Tax Column

Under the law, as on today, you can file the return of income only for last financial year 2017-18 relevant to assessment year 2018-19 

Jayesh Dadia 
Chartered Accountant 

I am an individual holding 90% equity shares in a private limited company which owns residential property. The remaining 10% is held by my wife. I was told that if a private limited company sells residential property, then the company has to pay short term capital gain tax at 30%, and after paying the tax, the surplus amount would remain in the company itself. Is it possible for me to sell the company itself by transferring shares to the potential buyer of property and receive the consideration in my name as well as in the name of my wife? If yes, what would be the tax implications? 

Yes, you can sell the entire investment in equity shares of the private limited company. You have to ensure that the consideration which you receive for the shares should not be less than the fair market value as determined under Rule 11UA of the Income Tax Rules. Under this provision, the value of the underlying asset, i.e. the residential property, has to be taken into consideration for determining the sale consideration of the shares. Thus, the entire consideration in your hand would be treated as long term capital gain (LTCG) at 20% with indexation benefit. Further, if you do not have more than one residential property in your name, then you can invest in another residential property. Under section 54F of the Income Tax Act, the capital gain would be exempted. Therefore, if you sell the property through sale of shares of the company, the same is legitimate and permissible under the law. 

I am holding shares in A Pvt Ltd company. There is a proposal of merger of A Pvt Ltd with B Pvt Ltd. Post merger, I will get shares of B Pvt Ltd in lieu of my holding in A Pvt Ltd. Is there any tax implication in my hand? 

Under Section 47(vii) of the Income Tax Act, any transfer by a shareholder in a scheme of amalgamation of a capital asset, being a share or shares, held by him in the amalgamated company and the transfer is made in consideration of allotment to him of any shares in the amalgamating company, then such transfer is exempted from the capital gain tax. Hence, if you transfer shares of A Pvt Ltd in a scheme of amalgamation, and in consideration of transfer, you have been allotted shares of B Pvt Ltd.,thenthe entire transaction is exempted under section 47(vii) of the Income Tax Act. Thus, there is no tax implication. Further, when you sell shares of B Pvt Ltd, you will get benefit for the holding period of shares of A Pvt Ltd. 

I am a widow and a senior citizen. After my husband’s death, I stopped filing returns for almost five years, i.e. for assessment years 2014-15 to 2018-19.One of my relatives informed me that I have taxable income for all these years and, therefore, I should have filed the return of income. Can you advise me what should I do and how to regularize my default? 

Under the Income Tax Act, any individual who earns taxable income is supposed to file annual return of incomeevery year and pay taxes accordingly. Non-filing and nonpayment of taxes attracts interest, penalty and prosecution. Therefore, my advice to you is to file the return of income and pay taxes payable thereon voluntarily before receiving any notice from the Income Tax Department. 

Under the law, as on today, you can file the return of income only for last financial year 2017-18 relevant to assessment year 2018-19. Please tell your consultant to file the return of income for assessment year 2018-19 and pay the taxes along with interest thereon. 

As for the earlier assessment years, i.e. assessment years 2014-15 to 2017-18, I request you to please compute the tax liability of those years and pay the taxes as on today with interest up to date. In case the Assessing Officer reopens the case, you can plead that although you forget to file the return, you have paid the taxes with interest upto date and, therefore, penalty and prosecution may be condoned. However, while calculating tax liability of earlier years, you can avail whatever benefits/deductions available to senior citizen under the law. 

Please also verify your 26AS statement on the website of the Income Tax Department to reconcile your income and also to know the exact amount of TDS. While computing the tax liability, you can take credit for TDS amount as reflected in 26AS.