reduced by almost 50%.

Section 54 exemption would not be available if House Property does not have the basis amenities

 

A perusal of the provision of section 54 shows that the exemption under the said section is available on transfer of a long term capital asset in respect of residential house and land or building appurtenant thereto to an assessee who is either individual or Hindu undivided family. It is also essential that the income of the same is chargeable under the head 'Income from house property'. Further requirement under this provision is that the assessee within a period of one year before or two years after that date purchases or within a period of three years after that date constructs a residential house.

In order to examine the entitlement of the assessee for exemption under section 54, it is to be seen whether the assessee had constructed residential house within three years of the transfer of his property. For doing so, the meaning of the term 'house' is to be explored. The term 'house' has not been given any statutory definition and, thus, has to be assigned meaning as understood in common parlance. As per dictionary, it means abode, a dwelling place or building for human habitation. A building, in order to be habitable by a human being, is ordinarily required to have minimum facilities of washroom, kitchen, electricity, sewerage, etc.

The lower authorities had come to the conclusion that only one room had been built with bricks and mud. There were no amenities like boundary wall, kitchen, toilet, electricity, water and sewerage connection, etc. Further, the residential plot was situated in Janta Enclave, a colony approved by PUDA. As per bye-laws of PUDA, no construction could be made without getting the map and drawings approved from PUDA, which had not been done. Still further no source of investment had been established.

In view of the above, the house in question was not a residential house and, therefore, the assessee was not entitled to the benefit under section 54.

Ref Case:

HIGH COURT OF PUNJAB AND HARYANA

Ashok Syal
v.
Commissioner of Income-tax, Central Circle, Jalandar

04.05.2012

Merely because investment is made after due date of filing of return, section 54F exemption cannot be denied where investment is made prior to filing of return under section 139(4)

ITAT CHENNAI BENCH 'A'

R.K.P. Elayarajan

v.

Deputy Commissioner of Income-tax, Circle - I, Vellore*

N.S. SAINI, ACCOUNTANT MEMBER

and V. Durga Rao, Judicial Member

IT Appeal No. 106 (Mds.) of 2012

[Assessment Year 2008-09]

JUNE 15, 2012

Section 54F of the Income-tax Act, 1961 - Capital gains - Exemption of, in case of investment in residential house - Assessment year 2008-09 - Assessee earned long-term capital gain of Rs. 38.67 lakh on sale of shares - It claimed exemption under section 54F for Rs. 27.44 lakh in its return of income under section 139(4) filed on 9-1-2009 as it had made an investment in acquisition of a residential flat - Assessing Officer denied exemption on ground that due date of filing of return under section 139(1) was 31-7-2008 while sale deed for acquired flat was executed on 19-9-2008 - Whether since amount was utilized by assessee for purchase of new residential flat before 9-1-2009, same would be qualified for deduction under section 54F(1)

Held, yes - [In favour of assessee]

FACTS

---

The assessee derived long-term capital gains of Rs. 38.64 lakh on sale of shares. It filed its return of income on 9-1-2009 whereunder, it claimed deduction under section 54F for Rs. 27.44 lakh on the ground that he had invested the capital gains in acquisition of a residential flat. The Assessing Officer, found that the due date for filing of return of income by the assessee was 31-7-2008 and the sale deed for transfer of residential property was executed on 19-9-2008, which was after the due date for filing of return. Therefore, the Assessing Officer did not allow deduction under section 54F to the assessee.

On appeal by the assessee, the Commissioner (Appeals) allowed the deduction of Rs. 3 lakh and disallowed rest of the amount on ground that agreement for purchase of residential property was entered into on 2-5-2008 and Rs. 3 lakh was paid on that very day which was before the due date of filing of return.

On second appeal by the assessee:

HELD

---

In the instant case, it is found that the eligible new asset was not purchased within one year before the date on which the transfer of the original asset took place. Thus, the amount which is not utilized by the assessee for the purchase of new asset before the date of furnishing the return of income under section 139 was required to be deposited as per the provisions of sub-section (4) for availing deduction under section 54F in respect of those amounts also. In other words, as per the plain language employed in the above sub-section (4), only the amount which was actually utilized by the assessee for the purpose of purchase of the new residential house before the date of furnishing of the return of income under section 139 shall only be eligible for computation of deduction under section 54F(1). It is found that in the instant case it is not in dispute that the return of income for the relevant year was filed by the assessee on 9-1-2009, which is the date of furnishing of return of income under section 139 by the assessee. Thus, it is held that considered view, the amount utilized by the assessee for purchase of new residential house before 9-1-2009 qualifies for consideration with reference to which deduction under section 54F(1) is to be computed. Thus, the Commissioner (Appeals) was not justified in holding that only the amount which was utilized by the assessee before 31-3-2008 only qualifies for deduction under section 54F. The assessee claimed that Rs. 15 lakh was utilized by him for the purchase of new residential flat on or before 9-1-2009. The orders of the lower authorities on this issue is, therefore, set aside and the Assessing Officer is directed to verify the amount which was invested by the assessee before the date of furnishing of return of income under section 139 by the assessee and, thereafter, allow the deduction under section 54F(1) with reference to the said amount as per law. Needless to mention that he shall allow reasonable and proper opportunity of hearing to the assessee before adjudicating the issue afresh. [Para 13]

In the result, the appeal of the assessee is allowed. [Para 15]