Seminar on the Finance Act, 2016

Transcription

1 Seminar on the Finance Act, 2016 CA Rajesh Kadakia organized by Bombay Chartered Accountants' Society (BCAS) Mumbai Friday, 1 st July, 2016

2 Synopsis Discontinuation of deduction under s. 35AC Exit tax on accreted income of certain charitable institutions Deduction in respect of profits and gains from housing projects (s. 80-IBA) Amendment to the definition of capital asset [s. 2(14)] Amendment to the definition of short term capital asset [s. 2(42A)] Capital gains upon transfer of Sovereign Gold Bonds under Sovereign Gold Bond Scheme, 2015 [s. 47(viic) & s. 48] Additional condition for exemption from capital gains upon conversion of a company into LLP [s. 47(xiiib)] Calculation of cost of acquisition of assets declared under the Income Declaration Scheme, 2016 (s. 49) Amendment to s. 50C Exemption to long term capital gains by reinvestment in units of a specified fund (s. 54EE) Taxation of certain capital gains in case of professionals (s. 55) 2

3 Discontinuation of deduction under s. 35AC Pre-amendment Expenditure by way of payment on approved project or scheme was deductible in full (s. 35AC). Amendment No deduction shall be available with effect from assessment year Analysis (a) No deduction even if approval has been granted beyond (b) CSR contributions under s. 135 of the Companies Act 2013 also will not be eligible to any deduction. (c) Deduction under s. 80G would continue to be available. (d) No similar amendment in s. 80GGA: Assessees not having business income can continue to claim a deduction under s. 80GGA. 3

4 Exit tax on accreted income of certain charitable institutions A new Chapter XII-EB containing s. 115TD to s. 115TF inserted with effect from 1 st June, Applies to a charitable institution registered under s. 12A / 12AA [s. 115TD(1) r.w. Explanation (iii) to s. 115TD]. Circumstances in which exit tax is payable 1. (a) The registration granted to a charitable institution under s. 12A / 12AA is cancelled and (b) (i) no appeal has been filed by the institution or (ii) the Tribunal has confirmed the cancellation 4

5 Exit tax on accreted income of certain charitable institutions (cont.) 2. (a) The institution has modified its objects such that they do not conform to the conditions of registration and (b) (i) it has not applied for fresh registration under s. 12AA; or (ii) its application for fresh registration under s. 12AA has been rejected and no appeal has been filed by the institution or the Tribunal has confirmed the rejection of application. 3. The institution is (a) merged with any entity and (b) (i) the entity does not have objects similar to it or (ii) the entity is not registered under s. 12A / 12AA. [s. 115TD(1)(b)] 5

6 Exit tax on accreted income of certain charitable institutions (cont.) 4. (a) The institution is dissolved and (b) it fails to transfer all its assets to a specified institution within 12 months from the end of the month in which the dissolution takes place. [s. 115TD(1)(c)] For this purpose, specified institution means an institution (i) registered under s. 12A / 12AA ; or (ii) referred to in s. 10(23C)(iv)/(v)/(vi)/(via). Consequences in above circumstances 1. the institution shall be charged to tax on the accreted income of the institution; 2. such tax shall be levied at the maximum marginal rate (including surcharge); 6

7 Exit tax on accreted income of certain charitable institutions (cont.) 3. such tax shall be paid within 14 days from the date mentioned in s. 115TD(5). 4.1 The tax on accreted income shall be treated as the final payment of tax in respect of the said income. 4.2 no further credit therefor shall be allowed. [s. 115TD(6)] 5. No deduction under any other provision shall be allowed to the institution or any other person in respect of the income charged under s. 115TD(1) or the tax thereon [s. 115TD(7)]. Irrelevant factor The tax on the accreted income shall be payable even if no income-tax is payable by the institution on its total income [see s. 115TD(1)]. 7

8 Exit tax on accreted income of certain charitable institutions (cont.) Accreted income (a) Accreted income means the aggregate FMV of the total assets of the institution less the total liability of such institution; (b) Such value shall be as on specified date ; (c) The value of assets and liabilities shall be computed in accordance with the method of valuation as may be prescribed. [s. 115TD(2)] 8

9 Exit tax on accreted income of certain charitable institutions (cont.) Exclusions to accreted income 1. General (in all circumstances) (a) Any asset acquired out of agricultural income (b) Any asset acquired between the date of creation of the institution and the date from which the registration under s. 12AA became effective, if the institution has not been allowed benefit of s. 11 / 12 during the said period: 2. For institutions which are dissolved Assets (and liabilities related to such assets) transferred to specified institution within the period of 12 months from the end of the month in which the dissolution takes place [Proviso to s. 115TD(2)]. 9

