Page 54 - Corporate_Professional_Today

your QuerieS
I presume that you have claimed a lower
rate of depreciation in the earlier year or
years which the Assessing Officer must have
allowed by applying Circular No.14 of 1955.
If such depreciation is allowed in that year
and brought forward to assessment year 2015-
16, your income-tax liability as per regular
provisions would be less than book profit tax.
You can file a petition under section 154 as
the carry over effect of depreciation of the
earlier year will cushion your taxable income. You may note that deemed dividend, though
You may note that when your income-tax
as per regular provisions is less than book
profit tax computed under section 115JB,
the tax liability payable would be higher
of the two. Further, the disallowance under
section 14A would also be absorbed by the
income computed as per regular provisions.
Section 14A will not impact your book profit
computation. You may note that the CBDT
Circular 5 of 2014 dated 11-2-2014 says that
disallowance under section 14A will apply
even if there is no exempt income in the
year under consideration.
Loan to a director from closely held
manufacturing company
We are running a private limited company
with paid up share capital of ` 200 lakhs.
We have been declaring dividend every
year and the accumulated reserves and
surplus as on 31-3-2017 are ` 12 lakhs.
One of our directors is urgently in need
of a sum of ` 25 lakhs as he suffered a
loss of ` 40 lakhs in the current year
in his proprietary business. He has 25%
shareholding in the company. Our tax
consultant says that any loan to a director
would be taxed as deemed dividend with
resultant consequences. Please brief us on
the issues involved.
s your company is not a company in
Awhich public are substantially interested,
lending money to a director with or without
interest will attract section 2(22)(e) if his
shareholding in the company exceeds 10% of
January 20 To January 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 41 u 55
the total voting rights. However, the amount
chargeable to tax as deemed dividend is limited
to the extent of the accumulated profits of
the company. The company, however, has
to deduct tax at source under section 194
before disbursing the amount. The entire loan
will not be treated as deemed dividend and
would be limited to ` 12 lakhs representing
accumulated profits and that would be
chargeable to tax in the hands of director.
taxed in the hands of shareholder-director,
will not be covered by section 115-O. Further,
from the information given the director has
suffered business loss. The deemed dividend
chargeable as income under the head `other
sources’ will get nullified because of the huge
loss suffered by him.
Converting agricultural land into plots
I acquired 2 acres of land about 5 years
ago for ` 30 lakhs. I desire to convert
them into stock-in-trade and later on
prepare a layout and effectively have 25
plots of 2400 sq.ft each. The expenditure
towards laying of roads, drainage, etc, of
the land would cost around ` 10 lakhs.
The stamp valuation authority might fix
the value at ` 200 per sq.ft. I would like
to know whether I can sell those plots at
price negotiated with the buyers, some of
whom may agree to a price less than the
stamp duty value. Can you suggest the
sequence of steps and method to determine
the income?
ou can convert it to the capital asset, viz.,
Ythe land into stock-in-trade by applying
section 45(2). The fair market value on the
date of conversion would be adopted as the
cost for the purpose of determining your
business income. The difference between the
acquisition cost and fair market value on
the date of conversion is chargeable to tax
as capital gain. However, the taxability is
postponed to the year of ultimate disposal of
the capital asset. The fair market value (say
` 50 lakhs) plus development expenses ` 10
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