COST OF INFLATION INDEX FOR CAPITAL GAIN CALCULATION YEAR 2014-15 : CII 1024

Central Government has issued the Notification for Cost of Inflation Index for capital gain calculation for financial year 2014-15 is 1024.

Notification No. 31/2014/F.No.142/3/2014-TPL: S.O. 1498(E)- In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (42 of 1961), the Central Government hereby  makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes published in the Gazette of India, Extraordinary, vide number S.O. 709(E), dated the 20th August, 1998, namely:-

2. In the said notification, in the Table, after serial number 33 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-

S.NoFinancial YearCost Inflation Index
342014-151024

Income Tax Treatment of Dividend by Mutual Fund & Redemption of Mutual Fund Unit

CBDT has issued the circular clarify the tax treatment on Income distributed by Mutual Funds as dividend and Payment made on Redemption/Repurchase of Mutual Fund units.

For Mutual Fund Companies: They had to pay dividend distribution tax on income distributed as dividend under section 115R.In case of redemption/repurchase any payment made by Mutual Fund Companies will be taxed in hands of receiver as capital gain.

For Mutual Fund Investors:  the income so distributed by the mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under section 10(35)of the Act. But in case of transfer of mutual fund units the recipient of such income is liable to pay capital gains tax.

CIRCULAR NO. 6/2014 [F. No. 225/182/2013-ITA.II] Dated: February 11, 2014

Circular clarifying the scope of additional income tax on distributed income u/s 115R

Subject: – Clarification regarding scope of additional income-tax on distributed income under section 115R of the Income-tax Act -regarding.

Section 115R of the Income-tax Act, 1961 (‘Act’) provides for levy of additional income-tax on distributed income to unit holders (hereinafter referred to as ‘additional income-tax’).

2. It has been reported that some field authorities are taking a view that mutual funds/specified companies are required to pay additional income tax under sub-section (2) to section 115R of the Act not only on income distributed by way of dividend but also on payments made at the time of redemption/repurchase of units as well as at the time of allotment of bonus units to existing investors.

3. The matter has been examined by the Board. Section 115R is placed under Chapter XII-E of the Act, which is titled as “SPECIFIC PROVISIONS RELATING TO TAX ON DISTRIBUTED INCOME” and prescribes special provisions for taxing ‘distributed income’, which is not taxed under any other provisions of the Act.

4. Sub-section (2) of section 115R of the Act provides that any amount of income distributed by (i) a specified company, or (ii) a mutual fund to its unit holders shall be chargeable to tax and such entities shall be liable to pay additional income tax on such distributed income at the rates prescribed therein. The income so distributed by such entities is the dividend paid to the unit holders and is liable to tax under this section. However, redemption of units or repurchase of units would not attract levy of tax under sub-section (2) to section 115R of the Act as such income is not of the nature of income ‘distributed to the unit holders and hence lies outside the purview of this section.

5. Further, the income so distributed by the mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under section 10(35)of the Act. Proviso to section 10(35) of the Act stipulates that exemption of income under this section is not applicable to those cases where transfer of units takes place. The recipient of such income is liable to pay capital gains tax, if applicable, on transfer of such units as per relevant provisions of the Act and shall not be subject to additional income tax under section 115R of the Act.

6. Similarly, bonus units at the time of issue would not be subjected to additional income tax under section 115R of the Act since issue of bonus units is not akin to distribution of income by way of dividend. This may be inferred from provisions of section 55 of the Act which prescribes that ‘cost of acquisition’ of bonus units shall be treated as nil for purposes of computation of capital gains tax.

7. In view of above position, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that additional income-tax under sub-section (2) of section 115R of the Act is to be levied on income distributed by way of dividend to unitholders of mutual funds or specified companies and receipts from redemption/repurchase of units or allotment of additional units by way of bonus units would not be subjected to levy of additional income tax under that section.