10 Exit tax on accreted income of certain charitable institutions (cont.) Date of valuation of assets and liabilities ( specified date ) and period within which payment is required to be paid Sr. No. Circumstances in which tax is payable Date of valuation of assets / liabilities (specified date) 1. Registration is cancelled Date of order cancelling the registration under s. 12AA and (a) no appeal has been filed by the institution; or (b) the Tribunal confirms the cancellation of registration Payment within 14 days from The last date for filing appeal Date of rectification of Tribunal order 10

11 Exit tax on accreted income of certain charitable institutions (cont.) Sr. No. Circumstances in which tax is payable 2. The institution has modified objects and it has - (a) not applied for fresh registration under s. 12AA; or (b) filed application for fresh registration under s. 12AA but the said application has been rejected and (i) no appeal has been filed by the institution or (ii) the Tribunal confirms the rejection of application Date of valuation of assets / liabilities (specified date) Date of adoption or modification of any object Date of adoption or modification of any object Payment within 14 days from End of the previous year Last date for filing appeal Date of rectification of Tribunal order 11

12 Exit tax on accreted income of certain charitable institutions (cont.) Sr. No. Circumstances in which tax is payable Date of valuation of assets / liabilities (specified date) Date of merger Payment within 14 days from 3. The institution is merged with any entity Date of merger 4. The institution is dissolved Date of dissolution Date on which period of 12 months (at the end of the month in which dissolution took place) expires 12

13 Exit tax on accreted income of certain charitable institutions (cont.) Consequences of failure to pay Principal Officer or the trustee of the institution and the institution itself shall be (a) deemed to be an assessee in default in respect of the amount of tax payable; (b) liable to pay simple 1% per month. [s. 115TE / s. 115TF(1)] In case of dissolution, a person (other than specified institution) to whom any asset has been transferred shall also be deemed to be an assessee in default in respect of such tax. Such liability is to the extent to which the asset received is capable of meeting the liability. 13

14 Exit tax on accreted income of certain charitable institutions (cont.) Analysis 1. Provision applicable to all charitable institutions irrespective of (a) activity / objects (e.g. religious institutions, hospitals, schools, colleges, those for relief of poor, etc.) (b) when established 2. S. 115TD does not apply to mere revocation of approval under s. 10(23C)(iv) to (via) However, applicable to such institutions who have obtained registration under s. 12A / 12AA. 3. Return of income for normal total income is required to be filed 14

15 Exit tax on accreted income of certain charitable institutions (cont.) 4. No provision for (a) return of income. (b) payment of advance tax. (c) hearing. (d) assessment. (e) rectification. (f) issue of any order by the Assessing Authority. (g) issuing a notice on demand. (h) who is to finally determine the correctness of the amount. (i) refund of accreted tax paid. (j) appeal. (k) stay application and grant of stay. (l) giving opportunity of being heard to the assessee. Thus, the provision has virtually bypassed the entire Income-tax Act and singled out charitable institutions. 15

16 Exit tax on accreted income of certain charitable institutions (cont.) 5. All types of assets (barring two specified exceptions) are liable to tax irrespective of (a) period of holding (b) cost (c) source: (i) assets acquired out of non-agricultural income, which is exempt from tax (eg. dividend income, etc.); (ii) assets acquired out of the basic accumulation of 15% of income; (iii) assets acquired out of bequests; (iv) assets acquired out of income below exemption limit; (v) assets representing corpus or out of corpus donations; (vi) assets accumulated under s. 11(2); (vii) agricultural land; (viii) assets acquired out of income taxed upon application of first proviso to s. 2(15); (ix) assets taxed since 85% of income not applied; (x) assets accumulated under s. 11(2) but taxed under s. 11(3); (xi) assets acquired out of business income on which tax is paid under s. 11(4A); (xii) Assets acquired out of income taxed on account of application of s

17 Exit tax on accreted income of certain charitable institutions (cont.) (d) nature: land, building, shares, jewellery, etc. (e) purpose: investments, assets held for charitable purpose, e.g. loans to poor, cows in gaushala, etc. (f) class / category: fixed assets, stock-in-trade Thus, the provision results in taxation of amounts which ought not be taxed or which are already subject to tax. 6. Whether Chapter XII-EB applicable to cancellation (say, on 30 th June 2016) before the valuation rules are prescribed? 7. Capital gains tax on subsequent sale whether leviable? An asset is considered while calculating accreted income and tax on such accreted income is paid by the trust. The said asset is subsequently sold by the trust. Will the trust have to again pay capital gain tax on such transfer? 17

