Income earned overseas

T. Banusekar

Query

I am a director of a foreign company which manufactures various metal powders. I obtained a clearance from the Ministry of Finance (MOF), to be a director in the year 1989 and continue to be one since then. The income I earned overseas was earlier treated as not taxable.

The Income-Tax Department is now not granting deduction and requires that I get a fresh approval from the MOF. I have been trying to get such an approval by sending various letters and also through personal visits, but the approval is not forthcoming. In the meantime, because the deduction has not been allowed, appeals have been filed and are pending before the Tribunal. In this connection I wish to know whether:

*I am right in taking up the directorship of a foreign company

*I am a technical person under the Income Tax-Act

*permission is required under the Income-Tax Act for taking up the directorship

Jayaram M

Reply

From the facts it appears that the reader wishes to know the provisions relating to the deduction available u/s.80RRA. To claim this deduction, the following conditions need to be satisfied

*the individual is a citizen of India earning remuneration in foreign currency

*such remuneration is paid by a foreign employer or an Indian concern for service rendered outside India

*a certificate in Form 10H is furnished along with the return of income

*the individual is a technician and the terms and conditions are approved by the Central Government or the Foreign Tax Division in the Department of Revenue in the Ministry of Finance.

A technician for this purpose means a person having specialised knowledge and experience in:

*constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or

*agriculture, animal husbandry, dairy-farming, deep-sea fishing or shipbuilding; or

*public administration or industrial or business management; or

*accountancy; or

*any field of natural or applied science (including medical science) or social science; or

*any other field which the Board may prescribe in this behalf,

who is employed in a capacity in which such specialised knowledge and experience are actually utilised

The Board has for the purpose of item (vi) above prescribed the following fields: Banking, insurance, journalism and profession of actuaries. From the reader's query, the nature of service rendered by the reader is not clear. Therefore, it is not possible to comment on whether the reader is a technician for getting the benefit of this Section

As regards the taking up of the directorship of a foreign company, the Income-Tax Act places no such restrictions. However as has already been stated to claim the deduction u/s.80RRA an approval is required. A question arises as to whether this approval needs to be obtained on a year to year basis. In this connection it may be noted that the application is to be made in Form No.ITNS-186.

This approval may be granted for one year or for more years depending on the nature of agreement between the employer and employee. Thus if the period for which the approval originally been granted by the MOF has expired, it will be required that a fresh approval needs to be obtained. The reader has stated that though a fresh application has been made, no response has been forthcoming. Under these circumstances the only option that seems to be available to the reader is to file a writ petition before the Court.

Incidentally, it may be mentioned here that the deduction under this Section for the assessment year 2001-02 would be 60 per cent of such remuneration or amount brought into India in convertible foreign exchange within 6 months from the end of the previous year or such extended time as may be allowed by the competent authority.

Query

I would like to know whether on switching from one mutual fund scheme to another managed by the same asset management company (AMC) a capital gain or loss would arise to an investor though no money is actually received.

Suja Nambiar

Reply

On the switching from one mutual fund scheme to another, though managed by the same AMC, a gain or loss would arise. This is so because the same would be a transfer within the meaning of Section 2(47) of the Income-Tax Act.

Query

Units of a Mutual Fund are acquired at their net asset value. Subsequently, the fund declares a dividend and after such declaration the units are sold at a loss. In such a case it is understood that there would arise a capital loss which would be short-term, and the dividend income earned would be exempt from tax. Is this correct? Can such loss be set off against any long-term capital gain even if such gain arises from sale of land?

Bharat Garg

Reply

If the units are held for 12 months or less, the gain arising, if any, would be short-term. It is true that the income distributed by a mutual fund referred to in Section 10(23D) would be exempt u/s.10(33) in the hands of the unit-holder.

Under Section 71 a loss arising under one head can be set off against income under any other head. One of the exceptions to this rule is that a loss under the head capital gains cannot be set off against income under any other head. However, there is no prohibition on the set-off of loss under the head `capital gains' against gains under the same head. Since both short-term and long-term gains or losses are computed within the same head `Capital Gains', there is no prohibition to the set-off of loss from the sale of units being short-term capital loss against long-term capital gain arising from the sale of land.

Query

My mother, aged 60, received a consideration of Rs 50,000 in November 2000 towards waiver of a tenancy right that she held. My family consists of myself, my three minor children, my wife who has no taxable income and my mother. I am at present not an IT assessee as my taxable income does not exceed Rs 50,000. However, I am likely to have income which will be taxable from the next assessment year.

I seek your advice on how the money received by my mother can be best utilised without attracting tax for the welfare of my children.

Khateeb

Reply

There may be several ways in which an income can be best used by investing the same in tax-free or low-tax investments. It may not be possible for Tax Talk to give specific advice on the same. The reader is advised to seek professional advice.

However, in the nature of a broad guideline, it may be said that in the reader's case the amounts involved at present are too small to make the income arising therefrom taxable. Section 3 of the Gift Tax Act has been made inoperative. Therefore, no tax is leviable on gifts. It may be possible that the amounts may be gifted to the three minor children of the reader or by way of transferring the same by way of creating a trust for the benefit of the minors.

Business Line invites queries on personal taxation issues to this column. They will be answered in the first Sunday's issue of Business Line every month. Queries may be addressed to Tax Talk, Business Line, Kasturi Buildings, 859, Anna Salai, Chennai 600002, or by e-mail to vaidy@thehindu.co.in