8. This may be brought to the notice of all concerned.

Depreciation on Goodwill and Goodwill is treated as asset under section 32 of the Income Tax Act, 1961

Can assessee claim the depreciation on Goodwill or Can Goodwill is treated as asset under section 32 of the Income Tax Act, 1961.Supreme court in case of Commissioner of Income Tax, Kolkata Vs. Smifs Securities Ltd. has decided that goodwill arising post the amalgamation of two companies will be treated as Intangible asset under section 32 of Income Tax Act, 196. since one of the basic condition for finding the value of asset is “What’s the consideration paid for that asset”, So in given case assessee has taken assets & liability of other entity and issued the shares and in this whole process goodwill has arisen in the books of the company. Further explained by assessee that excess consideration paid by the assessee over the value of net assets acquired should be considered as goodwill arising on amalgamation. The assessee Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee Company stood increased. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele

  As per Explanation 3 to Section 32(1) of the Act:

  • “Explanation 3.– For the purposes of this sub-section, the expressions `assets’ and `block of assets’ shall mean– [a] tangible assets, being buildings, machinery, plant or furniture;
  • [b] intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.”

Explanation 3 states that the expression `asset’ shall mean an intangible asset, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. A reading the words ‘any other business or commercial rights of similar nature‘ in clause (b) of Explanation 3 indicates that goodwill would fall under the expression `any other business or commercial right of a similar nature’. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b).

In the circumstances, we are of the view that `Goodwill’ is an asset under Explanation 3(b) to Section 32(1) of the Act.

 

