Surrender of ULIP or Pension Plan-What You Must Know !

Surrender of ULIP or pension plan has its tax implication under Income Tax Act , which many investor to such plans or units may not be aware of . The tax implication on ULIP and pension are different , as both are not same type of financial product.One  reader has asked a question on  ULIP…

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Gift & Capital Gains- 3 Important Tax Savings Provisions One Must Know !

Gift of assets to various persons -relative and non relatives  involves different issues under Income tax Act which has many provisions to deal with gift of assets .When a person receives any capital asset as gift and later sells it, the question of capital gains arises. However, this posting will try to dwell on three important…

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Revision of Late Return Filed u/s 139(4) Legally Correct !

Late return can be revised, indeed! It is generally understood that if tax return is filed after the due date (late return) , such return of income cannot be revised . In fact that the common error in belief that once a person files return late , then even when he finds a genuine error…

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Can Loss in Commodities F & O Trade be Adjusted With Capital Gains ?

The derivative segments trades (Futures & Options )  in India are done in shares and commodities. While the trade in F & O segments of shares through NSE or BSE is considered business trade now . A confusion arises in mind of tax payers who indulge in F & O trades in commodities segment. For…

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54EC: NHAI Issues Capital Gains Bonds !

Section 54EC provides a way of getting exemption from  tax on long term capital gains . You can read six steps to saving tax on long term capital gains u/s 54EC .However, the capital gains bonds specified under section 54EC are scarce and are not available always in market. That is important because the investment…

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No Disallowance u/s 14A if Dividend Incidental to Business: Karnataka HC !

The  disallowance u/s 14A of  Income Tax Act for expense related to  earning exempt income like dividend has become  wide spread   after judgement of special bench of Mumbai Tribunal in Daga Capital Management P Ltd  [312 ITR 1 ] case and Delhi Tribunal judgement in ACIT vs Cheminvest Ltd case [124 TTJ 577]  . These cases were explained in blog post titled Two Recent Judgments Proving Very Taxing For Assessee . Further bad news followed for assessee  when Mumbai High Court in Godrej Boyce Mfg Case affirmed the Daga Capital and Chemiinvest decisions of tax tribunal.disallowance_14A

The result of the aforesaid decision can be summarized to say that the disallowance u/s 14A of income tax Act is also done in cases of dividend earning by a person who entirley deasl in share trade and does not invest in shares for the purpose of eaither earning long term gains or dividend income.Thus brokers or share dealers who have stock in trade and some didvidend were earned on such stock-in-trades were also being covered for disallowance u/s 14A of Income tax act.

Relief on Disallowance u/s 14A of Income Tax Act by Karnataka High Court

The brreze of fresh air from a very recent decision by  Karnataka High Court in case of CCI Ltd vs JCIT delivered judgment dated 28/02/2012. Briefly facts were that the assesses spent Rs 27.24 Lakhs as brokerage for arranging loans by which assessee bought or paid for shares of Kurlon Ltd on which together with some other shares held as stock-in trade , he earned dividend income o0f Rs 46.67 Lakhs. The A.O held that the expense of Rs 27.24 Lakh was related to earning of exempt income and therefore made disallowance u/s 14A of Income Tax Act.

CIT(A) also confiremd the order of A.O . However, ITAT further increased the stress for  assessee by stating that the payment of brokerage was directly related to earning exempt income and A.O should have made further  disallowance u/s 14A of Income Tax Act s for indirect exepnse attributable to earning dividend income.

The Assessee approached Karnataka High court against the order of Tax Tribunal and raised following grounds : 

Whether the provisions of Section 14A of the Act are applicable to the expenses incurred by the assessee in the course of its business merely because the assessee is also having dividend income when there was no material brought to show that the assessee had incurred expenditure for earning dividend, income which is exempted from taxation?

Karnataka High Court held as

5. When no expenditure is incurred by the assessee, in earning the dividend income no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of the shares, which were purchased, are sold and the income derived therefrom is offered to tax as business income. The remaining 37% of the shares are retained. It has remained unsold with the assessee. It is those unsold shares have yielded dividend, for which, the assessee has not incurred any expenditure at all. Though the dividend income is exempted from payment of tax if any expenditure is incurred in earning the said income, the said expenditure also cannot be deducted. But in this case, when the assessee has not retained shares with the intention of earning dividend income and the dividend income is incidental to his business of sale of shares, which remained unsold by the assessee, it cannot be said that the expenditure incurred in acquiring the shares has to be apportioned to the extent of dividend income and that should be disallowed from deductions. In that view of the matter, the approach of the authorities is not in conformity with the statutory provisions contained under the Act. Therefore, the impugned orders are not sustainable and require to be set aside.  

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Thus , it is clear at that at least one High Court has come forward agreeing with the contention of the assessee that merely because shares are held by assessee , even if same is stock-in-trade – in which case the earning dividend income is not an intention, but incidental to business , the practice of dis-allowance  u/s 14A of  expenses on proportionate basis is not good law.

1 % TCS on Coal , Lignite & Iron Ore

Apart from the bullion and jewelry , Finance Bill 2012 ( Budget 2012-13 ) has proposed to impose the tax at source (TCS )  provision under Income Tax Act  on coal, lignite and iron ore trade . This is done by  inserting amendment in section 206C of the Income Tax Act . This budget 2012-13 proposal  is going to give a tool to the government to monitor the mineral trades in country which in recent past have seen many  scams.

Exception to TCS on Minerals

budgetCoal

The exception provided in the proposed Finance Bill  2012-13  amendment is that the TCS will not be applicable in certain circumstances like minerals are purchased by the buyer for personal consumption.

Budget 2012-13 also provides that TCS provision shall not be applicable if the buyer declares that these minerals are to be utilized for the purposes of manufacturing, processing or producing articles or things.

Portfolio Management Services : Business Income or Capital Gains?

Transactions through portfolio management services has the risk of falling in usual controversy of  Capital gains vs business income  under income tax law .As the rate of income tax on capital gains are much lower than business income , the issue is very important. Therefore,before one opts for ubiquitous portfolio management services ,one must carefully…

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Patna HC: Search Interrogation at 3 AM by Tax Depratment is Human Rights Violation

It is very common for the investigation wing to continue search for days in premise of the assesses and make interrogation of the tax payer in dead night . That is physically and psychologically humiliation for any tax payer whose premise is searched. Patna High Court in its order dated 2nd Feburary 2012 in Chief CIT…

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Deemed Dividend u/s 2(22)(e) in Hands of Firm Even if it is Not Registered Shareholder of Lender !

Section 2(22)(e )  of the Income Tax Act brings to tax as deemed dividend to certain payments made by a company  by way of advance or loan to a shareholder or  to payment to concerns in which shareholder holds substantial interest or any payment on behalf of a shareholder or  for the individual benefit of…

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