Tax Column

I am holding shares of a private limited company with an investment value of ₹1 crore. The company is now under liquidation. It has ₹4 crore in the bank account which is accumulated over a period of years out of the profit of the company. I was told by the liquidator that on distribution, they will deduct 10 per cent withholding tax. Can you clarify whether the action of the liquidator is correct and what would be the tax implication in my hand?

The action of the liquidator seems to be correct. On liquidation, if any amount is distributed to the shareholder out of the accumulated profit of that company, then such an amount distributed would be considered as dividend in the hands of the shareholders. Under Section 2(22)(c) of the Income Tax Act, distribution of amount out of accumulated profit is considered as dividend. Therefore, once the amount is in the nature of dividend and since dividend is taxable, the liquidator is bound to deduct tax at source under the provision of the Income Tax Act. Further, dividend is taxable in your hand and therefore you have to disclose the income in your tax return and tax liability has to be worked out as per the rate of tax applicable to individuals, which could be at 30 per cent or more applicable surcharge.
 

I am an individual. In view of my total income being below the taxable limit, I don’t file my return of income. However, for the financial year 2021-22, on my interest and dividend income, some TDS was deducted amounting to ₹15,000. Can you tell me how to get a refund?
 

If you want refund of tax deducted at source of your interest and dividend income, then you have to file return of income for the financial year 2021-22 relevant to assessment year 2022-23 and claim refund. Under Section 239 of the Income Tax Act, a refund can be claimed by an assessee only by furnishing return in accordance with the provision of Section 139 of the Income Tax Act. Since you are an individual, kindly file your IT return before December 31, 2022 and claim refund. If you fail to do so, you may lose claim of refund forever.
 

I am running a sole proprietary business where I own three office premises. I regularly claim depreciation on it as the same is used for the purpose of business. Now I am planning to sell two premises for a substantial consideration. I want to know what would be the Income Tax implication on sale.
 

The office premises which you propose to sell are depreciable assets and therefore any surplus arising on the sale of office premises would be taxed as short-term capital gain irrespective of the fact that you have been holding the premises for the last so many years. Under Section 50 of the Income Tax Act, all depreciable assets are subject to short-term capital gain. However, if you buy any new business asset within the same financial year, then the cost of the new asset can be set off against the sale consideration of your existing premises. If the cost of the new asset is more than the sale price, then there will be no capital gain at all. However, you will not be entitled for any depreciation on the new asset as the cost has already been set off. In case no new asset is purchased, then short-term capital gain can be set off against the current year’s business loss or unabsorbed depreciation of earlier years. Short-term capital gain would be subject to tax at 30 per cent plus applicable surcharge.
 

I own one residential premise which I have given on a monthly rent of ₹200,000. During the current financial year 2022-23 the tenant has not been paying rent nor vacating the premises. I have already filed an eviction suit in the court. What would be the tax implications on accrued rent?
 

Under the provision of the Income Tax Act, actual rent receivable from the tenant is to be considered as gross annual rent which is subject to tax after getting certain deduction. The actual rent means the rent for which the property is let out during the year. Therefore, ₹2,400,000 is an actual rent which has to be offered to tax irrespective of whether you have received it or not. However, in my opinion, you can claim unrealised rent as deduction from the actual rent while computing income from house property. However, you need to prove certain conditions such as the tenant is bona fide and that steps have been taken to compel the tenant to vacate the property and the tenant is not related to you. If you satisfy that the rent is unrealised and that you have taken all the legal steps to recover it, the unrealised rent would not be taxed.
 

My partnership firm could not file Income Tax returns for assessment years 2020-21 and 2021-22 and also did not get the tax audit report. Can I file the return now? What are the options available and what are the consequences?
 

Yes, you can file the updated Income Tax return online on the Income Tax portal. However, you can file the return only if there is an income. Loss return cannot be filed. You have to pay additional taxes and late fee, interest, etc. as provided in Section 139(8A) of the Income Tax Act. However, the tax audit report was supposed to be filed before the due date of filing the return for these two years. Since there is already a delay, you are liable to pay penalty under Section 271B of the Income Tax Act. However, the penalty can be dropped if you prove that there was a reasonable cause in not submitting the return as well as the tax audit report before the due date.