Petition(s) for Special Leave to Appeal (Civil) No(s).35600/2009
(From the judgement and order dated 19/02/2008 in ITA No.642/2007
of The HIGH COURT OF CALCUTTA)
C.I.T., KOLKATA                                   Petitioner(s)
                 VERSUS
SMIFS SECURITIES LTD.                             Respondent(s)
(With prayer for interim relief and office report)
[For Final Disposal]
Date: 22/08/2012  This Petition was called on for hearing today.
CORAM :
        HON'BLE THE CHIEF JUSTICE
        HON'BLE MR. JUSTICE MADAN B. LOKUR
For Petitioner(s) Mr. A.S. Chandhiok,ASG.
                          Mr. R.P. Bhatt,Sr.Adv.
                          Mr. Gurpreet S. Parwanda,Adv.
                          Mr. Rahul Kaushik,Adv.
                          Ms. Sonia Mathur,Adv.
                          Ms. Anil Katiyar,Adv.
                          for Mr. B.V. Balaram Das,Adv.
For Respondent(s) Mr. Partha Sil,Adv. (N/P)
           UPON hearing counsel the Court made the following
                               O R D E R
                  None appears for the respondent, though served.
                  Heard learned counsel for the Department.
                  Leave granted.
                  The civil appeal filed by the Department stands dismissed
        with no order as to costs.
             [ T.I. Rajput ]                    [ Indu Satija ]
             A.R.-cum-P.S.                      Court Master
                  [Signed order is placed on the file]
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO.5961 OF 2012
                (Arising out of S.L.P. (C) No.35600 of 2009)
   Commissioner of Income Tax, Kolkata      ...Appellant(s)
                                   Versus
   Smifs Securities Ltd.          ...Respondent(s)
                                O  R  D  E  R
 None appears for the respondent, though served.
 Heard learned counsel for the Department.
Leave granted.
This civil appeal concerns the Assessment Year  2003-2004.
Three questions arise for determination by this Court.  They are as follows:
   Question No.[a]:
     "Whether Stock Exchange Membership Cards are assets eligible for depreciation under Section 32 of the Income Tax Act,1961? Whether, on the  facts and in  the  circumstances  of  the  case, deletion of Rs.53,84,766/- has been made correctly?"
   Answer:
         Learned Additional Solicitor General fairly concedes that the said question is covered by the decision of this Court in the case of  Techno shares and Stocks Limited vs. Commissioner of Income  Tax,reported in [2010] 327 I.T.R. 323, in favour of the assessee.
   Question No.[b]:
         "Whether goodwill is an asset within the meaning of Section 32  of the Income Tax Act, 1961, and whether depreciation  on  `goodwill'is allowable under the said Section?"
   Answer:
         In the  present  case,  the  assessee  had  claimed  deduction of Rs.54,85,430/- as depreciation on goodwill.  In the course  of hearing,the explanation regarding origin of such goodwill was given as under:
  "In accordance with Scheme of Amalgamation of YSN Shares & Securities (P) Ltd with Smifs Securities Ltd (duly  sanctioned  by Hon'ble High Courts of Bombay  and  Calcutta)  with  retrospective efect from 1st April, 1998, assets and liabilities of YSN Shares & Securities (P) Ltd were transferred to and vest  in  the  company.
         In the process goodwill has arisen in the books of the company."
         It was further explained that  excess  consideration  paid  by  the assessee over the value  of  net  assets  acquired  of  YSN  Shares  and Securities Private Limited [Amalgamating Company] should  be  considered as goodwill arising on amalgamation.  It  was  claimed  that  the  extra consideration was paid towards the  reputation  which  the  Amalgamating Company was enjoying in order to retain its existing clientele.
         The Assessing Officer held that goodwill was not an asset  falling under Explanation 3 to Section 32(1) of the Income Tax Act, 1961 [`Act',for short].
         We quote hereinbelow Explanation 3 to Section 32(1) of the Act: "Explanation 3.--  For  the  purposes  of  this  sub-section,  the expressions `assets' and `block of assets' shall mean--
[a]  tangible  assets,  being  buildings,  machinery,   plant   or furniture;
         [b]  intangible  assets,  being  know-how,  patents,   copyrights, trademarks,  licences,  franchises  or  any  other   business   or commercial rights of similar nature."
Explanation 3 states that the expression  `asset'  shall  mean  an
intangible asset, being  know-how,  patents,  copyrights,  trademarks, licences, franchises or any  other  business  or  commercialrights of similar nature.  A reading the words `any other business or commercial rights of similar nature' in clause (b) of Explanation 3 indicates  that goodwill  would  fall  under  the  expression  `any  other  business  or commercial right of a similar nature'.The principle of ejusdem generis would strictly apply while interpreting the said expression which  finds place in Explanation 3(b).
In the circumstances, we are of the  view that `Goodwill'  is  an asset under Explanation 3(b) to Section 32(1) of the Act.
One more aspect needs to be highlighted. In the present case,  the Assessing Officer, as a matter of fact, came to the conclusion  that  no amount was actually paid on account of  goodwill.   This  is  a  factual finding.  The Commissioner of Income Tax (Appeals) [`CIT(A)', for short] has come to the conclusion that the authorised representatives had filed copies of the Orders of the High  Court  ordering  amalgamation  of  the above two Companies; that the assets and liabilities of M/s. YSN  Shares and Securities Private Limited were transferred to the  assessee  for  a consideration; that the difference between the cost of an asset and  the amount paid constituted goodwill and that the  assessee-Company  in  the process of amalgamation had acquired a capital  right  in  the  form  of goodwill  because of  which the  market  worth of the
   assessee-Company stood increased.  This finding has also been upheld  by Income Tax Appellate Tribunal [`ITAT', for short]. We see no  reason  to interfere with the factual finding.
One more aspect which needs to be mentioned is  that,  against  the decision of ITAT, the Revenue had preferred an appeal to the High  Courtin which it had raised only the question as to whether  goodwill  is  an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not  file  an  appealon  the  finding  of  fact referred to hereinabove.
For the afore-stated reasons, we answer Question  No.[b]  also  infavour of the assessee.
   Question No.[c]:
         The  last  question  raised  in  this  civil  appeal  is  regarding cancellation of disallowance of an amount of  Rs.83,02,976/-  as  a  bad debt.
   Answer:
         It has been stated on behalf of the Revenue that,  since  the  Tax Audit Report indicated the amount  to  have  been  incurred  on  capital account, the assessee was not entitled to deduction on  account  of  bad debt  Both the CIT(A) as well as the ITAT concluded  that  the  assessee has satisfied the provisions of Section 36(1)(vii)  of  the  Act. They have held that bad debt claimed by the  assessee  was  incurred  in  the normal course of business and, therefore, the assessee was  entitled  to deduction under Section 36(1)(vii) of the Act.  It is  well-settled  now by a catena of decisions that the manner in which the assessee maintains its accounts is not conclusive for deciding the nature of expenditure. In the present case, the concurrent finding of  facts  recorde by the  authorities below indicate that the assessee was entitled to claim deduction in the course of business under  Section 36(1)(vii) of the Act.
For the afore-stated reasons, we answer all the three questions infavour of the assessee and against the Revenue.The civil appeal filed by the Department stands dismissed with  no order as to costs
                                               .........................CJI.
                                       [S.H. KAPADIA]
                                               ...........................J.
                                       [MADAN B. LOKUR]
   New Delhi,
   August 22, 2012.
   -tir-