18 Exit tax on accreted income of certain charitable institutions (cont.) 8. Tax under third proviso to s. 10(23C) or s. 11(2) likely. 9. Restrictions under FCRA? Restrictions under specific grants? 10. No power to AO to grant immunity. 11. Constitutional validity: (a) No amendment to definition of income in s. 2(24) to deem accreted income as income. (b) No accrual or arising or receipt of income within the meaning of s. 5. (c) No provision for refund under s (d) Taxation without any transaction. 18

19 Exit tax on accreted income of certain charitable institutions (cont.) (e) Provision results in taxation of amounts which ought not be taxed or income which is already taxed. (f) Results in retrospective taxation on assets. (g) S. 115TD(1) states that the accreted income shall be charged to tax. (i) Tax means income tax chargeable under the provisions of the Act [s. 2(43)]. (ii) S. 115TD(6) and (7) also refer to income. Thus, the tax on accreted income is clearly purported to be a tax on income. (iii) Is the tax on accreted income covered under Entry 82 in List 1 of the Seventh Schedule to the Constitution of India? The word income should be construed liberally and in a very wide manner and the power to legislate will take in all incidental and ancillary matters, including the authorisation of to make provision to prevent evasion of tax, in any suitable manner [UOI v. A. Sanyasi Rao, (1996) 219 ITR 330 (SC)]; 19

20 Exit tax on accreted income of certain charitable institutions (cont.) However, the doctrine of liberal interpretation does not mean that Parliament can choose to tax as income an item which is no rational sense can be regarded as a citizen s income [Navnit Lal C. Javeri v. ITC, (1965) 56 ITR 198 (SC)]; Tax on property cannot be levied as income-tax [Chelmsford Club v. CIT, (2000) 243 ITR 89 (SC)]. Tax on accreted income is tax on market value of assets without reduction of cost of acquisition! (h) No provision for any hearing or following principles of natural justice. Observance of principles of natural justice is sine qua non for any valid legislation [C. B. Gautam v. UOI, (1992) 65 Taxman 440 (SC)]. (i) Entire scheme of taxation bypassed (see KTM Nair v. The State of Kerala, AIR 1961 SC 552). 20

21 Exit tax on accreted income of certain charitable institutions (cont.) (j) Reading down the provision? 12. CBDT Circular No. 21 / 2016 [Cancellation process to be initiated strictly in accordance with section 12AA(3) and 12AA(4) after carefully examining the applicability of these provisions]. Way forward: Utmost care in managing trusts, especially s

22 Deduction in respect of profits and gains from housing projects (s. 80-IBA) 1. A new deduction introduced with effect from assessment year Deduction allowable only if all the following conditions are satisfied- (a) The assessee is in the business of developing and building housing projects. Housing project means a project consisting predominantly of residential units with such other facilities and amenities as the competent authority may approve subject to the provisions of the section [s. 80-IBA(6)(d)]. (b) The gross total income of the assessee includes profits and gains derived from the aforesaid business. (c) The housing project is approved by a competent authority, that is, the authority empowered to approve building plan by or under any law for the time being in force [s. 80-IBA(6)(b)]. 22

23 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) (d) The competent authority approves the project after , but on or before [s. 80-IBA(2)(a)]. Where housing project approved more than once the project deemed to be approved on the date on which the building plan of the housing project was first approved by the competent authority [proviso (i) to s. 80-IBA(2)(a)]. (e) The project is completed within 3 years from the date of approval by the competent authority [s. 80-IBA(2)(b)]. Project deemed to be completed : when a certificate of completion of project as a whole is obtained in writing from the competent authority [proviso (ii) to s. 80-IBA(2)(a)]. 23

24 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) (f) The built-up area of the shops / other commercial establishments included in the housing project does not exceed 3% of the aggregate built-up area [s. 80-IBA(2)(c)]. (g) The area of the plot of land on which the project is situated is as follows: Sr. No. Location of project Area 1. within Chennai, Delhi, Kolkata or Mumbai > 1000 sq. mtrs. 2. within the distance of 25 kms. from the municipal >1000 sq. mtrs. limits of the cities in 1 above (measured aerially) 3. any place other than those listed in 1. and 2. above > 2000 sq. mtrs. [s. 80-IBA(2)(d)] (h) The project is the only housing project on such plot of land as specified in (g) above [s. 80-IBA(2)(da)]. 24

