Being hired overseas? Things to check before accepting offer

Dubai - If a company defaults in the future, there would be serious consequences for top brass.

Q: I have been invited by a company in the UK as an independent director. I want to know whether there are any pitfalls and hazards in accepting the directorship.
A: You need to study the profile of the company in detail before you decide to accept the offer of directorship. If a company defaults or becomes insolvent in future, there would be serious consequences and directors may be held responsible for the same. The UK government has recently given additional powers to the UK Insolvency Service to punish directors who fail to safeguard workers from the effects of a company's bankruptcy.
Wide powers have been given to levy fines and disqualify the directors from being on the board of a company for a period which may extend to fifteen years. This would be so if the conduct of the director during corporate insolvency proceedings is found to be prejudicial to the interests of the company. You may consider accepting the appointment as a director if you are confident about the solvency of the company. 
Q: Before I left India, I was running a business of buying and selling properties. Some of the properties remained unsold at the time of my coming to the Gulf, but now I have sold them at a profit. Can I set off the losses that I had incurred in earlier years against the profits which I have made now? Unfortunately, I could not file my tax return for the year in which I left India.
A: Business losses can be set off against future business income within a period of eight years from the year in which the loss was made. However, before the loss can be carried forward and set off against income of subsequent years, it has to be disclosed in the return of income filed before the due date prescribed by law.
Since in the year in which you made the loss, you did not file the tax return, such loss would not be allowed to be set off against the income of the current year in which you have made a profit on sale of the property. Section 80 of the Income-tax Act specifically enacts that unless the loss is assessed in pursuance of a return filed under section 139(3) and within the prescribed time, the assessee is not entitled to carry forward such loss and set it off against future income. Therefore, you will not be able to set off your past losses against the income earned in the current year.
Q: My father has an old tenanted house in Mumbai in a dilapidated building. The landlord has entered into a joint development agreement with a builder. As the building will be pulled down for constructing a new one, all the tenants will have to vacate until the new building is constructed and they are given flats of similar area in the new building on ownership basis. During the four years that will be taken for constructing the new building, my father will be paid compensation every month to enable him to rent a flat. I want to know whether my father will be liable to pay tax on such monthly compensation received from the builder and whether there will be any adverse implications when the new flat is given to him on ownership basis.
A: The tax department generally takes a view that the monthly compensation paid by a builder to enable the tenant to find alternate accommodation during the transition period is to be taxed as 'income from other sources'. Such income would, therefore, be taxable at the normal rates, 30 per cent being applicable on annual income exceeding Rs1 million, lower tax rates being applicable on income below this figure.
However, courts are taking a more liberal view and treating the aggregate amount, being value of the new flat, monthly compensation paid during transition period and corpus amount which is required to be paid by law under the rehabilitation scheme, as capital gains. If the tenancy was held for more than three years, such capital gains would be treated as long-term. In such a case, under section 54-F of the Income-tax Act, the long-term capital gains would be exempt from tax because the total consideration received would be invested in the new residential house. Litigation on this issue may continue until the Supreme Court gives its verdict or the law is appropriately amended.
 
NRI Problems by H.P. Ranina
The writer is a practising lawyer specialising in tax and exchange management laws of India. Views expressed are his own and do not reflect the newspaper's policy.

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