Cost of Inflation Index for FY 2013-2014 .i.e AY 2014-15

Cost of Inflation Index for FY 2013-2014 .i.e AY 2014-15 for calculating capital gain is 939. Each Central Board of Direct taxes announces cost of Inflation index for the purpose of calculating inflation adjusted cost of asset for calculating capital gain tax on sale of capital assets.For Financial Year 2013-14 COI Index was declared through income tax Notification No.40/2013/F.No.142/7/2013-TPL.  Cost of Inflation Index Chart from Year 1981-82 to 2013-14

GOVERNMENT OF INDIA

MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
CENTRAL BOARD OF DIRECT TAXES
NOTIFICATION
INCOME-TAX
New Delhi, the 6th day of June, 2013

Notification No.40/2013/F.No.142/7/2013-TPL

S.O. 1464(E) – In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes published in the Gazette of India, Extraordinary, vide number S.O. 709(E), dated the 20th August, 1998, namely:-
2. In the said notification, in the Table, after serial number 32 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-

Sl. No. Financial YearCost Inflation Index
(1)(2)(3)
“33 2013-14 939”

Rate of TDS on Compensation on Acquisition of Immovable Property under Section 194LA

Rate of TDS on compensation on acquisition of Immovable Property under Section 194LA of Income Tax Act, 1961. Person responsible for paying i.e Acquirer of property  has to do the TDS of 10% at the time of payment of compensation. TDS to be done when consideration is less than Rs 2 Lakhs. No TDS on compensation on acquisition of agriculture property.

For the purpose of this section immovable property means any land (other than agricultural land) or any building or part of a building and agriculture land means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (b).

Reference: Section 194LA for TDS on Payment of compensation on acquisition of certain immovable property

Payment of compensation on acquisition of certain immovable property

194LA.Any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration or the enhanced consideration on account of compulsory acquisition, under any law for the time being in force, of any immovable property (other than agricultural land), shall, at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax thereon:

Provided that no deduction shall be made under this section where the amount of such payment or, as the case may be, the aggregate amount of such payments to a resident during the financial year does not exceed two hundred thousand rupees.

Explanation.—For the purposes of this section,—

(i)  “agricultural land” means agricultural land in India including land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2;

(ii)  “immovable property” means any land (other than agricultural land) or any building or part of a building.

Rate of TDS on Sale Purchase of Immovable Property under Section 194IA

Rate of TDS on Sale of Immovable Property under Section 194IA of Income Tax Act, 1961 or Rate of TDS on Purchase of Immovable property. Person responsible for paying i.e. purchaser of property  has to do the TDS of 1% at the time of payment of consideration. TDS to be done when consideration is more than Rs 50 Lakhs. No TDS on sale of agriculture property.

For the purpose of this section immovable property means any land (other than agricultural land) or any building or part of a building and agriculture land means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (b).

Reference: Section 194IA for TDS on Payment on transfer of certain immovable property

194-IA. Payment on transfer of certain immovable property other than agricultural land.—(1) Any person, being a transferee, responsible for paying (other than the person referred to in section 194LA) to a resident transferor any sum by way of consideration for transfer of any immovable property (other than agricultural land), shall, at the time of credit of such sum to the account of the transferor or at the time of payment of such sum in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income tax thereon.

(2) No deduction under sub-section (1) shall be made where the consideration for the transfer of an immovable property is less than fifty lakh rupees. (3) The provisions of section 203A shall not apply to a person required to deduct tax in accordance with the provisions of this section.

Explanation.— For the purposes of this section,— (a) “agricultural land” means agricultural land in India, not being a land situate in any area referred to in items (a) and (b) of sub-clause (iii) of clause (14) of section 2; (b) “immovable property” means any land (other than agricultural land) or any building or part of a building.’.

Which are the Assets not Taxed under Capital Gain Head of Income Tax Act

As per section 2(14) of the Income Tax Act, Any property owned by person, whether or not that asset is used by him for business or profession. From income tax perspective meaning of capital assets is very wide in nature and mostly all the assets are included in the definition of the capital assets.

Following assets are excluded from the meaning of capital assets

  1. Any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession
  2. Personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

    (a)  jewellery;

    (b)  archaeological collections;

    (c)  drawings;

    (d)  paintings;

    (e)  sculptures; or

    (f)  any work of art.

    3. Rural Agriculture land .i.e. land situated outside the jurisdiction of a municipality or situated within the jurisdiction of a municipality but having population less than ten thousand.

    Reference: Section 2(14) of the Income Tax Act

    “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

    (i)  any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;

    (ii)  personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

    (a)  jewellery;

    (b)  archaeological collections;

    (c)  drawings;

    (d)  paintings;

    (e)  sculptures; or

    (f)  any work of art.

    Explanation.—For the purposes of this sub-clause, “jewellery” includes—

    (a)  ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

    (b)  precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

    (iii)  agricultural land in India, not being land situate—

    (a)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

    (b)  in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;

What is Considered as Personal Effects and Jewellery under Income Tax for Capital Gain Tax

Personal effects, means movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a)  jewellery;

(b)  archaeological collections;

(c)  drawings;

(d)  paintings;

(e)  sculptures; or

(f)  any work of art.

 

Jewellery includes:

  1. Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one more of such precious ,metals, whether or not containing or semi precious stone, and whether or not worked or sewn into any wearing apparel;
  2. Precious or semi precious stone, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

     

    

Reference: Section 2(14)(ii) of the Income Tax Act

(ii)  personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a)  jewellery;

(b)  archaeological collections;

(c)  drawings;

(d)  paintings;

(e)  sculptures; or

(f)  any work of art.

Explanation.—For the purposes of this sub-clause, “jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b)  precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel;

What is considered as Rural Agriculture Land under Income Tax for Capital Gain Tax

Income Tax on agriculture land in India and what do we mean by rural agriculture land for calculation of capital gain on agriculture property. Rural Agriculture land is not considered as capital asset as per section 2(14) of the Income Tax Act. Agriculture Income is Exempted from Income as per section 10(1) of Income Tax Act,  Also as per section 10(37) Capital gain to individual/HUF on compensation received on compulsory acquisition of urban agriculture land.

Meaning of Rural agriculture land in India:

  1. It situated in any area which is comprised within the jurisdiction of a municipality ( whether known as a municipality, municipal corporation, notified area committee, town committee or by any other name) and its population should be less than 10,000 as per the last published census, or
  2. If situated outside the limit of municipality, etc., it should be situated certain kilometers away from the local limits of any municipality, etc. as may be specified by the Central government in the official Gazette. The Central government can notified urban land upto maximum 8Kms from the limits of municipality, etc.

Reference: Section 2(14)(iii) of the Income Tax Act

(iii)  agricultural land in India, not being land situate—

(a)  in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b)  in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;

Cost Inflation Index for Financial Year 2012-13

Cost Inflation Index for Financial Year 2012-2013 is 852 and for Year 2011-2012 is 785.

In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, number S.O. 709 (E), dated the 20th August, 1998, namely:- Check Cost of Inflation Index Chart from 1981 to 2013 and how to calculate index cost of asset

In the said notification, in the Table, after serial number 31 and the entries relating thereto, the following serial number and entries shall be inserted, namely :-How to Calculate Indexed Cost of Acquisition & Improvement

Sl. No.

Financial Year

Cost Inflation Index

(1)

(2)

(3)

“32

2012-13

852″