Tax Column

Tax Queries By Jayesh Dadia Chartered Accountant

I have received a notice for reopening of assessment of my mother for the assessment year 2017-18. My mother has already passed away. Should I attend to the notice or ignore it? If the assessing officer determines a demand, post reassessment, can the same be recovered from me since I am the legal heir?

It is a settled law that assessment cannot be made in the name of an assessee who has already died. You can, therefore, inform the assessing officer who has issued the notice that the assessee, who is your mother, has already expired. If the assessing officer still makes the assessment order in your mother’s name, the assessment order would be bad in law and would be quashed by the appellate authorities. The correct procedure is that after knowing the assessee is dead the assessing officer can issue a notice in the name of the legal heir and the said notice would be a valid notice. 

Therefore, you being a legal heir must respond to the notice and file various documents and information required for the purpose of assessment. If any additions are made in the assessment order, the same can be challenged before the appellate authorities where you may succeed on merits. If ultimately you lose before the appellate authorities, then the demand can be recovered from you by treating you as the assessee in default. However, you can still challenge the recovery procedure if you can prove that you have not inherited any assets from your mother. 
 

I have inherited art paintings from my parents. I never knew that paintings have a huge value. Given this development, I have decided to sell them whereby I may receive a consideration of ₹2 crore. Will this attract tax liability and if it is taxable, how can I save on it? I don’t have any residential house in my name.

Under the Income Tax Act, paintings are a capital asset and therefore the same are subject to Capital Gain Tax. The sale consideration of ₹2 crore would be subject to long term capital gain in your hand. You can reduce the taxation amount if you can establish the amount of cost of the paintings in the hands of your parents. Since you don’t have any residential house, you can invest the entire long term capital gain of ₹2 crore in a new residential house. In that case the entire long term capital gain would be set off against the cost of the new residential house and there will be no Capital Gain Tax liability in your hand in view of provision of Section 54F of the Income Tax Act 

I don’t have a digital signature. So how can I file my return of income in the electronic mode? Also, what is the correct procedure in such a case?

Return of income can be filed electronically by using a DSC or Adhaar OTP. If you don’t have DSC, then you can file the return electronically and take a printout of ITR V (i.e. acknowledgement of return filed electronically), sign the same and send it to Bengalru CPC. Kindly note that time limit for submission of ITR V is 30 days from the date of filing the return of income electronically. If you fail to verify the return of income within 30 days, the return will be considered invalid. All the consequences would apply as if the return was never filed. However, my advice is to get DSC which can be obtained within a day or two with hardly any cost. 
 

I am an individual and carrying trading activity in futures and options. I have suffered losses. Since I don’t have any other taxable income, would I still have to file a tax return? How does one calculate profit or loss and turnover in the case of futures and options?

It is mandatory for all individuals to file tax return if their income, before allowing capital gain exemption or other deduction, exceeds the taxable income. In your case, you have incurred loss and your other income is below the exemption limit and so you you are not required to submit the return. However, if you want to carry forward the futures and options losses to be set off against future profit, the filing of return is mandatory. Individual transaction-wise profit or loss must be added and the net result would be either loss or profit from the transactions. 

The net result after considering all the transactions would be your income or loss for the year. The Income Tax Act has not defined turnover for the purpose of futures and options trading. The normal practice which is followed is to take the total of profit and loss differences as turnover i.e. nothing but profit or loss determined as per the formula given above. In derivative transactions also the aggregate of both favourable and unfavourable difference i.e. profit or loss is considered as turnover. If the turnover exceeds ₹10 crore, provision of tax audit may be applicable. 

 I am a non-resident in India and a resident in the US. I have earned dividend income of ₹4.6 crore from an Indian company where I am a shareholder. I also have other rental income in India. As my total income in India exceeds ₹5 crore, am I liable to pay tax at higher surcharge applicable to individuals?

As you are a resident of the US, dividend income would be taxed at a special rate prescribed under DTAA between India and US which is at 25 per cent. Therefore, while filing the return of income, you have to ensure that you reduce dividend income from the computation of total taxable income at a normal rate. If after reducing your dividend income, which is taxed at a special rate, the other income in India is less than ₹50 lakhs, no additional surcharge is leviable. Hence, your dividend income which is taxed at a special rate will not attract high surcharge which is normally applicable in case of income exceeding ₹2 crore.