Saturday 30 March 2013

AS-22 "DEFFERED TAX EFFECT IN CASE OF CHANGES IN TAX RATE & IN CASE IF BUDGET IS POSTPONE BEYOND 31ST MARCH"



DEFFERED TAX EFFECT IN CASE OF CHANGES IN TAX RATE : 
While current taxes will be created at current tax rate and deffered tax effect should be given at future tax rate announced in the budget. This is because the Deffered Tax Asset will realize OR Deffered Tax Liability  will settled in the future and the benefit OR obligation will be at future tax rate, therefore no point in creating Deffered Tax Asset and Deffered Tax Liability at current tax rate.

If the future tax rate is different compared to the current tax rate, than even after giving deffered tax effect, shareholder’s readability for matching concept will not be met. Therefore, additional explanatory disclosure must be given to enable user readability.


DEFFERED TAX EFFECT IN CASE IF BUDGET IS POSTPONE BEYOND 31ST MARCH :
LOGICAL REASONING: The Company must create deffered tax effect only at old tax rate and ignore the new rates in the budget. The “ FRAMEWORK FOR PREPARATION AND PRESENTATION OF FINANCIAL STATEMENT” specifies that one of the important objectives of the Accounting Standards is to enable “COMPARABILITY” to the users of Financial Statements.

TECHINAL RESAONING: This issue comes under AS 4 “Events Occurring After The Balance Sheet Date”. The Budget  is a event occurring after the balance sheet date, but it does not substantiate a condition existing as on the balance sheet date i.e. 31st March. Therefore, it is an non adjusting event and deffered tax effect will be at old rate.

Thursday 28 March 2013

Applicability of TDS Provision under Income Tax Act, 1961.


The TDS provision is only applicable in Current Year (Say F.Y. 2012-13) only if Turnover/Total Receipts of the Individual/HUF exceeded the monetary limit for audit u/s 44AB viz. Rs. 60,00,000 (Rupees Sixty Lakhs) in preceding year (F.Y.2011-12) .


Merely the audit under the provisions of the section 44 AD in the last year does not make assessee liable to deduct TDS in current year.

Tuesday 26 March 2013

AS-16 "CAN INVESTMENT BE QUALIFYING ASSETS?"


“Borrowing Cost attributable to Qualifying Assets must be capitalized.”

“Qualifying Assets are assets that take a substantial period of time to become ready for their intended use or for sale.”

Say a Company borrow funds and pay share application money. However, shares are not allotted for a substantial period of time, is it possible to capitalize the borrowing costs to this account?

The intended is that of investments i.e. allotted shares. Therefore, technically under the definition of A.S. 16 capitalization should be allowed. However under IFRS, there is specific exclusion since until shares are allotted in legal form it is only an advance i.e. ready for call back. In A.S. 16, there is no such specific exclusion. However the ICAI has issued a Expert Opinion on this issue in line with International Practice treating this is not eligible for capitalization. The soon to come Ind. A.S. also has such specific exclusion, however, currently the issue is debatable. 

Monday 25 March 2013

STCG ARISING FROM THE TRANSFER OF ANY LONG TERM CAPITAL ASSET WILL QUALIFY FOR EXEMPTION.


The provision of Section 50 on Income Tax Act, 1961 creates a legal fiction in defining the nature of gain on transfer of depreciable assets. Accordingly, the gain arising from the transfer of the depreciable asset is deemed to be Short Term Capital Gain/Loss. The legal fiction is for a limited purpose which defines the nature of gain and not the nature of Capital Asset. Therefore, depreciable asset being a long term capital asset on its transfer shall result into Short Term Capital Gain u/s 50 of Income Tax Act, 1961.

The roll back exemptions u/s 54 to 54 GB make an emphasizes on the exemption towards the gain of the qualifying capital asset which in major cases is long term capital asset. Therefore, thrust of the exemption is on the nature of capital asset and not on the nature of gain.

U/s 54EC Gain arising from the transfer of any long term capital asset will qualify for exemption under this section if the Net Sales Consideration is invested in the specified bonds within a stipulated time period. Therefore, Short Term Capital Gain on transfer of depreciable asset being a long term capital asset would qualify for the exemption u/s 54EC where the necessary investment is made.

ACE Builders Pvt. Ltd. (Bombay High Court).

Friday 22 March 2013

EXPENDITURE INCURRED ON ANIMAL DURING THEIR PREGNANCY WILL BE TREATED AS COST OF ACQUISITION OF OFFSPRING OF ANIMAL.


The court held that the amount spent by the asseessee on the maintenance of the horse during the pregnancy period was really for protecting, preserving and keeping the horse in good health so that healthy offsprings are born. The maintenance expenses on horse during the pregnancy period are in fact to bring into existence offsprings and therefore can be regarded as cost of acquisition of offsprings. The court also held that these animals are superior and valuable than untrained animals. Therefore, the training expenses would constitute cost of improvement of capital assets.

