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A N Shanbhag
I have purchased some shares through a bank loan. I used to set off the interest paid to the bank against the dividend income. Now that the dividend has become tax-free, can I continue to do so and claim the loss every year?
-- M Tarakunde, Mumbai
It is a well-accepted tenet of legislation that expenses incurred to earn an income can be set off against the income. Where there is no income, no set-off is possible. The dividend on shares of domestic companies enjoys exemption under Section 10(33) and, therefore prima facie, it is not an income at all. However, the capital gains earned by you as and when you sell these shares is definitely an income.
Hence, I strongly feel that you should be allowed to add the interest to the cost of acquisition. It would be an extremely difficult, but not impossible, exercise to compute the indexed costs of the interests paid annually. The exercise will be more confounded if you have purchased several scrips and sold partially. The possibility of your ITOcontesting this stand does exist and you will have to fight it out with him or go into appeals.
Using interest as part of the cost of acquisition is acceptable to the IT department. For instance, page 10 of chapter II of the booklet (Taxpayers Information Series-3), How to Compute Your Capital Gains (1995), published by the Directorate of Income Tax, New Delhi, states, ``Any expenditure incurred in connection with such a purchase, for instance, brokerage paid, registration charges or legal expenses is added to price or value or consideration for the acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset (housing property) is also part of its cost of acquisition.''
I personally feel that the Directorate has erred in giving this opinion. There are separate provisions in the Act that specify the deductibility of interest paid on monies borrowed for purchase of a house property.
I came to USA in March 1998, and I plan to go back in May 1999. So I will be treated as an NRI forthe financial year, 1997-98. In May 1998, I entered into a partnership with an Indian resident. Together, we did some software export to the United States in July and export consideration was realised in India in convertible foreign currency, i.e. in US dollars through the proper banking channels in August 1998. My Indian resident partner had taken the RBI export/import code in April 1998 in his proprietorship firm in which we did software export. I joined the firm only in May 1998. The further bank account is being operated by the Indian partner only. Our partnership is duly supported by a partnership deed. Other conditions like getting export consideration within time limit, CA certificate, etc., are being met. Can I also claim deduction under Section 80 HHE for my share of profit? Or will it be treated as my taxable income? If not, is the deduction under Section 80 HHE also allowed for the individual providing support services to the main software exporter, as it is allowed to a supportmanufacturer?
-- Rakesh Garg, Georgia, USA
I am afraid, you are mixing up your two distinct identities as an individual (non-resident) and a partner in the firm (resident). Then again, your partner has two identities, one as an individual having a proprietorship business (not a firm as mentioned by you) and the other as your partner in a firm. From the facts presented by you, I feel that you may face problems because (i) your partner has the RBI export/import code in his capacity as a proprietor and it is not clear whether he is crediting the export proceeds to the bank account of his proprietorship concern or a separate account of the firm in which you are a partner.
In the former case, I think he is cheating you. In the latter case, the firm is entitled to the concessions, (hopefully, because the licence belongs to the proprietor). Once the firm has paid tax on its income (or not paid it because it is deductible), any distribution of the assets, as defined by the partnership deed, is not taxablein the hands of the partners. This concession is available only to resident persons. You are a non-resident individual, but a partner of a resident firm. You are not entitled even as a supporter in your individual capacity. The idea of using a firm is excellent, but I am afraid it lacks some fine finishing touches.
About your query regarding supporting services, you should have specified clearly what supporting services you have in mind. The benefit is available to a person `resident in India' (including partnership firms) engaged in export of software and providing related technical services outside India.
This deduction is also allowed to a supporting software developer who is a person `resident in India', developing and selling computer software to an exporting company for export of software.
I wish you had contacted me before signing the partnership deed. All said and done, it does appear that the CA of your partner is very knowledgeable and, your partner willing, he can manage to pass on thebenefit to you, which you deserve.
During the last 12 years, my minor son (now 13) has received the following income:
(a) From acting in TV serials
(b) Prize won on Maharashtra State Lottery ticket, which his classmate had presented him on his birthday
(c) Gifts made to him on different occasions such as birthday, thread-ceremony, good examination results
(d) Interests/dividends earned on investments made from the income mentioned above in his name
There was no cash contribution from his parents. Initially, he was an independent assessee, but now his income is being clubbed in my hands for income tax purposes. Is the income of the type `d', i.e. interest/dividends earned on his investments, required to be clubbed in my hands and taxed accordingly, or can this be treated as his income?
-- Sangita Nayak, Mumbai
The entire income of a minor child is to be clubbed in the hands of that parent who has more income than the other. Therefore, even the interest on the interest gets clubbed.It is only in the case of gifts to spouses and daughters-in-law that the interest on the original corpus is clubbed.
Therefore, interest on interest escapes the clubbing. You may note that the clubbing provision will not apply in the case of a minor child earning income by way of manual work done by him or an activity involving application of his skill, talent or specialised knowledge and experience.
Again, you can claim basic exemption of Rs 1,500 per child in respect of the clubbed income. Therefore, his income earned from acting in TV serials would be assessed in his own hands.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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