Various scenarios concerning India's Income-tax Act

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Various scenarios concerning Indias Income-tax Act

Published: Sun 26 May 2019, 5:00 PM

Last updated: Sun 26 May 2019, 7:03 PM

Q: I have been working in the UAE as a marketing agent for Indian and foreign companies. Recently, I have been appointed by an Indian pharmaceutical company to market their products in the Gulf and the North African countries. I procure orders on behalf of the Indian company, which dispatches the consignments directly to the foreign customer. Commission is paid to me by the Indian company which has deducted tax at source as a measure of abundant caution. Is this amount taxable in my hands? If not, how do I get refund of the tax from the tax authorities?
A: As all services are rendered by you outside India for marketing the pharmaceutical products in the Gulf and North African countries, no income accrues or arises in India under the Indian tax law. The question of deducting tax at source would arise only where the amount received by you is in the nature of income which is taxable in India. In the absence of any income accruing, arising or being received in India, no amount of tax is deductible under section 195 of the Income-tax Act.
Since the Indian company has deducted tax at source out of abundant caution, the only option for you is to file a tax return by the due date for the relevant assessment year and claim a refund. If the assessing officer taxes the income, you will have to go in appeal because in law no amount is taxable in India since the services are rendered outside India. There are enough decided cases to support your stand and, therefore, you will succeed in appeal and obtain the refund on receiving a favourable appellate order.

Q: I am selling my house in Pune and I am buying a new residential property in Bengaluru. As the owner of the property in Bengaluru demanded immediate payment, I took a loan from a bank that I will repay after I recover the sale price of my present flat in Pune. I am told that I may not be entitled to the exemption under Section 54 since I have taken the loan to pay for the new house. However, I will be investing the full capital gains made on sale of the Pune property. Please advise.

A: Under Section 54 of the Income-tax Act, you are required to purchase a new residential property within two years from the date of sale of the old property or one year prior to the date of such sale. Therefore, Courts have taken the view that even if a loan is taken to purchase a new house, the benefit of the exemption would be available. There is no condition provided by law which requires the sale proceeds of the old property to be invested in the new one.
In other words, the source of funds out of which the new property is purchased is not relevant. Courts have held that under the law a house can be purchased one year before the date of sale of the old house. Therefore, obviously the funds for the house so purchased will have to be from sources other than the sale proceeds of the old house. Hence, exemption would be available in your case though you have used a loan from a bank to purchase the house in Bengaluru as the sale proceeds of the Pune house will be received by you much later.

Q: My father, who owned agricultural land, received compensation from the government when the land was compulsorily acquired for infrastructure development. Subsequently, the compensation amount was enhanced by the court and interest was awarded on the enhanced compensation. While paying the compensation, tax was deducted at source. The tax department has not granted refund of the tax though my father had filed the return to claim the refund. What should be done?

A: Your father should file an appeal before the Commissioner of Income-tax (Appeals) against the assessment order taxing the interest on the enhanced compensation. The Supreme Court of India has held that interest on enhanced compensation is part of the compensation itself. Under Section 10(37) of the Income-tax Act, compensation received on compulsory acquisition of land is exempt from tax. Even enhanced compensation is exempt from tax under this provision.
The only condition to be fulfilled is that during the period of two years immediately preceding the date of acquisition of the land, it should have been used for agricultural purposes. Hence, if your father has used the land for agricultural purposes during the period of two years before the date of acquisition, the enhanced compensation together with interest would be exempt under Section 10(37). Hence, your father will succeed in appeal and refund of the tax deducted at source should be granted.

The writer is a practicing lawyer specialising in tax and exchange management laws of India.

By H.P. Ranina
 NRI Problems

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