Madras HC in CIT Vs Ramaswamy Mudaliar.

Thursday 21 March 2013

GAIN ON SALE OF GOLD UTENSILS ARE TAXABLE UNDER HEAD CAPITAL GAINS.


Gold Utensils are not personal effects and are capital assets. Capital Gains shall arise on sale of gold utensils. It is tradition in Indian Families to use silver utensils on occasion but there is no such tradition to use gold utensils.

Wednesday 20 March 2013

SIGNIFICANT DIFFERENCES BETWEEN I.A.S. 11 & A.S. 7



1.      The I.A.S. 11 is applicable to Real Estate Developers.

2.      This document on real estate developers is currently not followed in India, though is proposed to be part of soon to come Ind. A.S.

3.      Real Estate Developers construct apartments/flats with an intention of selling them, therefore such apartments/flats are items of inventory for such business.

4.      In Urban cities, some apartments/flats are booked by buyers even before the construction begins. Legal title of the apartments/flats is transferred and registered in name of the buyer.

5.      In substance, the buyer henceforth exercises effective control over such apartments/flats.

6.       Therefore, the real estate developer while constructing such apartments/flats  takes on the role of the contractor as he works on the asset which does not belong to him.

7.      Under I.A.S 11, such apartments/flats are treated as Construction Contract and accounted as such by the developer. The consideration for the sale becomes the fixed contract price for accounting purpose.

8.      In respect of other apartments/flats which are not sold until ready, inventory is being created and is accounted as such.

9.      Therefore in a single project the real estate developers may treat some units as inventory and certain other units as Construction Contracts.

10.  It is also possible that the unit started out as inventory and some where it was half finished it gets sold. In such cases the total consideration receivable by the buyer is broken up into 2 components i.e. 
      a) Component of Sale of W.I.P. 
      b) Component of Construction Contract.


In India this document is not followed and real estate developers accounts for the entire project ( all units whether pre-sold or not) under AS-2 “Inventories” . Any consideration received is held as an advance against sale of stock and is only taken as revenue when the final possession is given to the buyer.

Tuesday 19 March 2013

Depreciation Allowable Though Land Not Owned.


"Assessee having constructed toll bridge on land provided by Government on long lease, exercised full ownership rights on the road which include charging of tolls was entitled to depreciation on the same"

HC relied on SC ruling in Mysore Mineral Ltd. (239 ITR 775) and Explanation I to Sec. 32. The Explanation clarifies that in respect of ant capital expenditure incurred by the assessee for construction of structure in a leasehold  building, depreciation would be available.

Allahabad HC-CIT vs. Noida Toll Bridge Co. Ltd. (2013) 255 CTR (All) 88.


Monday 18 March 2013

Nomination of Shares - Section 109A of Companies Act, 1956.


1. What are nomination and its advantages? 

Nomination refers to the act of nominating a person in whom the shares would vest in the event of death of the shareholder. 

Notwithstanding anything contained in any other law or any testamentary deposition or otherwise, in respect of the shares, where a nomination has been made in accordance with the provisions of Companies Act, 1956, on the death of the shareholder, (or in case of joint holdings, on the death of all the joint holders), the Nominee shall become entitled to the rights in relation to such shares held by the deceased shareholder(s), to the exclusion of all other persons unless the nomination is revoked. 


2. Who can be a Nominee? 

A nominee can be a family member or a friend or any other person whom you trust. Only one person can be appointed as a nominee. 


3. What is the Role of the Nominee? 

Nominee is an important person; he or she has no rights over the money or shares unless that is specified under the will or the nominee happens to inherit the money. So as such a nominee is a mere custodian of the Shares. In the event of a person’s death, the Depositories could get in touch with the nominee for further instructions to act on the account. At the time of claiming the savings, the nominee will have to give a proof of his identity to the relevant authority. 


4. Who can appoint a Nominee? 

Only individuals holding accounts either singly or jointly can make nomination. Nonindividuals including society, trust, body corporate, Karta of Hindu Undivided Family, holder of power of attorney cannot nominate. 


5. Is it compulsory to appoint a Nominee? 

It is not compulsory to appoint a nominee. 


6. Can a Minor be appointed as a Nominee? 

Yes, a minor can be appointed as a nominee. In such case, the guardian will sign on behalf of the nominee and in addition to the name and photograph of the nominee, the name, address and the photograph of the guardian must be submitted. 


7. How do the Nominations by Joint Account Holders work? 

Nomination for joint holders is permitted, however, in the event of death of any of the holders the benefits will be transmitted to the surviving holder’s name. In the case of death of all holders, the benefits will be transmitted to the nominee account.


8. My shares are held in joint names. Are the joint holder/s nominees to the shares? 

Joint holders are not nominees. They are joint holders of the relevant shares having joint rights on the same. In the unfortunate event of death of any one of the joint holders, the surviving joint holder/s of the shares is/are the only person/persons recognised by the company as the holders of the shares. 


