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Notification No : 25/2016 Dated: 4-4-2016


Section 10(46) of the Income-tax Act, 1961 Central Government notifies West Bengal Pollution Control Board for dealing with specified income – 25/2016 – Dated 4-4-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 25/2016

New Delhi, the 4th April, 2016

S.O. 1309(E).-In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the West Bengal Pollution Control Board, a body constituted by the Government of West Bengal, in respect of the following specified income arising to the Board, namely:-

(a) consent fees or no objection certificate fees;

(b) analysis fees on air quality and water quality or noise level survey fees;

(c) authorisation fees;

(d) cess re-imbursement and cess appeal fees;

(e) reimbursement of the expenses received from the Central Pollution Control Board towards National Air Monitoring Program, the Monitoring of Indian National Aquatic resources and like schemes;

(f) sale of books relating to environmental law, regulations, important judicial orders and environmental issues where no profit element is involved and the activity is not commercial in nature;

(g) interest on deposits;

(h) public hearing fees;

(i) vehicle emission monitoring test fees;

(j) fees received for processing by State Environmental Impact Assessment Authority;

(k) fees collected for training conducted by the Environmental Training Institute of the Board where no profit element is involved and the activity is not commercial in nature;

(l) fees received under the Right to Information Act, 2005 (22 of 2005) and appeal fees;

(m) interest on loans and advances given to staff of the Board;

(n) pollution cost or forfeiture of bank guarantee due to non-compliance; and

(o) miscellaneous income including sale of old or scrap items, tender fees and other matters relating thereto, where no profit element is involved.

2. This notification shall be subject to the conditions, namely:-

(a) the West Bengal Pollution Control Board shall not engage in any commercial activity;

(b) the activities and the nature of the specified income remain unchanged throughout the financial years; and

(c) the return of income shall be filed in accordance with the provisions of clause (g) of sub-section (4C) section 139 of the Income-tax Act, 1961 (43 of 1961).

3. This notification shall be applicable with respect to the specified income of the West Bengal Pollution Control Board in the Financial Years 2015-2016, 2016-2017, 2017-2018, 2018-2019 and 2019-2020.

[F. No.196/11/2015-ITA-I]

DEEPSHIKHA SHARMA, Director

Notification No : 25/2016 Dated: 4-4-2016


Section 10(46) of the Income-tax Act, 1961 Central Government notifies West Bengal Pollution Control Board for dealing with specified income – 25/2016 – Dated 4-4-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 25/2016

New Delhi, the 4th April, 2016

S.O. 1309(E).-In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the West Bengal Pollution Control Board, a body constituted by the Government of West Bengal, in respect of the following specified income arising to the Board, namely:-

(a) consent fees or no objection certificate fees;

(b) analysis fees on air quality and water quality or noise level survey fees;

(c) authorisation fees;

(d) cess re-imbursement and cess appeal fees;

(e) reimbursement of the expenses received from the Central Pollution Control Board towards National Air Monitoring Program, the Monitoring of Indian National Aquatic resources and like schemes;

(f) sale of books relating to environmental law, regulations, important judicial orders and environmental issues where no profit element is involved and the activity is not commercial in nature;

(g) interest on deposits;

(h) public hearing fees;

(i) vehicle emission monitoring test fees;

(j) fees received for processing by State Environmental Impact Assessment Authority;

(k) fees collected for training conducted by the Environmental Training Institute of the Board where no profit element is involved and the activity is not commercial in nature;

(l) fees received under the Right to Information Act, 2005 (22 of 2005) and appeal fees;

(m) interest on loans and advances given to staff of the Board;

(n) pollution cost or forfeiture of bank guarantee due to non-compliance; and

(o) miscellaneous income including sale of old or scrap items, tender fees and other matters relating thereto, where no profit element is involved.

2. This notification shall be subject to the conditions, namely:-

(a) the West Bengal Pollution Control Board shall not engage in any commercial activity;

(b) the activities and the nature of the specified income remain unchanged throughout the financial years; and

(c) the return of income shall be filed in accordance with the provisions of clause (g) of sub-section (4C) section 139 of the Income-tax Act, 1961 (43 of 1961).

3. This notification shall be applicable with respect to the specified income of the West Bengal Pollution Control Board in the Financial Years 2015-2016, 2016-2017, 2017-2018, 2018-2019 and 2019-2020.

[F. No.196/11/2015-ITA-I]

DEEPSHIKHA SHARMA, Director

No. PRESS RELEASE Dated: 4-4-2016


Release of E-filing of Income Tax Returns (ITR) and other forms – Circular – Dated 4-4-2016 – Income Tax

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

PRESS RELEASE

New Delhi, 4th April, 2016

Sub: Release of E-filing of Income Tax Returns (ITR) and other forms –reg

In pursuance of the Notification of the Income Tax Returns (ITR) for AY 2016-17 on March 31st, 2016, Central Board of Direct Taxes announces the release of electronic filing of ITRs 1 and 4S on its website https://incometaxindiaefiling.gov.in. Other ITRs will be e-enabled shortly.

Online filing of Appeal before Commissioner (Appeal) using newly notified Form 35 has been enabled for taxpayers mandated to E-file their returns using Digital Signature Certificate. Electronic Verification Code (EVC) option will be available shortly for other category of taxpayers. Reference may be made to Notification 11/2016 dated 1 March 2016 for the various categories of taxpayers required to file appeal online.

In pursuance of Notification No 93/2016 dated 16th Dec 2015, effective from 1 April 2016, the following forms have been substituted by new forms and are now available for E-filing:

i. Form 15CA -payments to a non-resident not being a company, or to a foreign company,

ii. Form 15CB-Certificate of an accountant,

iii. Form 15CC -Quarterly statement

Vide Notification No 3/2016 dated 14th Jan 2016, CBDT had substituted with effect from 1 April 2016, Forms 9A(Application for exercise of option under clause (2) of the Explanation to sub-section (1) of section 11 of the Income tax Act, 1961) and Form 10 (Statement to be furnished to the Assessing Officer/Prescribed Authority under sub-section (2) of section 11 of the Income tax Act, 1961). These forms can be filed online using Digital Signature Certificate on the Income Tax Department’s e-filing website. EVC option will be available shortly.

(Shefali Shah)

Pr. Commissioner of Income Tax

(Media and Technical Policy)

and Official Spokesperson, CBDT

No. F. No. Dir(Hq.)/Ch(DT)/39(2)/2015 Dated: 4-4-2016


Review of Grievances by Senior Officers – PRAGATI meetings of 27.01.2016 and 23.03.2016 – Circular – Dated 4-4-2016 – Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES

New Delhi, Dated: April 4, 2016

OFFICE MEMORANDUM

Subject: Review of Grievances by Senior Officers – PRAGATI meetings of 27.01.2016 and 23.03.2016-reg.

During the PRAGATI meeting on 27.01.2016, the Hon’ble Prime Minister reviewed the disposal of grievances relating to the Central Board of Excise & Customs. During the interaction, the Hon’ble PM, inter alia, desired that:

‘Secretaries of all Departments having substantial public dealing should personally examine 10 grievances every week and Addl. Secretary/CMD rank and Joint Secretary level officers should examine 20 and 30 grievances respectively every week’

2. During the recent PRAGATI interaction on 23.03.2016 also, the Hon’ble PM reiterated that for timely and proper resolution of public grievances, higher level monitoring of public grievances is necessary.

3. Accordingly it has been decided that all the Members of CBDT and all the Pr.CCsIT/Pr.DGsIT will personally examine 10 CPGRAMS grievances every week. Similarly, all the CCsIT and Pr.CsIT/CsIT will personally examine 20 and 30 CPGRAMS grievances respectively every week. A monthly report about such monitoring of grievances will be forwarded to the Zonal Members by the Pr.CsIT/Pr.DGsIT by 5th of succeeding month. All the Members of the Board will, in turn, forward a consolidated report to Chairman for submission to the Secretary, Revenue for onward transmission to the PMO/DARPG.

4. For the purpose of such examination and monitoring, CIT(C&S) will share the user id and password of CPGRAMS with all the Members of CBDT so that they can directly monitor grievances in their respective zones.

This issues with the approval of Chairman, CBDT.

[F. No. Dir(Hq.)/Ch(DT)/39(2)/2015]

(Dr. B.K. Sinha)

CIT(C&S), CBDT

GST about to happen; retro tax thing of past: PM Narendra Modi : 04-04-2016


Promising easier business environment for global investors, Prime Minister Narendra Modi today said retrospective taxation has been relegated to history, but he is “not able to do anything” on two pending cases from the previous government as “they are sub-judice”.

Wooing investors with promise of an easier business environment and stable tax regime, Prime Minister Narendra Modi today said retrospective taxation has been made a thing of the past but he is “not able to do anything” on two cases inherited from the previous government as they are “sub-judice”.

Inviting Saudi businesses to come and invest in India’s defence, energy, railway, health and agriculture sectors, Modi also said that a common indirect taxation regime in form of GST (Goods and Services Tax) was “about to happen”. He, however, refrained from giving any specific timeframe.

Addressing a select group of Saudi and Indian business leaders on the last day of his two-day visit to Saudi Arabia, Modi said his government has opened up many sectors to foreign investment and India stands out as a “beacon of hope” amidst global economic slowdown.

Prime Minister further said his government was trying to strengthen the banking network in India by freeing them from non-performing assets (NPAs) of state-run electricity companies whose liabilities had gone up significantly.

Modi said India has taken major policy initiatives to create favourable environment for investors besides removing administrative bottlenecks. In this regard he said the World Bank has placed India on 12th position in the list of countries that had ensured ease of doing business.

“Today, the world is facing a very deep economic crisis and in this situation, India is a beacon of hope. Whether it is World Bank, IMF or credit rating agencies, all of them consider India one of the fastest growing economies,” he said.

On roll out of the much-delayed GST, Prime Minister said, “GST will happen. I cannot give a timeframe, but it will happen. It was our commitment, and it is about to happen.”

To a question on retrospective tax, Modi said it will never be brought back again. He said two cases were ‘sub- judice’ and it would not be proper for him to comment further.

“As far as retrospective tax is concerned, it is a thing of the past. We have repeatedly said this in Parliament and I am repeating here again today.

“There were two incidents that took place under the last government. These are sub-judice. So, I am not being able to do anything on them. In one of the cases, positive outcome has come. Retrospective tax does not exist in India anymore. It has become a thing of the past. It won’t come,” he said.

Although Prime Minister did not specifically name the pending cases, the major retrospective tax disputes include those involving Vodafone and Cairn.

“I think in international relations, the taxation system should be predictable. If somebody wants to come (to India) after 10 years, he should know India’s tax structure is like this. That’s why we are working on a long-term tax system and we are implementing and I do not think there will be any problem in that,” Modi said.

A Saudi businessman had asked Modi about retrospective tax regime, GST, banking system and some other issues and wondered whether Modi will be able to address their concerns.

Incidentally, Cairn Energy CEO Simon Thomson told PTI in an interview in London today that international investors want the Modi government to walk the talk on resolving retrospective tax issues and send a clear signal that things are changing under the new dispensation.

Cairn, which gave India its biggest onland oil discovery that now accounts for a fifth of the country’s oil production, will press ahead with the arbitration challenging use of a legislation to tax internal business reorganisation with retrospective effect and will seek $ 1 billion in damages, he further said.

Eyeing billions of dollars of investment from Saudi Arabia, which is setting up a $ 2 trillion public investment fund, Modi invited top CEOs to invest in defence, energy, railway, health and agriculture sectors in India.

Holding that there was huge opportunity to ramp up trade ties, he said time has come to move from ‘buyer-seller relationship’ to chart a new path of growth and development which will benefit people of both the countries.

“We have to look beyond the buyer-seller relationship, because that will be an obstacle in the path of progress,” he said at the interaction organised by the Council of Saudi Chambers.

Saudi Arabia’s Minister for Commerce and Industry Tawfig Fawzan Al Rabiah and Minister of Economic and Planning Adel Faqih were also present on the occasion.

Prime Minister also sought joint ventures and transfer of technology in the fields of defence, deep sea oil exploration and railway.

He said Saudi investors can invest in building cold storage network in India as well as in manufacturing of equipment for generation of solar energy.

He said Saudi investment in fertilizers, warehousing, cold chain facilities and agriculture, would be a win-win partnership, as it would ensure good quality food products for Saudi Arabia.

He also said India and Saudi Arabia should look at working together in the field of cyber-security as it has emerged as a major area of concern.

Saudi Arabia is India’s fourth largest partner with bilateral trade exceeding $ 39 billion in 2014-15. It is also India’s largest crude oil supplier and accounts forabout one-fifth of total imports.

Describing India and Saudi Arabia as “old friends”, Prime Minister said both the countries should take bold new steps to a “golden future”.

Emphasizing the strength of ties between the two countries, he recalled King Salman bin Abdulaziz Al Saud mentioning that he was taught by an Indian teacher.

Modi said India had a unique combination of democracy, demography and demand, and several policy initiatives had been taken over the last two years to spur growth and progress.

Speaking about health sector, he said there was tremendous scope for investment in the manufacturing of medical devices.

He said India’s health sector which is globally extremely cost competitive, offers immense scope for health tourism. He added that Indian nurses, present in large numbers in the Gulf, are a testament to India’s well-trained manpower.

“We import everything for defence sector. Why can we not manufacture defence equipment in India? You investors can play a big role in that. Whatever will be manufactured, India is a very big buyer,” Modi said.

Inviting investments in petroleum sector, Modi said investors can partner India in energy sector as the country offers “transparent” policies.

He said in one year, India has already achieved 5,500 MW of renewable energy production.

“When I first time said 175 GW renewable energy people were surprised…. And I am confident that we will do it within the time period. I want investment in solar equipment manufacturing and we are ready to produce 175 GW renewable energy, which will be a strange thing for the world,” Modi said.

Later, Ministry of External Affairs spokesperson Vikas Swarup tweeted that Prime Minister met Chairman of Saudi Aramco, Khalid A al-Falih and discussed issues related to energy and healthcare sectors.

Al-Falih, who is also the Minister of Health said Aramco looks at India as its number one target for investment, read Swarup’s tweet.

Saudi Minister of Foreign Affairs Adel al-Jubeir also met Narendra Modi before the ceremonial welcome.

While interacting with 30 Saudi CEOs and Indian business leaders here, Prime Minister said the Centre along with state governments have worked to take over the distressed power sector loans from banks. “Now we are working with private companies. On that also we have progressed fast. So NPAs will not be an issue in the near future.”

Modi said a lot of foreign banks are functioning in India and going forward, whatever is needed, the government will do.

Modi said India had a unique combination of democracy, demography and demand, and several policy initiatives have been taken over the last two years to spur growth.

He said there was tremendous scope for investment in the manufacturing of medical devices.

Source : The Financial Express

Provisional anti-dumping duty on vitrified/porcelain tiles from China : 04-04-2016


The Finance Ministry has imposed provisional anti-dumping duty on certain vitrified/porcelain tiles from China.

Vitrified/porcelain tiles can be glazed or unglazed and are primarily used for coverings for floors as well as on walls.

These tiles are used in buildings, homes, restaurants, cinema halls, airports, swimming pools, railway stations etc.

The revenue department has imposed provisional anti dumping duty of $ 1.37 per square metre on “glazed/unglazed porcelain/vitrified tiles in polished or unpolished finish with less than 3 percent water absorption”.

The provisional anti dumping duty will be valid for six months.

Gujarat Granito Manufacturers’ Association and Sabarkantha District Ceramic Association had filed the petition seeking levy of anti-dumping duty on such vitrified tiles imports from China.

Vitrified/ceramic tiles are a kind of ceramic tiles, but are made with slightly different elements. These tiles are made after vitrification process.

Source : The Hindu

F.NO.DGIT(S)/DIT(S)-3/AST/PIL MATTER/AGRICULTURAL INCOME/97/2015-16/624 – 1-4-2016


Verification of Genuineness of Agricultural Income Shown in ITR Filed By Assessees for Assessment Years 2007-08 to 2015-16 – Circular – Dated 1-4-2016 – Income Tax

LETTER F.NO.DGIT(S)/DIT(S)-3/AST/PIL MATTER/AGRICULTURAL INCOME/97/2015-16/624         

DATED 1-4-2016

Ref:         (1) Letter F.No. DGIT(S)/DIT(S)-3/AST/PIL Matter/Agriculture Income/97/2015-16 dated 10-3-2016issued by this Directorate on the above captioned subject

(2) Letter dated 18-3-2016 issued on the same subject by this Directorate.

(3) Letter dated 23-3-2016 issued on the same subject by this Directorate.

Kindly refer to the above

2. Vide letters mentioned under reference above, a feedback report was requested to be sent in respect of high agricultural income reported by certain taxpayers in the Income Tax Returns filed for the AY 2007-08 to AY 2015-16. Till date, the requisite consolidated report has not been received or has been only partially received from the following regions i.e. Delhi, Mumbai, Hyderabad, Chennai, Jaipur, Pune, Kanpur, Lucknow, Guwahati and Bhopal.

3. In view of the urgency of the matter, the Directorate of Systems had identified a list of 444 cases with a high probability of data entry error, and out of this confirmation has been received from the field for 155 cases. On verification it is seen that there is a high percentage of data entry errors in these cases and therefore the rest of the cases in this list i.e. 289 cases needs to be verified at the earliest. This list is placed on i-taxnet at the following path.

Resources→Downloads→Systems→Agricultural Income→289_Priority Cases

3. It is therefore requested that feedback report in these 289 probable data entry error cases may be sent on a priority basis to this Directorate latest by 4-4-2016, so that correct figures of Agricultural Income can be reported to Hon’ble Patna High Court, which is hearing the PIL on this issue. Soft copy of the consolidated, region-wise report (in xls or xlsx format) may be sent by e-mail to prasanthvk@incometax.gov.in.

4. This issues with the approval of Pr.DGIT(S), New Delhi.

F.NO.1/04/2016-NS.II – 1-4-2016


Discontinuation of physical mode of National Savings Certificate KVP and NSC shall stand discontinued w.e.f. 1-4-2016 – Order-Instruction – Dated 1-4-2016 – Income Tax

OFFICE MEMORANDUM F.NO.1/04/2016-NS.II], DATED 1-4-2016

The undersigned is directed to refer to this Department’s OM of even number dated 23rd March, 2016, through which guidelines regarding discontinuation of physical mode of National Savings Certificate and Kisan Vikas Patra certificate and introduction of e-mode were communicated. It was decided that the currently existing system of physical pre-printed certificates for KVP and NSC shall stand discontinued w.e.f. 1-4-2016 and shall be replaced by ‘National Savings Certificate/Kisan Vikas Patra Certificate on electronic – mode (e-mode). Till the CBS system transits to that e-mode, banks and post offices may choose to issue a physical certificate recorded on a passbook.

2. The serial numbers based on the new pattern allotted to the banks and the Department of Posts (DoP) with respect to KVP and NSC were detailed in the said OM. It is intimated that while issuing the certificate from 1-4-2016, Banks and Post Offices may use notification having G.S.R. No. 353(E), dated 29-3-2016 for Kisan Vikas Patra and notification having G.S.R. No. 354(E), dated 29-3-2016 for National Savings Certificate. It is intimated that these notifications are available on egazette.nic.in.

E-commerce funding down, not out : 01-04-2016


While e-commerce valuations saw sharp mark-downs in the last six months, private equity and venture capital funds continue to invest reasonably large sums, reports Hita Gupta in New Delhi. In Q1CY16, investments in the space rose to $1.2 billion from $1.02 billion in the December quarter, according to Jefferies Equity Research.

While e-commerce valuations saw sharp mark-downs in the last six months, private equity and venture capital funds continue to invest reasonably large sums, reports Hita Gupta in New Delhi. In Q1CY16, investments in the space rose to $1.2 billion from $1.02 billion in the December quarter, according to Jefferies Equity Research. However, this was way lower than the $2.65 billion seen in the September quarter.

The funding in the March quarter was across 26 deals with e-tail getting almost half the amount. Ibibo Group, a competitor to MakeMyTrip, was the top beneficiary, raising $250 million from Naspers and Tencent. Ibibo Group,Snapdeal, BigBasket, CarTrade and ShopClues all raised over $100 million in funding during the quarter.

However, the $1.2 billion funding in Q1 of CY16 was considerable lower than $2.6 billion funding in Q3 of CY15.

The government on Tuesday allowed 100% foreign direct investment via the automatic route in e-commerce marketplaces, although it barred a platform from influencing the price of products directly or indirectly. Players such as Flipkartand Amazon that have vendors who supply more than 25% of the total sales may need to make changes to their models. The policy appears to be supportive of in-house logistics arms of e-retailers. Given FDI in inventory-led e-commerce models is not allowed, this could affect players such as BigBasket, which recently picked up $150 million from Abraaj Group, Ascent Capital and others. E-commerce companies such as Jabong and Myntra, which operate on a hybrid model, would need to shift to the marketplace model to be compliant with the norms.

Fiscal deficit at end-Feb exceeds revised estimate : 01-04-2016


The central government’s fiscal deficit for the first 11 months of FY16 has surpassed the Revised Estimates (RE) of the 2015-16 Union Budget by seven per cent, showed official data issued on Thursday.

This was after the target was reduced, so that as a proportion of gross domestic product (GDP), it came to the same 3.9 per cent as pegged in the original Budget Estimates (BE) due to falling nominal GDP growth rates. Against a 11 per cent earlier growth estimate, nominal GDP is officially pegged to grow 8.6 per cent.

By this time, the deficit had surpassed the RE by a little over 17 per cent a year before. The deficit touched Rs 5.7 lakh crore by the end of February 2015-16, constituting 107.1 per cent of the RE at Rs 5.3 lakh crore. This means the government must have ensured a fiscal surplus of Rs 40,000 crore in March to meet the financial year’s target. The government met the target in 2014-15 despite the deficit overshooting the RE by 17-plus per cent by February.

However, the government might have had to squeeze expenditure, too. It has to be seen whether capital expenditure (capex) or revenue expenditure became a victim of this pressing need. The government’s capex rose 36.2 per cent to Rs 2.2 lakh crore till February, against Rs 1.6 lakh crore in the corresponding period of 2014-15. However, revenue expenditure was up only 3.5 per cent at Rs 13.4 lakh crore till February of 2015-16, compared to Rs 12.9 lakh crore a year before.

Total receipts at Rs 9.8 lakh crore accounted for 78.6 per cent of the RE at Rs 12.5 lakh crore. This was closer to that in the corresponding period of last year, when these had constituted 87.2 per cent of RE. This was despite the government’s tax kitty swelling to Rs 7.3 lakh crore till February, 77.7 per cent of the RE at  Rs 9.5 lakh crore. At this time a year before, taxes were 71.7 per cent of RE. As the government almost halved the target of non-debt capital receipts, mostly divestment proceeds, to Rs 44,217 crore in the RE against Rs 80,253 crore pegged in the BE, the realisation at Rs 35,951 crore till February represented 81.3 per cent of the RE. However, this was also lower than the 96.5 per cent of RE realised till February of last year.

Non-tax revenue was Rs 2.1 lakh crore or 81.7 per cent of the RE amount of Rs 2.6 lakh crore. This was higher than the 75.7 per cent of RE during the first 11 months of FY15.

Source : PTI

Notification No. S.O. 1324(E) 31-3-2016


De-notification and addition of certain areas to the sector specific Special Economic Zone for biotechnology sector at Genome Valley, Village lalgadi Malakpet, Mandal Shameerpet, District Ranga Reddy, in the State of Andhra Pradesh – S.O. 1324(E) – Dated 31-3-2016 – Special Economic Zone

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

NOTIFICATION

New Delhi, the 31st March, 2016

S.O. 1324(E).-Whereas, M/s. Andhra Pradesh Industrial Infrastructure Corporation Limited (now Telangana State Industrial Infrastructure Corporation Limited), a State Government Organization, had proposed under section 3 of the Special Economic Zones Act, 2005 (28 of 2005), (hereinafter referred to as the said Act) to set up a sector specific Special Economic Zone for biotechnology sector at Genome Valley, Village lalgadi Malakpet, Mandal Shameerpet, District Ranga Reddy, in the State of Andhra Pradesh;

And, whereas, the Central Government, in exercise of the powers conferred by sub-section (1) of section 4 of the said Act read with rule 8 of the Special Economic Zones Rules 2006, had notified an area of 20.44 hectares at above Special Economic Zone vide Ministry of Commerce and Industry Notification Number S.O. 2636 (E) dated 20th October, 2009;

And, whereas, M/s. Telangana State Industrial Infrastructure Corporation Limited, has now proposed to include an area of 2.136 hectares and decrease an area of 12.35 hectares from the above Special Economic Zone;

And whereas, the Central Government has granted letter of approval on 15th March, 2016 for inclusion of additional area of 2.136 ha to the above SEZ;

And, whereas, the State Government of Telangana has given its “No Objection” to the proposal of above developer for decrease in area of 12.35 ha vide their letter No. 6820/ IP&INF/A2/2014 dated 01st June, 2015;

And, whereas, the Development Commissioner, Visakhapatnam Special Economic Zone has recommended the proposal for de-notification of an area of 12.35 hectares of the Special Economic Zone;

Now, whereas, the Central Government is satisfied that the requirements under sub-section (8) of section 3 of the said Act and other related requirements are fulfilled;

Now, therefore, in exercise of the powers conferred by second proviso to sub-section (1) of section 4 of the Special Economic Zones Act, 2005 and in pursuance of rule 8 of the Special Economic Zones Rules, 2006, the Central Government hereby notifies an area of 2.136 hectares and de-notifies an area of 12.35 hectares, thereby making total area of the Special Economic Zone as 10.2263 hectares, comprising the survey numbers and the area given below in the table, namely:-

TABLE FOR ADDITIONAL AREA

S. No.

Name of the Village

Khasra No.

Area (in Hectares)

1

Lalgadi Malakpet

101P

2.136

Total

2.136 hectares

TABLE FOR DE NOTIFICATION

S. No.

Name of the Village

Khasra No.

Area (in Hectares)

1

Lalgadi Malakpet

101P

3.24

2

119

3.31

3

120

5.00

4

121P

0.80

Total

12.35 hectares

Grant total of the SEZ area after addition and de-notification

10.2263 hectares

[F. No. F.1/23/2009-SEZ]

Dr. GURUPRASAD MOHAPATRA, Jt. Secy.

Notification No. S.O. 1323(E) 31-3-2016


Set up a Sector Specific Special Economic Zone for information technology and information technology enabled services at Ranga Reddy, Telangana – S.O. 1323(E) – Dated 31-3-2016 – Special Economic Zone

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

NOTIFICATION

New Delhi, the 31st March, 2016

S.O. 1323(E).-Whereas, M/s. Aqua Space Developers Private Limited has proposed under section 3 of the Special Economic Zones Act, 2005 (28 of 2005), (hereinafter referred to as the said Act), to set up a Sector Specific Special Economic Zone for information technology and information technology enabled services at Raidurg Panmaktha village, Serilingampally Mandal, Ranga Reddy District, in the State of Telangana;

And, whereas, the Central Government is satisfied that requirements under sub-section (8) of section 3 of the saidAct, and other related requirements are fulfilled and it has granted letter of approval under subsection (10) of section 3 of the said Act for development, operation and maintenance of the above sector specific Special Economic Zone on 27th January, 2016;

Now, therefore, the Central Government, in exercise of the powers conferred by sub-section (1) of section 4 of theSpecial Economic Zones Act, 2005 and in pursuance of rule 8 of the Special Economic Zones Rules, 2006, hereby notifies the 1.85 hectares area at above location with survey numbers given in the table below as a Special Economic Zone, namely:

TABLE

S. No. Name of Village Survey No. Area (in hectares)
1. Raidurg Panmaktha 83/1 1.85
 

Total

1.85

And, therefore, the Central Government, in exercise of the powers conferred by sub-section (1) of section 13 of theSpecial Economic Zones Act, 2005 (28 of 2005), hereby constitutes a Committee to be called the Approval Committee for the above Special Economic Zone for the purposes of section 14 of the said Act consisting of the following Chairperson and Members, namely:-

1.

Development Commissioner of the Special Economic Zone Chairperson ex officio;

2.

Director or Deputy Secretary to the Government of India, Ministry of Commerce and Industry, Department of Commerce or his nominee not below the rank of Under Secretary to the Government of India Member ex officio;

3.

Zonal Joint Director General of Foreign Trade having territorial jurisdiction over the Special Economic Zone Member ex officio;

4.

Commissioner of Customs or Central Excise having territorial jurisdiction over the Special Economic Zone or his nominee not below the rank of Joint Commissioner Member ex officio;

5.

Commissioner of Income Tax having territorial jurisdiction over the Special Economic Zone or his nominee not below the rank of Joint Commissioner Member ex officio;

6.

Director (Banking) in the Ministry of Finance, Banking Division, Government of India Member ex officio;

7.

Two officers, not below the rank of Joint Secretary, to be nominated by the State Government Member ex officio;

8.

Representative of the Developer of the zone Special invitee

And, therefore, the Central Government, in exercise of the powers conferred by sub-section (2) of section 53 of theSpecial Economic Zones Act, 2005 (28 of 2005), hereby appoints the 31st day of March, 2016 as the date from which the above Special Economic Zone shall be deemed to be Inland Container Depot under section 7 of theCustoms Act, 1962 (52 of 1962)

[F. No. F. 1/2/2016-SEZ]

Dr. GURUPRASAD MOHAPATRA, Jt. Secy.

Direct tax mop-up: Explain shortfall, asks Hasmukh Adhia to CBDT : 31-03-2016


Revenue Secretary Hasmukh Adhia has sent a terse missive to the Central Board of Direct Taxes (CBDT) chairman Atulesh Jindal seeking an explanation for a likely shortfall in direct tax collections in 2015-16.

Revenue Secretary Hasmukh Adhia has sent a terse missive to the Central Board of Direct Taxes (CBDT) chairman Atulesh Jindal seeking an explanation for a likely shortfall in direct tax collections in 2015-16.

This comes after the government had sharply lowered its direct tax target for 2015-16 by Rs 45,974 crore in the Union Budget last month, but is unlikely to meet even this revised target.

In a letter dated March 23, Adhia has expressed his disappointment to the CBDT chairman for “laxity shown” by field officers in collection of taxes, despite a reduction in revenue target in the Budget presented last month.

“The CBDT requested for reduction in BE target which was done. In spite of that, it now appears to me that RE target may also not be achieved. If this happens, Board and field functionaries will have to explain why it happened. Responsibility will also have to be fixed,” the letter to the CBDT head said.

While presenting Union Budget for 2016-17 last month, finance minister Arun Jaitley had revised downwards the estimate for direct taxes to Rs 7,52,021 crore from Rs 7,97,995 crore estimated earlier for the financial year ending March 31.

The estimates for indirect taxes, on the other hand, were revised upwards due to which the gross tax revenue target for 2015-16 was revised upwards to Rs 14,59,611 crore from Rs 14,49,490 crore estimated earlier.

In his letter to the CBDT head, the revenue secretary has further stated that it will not be possible to achieve the tax targets without day-to-day supervision and constant communication.

“You must show your leadership and see to it that the RE targets are achieved fully,” the letter said. Both the revenue secretary and the CBDT chairman did not respond to e-mail queries regarding the letter. The official CBDT spokesperson told The Indian Express that the query will be communicated to the CBDT chairman. A response was, however, awaited till the time of going to print.

Source : The Hindu

Govt allows 100% FDI in e-retail, but with riders : 31-03-2016


Almost 10 years after e-commerce started in a big way, the National Democratic Alliance government on Tuesday allowed 100 per cent foreign direct investment (FDI) in e-commerce marketplaces.

Though it has been introduced with a few riders, the reform comes just ahead of Chinese major Alibaba’s proposed entry into the country. It also coincides with a recent markdown of valuation of e-commerce companies.

Some of the prominent e-commerce marketplace players in India are Flipkart, Snapdeal, ShopClues and Paytm – all funded by marquee foreign investors. American major Amazon, the biggest rival for Flipkart, too, entered India as a fully-owned online marketplace player two years ago.

The sector has got an estimated $10 billion (Rs 65,000 crore) of foreign investment since it began in a big way 10 years ago. In 2015, around $5 billion (Rs 32,500 crore) of foreign funds were raised by e-commerce companies. Even now, no FDI is allowed in inventory-led online businesses that companies such as Amazon have in the US.

Till now, policy guidelines had stated that no FDI was permitted in e-commerce.

While liberalising e-commerce, the Department of Industrial Policy & Promotion (DIPP) has introduced conditions to ensure that platform owners do not turn sellers. Some of the conditions are that sales cannot exceed 25 per cent for any vendor, marketplace players or their group companies cannot sell, guarantee and warranty must be the sole responsibilities of the sellers, and platform owners cannot influence pricing of products so that there’s a level-playing field.

International consultants and analysts claim that the government’s move will bring in greater foreign investment into a sector that is set to grow from $16 billion to $70 billion by 2020 (excluding travel). But, domestic traders’ body Confederation of All India Traders (CAIT) has hit out at the government, calling it a U-turn in policy that will permit backdoor entry to global players.

International players as well as Indian entrepreneurs have exploited the grey area in the policy till now, thereby running online operations with dollar funds from marquee investors.

Online marketplace platforms, where companies such as Amazon India, Flipkart, Snapdeal and many others hosted thousands of sellers, were described as technology enablers rather than e-retailers. They claimed to have no inventory of their own. That kept them going even with a ban on FDI in e-commerce. The government has now put an official stamp on how the e-commerce majors have for many years operated their business.

Almost two years after coming to power, the NDA has brought some clarity to the sector. Multi-brand retail, however, continues to be a category open to interpretation.

While its predecessor, the United Progressive Alliance had permitted 51 per cent FDI in multi-brand retail, the NDA is opposed to foreign investment in the area as that could result in loss of jobs for local traders and neighbourhood stores. It has, however, not changed the rulebook on multi-brand policy, execution of which is anyway with states.

DIPP has clarified that 100 per cent FDI is only for the marketplace format of e-commerce, where the company provides a platform to act as a facilitator between buyers and sellers – and not for the inventory-led model.

It has defined e-commerce as buying and selling of goods and services, including digital products over digital and electronic network.

“The government has come with a much-needed clarification on foreign investment in e-commerce,” said Amarjeet Singh, partner, tax, KPMG in India.

“Although, some of the structures practiced by existing players may require alteration, it will give the much-needed clarity to undertake business with certainty in longer term. Needless to add, this will further facilitate foreign investment in this sector,” he added.

The cap of 25 per cent on sales by a vendor on a marketplace will ensure a broad base of vendors for a true marketplace, said Akash Gupt, partner and leader, regulatory, PwC. “This may require some of the operators to go on the drawing board to comply with the conditions.”

He added: “This sector has attracted the maximum FDI in 2015. Enabling the marketplace operator to provide value add services like warehousing, delivery, payment processing will improve customer experience and market outreach for small and medium size suppliers.”

However, there are others who said that while the government is moving in the right direction bringing in FDI in the inventory-led model would have been a better move.

“Marketplace was never in the purview of the government. What should have been done is allowing FDI in the inventory-led model, which would have been a game changer,’” said Sandeep Aggarwal, the founder and chief executive officer of Droom, who also founded ShopClues.

The conditions that have been introduced with FDI in marketplace are being seen as tough by some. According to Paresh Parekh, tax partner, retail & consumer products, EY, certain new conditions regarding limit on single vendor sales through marketplace could impact certain existing players.

Also, Aamir Jariwala, secretary, E-commerce Coalition, said: “Unnecessary restrictions on the number of sellers and sole responsibility on them for warranty and guarantee will throttle the growth of the industry.”

