Questions and Answers
CA. H. N. Motiwalla
CA. H. N. Motiwalla
Query No. 1
A HUF is a partner in partnership firm in capacity of HUF, whether remuneration is allowable for deduction u/s. 40(b) of the Income-tax Act, 1961 in the hands of partnership firm?
No remuneration is allowable to HUF. Remuneration can be paid to Karta of the HUF, if he is a working partner in his individual capacity.
The Supreme Court in CIT vs. Trilok Nath Mehrotra & Others [231 ITR 278] has held as under:
"If a member of a Hindu Undivided Family joins a partnership and he is given a salary for managing the firm or rendering special services to the firm, the salary will be his individual income. But if his salary is really a part of the return for the investments made by the Hindu Undivided Family in the partnership firm, the salary income would be added to the income of the Hindu Undivided Family."
Further, the Madras High Court in CIT vs. Golden Touch [263 ITR 261] has observed that :
"The remuneration paid to the individual partners who are working partners is not to be disallowed on the sole ground that such partners were nominees of their Hindu Undivided Families. Even as the Hindu Undivided Family cannot claim that remuneration paid to partners representing it is remuneration paid to the Hindu Undivided Family, so also the Assessing Officer cannot regard the remuneration paid to such partner, who is also working partner, as remuneration paid to Hindu Undivided Family for the purpose of for the purpose of disallowance u/s. 40(b) of the Income- tax Act, 1961."
Query No. 2
Please enlighten the rate of depreciation applicable to the following items of plant & machinery :–
(i) J.V.C. Machine
(ii) Road Roller
They are all movable like trucks run for the business, whether depreciation on block would be @30% or @ 15%?
Item No. 3(ii) of Part III (Machinery and Plant) of New Appendix I prescribes higher rate @30% of motor buses, motor lorries and motor taxies used in a business of running them on hire.
Explanation (a) to third proviso to section 32 provides that "the expression ‘commercial vehicle’ means ‘heavy goods vehicle’ , ‘heavy passenger motor vehicle’, ‘light motor vehicle’, ‘medium goods vehicle’, ‘medium passenger motor vehicle’, but does not include ‘maxi-cab’, ‘motor–cab’, ‘tracker’ and ‘road roller’.
Thus, J.V.C. machine, road roller and crane would be entitled for depreciation @15% and not @ 30%.
Query No. 3
The piece of agricultural land owned by the assessees is surrendered to Govt. urban land improvement authorities under land for land scheme. The plot is allotted after 2-3 years. What should be the date of acquisition for such plot received on surrender, for treatment of capital gain at the time of sale.
For the purpose of capital gain at the time of sale of allotted plot, the date of allotment of plot would be considered as date of acquisition.
Query No. 4
Please enlighten whether the plot of land given on rent for use by the tenant for storing his stone blocks/cattles rest will be Treated asset or not, for the purpose of Wealth tax?
The plot of land given on rent is an asset u/s. 2(ea) of the Wealth Tax Act, 1957, as the same does not fall under the exception of meaning ‘urban land’. Further, the definition of ‘assets’ excludes only ‘any residential property that has been let out for a minimum period of three hundred days in the previous year.’
Query No. 5
Radiology & pathological laboratory run by a physician (M.D./ M.B.B.S. not specialized in radiology or Bio-chemistry) will be considered as profession or business for limits of tax audit?
S. 2(13) of the Income-tax Act, 1961 defines ‘business’ which includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The word ‘business’ is one of wide import and it means activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. While S. 2(36) of the Act defines ‘profession’ to include vocation. The Supreme Court in CIT vs. Manmohan Das (deceased) [59 ITR 699] has held that, the expression ‘profession’ involves the idea of an occupation requiring purely intellectual skill or manual skill controlled by the intellectual skill of the operator, as distinguished from an operation which is substantially the production or sale or arrangement for the production or sale of the commodities.
So, from the facts of the case it is clear that radiology and pathology operated by a doctor who is not specialized would be a business. This view is supported by the Guidance Note on Tax Audit u/s. 44AB of the Income-tax Act, 1961, issued by the Institute of Chartered Accountants of India.
Query No. 6
Payment of regular installment for the house to be allotted. The house has been booked but the same will the delivered later on after several years (Possession later on – on completion of project by the housing board of the Govt./ Builders). It can be illustrated as under:
1. House booked & advance
2. Installment payment on
regular basis from 1-4-1996
3. House allotted (No. given) 1-4-2007
4. Possession given 1-4-2008
5. Registration u/s 17A 30-10-2008
6. Sold on 30-9-2011
What will be position of indexation for the cost of acquisition? What will be the date of acquisition?
From the fact it is clear that house is held by the assessee from 1-4-2008 when the possession is received. Therefore indexation would be available from the same date and it would be long term capital gain as the same was sold on 30-9-2011, being held for more than 36 months.
Query No. 7
The assessee is a Co-Operative Society and maintaining accounts on mercantile system of accounting. During the financial year 2008-09 (Asst. yr. 2009-10) on the basis of actuary valuation made provisions of ` 80 lakhs towards employees gratuity fund and during the same financial year deposited full amount to the LIC under Group Gratuity Life Assurance Scheme. The AO wants to disallow as on the ground that it is not Approved Gratuity Fund. Assessee’s pleas is that the same is allowable u/s. 40A(7) read with section 43B. In past so many years the same was allowed by the AO though no specific reference was made.
Kindly let us know the legal view with case law if available.
S. 29 of the Act reads as under:
"The income referred to in section 28 shall computed in accordance with the provisions contained in sections 30 to 43D".
S. 43B reads as under:
"Notwithstanding anything contained in any other provisions of this Act, a deduction otherwise allowable under this Act, in respect of –
(b) any sum payable by the assessee as an employer by way of contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, or -------
Shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.
Thus this section commences with a non obstante clause and therefore it overrides the other provisions of the Act. So, any payment made to LIC Group Gratuity Fund even if it is not approved is allowable under this section on the basis of payment made. Further, from the fact, it is clear that amount of ` 80 lakhs has been paid to Gratuity Fund and therefore the same is allowable, minus already allowed in the earlier years, as there is no requirement that it should be paid to a Approved Gratuity Fund. [See CIT vs. Commonwealth Trust (P) Ltd. – 269 ITR 290 (Ker.)]