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HEREAFTER can't one set off losses against one's salary income?

Ramchandra Prabu

The last Budget disallowed set off of business losses against salary income. This then became the third taboo. Already there are two — loss from a speculative business cannot be set off against any other income save from a speculative business and loss from transfer of capital assets cannot also be set off against income from other heads of income. If anything, this is a good move because it tangentially frowns up employees doubling as businessmen. As it is, it is not quite uncommon for company bigwigs to wear two hats — employee's as well as entrepreneur's.

Invariably, the outcome from dalliance with business is a loss which is set off against the hefty salary. The proposed move will close this escape route.

Scrutiny doubt

I AM a civil contractor who has always been disclosing more than 8 per cent profit. Subsequently, my return has always been accepted under Section 44AD. However, the return for the AY 2003-04 has been selected for scrutiny under Section 143(2), although the profit disclosed is 12 per cent. Is the action legally valid? Am I required to attend the assessment proceedings?

J. T. Chinoy, Mumbai

Section 44AD overrides Sections 28 to 43C only. By implication it does not override Section 143(2). The assessing officer (AO) is, therefore, within his rights to initiate scrutiny assessment even in those cases where the scheme of computation of income is presumptive. But this is unfair to the assessee besides being in dissonance with the spirit of presumptive taxation. When Section 44AD says that 8 per cent of gross receipts will be accepted as norm, it holds out an implicit promise that anyone covered by the scheme disclosing 8 per cent or more (you have disclosed 12 per cent) will not be subjected to a roving enquiry. It would be in fitness of things, therefore, if Section 143(2) is amended so as to make presumptive taxation schemes out of bounds for scrutiny assessment.

CARO interest

IF A company has received loans from the managing director and grouped under unsecured loans, will the above transaction fall under Section 299 to be entered in register 301 and consequently fall under the reporting requirements of CARO under "whether all transactions that are to be entered into the register 301 have been so entered"?

Badhri, e-mail

Yes. Section 299 talks about any contract at all in which the director is interested. It need not necessarily be a purchase or sale contract. It could also be loans extended by him to the company he is the director of.

Matching principle

INCOME-TAX is required to be deducted at source at the time of credit or payment, whichever is earlier. Our accounting year ending is as on March 31. The bills dated as on March 31 or earlier, of several sub-contractors and labour contractors, for works carried out in the earlier year are received by us anytime between April 1 and July 31. These bills are accounted for as on March 31. Legally, therefore, the date of credit is March 31, while factually the credit is sometime between April 1 and July 31. TDS from a bill for March received in July and accounted as on March 31, would be paid only on or before August 7. Legally, the payment is delayed, because the credit was made as on March 31. How can the assessee comply with the provisions of law, in such cases?

S. V. Murali, Kochi

For year-end credits to contractors, the time available for payment of the TDS therefrom is two months. You have to impress upon your contractors the need for expeditious submission of bills. Submitting bills as late as after three or four months is simply not on.

The new Sec 372A

WITH the making of Section 370 of the Companies Act, 1956 inoperative with retrospective effect from October 31, 1998, by virtue of the Companies (Amendment) Act 1999, whether the concepts of same management/same group have any relevance in the Companies Act with special reference to investments or loans? Also, do the above concepts have any relevance in other economic legislation, such as the Income-Tax Act, FEMA, NBFCs, and so on?

Murali Manohar, e-mail

Yes, the compendious new Section 372A which has replaced the earlier Sections 370 and 372 does not make any distinction between inter-corporate loans/investments/guarantees to a company under the same group/management and others. But the Competition Act 2002 has still retained the group concept.

WPI vs CPI

HOW does one compute an index?

Sakuru Venkata Jagadesh,

e-mail

I take it that you are referring to price or inflation index. As far as inflation index is concerned, there are broadly two types — wholesale and consumer. The basket of goods figuring in the wholesale and consumer are different. The prices over two different time horizons are tracked and any change therein is recorded as increase or, as the case may be, decrease in inflation. Normally, there is a lag between the wholesale and consumer index — any increase or decrease in wholesale prices takes time to percolate down to the consumer level.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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