Source : PTI

Notification No. F.No. 17/151/2013-CL-V 30-3-2016


Companies (Accounting Standards)Amendment Rules, 2016 – F.No. 17/151/2013-CL-V – Dated 30-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 30th March, 2016

G.S.R. 364(E).-In exercise of the powers conferred by clause (a) of sub-section (1) of section 642 of theCompanies Act, 1956 (1 of 1956) read with section 210A and sub-section (3C) of section 211 and of the said Act, the Central Government, in consultation with National Advisory Committee on Accounting Standards, hereby makes the following rules to amend the Companies (Accounting Standards) Rules, 2006, namely:-

1. Short title and commencement.- (1) These rules may be called the Companies (Accounting Standards) Amendment Rules, 2016.

2. They shall come into force on the date of their publication in the Official Gazette.

(ii) In the Companies( Accounting Standards) Rules, 2006 (hereinafter referred to as the principal rules), in rule 2,-

(i) for clauses (a) and (b), the following clauses shall be substituted, namely:-

‘(a) “Accounting Standards” means the standards of accounting or any addendum thereto as specified in rule 3 of these rules;

(b) “Act” means the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013), as the case may be;’;

(ii) for clauses (d) and (e), the following clauses shall be substituted, namely:-

‘(d) “Financial Statements” means financial statements as defined in sub-section (40) of section 2 of the Companies Act, 2013;

(e) “Enterprise” means a ‘company’ as defined in sub-section (20) of section 2 of the Companies Act, 2013 or as defined in section 3 of the Companies Act, 196, as the case may be;’.

3. In the principal rules, in rule 4, in sub-rule (2), the words “General Purpose” shall be omitted.

4. In the principals rules, in the ANNEXURE, under the heading “ACCOUNTING STANDARDS”, under the subheading “A. General Instructions”, after paragraph 4, the following paragraph shall be inserted namely:-

5. The reference to ‘Schedule VI’ or ‘Companies Act, 1956’ shall mutatis mutandis mean ‘Schedule III’ and ‘Companies Act, 2013’, respectively.

5. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS” for “Accounting Standard (AS) 2”, the following Accounting Standard shall be substituted, namely:-

“Accounting Standard (AS) 2

Valuation of Inventories

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in part A of the Annexure to the Notification.)

Objective

A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognised. This Standard deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realisable value.

Scope

1. This Standard should be applied in accounting for inventories other than:

(a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Construction Contracts);

(b) work in progress arising in the ordinary course of business of service providers;

(c) shares, debentures and other financial instruments held as stock-in-trade; and

(d) producers’ inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance with well established practices in those industries.

2. The inventories referred to in paragraph 1 (d) are measured at net realisable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or mineral oils, ores and gases have been extracted and sale is assured under a forward contract or a government guarantee, or when a homogenous market exists and there is a negligible risk of failure to sell. These inventories are excluded from the scope of this Standard.

Definitions

3. The following terms are used in this Standard with the meanings specified:

3.1 Inventories are assets:

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or

(c) in the form of materials or supplies to be consumed in the production process or in the rendering of services.

3.2 Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

4. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment.

Measurement of Inventories

5. Inventories should be valued at the lower of cost and net realisable value.

Cost of Inventories

6. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Costs of Purchase

7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase.

Costs of Conversion

8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.

9. The allocation of fixed production overheads for the purpose of their inclusion in the costs of conversion is based on the normal capacity of the production facilities. Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Un allocated overheads are recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are assigned to each unit of production on the basis of the actual use of the production facilities.

10. A production process may result in more than one product being produced simultaneously. This is the case, for example, when joint products are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost.

Other Costs

11. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories.

12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories.

Exclusions from the Cost of Inventories

13. In determining the cost of inventories in accordance with paragraph 6, it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred. Examples of such costs are:

(a) abnormal amounts of wasted materials, labour, or other production costs;

(b) storage costs, unless those costs are necessary in the production process prior to a further production stage;

(c) administrative overheads that do not contribute to bringing the inventories to their present location and condition; and

(d) selling and distribution costs.

Cost Formulas

14. The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs.

15. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been purchased or produced. However, when there are large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs is inappropriate since, in such circumstances, an enterprise could obtain predetermined effects on the net profit or loss for the period by selecting a particular method of ascertaining the items that remain in inventories.

16. The cost of inventories, other than those dealt with in paragraph 14, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula. The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.

17. A variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate. The formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. The FIFO formula assumes that the items of inventory which were purchased or produced first are consumed or sold first, and consequently the items remaining in inventory at the end of the period are those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the enterprise.

Techniques for the Measurement of Cost

18. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions.

19. The retail method is often used in the retail trade for measuring inventories of large numbers of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing from the sales value of the inventory the appropriate percentage gross margin. The percentage used takes into consideration inventory which has been marked down to below its original selling price. An average percentage for each retail department is often used.

Net Realisable Value

20. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. The practice of writing down inventories below cost to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use.

21. Inventories are usually written down to net realisable value on an item-by-item basis. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular business segment.

22. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the balance sheet date.

23. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date.

24. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value.

25. An assessment is made of net realisable value as at each balance sheet date.

Disclosure

26. The financial statements should disclose:

(a) the accounting policies adopted in measuring inventories, including the cost formula used; and

(b) the total carrying amount of inventories and its classification appropriate to the enterprise.

27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are:

(a) Raw materials and components

(b) Work-in-progress

(c) Finished goods

(d) Stock-in-trade (in respect of goods acquired for trading)

(e) Stores and spares

(f) Loose tools

(g) Others (specify nature),”.

6. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS” for “Accounting Standard (AS) 4”, the following Accounting Standard shall be substituted, namely:-

“Accounting Standards (AS) 4*

Contingencies and Events Occurring After the Balance Sheet Date

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.)

Introduction

1. This Standard deals with the treatment in financial statements of

(a) contingencies, and

(b) events occurring after the balance sheet date.

2. The following subjects, which may result in contingencies, are excluded from the scope of this Standard in view of special considerations applicable to them:

(a) liabilities of life assurance and general insurance enterprises arising from policies issued;

(b) obligations under retirement benefit plans; and

(c) commitments arising from long-term lease contracts.

Definitions

3. The following terms are used in this Standard with the meanings specified:

3.1 A contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be known or determined only on the occurrence, or non-occurrence, of one or more uncertain future events.

3.2 Events occurring after the balance sheet date are those significant events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity.

Two types of events can be identified:

(a) those which provide further evidence of conditions that existed at the balance sheet date; and

(b) those which are indicative of conditions that arose subsequent to the balance sheet date.

Explanation

4. Contingencies

4.1 The term “contingencies” used in this Standard is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur.

4.2 Estimates are required for determining the amounts to be stated in the financial statements for many on-going and recurring activities of an enterprise. One must, however, distinguish between an event which is certain and one which is uncertain. The fact that an estimate is involved does not, of itself, create the type of uncertainty which characterises a contingency. For example, the fact that estimates of useful life are used to determine depreciation, does not make depreciation a contingency; the eventual expiry of the useful life of the asset is not uncertain. Also, amounts owed for services received are not contingencies as defined in paragraph 3.1, even though the amo unts may have been estimated, as there is nothing uncertain about the fact that these obligations have been incurred.

4.3 The uncertainty relating to future events can be expressed by a range of outcomes. This range may be presented as quantified probabilities, but in most circumstances, this suggests a level of precision that is not supported by the available information. The possible outcomes can, therefore, usually be generally described except where reasonable quantification is practicable.

4.4 The estimates of the outcome and of the financial effect of contingencies are determined by the judgement of the management of the enterprise. This judgement is based on consideration of information available up to the date on which the financial statements are approved and will include a review of events occurring after the balance sheet date, supplemented by experience of similar transactions and, in some cases, reports from independent experts.

5. Accounting Treatment of Contingent Losses

5.1 The accounting treatment of a contingent loss is determined by the expected outcome of the contingency. If it is likely that a contingency will result in a loss to the enterprise, then it is prudent to provide for that loss in the financial statements.

5.2 The estimation of the amount of a contingent loss to be provided for in the financial statements may be based on information referred to in paragraph 4.4.

5.3 If there is conflicting or insufficient evidence for estimating the amount of a contingent loss, then disclosure is made of the existence and nature of the contingency.

5.4 A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter-claim or claim against a third party. In such cases, the amount of the provision is determined after taking into account the probable recovery under the claim if no significant uncertainty as to its measurability or collectability exists. Suitable disclosure regarding the nature and gross amount of the contingent liability is also made.

5.5 The existence and amount of guarantees, obligations arising from discounted bills of exchange and similar obligations undertaken by an enterprise are generally disclosed in financial statements by way of note, even though the possibility that a loss to the enterprise will occur, is remote.

5.6 Provisions for contingencies are not made in respect of general or unspecified business risks since they do not relate to conditions or situations existing at the balance sheet date.

6. Accounting Treatment of Contingent Gains

Contingent gains are not recognised in financial statements since their recognition may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such gain is not a contingency and accounting for the gain is appropriate.

7. Determination of the Amounts at which Contingencies are included in Financial Statements

7.1 The amount at which a contingency is stated in the financial statements is based on the information which is available at the date on which the financial statements are approved. Events occurring after the balance sheet date that indicate that an asset may have been impaired, or that a liability may have existed, at the balance sheet date are, therefore, taken into account in identifying contingencies and in determining the amounts at which such contingencies are included in financial statements.

7.2 In some cases, each contingency can be separately identified, and the special circumstances of each situation considered in the determination of the amount of the contingency. A substantial legal claim against the enterprise may represent such a contingency. Among the factors taken into account by management in evaluating such a contingency are the progress of the claim at the date on which the financial statements are approved, the opinions, wherever necessary, of legal experts or other advisers, the experience of the enterprise in similar cases and the experience of other enterprises in similar situations.

7.3 If the uncertainties which created a contingency in respect of an individual transaction are common to a large number of similar transactions, then the amount of the contingency need not be individually determined, but may be based on the group of similar transactions. An example of such contingencies may be the estimated uncollectable portion of accounts receivable. Another example of such contingencies may be the warranties for products sold. These costs are usually incurred frequently and experience provides a means by which the amount of the liability or loss can be estimated with reasonable precision although the particular transactions that may result in a liability or a loss are not identified. Provision for these costs results in their recognition in the same accounting period in which the related transactions took place.

8. Events Occurring after the Balance Sheet Date

8.1 Events which occur between the balance sheet date and the date on which the financial statements are approved, may indicate the need for adjustments to assets and liabilities as at the balance sheet date or may require disclosure.

8.2 Adjustments to assets and liabilities are required for events occurring after the balance sheet date that provide additional information materially affecting the determination of the amounts relating to conditions existing at the balance sheet date. For example, an adjustment may be made for a loss on a trade receivable account which is confirmed by the insolvency of a customer which occurs after the balance sheet date.

8.3 Adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date, if such events do not relate to conditions existing at the balance sheet date. An example is the decline in market value of investments between the balance sheet date and the date on which the financial statements are approved. Ordinary fluctuations in market values do not normally relate to the condition of the investments at the balance sheet date, but reflect circumstances which have occurred in the following period.

8.4 Events occurring after the balance sheet date which do not affect the figures stated in the financial statements would not normally require disclosure in the financial statements although they may be of such significance that they may require a disclosure in the report of the approving authority to enable users of financial statements to make proper evaluations and decisions.

8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes.

8.6 Events occurring after the balance sheet date may indicate that the enterprise ceases to be a going concern. A deterioration in operating results and financial position, or unusual changes affecting the existence or substratum of the enterprise after the balance sheet date (e.g., destruction of a major production plant by a fire after the balance sheet date) may indicate a need to consider whether it is proper to use the fundamental accounting assumption of going concern in the preparation of the financial statements.

9. Disclosure

9.1 The disclosure requirements herein referred to apply only in respect of those contingencies or events which affect the financial position to a material extent.

9.2 If a contingent loss is not provided for, its nature and an estimate of its financial effect are generally disclosed by way of note unless the possibility of a loss is remote (other than the circumstances mentioned in paragraph 5.5). If a reliable estimate of the financial effect cannot be made, this fact is disclosed.

9.3 When the events occurring after the balance sheet date are disclosed in the report of the approving authority, the information given comprises the nature of the events and an estimate of their financial effects or a statement that such an estimate cannot be made.

Main Principles

Contingencies

10. The amount of a contingent loss should be provided for by a charge in the statement of profit and loss if:

(a) it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and

(b) a reasonable estimate of the amount of the resulting loss can be made.

11. The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in paragraph 10 is not met, unless the possibility of a loss is remote.

12. Contingent gains should not be recognised in the financial statements.

Events Occurring after the Balance Sheet Date

13. Assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date or that indicate that the fundamental accounting assumption of going concern (i.e., the continuance of existence or substratum of the enterprise) is not appropriate.

14. If an enterprise declares dividends to shareholders after the balance sheet date, the enterprise should not recognise those dividends as a liability at the balance sheet date unless a statute requires otherwise. Such dividends should be disclosed in notes.

15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise.

Disclosure

16. If disclosure of contingencies is required by paragraph 11 of this Standard, the following information should be provided:

(a) the nature of the contingency;

(b) the uncertainties which may affect the future outcome;

(c) an estimate of the financial effect, or a statement that such an estimate cannot be made.

17. If disclosure of events occurring after the balance sheet date in the report of the approving authority is required by paragraph 15 of this Standard, the following information should be provided:

(a) the nature of the event;

(b) an estimate of the financial effect, or a statement that such an estimate cannot be made”.

7. In the principals rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, Accounting Standard (AS) 6 shall be omitted.

8. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, for Accounting Standard (AS) 10, the following Accounting Standard shall be substituted, namely:-

“Accounting Standard (AS) 10

Property, Plant and Equipment

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.)

Objective

1. The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about investment made by an enterprise in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them.

Scope

2. This Standard should be applied in accounting for property, plant and equipment except when another Accounting Standard requires or permits a different accounting treatment.

3. This Standard does not apply to:

(a) biological assets related to agricultural activity other than bearer plants. This Standard applies to bearer plants but it does not apply to the produce on bearer plants; and

(b) wasting assets including mineral rights, expenditure on the exploration for and extraction of minerals, oil, natural gas and similar non-regenerative resources.

However, this Standard applies to property, plant and equipment used to develop or maintain the assets described in (a) and (b) above.

4. Other Accounting Standards may require recognition of an item of property, plant and equipment based on an approach different from that in this Standard. For example, AS 19, Leases, requires an enterprise to evaluate its recognition of an item of leased property, plant and equipment on the basis of the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard.

5. Investment property, as defined in AS 13, Accounting for Investments, should be accounted for only in accordance with the cost model prescribed in this standard.

Definitions

6. The following terms are used in this Standard with the meanings specified:

Agricultural Activity is the management by an enterprise of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets.

Agricultural Produce is the harvested product of biological assets of the enterprise.

Bearer plant is a plant that

(a) is used in the production or supply of agricultural produce;

(b) is expected to bear produce for more than a period of twelve months; and

(c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

The following are not bearer plants:

(i) plants cultivated to be harvested as agricultural produce (for example, trees grown for use as lumber);

(ii) plants cultivated to produce agricultural produce when there is more than a remote likelihood that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales (for example, trees that are cultivated both for their fruit and their lumber); and

(iii) annual crops (for example, maize and wheat).

When bearer plants are no longer used to bear produce they might be cut down and sold as scrap, for example, for use as firewood. Such incidental scrap sales would not prevent the plant from satisfying the definition of a bearer plant.

Biological Asset is a living animal1 or plant.

Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.

Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other Accounting Standards.

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life.

Enterprise -specific value is the present value of the cash flows an enterprise expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability.

Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.

Gross carrying amount of an asset is its cost or other amount substituted for the cost in the books of account, without making any deduction for accumulated depreciation and accumulated impairment losses.

An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.

Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

(b) are expected to be used during more than a period of twelve months.

Recoverable amount is the higher of an asset’s net selling price and its value in use.

The residual value of an asset is the estimated amount that an enterprise would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.

Useful life is:

(a) the period over which an asset is expected to be available for use by an enterprise ; or

(b) the number of production or similar units expected to be obtained from the asset by an enterprise.

Recognition

7. The cost of an item of property, plant and equipment should be recognised as an asset if, and only if:

(a) it is probable that future economic benefits associated with the item will flow to the enterprise; and

(b) the cost of the item can be measured reliably.

8. Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Standard when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory.

9. This Standard does not prescribe the unit of measure for recognition, i.e., what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to specific circumstances of an enterprise. An example of a ‘unit of measure’ can be a ‘project’ of construction of a manufacturing plant rather than individual assets comprising the project in appropriate cases for the purpose of capitalisation of expenditure incurred during construction period. Similarly, it may be appropriate to aggregate individually insignificant items, such as moulds, tools and dies and to apply the criteria to the aggregate value. An enterprise may decide to expense an item which could otherwise have been included as property, plant and equipment, because the amount of the expenditure is not material.

10. An enterprise evaluates under this recognition principle all its costs on property, plant and equipment at the time they are incurred. These costs include costs incurred:

(a) initially to acquire or construct an item of property, plant and equipment; and

(b) subsequently to add to, replace part of, or service it.

Initial Costs

11. The definition of ‘property, plant and equipment’ covers tangible items which are held for use or for administrative purposes. The term ‘administrative purposes’ has been used in wider sense to include all business purposes other than production or supply of goods or services or for rental for others. Thus, property, plant and equipment would include assets used for selling and distribution, finance and accounting, personnel and other functions of an enterprise. Items of property, plant and equipment may also be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an enterprise to obtain the future economic benefits from its other assets. Such items of property, plant and equipment qualify for recognition as assets because they enable an enterprise to derive future economic benefits from related assets in excess of what could be derived had those items not been acquired. For example, a chemical manufacturer may install new chemical handling processes to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognised as an asset because without them the enterprise is unable to manufacture and sell chemicals. The resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with AS 28, Impairment of Assets.

Subsequent Costs

12. Under the recognition principle in paragraph 7, an enterprise does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-to-day servicing of the item. Rather, these costs are recognised in the statement of profit and loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of such expenditures is often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment.

13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Similarly, major parts of conveyor system, such as, conveyor belts, wire ropes, etc., may require replacement several times during the life of the conveyor system. Items of property, plant and equipment may also be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a non-recurring replacement. Under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if the recognition criteria are met. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition provisions of this Standard (see paragraphs 74-80).

14. A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as distinct from physical parts) is derecognised.

15. The derecognition of the carrying amount as stated in paragraphs 13-14 occurs regardless of whether the cost of the previous part / inspection was identified in the transaction in which the item was acquired or constructed. If it is not practicable for an enterprise to determine the carrying amount of the replaced part/ inspection, it may use the cost of the replacement or the estimated cost of a future similar inspection as an indication of what the cost of the replaced part/ existing inspection component was when the item was acquired or constructed.

Measurement at Recognition

16. An item of property, plant and equipment that qualifies for recognition as an asset should be measured at its cost.

Elements of Cost

17. The cost of an item of property, plant and equipment comprises:

(a) its purchase price, including import duties and non –refundable purchase taxes,, after deducting trade discounts and rebates.

(b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.

(c) the initial estimate of the costs of dismantling, removing the item and restoring the site on which it is located, referred to as ‘decommissioning, restoration and similar liabilities’, the obligation for which an enterprise incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

18. Examples of directly attributable costs are:

(a) costs of employee benefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment;

(b) costs of site preparation;

(c) initial delivery and handling costs;

(d) installation and assembly costs;

(e) costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and

(f) professional fees.

19. An enterprise applies AS 2, Valuation of Inventories, to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with AS 2 or AS 10 are recognised and measured in accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets.

20. Examples of costs that are not costs of an item of property, plant and equipment are:

(a) costs of opening a new facility or business, such as, inauguration costs;

(b) costs of introducing a new product or service( including costs of advertising and promotional activities);

(c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and

(d) administration and other general overhead costs.

21. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and condition necessary for it to be capable of operating in the manner intended by management. Therefore, costs incurred in using or redeploying an item are not included in the carrying amount of that item. For example, the following costs are not included in the carrying amount of an item of property, plant and equipment:

(a) costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity;

(b) initial operating losses, such as those incurred while demand for the output of an item builds up; and

(c) costs of relocating or reorganising part or all of the operations of an enterprise.

22. Some operations occur in connection with the construction or development of an item of property, plant and equipment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occur before or during the construction or development activities. For example, income may be earned through using a building site as a car park until construction starts. Because incidental operations are not necessary to bring an item to the location and condition necessary for it to be capable of operating in the manner intended by management, the income and related expenses of incidental operations are recognised in the statement of profit and loss and included in their respective classifications of income and expense.

23. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an enterprise makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see AS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in selfconstructing an asset is not included in the cost of the asset. AS 16, Borrowing Costs, establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment.

24. Bearer plants are accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to ‘construction’ in this Standard should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management.

Measurement of Cost

25. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with AS 16.

26. One or more items of property, plant and equipment may be acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The following discussion refers simply to an exchange of one non-monetary asset for another, but it also applies to all exchanges described in the preceding sentence. The cost of such an item of property, plant and equipment is measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset(s) received nor the asset(s) given up is reliably measurable. The acquired item(s) is/are measured in this manner even if an enterprise cannot immediately derecognise the asset given up. If the acquired item(s) is/are not measured at fair value, its/their cost is measured at the carrying amount of the asset(s) given up.

27. An enterprise determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. An exchange transaction has commercial substance if:

(a) the configuration (risk, timing and amount) of the cash flows of the asset received differs from the configuration of the cash flows of the asset transferred; or

(b) the enterprise-specific value of the portion of the operations of the enterprise affected by the transaction changes as a result of the exchange;

(c) and the difference in (a) or (b) is significant relative to the fair value of the assets exchanged.

For the purpose of determining whether an exchange transaction has commercial substance, the enterprise -specific value of the portion of operations of the enterprise affected by the transaction should reflect post-tax cash flows. In certain cases, the result of these analyses may be clear without an enterprise having to perform detailed calculations.

28. The fair value of an asset is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant for that asset or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. If an enterprise is able to measure reliably the fair value of either the asset received or the asset given up, then the fair value of the asset given up is used to measure the cost of the asset received unless the fair value of the asset received is more clearly evident.

29. Where several items of property, plant and equipment are purchased for a consolidated price, the consideration is apportioned to the various items on the basis of their respective fair values at the date of acquisition. In case the fair values of the items acquired cannot be measured reliably, these values are estimated on a fair basis as determined by competent valuers.

30. The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with AS 19, Leases.

31. The carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with AS 12, Accounting for Government Grants.

Measurement after Recognition

32. An enterprise should choose either the cost model in paragraph 33 or the revaluation model in paragraph 34 as its accounting policy and should apply that policy to an entire class of property, plant and equipment.

Cost Model

33. After recognition as an asset, an item of property, plant and equipment should be carried at its cost less any accumulated depreciation and any accumulated impairment losses.

Revaluation Model

34. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably should be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.

35. The fair value of items of property, plant and equipment is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified valuers.

36. If there is no market-based evidence of fair value because of the specialised nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an enterprise may need to estimate fair value using an income approach (for example, based on discounted cash flow projections) or a depreciated replacement cost approach which aims at making a realistic estimate of the current cost of acquiring or constructing an item that has the same service potential as the existing item.

37. The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. When the fair value of a revalued asset differs materially from its carrying amount, a further revaluation is required. Some items of property, plant and equipment experience significant and volatile changes in fair value, thus necessitating annual revaluation. Such frequent revaluations are unnecessary for items of property, plant and equipment with only insignificant changes in fair value. Instead, it may be necessary to revalue the item only every three or five years.

38. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways:

(a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the change in the carrying amount. The accumulated depreciation at the date of the revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or

(b) the accumulated depreciation is eliminated against the gross carrying amount of the asset.

The amount of the adjustment of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in accordance with paragraphs 42 and 43.

39. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs should be revalued.

40. A class of property, plant and equipment is a grouping of assets of a similar nature and use in operations of an enterprise. The following are examples of separate classes:

(a) land;

(b) land and buildings;

(c) machinery;

(d) ships;

(e) aircraft;

(f) motor vehicles;

(g) furniture and fixtures;

(h) office equipment;and

(i) bearer plants.

41. The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixture of costs and values as at different dates. However, a class of assets may be revalued on a rolling basis provided revaluation of the class of assets is completed within a short period and provided the revaluations are kept up to date.

42. An increase in the carrying amount of an asset arising on revaluation should be credited directly to owners’ interests under the heading of revaluation surplus However, the increase should be recognised in the statement of profit and loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in the statement of profit and loss.

43. A decrease in the carrying amount of an asset arising on revaluation should be charged to the statement of profit and loss. However, the decrease should be debited directly to owners’ interests under the heading of revaluation surplus to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

44. The revaluation surplus included in owners’ interests in respect of an item of property, plant and equipment may be transferred to the revenue reserves when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an enterprise. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on its original cost. Transfers from revaluation surplus to the revenue reserves are not made through the statement of profit and loss.

Depreciation

45. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item should be depreciated separately.

46. An enterprise allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates each such part separately. For example, it may be appropriate to depreciate separately the airframe and engines of an aircraft, whether owned or subject to a finance lease.

47. A significant part of an item of property, plant and equipment may have a useful life and a depreciation method that are the same as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge.

48. To the extent that an enterprise depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an enterprise has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts.

49. An enterprise may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item.

50. The depreciation charge for each period should be recognised in the statement of profit and loss unless it is included in the carrying amount of another asset.

51. The depreciation charge for a period is usually recognised in the statement of profit and loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see AS 2). Similarly, the depreciation of property, plant and equipment used for development activities may be included in the cost of an intangible asset recognised in accordance with AS 26, Intangible Assets.

Depreciable Amount and Depreciation Period

52. The depreciable amount of an asset should be allocated on a systematic basis over its useful life.

53. The residual value and the useful life of an asset should be reviewed at least at each financial year-end and, if expectations differ from previous estimates, the change(s) should be accounted for as a change in an accounting estimate in accordance with AS 5, Net Profit or Loss for the Period, Prior Period Items and  Changes in Accounting Policies.

54. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset’s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it.

55. The depreciable amount of an asset is determined after deducting its residual value.

56. The residual value of an asset may increase to an amount equal to or greater than its carrying amount. If it does, depreciation charge of the asset is zero unless and until its residual value subsequently decreases to an amount below its carrying amount.

57. Depreciation of an asset begins when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Depreciation of an asset ceases at the earlier of the date that the asset is retired from active use and is held for disposal and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use (but not held for disposal) unless the asset is fully depreciated. However, under usage methods of depreciation, the depreciation charge can be zero while there is no production.

58. The future economic benefits embodied in an asset are consumed by an enterprise principally through its use. However, other factors, such as technical or commercial obsolescence and wear and tear while an asset remains idle, often result in the diminution of the economic benefits that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset:

(a) expected usage of the asset. Usage is assessed by reference to the expected capacity or physical output of the asset.

(b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle.

(c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset. Expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technical or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset.

(d) legal or similar limits on the use of the asset, such as the expiry dates of related leases.

59. The useful life of an asset is defined in terms of its expected utility to the enterprise. The asset management policy of the enterprise may involve the disposal of assets after a specified time or after consumption of a specified proportion of the future economic benefits embodied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of judgement based on the experience of the enterprise with similar assets.

60. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a limited useful life and therefore are depreciable assets. An increase in the value of the land on which a building stands does not affect the determination of the depreciable amount of the building.

61. If the cost of land includes the costs of site dismantlement, removal and restoration, that portion of the land asset is depreciated over the period of benefits obtained by incurring those costs. In some cases, the land itself may have a limited useful life, in which case it is depreciated in a manner that reflects the benefits to be derived from it.

Depreciation Method

62. The depreciation method used should reflect the pattern in which the future economic benefits of the asset are expected to be consumed by the enterprise.

63. The depreciation method applied to an asset should be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method should be changed to reflect the changed pattern. Such a change should be accounted for as a change in an accounting estimate in accordance with AS 5.

64. A variety of depreciation methods can be used to allocate the depreciable amount of an asset on a systematic basis over its useful life. These methods include the straight-line method, the diminishing balance method and the units of production method. Straight-line depreciation results in a constant charge over the useful life if the residual value of the asset does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The enterprise selects the method that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits or that the method is changed in accordance with the statute to best reflect the way the asset is consumed.

65. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits of the asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed.

Changes in Existing Decommissioning, Restoration and Other Liabilities

66. The cost of property, plant and equipment may undergo changes subsequent to its acquisition or construction on account of changes in liabilities, price adjustments, changes in duties, changes in initial estimates of amounts provided for dismantling, removing, restoration and similar factors and included in the cost of the asset in accordance with paragraph 16. Such changes in cost should be accounted for in accordance with paragraphs 67–68 below.

67. If the related asset is measured using the cost model:

(a) subject to (b), changes in the liability should be added to, or deducted from, the cost of the related asset in the current period.

(b) the amount deducted from the cost of the asset should not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess should be recognised immediately in the statement of profit and loss.

 (c) if the adjustment results in an addition to the cost of an asset, the enterprise should consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the enterprise should test the asset for impairment by estimating its recoverable amount, and should account for any impairment loss, in accordance with AS 28.

68. If the related asset is measured using the revaluation model:

(a) changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that:

(i) a decrease in the liability should (subject to (b)) be credited directly to revaluation surplus in the owners’ interest, except that it should be recognised in the statement of profit and loss to the extent that it reverses a revaluation deficit on the asset that was previously recognised in the statement of profit and loss;

(ii) an increase in the liability should be recognised in the statement of profit and loss, except that it should be debited directly to revaluation surplus in the owners’ interest to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

(b) in the event that a decrease in the liability exceeds the carrying amount that would have been recognised had the asset been carried under the cost model, the excess should be recognised immediately in the statement of profit and loss.

(c) a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. Any such revaluation should be taken into account in determining the amounts to be taken to the statement of profit and loss and the owners’ interest under (a). If a revaluation is necessary, all assets of that class should be revalued.

69. The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability should be recognised in the statement of profit and loss as they occur. This applies under both the cost model and the revaluation model.

Impairment

70. To determine whether an item of property, plant and equipment is impaired, an enterprise applies AS 28, Impairment of Assets. AS 28 explains how an enterprise reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.

Compensation for Impairment

71. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up should be included in the statement of profit and loss when the compensation becomes receivable.

72. Impairments or losses of items of property, plant and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows:

(a) impairments of items of property, plant and equipment are recognised in accordance with AS 28;

(b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard;

(c) compensation from third parties for items of property, plant and equipment that were impaired, lost or given up is included in determining profit or loss when it becomes receivable; and

(d) the cost of items of property, plant and equipment restored, purchased or constructed as replacements is determined in accordance with this Standard.

Retirements

73. Items of property, plant and equipment retired from active use and held for disposal should be stated at the lower of their carrying amount and net realisable value. Any write-down in this regard should be recognised immediately in the statement of profit and loss.

Derecognition

74. The carrying amount of an item of property, plant and equipment should be derecognised

(a) on disposal; or

(b) when no future economic benefits are expected from its use or disposal.

75. The gain or loss arising from the derecognition of an item of property, plant and equipment should be included in the statement of profit and loss when the item is derecognised (unless AS 19, Leases, requires otherwise on a sale and leaseback). Gains should not be classified as revenue, as defined in AS 9, Revenue Recognition.

76. However, an enterprise that in the course of its ordinary activities, routinely sells items of property, plant and equipment that it had held for rental to others should transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets should be recognised in revenue in accordance with AS 9, Revenue Recognition.

77. The disposal of an item of property, plant and equipment may occur in a variety of ways (e.g. by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an enterprise applies the criteria in AS 9 for recognising revenue from the sale of goods. AS 19, Leases, applies to disposal by a sale and leaseback.

78. If, under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an enterprise to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed.

79. The gain or loss arising from the derecognition of an item of property, plant and equipment should be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

80. The consideration receivable on disposal of an item of property, plant and equipment is recognised in accordance with the principles enunciated in AS 9.

Disclosure

81. The financial statements should disclose, for each class of property, plant and equipment:

(a) the measurement bases (i.e., cost model or revaluation model) used for determining the gross carrying amount;

(b) the depreciation methods used;

(c) the useful lives or the depreciation rates used. In case the useful lives or the depreciation rates used are different from those specified in the statute governing the enterprise, it should make a specific mention of that fact;

(d) the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the period; and

(e) a reconciliation of the carrying amount at the beginning and end of the period showing:

(i) additions;

(ii) assets retired from active use and held for disposal;

(iii) acquisitions through business combinations ;

(iv) increases or decreases resulting from revaluations under paragraphs 34, 42 and 43 and from impairment losses recognised or reversed directly in revaluation surplus in accordance with AS 28;

(v) impairment losses recognised in the statement of profit and loss in accordance with AS 28;

(vi) impairment losses reversed in the statement of profit and loss in accordance with AS 28;

(vii) depreciation;

(viii) the net exchange differences arising on the translation of the financial statements of a non-integral foreign operation in accordance with AS 11, The Effects of Changes in Foreign Exchange Rates; and

(ix) other changes.

82. The financial statements should also disclose:

(a) the existence and amounts of restrictions on title, and property, plant and equipment pledged as security for liabilities;

(b) the amount of expenditure recognised in the carrying amount of an item of property, plant and equipment in the course of its construction;

(c) the amount of contractual commitments for the acquisition of property, plant and equipment;

(d) if it is not disclosed separately on the face of the statement of profit and loss, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in the statement of profit and loss; and

(e) the amount of assets retired from active use and held for disposal.

83. Selection of the depreciation method and estimation of the useful life of assets are matters of judgement. Therefore, disclosure of the methods adopted and the estimated useful lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other enterprises. For similar reasons, it is necessary to disclose:

(a) depreciation, whether recognised in the statement of profit and loss or as a part of the cost of other assets, during a period; and

(b) accumulated depreciation at the end of the period.

84. In accordance with AS 5, an enterprise discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to:

(a) residual values;

(b) the estimated costs of dismantling, removing or restoring items of property, plant and equipment;

(c) useful lives; and

(d) depreciation methods.

85. If items of property, plant and equipment are stated at revalued amounts, the following should be disclosed:

(a) the effective date of the revaluation;

(b) whether an independent valuer was involved;

(c) the methods and significant assumptions applied in estimating fair values of the items;

(d) the extent to which fair values of the items were determined directly by reference to observable prices in an active market or recent market transactions on arm’s length terms or were estimated using other valuation techniques; and

(e) the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders.

86. In accordance with AS 28, an enterprise discloses information on impaired property, plant and equipment in addition to the information required by paragraph 81 (e), (iv), (v) and (vi).

87. An enterprise is encouraged to disclose the following:

(a) the carrying amount of temporarily idle property, plant and equipment;

(b) the gross carrying amount of any fully depreciated property, plant and equipment that is still in use;

(c) for each revalued class of property, plant and equipment, the carrying amount that would have been recognised had the assets been carried under the cost model;

(d) the carrying amount of property, plant and equipment retired from active use and not held for disposal.

Transitional Provisions

88. Where an entity has in past recognized an expenditure in the statement of profit and loss which is eligible to be included as a part of the cost of a project for construction of property, plant and equipment in accordance with the requirements of paragraph 9, it may do so retrospectively for such a project. The effect of such retrospective application of this requirement, should be recognised net-of-tax in revenue reserves.

89. The requirements of paragraphs 26-28 regarding the initial measurement of an item of property, plant and equipment acquired in an exchange of assets transaction should be applied prospectively only to transactions entered into after this Standard becomes mandatory.