25 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) (i) The built up area of residential units comprised in the housing project does not exceed the following area Sr. Size of Location of project No. residential unit 1. within Chennai, Delhi, Kolkata or Mumbai < 30 sq. mtrs. 2. within the distance of 25 kms. from the municipal < 30 sq. mtrs. limits of the cities referred to in 1 above (measured aerially) 3. any place other than those listed in 1 & 2 above < 60 sq. mtrs. [s. 80-IBA(2)(e)] Built-up area means (i) the inner measurements of the residential unit including projections and balconies, plus (ii) thickness of the walls, but does not include common areas or open terrace shared with other residential units, [s. 80-IBA(6)(a)]. 25

26 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) A residential unit is a unit which satisfies the following conditions: (i) it is an independent housing unit; (ii) it has separate facilities for living, cooking and sanitary requirements; (iii) it is distinctly separated from other residential units within the building; (iv) it is directly accessible from an outer door or through an interior door in a shared hall way; (v) for accessing it, it is not necessary to walk through the living space of another household. [s. 80-IBA(6)(e)] (j) Only one residential unit in the housing project is allotted to an individual, or his spouse or the minor children [s. 80-IBA(2)(f)]. 26

27 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) (k) The project utilises at least following percentage of floor area ratio (s. 80-IBA(2)(g): Sr. No. Location of project Utilisation 1. within the cities of Chennai, Delhi, Kolkata or Mumbai > 90% of permissible floor area ratio 2. within the distance of 25 kms. from the municipal limits of the cities referred to in > 90% of permissible floor area ratio 1 above (measured aerially) 3. any place other than those listed in 1 and 2 above > 80% of floor area ratio Floor area ratio = the total covered area of plinth area on all the floors the area of the plot of land [s. 80-IBA(6)(c)]. For Sr. Nos. 1 and 2, utilisation should be of floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government / State Government / local authority, as the case may be. For Sr. No. 3, that is, project at other places, no such restriction is placed. 27

28 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) (l) The assessee maintains separate books of account in respect of the housing project [s. 80-IBA(2)(h)]. (m) The assessee is not an undertaking which executes the housing project as a works contract awarded by any person (including the Central Government or the State Government) [s. 80-IBA(3)]. Quantum of deduction An amount equal to 100% of the profits and gains derived from such business. Consequence of non-completion of housing project within statutory period Deduction allowed in preceding previous years, shall be taxed as business income of the previous year in which the statutory period for completion expires [s. 80-IBA(4)]. 28

29 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) Issues / analysis 1. S. 80-IB(10) v. s. 80-IBA 2. Deduction available to all assessees 3. Assessee need not be owner of land (a) CIT v. Radhe Developers, (2012) 341 ITR 403 (Guj) (SLP dismissed) [Though approval for development of a housing project was not granted to assesseedeveloper but to land-owner and rights and obligations under said approval were not transferable, and transfer of dwelling units in favour of end users was made by landowner and not by assessee, assessee was entitled to deduction under s. 80-IB(10)] (b) CIT v. Subba Reddy (HUF), (2015) 56 taxmann.com 204 (Mad) (c) DCIT v. Sobha Developers, (2015) 58 taxmann.com 107 (Bang Trib); 29

30 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) 4. Deduction available on profits and gains derived from the business of developing and building housing project. cf. profits and gains derived from housing project in s. 80IB(10). Expression in s. 80IBA is wider on account of the use of the expression business [See ACIT v. Kunal Printers Ltd., (2005) 2 SOT 414 (Ahd); see Kumarakom Lake Resort Pvt. Ltd. v. ACIT, ITA No / Coch/2015; see Jindal Drugs Ltd. v. ACIT, ITA Nos. 2592, 4342 of 2008 decided on ]. 5. Profits and gains derived from the business of housing project would include the profits from the shop and commercial establishment portion of the project [see CIT v. Brahma Associates, (2011) 9 taxmann.com 289/333 ITR 289 (Bom); CIT v. Sarkar Builders, (2015) 375 ITR 392 (SC)]. 6. Common overheads incurred for qualifying projects and other projects to be allocated [DCIT v. Sobha Developers, (2015) 58 taxmann.com 107 (Bang Trib)]. 30