9. How do I make a nomination with regard to my shareholding? 

The shareholders shall submit a Nomination Form (Form 2B) in duplicate, duly filled and signed by all the shareholders as per format attached. Only one nominee can be nominated per folio. On receipt of the request for registration of nomination, the Share Transfer Agent will register the same by allotting a registration number. The duplicate copy of the nomination form will be returned to the shareholder(s) indicating the registration number and the date of registration of nomination. For nomination of shares held in de-mat form, please contact your Depository Participant. 


10. Do I have to send my share certificates along with the nomination form? 

No. 


11. Can a nomination once made be changed? 

Nomination once made can be revoked by a shareholder by giving a fresh nomination. If the nomination is made by joint holders, and one of the joint-holders dies, the remaining joint holder/s can make a fresh nomination by revoking existing nomination. 


12. What is the Procedure to make a fresh nomination? 

In case the surviving shareholder makes a fresh nomination the earlier nomination automatically gets cancelled. An investor can change a nominee as many times as he wishes. In the absence of clear guidelines a shareholder can change the nomination by a letter revoking his old nomination and submitting fresh Form 2B for change in nomination. 


13. Can Joint holders make different nomination? 

Joint holders cannot propose different nominees for the same shares / debentures. The rules do not prescribe any specific manner for variation or cancellation of the nomination already made. However, in case of joint holdings, a person will have to be jointly nominated by all the joint holders.


14. What is the legal position of the nominee in case of death of the Shareholders? 

Upon the death of a shareholder, the Nominee, to the exclusion of any other legal heir/beneficiary, is the only person in whom the shares vest. In other words, in case of a valid nomination, the company will not entertain any claim from legal heirs or beneficiaries and the shares will be transmitted only in favour of the Nominee. In case the nomination is made by joint-holders, the nomination will come into play only upon the death of all the joint holders. Therefore, if one of the joint shareholders dies, the shares will devolve on the surviving shareholders to the exclusion of the Nominee. In this case, the surviving shareholders may make a fresh nomination if they so desire. 


15. What is the procedure for the nominee to get the shares in his name? 

Upon death of a shareholder, the nominee is entitled to have the shares transmitted in his favour. She/he will have to give a notice in writing to this effect along with the share certificate(s) of the deceased shareholders. Alternatively, the nominee can transfer the shares held by the deceased shareholder, to a third party. If a nominee opts for registration of shares in his name, he is required to produce proof of identity, e.g., copy of passport, driving license, voter's identity card or such other proof to the satisfaction of the company. The nominee should also submit his specimen signature duly attested along with a request for transfer. Upon scrutiny of the documents submitted by the nominee, shares will be transmitted in his favour and share certificates returned to him duly endorsed. 


16. Can the nominee sell the shares without registration in his favour? What is the procedure? 

Yes, a nominee can sell the shares to a third party, without registration of shares in his favour. However, the usual procedure for transfer of shares will have to be followed. 


17. What is the effect of nomination when a shareholder dies leaving a minor nominee? 

In terms of Sub-Section (4) of Section 109A of the Companies Act, 1956, if the Nominee is a minor, it shall be lawful for the holder of the shares to nominate in the prescribed manner any person to become entitled to shares in the event of his death during the minority of the Nominee. In case of a minor Nominee, a person is required to be named as a guardian to whom the shares shall vest in the event of death of the shareholder during minority of Nominee. On attaining majority, the Nominee is required to send a notice of his decision to either become a shareholder or to transfer the shares. 


18. How does the Nomination for shares held in dematerialized form work? 

In case the shares are held in dematerialised form, the nomination has to be recorded by the Depository Participant (DP), who is maintaining the de-mat account. In the application form provided by the Depository Participant for the opening of new de-mat account there is a column for providing the details of the nominee. In case the investor had not provided the details of nominee at the time of opening of the de-mat account or if he subsequently wants to change the nominee in respect of an existing de-mat account he can do so by furnishing the requisite details to his DP. If an investor is not sure as to whether he had submitted the details of nominee at the time of opening of the de-mat account or not, he may ask for a copy of client master from 
his DP which contains all the details about the de-mat account like the residential address, residential status, particulars of the bank account to which dividend amount is to be credited, particulars of nominee etc. 


19. Can there be one nominee for all other Companies shares held in De-mat account? 

Once the nominee details is updated in your de-mat account, the individual will be nominee for the shares available in your de-mat account. Therefore there is no need to separately inform each company of the de-mat account nominee.


20. What happens if the Nominee dies before the Shareholder? 

If a nominee dies before the shareholder / debenture holder, the nomination automatically gets cancelled until and unless the shareholder furnishes fresh nomination form to the company. In such an event the company transmits the shares / debentures in favour of the legal heirs or the holder(s) of the succession certificate (certificate issued by a court to the legal heirs of a deceased). Thus the heirs of the nominee are not entitled to the shares / debentures if the nominee has predeceased the shareholder / debenture holder. 


21. Which is the form to be filled for Nomination of Shares? 

Nomination form 2B