90. On the date of this Standard becoming mandatory, the spare parts, which hitherto were being treated as inventory under AS 2, Valuation of Inventories, and are now required to be capitalised in accordance with the requirements of this Standard, should be capitalised at their respective carrying amounts. The spare parts so capitalised should be depreciated over their remaining useful lives prospectively as per the requirements of this Standard.

91. The requirements of paragraph 32 and paragraphs 34 – 44 regarding the revaluation model should be applied prospectively. In case, on the date of this Standard becoming mandatory, an enterprise does not adopt the revaluation model as its accounting policy but the carrying amount of item(s) of property, plant and equipment reflects any previous revaluation it should adjust the amount outstanding in the revaluation reserve against the carrying amount of that item. However, the carrying amount of that item should never be less than residual value. Any excess of the amount outstanding as revaluation reserve over the carrying amount of that item should be adjusted in revenue reserves”.

9. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, for Accounting Standard (AS) 13, the following Accounting Standard shall be substituted, namely:-

“Accounting Standard (AS) 13

Accounting for Investments

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.)

Introduction

1. This Standard deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.2

2. This Standard does not deal with:

(a) the bases for recognition of interest, dividends and rentals earned on investments which are covered by Accounting Standard 9 on Revenue Recognition;

(b) operating or finance leases;

(c) investments of retirement benefit plans and life insurance enterprises; and

(d) mutual funds and venture capital funds and/or the related asset management companies, banks and public financial institutions formed under a Central or State Government Act or so declared under the Companies Act, 2013.

Definitions

3. The following terms are used in this Standard with the meanings assigned:

3.1 Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not ‘investments’.

3.2 A current investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made.

3.3 A long term investment is an investment other than a current investment.

3.4 An investment property is an investment in land or buildings that are not intended to be occupied substantially for use by, or in the operations of, the investing enterprise.

3.5 Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction. Under appropriate circumstances, market value or net realisable value provides an evidence of fair value.

3.6 Market value is the amount obtainable from the sale of an investment in an open market, net of expenses necessarily to be incurred on or before disposal.

Explanation

Forms of Investments

4. Enterprises hold investments for diverse reasons. For some enterprises, investment activity is a significant element of operations, and assessment of the performance of the enterprise may largely, or solely, depend on the reported results of this activity.

5. Some investments have no physical existence and are represented merely by certificates or similar documents (e.g., shares) while others exist in a physical form (e.g., buildings). The nature of an investment may be that of a debt, other than a short or long term loan or a trade debt, representing a monetary amount owing to the holder and usually bearing interest; alternatively, it may be a stake in the results and net assets of an enterprise such as an equity share. Most investments represent financial rights, but some are tangible, such as certain investments in land or buildings.

6. For some investments, an active market exists from which a market value can be established. For such investments, market value generally provides the best evidence of fair value. For other investments, an active market does not exist and other means are used to determine fair value.

Classification of Investments

7. Enterprises present financial statements that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets, although the common practice may be to include them in investments.3

8. Investments other than current investments are classified as long term investments, even though they may be readily marketable.

Cost of Investments

9. The cost of an investment includes acquisition charges such as brokerage, fees and duties.

10. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued (which, in appropriate cases, may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued.

11. If an investment is acquired in exchange, or part exchange, for another asset, the acquisition cost of the investment is determined by reference to the fair value of the asset given up. It may be appropriate to consider the fair value of the investment acquired if it is more clearly evident.

12. Interest, dividends and rentals receivables in connection with an investment are generally regarded as income, being the return on the investment. However, in some circumstances, such inflows represent a recovery of cost and do not form part of income. For example, when unpaid interest has accrued before the acquisition of an interest-bearing investment and is therefore included in the price paid for the investment, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; the preacquisition portion is deducted from cost. When dividends on equity are declared from pre-acquisition profits, a similar treatment may apply. If it is difficult to make such an allocation except on an arbitrary basis, the cost of investment is normally reduced by dividends receivable only if they clearly represent a recovery of a part of the cost.

13. When right shares offered are subscribed for, the cost of the right shares is added to the carrying amount of the original holding. If rights are not subscribed for but are sold in the market, the sale proceeds are taken to the profit and loss statement. However, where the investments are acquired on cum-right basis and the market value of investments immediately after their becoming ex-right is lower than the cost for which they were acquired, it may be appropriate to apply the sale proceeds of rights to reduce the carrying amount of such investments to the market value.

Carrying Amount of Investments

Current Investments

14. The carrying amount for current investments is the lower of cost and fair value. In respect of investments for which an active market exists, market value generally provides the best evidence of fair value. The valuation of current investments at lower of cost and fair value provides a prudent method of determining the carrying amount to be stated in the balance sheet.

15. Valuation of current investments on overall (or global) basis is not considered appropriate. Sometimes, the concern of an enterprise may be with the value of a category of related current investments and not with each individual investment, and accordingly the investments may be carried at the lower of cost and fair value computed categorywise (i.e. equity shares, preference shares, convertible debentures, etc.). However, the more prudent and appropriate method is to carry investments individually at the lower of cost and fair value.

16. For current investments, any reduction to fair value and any reversals of such reductions are included in the profit and loss statement.

Long-term Investments

17. Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Indicators of the value of an investment are obtained by reference to its market value, the investee’s assets and results and the expected cash flows from the investment. The type and extent of the investor’s stake in the investee are also taken into account. Restrictions on distributions by the investee or on disposal by the investor may affect the value attributed to the investment.

18. Long-term investments are usually of individual importance to the investing enterprise. The carrying amount of long-term investments is therefore determined on an individual investment basis.

19. Where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant reduction in the carrying amount is charged to the profit and loss statement. The reduction in carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist.

Investment Properties

20. An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and Equipment. The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.

Disposal of Investments

21. On disposal of an investment, the difference between the carrying amount and the disposal proceeds, net of expenses, is recognised in the profit and loss statement.

22. When disposing of a part of the holding of an individual investment, the carrying amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment.4

Reclassification of Investments

23. Where long-term investments are reclassified as current investments, transfers are made at the lower of cost and carrying amount at the date of transfer.

24. Where investments are reclassified from current to long-term, transfers are made at the lower of cost and fair value at the date of transfer.

Disclosure

25. The following disclosures in financial statements in relation to investments are appropriate:-

(a) the accounting policies for the determination of carrying amount of investments;

(b) the amounts included in profit and loss statement for:

(i) interest, dividends (showing separately dividends from subsidiary companies*), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid;

(ii) profits and losses on disposal of current investments and changes in carrying amount of such investments;

(iii) profits and losses on disposal of long-term investments and changes in the carrying amount of such investments;

(c) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal;

(d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments;

(e) other disclosures as specifically required by the relevant statute governing the enterprise.

Main Principles

Classification of Investments

26. An enterprise should disclose current investments and long-term investments distinctly in its financial statements.

27. Further classification of current and long-term investments should be as specified in the statute governing the enterprise. In the absence of a statutory requirement, such further classification should disclose, where applicable, investments in:

(a) Government or Trust securities

(b) Shares, debentures or bonds

(c) Investment properties

(d) Others-specifying nature.

Cost of Investments

28. The cost of an investment should include acquisition charges such as brokerage, fees and duties.

29. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost should be the fair value of the securities issued (which in appropriate cases may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued. If an investment is acquired in exchange for another asset, the acquisition cost of the investment should be determined by reference to the fair value of the asset given up. Alternatively, the acquisition cost of the investment may be determined with reference to the fair value of the investment acquired if it is more clearly evident.

Investment Properties

30. An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment.

Carrying Amount of Investments

31. Investments classified as current investments should be carried in the financial statements at the lower of cost and fair value determined either on an individual investment basis or by category of investment, but not on an overall (or global) basis.

32. Investments classified as long term investments should be carried in the financial statements at cost. However, provision for diminution shall be made to recognise a decline, other than temporary, in the value of the investments, such reduction being determined and made for each investment individually.

Changes in Carrying Amounts of Investments

33. Any reduction in the carrying amount and any reversals of such reductions should be charged or credited to the profit and loss statement.

Disposal of Investments

34. On disposal of an investment, the difference between the carrying amount and net disposal proceeds should be charged or credited to the profit and loss statement.

Disclosure

35. The following information should be disclosed in the financial statements:

(a) the accounting policies for determination of carrying amount of investments;

(b) classification of investments as specified in paragraphs 26 and 27 above;

(c) the amounts included in profit and loss statement for:

(i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid;

(ii) profits and losses on disposal of current investments and changes in the carrying amount of such investments; and

(iii) profits and losses on disposal of long term investments and changes in the carrying amount of such investments;

(d) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal;

(e) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments;

(f) other disclosures as specifically required by the relevant statute governing the enterprise”.

10. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, for Accounting Standard (AS) 14, the following Accounting Standard shall be substituted, namely:-

Accounting Standard (AS) 14

Accounting for Amalgamations

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.)

Introduction

1. This standard deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This standard is directed principally to companies although some of its requirements also apply to financial statements of other enterprises.

2. This standard does not deal with cases of acquisitions which arise when there is a purchase by one company (referred to as the acquiring company) of the whole or part of the shares, or the whole or part of the assets, of another company (referred to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist.

Definitions

3. The following terms are used in this standard with the meanings specified:

(a) Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 2013 or any other statute which may be applicable to companies and includes ‘merger’.

(b) Transferor company means the company which is amalgamated into another company.

(c) Transferee company means the company into which a transferor company is amalgamated.

(d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability.

(e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions.

(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.

(ii) Share holders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries* or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.

(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.

(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

(f) Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one or more of the conditions specified in sub-paragraph (e) above.

(g) Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company.

(h) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.

(i) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies.

Explanation

Types of Amalgamations

4. Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders’ interests and of the businesses of these companies. Such amalgamations are amalgamations which are in the nature of ‘merger’ and the accounting treatment of such amalgamations should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamations are amalgamations in the nature of ‘purchase’.

5. An amalgamation is classified as an ‘amalgamation in the nature of merger’ when all the conditions listed in paragraph 3(e) are satisfied. There are, however, differing views regarding the nature of any further conditions that may apply. Some believe that, in addition to an exchange of equity shares, it is necessary that the shareholders of the transferor company obtain a substantial share in the transferee company even to the extent that it should not be possible to identify any one party as dominant therein. This belief is based in part on the view that the exchange of control of one company for an insignificant share in a larger company does not amount to a mutual sharing of risks and benefits.

6. Others believe that the substance of an amalgamation in the nature of merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former independence of the amalgamating companies, the manner of their amalgamation, the absence of planned transactions that would undermine the effect of the amalgamation, and the continuing participation by the management of the transferor company in the management of the transferee company after the amalgamation.

Methods of Accounting for Amalgamations

7. There are two main methods of accounting for amalgamations:

(a) the pooling of interests method; and

(b) the purchase method.

8. The use of the pooling of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger.

9. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase.

The Pooling of Interests Method

10. Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts (after making the adjustments required in paragraph 11).

11. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

The Purchase Method

12. Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company.

13. Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company. For example, the transferee company may have a specialised use for an asset, which is not available to other potential buyers. The transferee company may intend to effect changes in the activities of the transferor company which necessitate the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs.

Consideration

14. The consideration for the amalgamation may consist of securities, cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values.

15. Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date].

Treatment of Reserves on Amalgamation

16. If the amalgamation is an ‘amalgamation in the nature of merger’, the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the General Reserve of the transferee company, the Capital Reserve of the transferor company becomes the Capital Reserve of the transferee company and the Revaluation Reserve of the transferor company becomes the Revaluation Reserve of the transferee company. As a result of preserving the identity, reserves which are available for distribution as dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company is adjusted is reserves in the financial statements of the transferee company.

17. If the amalgamation is an ‘amalgamation in the nature of purchase’, the identity of the reserves, other than the statutory reserves dealt with in paragraph 18, is not preserved. The amount of the consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negative, the difference is debited to goodwill arising on amalgamation and dealt with in the manner stated in paragraphs 19-20. If the result of the computation is positive, the difference is credited to Capital Reserve.

18. Certain reserves may have been created by the transferor company pursuant to the requirements of, or to avail of the benefits under, the Income-tax Act, 1961; for example, Development Allowance Reserve, or Investment Allowance Reserve. The Act requires that the identity of the reserves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes. Though, normally, in an amalgamation in the nature of purchase, the identity of reserves is not preserved, an exception is made in respect of reserves of the aforesaid nature (referred to hereinafter as ‘statutory reserves’) and such reserves retain their identity in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company, so long as their identity is required to be maintained to comply with the relevant statute. This exception is made only in those amalgamations where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with. In such cases the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g., ‘Amalgamation Adjustment Reserve’) which is presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed.

Treatment of Goodwill Arising on Amalgamation

19. Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is considered appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified.

20. Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include:

(a) the foreseeable life of the business or industry;

(b) the effects of product obsolescence, changes in demand and other economic factors;

(c) the service life expectancies of key individuals or groups of employees;

(d) expected actions by competitors or potential competitors; and

(e) legal, regulatory or contractual provisions affecting the useful life.

Balance of Profit and Loss Account

21. In the case of an ‘amalgamation in the nature of merger’, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company is aggregated with the corresponding balance appearing in the financial statements of the transferee company. Alternatively, it is transferred to the General Reserve, if any.

22. In the case of an ‘amalgamation in the nature of purchase’, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company, whether debit or credit, loses its identity.

Treatment of Reserves Specified in A Scheme of Amalgamation

23.* The scheme of amalgamation sanctioned under the provisions of the Companies Act, 1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. In such cases, the following disclosures are made in the first financial statements following the amalgamation:

(a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard.

(b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme.

(c) The financial effect, if any, arising due to such deviation.

Disclosure

24. For all amalgamations, the following disclosures are considered appropriate in the first financial statements following the amalgamation:

(a) names and general nature of business of the amalgamating companies;

(b) effective date of amalgamation for accounting purposes;

(c) the method of accounting used to reflect the amalgamation; and

(d) particulars of the scheme sanctioned under a statute.

25. For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation:

(a) description and number of shares issued, together with the percentage of each company’s equity shares exchanged to effect the amalgamation;

(b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.

26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation:

(a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and

(b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.

Amalgamation after the Balance Sheet Date

27. When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure is made in accordance with AS 4, ‘Contingencies and Events Occurring After the Balance Sheet Date’, but the amalgamation is not incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained.

Main Principles

28. An amalgamation may be either –

(a) an amalgamation in the nature of merger, or

(b) an amalgamation in the nature of purchase.

29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied:

(i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company.

(ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.

(iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company.

(v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

30. An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more of the conditions specified in paragraph 29 is not satisfied.

31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33–35.

32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36–39.

The Pooling of Interests Method

33. In preparing the transferee company’s financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The balance of the Profit and Loss Account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to the General Reserve, if any.

34. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting Standard (AS) 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

35. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves.

The Purchase Method

36. In preparing the transferee company’s financial statements, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the transferee company except as stated in paragraph 39.

37. Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee company’s financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve.

38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortisation period should not exceed five years unless a somewhat longer period can be justified.

39. Where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with, statutory reserves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., ‘Amalgamation Adjustment Reserve’) which should be presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed.

Common Procedures

40. The consideration for the amalgamation should include any noncash element at fair value. In case of issue of securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values.

41. Where the scheme of amalgamation provides for an adjustment to the consideration contingent on one or more future events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard  (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date].

Treatment of Reserves Specified in A Scheme of Amalgamation

42.* Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme, the following disclosures should be made in the first financial statements following the amalgamation:

(a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard.

(b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme.

(c) The financial effect, if any, arising due to such deviation.

Disclosure

43. For all amalgamations, the following disclosures should be made in the first financial statements following the amalgamation:

(a) names and general nature of business of the amalgamating companies;

(b) effective date of amalgamation for accounting purposes;

(c) the method of accounting used to reflect the amalgamation; and

(d) particulars of the scheme sanctioned under a statute.

44. For amalgamations accounted for under the pooling of interests method, the following additional disclosures should be made in the first financial statements following the amalgamation:

(a) description and number of shares issued, together with the percentage of each company’s equity shares exchanged to effect the amalgamation;

(b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof.

45. For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation:

(a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and

(b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.

Amalgamation after the Balance Sheet Date

46. When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure should be made in accordance with 4, ‘Contingencies and Events Occurring After the Balance Sheet Date’, but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained”.

11. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, for Accounting Standard (AS) 21, the following Accounting Standard shall be substituted, namely:-

“Accounting Standard (AS) 21

Consolidated Financial Statements5

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in part A of the Annexure to the Notification.)

Objective

The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary (ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.

Scope

1. This Standard should be applied in the preparation and presentation of consolidated financial statements for a group of enterprises under the control of a parent.

2. This Standard should also be applied in accounting for investments in subsidiaries in the separate financial statements of a parent.

3. In the preparation of consolidated financial statements, other Accounting Standards also apply in the same manner as they apply to the separate statements.

4. This Standard does not deal with:

(a) methods of accounting for amalgamations and their effects on consolidation, including goodwill arising on amalgamation (see AS 14, Accounting for Amalgamations);

(b) accounting for investments in associates (at present governed by AS 13, Accounting for Investments6 ); and

(c) accounting for investments in joint ventures (at present governed by AS 13, Accounting for Investments7).

Definitions

5. For the purpose of this Standard, the following terms are used with the meanings specified:

5.1 Control:

(a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or

(b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

5.2 A subsidiary is an enterprise that is controlled by another enterprise (known as the parent).

5.3 A parent is an enterprise that has one or more subsidiaries.

5.4 A group is a parent and all its subsidiaries.

5.5 Consolidated financial statements are the financial statements of a group presented as those of a single enterprise.

5.6 Equity is the residual interest in the assets of an enterprise after deducting all its liabilities.

5.7 Minority interest is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent.

6. Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements.

Explanation:

All the notes appearing in the separate financial statements of the parent enterprise and its subsidiaries need not be included in the notes to the consolidated financial statements. For preparing consolidated financial statements, the following principles may be observed in respect of notes and other explanatory material that form an integral part thereof:

(a) Notes which are necessary for presenting a true and fair view of the consolidated financial statements are included in the consolidated financial statements as an integral part thereof.

(b) Only the notes involving items which are material need to be disclosed. Materiality for this purpose is assessed in relation to the information contained in consolidated financial statements. In view of this, it is possible that certain notes which are disclosed in separate financial statements of a parent or a subsidiary would not be required to be disclosed in the consolidated financial statements when the test of materiality is applied in the context of consolidated financial statements.

(c) Additional statutory information disclosed in separate financial statements of the subsidiary and/or a parent having no bearing on the true and fair view of the consolidated financial statements need not be disclosed in the consolidated financial statements. An illustration of such information in the case of companies is attached to the Standard.

Presentation of Consolidated Financial Statements

7. A parent which presents consolidated financial statements should present these statements in addition to its separate financial statements.

8. Users of the financial statements of a parent are usually concerned with, and need to be informed about, the financial position and results of operations of not only the enterprise itself but also of the group as a whole.

This need is served by providing the users –

(a) separate financial statements of the parent; and

(b) consolidated financial statements, which present financial information about the group as that of a single enterprise without regard to the legal boundaries of the separate legal entities.

Scope of Consolidated Financial Statements

9. A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Statements, and Accounting Standard (AS) 27, Financial Reporting of Interests in Joint Ventures respectively.

10. The consolidated financial statements are prepared on the basis of financial statements of parent and all enterprises that are controlled by the parent, other than those subsidiaries excluded for the reasons set out in paragraph 11. Control exists when the parent owns, directly or indirectly through subsidiary(ies), more than one-half of the voting power of an enterprise. Control also exists when an enterprise controls the composition of the board of directors (in the case of a company) or of the corresponding governing body (in case of an enterprise not being a company) so as to obtain economic benefits from its activities. An enterprise may control the composition of the governing bodies of entities such as gratuity trust, provident fund trust etc. Since the objective of control over such entities is not to obtain economic benefits from their activities, these are not considered for the purpose of preparation of consolidated financial statements. For the purpose of this Standard, an enterprise is considered to control the composition of:

(i) the board of directors of a company, if it has the power, without the consent or concurrence of any other person, to appoint or remove all or a majority of directors of that company. An enterprise is deemed to have the power to appoint a director, if any of the following conditions is satisfied:

(a) a person cannot be appointed as director without the exercise in his favour by that enterprise of such a power as aforesaid; or

(b) a person’s appointment as director follows necessarily from his appointment to a position held by him in that enterprise; or

(c) the director is nominated by that enterprise or a subsidiary thereof.

(ii) the governing body of an enterprise that is not a company, if it has the power, without the consent or the concurrence of any other person, to appoint or remove all or a majority of members of the governing body of that other enterprise. An enterprise is deemed to have the power to appoint a member, if any of the following conditions is satisfied:

(a) a person cannot be appointed as member of the governing body without the exercise in his favour by that other enterprise of such a power as aforesaid; or

(b) a person’s appointment as member of the governing body follows necessarily from his appointment to a position held by him in that other enterprise; or

(c) the member of the governing body is nominated by that other enterprise.

Explanation:

It is possible that an enterprise is controlled by two enterprises – one controls by virtue of ownership of majority of the voting power of that enterprise and the other controls, by virtue of an agreement or otherwise, the composition of the board of directors so as to obtain economic benefits from its activities. In such a rare situation, when an enterprise is controlled by two enterprises as per the definition of ‘control’, the first mentioned enterprise will be considered as subsidiary of both the controlling enterprises within the meaning of this Standard and, therefore, both the enterprises need to consolidate the financial statements of that enterprise as per the requirements of this Standard.

11. A subsidiary should be excluded from consolidation when:

(a) control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or

(b) it operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent.

In consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements.

Explanation:

(a) Where an enterprise owns majority of voting power by virtue of ownership of the shares of another enterprise and all the shares are held as ‘stock-in-trade’ and are acquired and held exclusively with a view to their subsequent disposal in the near future, the control by the first mentioned enterprise is considered to be temporary within the meaning of paragraph 11(a).

(b) The period of time, which is considered as near future for the purposes of this Standard primarily depends on the facts and circumstances of each case. However, ordinarily, the meaning of the words ‘near future’ is considered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment is considered at the time of acquisition of the investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near future, and subsequently, it is decided to dispose off the investment, such an investment is not excluded from consolidation, until the investment is actually disposed off. Conversely, if the relevant investment is acquired with an intention to its subsequent disposal in near future, but, due to some valid reasons, it could not be disposed off within that period, the same will continue to be excluded from consolidation, provided there is no change in the intention.

12. Exclusion of a subsidiary from consolidation on the ground that its business activities are dissimilar from those of the other enterprises within the group is not justified because better information is provided by consolidating such subsidiaries and disclosing additional information in the consolidated financial statements about the different business activities of subsidiaries. For example, the disclosures required by Accounting Standard (AS) 17, Segment Reporting, help to explain the significance of different business activities within the group.

Consolidation Procedures

13. In preparing consolidated financial statements, the financial statements of the parent and its subsidiaries should be combined on a line by line basis by adding together like items of assets, liabilities, income and expenses. In order that the consolidated financial statements present financial information about the group as that of a single enterprise, the following steps should be taken:

 (a) the cost to the parent of its investment in each subsidiary and the parent’s portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated;

(b) any excess of the cost to the parent of its investment in a subsidiary over the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements;

(c) when the cost to the parent of its investment in a subsidiary is less than the parent’s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, the difference should be treated as a capital reserve in the consolidated financial statements;

(d) minority interests in the net income of consolidated subsidiaries for the reporting period should be identified and adjusted against the income of the group in order to arrive at the net income attributable to the owners of the parent; and

(e) minority interests in the net assets of consolidated subsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parent’s shareholders.

Minority interests in the net assets consist of:

(i) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and

(ii) the minorities’ share of movements in equity since the date the parent-subsidiary relationship came in existence.

Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the purpose of above computations.

Explanation:

(a) The tax expense (comprising current tax and deferred tax) to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries.

(b) The parent’s share in the post-acquisition reserves of a subsidiary, forming part of the corresponding reserves in the consolidated balance sheet, is not required to be disclosed separately in the consolidated balance sheet keeping in view the objective of consolidated financial statements to present financial information of the group as a whole. In view of this, the consolidated reserves disclosed in the consolidated balance sheet are inclusive of the parent’s share in the post-acquisition reserves of a subsidiary.

14. The parent’s portion of equity in a subsidiary, at the date on which investment is made, is determined on the basis of information contained in the financial statements of the subsidiary as on the date of investment. However, if the financial statements of a subsidiary, as on the date of investment, are not available and if it is impracticable to draw the financial statements of the subsidiary as on that date, financial statements of the subsidiary for the immediately preceding period are used as a basis for consolidation. Adjustments are made to these financial statements for the effects of significant transactions or other events that occur between the date of such financial statements and the date of investment in the subsidiary.

15. If an enterprise makes two or more investments in another enterprise at different dates and eventually obtains control of the other enterprise, the consolidated financial statements are presented only from the date on which holding-subsidiary relationship comes in existence. If two or more investments are made over a period of time, the equity of the subsidiary at the date of investment, for the purposes of paragraph 13 above, is generally determined on a step-by-step basis; however, if small investments are made over a period of time and then an investment is made that results in control, the date of the latest investment, as a practicable measure, may be considered as the date of investment.

16. Intragroup balances and intragroup transactions and resulting unrealised profits should be eliminated in full. Unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered.

17. Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full. Unrealised profits resulting from intragroup transactions that are included in the carrying amount of assets, such as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intragroup transactions that are deducted in arriving at the carrying amount of assets are also eliminated unless cost cannot be recovered.

18. The financial statements used in the consolidation should be drawn up to the same reporting date. If it is not practicable to draw up the financial statements of one or more subsidiaries to such date and, accordingly, those financial statements are drawn up to different reporting dates, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parent’s financial statements. In any case, the difference between reporting dates should not be more than six months.

19. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as that of the parent. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. The consistency principle requires that the length of the reporting periods and any difference in the reporting dates should be the same from period to period.

20. Consolidated financial statements should be prepared using uniform accounting policies for like transactions and other events in similar circumstances. If it is not practicable to use uniform accounting policies in preparing the consolidated financial statements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.

21. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements.

22. The results of operations of a subsidiary are included in the consolidated financial statements as from the date on which parent-subsidiary relationship came in existence. The results of operations of a subsidiary with which parent-subsidiary relationship ceases to exist are included in the consolidated statement of profit and loss until the date of cessation of the relationship. The difference between the proceeds from the disposal of investment in a subsidiary and the carrying amount of its assets less liabilities as of the date of disposal is recognised in the consolidated statement of profit and loss as the profit or loss on the disposal of the investment in the subsidiary. In order to ensure the comparability of the financial statements from one accounting period to the next, supplementary information is often provided about the effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date and the results for the reporting period and on the corresponding amounts for the preceding period.

23. An investment in an enterprise should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments, from the date that the enterprise ceases to be a subsidiary and does not become an associate8.

24. The carrying amount of the investment at the date that it ceases to be a subsidiary is regarded as cost thereafter.

25. Minority interests should be presented in the consolidated balance sheet separately from liabilities and the equity of the parent’s shareholders. Minority interests in the income of the group should also be separately presented.

26. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered.

27. If a subsidiary has outstanding cumulative preference shares which are held outside the group, the parent computes its share of profits or losses after adjusting for the subsidiary’s preference dividends, whether or not dividends have been declared.

Accounting for Investments in Subsidiaries in a Parent’s Separate Financial Statements

28. In a parent’s separate financial statements, investments in subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments.

Disclosure

29. In addition to disclosures required by paragraph 11 and 20, following disclosures should be made:

(a) in consolidated financial statements a list of all subsidiaries including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion of voting power held;

(b) in consolidated financial statements, where applicable:

(i) the nature of the relationship between the parent and a subsidiary, if the parent does not own, directly or indirectly through subsidiaries, more than one-half of the voting power of the subsidiary;

(ii) the effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date, the results for the reporting period and on the corresponding amounts for the preceding period; and

(iii) the names of the subsidiary(ies) of which reporting date(s) is/are different from that of the parent and the difference in reporting dates.

Transitional Provisions

30. On the first occasion that consolidated financial statements are presented, comparative figures for the previous period need not be presented. In all subsequent years full comparative figures for the previous period should be presented in the consolidated financial statements.

Illustration

Note: This illustration does not form part of the Accounting Standard. Its purpose is to assist in clarifying the meaning of the Accounting Standard.

In the case of companies, the information such as the following given in the notes to the separate financial statements of the parent and/or the subsidiary, need not be included in the consolidated financial statements:

(i) Source from which bonus shares are issued, e.g., capitalisation of profits or Reserves or from Share Premium Account.

(ii) Disclosure of all unutilised monies out of the issue indicating the form in which such unutilised funds have been invested.

(iii) The name(s) of small scale industrial undertaking(s) to whom the company owe any sum together with interest outstanding for more than thirty days.

(iv) A statement of investments (whether shown under “Investment” or under “Current Assets” as stock-in-trade) separately classifying trade investments and other investments, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been made (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investment so made in each such body corporate.

(v) Quantitative information in respect of sales, raw materials consumed, opening and closing stocks of goods produced/ traded and purchases made, wherever applicable.

(vi) A statement showing the computation of net profits in accordance with section 198 of the Companies Act, 2013, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any).

(vii) In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production.

(viii) Value of imports calculated on C.I.F. basis by the company during the financial year in respect of :

(a) raw materials;

(b) components and spare parts;

(c) capital goods.

(ix) Expenditure in foreign currency during the financial year on account of royalty, know-how, professional, consultation fees, interest, and other matters.

(x) Value of all imported raw materials, spare parts and components consumed during the financial year and the value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption.

(xi) The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends were due and the year to which the dividends related.

(xii) Earnings in foreign exchange classified under the following heads, namely:

(a) export of goods calculated on F.O.B. basis;

(b) royalty, know-how, professional and consultation fees;

(c) interest and dividend;

(d) other income, indicating the nature thereof”.

12. In the principal rules, in the “ANNEXURE”, under the heading “ACCOUNTING STANDARDS”, for Accounting  Standard (AS) 29, the following Accounting Standard shall be substituted, namely:-

“Accounting Standard (AS) 29

Provisions, Contingent Liabilities and Contingent Assets

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs set in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in part A of the Annexure to the Notification.)

Pursuant to this Accounting Standard coming into effect, all paragraphs of Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, that deal with contingencies (viz., paragraphs 1 (a), 2, 3.1, 4 (4.1 to 4.4), 5 (5.1 to 5.6), 6, 7 (7.1 to 7.3), 9.1 (relevant portion), 9.2, 10, 11, 12 and 16), stand withdrawn except to the extent they deal with impairment of assets not covered by other Indian Accounting Standards.

Objective

The objective of this Standard is to ensure that appropriate recognition criteria and measurement bases are applied to provisions and contingent liabilities and that sufficient information is disclosed in the notes to the financial statements to enable users to understand their nature, timing and amount. The objective of this Standard is also to lay down appropriate accounting for contingent assets.

Scope

1. This Standard should be applied in accounting for provisions and contingent liabilities and in dealing with contingent assets, except:

(a) those resulting from financial instruments9 that are carried at fair value;

(b) those resulting from executory contracts, except where the contract is onerous; Explanation :

(i) An ‘onerous contract’ is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Thus, for a contract to qualify as an onerous contract, the unavoidable costs of meeting the obligation under the contract should exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.

(ii) If an enterprise has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision as per this Statement.

The application of the above explanation is illustrated in Illustration 10 of Illustration C attached to the Standard.

(c) those arising in insurance enterprises from contracts with policy-holders; and

(d) those covered by another Accounting Standard.

2. This Standard applies to financial instruments (including guarantees) that are not carried at fair value.

3. Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. This Standard does not apply to executory contracts unless they are onerous.

4. This Standard applies to provisions, contingent liabilities and contingent assets of insurance enterprises other than those arising from contracts with policy-holders.

5. Where another Accounting Standard deals with a specific type of provision, contingent liability or contingent asset, an enterprise applies that Standard instead of this Standard. For example, certain types of provisions are also addressed in Accounting Standards on:

(a) construction contracts (see AS 7, Construction Contracts);

(b) taxes on income (see AS 22, Accounting for Taxes on Income);

(c) leases (see AS 19, Leases) . However, as AS 19 contains no specific requirements to deal with operating leases that have become onerous, this Statement applies to such cases; and

(d) retirement benefits (see AS 15, Accounting for Retirement Benefits in the Financial Statements of Employers).

6. Some amounts treated as provisions may relate to the recognition of revenue, for example where an enterprise gives guarantees in exchange for a fee. This Standard does not address the recognition of revenue. AS 9, Revenue Recognition, identifies the circumstances in which revenue is recognised and provides practical guidance on the application of the recognition criteria. This Standard does not change the requirements of AS 9.

7. This Standard defines provisions as liabilities which can be measured only by using a substantial degree of estimation. The term ‘provision’ is also used in the context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard.

8. Other Accounting Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requires capitalisation of the costs recognised when a provision is made.

9. This Standard applies to provisions for restructuring (including discontinuing operations). Where a restructuring meets the definition of a discontinuing operation, additional disclosures are required by AS 24, Discontinuing Operations.

Definitions

10. The following terms are used in this Standard with the meanings specified:

10.1 A provision is a liability which can be measured only by using a substantial degree of estimation.

10.2 A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

10.3 An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation.

10.4 A contingent liability is:

(a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the enterprise; or

(b) a present obligation that arises from past events but is not recognised because:

(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle  the obligation; or

(ii) a reliable estimate of the amount of the obligation cannot be made.

10.5 A contingent asset is a possible asset that arises from past events the existence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise.

10.6 Present obligation - an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not.

10.7 Possible obligation - an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is considered not probable.

10.8 A restructuring is a programme that is planned and controlled by management, and materially changes either:

(a) the scope of a business undertaken by an enterprise; or

(b) the manner in which that business is conducted.

11. An obligation is a duty or responsibility to act or perform in a certain way. Obligations may be legally enforceable as a consequence of a binding contract or statutory requirement. Obligations also arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner.

12. Provisions can be distinguished from other liabilities such as trade payables and accruals because in the measurement of provisions substantial degree of estimation is involved with regard to the future expenditure required in settlement. By contrast:

(a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and

(b) accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or formally agreed with the supplier, including amounts due to employees. Although it is sometimes necessary to estimate the amount of accruals, the degree of estimation is generally much less than that for provisions.

13. In this Standard, the term ‘contingent’ is used for liabilities and assets that are not recognised because their existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise. In addition, the term ‘contingent liability’ is used for liabilities that do not meet the recognition criteria.

Recognition

Provisions

14. A provision should be recognised when:

(a) an enterprise has a present obligation as a result of a past event;

(b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

(c) a reliable estimate can be made of the amount of the obligation.

If these conditions are not met, no provision should be recognised.

Present Obligation

15. In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a lawsuit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an enterprise determines whether a present obligation exists at the balance sheet date by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. On the basis of such evidence:

(a) where it is more likely than not that a present obligation exists at the balance sheet date, the enterprise recognises a provision (if the recognition criteria are met); and

(b) where it is more likely that no present obligation exists at the balance sheet date, the enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 68).

Past Event

16. A past event that leads to a present obligation is called an obligating event. For an event to be an obligating event, it is necessary that the enterprise has no realistic alternative to settling the obligation created by the event.

17. Financial statements deal with the financial position of an enterprise at the end of its reporting period and not its possible position in the future. Therefore, no provision is recognised for costs that need to be incurred to operate in the future. The only liabilities recognised in an enterprise’s balance sheet are those that exist at the balance sheet date.

