WHETHER EXEMPTION U/S 54 & U/S 54EC CAN BE CLAIMED SIMULTANEOUSLY?

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WHETHER EXEMPTION U/S 54 & U/S 54EC CAN BE CLAIMED SIMULTANEOUSLY?

exemption u/s54 and u/s54ec

Query 1]

Whether the Non resident is compulsorily required to obtain Permanent Account Number (PAN) in India as a result of new changes in the Indian Income Tax Act? What is the law incorporated in section 206AA? What are its implications on Resident / Non Resident? Please elaborate. [RT]

Opinion:

  1. In order to strengthen the PAN mechanism Section 206AA was introduced by Finance Act (No.2) 2009.
  2. These provisions will come into force from April 1, 2010.
  3. The section provides that any person whose receipts are subject to deduction of tax at source shall be required to mandatorily quote his PAN to the person responsible for deducting TDS. In case the deductee fails to intimate the PAN to the deductor, then the deductor shall be required to deduct TDS at following rates:
    a). Rates prescribed in the Income-tax Act or in the Finance Act, or
    b). At the rate of 20%.
    Whichever is higher.
  4. In other words, if the person fails to intimate the PAN to the deductor, TDS will be at a minimum rate of 20%.

  5. The above provisions will be applicable to all assesses. The intent of the legislature is clear from the Memorandum to the Finance Bill, which specifically provides that these provisions will also apply to the NON-RESIDENTS.

  6. The aforesaid legal position has again been reiterated by CBDT through its Press Note dated 20th January, 2010 which states:

    “A new provision relating to tax deduction at source (TDS) under the Income Tax Act 1961 will become applicable with effect from 1st April, 2010. Tax at higher of the prescribed rate or 20% will be deducted on all transactions liable to TDS, where the Permanent Account Number (PAN) of the deductee is not available. The law will also apply to all non-residents in respect of payments / remittances liable to TDS. As per the new provisions, certificate for deduction at lower rate or no deduction shall not be given by the assessing officer under section 197, or declaration by deductee under section 197A for non-deduction of TDS on payments shall not be valid, unless the application bears PAN of the applicant / deductee”.

  7. The issue is particularly important to non-residents because in most of the cases their income is taxable @10% whereas in the absence of PAN, tax will be deducted @20%.
    The problem may be looked at from another angle. Taxability of non-residents in India is subject to the provisions contained in the Double Taxation Avoidance Agreement (DTAA) entered into by Government of India with other countries. After introduction of Section 206AA, a question arises whether the tax required to be withheld will be as per the rate mentioned in the DTAA or as per Section 206AA?
  8. In this respect, the decision of the Honorable Bombay High Court in the case of CIT vs. Siemens Aktiongesellschaft, [310 ITR 320] is worth consideration. In the said case, it was held that by an unilateral amendment in the domestic law, it is not possible to tax income which otherwise was not subject to tax under the tax treaty. Since Section 206AA has been inserted by a unilateral amendment, it cannot override the rates prescribed in the tax treaty.
  9. Nevertheless, there is a possibility that after section 206AA comes into force, i.e. w.e.f. 01.04.2010, the income of non-residents could be subjected to higher rate of TDS @20% if PAN is not available. In such cases, in order to claim refund of excess TDS deposited, the non-residents will have to file their return of income in India. This will be a cumbersome procedure.

  10. The procedure for obtaining PAN is simple, inexpensive and quick. Non-residents can apply through the local embassy / consulate of India. Applications can also be filed, paid for or tracked online through the Internet. Non-residents are advised to obtain Permanent Account Number (PAN) before receiving any income from India.

 

Query 2]

I have sold house property in April-2010 for Rs. 68 Lacs. It was purchased by me only in 1984 for Rs. 7.12 Lacs. I want to invest Rs. 30 Lacs for purchase of Row House and to claim exemption u/s 54 of the I.T. Act-1961. Balance Rs. 38 Lacs, I wish to invest in the REC/ NHAI bonds to save long term capital gain Tax u/s 54EC as mentioned in the Tax Talk dated 05.04.2010. My query is whether I can claim both exemption u/s 54 & u/s 54EC simultaneously or not? Someone told me that exemption under only one section can be claimed and simultaneous exemption is not possible. I shall be thankful if can kindly elaborate the legal provision with citations thereon. [Akshay Jain, Amravati]

Opinion:

  1. To save LTCG tax u/s 54 or U/s 54EC, Investment of Long term capital gain is just sufficient (& need not be the entire sale consideration). So, investment of entire Rs. 68 lacs is not necessary for exemption u/s 54 or U/s 54EC.
  2. Both these exemption provisions are not mutually exclusive provisions. That is, there is nothing specific in the provisions u/s 54 or 54EC. Which states that one can not avail of both the exemption simultaneous.
  3. Further wording of provisions of section 54EC itself shows that the law makers have enacted the provisions as additional incentives. That is the reason , the provision contains word ” whole or any part of  it. Which means that it was not necessary that full amount of capital gains should have been used for buying the “Specified Assets”. Relevant extract of section 54EC is as under: –
    “54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the While or Any Part of the capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,…….”
  4. If the Law makers had the intention of not giving the simultaneous exemption u/s 54 & 54EC, it could have been written in the provision itself similar to the provision in Section 54EC which mentions that investment in specified asset will not be taken in to account for rebate u/s80C or  88 if the same is considered for the exemption u/s 54 EC.

  5. With above analysis, we are of the opinion that there is no such restriction. About claiming of exemption u/s 54 (or 54F) simultaneously with section 54EC.

 

exemption u/s54 and u/s54ec


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