Direct Tax Amendments for May 2019 / Nov 2019 Exams - Part 6

Answer to the Brainstorming Problems: Direct Tax Amendments for May 2019/Nov 2019 Examinations Part 5,

1. Brainstorming Practical - Saurashtra Cement Ltd.

• Before amendment made by Finance Act, 2018-the amount received by the assessee towards compensation for sterilization of the profit earning source, is not in the ordinary course of business, hence it is a capital receipt in the hands of the assessee and therefore not chargeable to tax as held by Supreme Court in case of CIT v. Saurashtra Cement Ltd. (2010) 325 ITR 422
• After amendment made by Finance Act,2018 - Section 28 of the Act has been amended to provide that any compensation received or receivable, whether revenue or capital, in connection with the termination or the modification of the terms and conditions of any contract relating to its business shall be taxable as business income.

2. Brainstorming Theory : ICDS II- refer Para 19, ICDS VI-refer para 5 and ICDS VIII- refer para 9 and 10.

3. Brainstorming Practical - Surana Trading Pvt. Ltd. - Income under the head 'PGBP' Rs. 4,80,000

In this article, we will continue to discussthe amendments relating to the head 'Profits and gains from Business or Profession'.

(5) Section 43AA: Inserted by Finance Act, 2018 w.e.f. A.Y. 2017-18

Section 43AA provides that any gain or loss arising on account of any change in foreign exchange rates shall be treated as income (or loss) and such income (or loss) shall be computed in accordance with ICDS notified under section 145(2).

It further provides that gain (or loss) arising on account of the effects of change in foreign exchange rates shall be in respect of all foreign currency transactions including those relating to

1. monetary items and non-monetary items;
2. translation of financial statements of foreign operations;
3. forward exchange contracts;
4. foreign currency translation reserves.

Remark: The above provisions (of section 43AA) shall not be applicable where provisions of section 43A are applicable.

(6) Following proviso shall be inserted in sub-section (1) of section 43CA by the Finance Act, 2018, w.e.f. 1-4-2019:

"Provided that where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed one hundred and five per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration."

The impact of the above proviso is that if value adopted for the purpose of stamp duty does not exceed 105% of the consideration, then consideration shall be deemed to be the full value of consideration under section 43 CA of the Act.

Brainstorming Practical (4 Marks)

M/s. Radheshyma Builders would like to sell the flats constructed by it. The valuation of one flat for the purpose of stamp duty is Rs. 25,00,000. Find out the revenue to be booked under the head PGBP under following alternatives, if actual consideration received by it is:

(7) Section 43CA(4) modified by the Finance Act, 2018, w.e.f. 1-4-2019:

As per sub-section (3) and (4) of Section 43CA, if there is a time gap between date of agreement and date of registration, the stamp duty value may be taken as on the date of agreement instead of the date of registration.

However, for the same, at least a part of the consideration has been received by any mode other than cash by way of an account-payee cheque or draft or by use of electronic clearing system through a bank account (substituted by Finance Act, 2018, w.e.f. A.Y. 2019-20) on or before the date of agreement.

Brainstorming Practical (6 Marks)

Rahul, a property dealer soldbuilding to Shweta, details of which are as under:

1. Date of entering into agreement: 1.8.2017.
2. Agreed consideration : Rs. 100 lakhs
3. Down payment of Rs. 5 lakhs was received by bearer cheque on the date of agreement.
4. Stamp duty value of the building on the date of agreement was Rs. 135 lakhs.
5. On receipt of balance payment, registration of sale deed took place on 1.1.2018.
6. Stamp Duty value on the date of registration of sale deed was Rs. 145 lakhs.
7. Rahul has purchased this building for Rs. 65 Lakh on 12.07.2016.

Discuss tax implication in the hands of Rahul, (i) Before the amendment made by Finance Act, 2018 under sub-section (4) of 43CA (ii) After the amendment made by Finance Act, 2018 under sub-section (4) of 43CA.

Be ready with your answer. I will post the correct answer in next article.

Link of other articles on 'Direct Tax Amendments for May 2019 Students'.

Direct Tax Amendments for May 2019 Examinations: How to prepare?

Part 1
Part 2
Part 3

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