18. It is only those obligations arising from past events existing independently of an enterprise’s future actions (i.e. the future conduct of its business) that are recognised as provisions. Examples of such obligations are penalties or clean-up costs for unlawful environmental damage, both of which would lead to an outflow of resources embodying economic benefits in settlement regardless of the future actions of the enterprise. Similarly, an enterprise recognises a provision for the decommissioning costs of an oil installation to the extent that the enterprise is obliged to rectify damage already caused. In contrast, because of commercial pressures or legal requirements, an enterprise may intend or need to carry out expenditure to operate in a particular way in the future (for example, by fitting smoke filters in a certain type of factory). Because the enterprise can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognised.

19. An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the obligation is owed – indeed the obligation may be to the public at large.

20. An event that does not give rise to an obligation immediately may do so at a later date, because of changes in the law. For example, when environmental damage is caused there may be no obligation to remedy the consequences. However, the causing of the damage will become an obligating event when a new law requires the existing damage to be rectified.

21. Where details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted. Differences in circumstances surrounding enactment usually make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted.

Probable Outflow of Resources Embodying Economic Benefits

22. For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of this Standard10 , an outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e., the probability that the event will occur is greater than the probability that it will not. Where it is not probable that a present obligation exists, an enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic benefits is remote (see paragraph 68).

23. Where there are a number of similar obligations (e.g. product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognised (if the other recognition criteria are met).

Reliable Estimate of the Obligation

24. The use of estimates is an essential part of the preparation of financial statements and does not undermine their reliability. This is especially true in the case of provisions, which by their nature involve a greater degree of estimation than most other items. Except in extremely rare cases, an enterprise will be able to determine a range of possible outcomes and can therefore make an estimate of the obligation that is reliable to use in recognising a provision.

25. In the extremely rare case where no reliable estimate can be made, a liability exists that cannot be recognised. That liability is disclosed as a contingent liability (see paragraph 68).

Contingent Liabilities

26. An enterprise should not recognise a contingent liability.

27. A contingent liability is disclosed, as required by paragraph 68, unless the possibility of an outflow of resources embodying economic benefits is remote.

28. Where an enterprise is jointly and severally liable for an obligation, the part of the obligation that is expected to be met by other parties is treated as a contingent liability. The enterprise recognises a provision for the part of the obligation for which an outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made (see paragraph 14).

29. Contingent liabilities may develop in a way not initially expected. Therefore, they are assessed continually to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in accordance with paragraph 14 in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

Contingent Assets

30. An enterprise should not recognise a contingent asset.

31. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. An example is a claim that an enterprise is pursuing through legal processes, where the outcome is uncertain.

32. Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate.

33. A contingent asset is not disclosed in the financial statements. It is usually disclosed in the report of the approving authority (Board of Directors in the case of a company, and, the corresponding approving authority in the case of any other enterprise), where an inflow of economic benefits is probable.

34. Contingent assets are assessed continually and if it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs.

Measurement

Best Estimate

35. The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value except in case of decommissioning, restoration and similar liabilities that are recognised as cost of Property, Plant and Equipment. The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss.

36. The estimates of outcome and financial effect are determined by the judgment of the management of the enterprise, supplemented by experience of similar transactions and, in some cases, reports from independent experts. The evidence considered includes any additional evidence provided by events after the balance sheet date.

37. The provision is measured before tax; the tax consequences of the provision, and changes in it, are dealt with under AS 22, Accounting for Taxes on Income.

Risks and Uncertainties

38. The risks and uncertainties that inevitably surround many events and circumstances should be taken into account in reaching the best estimate of a provision.

39. Risk describes variability of outcome. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgments under conditions of uncertainty, so that income or assets are not overstated and expenses or liabilities are not understated. However, uncertainty does not justify the creation of excessive provisions or a deliberate overstatement of liabilities. For example, if the projected costs of a particularly adverse outcome are estimated on a prudent basis, that outcome is not then deliberately treated as more probable than is realistically the case. Care is needed to avoid duplicating adjustments for risk and uncertainty with consequent overstatement of a provision.

40. Disclosure of the uncertainties surrounding the amount of the expenditure is made under paragraph 67(b).

Future Events

41. Future events that may affect the amount required to settle an obligation should be reflected in the amount of a provision where there is sufficient objective evidence that they will occur.

42. Expected future events may be particularly important in measuring provisions. For example, an enterprise may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognised reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence as to the technology that will be available at the time of the clean-up. Thus, it is appropriate to include, for example, expected cost reductions associated with increased experience in applying existing technology or the expected cost of applying existing technology to a larger or more complex clean-up operation than has previously been carried out. However, an enterprise does not anticipate the development of a completely new technology for cleaning up unless it is supported by sufficient objective evidence.

43. The effect of possible new legislation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice usually makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what legislation will demand and of whether it is virtually certain to be enacted and implemented in due course. In many cases sufficient objective evidence will not exist until the new legislation is enacted.

Expected Disposal of Assets

44. Gains from the expected disposal of assets should not be taken into account in measuring a provision.

45. Gains on the expected disposal of assets are not taken into account in measuring a provision, even if the expected disposal is closely linked to the event giving rise to the provision. Instead, an enterprise recognises gains on expected disposals of assets at the time specified by the Accounting Standard dealing with the assets concerned.

Reimbursements

46. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised when, and only when, it is virtually certain that reimbursement will be received if the enterprise settles the obligation. The reimbursement should be treated as a separate asset. The amount recognised for the reimbursement should not exceed the amount of the provision.

47. In the statement of profit and loss, the expense relating to a provision may be presented net of the amount recognised for a reimbursement.

48. Sometimes, an enterprise is able to look to another party to pay part or all of the expenditure required to settle a provision (for example, through insurance contracts, indemnity clauses or suppliers’ warranties). The other party may either reimburse amounts paid by the enterprise or pay the amounts directly.

49. In most cases, the enterprise will remain liable for the whole of the amount in question so that the enterprise would have to settle the full amount if the third party failed to pay for any reason. In this situation, a provision is recognised for the full amount of the liability, and a separate asset for the expected reimbursement is recognised when it is virtually certain that reimbursement will be received if the enterprise settles the liability.

50. In some cases, the enterprise will not be liable for the costs in question if the third party fails to pay. In such a case, the enterprise has no liability for those costs and they are not included in the provision.

51. As noted in paragraph 28, an obligation for which an enterprise is jointly and severally liable is a contingent liability to the extent that it is expected that the obligation will be settled by the other parties.

Changes in Provisions

52. Provisions should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed.

Use of Provisions

53. A provision should be used only for expenditures for which the provision was originally recognised.

54. Only expenditures that relate to the original provision are adjusted against it. Adjusting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different events.

Application of the Recognition and Measurement Rules

Future Operating Losses

55. Provisions should not be recognised for future operating losses.

56. Future operating losses do not meet the definition of a liability in paragraph 10 and the general recognition criteria set out for provisions in paragraph 14.

57. An expectation of future operating losses is an indication that certain assets of the operation may be impaired. An enterprise tests these assets for impairment under Accounting Standard (AS) 28, Impairment of Assets.

Restructuring

58. The following are examples of events that may fall under the definition of restructuring:

(a) sale or termination of a line of business;

(b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another;

(c) changes in management structure, for example, eliminating a layer of management; and

(d) fundamental re-organisations that have a material effect on the nature and focus of the enterprise’s operations.

59. A provision for restructuring costs is recognised only when the recognition criteria for provisions set out in paragraph 14 are met.

60. No obligation arises for the sale of an operation until the enterprise is committed to the sale, i.e., there is a binding sale agreement.

61. An enterprise cannot be committed to the sale until a purchaser has been identified and there is a binding sale agreement. Until there is a binding sale agreement, the enterprise will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment under Accounting Standard (AS) 28, Impairment of Assets.

62. A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both:

(a) necessarily entailed by the restructuring; and

(b) not associated with the ongoing activities of the enterprise.

63. A restructuring provision does not include such costs as:

(a) retraining or relocating continuing staff;

(b) marketing; or

(c) investment in new systems and distribution networks.

These expenditures relate to the future conduct of the business and are not liabilities for restructuring at the balance sheet date. Such expenditures are recognised on the same basis as if they arose independently of a restructuring.

64. Identifiable future operating losses up to the date of a restructuring are not included in a provision.

65. As required by paragraph 44, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring.

Disclosure

66. For each class of provision, an enterprise should disclose:

(a) the carrying amount at the beginning and end of the period;

(b) additional provisions made in the period, including increases to existing provisions;

(c) amounts used (i.e. incurred and charged against the provision) during the period; and

(d) unused amounts reversed during the period.

Provided that a Small and Medium-sized Company, as defined in the Notification, may not comply with paragraph 66 above.

67. An enterprise should disclose the following for each class of provision:

(a) a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits;

(b) an indication of the uncertainties about those outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events, as addressed in paragraph 41; and

(c) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.

Provided that a Small and Medium-sized Company, as defined in the Notification, may not comply with paragraph 67 above.

68. Unless the possibility of any outflow in settlement is remote, an enterprise should disclose for each class of contingent liability at the balance sheet date a brief description of the nature of the contingent liability and, where practicable:

(a) an estimate of its financial effect, measured under paragraphs 35-45;

(b) an indication of the uncertainties relating to any outflow; and

(c) the possibility of any reimbursement.

69. In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfill the requirements of paragraphs 67 (a) and (b) and 68 (a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a single class amounts relating to normal warranties and amounts that are subject to legal proceedings.

70. Where a provision and a contingent liability arise from the same set of circumstances, an enterprise makes the disclosures required by paragraphs 66-68 in a way that shows the link between the provision and the contingent liability.

71. Where any of the information required by paragraph 68 is not disclosed because it is not practicable to do so, that fact should be stated.

72. In extremely rare cases, disclosure of some or all of the information required by paragraphs 66-70 can be expected to prejudice seriously the position of the enterprise in a dispute with other parties on the subject matter of the provision or contingent liability. In such cases, an enterprise need not disclose the information, but should disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.

Transitional Provisions

73. All the existing provisions for decommissioning, restoration and similar liabilities (see paragraph 35) should be discounted prospectively, with the corresponding effect to the related item of property, plant and equipment.

Illustration A

Tables – Provisions, Contingent Liabilities and Reimbursements

The purpose of this illustration is to summarise the main requirements of the Accounting Standard. It does not form part of the Accounting Standard and should be read in the context of the full text of the Accounting Standard.

Provisions and Contingent Liabilities

Where, as a result of past events, there may be an  outflow of resources embodying future economic bene fits in settlement  of:  (a)  a  present  obligation  the  one  whose  existence  at  the  balance  sheet  date  is  considered  probable;   or  (b)  a  possible  obligation the existence of which at the balance sheet date is considered not probable.
There is a present obligation that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. There is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. There is a possible obligation or a present obligation where the likelihood of an outflow of resources is remote.
A provision is recognised (paragraph 14). Disclosures are required for the provision (paragraphs 66 and 67) No provision is recognised (paragraph 26). Disclosures are required for the contingent liability (paragraph 68). No provision is recognised (paragraph 26). No disclosure is required (paragraph 68).

Reimbursements

Some or all of the expenditure required to settle a provision is expected to be reimbursed by another party.

The enterprise has no obligation for the part of the expenditure to be reimbursed by the other party. The obligation for the amount expected to be reimbursed remains with the enterprise and it is virtually certain that reimbursement will be received if the enterprise settles the provision. The obligation for the amount expected to be reimbursed remains with the enterprise and the reimbursement is not virtually certain if the enterprise settles the provision.
The enterprise has no liability for the amount to be reimbursed (paragraph 50). The reimbursement is recognised as a separate asset in the balance sheet and may be offset against the expense in the statement of profit and loss. The  amount recognised for the expected reimbursement does not exceed the liability (paragraphs 46 and 47). The expected reimbursement is not recognised as an asset (paragraph 46).
No disclosure is required. The reimbursement is disclosed together with the amount recognised for the reimbursement (paragraph 67(c)). The expected reimbursement is disclosed (paragraph 67(c)).

Illustration B

Decision Tree

The purpose of the decision tree is to summarise the main recognition requirements of the Accounting Standard for provisions and contingent liabilities. The decision tree does not form part of the Accounting Standard and should be read in the context of the full text of the Accounting Standard.

Note: in rare cases, it is not clear whether there is a present obligation. In these cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the balance sheet date (paragraph 15 of the Standard).

Illustration C

Illustration: Recognition

This illustration illustrates the application of the Accounting Standard to assist in clarifying its meaning. It does not form part of the Accounting Standard.

All the enterprises in the Illustrations have 31 March year ends. In all cases, it is assumed that a reliable estimate can be made of any outflows expected. In some Illustrations the circumstances described may have resulted in impairment of the assets – this aspect is not dealt with in the examples.

The cross references provided in the Illustrations indicate paragraphs of the Accounting Standard that are particularly relevant. The illustration should be read in the context of the full text of the Accounting Standard.

Illustration 1: Warranties

A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the contract for sale the manufacturer undertakes to make good, by repair or replacement, manufacturing defects that become apparent within three years from the date of sale. On past experience, it is probable (i.e. more likely than not) that there will be some claims under the warranties.

Present obligation as a result of a past obligating event -The obligating event is the sale of the product with a warranty, which gives rise to an obligation.

An outflow of resources embodying economic benefits in settlement - Probable for the warranties as a whole (see paragraph 23).

Conclusion - A provision is recognised for the best estimate of the costs of making good under the warranty products sold before the balance sheet date (see paragraphs 14 and 23).

Illustration 2: Contaminated Land -Legislation Virtually Certain to be Enacted

An enterprise in the oil industry causes contamination but does not clean up because there is no legislation requiring cleaning up, and the enterprise has been contaminating land for several years. At 31 March 2005 it is virtually certain that a law requiring a clean-up of land already contaminated will be enacted shortly after the year end.

Present obligation as a result of a past obligating event -The obligating event is the contamination of the land because of the virtual certainty of legislation requiring cleaning up.

An outflow of resources embodying economic benefits in settlement - Probable.

Conclusion - A provision is recognised for the best estimate of the costs of the clean-up (see paragraphs 14 and 21).

Illustration 3: Offshore Oil field

An enterprise operates an offshore oil field where its licensing agreement requires it to remove the oil rig at the end of production and restore the seabed. Ninety per cent of the eventual costs relate to the removal of the oil rig and restoration of damage caused by building it, and ten per cent arise through the extraction of oil. At the balance sheet date, the rig has been constructed but no oil has been extracted.

Present obligation as a result of a past obligating event -The construction of the oil rig creates an obligation under the terms of the licence to remove the rig and restore the seabed and is thus an obligating event. At the balance sheet date, however, there is no obligation to rectify the damage that will be caused by extraction of the oil.

An outflow of resources embodying economic benefits in settlement – Probable.

Conclusion -A provision is recognised for the best estimate of ninety per cent of the eventual costs that relate to the removal of the oil rig and restoration of damage caused by building it (see paragraph 14). These costs are included as part of the cost of the oil rig. The ten per cent of costs that arise through the extraction of oil are recognised as a liability when the oil is extracted.

Illustration 4: Refunds Policy

A retail store has a policy of refunding purchases by dissatisfied customers, even though it is under no legal obligation to do so. Its policy of making refunds is generally known.

Present obligation as a result of a past obligating event -The obligating event is the sale of the product, which gives rise to an obligation because obligations also arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner.

An outflow of resources embodying economic benefits in settlement

Probable, a proportion of goods are returned for refund (see paragraph 23).

Conclusion - A provision is recognised for the best estimate of the costs of refunds (see paragraphs 11, 14 and 23).

Illustration 5: Legal Requirement to Fit Smoke Filters

Under new legislation, an enterprise is required to fit smoke filters to its factories by 30 September 2005. The enterprise has not fitted the smoke filters.

(a) At the balance sheet date of 31 March 2005

Present obligation as a result of a past obligating event -There is no obligation because there is no obligating event either for the costs of fitting smoke filters or for fines under the legislation.

Conclusion - No provision is recognised for the cost of fitting the smoke filters (see paragraphs 14 and 16-18).

(b) At the balance sheet date of 31 March 2006

Present obligation as a result of a past obligating event -There is still no obligation for the costs of fitting smoke filters because no obligating event has occurred (the fitting of the filters). However, an obligation might arise to pay fines or penalties under the legislation because the obligating event has occurred (the non-compliant operation of the factory).

An outflow of resources embodying economic benefits in settlement - Assessment of probability of incurring fines

and penalties by non-compliant operation depends on the details of the legislation and the stringency of the enforcement regime.

Conclusion - No provision is recognised for the costs of fitting smoke filters. However, a provision is recognised for the best estimate of any fines and penalties that are more likely than not to be imposed (see paragraphs 14 and 16-18).

Illustration 6: Staff Retraining as a Result of Changes in the Income Tax System

The government introduces a number of changes to the income tax system. As a result of these changes, an enterprise in the financial services sector will need to retrain a large proportion of its administrative and sales work force in order to ensure continued compliance with financial services regulation. At the balance sheet date, no retraining of staff has taken place.

Present obligation as a result of a past obligating event -There is no obligation because no obligating event (retraining) has taken place.

Conclusion - No provision is recognised (see paragraphs 14 and 16-18).

Illustration 7: A Single Guarantee

During 2004-05, Enterprise A gives a guarantee of certain borrowings of Enterprise B, whose financial condition at that time is sound. During 2005-06, the financial condition of Enterprise B deteriorates and at 30 September 2005 Enterprise B goes into liquidation.

(a) At 31 March 2005

Present obligation as a result of a past obligating event -The obligating event is the giving of the guarantee, which gives rise to an obligation.

An outflow of resources embodying economic benefits in settlement

No outflow of benefits is probable at 31 March 2005.

Conclusion -No provision is recognised (see paragraphs 14 and 22). The guarantee is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (see paragraph 68).

(b) At 31 March 2006

Present obligation as a result of a past obligating event -The obligating event is the giving of the guarantee, which gives rise to a legal obligation.

An outflow of resources embodying economic benefits in settlement - At 31 March 2006, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

Conclusion -A provision is recognised for the best estimate of the obligation (see paragraphs 14 and 22).

Note: This example deals with a single guarantee. If an enterprise has a portfolio of similar guarantees, it will assess that portfolio as a whole in determining whether an outflow of resources embodying economic benefit is probable (see paragraph 23). Where an enterprise gives guarantees in exchange for a fee, revenue is recognised under AS 9, Revenue Recognition.

Illustration 8: A Court Case

After a wedding in 2004-05, ten people died, possibly as a result of food poisoning from products sold by the enterprise. Legal proceedings are started seeking damages from the enterprise but it disputes liability. Up to the date of approval of the financial statements for the year 31 March 2005, the enterprise’s lawyers advise that it is probable that the enterprise will not be found liable. However, when the enterprise prepares the financial statements for the year 31 March 2006, its lawyers advise that, owing to developments in the case, it is probable that the enterprise will be found liable.

(a) At 31 March 2005

Present obligation as a result of a past obligating event -On the basis of the evidence available when the financial statements were approved, there is no present obligation as a result of past events.

Conclusion - No provision is recognised (see definition of ‘present obligation’ and paragraph 15). The matter is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (paragraph 68).

(b) At 31 March 2006

Present obligation as a result of a past obligating event -On the basis of the evidence available, there is a present obligation.

An outflow of resources embodying economic benefits in settlement - Probable.

Conclusion - A provision is recognised for the best estimate of the amount to settle the obligation (paragraphs 14-15).

Illustration 9A: Refurbishment Costs -No Legislative Requirement

A furnace has a lining that needs to be replaced every five years for technical reasons. At the balance sheet date, the lining has been in use for three years.

Present obligation as a result of a past obligating event -There is no present obligation.

Conclusion - No provision is recognised (see paragraphs 14 and 16-18).

The cost of replacing the lining is not recognised because, at the balance sheet date, no obligation to replace the lining exists independently of the company’s future actions – even the intention to incur the expenditure depends on the company deciding to continue operating the furnace or to replace the lining.

Illustration 9B: Refurbishment Costs -Legislative Requirement

An airline is required by law to overhaul its aircraft once every three years.

Present obligation as a result of a past obligating event -There is no present obligation.

Conclusion - No provision is recognised (see paragraphs 14 and 16-18).

The costs of overhauling aircraft are not recognised as a provision for the same reasons as the cost of replacing the lining is not recognised as a provision in illustration 9A. Even a legal requirement to overhaul does not make the costs of overhaul a liability, because no obligation exists to overhaul the aircraft independently of the enterprise’s future actions – the enterprise could avoid the future expenditure by its future actions, for example by selling the aircraft.

Illustration 10: An onerous contract

An enterprise operates profitably from a factory that it has leased under an operating lease. During December 2005 the enterprise relocates its operations to a new factory. The lease on the old factory continues for the next four years, it cannot be cancelled and the factory cannot be re-let to another user.

Present obligation as a result of a past obligating event -The obligating event occurs when the lease contract becomes binding on the enterprise, which gives rise to a legal obligation.

An outflow of resources embodying economic benefits in settlement - When the lease becomes onerous, an outflow of resources embodying economic benefits is probable. (Until the lease becomes onerous, the enterprise accounts for the lease under AS 19, Leases).

Conclusion -A provision is recognised for the best estimate of the unavoidable lease payments.

Illustration D

Illustration: Disclosures

This illustration does not form part of the Accounting Standard. Its purpose is to illustrate the application of the Accounting Standard to assist in clarifying its meaning. An illustration of the disclosures required by paragraph 67 is provided below.

Illustration 1 Warranties

A manufacturer gives warranties at the time of sale to purchasers of its three product lines. Under the terms of the warranty, the manufacturer undertakes to repair or replace items that fail to perform satisfactorily for two years from the date of sale. At the balance sheet date, a provision of ₹ 60,000 has been recognised. The following information is disclosed:

A provision of ₹ 60,000 has been recognised for expected warranty claims on products sold during the last three financial years. It is expected that the majority of this expenditure will be incurred in the next financial year, and all will be incurred within two years of the balance sheet date.

An illustration is given below of the disclosures required by paragraph 72 where some of the information required is not given because it can be expected to prejudice seriously the position of the enterprise.

Illustration 2 Disclosure Exemption

An enterprise is involved in a dispute with a competitor, who is alleging that the enterprise has infringed patents and is seeking damages of ₹ 1000 lakhs. The enterprise recognises a provision for its best estimate of the obligation, but discloses none of the information required by paragraphs 66 and 67 of the Standard. The following information is disclosed:

Litigation is in process against the company relating to a dispute with a competitor who alleges that the company has infringed patents and is seeking damages of ₹ 1000 lakhs. The information usually required by AS 29, Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice the interests of the company. The directors are of the opinion that the claim can be successfully resisted by the company.

[F. No. 17/151/2013-CL-V]

AMARDEEP SINGH BHATIA, Jt. Secy.

NOTE:- Principal rules were published in the gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 7th December, 2006 vide G.S.R. 734 (E), dated the 7th December, 2006 and last amended vide G.S.R. 914 (E) dated the 29th December, 2011.


* All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting Standards prescribed by the Central Government. For example, the impairment of financial assets such as impairment of receivables (commonly known as provision for bad and doubtful debts) is governed by this Standard.

1An Accounting Standard on Agriculture is under formulation, which will, inter alia, cover accounting for livestock. Till the time, the Accounting Standard on Agriculture is issued, accounting for livestock meeting the definition of Property, Plant and Equipment, will be covered as per AS 10 (Revised), Property, Plant and Equipment.

Shares, debentures and other securities held as stock-in-trade (i.e., for sale in the ordinary course of business) are not ‘investments’ as defined in this Standard. However, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provisions of this Standard, to the extent that they relate to current investments, are also applicable to shares, debentures and other securities held as stock-in-trade, with suitable modifications as specified in this Standard.

3 Shares, debentures and other securities held for sale in the ordinary course of business are disclosed as ‘stock-in-trade’ under the head ‘current assets’.

4 In respect of shares, debentures and other securities held as stock-in-trade, the cost of stocks disposed of is determined by applying an appropriate cost formula (e.g. first-in, first-out, average cost, etc.). These cost formulae are the same as those specified in Accounting Standard (AS) 2, in respect of Valuation of Inventories.

* As defined in AS 21, Consolidated Financial Statements

* Paragraph 23 shall not apply to any scheme of amalgamation approved under the Companies Act, 2013.

* Paragraph 42 shall not apply to any scheme of amalgamation approved under the Companies Act, 2013.

5 It is clarified that AS 21 is mandatory if an enterprise presents consolidated financial statements. In other words, the accounting standard does not mandate an enterprise to present consolidated financial statements but, if the enterprise presents consolidated financial statements for complying with the requirements of any statute or otherwise, it should prepare and present consolidated financial statements in accordance with AS 21.

6 Accounting Standard (AS) 23, ‘Accounting for Investments in Associates in Consolidated Financial Statements’, specifies the requirements relating to accounting for investments in associates in Consolidated Financial Statements.

Accounting Standard (AS) 27, ‘Financial Reporting of Interests in Joint Ventures’, specifies the requirements relating to accounting for investments in joint ventures.

8Accounting Standard (AS) 23, ‘Accounting for Investments in Associates in Consolidated Financial Statements’, defines the term ‘associate’ and specifies the requirements relating to accounting for investments in associates in consolidated Financial Statements.

9 For the purpose of this Standard, the term ‘financial instruments’ shall have the same meaning as in Accounting Standard (AS) 20, Ernings Per Share

10 The interpretation of ‘probable’ in this Standard as ‘more likely than not’ does not necessarily apply in other Accounting Standards

Notification No. F. No. No.A.35011/28/2009-Adm.III 30-3-2016


Ministry of Corporate Affairs, the Serious Fraud Investigation Office, Assistant Director Forensic Audit), Senior Assistant Director (Forensic Audit) and Deputy Director (Forensic Audit) Recruitment Rules, 2016 – F. No. No.A.35011/28/2009-Adm.III – Dated 30-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 30th March, 2016

G.S.R.382(E).-In exercise of the powers conferred by sub-section (5) of Section 211 of the Companies Act, 2013 (18 of 2013) and in supersession of the Serious Fraud Investigation Office, Ministry of Company Affairs, Assistant Director (Forensic Auditing), and Senior Assistant Director Recruitment Rules, 2006, except as respects things done or omitted to be done before such supersession, the Central Government hereby makes the following rules regulating the method of recruitment to the post of Assistant Director (Forensic Audit), Senior Assistant Director (Forensic Audit) and Deputy Director (Forensic Audit) in the Ministry of Corporate Affairs, Serious Fraud Investigation Office:-

1. Short title and commencement. –

(1) These rules may be called the Ministry of Corporate Affairs, the Serious Fraud Investigation Office, Assistant Director (Forensic Audit), Senior Assistant Director (Forensic Audit) and Deputy Director (Forensic Audit) Recruitment Rules, 2016.

(2) They shall come into force from the date of their publication in the Official Gazette.

2. Application. – These rules shall apply to the posts specified in the Schedule annexed to these rules.

3. Number of posts, classification and pay band and grade pay or scale of pay. - The number of posts, its classifications and the pay band and grade pay or scale of pay attached thereto shall be as specified in columns (2) to (4) of the Schedule annexed to these rules.

4. Method of recruitment, age-limit, educational qualifications, etc. – The method of recruitment to the said post, age-limit, educational qualifications and other matters relating thereto shall be as specified in columns (5) to (13) of the said Schedule.

5. Disqualifications. – No person, –

(a) who has entered into or contracted a marriage with a person having a spouse living; or

(b) who, having a spouse living has entered into or contracted a marriage with any person,

shall be eligible for appointment to the said post:

Provided that the Central Government may, if satisfied that such marriage is permissible under the personal law applicable to such person and the other party to the marriage and that there are other grounds for so doing, exempt any person from the operation of this rule.

6. Power to relax. – Where the Central Government is of the opinion that it is necessary, or expedient so to do, it may, by order and for reasons to be recorded in writing and in consultation with the Union Public Service Commission relax any of the provisions of these rules with respect to any class or category of persons.

7. Saving. - Nothing in these rules shall affect reservation, relaxation of age – limit and other concessions required to be provided for the Scheduled Castes, the Schedule Tribes, ex-serviceman and other special categories of persons in accordance with the orders issued by the Central Government from time to time in this regard.

SCHEDULE

Name of the Post Number of Post Classification Pay band and grade pay or pay scale Whether selection post or nonselection post Age-limit for direct recruits

(1)

(2)

(3)

(4)

(5)

(6)

1.Assistant Director (Forensic Audit) 04 *

(2016)

*Subject to variation dependent on workload

General Central

Service, Group-‘B’ Gazetted, Non- Ministerial

Pay band-2 – ₹ 9300- 34800/- plus grade pay ₹ 4800/- Not Applicable Not exceeding thirty years.

Note 1:Relaxable for Government servants up to five years in accordance with the instructions or orders issued by the Central Government.

Note: The crucial date for determining the age- limit shall be the closing date for receipt of applications and not the closing date prescribed for those in Assam, Meghalaya, Arunachal Pradesh, Mizoram, Manipur, Nagaland, Tripura, Sikkim, Ladakh Division of Jammu and Kashmir State, Lahaul and Spiti District and Pangi Sub-division of Chamba District of Himachal Pradesh, The Union Territory of Andaman and Nicobar Islands and Lakshwadeep.

 

Educational and other qualifications required for direct recruits Whether age and educational qualifications prescribed for direct recruits will apply in the case of promotes Period of probation, if any Method of recruitment: whether by direct recruitment or by promotion or by deputation or absorption and percentage of posts to be filled by various methods

(7)

(8)

(9)

(10)

Essential

Chartered Accountant or Cost and Management Accountant or Company Secretary or Chartered Financial Analyst or Post Graduate Diploma in Management (Finance) or Master’s in Business Administration (Finance) or Master’s of Business Economics, or Master’s in Commerce or Bachelor’s in Law.

Experience:

One Year experience in audit or forensic audit from any government or

listed private organization.

Note 1: Qualifications are relaxable at the discretion of the Union Public Service Commission, for reasons to be recorded in writing, in the case of candidates otherwise well qualified.

Note 2: The Qualification(s) regarding experience is or are relaxable at the discretion of the Union Public Service Commission, for reasons to be recorded in writing in the case of candidates belonging to Scheduled Castes or Scheduled Tribes if at any stage of selection the Union Public Service Commission, is of the opinion that sufficient number of candidates from these communities possessing the requisite experience are not likely to be available to fill up the vacancies reserved for them.

Not Applicable Two years for direct recruits By Direct Recruitment.

Note 1: Vacancies caused by the incumbent being away on transfer on deputation or long illness or study leave or under other circumstances for a duration of one year or more may be filled by appointing authority on deputation basis from officers of Central Government.

(A) (I) Holding analogous posts on regular basis; or

(II) With two years’ regular service in the grade rendered after appointment thereto on a regular basis in the pay band-2 ₹ 9300-34800/- plus grade pay of ₹ 4600/-or equivalent in the parent cadre or department; or

(III) With six years’ regular service in the grade rendered after appointment thereto on a regular basis in the Pay band-2 ₹ 9300-34800/- plus grade pay of ₹ 4200/-or equivalent in the parent cadre or department; and

(B) Possessing educational qualifications and experience as prescribed for direct recruits in Col 7.

Note: The period of deputation including period of deputation in another ex-cadre post held immediately preceding this appointment in the same or some other organisation or department of the central government shall ordinarily not to exceed three years. The maximum age limit for appointment by deputation (including short-term contract) shall be not exceeding fifty-six years as on the closing date of receipt of applications.

 

In case of recruitment by promotion or deputation or absorption, grades from which promotion or deputation or absorption to be made If a Departmental Promotion Committee exists, what is its Composition Circumstances in which Union Public Service Commission is to be consulted in making recruitment

(11)

(12)

(13)

Not Applicable. Group ‘B’ Departmental Confirmation Committee:

(1) Director, Serious Fraud Investigation Office –Chairman;

(2) Additional Director, Serious Fraud Investigation Office – Member;

(3) Deputy Secretary, Ministry of Corporate Affairs – Member.

Consultation with Union Public Service Commission necessary.

 

(1) (2) (3) (4) (5) (6)
2.Senior Assistant Director (Forensic Audit) 05*

(2016)

*Subject to

variation

dependent on

workload

General Central Service, Group-‘B’ Gazetted, Non-Ministerial Pay Band-3 ₹ 15600- 39100/- plus grade pay ₹ 5400/- Selection Not Applicable

 

(7) (8) (9) (10)
Not Applicable Not Applicable Not Applicable 60% by promotion failing which by deputation including short-term contract, 40% by deputation including short-term contract

 

(11)

(12)

(13)

Promotion :

The Departmental Assistant Director (Forensic Audit) in Pay band-2 ₹ 9300-34800/- with grade pay of ₹ 4800/- with two years of regular

service in the grade.

Note 1 : Where juniors who have completed their qualifying or eligibility service are being considered for promotion, their seniors would also be considered provided they are not short of  the requisite qualifying or eligibility service by more than half of such qualifying or eligibility service or two years, whichever is less, and have successfully completed their probation period for promotion to the next higher grade along with their juniors who have already completed such qualifying or eligibility service.

Note 2- For the purpose of computing minimum qualifying service for promotion, the service rendered on a regular basis by an officer prior to 1st January, 2006 or the date from which the revised pay structure based on the recommendations of the Sixth Central Pay Commission has been extended, shall be deemed to be service rendered in the corresponding grade pay or pay scale extended based on the recommendations of the said Pay Commission.

Deputation (Including Short-term Contract):

Officers from the Central Government or State Governments or Union territories Administrations or Pubic Sector Undertakings or Statutory or Autonomous Organisation;

(A) (I) holding analogous post on regular basis in the parent cadre or department; or

(II) with two years’ service in the grade rendered after appointment thereto on a regular basis in the scale of pay or Pay band-2 ₹ 9300-34800/- plus grade pay of ₹ 4800/- or equivalent in the parent cadre or department; or

(III) with three years’ service in the grade rendered after appointment thereto on a regular basis in the scale of pay or Pay band-2 ₹ 9300-34800/- plus grade pay of ₹ 4600/- or equivalent in the parent cadre or department;

(B) Possessing the following educational qualifications and experience:

Essential

Chartered Accountant, or Cost and Management Accountant, or Company Secretary, or Chartered Financial Analyst, or Post Graduate Diploma in Management (Finance), or Masters in Business Administration (Finance) or Masters of Business Economics, or Masters in Commerce or Bachelor’s in Law.

Experience:

One year experience in audit or forensic audit in any government organisation.

Note 1: The period of deputation including  period of deputation [including short term contract] in another ex-cadre post held immediately preceding this appointment in the same or some other organisation or department of the Central Government shall be for a period of three years extendable upto five years.

Note 2: The maximum age limit for appointment by deputation [including short term contract] shall be not exceeding fifty-six years as on the closing date of the receipt of application.

Note 3: For purposes of appointment on deputation (including short-term contract) basis, the service rendered on a regular basis by an officer prior to 1st January, 2006 or the date from which the revised pay structure based on the recommendations of the Sixth Central Pay Commission has been extended, shall be deemed to be service rendered in the corresponding grade pay or pay scale extended, based on the recommendation of the said Pay Commission except where there has been merger of more than one pre-revised scale of pay into one grade with a common grade pay or pay scale, and where this benefit will extend only for the post[s] for which that grade pay/pay scale is the normal replacement grade without any up gradation.

Group ‘B’ Departmental Confirmation Committee for considering confirmation:

(i) Director, Serious Fraud Investigation Office –Chairman

(ii) Additional Director , Serious Fraud Investigation Office – Member

(iii) Deputy Secretary, Ministry of Corporate Affairs – Member

Consultation with Union Public Service Commission necessary while appointing officer on deputation

(including shortterm contract).