31 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) 7. Expenditure not allowable under s. 40(a)(ia) for non-deduction of tax at source. Deduction under 80IBA to be allowed on increased profits [See ITO v. Keval Construction, (2013) 33 taxmann.com 277 (Guj); CIT v. Sunil Vishwambharnath Tiwari, (2015) 63 taxmann.com 241 (Bom)]. 8. Deduction to an assessee following percentage completion method to be granted simultaneously [see CBDT Instruction No. 4 of 2009, dated ; Kura Homes (P.) Ltd. v. ITO, (2012) 26 taxmann.com 150 (Hyd Trib); DCIT v. SMR Builders (P.) Ltd., (2012) 24 taxmann.com 194 (Hyd Trib)]. 9. Whether normal approval from the local authority for undertaking the project is sufficient or whether a separate approval from the same authority is again required for the purposes of s. 80IBA? 31

32 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) 10. Certificate of completion required for project as a whole. 11. Application for certification of completion of project made within the period of 3 years but the competent authority delays the issue of certificate. Delay is not attributable to the assessee. Whether assessee eligible for deduction? [CIT v. Hindustan Samuh Awas Ltd., (2015) 377 ITR 150 (Bom); CIT v. Tarnetar Corporation, (2012) 26 taxmann.com 180 (Guj)]. 12. Built-up area Car park area would not form part of built up area [see CIT v. Subba Reddy (HUF), (2015) 56 taxmann.com 204 (Mad)]. 32

33 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) 13. Percentage of residential units and area of each residential unit: For units sold before completion, satisfaction of conditions has to be ensured at the time of completion of the project and not thereafter: (a) Any subsequent use by an end user for non-residential purposes could not change nature of residential units to commercial establishments [See Smt. Manju Gupta v. ACIT, (2011) 15 taxmann.com 287 (Mum Trib)]. (b) If after issue of completion certificate, the owners alter the area or merge the flats, it could not be said that the assessee had contravened the requirement [CIT v. G. R. Developers, (2012) 22 taxmann.com 265 (Kar); Baba Promoters & Developers v. ITO, (2012) 25 taxmann.com 84 (Pune Trib)]. For units sold subsequently, conditions to be satisfied till the date of sale. 14. Restriction on allotment of one unit to family members is (a) not applicable to subsequent transfers; (b) applicable to all units including those sold much after completion of project. 33

34 Deduction in respect of profits and gains from housing projects (s. 80-IBA) (cont.) 15. Floor Area Ratio is not concerned with FSI, TDR, etc. 16. Consequences of non-fulfilment of conditions other than completion AO may not grant a deduction under this section in the relevant assessment year and also withdraw the deduction already granted. 17. Partial default - whether proportionate deduction available? 18. Assessee will be liable to Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT) 34

35 Amendment to the definition of capital asset [s. 2(14)] Capital asset excludes Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government [s. 2(14)(vi)]. 35

36 Amendment to the definition of short term capital asset [s. 2(42A)] Unlisted shares will be a short term capital asset if held by the assessee for not more than 24 months. 36

37 Capital gains upon transfer of Sovereign Gold Bonds under Sovereign Gold Bond Scheme, 2015 [s. 47(viic) & s. 48] Transfer of SGBs shall not be regarded as transfer for the purposes of s. 47 if the transfer is (a) by way of redemption at maturity (b) by an individual In other cases, SGB shall qualify for indexation benefits [clause (b) of third proviso to s. 48]. Tabulating Sr. No. Holder of SGB Transfer before redemption 1. Individual (a) Original holder (b) Transferee Taxable Taxable Upon redemption Exempt Exempt 2. Non-individual Taxable Taxable 37

38 Additional condition for exemption from capital gains upon conversion of a company into LLP [s. 47(xiiib)] Conversion of a private limited or unlisted public company into LLP shall not be regarded as transfer if certain conditions are fulfilled [s. 47(xiiib)] Amendment The total value of assets as appearing in the books of account of the company in any of the 3 previous years preceding the previous year in which the conversion takes place should not exceed Rs.5 crores [Proviso (ea) to s. 47 (xiiib)]. Illustration If the conversion happens in previous year , then, the total value of assets as appearing in the books of account should not exceed Rs.5 crores in previous years , and Issue Book value or market value of assets to be considered? 38

39 Calculation of cost of acquisition of assets declared under the Income Declaration Scheme, 2016 (s. 49) Preconditions for applicability (a) Asset is declared under the Income Declaration Scheme, 2016 ; (b) tax, surcharge and penalty has been paid in accordance with the provisions of the scheme on the FMV of such asset. Consequence : Cost of acquisition of asset = FMV of the asset which has been taken into account for purposes of said scheme 39

