CASE STUDY 1: The Tribunal held that, in a case where an individual sells two flats owned by him separately

and acquires two different flats within the time schedule prescribed in section 54(1) of the Income Tax Act ,1961, exemption under that provision should not be restricted to one of the flats only but must be allowed to both the flats, since that provision had not placed any restriction on the number of times that an assessee could avail the exemption.

What is important is that sale of each residential house should link with investment in one residential house only ( and not more than one house) and each such set of sale and investment should satisfy the basic condition in section 54 of the Act. Once these condition are satisfied , exemption on capital gains should be allowed separately in respect of each such set of house instead of adopting any process of aggregation.

IN THE ITAT MUMBAI BENCH D Rajesh Keshav Pillai* v. Income-tax Officer, Ward 19(3)(2), Mumbai D. MANMOHAN, VICE-PRESIDENT AND RAJENDRA SINGH, ACCOUNTANT MEMBER IT APPEAL NO. 6661 (MUM.) OF 2009 [ASSESSMENT YEAR 2006-07] AUGUST 13, 2010

Section 54 of the Income-tax Act, 1961 - Capital gains - Profit on sale of property used for residential house - Assessment year 2006-07 - Whether in

view of provisions of section 54(1), exemption will be available in respect of transfer of any number of long-term capital assets being residential houses if other conditions are fulfilled - Held, yes - Whether, however, in case there are sales of more than one residential houses, exemption has to be computed considering each set of sale of residential house and corresponding investment in one residential house and not by taking into account aggregate of capital gains and aggregate of investment in residential houses - Held, yes FACTS The assessee owned two flats being the flat Nos. 41 and 51. Both the flats had been purchased on 5-1-2001. The flat No. 41 was sold by the assessee on 16-62005 for a sum of Rs. 1.01 crores and the flat No. 51 had been sold on 29-42005 for a sum of Rs. 97,79,500. Theassessee had thus, earned income on account of long-term capital gain from sale of two flats in assessment year 2006-07. The indexed gain in respect of flat No. 41 was Rs. 88,55,558 whereas the indexed gain in respect of the flat No. 51 was Rs. 85,55,508. The assessee invested the gain on sale of flats in two different flats, i.e., flat in Sai Dham for Rs. 81,57,624 and flat at Girnar for a sum of Rs. 95,71,364. The total investment in two flats was Rs. 1,77,28,988 which was more than the total index gain on sale of two flats of Rs. 1,74,17,617. The assessee, therefore, claimed the entire capital gain as exempt under the provisions of section 54. The Assessing Officer held that the assessee was entitled to claim exemption under section 54 only in respect of sale of one flat and the corresponding investment in one flat. Exemption was thus, allowed only in respect of indexed gain of Rs. 88,55,558 in respect of flat No. 41 with respect to the investment of Rs. 95,71,364 in Girnar flat. The investment being more than capital gain in respect of sale of flat No. 41, the capital gain was exempted whereas the indexed gain of Rs. 85,55,058 in respect of flat No. 51 was held taxable. In appeal, the Commissioner (Appeals) upheld the view taken by the Assessing Officer.

CASE STUDY 2: Mr. Nayak (NRI and resident of U.K.) has earned in India following income during the previous year (2006-07). Income from Dividend (from Indian Companies and Mutual funds). Interest on Loan given to his Brother (resident in India). Interest on Fixed Deposits with banks and Listed Companies. Short Term and Long Term Capital Gains on Sale of listed securities. Long Term Capital gains on Sale of Flat in India. Rental Income in respect of House Property and Car hire charges Discuss the Taxability of above income in India. Whether he is liable to file his return of Income in India.

Will the answer be different if he is a resident of either Hong Kong or Mauritius.

Case study 3: Mr. Purohit (NRI and resident of U.S.A.) has earned in India following income during the previous year (2006-07). Partners Remuneration from a Partnership firm in India He participated in Marathon in India and won the Cash prize of Rs. 5 Lakhs. He has developed an Accounting software and has given the license to the Indian Company to copy and distribute the same. He will be paid a lump sum consideration of USD 1 Million. Directors sitting fees for attending the Board Meeting in India of WOS of an U.S. Company. Discuss the taxability of above Income in the hands of Mr. Purohit. Would it make difference if he is resident of U.K.

Case study 4: Mr. Kapadia (NRI and resident of U.S.A.) is working with Government of India and has been deputed to Indian High Commission in U.S.A. He is getting a Salary and fixed allowance from Govt. of India in U.S.A. Discuss the taxability of such income in India. He retires from the Government service and settles in U.S.A. and gets a monthly pension from the Govt. of India (credited to his NRO account in India). Discuss the taxability of such income in India.

Case study 5: Mr. Hashimoto is a citizen of Japan. He is deputed to an Indian subsidiary of Japanese Company to provide his technical expertise for setting up a plant in India. According to the Deputation Contract, he will be residing in India for a period of Nine months beginning 1st November 2006. His Salary and Social security benefits will be paid in Japan. However he will get a monthly allowance in India from an Indian subsidiary as per the Contract entered into by Japanese Company with the Indian subsidiary. He remains on the payroll of Japanese Company. Discuss the taxability of such Income in the hands of Mr. Hashimoto. Whether the answer will change if he is seconded to an Indian subsidiary from 1st September 2006 for a period of one year.

Case study 6:

Fosters Australia Limited (the applicant), a tax resident of Australia was the owner of tradename, trade mark, brand and other intellectual property related to Fosters Beer. The applicant entered into Indian market, in the year 1997, by granting an exclusive license to an Indian company, Fosters India Limited (FIL), to brew, package, label, and sell Foster's Lager (beer). During the year 2006, the applicant executed a sale and purchase agreement (the SandP Agreement) in Australia, with a UK based company SAB Miller. SandP Agreement was a composite agreement for sale of shares and the transfer of all right, title and interest in India in (a) trade marks (b) Foster's brand intellectual property and (c) Foster's brewing intellectual property. It was also the case of the applicant that erstwhile licence agreement with FIL was terminated prior to execution of the SandP agreement and hence the intellectual properties reverted back to the applicant prior to their assignment, without any encumbrance