 

(1)

(2)

(3)

(4)

(5)

(6)

3.Deputy Director (Forensic Audit) 01 *

(2016)

*Subject to variation dependent on workload

General Central Service, Group- ‘A’ Gazetted, Non-Ministerial Pay Band-3 ₹ 15600- 39100/- plus grade pay ₹ 6600/- Selection Not Applicable

 

(7)

(8)

(9)

(10)

Not Applicable Not Applicable Two years for Promotees By Promotion failing which by deputation including short-term contract

 

(11)

(12)

(13)

Promotion

The Departmental Senior Assistant Director (Forensic Audit) in Pay Band-3 ₹ 15600-39100/- + Grade Pay ₹ 5400/- with five years of regular service in the grade.

Note 1 – Where juniors who have completed their qualifying or eligibility service are being considered for promotion, their seniors would also be considered provided they are not short of the requisite qualifying or eligibility service by more than half of such qualifying or eligibility service or two years, whichever is less, and have successfully completed their probation period for promotion to the next higher grade along with their juniors who have already completed such qualifying or eligibility service.

Note 2- For the purpose of computing minimum qualifying service for promotion, the service rendered on a regular basis by an officer prior to 1st January, 2006 or the date from which the revised pay structure based on the recommendations of the Sixth Central Pay Commission has been extended, shall be deemed to be service rendered in the corresponding pay or pay scale extended based on the recommendations of the said Pay

Commission.

Deputation (Including Short-term Contract) :

Officers from the Central Government or State Governments or Union territories Administrations or Pubic Sector Undertakings or Statutory or Autonomous Organisations;

(A) (I) holding analogous post on regular basis in the parent Cadre or Department;

or

(II) with five years’ service in the grade rendered after appointment thereto on a regular basis in the Pay band-3 ₹ 15600- 39100/- plus grade pay of 5400/- or equivalent in the parent Cadre or Department;

(B) Possessing the following educational qualifications and experience:

Essential

Chartered Accountant or Cost and Management Accountant, or Company Secretary, or Chartered Financial Analyst, or Post Graduate Diploma in Management (Finance) or Masters of Business Administration (Finance), or Masters of Business Economics, or Masters in Commerce or Bachelor’s in Law.

Experience

Three year’s experience in audit or forensic audit from any Government listed private organisation.

Note 1: Period of deputation, including period of deputation [including short term contract] in another ex-cadre post held immediately preceding this appointment in the same or some other organization or department of the Central Government shall be for a period of four years.

Note 2: The maximum age-limit for appointment by deputation [including short term contract] shall be not exceeding fifty six years as on the closing date of the receipt of application.

Note 3: For purposes of appointment on deputation (including short-term contract) basis, the service rendered on a regular basis by an officer prior to 1st January, 2006 or the date from which the revised pay structure based on the recommendations of the Sixth Central Pay Commission has been extended, shall be deemed to be service rendered in the corresponding grade pay or pay scale extended, based on the recommendation of the said Pay Commission except where there has been merger of more than one pre-revised scale of pay into one grade with a common grade pay or pay scale, and where this benefit will extend only for the post[s] for which that grade pay or pay scale is the normal replacement grade without any up gradation.

1. Group ‘A’ Departmental Promotion Committee (for considering promotion) consisting of :

(1)Chairman or Member, Union Public Service Commission – Chairman;

(2) Director, Serious Fraud Investigation Office –Member;

(3) Additional Director, Serious Fraud Investigation Office – Member;

(4) Deputy Secretary, Ministry of Corporate Affairs – Member.

2. Group ‘A’ Departmental Confirmation Committee (for considering confirmation) consisting of:

(1) Director, Serious Fraud Investigation Office – Chairman;

(2) Additional Director, Serious Fraud Investigation Office – Member;

(3) Deputy Secretary, Ministry of Corporate Affairs – Member.

Consultation with Union Public Service Commission necessary on each occasion.

[F. No. No.A.35011/28/2009-Adm.III]

MANOJ KUMAR, Jt. Secy

Notification No. [F. No. 01/01/2009-CL-V(Part) 30-3-2016


Companies (Indian Accounting Standards) (Amendment) Rules, 2016 – F. No. 01/01/2009-CL-V(Part) – Dated 30-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 30th March, 2016

G.S.R. 365 (E).-In exercise of the powers conferred by section 133 read with section 469 of the Companies Act, 2013 (18 of 2013) and sub-section (1) of section 210A of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with the National Advisory Committee on Accounting Standards, hereby makes the following rules to amend the Companies (Indian Accounting Standards) Rules, 2015, namely:-

1. Short title and commencement.-(1) These rules may be called the Companies (Indian Accounting Standards) (Amendment) Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Indian Accounting Standards) Rules, 2015 (hereinafter referred to as the principal rules) in rule 2, in sub-rule (1), after clause (f), the following clause shall be inserted, namely:-

‘(g) “Non-Banking Financial Company” means a Non-Banking Financial Company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 and includes Housing Finance Companies, Merchant Banking companies, Micro Finance Companies, Mutual Benefit Companies, Venture Capital Fund Companies, Stock Broker or Sub-Broker Companies, Nidhi Companies, Chit Companies, Securitisation and Reconstruction Companies, Mortgage Guarantee Companies, Pension Fund Companies, Asset Management Companies and Core Investment Companies.’.

3. In the principal rules, in rule 4,-

(I) in sub-rule (1),-

(a) in clause (i), for the words “any company” the words “ any company and its holding, subsidiary, joint venture or associate company” shall be substituted;

(b) after clause (iii), the following clauses shall be inserted, namely:-

“ (iv) Notwithstanding the requirement of clauses (i) to (iii), Non-Banking Financial Companies (NBFCs) shall comply with the Indian Accounting Standards (Ind ASs) in preparation of their financial statements and audit respectively, in the following manner, namely:-

(a) The following NBFCs shall comply with the Indian Accounting Standards (Ind AS) for accounting periods beginning on or after the 1st April, 2018, with comparatives for the periods ending on 31st March, 2018, or thereafter-

(A) NBFCs having net worth of rupees five hundred crore or more;

(B) holding, subsidiary, joint venture or associate companies of companies covered under item (A), other than those already covered under clauses (i), (ii) and (iii) of sub-rule (1) of rule 4.

(b) The following NBFCs shall comply with the Indian Accounting Standards (Ind AS) for accounting periods beginning on or after the 1st April, 2019, with comparatives for the periods ending on 31stMarch, 2019, or thereafter-

(A) NBFCs whose equity or debt securities are listed or in the process of listing on any stock exchange in India or outside India and having net worth less than rupees five hundred crore;

(B) NBFCs, that are unlisted companies, having net worth of rupees two-hundred and fifty crore or more but less than rupees five hundred crore; and

(C) holding, subsidiary, joint venture or associate companies of companies covered under item (A) or item (B) of sub-clause (b), other than those already covered in clauses (i), (ii) and (iii) of sub-rule (1) or item (B) of sub-clause (a) of clause (iv).

Explanation.- For the purposes of clause (iv), if in a group of Companies, some entities apply Accounting Standards specified in the Annexure to the Companies (Accounting Standards) Rules, 2006 and others apply accounting standards as specified in the Annexure to these rules, in such cases, for the purpose of individual financial statements, the entities should apply respective standards applicable to them. For preparation of consolidated financial statements, the following conditions are to be followed, namely:-

(i) where an NBFC is a parent (at ultimate level or at intermediate level), and prepares consolidated financial statements as per Accounting Standards specified in the Annexure to the Companies (Accounting Standards) Rules, 2006, and its subsidiaries, associates and joint ventures, if covered by clause (i), (ii) and (iii) of sub-rule (1) has to provide the relevant financial statement data in accordance with the accounting policies followed by the parent company for consolidation purposes (until the NBFC is covered under clause (iv) of sub-rule (1);

(ii) where a parent is a company covered under clause (i), (ii) and (iii) of sub-rule (1) and has an NBFC subsidiary, associate or a joint venture, the parent has to prepare Ind AS-compliant consolidated financial statements and the NBFC subsidiary, associate and a joint venture has to provide the relevant financial statement data in accordance with the accounting policies followed by the parent company for consolidation purposes (until the NBFC is covered under clause (iv) of sub-rule (1).

(v) Notwithstanding clauses (i) to (iv), the holding, subsidiary, joint venture or associate companies of Scheduled commercial banks (excluding RRBs) would be required to prepare Ind AS based financial statements for accounting periods beginning from 1st April, 2018 onwards, with comparatives for the periods ending 31st March, 2018 or thereafter:”;

(II) in sub-rule (2), for the words brackets and figure “sub-rule (1)’’ the words, brackets and figures “clause (i), (ii) and (iii) of sub-rule (1)’’, shall be substituted, wherever they occur;

(III) after sub-rule (2), the following sub-rule shall be inserted, namely:-

“(2A) For the purposes of calculation of net worth of Non-Banking Financial Companies covered under clause (iv) of sub-rule (1), the following principles shall apply, namely:-

(a) the net worth shall be calculated in accordance with the stand-alone financial statements of the NBFCs as on 31st March, 2016 or the first audited financial statements for accounting period which ends after that date;

(b) for NBFCs which are not in existence on 31st March, 2016 or an existing NBFC falling first time, after 31st March, 2016, the net worth shall be calculated on the basis of the first audited stand-alone financial statements ending after that date, in respect of which it meets the thresholds.

Explanation.- For the purposes of sub-clause (b), the NBFCs meeting the specified thresholds given in subclause (b) of clause (iv) of sub-rule (1) for the first time at the end of an accounting year shall apply Indian Accounting Standards (Ind ASs) from the immediate next accounting year in the manner specified in subclause (b) of clause (iv) of sub-rule (1).

Illustration – (i) The NBFCs meeting threshold for the first time as on 31st March, 2019 shall apply Ind AS for the financial year 2019-20 onwards.

(ii) The NBFCs meeting threshold for the first time as on 31st March, 2020 shall apply Ind AS for the financial year 2020-21 onwards and so on.’’;

(IV) in the Explanation to sub-rule (4),-

(a) after the words, figures and letters ‘the Indian Accounting Standards (Ind AS) for the accounting period beginning on 1stApril, 2016’ the words, figures and letters ‘‘or 1stApril, 2018, as the case may be’’ shall be inserted;

(b) after the words, figures and letters ‘effective for the financial year ending on 31st March, 2017’ the words, figures and letters ‘or 31st March, 2019, as the case may be’, shall be inserted;

(V) in the proviso to sub-rule (5), sub-rule (6) and sub-rule (9), the words ‘either voluntarily or mandatorily’ shall be omitted.

4. for rule 5, the following rule shall be substituted, namely:-

“(5) The Banking Companies and Insurance Companies shall apply the Ind ASs as notified by the Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA) respectively. An insurer or insurance company shall however, provide Ind AS compliant financial statement data for the purposes of preparation of consolidated financial statements by its parent or investor or venturer, as required by the parent or investor or venturer to comply with the requirements of these rules.’’.

5. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)” in “Indian Accounting Standard (Ind AS) 101”, -

(i) for paragraph 30, the following paragraph shall be substituted, namely:-

‘‘30 If an entity uses fair value in its opening Ind AS Balance Sheet as deemed cost for an item of property, plant and equipment or an intangible asset (see paragraphs D5 and D7), the entity’s first Ind AS financial statements shall disclose, for each line item in the opening Ind AS Balance Sheet:

(a) the aggregate of those fair values; and

(b) the aggregate adjustment to the carrying amounts reported under previous GAAP. ’’ ;

(ii) in Appendix D,-

(a) in paragraph D1, for item (m), the following item shall be substituted, namely:-

‘‘(m) financial assets or intangible assets accounted for in accordance with Appendix A to Ind AS 11 Service Concession Arrangements (paragraph D22); ’’;

(b) for paragraph D7, the following paragraph shall be substituted, namely:-

‘‘D7 The elections in paragraphs D5 and D6 are also available for:

(a) Omitted*;

(b) intangible assets that meet:

(i) the recognition criteria in Ind AS 38 (including reliable measurement of original cost); and

(ii) the criteria in Ind AS 38 for revaluation (including the existence of an active market).

An entity shall not use these elections for other assets or for liabilities.’’;

(c) in the opening paragraph of paragraph D22, starting with ‘A first-time’ and ending with ‘Ind AS 115’ and its heading, the following heading and opening paragraph shall be substituted, namely:-

‘‘Financial assets or intangible assets accounted for in accordance with Appendix A, Service Concession Arrangements to Ind AS 11’’

D22 A first-time adopter may apply the following provisions while applying the Appendix A to Ind AS 11: ’’;

(d) Paragraphs D34, D34AA and D35 shall be omitted*;

(e) after paragraph D35AA, the following paragraph shall be inserted, namely:-

‘‘Transfers of Assets from Customers

D36 An entity shall apply Appendix C of Ind AS 18 prospectively to transfers of assets from customers received on or after the transition date. Earlier application is permitted provided the valuations and other information needed to apply the Appendix to past transfers were obtained at the time those transfers occurred. An entity shall disclose the date from which the Appendix D of Ind AS 18 was applied.’’;

(iii) In Appendix 1,-

(a) for paragraph 10, the following paragraph shall be substituted namely:-

‘‘10. IFRS 9 Financial Instruments is effective from annual period beginning on or after January 1, 2018. As the above said standard is not yet effective consequential amendments due to this standard have not been incorporated in current version of IFRS 1. However, corresponding Ind AS 109, Financial Instruments has been issued with consequential amendments in other Ind ASs including Ind AS 101. Accordingly, its consequential amendments to Ind AS 109 have been incorporated in Ind AS 101. ’’;

(b) after paragraph 12, following paragraphs shall be inserted namely;-

‘‘13. IAS 40, Investment Property permits both cost model and fair value model (except in some situations) for measurement of investment properties after initial recognition. Ind AS 40, Investment Property permits only the cost model. As a consequence, paragraph 30 is amended and paragraph D7 (a) is deleted.

14. Paragraphs D34-D35 deal with Ind AS 115, Revenue from Contracts with Customers. As Ind AS 115 is not yet effective, therefore, these paragraphs have not been included in this standard. However, in order  to maintain consistency with paragraph numbers of IFRS 1, the paragraph numbers are retained in Ind AS 101. ’’.

6. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 103”, for paragraphs 56, the following paragraph shall be substituted, namely:-

‘‘56 After initial recognition and until the liability is settled, cancelled or expires, the acquirer shall measure a contingent liability recognised in a business combination at the higher of:

(a) the amount that would be recognised in accordance with Ind AS 37; and

(b) the amount initially recognised less, if appropriate, cumulative amortisation recognised in accordance with Ind AS 18, Revenue.

This requirement does not apply to contracts accounted for in accordance with Ind AS 109. ’’.

7. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 104”,

(i) in paragraph 4, for item (a), the following item shall be substituted, namely:-

‘‘(a) product warranties issued directly by a manufacturer, dealer or retailer (see Ind AS 18, Revenue, and Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets). ’’;

(ii) in paragraph 4, for item (c), the following item shall be substituted, namely:-

‘‘(c) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, some licence fees, royalties, contingent lease payments and similar items), as well as a lessee’s residual value guarantee embedded in a finance lease (see Ind AS 17, Leases, Ind AS 18, Revenue, and Ind AS 38, Intangible Assets). ’’;

(iii) in Appendix B,-

(a) in paragraph B7, for item (b), the following item shall be substituted, namely:-

‘‘(b) If Ind AS 18, Revenue applied, the service provider would recognise revenue by reference to the stage of completion (and subject to other specified criteria). That approach is also acceptable under this Ind AS, which permits the service provider (i) to continue its existing accounting policies for these contracts unless they involve practices prohibited by paragraph 14 and (ii) to improve its accounting policies if so permitted by paragraphs 22–30.’’;

(b) in paragraph B18, for item (h), the following item shall be substituted, namely:-

‘‘(h) product warranties. Product warranties issued by another party for goods sold by a manufacturer, dealer or retailer are within the scope of this Ind AS. However, product warranties issued directly by a manufacturer, dealer or retailer are outside its scope, because they are within the scope of Ind AS 18 and Ind AS 37.’’;

(c) for paragraph B21, the following paragraph shall be substituted, namely:-

‘‘B21 If the contracts described in paragraph B19 do not create financial assets or financial liabilities, Ind AS 18 applies. Under Ind AS 18, revenue associated with a transaction involving the rendering of services is recognised by reference to the stage of completion of the transaction if the outcome of the transaction can be estimated reliably.’’.

8. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 105”, -

(i) for paragraph 26 and its heading, the following paragraph and its heading shall be substituted, namely:-

‘‘Changes to a plan of sale or to a plan of distribution to owners’’

26. If an entity has classified an asset (or disposal group) as held for sale or as held for distribution to owners, but the criteria in paragraphs 7–9 (for held for sale) or in paragraph 12A (for held for distribution to owners) are no longer met, the entity shall cease to classify the asset (or disposal group) as held for sale or held for distribution to owners (respectively). In such cases an entity shall follow the guidance in paragraphs 27–29 to account for this change except when paragraph 26A applies.’’;

(ii) after paragraph 26, following paragraph shall be inserted namely:-

‘‘26A. If an entity reclassifies an asset (or disposal group) directly from being held for sale to being held for distribution to owners, or directly from being held for distribution to owners to being held for sale, then the change in classification is considered a continuation of the original plan of disposal. The entity:

(a) shall not follow the guidance in paragraphs 27–29 to account for this change. The entity shall apply the classification, presentation and measurement requirements in this Ind AS that are applicable to the new method of disposal.

(b) shall measure the non-current asset (or disposal group) by following the requirements in paragraph 15 (if reclassified as held for sale) or 15A (if reclassified as held for distribution to owners) and recognise any reduction or increase in the fair value less costs to sell/costs to distribute of the non-current asset (or disposal group) by following the requirements in paragraphs 20–25.

(c) shall not change the date of classification in accordance with paragraphs 8 and 12A. This does not preclude an extension of the period required to complete a sale or a distribution to owners if the conditions in paragraph 9 are met.’’;

(iii) for paragraph 27, the following paragraph shall be substituted, namely:-

‘‘27. The entity shall measure a non-current asset (or disposal group) that ceases to be classified as held for sale or as held for distribution to owners (or ceases to be included in a disposal group classified as held for sale or as held for distribution to owners) at the lower of:

(a) its carrying amount before the asset (or disposal group) was classified as held for sale or as held for distribution to owners, adjusted for any depreciation, amortisation or revaluations that would have been recognised had the asset (or disposal group) not been classified as held for sale or as held for distribution to owners, and

(b) its recoverable amount at the date of the subsequent decision not to sell or distribute5.’’;

(iv) for paragraph 28, the following paragraph shall be substituted, namely:-

‘‘28 The entity shall include any required adjustment to the carrying amount of a non-current asset that ceases to be classified as held for sale or as held for distribution to owners in profit or loss6 from continuing operations in the period in which the criteria in paragraphs 7–9 or 12A, respectively, are no longer met. Financial statements for the periods since classification as held for sale or as held for distribution to owners shall be amended accordingly if the disposal group or non-current asset that ceases to be classified as held for sale or as held for distribution to owners is a subsidiary, joint operation, joint venture, associate, or a portion of an interest in a joint venture or an associate. The entity shall present that adjustment in the same caption in the statement of profit and loss used to present a gain or loss, if any, recognised in accordance with paragraph 37.’’;

(v) for paragraph 29, the following paragraph shall be substituted, namely:-

‘‘29 If an entity removes an individual asset or liability from a disposal group classified as held for sale, the remaining assets and liabilities of the disposal group to be sold shall continue to be measured as a group only if the group meets the criteria in paragraphs 7–9. If an entity removes an individual asset or liability from a disposal group classified as held for distribution to owners, the remaining assets and liabilities of the disposal group to be distributed shall continue to be measured as a group only if the group meets the criteria in paragraph 12A. Otherwise, the remaining non-current assets of the group that individually meet the criteria to be classified as held for sale (or as held for distribution to owners) shall be measured individually at the lower of their carrying amounts and fair values less costs to sell (or costs to distribute) at that date. Any non-current assets that do not meet the criteria for held for sale shall cease to be classified as held for sale in accordance with paragraph 26. Any non-current assets that do not meet the criteria for held for distribution to owners shall cease to be classified as held for distribution to owners in accordance with paragraph 26.’’.

9. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 107”,-

(i) for paragraph 5A, the following paragraph shall be substituted, namely:-

‘‘5A The credit risk disclosure requirements in paragraph 35A–35N apply to those rights that Ind AS 18, Revenue specifies are accounted for in accordance with Ind AS 109 for the purposes of recognising impairment gains or losses. Any reference to financial assets or financial instruments in these paragraphs shall include those rights unless otherwise specified’’;

(ii) for paragraph 21, the following paragraph shall be substituted, namely:-

‘‘21 In accordance with paragraph 117 of Ind AS 1, Presentation of Financial Statements, an entity discloses its significant accounting policies, comprising the measurement basis (or bases) used in preparing the financial statements and the other accounting policies used that are relevant to an understanding of the financial statements.’’;

(iii) in Appendix B, -

(a) in paragraph B5, for the opening paragraph starting with ‘Paragraph 21 requires’ and ending with ‘disclosure may include:’, the following paragraph shall be substituted, namely:-

‘‘B5 Paragraph 21 requires disclosure of the measurement basis (or bases) used in preparing the financial statements and the other accounting policies used that are relevant to an understanding of the financial statements. For financial instruments, such disclosure may include:’’;

(b) in paragraph B5, for the last paragraph starting with ‘Paragraph 122 of’ and ending with ‘in the financial statements.’ the following paragraph shall be substituted, namely:-

‘‘Paragraph 122 of Ind AS 1 also requires entities to disclose, along with its significant accounting policies or other notes, the judgements, apart from those involving estimations, that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.’’;

(c) for paragraph B30, the following paragraph shall be substituted, namely:-

‘‘B30 An entity does not have a continuing involvement in a transferred financial asset if, as part of the transfer, it neither retains any of the contractual rights or obligations inherent in the transferred financial asset nor acquires any new contractual rights or obligations relating to the transferred financial asset. An entity does not have continuing involvement in a transferred financial asset if it has neither an interest in the future performance of the transferred financial asset nor a responsibility under any circumstances to make payments in respect of the transferred financial asset in the future. The term ‘payment’ in this context does not include cash flows of the transferred financial asset that an entity collects and is required to remit to the transferee.’’;

(d) after paragraph B30, the following paragraph shall be inserted, namely:-

‘‘B30A When an entity transfers a financial asset, the entity may retain the right to service that financial asset for a fee that is included in, for example, a servicing contract. The entity assesses the servicing contract in accordance with the guidance in paragraphs 42C and B30 to decide whether the entity has continuing involvement as a result of the servicing contract for the purposes of the disclosure requirements. For example, a servicer will have continuing involvement in the transferred financial asset for the purposes of the disclosure requirements if the servicing fee is dependent on the amount or timing of the cash flows collected from the transferred financial asset. Similarly, a servicer has continuing involvement for the purposes of the disclosure requirements if a fixed fee would not be paid in full because of non-performance of the transferred financial asset. In these examples, the servicer has an interest in the future performance of the transferred financial asset. This assessment is independent of whether the fee to be received is expected to compensate the entity adequately for performing the servicing.’’;

(iv) in Appendix C, for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2. Appendix A, Service Concession Arrangements, contained in Ind AS 11, Construction Contracts.’’.

10. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 109”,

(i) in paragraph 2.1, for item (j), the following item shall be substituted, namely:-

‘‘(j) rights and obligations within the scope of Ind AS 11, Construction Contracts, and Ind AS 18, Revenue, that are financial instruments, except for those that Ind AS 11 and Ind AS 18 specify are accounted for in accordance with this Standard. ’’;

(ii) for paragraph 2.2, the following paragraph shall be substituted, namely:-

‘‘2.2 The impairment requirements of this Standard shall be applied to those rights that Ind AS 11 and Ind AS 18 specify are accounted for in accordance with this Standard for the purposes of recognising impairment gains or losses. ’’;

(iii) in paragraph 4.2.1, in item (c), for sub-item(ii), the following sub-item shall be substituted, namely:-

‘‘(ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 18.’’;

(iv) in paragraph 4.2.1, in item (d), for sub-item(ii), the following sub-item shall be substituted, namely:-

‘‘(ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the cumulative amount of income recognised in accordance with the principles of Ind AS 18. ’’;

(v) for paragraph 5.1.1, the following paragraph shall be substituted, namely:-

‘‘5.1.1. At initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. ’’;

(vi) paragraph 5.1.3 shall be omitted*,

(vii) for paragraph 5.5.1, the following paragraph shall be substituted, namely:-

‘‘5.5.1 An entity shall recognise a loss allowance for expected credit losses on a financial asset that is measured in accordance with paragraphs 4.1.2 or 4.1.2A, a lease receivable, a loan commitment and a financial guarantee contract to which the impairment requirements apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d). ’’;

(viii) for paragraph 5.5.15, the following paragraph shall be substituted, namely:-

‘‘5.5.15 Despite paragraphs 5.5.3 and 5.5.5, an entity shall always measure the loss allowance at an amount equal to lifetime expected credit losses for:

(a) trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within the scope of Ind AS 11 and Ind AS 18.

(b) lease receivables that result from transactions that are within the scope of Ind AS 17, if the entity chooses as its accounting policy to measure the loss allowance at an amount equal to lifetime expected credit losses. That accounting policy shall be applied to all lease receivables but may be applied separately to finance and operating lease receivables. ’’;

(ix) in Appendix A,-

(a) the definition of ‘contract assets’ shall be omitted.

(b) for the last paragraph, the following paragraph shall be substituted, namely:-

‘‘ The following terms are defined in paragraph 11 of Ind AS 32, Appendix A of Ind AS 107 or Appendix A of Ind AS 113 and are used in this Standard with the meanings specified in Ind AS 32, Ind AS 107 or Ind AS 113:

(a) credit risk;1

(b) equity instrument;

(c) fair value;

(d) financial asset;

(e) financial instrument;

(f) financial liability .’’;

(x) in Appendix B,

(a) for paragraph B2.2, the following paragraph shall be substituted, namely:-

‘‘B2.2 This Standard does not change the requirements relating to royalty agreements based on the volume of sales or service revenues that are accounted for under Ind AS 18, Revenue. ’’;

(b) in paragraph B2.5, in item (a), for sub-item(ii), the following sub-item shall be substituted, namely:-

‘‘(ii) the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with Ind AS 18 (see paragraph 4.2.1(c)). ’’;

(c) in paragraph B2.5, for item (c), the following item shall be substituted, namely:-

‘‘(c) If a financial guarantee contract was issued in connection with the sale of goods, the issuer applies Ind AS 18 in determining when it recognises the revenue from the guarantee and from the sale of goods. ’’;

(d) in paragraph B3.2.13, for item (a), the following item shall be substituted, namely:-

‘‘(a) If a guarantee provided by an entity to pay for default losses on a transferred asset prevents the transferred asset from being derecognised to the extent of the continuing involvement, the transferred asset at the date of the transfer is measured at the lower of (i) the carrying amount of the asset and (ii) the maximum amount of the consideration received in the transfer that the entity could be required to repay (‘the guarantee amount’). The associated liability is initially measured at the guarantee amount plus the fair value of the guarantee (which is normally the consideration received for the guarantee). Subsequently, the initial fair value of the guarantee is recognised in profit or loss on a time proportion basis (see Ind AS 18) and the carrying value of the asset is reduced by any loss allowance.’’;

(e) for paragraph B5.4.3, the following paragraph shall be substituted namely:-

‘‘B5.4.3 Fees that are not an integral part of the effective interest rate of a financial instrument and are accounted for in accordance with Ind AS 18 include:

(a) fees charged for servicing a loan;

(b) commitment fees to originate a loan when the loan commitment is not measured in accordance with paragraph 4.2.1(a) and it is unlikely that a specific lending arrangement will be entered into; and

(c) loan syndication fees received by an entity that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants).’’;

(xi) in Appendix E, for paragraph 2, the following paragraph shall be substituted namely:-

‘‘2. Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts. ’’;

(xii) in Appendix 1, after paragraph 2, the following paragraph shall be inserted namely:-

‘‘3. Following paragraphs deal with Ind AS 115, Revenue from Contracts with Customers. As Ind AS 115 is not yet effective, these paragraphs have not been included in this standard. However, in order to maintain consistency with paragraph numbers of IFRS 9, the paragraph numbers are retained in Ind AS 109:

(i) Paragraph 5.1.3

(ii) 5.5.15 (a)(i)

(iii) 5.2.15(a)(ii) ’’;

11. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “ Indian Accounting Standard (Ind AS) 110”,-

(i) in paragraph 4, in item (a), for sub-item (iv), the following sub-item shall be substituted, namely:-

‘‘(iv) its ultimate or any intermediate parent produces financial statements that are available for public use and comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this Ind AS. ’’;

(ii) in paragraph 4, item (b), shall be omitted*;

(iii) in paragraph 4, item (c), shall be omitted*;

(iv) after paragraph 4, the following paragraphs shall be inserted, namely:-

‘‘4A This Ind AS does not apply to post-employment benefit plans or other long-term employee benefit plans to which Ind AS 19, Employee Benefits, applies.

4B A parent that is an investment entity shall not present consolidated financial statements if it is required, in accordance with paragraph 31 of this Ind AS, to measure all of its subsidiaries at fair value through profit or loss.’’;

(v) for paragraph 32 , the following paragraph shall be substituted, namely:-

‘‘32. Notwithstanding the requirement in paragraph 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity’s investment activities (see paragraphs B85C–B85E), it shall consolidate that subsidiary in accordance with paragraphs 19–26 of this Ind AS and apply the requirements of Ind AS 103 to the acquisition of any such subsidiary.’’;

(vi) In Appendix B,-

(a) for paragraph B85C, the following paragraph shall be substituted, namely:-

‘‘B85C An investment entity may provide investment-related services (eg investment advisory services, investment management, investment support and administrative services), either directly or through a subsidiary, to third parties as well as to its investors, even if those activities are substantial to the entity, subject to the entity continuing to meet the definition of an investment entity.’’;

(b) for paragraph B85E, the following paragraph shall be substituted namely:-

‘‘B85E If an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing investment-related services or activities that relate to the investment entity’s investment activities, such as those described in paragraphs B85C–B85D, to the entity or other parties, it shall consolidate that subsidiary in accordance with paragraph 32. If the subsidiary that provides the investment-related services or activities is itself an investment entity, the investment entity parent shall measure that subsidiary at fair value through profit or loss in accordance with paragraph 31.’’;

(vii) in Appendix 1, after paragraph 3, following paragraph shall be inserted, namely:-

‘‘4. Following paragraph numbers appear as ‘Deleted’ in IFRS 10. In order to maintain consistency with paragraph numbers of IFRS 10, the paragraph numbers are retained in Ind AS 110:

(i) Paragraph 4(b)

(ii) Paragraph 4(c)’’.

12. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 112”, in paragraph 6, for item (b), the following item shall be substituted, namely:-

‘‘(b) an entity’s separate financial statements to which Ind AS 27, Separate Financial Statements, applies. However:

(i) if an entity has interests in unconsolidated structured entities and prepares separate financial statements as its only financial statements, it shall apply the requirements in paragraphs 24–31 when preparing those separate financial statements.

(ii) an investment entity that prepares financial statements in which all of its subsidiaries are measured at fair value through profit or loss in accordance with paragraph 31 of Ind AS 110 shall present the disclosures relating to investment entities required by this Ind AS.’’.

13. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, Indian Accounting Standard (Ind AS) 115 shall be omitted.

14. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 1”,

(i) in paragraph 10, for following item(e), the following item shall be substituted namely:-

‘‘(e) notes, comprising significant accounting policies and other explanatory information;’’;

(ii) after paragraph 30, following paragraph shall be inserted, namely:-

‘‘30A When applying this and other Ind ASs an entity shall decide, taking into consideration all relevant facts and circumstances, how it aggregates information in the financial statements, which include the notes. An entity shall not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.’’;

(iii) for paragraph 31, the following paragraph shall be substituted, namely:-

‘‘31 Some Ind ASs specify information that is required to be included in the financial statements, which include the notes. An entity need not provide a specific disclosure required by an Ind AS if the information resulting from that disclosure is not material except when required by law. This is the case even if the Ind AS contains a list of specific requirements or describes them as minimum requirements. An entity shall also consider whether to provide additional disclosures when compliance with the specific requirements in Ind AS is insufficient to enable users of financial statements to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance.’’;

(iv) for paragraph 34, the following paragraph shall be substituted, namely:-

‘‘34 Ind AS 18, Revenue, defines revenue and requires an entity to measure it at the fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates the entity allows. An entity undertakes, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. An entity presents the results of such transactions, when this presentation reflects the substance of the transaction or other event, by netting any income with related expenses arising on the same transaction. For example:

(a) an entity presents gains and losses on the disposal of non-current assets, including investments and operating assets, by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses; and

(b) an entity may net expenditure related to a provision that is recognised in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets, and reimbursed under a contractual arrangement with a third party (for example, a supplier’s warranty agreement) against the related reimbursement. ’’;

(v) in paragraph 54, for the opening paragraph opening with ‘As a minimum, the’ and ending with ‘following amounts:’, the following paragraph shall be substituted, namely:-

‘‘54 The balance sheet shall include line items that present the following amounts:’’;

(vi) for paragraph 55, the following paragraph shall be substituted, namely:-

‘‘55 An entity shall present additional line items (including by disaggregating the line items listed in paragraph 54), headings and subtotals in the balance sheet when such presentation is relevant to an understanding of the entity’s financial position.’’;

(vii) after paragraph 55, the following paragraph shall be inserted, namely:-

‘‘55A When an entity presents subtotals in accordance with paragraph 55, those subtotals shall:

(a) be comprised of line items made up of amounts recognised and measured in accordance with Ind AS;

(b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable;

(c) be consistent from period to period, in accordance with paragraph 45; and

(d) not be displayed with more prominence than the subtotals and totals required in Ind AS for the balance sheet.’’;

(viii) for paragraph 82A, the following paragraph shall be substituted, namely:-

 ‘‘82A The other comprehensive income section shall present line items for the amounts for the period of:

(a) items of other comprehensive income (excluding amounts in paragraph (b)), classified by nature and grouped into those that, in accordance with other Ind ASs:

(i) will not be reclassified subsequently to profit or loss; and

(ii) will be reclassified subsequently to profit or loss when specific conditions are met.

(b) the share of the other comprehensive income of associates and joint ventures accounted for using the equity method, separated into the share of items that, in accordance with other Ind ASs:

(i) will not be reclassified subsequently to profit or loss; and

(ii) will be reclassified subsequently to profit or loss when specific conditions are met.’’;

(ix) for paragraph 85, the following paragraph shall be substituted, namely:-

‘‘85 An entity shall present additional line items (including by disaggregating the line items listed in paragraph 82), headings and subtotals in the statement of profit and loss, when such presentation is relevant to an understanding of the entity’s financial performance.’’;

(x) after paragraph 85, the following paragraphs shall be inserted, namely:-

‘‘85A When an entity presents subtotals in accordance with paragraph 85, those subtotals shall:

(a) be comprised of line items made up of amounts recognised and measured in accordance with Ind AS;

(b) be presented and labelled in a manner that makes the line items that constitute the subtotal clear and understandable;

(c) be consistent from period to period, in accordance with paragraph 45; and

(d) not be displayed with more prominence than the subtotals and totals required in Ind AS for the statement of profit and loss.

