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India tightens screws on agricultural land income

Dubai - Tax department now very strict where persons show agricultural income of a large amount and claim exemption thereon

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Q: I have an ancestral plot of agricultural land that is being cultivated by my brother who resides in India. He has been showing agricultural income of roughly Rs100,000 per month. He has now received a notice from the income tax department to produce the relevant records for justifying the amount shown as agricultural income in respect of which tax exemption is claimed. Is my brother required to respond to this notice?

A: The tax department has now become very strict where persons show agricultural income of a large amount and claim exemption thereon. The comptroller and auditor-general of India has taken strong objection in cases where tax officers have accepted large amounts of agricultural income shown in the tax return without verification of the genuineness of the amount claimed to be exempt. There are many persons who show their non-agricultural taxable income as agricultural income in the tax returns in order to avoid paying tax. For example, traders in agricultural commodities are liable to pay tax on their trading profits but they show such amount as agricultural income by owning a small plot of agricultural land. Therefore, the tax authorities have been directed to make all enquiries where a person shows agricultural income in excess of a certain limit.
The assessing officer is required to verify the size of the agricultural plot of land owned by the taxpayer by examining the land records. The taxpayer is also required to give a statement of receipts and expenditure, the number of persons employed by him, and the quantum and value of agricultural inputs like seeds, fertilisers, pesticides, etc, which he may have purchased during the relevant season. If the assessing officer is of the opinion that a higher amount is shown as agricultural income than what can be justified based on the aforesaid enquiries, the excess amount would be brought to tax. Please note that making a false claim for obtaining exemption would also invite penalty and lead to prosecution proceedings. Hence, your brother should respond to the notice of the tax department and give all information to support his claim for exemption in respect of the agricultural income earned by him.

Q: I had given a loan to a friend in India. Initially his repayments were regular, but recently he has defaulted and delayed. In fact, his cheque has bounced and even the second cheque that he gave in replacement of the bounced cheque has been dishonoured. I am told that I should go to court and file a criminal case against my friend. I feel I have no alternative but to do this. Will I get any relief?

A: You should immediately file a criminal complaint under the Negotiable Instruments Act. While this may result in imprisonment for your friend if he is convicted by the trial court, it would put pressure on him to repay the loan which he has taken from you. After filing the case, the court will ask for documentary evidence of the cheques being dishonoured and, based on that, charges will be framed.
In 2018, the law was amended to provide that interim compensation may be awarded by the trial court after the charges are framed. The reason for the interim compensation is that the final disposal of the case may take some time due to the backlog of pending cases in courts. However, the interim compensation would be restricted to 20 per cent of the amount of the cheques which have been dishonoured. In respect of the balance amount of loan which may still be payable to you, you have no alternative but to file a suit in a civil court to recover your balance loan amount. A criminal suit can be instituted only in respect of a cheque which has been dishonoured.

Q: My father is a tenant in an old building in Mumbai. As the building is in dilapidated condition, it has to be redeveloped. The landlord is dragging his feet and, therefore, the tenants want to pool in their resources to redevelop the structure. Would the landlord be able to prevent the tenants from doing so?

A: The government is now coming up with a legislation to provide that where a building is declared by the Maharashtra Housing and Area Development Authority (MHADA) as dangerous for occupation, the landlord will be given a deadline of six months to initiate the process of redevelopment. If the owner of the building does not meet the deadline, MHADA will initiate the acquisition proceedings for the building. If the tenants agree to redevelop the building themselves, they will be given three months to come up with a redevelopment plan.
After the building is redeveloped, the owner will be given a compensation up to 25 per cent of the ready reckoner value of the plot or up to 15 per cent of the built up area in the redeveloped building. In case the tenants are not able to agree to co-operate for the redevelopment, MHADA itself will do the same by appointing their own contractors. Therefore, once this law is passed, you and the other tenants should come up with a plausible redevelopment plan and if your landlord does not do so himself, your plan will be accepted by MHADA so that the tenants can proceed with the redevelopment without any hitch from the landlord.

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

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