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No tax on value of gold held from 2015-16.

However, capital gains will be chargeable to tax when the gold coins are sold.

When I went to India I found out that some banks are selling gold coins. However, they are reluctant to buy back the coins, though some do so. I want to know whether there is any window for selling gold coins which jewellers buy but at a marginally lower price.

R.K. Chari, Dubai

While several banks sell gold coins, no one is offering a buy back option. However, the Commodity Exchange NCDEX proposes to sell gold coins with a buy back facility. The exchange will offer contracts in 5gms, 10gms and 50 gms coins in the next six months. This option will be in addition to the Gold Monetisation Scheme where a fixed rate of return will be available. On the exchange platform, the return will be market driven.

Since wealth-tax is abolished from the current financial year 2015-16, there will be no tax payable on the value of the gold held hereafter. However, capital gains will be chargeable to tax when the gold coins are sold under the proposed scheme. Buying and selling of gold will be made online. Recycled gold will also be accepted provided such gold is obtained from gold refineries which are approved by NCDEX.

I had sold my residential apartment in Bangalore and with the sale proceeds I have constructed a house in my home town. The full capital gains have been so invested but the tax officer has declined to grant the exemption of the capital gains made on the ground that the completion certificate has not been obtained for the new house which has been constructed. Should I pay the tax in respect of the demand raised on me?

S. Kamath, Doha

To claim exemption under section 54 of the Income-tax Act, the capital gains made on sale of a residential house which was earlier held for more than three years have to be invested in either purchasing a new house within two years or in constructing a new house within three years from the date of sale of the old house.

For determining the time frame, courts have generally taken a liberal view and held that if a substantial portion of the residential property is constructed within three years, and the capital gains are invested in such construction, the benefit of the exemption under section 54 should be allowed by the tax department.

There is also a circular issued in October 1993 by the Central Board of Direct Taxes, which has taken a liberal view for granting the exemption. In this circular it has been held that where a house is constructed, the cost of land and expenditure on construction should be taken into account while considering the reinvestment of the capital gains made on sale of the old property. Acquisition of plot means that the purchaser must have control over the land and taken possession thereof, though the registration of the documents may still be pending.

Therefore, you should file an appeal against the assessment order and ask for stay of the tax demand by the appellate authority. If he refuses to do so, you should pay the tax.

My family has set up a charitable trust. The trust has made an application for certificate under section 80-G which has been pending for some time with the tax authorities. In the first year the trust did not spend 85 per cent of its income for charitable purposes. The tax officer wants to reject the application under section 80-G on this ground. Is he justified in his stand?

K.L. Sharma, Sharjah

Whether to grant certificate of exemption under section 80-G or not depends on the objects of the trust. If the objects are entirely for charitable purposes, the tax department is bound to issue the certificate and cannot refuse it on any ground. If the charitable trust does not spend 85 per cent of its annual income on charitable purposes, the unspent amount will be liable to tax as income of that financial year. This cannot be a ground for denying the exemption certificate under section 80-G so long as the conditions of this provision are complied with. Your trust should, therefore, go in appeal if an order is passed rejecting the exemption application under section 80-G. There are some decisions of courts in favour of your trust on this point.

The writer is a practising lawyer specialising in tax and exchange management laws of India.

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Publication:Khaleej Times (Dubai, United Arab Emirates)
Date:Jun 7, 2015
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