85B An entity shall present the line items in the statement of profit and loss that reconcile any subtotals presented in accordance with paragraph 85 with the subtotals or totals required in Ind AS for such statement.’’;

(xi) for paragraph 113, the following paragraph shall be substituted, namely:-

‘‘113 An entity shall present notes in a systematic manner. In determining a systematic manner, the entity shall consider the effect on the understandability and comparability of its financial statements. An entity shall cross-reference each item in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows to any related information in the notes.’’;

(xii) for paragraph 114, the following paragraph shall be substituted, namely:-

‘‘114 Examples of systematic ordering or grouping of the notes include:

(a) giving prominence to the areas of its activities that the entity considers to be most relevant to an understanding of its financial performance and financial position, such as grouping together information about particular operating activities;

(b) grouping together information about items measured similarly such as assets measured at fair value; or

(c) following the order of the line items in the statement of profit and loss and the balance sheet, such as:

(i) statement of compliance with Ind ASs (see paragraph 16);

(ii) significant accounting policies applied (see paragraph 117);

(iii) supporting information for items presented in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows, in the order in which each statement and each line item is presented; and

(iv) other disclosures, including:

(1) contingent liabilities (see Ind AS 37) and unrecognised contractual commitments; and

(2) non-financial disclosures, eg the entity’s financial risk management objectives and policies (see Ind AS 107).’’;

(xiii) paragraph 115 shall be omitted*;

(xiv) for paragraph 117, the following paragraph shall be substituted, namely:-

‘‘117 An entity shall disclose its significant accounting policies comprising:

(a) the measurement basis (or bases) used in preparing the financial statements; and

(b) the other accounting policies used that are relevant to an understanding of the financial statements.’’;

(xv) for paragraph 119, the following paragraph shall be substituted, namely:-

‘‘119 In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in reported financial performance and financial position. Each entity considers the nature of its operations and the policies that the users of its financial statements wo u l d expect to be disclosed for that type of entity. Disclosure of particular accounting policies is especially useful to users when those policies are selected from alternatives allowed in Ind ASs. An example is disclosure of a regular way purchase or sale of financial assets using either trade date accounting or settlement date accounting (see Ind AS 109, Financial Instruments). Some Ind Ass specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, Ind AS 16 requires disclosure of the measurement bases used for classes of property, plant and equipment.’’;

(xvi) paragraph 120 shall be omitted*;

(xvii) for paragraph 122, the following shall be substituted, namely:-

‘‘122 An entity shall disclose, along with its significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.’’;

(xviii) in Appendix 1, for paragraph 6, following paragraph shall be substituted, namely:-

‘‘6. Following paragraph numbers appear as ‘Deleted’ in IAS 1. In order to maintain consistency with paragraph numbers of IAS 1, the paragraph numbers are retained in Ind AS 1.

(i) paragraph 12

(ii) paragraphs 39-40

(iii) paragraph 81

(iv) paragraph 82(e)

(v) paragraphs 82(f)-(i)

(vi) paragraphs 83-84

(vii) paragraph 106(c)

(viii) paragraph 123(a)

(ix) paragraph 115

(x) paragraph 120’’;

15. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 2”, -

(i) in paragraph 2, for item (a), the following item shall be substituted, namely:-

‘‘(a) work in progress arising under construction contracts, including directly related service contracts (see Ind AS 11, Construction Contracts);’’;

(ii) for paragraph 8, the following paragraph shall be substituted, namely:-

‘‘8. Inventories encompass goods purchased and held for resale including, for example, merchandise purchased by a retailer and held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the entity and include materials and supplies awaiting use in the production process. In the case of a service provider, inventories include the costs of the service, as described in paragraph 19, for which the entity has not yet recognised the related revenue (see Ind AS 18, Revenue). ’’;

(iii) for paragraph 19, the following paragraph shall be substituted, namely:-

‘‘19. To the extent that service providers have inventories, they measure them at the costs of their production. These costs consist primarily of the labour and other costs of personnel directly engaged in providing the service, including supervisory personnel, and attributable overheads. Labour and other costs relating to sales and general administrative personnel are not included but are recognised as expenses in the period in which they are incurred. The cost of inventories of a service provider does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers.’’;

(iv) for paragraph 29, the following paragraph shall be substituted, namely:-

‘‘29. Inventories are usually written down to net realisable value item by item. In some circumstances, however, it may be appropriate to group similar or related items. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses, are produced and marketed in the same geographical area, and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write inventories down on the basis of a classification of inventory, for example, finished goods, or all the inventories in a particular operating segment. Service providers generally accumulate costs in respect of each service for which a separate selling price is charged. Therefore, each such service is treated as a separate item. ’’;

(v) for paragraph 37, the following paragraph shall be substituted, namely:-

‘‘37. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories are merchandise, production supplies, materials, work in progress and finished goods. The inventories of a service provider may be described as work in progress. ’’;

(vi) in Appendix 1, paragraph 2 shall be omitted.

16. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, after Indian Accounting Standard (Ind AS) 10, the following Indian Accounting Standard shall be inserted, namely:-

‘‘Indian Accounting Standard (Ind AS) 11

Construction Contracts

(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)

Objective

The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard uses the recognition criteria established in the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India to determine when contract revenue and contract costs should be recognised as revenue and expenses in the statement of profit and loss. It also provides practical guidance on the application of these criteria.

Scope

1. This Standard shall be applied in accounting for construction contracts in the financial statements of contractors.

1A The impairment of any contractual right to receive cash or another financial asset arising from this Standard shall be dealt in accordance with Ind AS 109, Financial Instruments.

2. *

Definitions

3. The following terms are used in this Standard with the meanings specified:

A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use.

A fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses.

A cost plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs, plus a percentage of these costs or a fixed fee.

4. A construction contract may be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. A construction contract may also deal with the construction of a number of assets which are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use; examples of such contracts include those for the construction of refineries and other complex pieces of plant or equipment.

5. For the purposes of this Standard, construction contracts include:

(a) contracts for the rendering of services which are directly related to the construction of the asset, for example, those for the services of project managers and architects; and

(b) contracts for the destruction or restoration of assets, and the restoration of the environment following the demolition of assets.

6. Construction contracts are formulated in a number of ways which, for the purposes of this Standard, are classified as fixed price contracts and cost plus contracts. Some construction contracts may contain characteristics of both a fixed price contract and a cost plus contract, for example in the case of a cost plus contract with an agreed maximum price. In such circumstances, a contractor needs to consider all the conditions in paragraphs 23 and 24 in order to determine when to recognise contract revenue and expenses.

Combining and segmenting construction contracts

7. The requirements of this Standard are usually applied separately to each construction contract. However, in certain circumstances, it is necessary to apply the Standard to the separately identifiable components of a single contract or to a group of contracts together in order to reflect the substance of a contract or a group of contracts.

8. When a contract covers a number of assets, the construction of each asset shall be treated as a separate construction contract when:

(a) separate proposals have been submitted for each asset;

(b) each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and

(c) the costs and revenues of each asset can be identified.

9. A group of contracts, whether with a single customer or with several customers, shall be treated as a single construction contract when:

(a) the group of contracts is negotiated as a single package;

(b) the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin; and

(c) the contracts are performed concurrently or in a continuous sequence.

10. A contract may provide for the construction of an additional asset at the option of the customer or may be amended to include the construction of an additional asset. The construction of the additional asset shall be treated as a separate construction contract when:

(a) the asset differs significantly in design, technology or function from the asset or assets covered by the original contract; or

(b) the price of the asset is negotiated without regard to the original contract price.

Contract revenue

11. Contract revenue shall comprise:

(a) the initial amount of revenue agreed in the contract; and

(b) variations in contract work, claims and incentive payments:

(i) to the extent that it is probable that they will result in revenue; and

(ii) they are capable of being reliably measured.

12. Contract revenue is measured at the fair value of the consideration received or receivable. The measurement of contract revenue is affected by a variety of uncertainties that depend on the outcome of future events. The estimates often need to be revised as events occur and uncertainties are resolved. Therefore, the amount of contract revenue may increase or decrease from one period to the next. For example:

(a) a contractor and a customer may agree variations or claims that increase or decrease contract revenue in a period subsequent to that in which the contract was initially agreed;

(b) the amount of revenue agreed in a fixed price contract may increase as a result of cost escalation clauses;

(c) the amount of contract revenue may decrease as a result of penalties arising from delays caused by the contractor in the completion of the contract; or

(d) when a fixed price contract involves a fixed price per unit of output, contract revenue increases as the number of units is increased.

13. A variation is an instruction by the customer for a change in the scope of the work to be performed under the contract. A variation may lead to an increase or a decrease in contract revenue. Examples of variations are changes in the specifications or design of the asset and changes in the duration of the contract. A variation is included in contract revenue when:

(a) it is probable that the customer will approve the variation and the amount of revenue arising from the variation; and

(b) the amount of revenue can be reliably measured.

14. A claim is an amount that the contractor seeks to collect from the customer or another party as reimbursement for costs not included in the contract price. A claim may arise from, for example, customer caused delays, errors in specifications or design, and disputed variations in contract work. The measurement of the amounts of revenue arising from claims is subject to a high level of uncertainty and often depends on the outcome of negotiations. Therefore, claims are included in contract revenue only when:

(a) negotiations have reached an advanced stage such that it is probable that the customer will accept the claim; and

(b) the amount that it is probable will be accepted by the customer can be measured reliably.

15. Incentive payments are additional amounts paid to the contractor if specified performance standards are met or exceeded. For example, a contract may allow for an incentive payment to the contractor for early completion of the contract. Incentive payments are included in contract revenue when:

(a) the contract is sufficiently advanced that it is probable that the specified performance standards will be met or exceeded; and

(b) the amount of the incentive payment can be measured reliably.

Contract costs

16. Contract costs shall comprise:

(a) costs that relate directly to the specific contract;

(b) costs that are attributable to contract activity in general and can be allocated to the contract; and

(c) such other costs as are specifically chargeable to the customer under the terms of the contract.

17. Costs that relate directly to a specific contract include:

(a) site labour costs, including site supervision;

(b) costs of materials used in construction;

(c) depreciation of plant and equipment used on the contract;

(d) costs of moving plant, equipment and materials to and from the contract site;

(e) costs of hiring plant and equipment;

(f) costs of design and technical assistance that is directly related to the contract;

(g) the estimated costs of rectification and guarantee work, including expected warranty costs; and

(h) claims from third parties.

These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract.

18. Costs that may be attributable to contract activity in general and can be allocated to specific contracts include:

(a) insurance;

(b) costs of design and technical assistance that are not directly related to a specific contract; and

(c) construction overheads.

Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts also include borrowing costs.

19. Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and development costs for which reimbursement is specified in the terms of the contract.

20. Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include:

(a) general administration costs for which reimbursement is not specified in the contract;

(b) selling costs;

(c) research and development costs for which reimbursement is not specified in the contract; and

(d) depreciation of idle plant and equipment that is not used on a particular contract.

21. Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. However, costs that relate directly to a contract and are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period.

Recognition of contract revenue and expenses

22. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract shall be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting period. An expected loss on the construction contract shall be recognised as an expense immediately in accordance with paragraph 36.

23. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:

(a) total contract revenue can be measured reliably;

(b) it is probable that the economic benefits associated with the contract will flow to the entity;

(c) both the contract costs to complete the contract and the stage of contract completion at the end of the reporting period can be measured reliably; and

(d) the contract costs attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can be compared with prior estimates.

24. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:

(a) it is probable that the economic benefits associated with the contract will flow to the entity; and

(b) the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

25. The recognition of revenue and expenses by reference to the stage of completion of a contract is often referred to as the percentage of completion method. Under this method, contract revenue is matched with the contract costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed. This method provides useful information on the extent of contract activity and performance during a period.

26. Under the percentage of completion method, contract revenue is recognised as revenue in profit or loss in the accounting periods in which the work is performed. Contract costs are usually recognised as an expense in profit or loss in the accounting periods in which the work to which they relate is performed. However, any expected excess of total contract costs over total contract revenue for the contract is recognised as an expense immediately in accordance with paragraph 36.

27. A contractor may have incurred contract costs that relate to future activity on the contract. Such contract costs are recognised as an asset provided it is probable that they will be recovered. Such costs represent an amount due from the customer and are often classified as contract work in progress.

28. The outcome of a construction contract can only be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the entity. However, when an uncertainty arises about the collectibility of an amount already included in contract revenue, and already recognised in profit or loss, the uncollectible amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense rather than as an adjustment of the amount of contract revenue.

29. An entity is generally able to make reliable estimates after it has agreed to a contract which establishes:

(a) each party’s enforceable rights regarding the asset to be constructed;

(b) the consideration to be exchanged; and

(c) the manner and terms of settlement.

It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system. The entity reviews and, when necessary, revises the estimates of contract revenue and contract costs as the contract progresses. The need for such revisions does not necessarily indicate that the outcome of the contract cannot be estimated reliably.

30. The stage of completion of a contract may be determined in a variety of ways. The entity uses the method that measures reliably the work performed. Depending on the nature of the contract, the methods may include:

(a) the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs;

(b) surveys of work performed; or

(c) completion of a physical proportion of the contract work.

Progress payments and advances received from customers often do not reflect the work performed.

31. When the stage of completion is determined by reference to the contract costs incurred to date, only those contract costs that reflect work performed are included in costs incurred to date. Examples of contract costs which are excluded are:

(a) contract costs that relate to future activity on the contract, such as costs of materials that have been delivered to a contract site or set aside for use in a contract but not yet installed, used or applied during contract performance, unless the materials have been made specially for the contract; and

(b) payments made to subcontractors in advance of work performed under the subcontract.

32. When the outcome of a construction contract cannot be estimated reliably:

(a) revenue shall be recognised only to the extent of contract costs incurred that it is probable will be recoverable; and

(b) contract costs shall be recognised as an expense in the period in which they are incurred.

An expected loss on the construction contract shall be recognised as an expense immediately in accordance with paragraph 36.

33. During the early stages of a contract it is often the case that the outcome of the contract cannot be estimated reliably. Nevertheless, it may be probable that the entity will recover the contract costs incurred. Therefore, contract revenue is recognised only to the extent of costs incurred that are expected to be recoverable. As the outcome of the contract cannot be estimated reliably, no profit is recognised. However, even though the outcome of the contract cannot be estimated reliably, it may be probable that total contract costs will exceed total contract revenues. In such cases, any expected excess of total contract costs over total contract revenue for the contract is recognised as an expense immediately in accordance with paragraph 36.

34. Contract costs that are not probable of being recovered are recognised as an expense immediately. Examples of circumstances in which the recoverability of contract costs incurred may not be probable and in which contract costs may need to be recognised as an expense immediately include contracts:

(a) that are not fully enforceable, ie their validity is seriously in question;

(b) the completion of which is subject to the outcome of pending litigation or legislation;

(c) relating to properties that are likely to be condemned or expropriated;

(d) where the customer is unable to meet its obligations; or

(e) where the contractor is unable to complete the contract or otherwise meet its obligations under the contract.

35. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract shall be recognised in accordance with paragraph 22 rather than in accordance with paragraph 32.

Recognition of expected losses

36. When it is probable that total contract costs will exceed total contract revenue, the expected loss shall be recognised as an expense immediately.

37. The amount of such a loss is determined irrespective of:

(a) whether work has commenced on the contract;

(b) the stage of completion of contract activity; or

(c) the amount of profits expected to arise on other contracts which are not treated as a single construction contract in accordance with paragraph 9.

Changes in estimates

38. The percentage of completion method is applied on a cumulative basis in each accounting period to the current estimates of contract revenue and contract costs. Therefore, the effect of a change in the estimate of contract revenue or contract costs, or the effect of a change in the estimate of the outcome of a contract, is accounted for as a change in accounting estimate (see Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors). The changed estimates are used in the determination of the amount of revenue and expenses recognised in profit or loss in the period in which the change is made and in subsequent periods.

Disclosure

39. An entity shall disclose:

(a) the amount of contract revenue recognised as revenue in the period;

(b) the methods used to determine the contract revenue recognised in the period; and

(c) the methods used to determine the stage of completion of contracts in progress.

40. An entity shall disclose each of the following for contracts in progress at the end of the reporting period:

(a) the aggregate amount of costs incurred and recognised profits (less recognised losses) to date;

(b) the amount of advances received; and

(c) the amount of retentions.

41. Retentions are amounts of progress billings that are not paid until the satisfaction of conditions specified in the contract for the payment of such amounts or until defects have been rectified. Progress billings are amounts  billed for work performed on a contract whether or not they have been paid by the customer. Advances are amounts received by the contractor before the related work is performed.

42. An entity shall present:

(a) the gross amount due from customers for contract work as an asset; and

(b) the gross amount due to customers for contract work as a liability.

43. The gross amount due from customers for contract work is the net amount of:

(a) costs incurred plus recognised profits; less

(b) the sum of recognised losses and progress billings

for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceeds progress billings.

44. The gross amount due to customers for contract work is the net amount of:

(a) costs incurred plus recognised profits; less

(b) the sum of recognised losses and progress billings

for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).

45. An entity discloses any contingent liabilities and contingent assets in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise from such items as warranty costs, claims, penalties or possible losses.

Appendix A

Service Concession Arrangements

This Appendix is an integral part of Indian Accounting Standard (Ind AS)

Background

1 Infrastructure for public services-such as roads, bridges, tunnels, prisons, hospitals, airports, water distribution facilities, energy supply and telecommunication networks-has traditionally been constructed, operated and maintained by the public sector and financed through public budget appropriation.

2 In recent times, governments have introduced contractual service arrangements to attract private sector participation in the development, financing, operation and maintenance of such infrastructure. The infrastructure may already exist, or may be constructed during the period of the service arrangement. An arrangement within the scope of this Appendix typically involves a private sector entity (an operator) constructing the infrastructure used to provide the public service or upgrading it (for example, by increasing its capacity) and operating and maintaining that infrastructure for a specified period of time. The operator is paid for its services over the period of the arrangement. The arrangement is governed by a contract that sets out performance standards, mechanisms for adjusting prices, and arrangements for arbitrating disputes. Such an arrangement is often described as a ‘build-operate-transfer’, a ‘rehabilitate-operate-transfer’ or a ‘public-to-private’ service concession arrangement.

3 A feature of these service arrangements is the public service nature of the obligation undertaken by the operator. Public policy is for the services related to the infrastructure to be provided to the public, irrespective of the identity of the party that operates the services. The service arrangement contractually obliges the operator to provide the services to the public on behalf of the public sector entity. Other common features are:

(a) the party that grants the service arrangement (the grantor) is a public sector entity, including a governmental body, or a private sector entity to which the responsibility for the service has been devolved.

(b) the operator is responsible for at least some of the management of the infrastructure and related services and does not merely act as an agent on behalf of the grantor.

(c) the contract sets the initial prices to be levied by the operator and regulates price revisions over the period of the service arrangement.

(d) the operator is obliged to hand over the infrastructure to the grantor in a specified condition at the end of the period of the arrangement, for little or no incremental consideration, irrespective of which party initially financed it.

Scope

4 This Appendix gives guidance on the accounting by operators for public-to-private service concession arrangements

5 This Appendix applies to public-to-private service concession arrangements if:

(a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and

(b) the grantor controls-through ownership, beneficial entitlement or otherwise-any significant residual interest in the infrastructure at the end of the term of the arrangement.

6. Infrastructure used in a public-to-private service concession arrangement for its entire useful life (whole of life assets) is within the scope of this Appendix if the conditions in paragraph 5(a) of this Appendix are met. Paragraphs AG1–AG8 of the Application Guidance of this Appendix provide guidance on determining whether, and to what extent, public-to-private service concession arrangements are within the scope of this Appendix.

7 This Appendix applies to both:

(a) infrastructure that the operator constructs or acquires from a third party for the purpose of the service arrangement; and

(b) existing infrastructure to which the grantor gives the operator access for the purpose of the service arrangement.

8 This Appendix does not specify the accounting for infrastructure that was held and recognised as property, plant and equipment by the operator before entering the service arrangement. The derecognition requirements of Indian Accounting Standards (as set out in Ind AS 16 ) apply to such infrastructure.

9 This Appendix does not specify the accounting by grantors.

Issues

10 This Appendix sets out general principles on recognising and measuring the obligations and related rights in service concession arrangements. Requirements for disclosing information about service concession arrangements are in Appendix B to this Indian Accounting Standard. The issues addressed in this Appendix are:

(a) treatment of the operator’s rights over the infrastructure;

(b) recognition and measurement of arrangement consideration;

(c) construction or upgrade services;

(d) operation services;

(e) borrowing costs;

(f) subsequent accounting treatment of a financial asset and an intangible asset; and

(g) items provided to the operator by the grantor.

Accounting Principles

Treatment of the operator’s rights over the infrastructure

11 Infrastructure within the scope of this Appendix shall not be recognised as property, plant and equipment of the operator because the contractual service arrangement does not convey the right to control the use of the public service infrastructure to the operator. The operator has access to operate the infrastructure to provide the public service on behalf of the grantor in accordance with the terms specified in the contract.

Recognition and measurement of arrangement consideration

12 Under the terms of contractual arrangements within the scope of this Appendix, the operator acts as a service provider. The operator constructs or upgrades infrastructure (construction or upgrade services) used to provide a public service and operates and maintains that infrastructure (operation services) for a specified period of time.

13 The operator shall recognise and measure revenue in accordance with Ind AS 11 and Ind AS 18 for the services it performs. If the operator performs more than one service (ie construction or upgrade services and operation services) under a single contract or arrangement, consideration received or receivable shall be allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable. The nature of the consideration determines its subsequent accounting treatment. The subsequent accounting for consideration received as a financial asset and as an intangible asset is detailed in paragraphs 23–26 below.

Construction or upgrade services

14 The operator shall account for revenue and costs relating to construction or upgrade services in accordance with this standard.

Consideration given by the grantor to the operator

15 If the operator provides construction or upgrade services the consideration received or receivable by the operator shall be recognized at its fair value. The consideration may be rights to:

(a) a financial asset, or

(b) an intangible asset.

16 The operator shall recognise a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The operator has an unconditional right to receive cash if the grantor contractually guarantees to pay the operator (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the operator ensuring that the infrastructure meets specified quality or efficiency requirements.

17 The operator shall recognise an intangible asset to the extent that it receives a right (a licence) to charge users of the public service. A right to charge users of the public service is not an unconditional right to receive cash because the amounts are contingent on the extent that the public uses the service.

18 If the operator is paid for the construction services partly by a financial asset and partly by an intangible asset it is necessary to account separately for each component of the operator’s consideration. The consideration received or receivable for both components shall be recognised initially at the fair value of the consideration received or receivable.

19 The nature of the consideration given by the grantor to the operator shall be determined by reference to the contract terms and, when it exists, relevant contract law.

Operation services

20 The operator shall account for revenue and costs relating to operation services in accordance with Ind AS 18.

Contractual obligations to restore the infrastructure to a specified level of serviceability

21 The operator may have contractual obligations it must fulfil as a condition of its licence (a) to maintain the infrastructure to a specified level of serviceability or (b) to restore the infrastructure to a specified condition before it is handed over to the grantor at the end of the service arrangement. These contractual obligations to maintain or restore infrastructure, except for any upgrade element (see paragraph 14 of this Appendix), shall be recognised and measured in accordance with Ind AS 37, ie at the best estimate of the expenditure that would be required to settle the present obligation at the end of the reporting period.

Borrowing costs incurred by the operator

22 In accordance with Ind AS 23, borrowing costs attributable to the arrangement shall be recognised as an expense in the period in which they are incurred unless the operator has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case borrowing costs attributable to the arrangement shall be capitalised during the construction phase of the arrangement in accordance with that Standard.

Financial asset

23 Ind AS 32, Ind AS 107 and Ind AS 109 apply to the financial asset recognised under paragraphs 16 and 18 of this Appendix.

24 The amount due from or at the direction of the grantor is accounted for in accordance with Ind AS 109 at:

(a) amortised cost;

(b) fair value through other comprehensive income; or

(c) fair value through profit or loss.

25 If the amount due from the grantor is measured at amortised cost or fair value through other comprehensive income, Ind AS 109 requires interest calculated using the effective interest method to be recognised in profit or loss.

Intangible asset

26 Ind AS 38 applies to the intangible asset recognised in accordance with paragraphs 17 and 18 of this Appendix. Paragraphs 45–47 of Ind AS 38 provide guidance on measuring intangible assets acquired in exchange for a non-monetary asset or assets or a combination of monetary and non-monetary assets.

Items provided to the operator by the grantor

27 In accordance with paragraph 11, infrastructure items to which the operator is given access by the grantor for the purposes of the service arrangement are not recognised as property, plant and equipment of the operator. The grantor may also provide other items to the operator that the operator can keep or deal with as it wishes. If such assets form part of the consideration payable by the grantor for the services, they are not government grants as defined in Ind AS 20. They are recognised as assets of the operator, measured at fair value on initial recognition. The operator shall recognise a liability in respect of unfulfilled obligations it has assumed in exchange for the assets.

Application Guidance on Appendix A

This Application Guidance is an integral part of Appendix A

Scope (paragraph 5 of Appendix A)

AG1 Paragraph 5 of Appendix A specifies that infrastructure is within the scope of the Appendix when the following conditions apply:

(a) the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and

(b) the grantor controls-through ownership, beneficial entitlement or otherwise-any significant residual interest in the infrastructure at the end of the term of the arrangement.

AG2 The control or regulation referred to in condition (a) could be by contract or otherwise (such as through a regulator), and includes circumstances in which the grantor buys all of the output as well as those in which some or all of the output is bought by other users. In applying this condition, the grantor and any related parties shall be considered together. If the grantor is a public sector entity, the public sector as a whole, together with any regulators acting in the public interest, shall be regarded as related to the grantor for the purposes of this Appendix A.

AG3 For the purpose of condition (a), the grantor does not need to have complete control of the price: it is sufficient for the price to be regulated by the grantor, contract or regulator, for example by a capping mechanism. However, the condition shall be applied to the substance of the agreement. Non-substantive features, such as a cap that will apply only in remote circumstances, shall be ignored. Conversely, if for example, a contract purports to give the operator freedom to set prices, but any excess profit is returned to the grantor, the operator’s return is capped and the price element of the control test is met.

AG4 For the purpose of condition (b), the grantor’s control over any significant residual interest should both restrict the operator’s practical ability to sell or pledge the infrastructure and give the grantor a continuing right of use throughout the period of the arrangement. The residual interest in the infrastructure is the estimated current value of the infrastructure as if it were already of the age and in the condition expected at the end of the period of the arrangement.

AG5 Control should be distinguished from management. If the grantor retains both the degree of control described in paragraph 5(a) of Appendix A and any significant residual interest in the infrastructure, the operator is only managing the infrastructure on the grantor’s behalf-even though, in many cases, it may have wide managerial discretion.

AG6 Conditions (a) and (b) together identify when the infrastructure, including any replacements required (see paragraph 21 of Appendix A), is controlled by the grantor for the whole of its economic life. For example, if the operator has to replace part of an item of infrastructure during the period of the arrangement (eg the top layer of a road or the roof of a building), the item of infrastructure shall be considered as a whole. Thus condition (b) is met for the whole of the infrastructure, including the part that is replaced, if the grantor controls any significant residual interest in the final replacement of that part.

AG7 Sometimes the use of infrastructure is partly regulated in the manner described in paragraph 5(a) of Appendix A and partly unregulated. However, these arrangements take a variety of forms:

(a) any infrastructure that is physically separable and capable of being operated independently and meets the definition of a cash-generating unit as defined in Ind AS 36 shall be analysed separately if it is used wholly for unregulated purposes. For example, this might apply to a private wing of a hospital, where the remainder of the hospital is used by the grantor to treat public patients.

(b) when purely ancillary activities (such as a hospital shop) are unregulated, the control tests shall be applied as if those services did not exist, because in cases in which the grantor controls the services in the manner described in paragraph 5 of Appendix A, the existence of ancillary activities does not detract from the grantor’s control of the infrastructure.

AG8 The operator may have a right to use the separable infrastructure described in paragraph AG7 (a), or the facilities used to provide ancillary unregulated services described in paragraph AG7 (b). In either case, there may in substance be a lease from the grantor to the operator; if so, it shall be accounted for in accordance with Ind AS 17.

Information note 1

Accounting framework for public-to-private service arrangements

This note accompanies, but is not part of, Appendix A

Information note 2

References to Indian Accounting Standards that apply to typical types of public-to-private arrangements

This note accompanies, but is not part of, Appendix A.

The table sets out the typical types of arrangements for private sector participation in the provision of public sector services and provides references to Indian Accounting Standards that apply to those arrangements. The list of arrangements types is not exhaustive. The purpose of the table is to highlight the continuum of arrangements. It is not Appendix A’s intention to convey the impression that bright lines exist between the accounting requirements for public-to-private arrangements

Category Lessee Service provider Owner
Typical arrangement types Lease (eg Operator leases asset from grantor) Service and/or maintenance contract (specific tasks eg debt collection) Rehabilitate – operate -transfer Build -operate -transfer Build – own – operate 100% Divestment/ Privatisation/ Corporation
Asset Ownership Grantor Operator
Capital Investment Grantor Operator
Demand risk Shared Grantor Operator and/or Grantor Operator
Typical Duration 8–20 years 1–5 years 25–30 years Indefinite (or may be limited by licence)
Residual Interest Grantor Operator
Relevant Indian Accounting Standards Ind AS 17 Ind AS 18 This Appendix A Ind AS 16

Appendix B

Service Concession Arrangements: Disclosures

This Appendix is an integral part of Indian Accounting Standard (Ind AS) 11.

Issues

1. An entity (the operator) may enter into an arrangement with another entity (the grantor) to provide services that give the public access to major economic and social facilities. The grantor may be a public or private sector entity, including a governmental body. Examples of service concession arrangements involve water treatment and supply facilities, motorways, car parks, tunnels, bridges, airports and telecommunication networks. Examples of arrangements that are not service concession arrangements include an entity outsourcing the operation of its internal services (eg employee cafeteria, building maintenance, and accounting or information technology functions).

2. A service concession arrangement generally involves the grantor conveying for the period of the concession to the operator:

(a) the right to provide services that give the public access to major economic and social facilities, and

(b) in some cases, the right to use specified tangible assets, intangible assets, or financial assets, in exchange for the operator:

(c) committing to provide the services according to certain terms and conditions during the concession period,

and

(d) when applicable, committing to return at the end of the concession period the rights received at the beginning of the concession period and/or acquired during the concession period.

3. The common characteristic of all service concession arrangements is that the operator both receives a right and incurs an obligation to provide public services.

4. The issue is what information should be disclosed in the notes in the financial statements of an operator and a grantor.

5. Certain aspects and disclosures relating to some service concession arrangements are addressed by Indian Accounting Standards (eg Ind AS 16 applies to acquisitions of items of property, plant and equipment, Ind AS 17 applies to leases of assets, and Ind AS 38 applies to acquisitions of intangible assets). However, a service concession arrangement may involve executory contracts that are not addressed in Indian Accounting Standards, unless the contracts are onerous, in which case Ind AS 37 applies. Therefore, this Appendix addresses additional disclosures of service concession arrangements.

Accounting Principles

6. All aspects of a service concession arrangement shall be considered in determining the appropriate disclosures in the notes. An operator and a grantor shall disclose the following in each period:

(a) a description of the arrangement;

(b) significant terms of the arrangement that may affect the amount, timing and certainty of future cash flows (eg the period of the concession, re-pricing dates and the basis upon which re-pricing or re-negotiation is determined);

(c) the nature and extent (eg quantity, time period or amount as appropriate) of:

(i) rights to use specified assets;

(ii) obligations to provide or rights to expect provision of services;

(iii) obligations to acquire or build items of property, plant and equipment;

(iv) obligations to deliver or rights to receive specified assets at the end of the concession period;

(v) renewal and termination options; and

(vi) other rights and obligations (eg major overhauls);

(d) changes in the arrangement occurring during the period; and

(d) how the service arrangement has been classified.

6A An operator shall disclose the amount of revenue and profits or losses recognized in the period on exchanging construction services for a financial asset or an intangible asset.

7 The disclosures required in accordance with paragraph 6 of this Appendix shall be provided individually for each service concession arrangement or in aggregate for each class of service concession arrangements. A class is a grouping of service concession arrangements involving services of a similar nature (eg toll collections, telecommunications and water treatment services).

Appendix C

References to matters contained in other Indian Accounting Standards

This Appendix is an integral part of Indian Accounting Standard (Ind AS) 11.

This appendix lists the appendices which are part of other Indian Accounting Standards and makes reference to Ind

AS 11, Construction Contracts.

1. Appendix A Intangible Assets-Web Site Costs contained in Ind AS 38, Intangible Assets.

Appendix 1

Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 11 and the corresponding International Accounting Standard (IAS) 11, Construction Contracts, IFRIC 12, Service Concession Arrangements and SIC 29, Service Concession Arrangements: Disclosures

Comparison with IAS 11, Construction Contracts, IFRIC 12, Service Concession Arrangements and SIC 29, Service Concession Arrangements: Disclosures

1. The transitional provisions given in IFRIC 12 have not been given in Ind AS 11, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, Firsttime Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.

2. Different terminology is used in this standard, e.g., the term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’.

3. Paragraph 2 of IAS 11 which states that IAS 11 supersedes the earlier version of IAS 11 is deleted in Ind AS 11 as this is not relevant in Ind AS 11. However, paragraph number 2 is retained in Ind AS 11 to maintain consistency with paragraph numbers of IAS 11.’’.

17. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 12”, in paragraph 59, for item (a), the following item shall be substituted namely:-

‘‘(a) Royalty or dividend revenue is received in arrears and is included in accounting profit on a time apportionment basis in accordance with Ind AS 18, Revenue, or Ind AS 109, Financial Instruments, as relevant, but is included in taxable profit (tax loss) on a cash basis; and ’’.

18. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 16”,-

(i) for paragraph 68A, the following paragraph shall be substituted, namely:-

‘‘68A However, an entity that, in the course of its ordinary activities, routinely sells items of property, plant and equipment that it has held for rental to others shall transfer such assets to inventories at their carrying amount when they cease to be rented and become held for sale. The proceeds from the sale of such assets shall be recognised as revenue in accordance with Ind AS 18, Revenue. Ind AS 105 does not apply when assets that are held for sale in the ordinary course of business are transferred to inventories.’’;

(ii) for paragraph 69, the following paragraph shall be substituted, namely:-

‘‘69 The disposal of an item of property, plant and equipment may occur in a variety of ways (eg by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an entity applies the criteria in Ind AS 18 for recognising revenue from the sale of goods. Ind AS 17 applies to disposal by a sale and leaseback.’’;

(iii) for paragraph 72, the following paragraph shall be substituted, namely:-

‘‘72 The consideration receivable on disposal of an item of property, plant and equipment is recognised initially at its fair value. If payment for the item is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with Ind AS 18 reflecting the effective yield on the receivable.’’;

(iv) in Appendix C,

(a) for paragraph 1, the following paragraph shall be substituted, namely:-

‘‘1 Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts.’’;

(b) for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2 Appendix B, Service Concession Arrangements: Disclosures contained in Ind AS 11, Construction Contracts.’’;

19. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 17”,

(i) in Appendix B, in paragraph 8, for opening paragraph starting with ‘The requirements in’ and ending with ‘is inappropriate include:’, the following paragraph shall be substituted, namely:-

‘‘8. The criteria in paragraph 20 of Ind AS 18, Revenue, shall be applied to the facts and circumstances of each arrangement in determining when to recognise a fee as income that an Entity might receive. Factors such as whether there is continuing involvement in the form of significant future performance obligations necessary to earn the fee, whether there are retained risks, the terms of any guarantee arrangements, and the risk of repayment of the fee, shall be considered. Indicators that individually demonstrate that recognition of the entire fee as income when received, if received at the beginning of the arrangement, is inappropriate include: ’’;

(ii) in Appendix C, in paragraph 4, for item (b), the following item shall be substituted, namely:-

‘‘(b) are public-to-private service concession arrangements within the scope of Appendix A of Ind AS 11, Service Concession Arrangements. ’’;

(iii) in Appendix D,

(a) for paragraph 1, the following paragraph shall be substituted, namely:-

‘‘1 Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts.’’;

(b) for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2 Appendix B, Service Concession Arrangements: Disclosures contained in Ind AS 11, Construction Contracts. ’’;

20. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, after Indian Accounting Standard (Ind AS) 17, the following Indian Accounting Standard shall be inserted, namely:-

‘‘Indian Accounting Standard (Ind AS) 18

Revenue

(This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)

Objective

Income is defined in the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India as increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Income encompasses both revenue and gains. Revenue is income that arises in the course of ordinary activities of an entity and is referred to by a variety of different names including sales, fees, interest, dividends and royalties. The objective of this Standard is to prescribe the accounting treatment of revenue arising from certain types of transactions and events.

