Is it right in law in applying the section 50C and section 50 (depreciable assets) while computing capital gains on sale of depreciable assets? 

Assessee is a partnership firm. It has sold the office building used earlier for business purpose during the previous year. The asset was sold for a consideration of Rs. 49, 43,525/-. The written down value of the said building after claiming depreciation for past years is Rs. 49,43,525/- and hence assessee declared the capital gains as NILL. 

During the course of assessment proceedings the assessing office noticed that the value of the property as per the stamp duty valuation was Rs. 76, 49,000/-. According to him the full value consideration for transfer of the building is the value adopted for stamp value as per section 50C and after deducting the written down, value the balance amount is taxable as capital gains from transfer of building. 

Read more: Application of Section 50 and 50C

Section 40 of the Income Tax Act, 1961 provides for non-deduction of amount of expenditure specifically mentioned there in. One of the important provisions which merit our attention and faced by many assesses in day to day transactions is 40(a)(ia). 

Section 40(a)(ia) provides for disallowance of expenditure in relation to interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to resident, or amounts payable to a resident contractor or sub – contractor for carrying out any work including supply of labour for carrying out any work. 

The disallowance of amounts mentioned in section 40(a)(ia) will be made if the tax is not deducted at source or after deduction of tax at source has not paid the same on or before the due date specified in section 139(1)⁴. 

The word “Payable” used in this section is subject matter of controversy. 

This controversy is raised in various cases before ITAT, High Courts and finally the matter was settled by the Supreme Court. 

Historical Background of Section 40a(ia): 

Section 40a(ia) was introduced in the Income Tax Act, 1961 by the Finance Act 2004 W.e.f 1^st April, 2005. This section overrides the provisions of sections 30 to 38 of the Income Tax Act, 1961. Initially the Finance Bill 2004 contains the word “amounts credited or paid” but later it was changed to “payable” in the Finance Act, 2004. This may be due to time limit provided for payment of TDS as per Rule 30 of the Income Tax Rules. Also using the word “paid” result in permanent disallowance, which was not the intention of legislation while introducing section 40(a)(ia). 

Read more: Disallowance Of Expenditure Due To Non - Compliance of TDS Provisions

Unlike the Companies Act, 1956, the Companies Act, 2013, stipulates stringent provisions for allotment of securities. These provisions have also been made applicable to Private Companies. 

The provisions of Section 42 and rules made thereunder are to be complied in case of allotment of Securities by Private placement and the provisions of Section 62 and rules made thereunder are to be complied in case of further issue of Securities on Preferential basis.

The scope of Section 42 is vast, thereby any allotment even under Section 62, requires the compliance of provisions under Section 42. 

The procedure and compliances required for issue of shares by way of Private Placement is as below: 

1. Identifying a party who is interested in investing in the Company.
2. Convening of Board Meeting to consider issue of security to such party, approval of draft letter of offer, and fixing of time, place and venue for convening Extra-ordinary General Meeting [EGM] for obtaining the approval of the members by way of special resolution for the proposed issue to proposed party.

[Filing of Form MGT-14 with ROC, for the decision of the Board to issue shares [Filing pursuant to Sec. 179 (3) (c)].

Read more: Provisions, Procedure For Allotment Of Securities By Way Of Private Placement

The title of the article has taken its genesis from the newly introduced Place of Provision of Service Rules, 2012 (for brevity ‘POP Rules’). As every person reading this article know that there is a paradigm shift in the taxation of the services with effective from 01.07.2012, popularly known as ‘Negative List’ regime. In addition to such shift in the taxation base, there were also new set of rules called POP Rules for determining the taxability of a transaction, generally a cross-border one. 

Before understanding the title of the article in light of POP Rules, let us have a look at the new charging section that is Section 66B which states that there shall be levied service tax on the services provided or agreed to be provided in the taxable territory. Hence, the question to be answered is simple and one liner ‘Whether the services provided or agreed to be provided are in the taxable territory?’ If yes, then the charging section holds good and if not there is no levy. 

However, the answer for the above question is not a one liner. One has to look carefully into the POP Rules. The main aim of the POP Rules are to guide the place of consumption of the service and let us have peek into the POP Rules to understand the significance of the title of this article. 

Read more: Kaun Banega ‘Service Receiver’