40 Amendment to s. 50C Pre-amendment 1. Stamp duty value adopted / assessed by stamp authority to be deemed as consideration. 2. No express relief even where the seller had entered into an agreement to sell the asset before the actual date of transfer of the immovable property and the sale consideration had been fixed in such an agreement. 3. Tribunal divided on issue : (a) Lahiri Promoters v. ACIT, ITA No. 12/Vizag/2009, dt and ITO v. Modipon Ltd., 92015) 57 taxmann.com 360 (Del Trib) [stamp duty value on date of agreement to sell relevant] (b) Heilgers Development & Const. Co. (P) Ltd. v. DCIT, (2013) 32 taxmann.com 147 (Kol Trib) [stamp duty value on the date of conveyance is relevant] 40

41 Amendment to s. 50C (cont.) Amendment Preconditions for applicability (a) The date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same. (b) the full or part amount of consideration has been paid by (i) an account payee cheque; or (ii) an account payee bank draft; or (iii) use of electronic clearing system through a bank account; and (c) the aforesaid consideration has been paid on or before the date of the agreement for the transfer of such immovable property. Consequence The stamp duty value on the date of the agreement = full value of consideration for capital gains (and not stamp duty value adopted by stamp authority). 41

42 Amendment to s. 50C (cont.) Analysis Whether provisos applicable? Non monetary consideration or by cash or by journal entry? Quantum of consideration is very low? Past period before assessment year ? Three views: (a) The provisos have retrospective effect. (b) The provisos do not have any retrospective effect and the benefit of taking stamp duty value as on date of agreement was not available to the assessee. (c) The provisos do not have retrospective effect but the Tribunal in Lahiri Promoters and Modipon Ltd., has laid down the correct law. 42

43 Exemption to long term capital gains by reinvestment in units of a specified fund (s. 54EE) Conditions for applicability The section is applicable if ALL the following conditions are satisfied: (a) The assessee has earned capital gains. (b) Such capital gains have arisen from the transfer of a long term capital asset. (c) The assessee has invested the whole or any part of the capital gain in a long term specified asset, that is, (i) units of a fund; (ii) the fund is notified by the Central Government in this behalf; and (iii) the units are issued before (d) The investment has been made within a period of 6 months after the date of transfer. (e) The total investment in the long-term specified asset during any financial year does not exceed Rs. 50 lakhs. (f) In respect of a particular capital gains, the investment in the long-term specified asset during the financial year in which the original asset is transferred and in the subsequent financial year does not exceed Rs. 50 lakhs. 43

44 Exemption to long term capital gains by reinvestment in units of a specified fund (s. 54EE) (cont.) Quantum of exemption Sr. Cost of long term specified No. assets Exemption 1. Not less than the capital gains Whole of such capital gains 2. Less than the capital gains To the extent of cost of acquisition of the long term specified asset Withdrawal of exemption The long term specified asset cannot be transferred by the assessee at any time within a period of three years from the date of its acquisition. Loan or advance on the security of such specified asset, shall be deemed to be a transfer. If transferred, the amount of capital gains originally treated as exempt shall be taxed as long term capital gains in the previous year in which the specified asset is transferred. 44

45 Exemption to long term capital gains by reinvestment in units of a specified fund (s. 54EE) (cont.) Amounts to be invested out of capital gains : is direct nexus between capital gains and investment required? (a) See CIT v. Ramesh Chandra Khandelwal, (2005) 273 ITR 363 (All); Raj Kumar Dewan & Sons v. CIT, (2005) 277 ITR 561 (All); CIT v. Vidya Sagar Dewan & Sons, (2005) 147 Taxman 35 (All)] (in the context of s. 80C) (b) CBDT Circular under s. 87 Simultaneous exemption under s. 54EE & s. 54 etc. whether available? (a) ACIT v. Deepak S. Bheda, (2012) 23 taxmann.com 159 (Mum Trib) [s. 54 & s. 54EC] (b) Kogani Venkata Ramaiah v. ACIT, (2015) 56 taxmann.com 88 (Visakha Trib) [s.54b & s. 54F] 45

46 Taxation of certain capital gains in case of professionals (s. 55) Cost of acquisition (COA) and cost of improvement (COI) explained in s. 55. Amendment In relation to the right to carry on a profession (a) COA = NIL [s. 55(2)(a)] (b) COI = NIL [s. 55(1)(b)] Issue Whether goodwill of professional firm taxable? (a) Goodwill of profession not mentioned in s. 55 (b) CBDT Circular No. 495 dt (para 28.3) 46