The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognised when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised. It also provides practical guidance on the application of these criteria.

Scope

1 This Standard shall be applied in accounting for revenue arising from the following transactions and events2:

(a) the sale of goods;

(b) the rendering of services; and

(c) the use by others of entity assets yielding interest and royalties.

1A This Standard deals with recognition of interest. However, the following are dealt in accordance with Ind AS 109, Financial Instruments:

(a) measurement of interest charges for the use of cash or cash equivalents or amounts due to the entity;

and

(b) recognition and measurement of dividend.

1B The impairment of any contractual right to receive cash or another financial asset arising from this Standard shall be dealt in accordance with Ind AS 109, Financial Instruments.

2 *

3 Goods includes goods produced by the entity for the purpose of sale and goods purchased for resale, such as merchandise purchased by a retailer or land and other property held for resale.

4 The rendering of services typically involves the performance by the entity of a contractually agreed task over an agreed period of time. The services may be rendered within a single period or over more than one period. Some contracts for the rendering of services are directly related to construction contracts, for example, those for the services of project managers and architects. Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in Ind AS 11 Construction Contracts.

5 The use by others of entity assets gives rise to revenue in the form of:

(a) interest-charges for the use of cash or cash equivalents or amounts due to the entity;

(b) royalties-charges for the use of long-term assets of the entity, for example, patents, trademarks, copyrights and computer software; and

(c) dividends-distributions of profits to holders of equity investments in proportion to their holdings of a particular class of capital.

6 This Standard does not deal with revenue arising from:

(a) lease agreements (see Ind AS 17 Leases);

(b) dividends arising from investments which are accounted for under the equity method (see Ind AS 28 Investments in Associates and Joint Ventures);

(c) insurance contracts within the scope of Ind AS 104 Insurance Contracts;

(d) changes in the fair value of financial assets and financial liabilities or their disposal (see Ind AS 109 Financial Instruments);

(e) changes in the value of other current assets;

(f) initial recognition and from changes in the fair value of biological assets related to agricultural activity (see Ind AS 41 Agriculture);

(g) initial recognition of agricultural produce (see Ind AS 41); and

(h) the extraction of mineral ores.

Definitions

7 The following terms are used in this Standard with the meanings specified:

Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.(See Ind AS 113, Fair Value Measurement)

8  Revenue includes only the gross inflows of economic benefits received and receivable by the entity on its own account. Amounts collected on behalf of third parties such as sales taxes, goods and services taxes and value added taxes are not economic benefits which flow to the entity and do not result in increases in equity. Therefore, they are excluded from revenue. Similarly, in an agency relationship, the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity. The amounts collected on behalf of the principal are not revenue. Instead, revenue is the amount of commission.

Measurement of revenue

9 Revenue shall be measured at the fair value of the consideration received or receivable.3

10 The amount of revenue arising on a transaction is usually determined by agreement between the entity and the buyer or user of the asset. It is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates allowed by the entity.

11 In most cases, the consideration is in the form of cash or cash equivalents and the amount of revenue is the amount of cash or cash equivalents received or receivable. However, when the inflow of cash or cash equivalents is deferred, the fair value of the consideration may be less than the nominal amount of cash received or receivable. For example, an entity may provide interest-free credit to the buyer or accept a note receivable bearing a below-market interest rate from the buyer as consideration for the sale of goods. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The imputed rate of interest is the more clearly determinable of either:

(a) the prevailing rate for a similar instrument of an issuer with a similar credit rating; or

(b) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.

The difference between the fair value and the nominal amount of the consideration is recognised as interest revenue in accordance with Ind AS 109.

12 When goods or services are exchanged or swapped for goods or services which are of a similar nature and value, the exchange is not regarded as a transaction which generates revenue. This is often the case with commodities like oil or milk where suppliers exchange or swap inventories in various locations to fulfil demand on a timely basis in a particular location. When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred. When the fair value of the goods or services received cannot be measured reliably, the revenue is measured at the fair value of the goods or services given up, adjusted by the amount of any cash or cash equivalents transferred.

Identification of the transaction

13 The recognition criteria in this Standard are usually applied separately to each transaction. However, in certain circumstances, it is necessary to apply the recognition criteria to the separately identifiable components of a single transaction in order to reflect the substance of the transaction. For example, when the selling price of a product includes an identifiable amount for subsequent servicing, that amount is deferred and recognised as revenue over the period during which the service is performed. Conversely, the recognition criteria are applied to two or more transactions together when they are linked in such a way that the commercial effect cannot be understood without reference to the series of transactions as a whole. For example, an entity may sell goods and, at the same time, enter into a separate agreement to repurchase the goods at a later date, thus negating the substantive effect of the transaction; in such a case, the two transactions are dealt with together.

Sale of goods

14 Revenue from the sale of goods shall be recognised when all the following conditions have been satisfied:

(a) the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;

(b) the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

(c) the amount of revenue can be measured reliably;

(d) it is probable that the economic benefits associated with the transaction will flow to the entity; and

(e) the costs incurred or to be incurred in respect of the transaction can be measured reliably.

15 The assessment of when an entity has transferred the significant risks and rewards of ownership to the buyer requires an examination of the circumstances of the transaction. In most cases, the transfer of the risks and rewards of ownership coincides with the transfer of the legal title or the passing of possession to the buyer. This is the case for most retail sales. In other cases, the transfer of risks and rewards of ownership occurs at a different time from the transfer of legal title or the passing of possession.

16 If the entity retains significant risks of ownership, the transaction is not a sale and revenue is not recognised. An entity may retain a significant risk of ownership in a number of ways. Examples of situations in which the entity may retain the significant risks and rewards of ownership are:

(a) when the entity retains an obligation for unsatisfactory performance not covered by normal warranty provisions;

(b) when the receipt of the revenue from a particular sale is contingent on the derivation of revenue by the buyer from its sale of the goods;

(c) when the goods are shipped subject to installation and the installation is a significant part of the contract which has not yet been completed by the entity; and

(d) when the buyer has the right to rescind the purchase for a reason specified in the sales contract and the entity is uncertain about the probability of return.

17 If an entity retains only an insignificant risk of ownership, the transaction is a sale and revenue is recognised. For example, a seller may retain the legal title to the goods solely to protect the collectability of the amount due. In such a case, if the entity has transferred the significant risks and rewards of ownership, the transaction is a sale and revenue is recognised. Another example of an entity retaining only an insignificant risk of ownership may be a retail sale when a refund is offered if the customer is not satisfied. Revenue in such cases is recognised at the time of sale provided the seller can reliably estimate future returns and recognises a liability for returns based on previous experience and other relevant factors.

18 Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity. In some cases, this may not be probable until the consideration is received or until an uncertainty is removed. For example, it may be uncertain that a foreign governmental authority will grant permission to remit the consideration from a sale in a foreign country. When the permission is granted, the uncertainty is removed and revenue is recognised. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible amount or the amount in respect of which recovery has ceased to be probable is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

19 Revenue and expenses that relate to the same transaction or other event are recognised simultaneously; this process is commonly referred to as the matching of revenues and expenses. Expenses, including warranties and other costs to be incurred after the shipment of the goods can normally be measured reliably when the other conditions for the recognition of revenue have been satisfied. However, revenue cannot be recognised when the expenses cannot be measured reliably; in such circumstances, any consideration already received for the sale of the goods is recognised as a liability.

Rendering of services

20 When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

(a) the amount of revenue can be measured reliably;

(b) it is probable that the economic benefits associated with the transaction will flow to the entity;

(c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and

(d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.4

21 The recognition of revenue by reference to the stage of completion of a transaction is often referred to as the percentage of completion method. Under this method, revenue is recognised in the accounting periods in which the services are rendered. The recognition of revenue on this basis provides useful information on the extent of service activity and performance during a period. Ind AS 11 also requires the recognition of revenue on this basis. The requirements of that Standard are generally applicable to the recognition of revenue and the associated expenses for a transaction involving the rendering of services.

22 Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when an uncertainty arises about the collectability of an amount already included in revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

23 An entity is generally able to make reliable estimates after it has agreed to the following with the other parties to the transaction:

(a) each party’s enforceable rights regarding the service to be provided and received by the parties;

(b) the consideration to be exchanged; and

(c) the manner and terms of settlement.

It is also usually necessary for the entity to have an effective internal financial budgeting and reporting system. The entity reviews and, when necessary, revises the estimates of revenue as the service is performed. The need for such revisions does not necessarily indicate that the outcome of the transaction cannot be estimated reliably.

24 The stage of completion of a transaction may be determined by a variety of methods. An entity uses the method that measures reliably the services performed. Depending on the nature of the transaction, the methods may include:

(a) surveys of work performed;

(b) services performed to date as a percentage of total services to be performed; or

(c) the proportion that costs incurred to date bear to the estimated total costs of the transaction. Only costs that reflect services performed to date are included in costs incurred to date. Only costs that reflect services performed or to be performed are included in the estimated total costs of the transaction.

Progress payments and advances received from customers often do not reflect the services performed.

25 For practical purposes, when services are performed by an indeterminate number of acts over a specified period of time, revenue is recognised on a straight-line basis over the specified period unless there is evidence that some other method better represents the stage of completion. When a specific act is much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed.

26 When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

27 During the early stages of a transaction, it is often the case that the outcome of the transaction cannot be estimated reliably. Nevertheless, it may be probable that the entity will recover the transaction costs incurred. Therefore, revenue is recognised only to the extent of costs incurred that are expected to be recoverable. As the outcome of the transaction cannot be estimated reliably, no profit is recognised.

28 When the outcome of a transaction cannot be estimated reliably and it is not probable that the costs incurred will be recovered, revenue is not recognised and the costs incurred are recognised as an expense. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue is recognised in accordance with paragraph 20 rather than in accordance with paragraph 26.

Interest and Royalties

29 Revenue arising from the use by others of entity assets yielding interest and royalties shall be recognised on the bases set out in paragraph 30 when:

(a) it is probable that the economic benefits associated with the transaction will flow to the entity; and

(b) the amount of the revenue can be measured reliably.

30 Revenue shall be recognised on the following bases:

(a) interest shall be recognised using the effective interest method as set out in Ind AS109; and

(b) royalties shall be recognised on an accrual basis in accordance with the substance of the relevant agreement.

(c) Omitted*

31 Omitted*

32 Omitted*

33 Royalties accrue in accordance with the terms of the relevant agreement and are usually recognised on that basis unless, having regard to the substance of the agreement, it is more appropriate to recognise revenue on some other systematic and rational basis.

34 Revenue is recognised only when it is probable that the economic benefits associated with the transaction will flow to the entity. However, when an uncertainty arises about the collectibility of an amount already included in revenue, the uncollectible amount, or the amount in respect of which recovery has ceased to be probable, is recognised as an expense, rather than as an adjustment of the amount of revenue originally recognised.

Disclosure

35 An entity shall disclose:

(a) the accounting policies adopted for the recognition of revenue, including the methods adopted to determine the stage of completion of transactions involving the rendering of services;

(b) the amount of each significant category of revenue recognised during the period, including revenue arising from:

(i) the sale of goods;

(ii) the rendering of services; and

(iii) Omitted*

(iv) royalties

(v) Omitted *

(c) the amount of revenue arising from exchanges of goods or services included in each significant category of revenue.

36 An entity discloses any contingent liabilities and contingent assets in accordance with Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Contingent liabilities and contingent assets may arise from items such as warranty costs, claims, penalties or possible losses.

Appendix A

Revenue-Barter Transactions Involving Advertising Services

Issue

1 An entity (Seller) may enter into a barter transaction to provide advertising services in exchange for receiving advertising services from its customer (Customer). Advertisements may be displayed on the Internet or poster sites, broadcast on the television or radio, published in magazines or journals, or presented in another medium.

2 In some cases, no cash or other consideration is exchanged between the entities. In some other cases, equal or approximately equal amounts of cash or other consideration are also exchanged.

3 A Seller that provides advertising services in the course of its ordinary activities recognises revenue under Ind AS 18 from a barter transaction involving advertising when, amongst other criteria, the services exchanged are dissimilar (paragraph 12 of Ind AS 18) and the amount of revenue can be measured reliably (paragraph 20(a) of Ind AS 18.This Appendix only applies to an exchange of dissimilar advertising services. An exchange of similar advertising services is not a transaction that generates revenue under Ind AS 18.

4 The issue is under what circumstances can a Seller reliably measure revenue at the fair value of advertising services received or provided in a barter transaction.

Accounting Principles

5 Revenue from a barter transaction involving advertising cannot be measured reliably at the fair value of advertising services received. However, a Seller can reliably measure revenue at the fair value of the advertising services it provides in a barter transaction, by reference only to non-barter transactions that:

(a) involve advertising similar to the advertising in the barter transaction;

(b) occur frequently;

(c) represent a predominant number of transactions and amount when compared to all transactions to provide advertising that is similar to the advertising in the barter transaction;

(d) involve cash and/or another form of consideration (eg marketable securities, non-monetary assets, and other services) that has a reliably measurable fair value; and

(e) do not involve the same counterparty as in the barter transaction.

Appendix B

Customer Loyalty Programmes

Background

1 Customer loyalty programmes are used by entities to provide customers with incentives to buy their goods or services. If a customer buys goods or services, the entity grants the customer award credits (often described as ‘points’). The customer can redeem the award credits for awards such as free or discounted goods or services.

2 The programmes operate in a variety of ways. Customers may be required to accumulate a specified minimum number or value of award credits before they are able to redeem them. Award credits may be linked to individual purchases or groups of purchases, or to continued custom over a specified period. The entity may operate the customer loyalty programme itself or participate in a programme operated by a third party. The awards offered may include goods or services supplied by the entity itself and/or rights to claim goods or services from a third party.

Scope

3 This Appendix applies to customer loyalty award credits that:

(a) an entity grants to its customers as part of a sales transaction, ie a sale of goods, rendering of services or use by a customer of entity assets; and

(b) subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services.

The Appendix addresses accounting by the entity that grants award credits to its customers.

Issues

4 The issues addressed in this Appendix are:

(a) whether the entity’s obligation to provide free or discounted goods or services (‘awards’) in the future should be recognised and measured by:

(i) allocating some of the consideration received or receivable from the sales transaction to the award credits and deferring the recognition of revenue (applying paragraph 13 of Ind AS 18); or

(ii) providing for the estimated future costs of supplying the awards (applying paragraph 19 of Ind AS 18); and

(b) if consideration is allocated to the award credits:

(i) how much should be allocated to them;

(ii) when revenue should be recognised; and

(iii) if a third party supplies the awards, how revenue should be measured.

Accounting Principles

5 An entity shall apply paragraph 13 of Ind AS 18 and account for award credits as a separately identifiable component of the sales transaction(s) in which they are granted (the ‘initial sale’). The fair value of the consideration received or receivable in respect of the initial sale shall be allocated between the award credits and the other components of the sale.

6 The consideration allocated to the award credits shall be measured by reference to their fair value.

7 If the entity supplies the awards itself, it shall recognise the consideration allocated to award credits as revenue when award credits are redeemed and it fulfils its obligations to supply awards. The amount of revenue recognised shall be based on the number of award credits that have been redeemed in exchange for awards, relative to the total number expected to be redeemed.

8 If a third party supplies the awards, the entity shall assess whether it is collecting the consideration allocated to the award credits on its own account (ie as the principal in the transaction) or on behalf of the third party (ie as an agent for the third party).

(a) If the entity is collecting the consideration on behalf of the third party, it shall:

(i) measure its revenue as the net amount retained on its own account, ie the difference between the consideration allocated to the award credits and the amount payable to the third party for supplying the awards; and

(ii) recognise this net amount as revenue when the third party becomes obliged to supply the awards and entitled to receive consideration for doing so. These events may occur as soon as the award credits are granted. Alternatively, if the customer can choose to claim awards from either the entity or a third party, these events may occur only when the customer chooses to claim awards from the third party.

(b) If the entity is collecting the consideration on its own account, it shall measure its revenue as the gross consideration allocated to the award credits and recognise the revenue when it fulfils its obligations in respect of the awards.

9 If at any time the unavoidable costs of meeting the obligations to supply the awards are expected to exceed the consideration received and receivable for them (ie the consideration allocated to the award credits at the time of the initial sale that has not yet been recognised as revenue plus any further consideration receivable when the customer redeems the award credits), the entity has onerous contracts. A liability shall be recognised for the excess in accordance with Ind AS 37. The need to recognise such a liability could arise if the expected costs of supplying awards increase, for example if the entity revises its expectations about the number of award credits that will be redeemed.

Application guidance on Appendix B

This application guidance is an integral part of Appendix B.

Measuring the fair value of award credits

AG1 Paragraph 6 of Appendix B requires the consideration allocated to award credits to be measured by reference to their fair value. If there is not a quoted market price for an identical award credit, fair value must be measured using another valuation technique.

AG2 An entity may measure the fair value of award credits by reference to the fair value of the awards for which they could be redeemed. The fair value of the award credits takes into account, as appropriate:

(a) the amount of the discounts or incentives that would otherwise be offered to customers who have not earned award credits from an initial sale;

(b) the proportion of award credits that are not expected to be redeemed by customers; and

(c) non-performance risk.

If customers can choose from a range of different awards, the fair value of the award credits reflects the fair values of the range of available awards, weighted in proportion to the frequency with which each award is expected to be selected.

AG3 In some circumstances, other valuation techniques may be used. For example, if a third party will supply the awards and the entity pays the third party for each award credit it grants, it could measure the fair value of the award credits by reference to the amount it pays the third party, adding a reasonable profit margin. Judgement is required to select and apply the valuation technique that satisfies the requirements of paragraph 6 of Appendix B and is most appropriate in the circumstances.

Appendix C

Transfers of Assets from Customers

Background

1 In the utilities industry, an entity may receive from its customers items of property, plant and equipment that must be used to connect those customers to a network and provide them with ongoing access to a supply of commodities such as electricity, gas or water. Alternatively, an entity may receive cash from customers for the acquisition or construction of such items of property, plant and equipment. Typically, customers are required to pay additional amounts for the purchase of goods or services based on usage.

2 Transfers of assets from customers may also occur in industries other than utilities. For example, an entity outsourcing its information technology functions may transfer its existing items of property, plant and equipment to the outsourcing provider.

3 In some cases, the transferor of the asset may not be the entity that will eventually have ongoing access to the supply of goods or services and will be the recipient of those goods or services. However, for convenience this Appendix refers to the entity transferring the asset as the customer.

Scope

4 This Appendix applies to the accounting for transfers of items of property, plant and equipment by entities that receive such transfers from their customers.

5 Agreements within the scope of this Appendix are agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both.

6 This Appendix also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity must then use the item of property, plant and equipment either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services, or to do both.

7 This Appendix does not apply to agreements in which the transfer is either a government grant as defined in Ind AS 20 or infrastructure used in a service concession arrangement that is within the scope of Appendix A of Ind AS 11 Service Concession Arrangements.

Issues

8 The Appendix addresses the following issues:

(a) Is the definition of an asset met?

(b) If the definition of an asset is met, how should the transferred item of property, plant and equipment be measured on initial recognition?

(c) If the item of property, plant and equipment is measured at fair value on initial recognition, how should the resulting credit be accounted for?

(d) How should the entity account for a transfer of cash from its customer?

Accounting Principles

Is the definition of an asset met?

9 When an entity receives from a customer a transfer of an item of property, plant and equipment, it shall assess whether the transferred item meets the definition of an asset set out in the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India. Paragraph 49(a) of the Framework states that ‘an asset is a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.’ In most circumstances, the entity obtains the right of ownership of the transferred item of property, plant and equipment. However, in determining whether an asset exists, the right of ownership is not essential. Therefore, if the customer continues to control the transferred item, the asset definition would not be met despite a transfer of ownership.

10 An entity that controls an asset can generally deal with that asset as it pleases. For example, the entity can exchange that asset for other assets, employ it to produce goods or services, charge a price for others to use it, use it to settle liabilities, hold it, or distribute it to owners. The entity that receives from a customer a transfer of an item of property, plant and equipment shall consider all relevant facts and circumstances when assessing control of the transferred item. For example, although the entity must use the transferred item of property, plant and equipment to provide one or more services to the customer, it may have the ability to decide how the transferred item of property, plant and equipment is operated and maintained and when it is replaced. In this case, the entity would normally conclude that it controls the transferred item of property, plant and equipment.

How should the transferred item of property, plant and equipment be measured on initial recognition?

11 If the entity concludes that the definition of an asset is met, it shall recognise the transferred asset as an item of property, plant and equipment in accordance with paragraph 7 of Ind AS 16 and measure its cost on initial recognition at its fair value in accordance with paragraph 24 of that Standard.

How should the credit be accounted for?

12 The following discussion assumes that the entity receiving an item of property, plant and equipment has concluded that the transferred item should be recognised and measured in accordance with paragraphs 9–11.

13 Paragraph 12 of Ind AS 18 states that ‘When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue.’ According to the terms of the agreements within the scope of this Appendix, a transfer of an item of property, plant and equipment would be an exchange for dissimilar goods or services. Consequently, the entity shall recognise revenue in accordance with Ind AS 18.

Identifying the separately identifiable services

14 An entity may agree to deliver one or more services in exchange for the transferred item of property, plant and equipment, such as connecting the customer to a network, providing the customer with ongoing access to a supply of goods or services, or both. In accordance with paragraph 13 of Ind AS 18, the entity shall identify the separately identifiable services included in the agreement.

15 Features that indicate that connecting the customer to a network is a separately identifiable service include:

(a) a service connection is delivered to the customer and represents stand-alone value for that customer;

(b) the fair value of the service connection can be measured reliably.

16 A feature that indicates that providing the customer with ongoing access to a supply of goods or services is a separately identifiable service is that, in the future, the customer making the transfer receives the ongoing access, the goods or services, or both at a price lower than would be charged without the transfer of the item of property, plant and equipment.

17 Conversely, a feature that indicates that the obligation to provide the customer with ongoing access to a supply of goods or services arises from the terms of the entity’s operating licence or other regulation rather than from the agreement relating to the transfer of an item of property, plant and equipment is that customers that make a transfer pay the same price as those that do not for the ongoing access, or for the goods or services, or for both.

Revenue recognition

18 If only one service is identified, the entity shall recognise revenue when the service is performed in accordance with paragraph 20 of Ind AS 18. If such a service is ongoing, revenue shall be recognised in accordance with paragraph 20 of this Appendix.

19 If more than one separately identifiable service is identified, paragraph 13 of Ind AS 18 requires the fair value of the total consideration received or receivable for the agreement to be allocated to each service and the recognition criteria of Ind AS 18 are then applied to each service.

20 If an ongoing service is identified as part of the agreement, the period over which revenue shall be recognised for that service is generally determined by the terms of the agreement with the customer. If the agreement does not specify a period, the revenue shall be recognised over a period no longer than the useful life of the transferred asset used to provide the ongoing service.

How should the entity account for a transfer of cash from its customer?

21 When an entity receives a transfer of cash from a customer, it shall assess whether the agreement is within the scope of this Appendix in accordance with paragraph 6. If it is, the entity shall assess whether the constructed or acquired item of property, plant and equipment meets the definition of an asset in accordance with paragraphs 9 and 10. If the definition of an asset is met, the entity shall recognise the item of property, plant and equipment at its cost in accordance with Ind AS 16 and shall recognise revenue in accordance with paragraphs 13–20 at the amount of cash received from the customer.

Appendix D

References to matters contained in other Indian Accounting Standards

This Appendix is an integral part of Indian Accounting Standard 18.

This appendix lists the appendices which are part of other Indian Accounting Standards and make reference to Ind AS 18, Revenues

1. Appendix A, Service Concession Arrangements contained in Ind AS 11 Construction Contracts.

2. Appendix B, Evaluating the Substance of Transactions Involving the Legal Form of a Lease contained in Ind AS 17 Leases.

Appendix 1

Note: This appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the differences, if any, between Indian Accounting Standard (Ind AS) 18 and the corresponding International Accounting Standard (IAS) 18, Revenue, SIC 31, Revenue- Barter Transactions Involving Advertising Services, IFRIC 13, Customer Loyalty Programmes and IFRIC 18, Transfers Of Assets from Customers.

Comparison with IAS 18, Revenue, SIC 31, IFRIC 13 and IFRIC 18

1. The transitional provisions given in IAS 18, SIC 13 and IFRIC 13 have not been given in Ind AS 18, since all transitional provisions related to Ind ASs, wherever considered appropriate have been included in Ind AS 101, First-time Adoption of Indian Accounting Standards corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards.

2. On the basis of principles of the IAS 18, IFRIC 15 on Agreement for Construction of Real Estate prescribes that construction of real estate should be treated as sale of goods and revenue should be recognised when the entity has transferred significant risks and rewards of ownership and retained neither continuing managerial involvement nor effective control. IFRIC 15 has not been included in Ind AS 18. Instead, a footnote has been given specifying that the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India shall be followed.

3. Paragraph 2 of IAS 18 which states that IAS 18 supersedes the earlier version IAS 18 is deleted in Ind AS 18 as this is not relevant in Ind AS 18. However, paragraph number 2 is retained in Ind AS 18 to maintain consistency with paragraph numbers of IAS 18.

4. Paragraph number 31 appear as ‘Deleted ‘in IAS 18. In order to maintain consistency with paragraph numbers of IAS 18, the paragraph number is retained in Ind AS 18.

5. Paragraph 30(c), 32, 35 b(iii), 35b(v) appear as ‘Deleted’ in Ind AS 18 which addresses revenue in form of interest and dividend. The recognition, measurement of dividend is given in Ind AS 109, whereas the measurement of interest is given in Ind AS 109.

6. Paragraph 1A is inserted which states that recognition of interest is dealt in this standard whereas measurement of interest charges for the use of cash or cash equivalents or amounts due to the entity and recognition and measurement of dividend is dealt in accordance with Ind AS 109, Financial Instruments.

7. Paragraph 1B is inserted, which prescribes the impairment of any contractual right to receive cash or another financial asset arising from this standard, shall be dealt in accordance with Ind AS 109, Financial Instruments.’’

21. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 19”, -

(i) for paragraph 83, the following paragraph shall be substituted, namely:-

‘‘83 The rate used to discount post-employment benefit obligations (both funded and unfunded) shall be determined by reference to market yields at the end of the reporting period on government bonds. However, for currencies other than Indian rupee for which there is deep market in high quality corporate bonds, the market yields (at the end of the reporting period) on such high quality corporate bonds denominated in that currency shall be used. The currency and term of the government bonds or corporate bonds shall be consistent with the currency and estimated term of the post-employment benefit obligations.’’;

(ii) in Appendix 1, for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2 According to Ind AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19 , the government bonds can be used only for those currencies where there is no deep market of high quality corporate bonds. However, requirements given in IAS 19 in this regard have been retained with appropriate modifications for currencies other than Indian rupee.’’.

22. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 23”, in Appendix A, for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2 Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts, makes reference to this Standard also.’’.

23. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 28”, -

(i) in paragraph 17, for item (d), the following item shall be substituted, namely:-

‘‘(d) The ultimate or any intermediate parent of the entity produces financial statements available for public use that comply with Ind ASs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with Ind AS 110.’’;

(ii) for paragraph 27, the following paragraph shall be substituted, namely:-

‘‘27 A group’s share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture by the parent and its subsidiaries. The holdings of the group’s other associates or joint ventures are ignored for this purpose. When an associate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate’s or joint venture’s financial statements (including the associate’s or joint venture’s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 35–36A).’’;

(iii) for paragraph 36, the following paragraph shall be substituted, namely:-

‘‘36 Except as described in paragraph 36A, if an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate’s or joint venture’s accounting policies conform to those of the entity when the associate’s or joint venture’s financial statements are used by the entity in applying the equity method.’’;

(iv) after paragraph 36, the following paragraph shall be inserted, namely:-

‘‘36A Notwithstanding the requirement in paragraph 36, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s interests in subsidiaries.’’.

24. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 32”,

(i) in Appendix A, for paragraph AG21, the following paragraph shall be substituted, namely:-

‘‘AG21 A contract that involves the receipt or delivery of physical assets does not give rise to a financial asset of one party and a financial liability of the other party unless any corresponding payment is deferred past the date on which the physical assets are transferred. Such is the case with the purchase or sale of goods on trade credit.’’;

(ii) in Appendix B, for paragraph 1, the following paragraph shall be substituted, namely:-

‘‘1. Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts.’’.

25. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 34”,-

(i) in paragraph 5, for item (e), the following item shall be substituted, namely:-

‘‘(e) notes, comprising significant accounting policies and other explanatory information;’’;

(ii) in paragraph 15B, for item (b), the following item shall be substituted, namely:-

‘‘(b) recognition of a loss from the impairment of financial assets, property, plant and equipment, intangible assets, or other assets, and the reversal of such an impairment loss; ’’;

(iii) in paragraph 16A, for the opening paragraph, starting with ‘In addition to’ and ending with ‘year-to-date basis.’, the following paragraph shall be substituted, namely:-

‘‘16A In addition to disclosing significant events and transactions in accordance with paragraphs 15–15C, an entity shall include the following information, in the notes to its interim financial statements or elsewhere in the interim financial report. The following disclosures shall be given either in the interim financial statements or incorporated by cross-reference from the interim financial statements to some other statement (such as management commentary or risk report) that is available to users of the financial statements on the same terms as the interim financial statements and at the same time. If users of the financial statements do not have access to the information incorporated by cross-reference on the same terms and at the same time, the interim financial report is incomplete. The information shall normally be reported on a financial year-to-date basis.’’;

(iv) in paragraph 16A, item (l) shall be omitted.

26. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 36”, in paragraph 2, for item (b), the following item shall be substituted namely:-

‘‘(b) assets arising from construction contracts (see Ind AS 11, Construction Contracts and Ind AS 18, Revenue );’’.

27. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 37”, -

(i) for paragraph 5, the following paragraph shall be substituted, namely:-

‘‘5. When another Standard deals with a specific type of provision, contingent liability or contingent asset, an entity applies that Standard instead of this Standard. For example, some types of provisions are addressed in Standards on:

(a) construction contracts (see Ind AS 11, Construction Contracts);

(b) income taxes (see Ind AS 12, Income Taxes);

(c) leases (see Ind AS 17, Leases). However, as Ind AS 17 contains no specific requirements to deal with operating leases that have become onerous, this Standard applies to such cases;

(d) employee benefits (see Ind AS 19, Employee Benefits);

(e) insurance contracts (see Ind AS 104, Insurance Contracts). However, this Standard applies to provisions, contingent liabilities and contingent assets of an insurer, other than those arising from its contractual obligations and rights under insurance contracts within the scope of Ind AS 104; and

(f) contingent consideration of an acquirer in a business combination (see Ind AS 103, Business Combinations). ’’;

(ii) for paragraph 6, the following paragraph shall be substituted, namely:-

‘‘6. Some amounts treated as provisions may relate to the recognition of revenue, for example where an entity gives guarantees in exchange for a fee. This Standard does not address the recognition of revenue. Ind AS 18, Revenue, identifies the circumstances in which revenue is recognised and provides practical guidance on the application of the recognition criteria. This Standard does not change the requirements of Ind AS 18.’’;

(iii) in Appendix D, for paragraph (i), the following paragraph shall be substituted, namely:-

‘‘(i) Appendix A, Service Concession Arrangements and Appendix B, Service Concession Arrangements:

Disclosures, contained in Ind AS 11, Construction Contracts.’’;

(iv) in Appendix 1, for paragraph 3, the following paragraph shall be substituted, namely:-

‘‘3. The following paragraph numbers appear as ‘Deleted’ in IAS 37. In order to maintain consistency with paragraph numbers of IAS 37, the paragraph numbers are retained in Ind AS 37 :

(i) paragraph 1(b)

(ii) paragraph 4’’.

28. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 38”,

(i) in paragraph 3, for item (a), the following item shall be substituted, namely:-

‘‘(a) intangible assets held by an entity for sale in the ordinary course of business (see Ind AS 2, Inventories, and Ind AS 11, Construction Contracts).’’;

(ii) in paragraph 3, item (i) shall be omitted.

(iii) for paragraph 114, the following paragraph shall be substituted, namely:-

‘‘114 The disposal of an intangible asset may occur in a variety of ways (eg by sale, by entering into a finance lease, or by donation). In determining the date of disposal of such an asset, an entity applies the criteria in Ind AS 18, Revenue, for recognising revenue from the sale of goods. Ind AS 17 applies to disposal by a sale and leaseback. ’’

(iv) for paragraph 116, the following shall be substituted, namely:-

‘‘116 The consideration receivable on disposal of an intangible asset is recognised initially at its fair value. If payment for the intangible asset is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with Ind AS 18 reflecting the effective yield on the receivable. ’’;

(v) in Appendix A, for paragraph 6, the following paragraph shall be substituted, namely:-

‘‘6 Ind AS 38 does not apply to intangible assets held by an entity for sale in the ordinary course of business (see Ind AS 2 and Ind AS 11) or leases that fall within the scope of Ind AS 17. Accordingly, this Appendix does not apply to expenditure on the development or operation of a web site (or web site software) for sale to another entity. When a web site is leased under an operating lease, the lessor applies this Appendix. When a web site is leased under a finance lease, the lessee applies this Appendix after initial recognition of the leased asset. ’’;

(vi) in Appendix B, -

(a) for paragraph 1, the following paragraph shall be substituted, namely:-

‘‘1 Appendix A, Service Concession Arrangements contained in Ind AS 11, Construction Contracts. ’’;

(b) for paragraph 2, the following paragraph shall be substituted, namely:-

‘‘2 Appendix B, Service Concession Arrangements: Disclosures contained in Ind AS 11, Construction Contracts. ’’.

29. In the principal rules, in the “Annexure”, under the heading “B. Indian Accounting Standards (Ind AS)”, in “Indian Accounting Standard (Ind AS) 40”,

(i) in paragraph 3, for item (b), the following item shall be substituted namely:-

‘‘(b) recognition of lease income from investment property (see also Ind AS 18, Revenue); ’’;

(ii) in paragraph 9, for item (b), the following item shall be substituted, namely:-

‘‘(b) property being constructed or developed on behalf of third parties (see Ind AS 11, Construction

Contracts). ’’;

(iii) for paragraph 67, the following paragraph shall be substituted, namely:-

‘‘67 The disposal of an investment property may be achieved by sale or by entering into a finance lease. In determining the date of disposal for investment property, an entity applies the criteria in Ind AS 18 for recognising revenue from the sale of goods. Ind AS 17 applies to a disposal effected by entering into a finance lease and to a sale and leaseback. ’’;

(iv) for paragraph 70, the following paragraph shall be substituted, namely:-

‘‘70 The consideration receivable on disposal of an investment property is recognised initially at fair value. In particular, if payment for an investment property is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue in accordance with Ind AS 18 using the effective interest method. ’’;

(v) in Appendix 1, in paragraph 7, item (i) shall be omitted.

