(1)

Section 54GB to be amended to permit investment of net consideration on sale of residential house, in an eligible start-up, being an LLP, for exemption of long-term capital gains

Last year, the Finance Act, 2016, had inserted new section 80-IAC to provide incentive to eligible start-ups. For this purpose, the eligible start-up could be either a company or an LLP engaged in eligible business. Further, section 54GB was amended to extend the exemption available thereunder in respect of long-term capital gain on sale of residential house, if the net consideration is invested in subscription of equity shares of a company which qualifies to be an eligible start-up on or before the due date of filing of return of income under section 139(1). For the purpose of section 54GB, "eligible start-up" is to have the same meaning as assigned in section 80-IAC.

It may be noted that the definition of eligible start-up in section 80-IAC includes both a company and an LLP. Though the eligible start-up for the purpose of section 54GB is to have the same meaning as in section 80-IAC, section 54GB does not contain enabling provisions permitting investment of net consideration on sale of residential house in an LLP.

Suggestion

This inconsistency may be appropriately addressed by amending section 54GB to incorporate enabling provisions facilitating investment of net consideration on sale of residential house in an eligible start-up, being an LLP.

(2)

Definition of Accountant to be included in section 2

The term "Accountant" is defined in Explanation below section 288(2) and this definition is being referred to in other provisions of the Income-tax Act, 1961 wherever there is a requirement for certification or audit by an accountant. Section 288 is on appearance by authorised representatives. As per section 288(2), authorised representative includes an accountant. It is for this purpose that the definition of accountant initially found place in the Explanation below section 288(2).

The definition of "Accountant" in the said Explanation was substituted by the Finance Act, 2015. Now, the amended definition contains a detailed list of exclusions from the meaning of Accountant. However, the said exclusions do not apply where the Accountant acts as an authorised representative for the purpose of section 288(1).

Suggestion

Since the exclusions contained in the definition do not apply where the Accountant acts as an authorised representative for the purpose of section 288(1), the amended definition of Accountant, containing a detailed list of such exclusions, should ideally be placed in section 2 and not in section 288, which is basically on appearance by authorised representatives.

(3)

Exemption of transfer by a unit holder of units held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of units in the consolidated plan of the mutual fund scheme - Consequential amendments required in section 2(42A) and section 49

New clause (xix) has been inserted in section 47 by the Finance Act, 2016 to exempt any transfer by a unit holder of units held by him in the consolidating plan of a mutual fund scheme, made in consideration of the allotment to him of units in the consolidated plan of the mutual fund scheme. However, consequential amendments have not been made in section 2(42A) and 49 to provide for period of holding and cost of such units allotted in the consolidated plan of the mutual fund scheme.

Suggestions

(1) New clause may be inserted in Explanation 1 to section 2(42A) to provide that in the case of a capital asset, being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in clause (xix) of section 47, there shall be included the period for which the unit or units in the consolidating plan of the mutual fund scheme were held by the assessee.

(2) Further, new clause may be inserted in section 49 to provide that where the capital asset, being a unit or units in a consolidated plan of mutual fund scheme, became the property of the assessee in consideration of a transfer referred to in clause (xix) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating plan of the mutual fund scheme.