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File belated tax return within 1-year grace period

For the financial year 2013-14, the assessment year is 2014-15.

Q: The Indian Government has been talking about digitisation for the past two years. I am told that Kerala is the only state where substantial progress is made. Does it mean that most people in Kerala are now computer literate?
- R. Padmanabhan, Sharjah
A: Your information is correct. Kerala has achieved the distinction of being the first digital state in the country. All villages in the state have been linked with broadband connectivity under the National Optical Fibre Network project. A campaign was launched last month to use the services of 40,000 student police cadets who will train one million persons all over Kerala. In 2002, the Akshaya Project was launched with the object of making at least one person in every family computer literate. Further, the IT@school project was launched to provide basic computer knowledge to every high school student.Kerala now has over 600 e-governance applications covering almost all departments which will deliver e-services to citizens. The services are now made available on the mobile platform. The mobile tele-density is 95 per cent and internet access covers more than 60 per cent of the population.
Q: In February 2014, I came to the Gulf at short notice. I left my Indian job in January that year. Thereafter, I have been in the Gulf without a break. As a result, I could not file my tax return for the income earned in India during the financial year 2013-14. How can I rectify this default?
- P.K. Rathod, Doha
A: Under section 139(4) of the Income-tax Act, 1961, you can file a belated return within one year from the end of the assessment year. For the financial year 2013-14, the assessment year is 2014-15. Hence, you are eligible to file the return by March 31, 2016. You should do so in case you are entitled to claim a refund if more tax has been paid by you or a higher amount is deducted at source by your former employer. However, you will not get any interest on the refund as you missed out on the due date of July 31, 2014.
In view of the fact that you did not file the return before the expiry of the assessment year 2014-15, you will be liable to pay a penalty of Rs.5,000 under section 271-F. However, this is at the discretion of the assessing officer and if you can show that the default was for reasons beyond your control, the penalty may not be charged.
Q: I have been holding shares and securities as a personal investment. However, in the last few years, I have been buying and selling shares regularly. The tax authority in India is taking the view that I have been involved in a trading activity and, therefore, wants to tax the net profit as business income and not as capital gains which I have offered for taxation. Is the assessing officer right in his stand?
- P.K. Rai, Manama
A: The question whether shares which are regularly traded in should be treated as capital assets or trading assets has been a matter of dispute. Courts have laid down criteria to distinguish between shares held as stock-in-trade and shares held as capital investments. The Central Board of Direct Taxes issued a circular on February 29, 2016 to the effect that where the tax payer opts to treat the listed shares and securities as stock-in-trade, the income arising from transfer of these assets would be treated as business income, irrespective of the period for which the assets were held.
If the tax payer desires to treat the income arising from transfer as capital gains in respect of listed shares and securities held for more than 12 months, the Income-tax Department will accept this treatment by the tax payer. However, once the tax payer has treated the assets as being capital in nature, the tax payer cannot take a different view in a subsequent year and treat the assets as stock-in-trade. This circular will not apply where the genuineness of the transaction is questionable or where bogus claims of long-term capital gain or short-term capital loss are made. This circular would also not apply to sham transactions. The government has adopted this course of action of issuing the circular to avoid litigation and to maintain consistency in approach on the treatment of income earned from transfer of shares and securities.
The writer is a practicing lawyer, specialising in tax and exchange management laws of India.