[F. No. 01/01/2009-CL-V(Part)]

AMARDEEP SINGH BHATIA, Jt. Secy.


* Refer Appendix 1

1This term (as defined in Ind AS107) is used in the requirements for presenting the effects of changes in credit risk on liabilities designated as at fair value through profit or loss (see paragraph 5.7.7).

2 For real estate developers, revenue shall be accounted for in accordance with the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India.

See also Appendix A of this standard, Revenue-Barter Transactions Involving Advertising Services

4 See also Appendix A of this standard, Revenue-Barter Transactions Involving Advertising Services and Appendix B of Ind AS 17 , Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

5 If the non-current asset is part of a cash-generating unit, its recoverable amount is the carrying amount that would have been recognised after the allocation of any impairment loss arising on that cash-generating unit in accordance with Ind AS 36.

6 Unless the asset is property, plant and equipment or an intangible asset that had been revalued in accordance with Ind AS 16 or Ind AS 38 before classification as held for sale, in which case the adjustment shall be treated as a revaluation increase or decrease.

Notification No. S. O. 1298(E) 30-3-2016


De-notification of 59.3.98 hectares from Sector Specific Special Economic Zone for Footwear at SIPCOT Industrial Growth Centre, Bargur, Uthangarai and Pochampalli Taluk, Krishnagiri, Tamil Nadu – S. O. 1298(E) – Dated 30-3-2016 – Special Economic Zone

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

NOTIFICATION

New Delhi, the 30th March, 2016

S. O. 1298(E). - Whereas, M/s. Cheyyar SEZ Developers Pvt. Ltd. has proposed under section 3 of the Special Economic Zones Act, 2005 (28 of 2005), (hereinafter referred to as the said Act), to set up a Sector Specific Special Economic Zone for Footwear at SIPCOT Industrial Growth Centre, Bargur, Uthangarai and Pochampalli Taluk, Krishnagiri District, in the State of Tamil Nadu;

And, Whereas, the Central Government is satisfied that requirements under sub-section (8) of section 3 of the saidAct, and other related requirements are fulfilled and it has granted letter of approval under sub-section (10) of section 3 of the said Act for development, operation and maintenance of the above sector specific Special Economic Zone on 13th November, 2015;

Now, Therefore, the Central Government, in exercise of the powers conferred by sub-section (1) of section 4 of theSpecial Economic Zones Act, 2005 and in pursuance of rule 8 of the Special Economic Zones Rules, 2006, hereby notifies the 59.3.98 hectares area at above location with survey numbers given in the table below as a Special Economic Zone, namely:

Table

S.No.

Name of Village

Survey No.

Area (in hectares)

1.

Balethottam

641P

0.005

2.

642P

0.010

3.

643P

1.845

4.

726P

6.265

5.

Olapatti

1P

0.355

6.

2P

2.78

7.

3P

2.310

8.

4P

1.980

9.

7P

1.565

10.

21P

1.990

11.

22

2.970

12.

23P

0.340

13.

25P

3.620

14.

26

3.950

15.

27P

2.830

16.

28P

3.150

17.

29P

2.455

18.

29/1

1.108

19.

30

2.390

20.

31P

5.040

21.

32P

1.580

22.

33P

3.270

23.

49P

0.520

24.

50P

0.320

25.

59P

3.610

26.

60P

3.140

Total

59.3.98

And, Therefore, the Central Government, in exercise of the powers conferred by sub-section (1) of section 13 of the Special Economic Zones Act, 2005 (28 of 2005), hereby constitutes a Committee to be called the Approval Committee for the above Special Economic Zone for the purposes of section 14 of the said Act consisting of the following Chairperson and Members, namely:-

1.

Development Commissioner of the Special Economic Zone

Chairperson ex officio;

2.

Director or Deputy Secretary to the Government of India, Ministry of Commerce and Industry, Department of Commerce or his nominee not below the rank of Under Secretary to the Government of India

Member ex officio;

3.

Zonal Joint Director General of Foreign Trade having territorial jurisdiction over the Special Economic Zone

Member ex officio;

4.

Commissioner of Customs or Central Excise having territorial jurisdiction over the Special Economic Zone or his nominee not below the rank of Joint Commissioner

Member ex officio;

5.

Commissioner of Income Tax having territorial jurisdiction over the Special Economic Zone or his nominee not below the rank of Joint Commissioner

Member ex officio;

6.

Director (Banking) in the Ministry of Finance, Banking Division, Government of India

Member ex officio;

7.

Two officers, not below the rank of Joint Secretary, to be nominated by the State Government

Member ex officio;

8.

Representative of the Developer of the zone

Member ex officio;

AND, THEREFORE, the Central Government, in exercise of the powers conferred by sub-section (2) of section 53of the Special Economic Zones Act, 2005 (28 of 2005), hereby appoints the 30th day of March, 2016 as the date from which the above Special Economic Zone shall be deemed to be Inland Container Depot under section 7 of theCustoms Act, 1962 (52 of 1962).

[F. No. F.1/5/2015-SEZ]

Dr. GURUPRASAD MOHAPATRA, Jt. Secy.

Notification No. : 24/2016 Dated: 30-3-2016


Income-tax (9th Amendment) Rules, 2016 – 24/2016 – Dated 30-3-2016 – Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

[CENTRAL BOARD OF DIRECT TAXES]

NOTIFICATION NO. 24/2016

New Delhi, the 30th day of March, 2016

Income-tax

S.O. 1262(E).– In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (9th Amendment) Rules, 2016.

(2) They shall come into force with effect from the 1st day of April, 2016.

2. In the Income-tax rules, 1962,−

(1) in rule 12,−

(a) in sub-rule (1),-

(A) after the word, brackets, figure and letter “sub-section (4E)”, the words, brackets, figure and letter “or sub-section (4F)” shall be inserted;

(B) for the figures “2015”, the figures “2016” shall be substituted;

(C) in clause (ca), after the words “Hindu undivided family”, the words “or a firm, other than a limited liability partnership firm,” shall be inserted;

(D) in clause (g), after the word, brackets, figure and letter “sub-section (4E)”, the words, brackets, figure and letter “or sub-section (4F)” shall be inserted;

(b) in sub-rule (5), for the figures “2014”, the figures “2015” shall be substituted.

(2) in Appendix-II, for “Forms Sahaj (ITR-1), ITR-2, ITR-2A, ITR-3, Sugam (ITR-4S), ITR-4, ITR-5, ITR-6, ITR-7 and ITR-V”, the following forms shall respectively be substituted, namely:-

Sahaj (ITR-1)

ITR-2

ITR-2A

ITR-3

Sugam (ITR-4S)

ITR-4

ITR-5

ITR-6

ITR-7

ITR-V

[F.No.370142/2/2016-TPL]

(Ekta Jain)

Deputy Secretary to the Government of India

Note.- The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) vide notification number S.O.969(E), dated the 26th March, 1962 and last amended by the Income-tax (8th Amendment) Rules, 2016, vide notification number S.O. No.1206(E), dated 23rd March, 2016.

Notification No. : 21/2016 Dated: 30-3-2016


Point of Taxation (Second Amendment) Rules, 2016 – 21/2016 – Dated 30-3-2016 – Service Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

NOTIFICATION No. 21/2016-Service Tax

New Delhi, the 30th March, 2016

G.S.R. 370 (E).- In exercise of the powers conferred by clause (a) and clause (hhh) of subsection (2) of section 94of the Finance Act, 1994 (32 of 1994), the Central Government hereby makes the following rules further to amend the Point of Taxation Rules, 2011, namely :-

1. These rules may be called the Point of Taxation (Second Amendment) Rules, 2016.

2. In the Point of Taxation Rules, 2011, in rule 7, after second proviso, the following proviso shall be inserted, namely,–

“Provided also that where there is change in the liability or extent of liability of a person required to pay tax as recipient of service notified under sub-section (2) of section 68 of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice.”.

[F. No. B-1/4/2016-TRU]

(K. Kalimuthu)

Under Secretary to the Government of India

Note.- The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide notification No. 18/2011 – Service Tax, dated the 1st of March, 2011 vide number G.S.R. 175(E), dated the 1st of March, 2011 and was last amended vide notification No. 10/2016 – Service Tax dated 1st March, 2016 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 258(E), dated the 1stMarch, 2016.

FM Arun Jaitley launches ‘Make in India’ conference in Sydney : 30-03-2016


Finance Minister Arun Jaitley today launched ‘Make in India’ conference in Sydney and asked Australian businesses to be the part of India’s growth story.

India becomes the key focus of the world today and ‘Make in India’ is one of the key focuses of the government, Jaitley, who is in Sydney for two days, said.

“India could manage to become a very low cost service provider but failed to transform into a low cost manufacturing,” Jaitley said, adding that now there was an opportunity to do so.

“Indian government does feel that manufacturing sector does need to grow,” he said.

The Minister pinpointed that with People in agri sector moving out, there was a need to achieve the target of manufacturing sector to occupy the 25 per cent of India’s GDP.

Jaitley said that now is the time when ‘Make in India’ campaign can translate into actual activities.

He said despite global economic downturn, India had shown a great resilience.

“For two consecutive years, we are the fastest growing economy in the world. When we measure ourselves by our own standards, we believe that 7.5 per cent does not reflect our true potential,” Jaitley said.

India has to invest in its infrastructure in a bid to prepare a base for an economy of this huge size, he said.

“Manufacturing must occupy a space,” he said, adding that global investors must look at India.

The conference was launched in the presence of Australia’s Special Envoy for trade Andrew Robb, Indian High Commissioner Navdeep Suri, CII Director-General Chandrajit Banerjee, CII President Sumit Mazumder and NEW Parliament Secretary for Major Events and Tourism Jonathan O’Dea.

Earlier today, Jaitley called on Australian Foreign Minister Julie bishop.

Bishop described the meeting as “productive” and positive that comprised several bilateral issues between the two sides.

Jaitley indicated that India has been given a second chance to transform itself into manufacturing hub with ‘Make in India’ campaign launch.

Indian economy was doing well despite global downturns and if the global tailwinds become more supportive, India could perform even better, he said.

“Global investors must seriously look at in terms of investing in India,” Jaitley said, adding that India has also shown a great appetite for economic reforms.

“The constituency that supports economic reforms in India today are far more bigger than the one which obstructs it. India becoming an aspirational society has significantly increased,” he said.

Jaitley also cited the size of the market that India offered.

“Any market that occupies 1/6 of the global population, 35-40 per cent of them in middle class. Its purchasing power increasing by the day. Where else will you get a market of this size,” he said, adding that Indian federalism has evolved from being cooperative to competitive.

The Minister further assured the investors that tax system in India was also being gradually brought to global standards.

Speaking on the occasion, Australia’s former trade minister Andrew Robb said Australia had a lots to offer to India in terms of expertise.

“As a country, we are 80 per cent services. We can offer environment, power, design, energy, transport and other services,” Robb said.

Indian High Commissioner Navdeep Suri said the two sides had a strong strategic relationship.

Source : The Economic Times

PM Modi arrives in Belgium to attend India-EU Summit : 30-03-2016


Prime Minister Narendra Modi arrived here today for a hectic day-long visit during which he will attend the India-EU Summit and hold bilateral talks with his Belgian counterpart Charles Michel.

Though terror is expected to figure prominently both at the Summit and also in the bilateral talks in the wake of theBrussels suicide attacks last week, Modi will strive to advance India’s partnership with EU in priority areas such as ‘Make in India’ and ‘Smart Cities’.

“A red carpet at dawn. PM @narendramodi receives a warm welcome as he arrives in Brussels,” External Affairs Ministry Spokesperson Vikas Swarup tweeted soon after the Prime Minister’s arrival in the Belgian capital.

Modi’s visit comes days after the March 22 terror attack here in which at least 32 people were killed, including an Indian, Raghavendran Ganeshan, who was an Infosys employee from Bengaluru.

The 13th India-EU Summit is being held after a gap of four years. The last Summit was held in New Delhi in 2012 and negotiations remained deadlocked over several key issues.

Besides firming up India-EU counter-terror partnership, the Summit here is expected to evince interest in other projects like cleaning of Ganga on the lines of River Rhine and Danube.

EU is India’s biggest trading partner as a bloc with trade amounting to $126 billion and it is also India’s largest export destination with exports worth $65 billion. It is the largest source of FDI in India at $69 billion.

Soon after his arrival, Modi has a series of meetings lined up including one with indologists along with a meeting with members of the European Parliament and the Belgian Parliament.

On the eve of the Prime Minister’s visit, the EU said in a statement that “the Summit in Brussels will be an opportunity to re-launch relations and make concrete progress on areas of mutual interest, including trade and investment, energy, climate, water and migration.”

“India-EU Summit and strong economic & investment ties with Belgium will be on the agenda during my Brussels visit,” Modi had said before embarking on his visit.

He had hailed the “resilience and spirit” of its people in the wake of the horrific Brussels bombings and said India stands “shoulder-to-shoulder” with them.

From Brussels, Modi will leave for Washington to attend the Nuclear Security Summit on March 31 and April 1 and from there he will travel to Saudi Arabia on a two-day visit with a focus on boosting energy and security cooperation.

Source : PTI

Notification No. F. No. 17/45/2015-CL-V 29-3-2016


Companies (Auditor s Report) Order, 2016 – F. No. 17/45/2015-CL-V – Dated 29-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

ORDER

New Delhi, the 29th March, 2016

S.O. 1228(E).-In exercise of the powers conferred by sub-section (11) of section 143 of the Companies Act, 2013 (18 of 2013 ) and in supersession of the Companies (Auditor’s Report) Order, 2015 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (ii), vide number S.O. 990 (E), dated the 10th April, 2015, except as respects things done or omitted to be done before such supersession, the Central Government, after consultation with the, committee constituted under proviso to sub-section (11) of section 143 of the Companies Act, 2013 hereby makes the following Order, namely:-

1. Short title, application and commencement.- (1) This Order may be called the Companies (Auditor’s Report) Order, 2016.

(2) It shall apply to every company including a foreign company as defined in clause (42) of section 2 of theCompanies Act, 2013 (18 of 2013) [hereinafter referred to as the Companies Act], except–

(i) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(ii) an insurance company as defined under the Insurance Act,1938 (4 of 1938);

(iii) a company licensed to operate under section 8 of the Companies Act;

(iv) a One Person Company as defined under clause (62) of section 2 of the Companies Act and a small company as defined under clause (85) of section 2 of the Companies Act; and

(v) a private limited company, not being a subsidiary or holding company of a public company, having a paid up capital and reserves and surplus not more than rupees one crore as on the balance sheet date and which does not have total borrowings exceeding rupees one crore from any bank or financial institution at any point of time during the financial year and which does not have a total revenue as disclosed inScheduled III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding rupees ten crore during the financial year as per the financial statements.

2. Auditor’s report to contain matters specified in paragraphs 3 and 4. - Every report made by the auditor under section 143 of the Companies Act, 2013 on the accounts of every company audited by him, to which this Order applies, for the financial years commencing on or after 1st April, 2015, shall in addition, contain the matters specified in paragraphs 3 and 4, as may be applicable:

Provided the Order shall not apply to the auditor’s report on consolidated financial statements.

3. Matters to be included in the auditor’s report. - The auditor’s report on the accounts of a company to which this Order applies shall include a statement on the following matters, namely:-

(i) (a) whether the company is maintaining proper records showing full particulars, including quantitative details and situation of fixed assets;

(b) whether these fixed assets have been physically verified by the management at reasonable intervals; whether any material discrepancies were noticed on such verification and if so, whether the same have been properly dealt with in the books of account;

(c) whether the title deeds of immovable properties are held in the name of the company. If not, provide the details thereof;

(ii) whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account;

(iii) whether the company has granted any loans, secured or unsecured to companies, firms, Limited Liability Partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013. If so,

(a) whether the terms and conditions of the grant of such loans are not prejudicial to the company’s interest;

(b) whether the schedule of repayment of principal and payment of interest has been stipulated and whether the repayments or receipts are regular;

(c) if the amount is overdue, state the total amount overdue for more than ninety days, and whether reasonable steps have been taken by the company for recovery of the principal and interest;

(iv) in respect of loans, investments, guarantees, and security whether provisions of section 185 and 186 of theCompanies Act, 2013 have been complied with. If not, provide the details thereof.

(v) in case, the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act, 2013 and the rules framed thereunder, where applicable, have been complied with? If not, the nature of such contraventions be stated; If an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any court or any other tribunal, whether the same has been complied with or not?

(vi) whether maintenance of cost records has been specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013 and whether such accounts and records have been so made and maintained.

(vii) (a) whether the company is regular in depositing undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, cess and any other statutory dues to the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as on the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated;

(b) where dues of income tax or sales tax or service tax or duty of customs or duty of excise or value added tax have not been deposited on account of any dispute, then the amounts involved and the forum where dispute is pending shall be mentioned. (A mere representation to the concerned Department shall not be treated as a dispute).

(viii) whether the company has defaulted in repayment of loans or borrowing to a financial institution, bank, Government or dues to debenture holders? If yes, the period and the amount of default to be reported (in case of defaults to banks, financial institutions, and Government, lender wise details to be provided).

(ix) whether moneys raised by way of initial public offer or further public offer (including debt instruments) and term loans were applied for the purposes for which those are raised. If not, the details together with delays or default and subsequent rectification, if any, as may be applicable, be reported;

(x) whether any fraud by the company or any fraud on the Company by its officers or employees has been noticed or reported during the year; If yes, the nature and the amount involved is to be indicated;

(xi) whether managerial remuneration has been paid or provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Companies Act? If not, state the amount involved and steps taken by the company for securing refund of the same;

(xii) whether the Nidhi Company has complied with the Net Owned Funds to Deposits in the ratio of 1: 20 to meet out the liability and whether the Nidhi Company is maintaining ten per cent unencumbered term deposits as specified in the Nidhi Rules, 2014 to meet out the liability;

(xiii) whether all transactions with the related parties are in compliance with sections 177 and 188 of Companies Act, 2013 where applicable and the details have been disclosed in the Financial Statements etc., as required by the applicable accounting standards;

(xiv) whether the company has made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year under review and if so, as to whether the requirement of section 42 of theCompanies Act, 2013 have been complied with and the amount raised have been used for the purposes for which the funds were raised. If not, provide the details in respect of the amount involved and nature of non-compliance;

(xv) whether the company has entered into any non-cash transactions with directors or persons connected with him and if so, whether the provisions of section 192 of Companies Act, 2013 have been complied with;

(xvi) whether the company is required to be registered under section 45-IA of the Reserve Bank of India Act, 1934 and if so, whether the registration has been obtained.

4. Reasons to be stated for unfavourable or qualified answers.- (1) Where, in the auditor’s report, the answer to any of the questions referred to in paragraph 3 is unfavourable or qualified, the auditor’s report shall also state the basis for such unfavourable or qualified answer, as the case may be.

(2) Where the auditor is unable to express any opinion on any specified matter, his report shall indicate such fact together with the reasons as to why it is not possible for him to give his opinion on the same.

[F. No. 17/45/2015-CL-V]

AMARDEEP SINGH BHATIA, Jt. Secy.

Notification No. F. No. 17/45/2015-CL-V 29-3-2016


Companies (Removal of Difficulties) First Order, 2016 – F. No. 17/45/2015-CL-V – Dated 29-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

ORDER

New Delhi, the 29th March, 2016

S.O.1226(E).–Whereas the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the said Act) received the assent of the President on 29th August, 2013 and section 1 thereof came into force on the same date;

And, whereas, the provisions contained in section 143 of the said Act which provides for powers and duties of auditors and auditing standards has come into force on the 1st April, 2014;

And, whereas, sub-section (11) of section 143 of the said Act provides that the Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein;

And, whereas, section 132 of the said Act, which provides for constitution, functions etc., of the National Financial Reporting Authority and the National Financial Reporting Appellate Authority, has not been brought into force and it may take some time to bring said section into force;

And, whereas, the National Advisory Committee on Accounting Standards, constituted under section 210A of theCompanies Act, 1956 (1 of 1956) provides for advising the Central Government on the formulation and laying down of accounting policies and accounting standards for adoption by companies or class of companies;

And, whereas, sub-section (4A) of section 227 of the Companies Act, 1956 (1 of 1956), which corresponds to sub-section (11) of section 143 of the Companies Act, 2013, (18 of 2013) provides that the Central Government may consult the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), while issuing order directing that in case of specified class or description of companies the auditor’s report shall include a statement on additional matters as specified in the order;

And, whereas, the Central Government constituted a Committee chaired by the Joint Secretary or Regional Director, Ministry of Corporate Affairs and representatives from the Institute of Chartered Accountants of India and Industry Chambers and National Advisory Committee on Accounting Standards, Chairman and representative from the Office of the Comptroller and Auditor-General, as special invitees to hold consultation required under sub-section (11) of section 143 of the Companies Act, 2013;

And, whereas, the Central Government, on the basis of recommendations of the said Committee, has issued theCompanies (Auditor’s Report) Order, 2015 on 10th April, 2015 for financial year 2015-16 vide notification number S.O.990 (E) dated the 10th April, 2015 published in the Gazette of India, Extraordinary, Part-II, Section 3, Sub-section (ii) and proposes to issue similar Order to be applicable from the financial year 2015-16 onwards;

And, whereas, difficulties have arisen regarding compliance with the provisions of sub-section (11) of section 143, in so far as they relate to consultation with National Financial Reporting Authority till the period it is duly constituted under section 132 of the Companies Act, 2013;

Now, therefore, in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following Order to remove the above said difficulties, namely:-

1. Short title and commencement.- (1) This Order may be called the Companies (Removal of Difficulties) Order, 2016.

(2) It shall be deemed to have come into force from the 10th April, 2015.

2. In the Companies Act, 2013, in section 143, in sub-section (ii) [Sic 11], the following proviso shall be inserted, namely:-

“Provided that until the National Financial Reporting Authority is constituted under section 132, the Central Government may hold consultation required under this sub-section with the Committee chaired by an officer of the rank of Joint Secretary or equivalent in the Ministry of Corporate Affairs and the Committee shall have the representatives from the Institute of Chartered Accountants of India and Industry Chambers and also special invitees from the National Advisory Committee on Accounting Standards and the office of the Comptroller and Auditor-General”.

[F. No. 17/45/2015-CL-V]

AMARDEEP SINGH BHATIA, Jt. Secy.

Notification No. F. No. 17/45/2015-CL-V 29-3-2016


Companies (Removal of Difficulties) Second Order, 2016 – F. No. 17/45/2015-CL-V – Dated 29-3-2016 – Companies Law

MINISTRY OF CORPORATE AFFAIRS

ORDER

New Delhi, the 29th March, 2016

S.O. 1227(E). – Whereas, the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the said Act) received the assent of the President on 29th August, 2013 and section 1 thereof came into force on the same date;

And, whereas, section 133 provides that the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by the National Financial Reporting Authority;

And, whereas, section 133 of the said Act, has come into force with effect from 12th September, 2013;

And, whereas, section 132 of the said Act, which provides for constitution, functions etc. of the National Financial Reporting Authority and National Financial Reporting Appellate Authority, has not been brought into force and it may take some time to bring said section into force;

And, whereas, the National Advisory Committee on Accounting Standards, constituted under section 210A of theCompanies Act, 1956 provides for advising the Central Government on the formulation and laying down of accounting policies and accounting standards for adoption by companies or class of companies;

And, whereas, sub-section (3C) of section 211 of the Companies Act, 1956 (1 of 1956) which corresponds tosection 133 of the Companies Act, 2013 (18 of 2013) provides that the expression “accounting standards” means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949), as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub-section (1) of section 210A;

And, whereas, difficulties have arisen regarding compliance with the provisions of section 133 in so far as they relate to consultation with National Financial Reporting Authority till the period it is duly constituted under section 132 of the said Act;

And, whereas, on the basis of the recommendations of the National Advisory Committee on Accounting Standards, the Central Government issued the Companies (Indian Accounting Standards) Rules, 2015 with effect from 1st April, 2015 vide notification number G.S.R. 111(E) dated the 16th February, 2015 published in the Gazette in India, Extraordinary, Part-II, Section 3, Sub-section (i) dated the 19th February, 2015;

Now, therefore, in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following Order to remove the above said difficulties, namely:-

1. Short title and commencement.- (1) This Order may be called the Companies (Removal of Difficulties) Second Order, 2016.

(2) It shall be deemed to have come into force from the 1st April, 2015.

2. In section 133 of the Companies Act, 2013 (herein after referred to as the said Act), the following proviso shall be  inserted, namely:-

“Provided that until the National Financial Reporting Authority is constituted under section 132 of the Companies Act, 2013 (18 of 2013), the Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949 (38 of 1949), in consultation with and after examination of the recommendations made by National Advisory Committee on Accounting Standards constituted under section 210 A of the Companies Act, 1956”.

[F. No. 17/45/2015-CL-V]

AMARDEEP SINGH BHATIA, Jt. Secy.

Notification No. F. No. 01/04/2013 CL-V (part-II) 29-3-2016


Companies (Share Capital and Debentures) Second Amendment Rules, 2016 – where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days – F. No. 01/04/2013 CL-V (part-II) – Dated 29-3-2016 – Companies Law

 

Government of India

MINISTRY OF CORPORATE AFFAIRS

Notification

New Delhi, 29th March 2016

G.S.R 358 (E). - In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Share Capital and Debentures) Rules, 2014, namely:

1.  (1) These rules may be called the Companies (Share Capital and Debentures) Second Amendment Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Companies (Share Capital and Debentures) Rules, 2014, in rule 17, after sub-rule (5), the following proviso shall he inserted, namely:-

“Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than fifteen days.”

[F. No. 01/04/2013 CL-V (part-II)]

Amardeep Singh Bhatia, Jt. Secy.

Note:- The principal rules were published in the Gazette of India, Extraordinary, Part II, Section 3, sub-section (i) vide number G.S.R. 265(E), dated 31st March, 2014 and subsequently amended vide notifications as detailed below:-

Sl. No.

Notification number

Date

1.

G.S.R. 413 (E)

18.06.2014

2.

G.S.R. 210 (E)

18.03.2015

3.

G.S.R. 439 (E)

29. 05. 2015

4.

G.S.R. 841 (E)

06.11. 2015

5.

G.S.R. 290 (E)

10.03.2016

Notification No. : 23/2016 Dated: 29-3-2016


Section 10(46) of the Income-tax Act, 1961 Central Government notifies Maharashtra State Board of Technical Education for dealing with specified income – 23/2016 – Dated 29-3-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION NO. 23/2016

New Delhi, the 29th March, 2016

S.O. 1251(E).-In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the Maharashtra State Board of Technical Education, a Board constituted under the Maharashtra State Board of Technical Education Act, 1997, of the Government of Maharashtra, in respect of the following specified income arising to that Board, namely:-

(a) fees, fines and penalties;

(b) receipts from Printed Educational Material;

(c) receipts from Scrap or Waste paper;

(d) receipts from other Government Bodies;

(e) interest income from surplus funds kept in bank accounts and fixed deposits;

(f) rent received from let out of properties;

(g) royalty or License fees for providing technical knowledge and infrastructure;

(h) dividend earned from Maharashtra Knowledge Corporation Ltd;

(i) capital gains, if any, from disposal of assets as per Government financial guideline and rules of Government of Maharashtra.

2. This notification shall be effective subject to the following conditions, namely:-

(a) that the Maharashtra State Board of Technical Education shall not engage in any commercial activity;

(b) that the activities and the nature of the specified income of the Maharashtra State Board of Technical Education remain unchanged throughout the financial years; and

(c) that the Maharashtra State Board of Technical Education shall file return of income in accordance with the provision of clause (g) of sub-section (4C) section 139 of the Income-tax Act, 1961.

3. This notification shall be deemed to have been applied for the financial year 2014-2015 and shall be applicable for the financial years 2015-2016, 2016-2017, 2017-2018 and 2018-2019.

[F.No.196/13/2015-ITA-I]

DEEPSHIKHA SHARMA, Director

No. 191/01/2016 Dated: 29-3-2016


Extension of e-payment deadline and of banking hours – Dated 29-3-2016 – Service Tax

Circular No 191/01/2016 – Service Tax

F. No. 137/155/2012-Service Tax (Pt-II)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs

Service Tax Wing

New Delhi, the 29th March 2016

To

The Principal Chief Commissioners/Chief Commissioners of Central Excise and Service Tax (All),

The Director General of Audit,

The Director General of Systems & Data Management,

The Director General of Central Excise Intelligence,

The Commissioners of Service Tax (Audit) (All)

The Commissioners of Central Excise (Audit) (All)

Subject: Extension of e-payment deadline and of banking hours

Madam/Sir,

The Reserve Bank of India has issued instructions vide notification RBI/2015-16/342 dated March 17, 2016 wherein it has been decided that all agency banks shall keep the counters of their designated branches conducting government business open for full day on March 30, 2016, and till 8.00 p.m. on March 31, 2016. All electronic transactions would, however, continue till midnight of March 31, 2016.

2.  Thus the assessees can make e-payment till the mid night of March 31, 2016.

3.  It is requested that the trade notice may be issued to publicize the extended e-payment hours as well as the extended banking hours.

Yours faithfully,

(Rajeev Yadav)

Director (Service Tax)

F.NO.287/30/2015-IT (INV.II)-VOL-III – 29-3-2016


U/s 147/148 of IT Act 1961 Uploading of Information Related to Penny Stock (Suspected Long Term Capital Gains/Short Term Capital Loss) In Respect of Assessees for Consideration for Appropriate Actions – Circular – Dated 29-3-2016 – Income Tax

LETTER F.NO.287/30/2015-IT (INV.II)-VOL-III

DATED 29-3-2016

Kind attention is invited to the EFS Instruction Nos. 53 dated 8-3-2016 & 54 dated 21-3-2016 of Directorate of Income Tax (Systems) and CBDT’s letter F.No. 287/30/2015-IT (Inv.II)-Vol-III, dated 16-3-2016 regarding handling cases of Penny Stock.

2. In continuation of the above, it is hereby informed that the list of cases related to penny stock transactions, pertaining to AY 2009-10 to AY 2013-14 with P1 and P2 priority, has now been made available under Actionable Information Monitoring System (AIMS). Detailed instruction in this regard (EFS Instruction No. 54, dated 21-3-2016) has been issued by Directorate of Income Tax (Systems) to all the Pr. CCsIT (CCA) and CIT (Computer Operations & Admn).

3. It may be brought to the notice of all concerned for necessary action under section 147/148 of the Income-tax Act, 1961, depending upon facts of each case.

4. This issues with the approval of Member (Inv), CBDT.

DY/ITRA/C&AG/235 – 29-3-2016


Floor limits of tax effect for individual draft paragraphs relating to transfer pricing – Order-Instruction – Dated 29-3-2016 – Income Tax

Office of The Comptroller and Auditor General of India

10, Bahadur Shah Zafar Marg, New Delhi

DY/ITRA/C&AG/235

Dated 29/03/2016

To

1.    The Director General of Audit (Central Receipts), New Delhi

2.    The Director General of Audit, Central, Kolkata

3.    Principal Director of Audit, Central, Ahmedabad, Bengaluru, Chandigarh, Chennai, Hyderabad, Lucknow and Mumbai

Subject : Floor limits of tax effect for individual draft paragraphs relating to transfer pricing

Sir/Madam,

Please refer to this office letter no. 560/RA(DT)/122-3008/Coordn/ dated 18 May 2012 regarding floor limits of tax effect of individual draft paragraphs.

2.    We have included a separate Chapter relating to Transfer Pricing in the Compliance Audit Report for the year 2014-15 (No. 3 of 2016). We expect that every year substantial number of Transfer Pricing cases would be processed. Since Audit points out short/excess adjustment done by Transfer Pricing Officers, it has, therefore, been decided to fix the following limits of short/excess adjustment by TPO for Compliance Audit Report 2015-16 and onwards :

TP cases Category ‘A’ States Category ‘B’ States
Corporate assessee ₹ 2 crore ₹ 1 crore
Non-corporate assesse ₹ 1 crore ₹ 50 lakh

3. It is therefore requested to send all TP cases in the above limits. It is also requested that all TP cases alongwith complete key documents may also be uploaded through OMNIDOCS systems only.

Yours faithfully,

(R.B. Sinha)

Director General (Direct Taxes)

Resolved various legacy issues, moving to 25% corporate tax rate: FM Arun Jaitley : 29-03-2016


Finance Minister Arun Jaitley today said the Indian government has resolved various legacy issues with regard to taxation and is gradually working to bring down the corporate tax rates to the global level at 25 per cent from 30 per cent currently.

Finance Minister Arun Jaitley today said the Indian government has resolved various legacy issues with regard to taxation and is gradually working to bring down the corporate tax rates to the global level at 25 per cent from 30 per cent currently.

Speaking on the theme of ‘Reimagining the Indian economy’ at the SP Jain Institute of Global Management here, Jaitley expressed confidence that the long-pending Goods and Services Tax (GST) would get the approval of Parliament soon.

The minister further said that India achieved over 7.5 per cent growth rate despite global headwinds and the effort of the government would be to improve it further by promoting ease of doing business and attracting more foreign investment and preventing domestic investors from going abroad.

“One of the more important areas had been to bring India’s taxation system compatible with global standards. Therefore, we are now working on direct tax systems where we want to put the disputes behind us.

“We want people to clean up their tax issues. And therefore, in this Budget I have also suggested various windows of clearing up pending disputes,” Jaitley said.

He said the government is working to bring down India’s corporate tax rates gradually to a fair international level which will involve “no discretion, no rent-seeking exemption, phasing all of them out gradually and then bringing taxation rate to a flat 25 per cent”.

The Budget 2016-17 has provided for dispute resolution windows under which companies facing tax demands, which are stuck at various stages, can pay principal and interest or penalty and put an end to it.

As regards companies facing tax demands out of retrospective amendments, the Budget has provided a scheme under which interest and penalty has been waived off and firms can pay only the principal tax demand and settle the dispute.

On Goods and Services Tax (GST), Jaitley said one uniform common tax for whole of India, which converts the country into one big market and allows transfer of goods and services to take place across this large market, is pending before Parliament.

“I am quite certain and we are reasonably moving towards a situation where we should be sooner than later be able to clear this… in Parliament,” he said.

The indirect tax reform GST is stuck in the Rajya Sabha where the ruling NDA does not have a majority. Congress has been seeking three changes in the bill, including a constitutional cap on GST rate.

The GST bill is likely to come up for discussion in the second leg of Budget session beginning April 25.

Among the challenges that India is facing, Jaitley highlighted the problem of stretched private sector and twin balance sheet of companies and PSU banks. “We are addressing that by recapitalising the banks, addressing the sectors which have caused stress”.

“Despite a global slowdown we have managed to maintain 7.5 per cent growth rate. All our parameters… the Current Account Deficit… are very acceptable figures.

“I am reasonably certain (that) as the global push to the economy slightly improves, hopefully we have a better monsoon, and therefore these figures could look even better in the days to come,” Jaitley said.

He added that the government has opened up various sectors, including insurance and railways, and has also removed unnecessary conditionality which was slowing down FDI.

“This, probably, in greenfield projects, has made India one of the most sought after destination as far as FDI is concerned,” