Tax Column

Jayesh Dadia, 

Chartered Accountant 

Exemption under section 54 of the IT Act availed by you cannot be withdrawn, even if you have not got the possession of the new flat within three years from the date of sale of the original residential house. The requirement of section 54(2) of IT Act is that the entire capital gain should be utilised for purchase of new residential house. Since in your case, you have invested the entire Rs 4 crore for purchase of the new residential house which was under construction, you have complied with the provision of Act. It is not the requirementunder section 54(2) that the assessee must get possession of new residential house within a period of three years. The requirement of section 54 is that the capital gain should be utilised or appropriated for purchase of a new residential house. Therefore, even if you have not got the possession of the new flat, which was not completed by the builder, you will not lose exemption under section 54 availed by you.

Can you explain the provision relating to reopening of the completed assessment under the Income Tax Act? I have just received a notice for reopening of my completed assessment under section 143(3) of assessment year 2011-12 on March 31, 2018.What procedure do I have to follow and what are the legal remedies available to me

Under section 147 read with sections 148 and 149of the IT Act, if the assessing officer is satisfied that any income chargeable to tax has escaped assessment, he can reopen the completed assessment of last six assessment years on the date of issue of the notice. He has issued notice on March 31, 2018 and, therefore, he can reopen the assessment of assessment year 2011-12. However, since in your case the assessment for assessment year 2011-12 was completed under section 143(3) of the IT Act and if there is no failure on your part to disclose fully and truly all material facts necessary for assessment year 2011-12, then the time limit is only four years. So, if you can prove that there is no failure on your part to disclose fully and truly all material facts which are required for the assessment, then you can challenge the 148 notice. First,you have to file a revised return and then request the assessing officer to furnish you the reasons recorded for reopening the assessment. You can object to the reasons for reopening before the assessing officer. If he rejects, then you can approach the Bombay High Court by way of writ petition requesting the High Court to quash the reassessment proceedings. 

Alternatively, you can file all the details in the reassessment proceedings once again and challenge the reassessment before the appellate authorities such CIT(A), Income Tax Tribunal, High Court, etc. If your case is strong you may succeed both at the level of the High Court by of writpetition or at the appellate stage.

I have given a loan of Rs 1,00,000 in cash to my close friend. Subsequently, he has repaid the loan in cash. Now I am told that under the provision of the Income Tax Act, I cannot give a loan in cash and neither can I receive it back in cash. Can you explain the tax implications, if at all, in my hand? 

Under Section 269SS, no person can accept from any other person any loan or deposit in cash in excess of Rs 20,000. Thus, there is a violation by your friend in accepting cash loan of Rs 1,00,000. Under Section 271D of the IT Act, the assessing officer can levy a penalty of Rs1,00,000, i.e. equal to the amount of loan. However,if there is a reasonable cause and the transaction is bonafide, the assessing officer can drop the penalty. Under Section 269T, no person can repay the loan in cash exceeding Rs 20,000. Here again, your friend has violated the provision of the Act by repaying you the loan of Rs 1,00,000 in cash. Under Section 271E, this default also attracts penalty of an equivalent amount. Here also, the penalty can be dropped if your transaction is bonafide and made under unavoidable circumstances. In any case, there is no default on your part and no tax implication in your hand.

I along with my friends are going to set up an educational institution, which would exclusively carry on the educational activities and not to earn profit. I was told that educational institutions enjoy tax exemption under the Income Tax Act. Can you explain? 

An educational institution enjoys a privileged position under the present Indian taxation systems. Section 10(23C) and section 11 of the IT Act contain the provision applicable to educational institutions. If your educational institution’s annual receipts does not exceed Rs1 crore, then under section 10(23C)(iiiad), it is eligible for tax exemption. No need for separate registration under the IT Act. However, if your educational institution’s annual receipt exceeds Rs 1 crore, then you are eligible for tax exemption under section 10(23C)(vi) of the IT Act, subject to approval of Commissioner of Income Tax Act by making application in prescribed form 56D.

Alternatively, your educational institution can claim exemption under section 11 read with section 2(15) of the IT Act, if you are a charitable trust/institution under section 12AA of the IT Act. However, the educational institution has to satisfy certain conditions such as maintenance of accounts, audit of accounts, submitting return of income along with auditor’s report within the due date and exist solely for educational purpose and not for profit. Any surplus made by the educational institution out of its educational activities cannot be termed as profit, provided the entire surplus is reinvested in the educational activity of the institution and not distributed