The Hindu Business Line : No free harvest from this sale

I purchased two acres of agricultural land in 1996. I have carried on agricultural activity on this land and I have a small farmhouse on this land. I earn an agricultural income of around Rs 1 lakh every year from this land. I purchased the land for Rs 1,70,000 and I propose to sell it for Rs 10 lakh. The land is about 8 km from city limits, it is in a rural area, where the population is around 12,000. Will capital gains be chargeable on the sale of the land? B. Selvam

Capital gains will not arise if agricultural land is in India and situated outside a specified area, not being land situated within the specified limits. Specified area means any area which is within the jurisdiction of a municipality or cantonment board and which has a population of less than 10,000 as per the last preceding Census of which the relevant figures have been published before the first day of April of the previous year or includes any area within a distance of 8 km from the limits of such municipality or cantonment board and notified by the Central Government in the official gazette. If this condition is not satisfied, the sale of the land, even though used for agricultural purposes, will be chargeable to tax under the head capital gains.

From the facts given by you it appears that capital gains will be chargeable on the sale of the land since you do not seem to satisfy the above conditions to claim the exclusion.

During the financial year 2002-03, my employer had deducted and remitted excess tax of Rs 20,000. I was informed of this by my employer till February 2006. Since more than two years have passed, I cannot file a revised return to claim the refund. For the financial year 2006-07, I have a further liability of Rs 25,000 towards tax to be paid. How do I set off the refund that is due to me against the tax payable? Raj

You are correct in your understanding that it will not be possible for you to file a revised return as more than one year has lapsed from the end of the relevant assessment year, that is, 2003-04, which corresponds to the previous year 2002-03. It appears that you have filed a return for the assessment year 2003-04 for otherwise the question of filing a revised return itself would not arise.

If you have filed a return, the same would have been processed under Section 143(1)(a). In such a case, the refund, if any, due to you should have been issued by the Assessing Officer, if the tax was in fact paid in excess. If this has not been done, you can submit a rectification application under Section 154 seeking for the excess tax paid to be refunded.

If you have not filed a return then the only course open to you would be to file a return and make an application for condonation of the delay in filing the return to the CBDT (Central Board of Direct Taxes) which has the power to condone the delay, in exercise of its power under Section 119(2)(a).

It will not be possible for you to adjust the refund due of assessment year 2003-04 against the tax due for the assessment year 2007-08 (previous year 2006-07).

I want to invest Rs 50 lakh in the name of my daughter, who is studying. I propose to make the investment in a single premium policy where I would get Rs 10 lakh each in the third and sixth year and Rs 50 lakh in the ninth, along with a loyalty bonus. How will the receipts be subject to tax? Anonymous

You have not indicated what the sum assured is. It appears that the premium would be more than 20 per cent of the sum assured. In such a case, the investment will not be eligible for any benefit under Section 80-C. Similarly you will not be able to claim the amounts received from the insurance company as exempt.

This would be so since Section 10(10D), which allows an exemption in respect of money received from under a life insurance policy specifically, provides that if the premium exceeds 20 per cent of the sum assured, the amount received would not be eligible for exemption. It should, however, logically follow that only the excess over Rs 50 lakh, which is the amount, invested by you, which should be taxed.

You have not indicated whether your daughter will be a minor when she receives the money. If that were so, the income, which is taxed, will be clubbed in your hands. If, on the other hand, she will be a major at that time, the tax will be payable by her in her individual capacity.

I have sold a depreciable asset and the sale proceeds exceeds the written down value computed as per income-tax. Will the excess be charged to tax as capital gains or as business income? Raju

Section 50 deals with the taxation on transfer of a depreciable asset. (See Table). A short-term capital loss can arise only when all the assets in the block are transferred.

You may note that the charge will arise only under the head `capital gains' and will always be treated as short-term. You may also note that the computation of capital gains will be done on the basis of the block of assets and not on the basis of an individual asset. Block of assets means assets belonging to the same class and bearing the same rate of depreciation.

(Mail your queries to taxtalk@thehindu.co.in, or by post to `Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002)