Section 94(8) - BONUS STRIPPING

Section 94(8) - BONUS STRIPPING

Bonus stripping [Section 94(8)] : Where –

(a)    any person buys/acquires any units ('original units') within a period of 3 months prior to record date;

(b)    such person is allotted additional units without any payment on the basis of holding of such units on such date; and

he sells or transfers all or any of the original units referred to in

(a)    within a period of 9 months after such date, while continuing to hold all or any of the bonus units referred to in (b), (a) the loss, if any, arising to him on account of purchase and sale of original units shall be ignored in computing his total income, and (b) the loss so ignored shall be deemed to be the cost of purchase or acquisition of such bonus units referred to in (b) as are held by him on the date of such sale or transfer.

Q1. - Computation of gross total income : J furnishes the following particulars relating to his house properties and other incomes and expenditure for the year 2019-20 :

(1)    First House : This house is taken by him on lease for 10 years which is let to a tenant, for his residence, at a monthly rent of 2,400. He has incurred the following expenses during this year :

Lease rent                                                                                                                                 1000 per month

Salary of Durban                                                                                                                        200 per month

Interest on loan taken to pay for the acquisition of the lease                                         200 per month

(2)    Second House : This house was constructed by him in 1988, but was transferred to his wife in 1992 out of love and affection. He, however, continues to stay in this house with his wife till date. He has taken a loan for the construction of this house for which interest of 6,000 becomes due for the year, but had not been paid by him. He has paid repair expenses of 1,000 during the year.

(3)    Taxable income from business for this year amounts to 64,000. Compute gross total income of J for the assessment year 20-21.

Solution: Computation of Gross Total Income of J (amounts in ₹)

Income from House Property



Net Annual Value of Self-occupied HOUSE II


Less: Interest on borrowed capital



Profits and Gains from Business or Profession



Income from other sources



Rent of House I ( 2,400 x 12)



Less: Lease rent (1,000 x 12)



Salary of Durban (200 x 12)



Interest on loan taken to pay for the acquisition of the lease (200 x 12)



Gross Total Income



Working Notes :




(1)    Since Second House has been transferred by Mr. J to his wife without adequate consideration, hence he shall be to be the deemed owner of such house . Thus, the same is taxable in his hands.

(2)    Since First House is taken by Mr. J on lease of 10 years i.e. less than 12 years, hence he is not the deemed owner of this house. Thus, income from this house shall be taxable in the hands of Mr. J under the head 'Income from Other Sources'.

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