Claiming Exemption from long term Capital Gains

Query 1) I own a factory in Mumbai which I have sold and I intend to buy a new larger factory from the sale proceeds thereof. However I do not propose to shift the factory there. Instead I propose to let it out on rent. However, will I be able to put the purchase of the new factory in the block of assets, i.e, the Factory Premises, and thereby claim exemption from payment of long term capital gains thereon?

- Anant Natekar

Business Asset is always considered as short term capital asset irrespective of the period of holding of that asset prior to the transfer. Thus there is no question of claiming exemption in respect of long term capital asset, unless to say that the factory premises were shifted from urban area to backward area. This is not your case because you are not shifting the factory from urban area to backward area. In fact you are proposing to rent out after shifting. Thus you will not be able to claim exemption u/s 54G of the Income Tax Act, 1961. Assuming that the old factory premises was shown as a block of assets and depreciation was claimed thereon, when the new factory premises are purchased, the cost of acquisition thereof can be included in the block and make the block positive. 

If you propose to claim long-term capital gains on the new factory premises, as and when the same is sold, then you cannot include the same in the block and claim depreciation. If you claim depreciation, the asset is not eligible for exemption on long-term capital gains. In which case, you will have to pay the tax on the capital gains earned on sale of the old factory premises as short term capital gains. 

Query 2) I am a salaried employee. I have made fixed deposits in the name of my wife. The bank has deducted TDS from the interest on such fixed deposits. She does not have taxable income. Should she file her return of income to claim refund of tax which has been deducted?

- Mohan B.

It may be noted that fixed deposits made by you in your wife’s name are deemed gifts made by you. In view of the provisions of Section 64(1)(vi), the income of an individual  shall include the income, as arises directly or indirectly, to the spouse of such individual from assets transferred, directly or indirectly, to the spouse of such individual otherwise than for adequate consideration or in connection with an agreement to live apart. Thus the income will be clubbed with your income and you will have to claim the credit for tax deducted at source thereon.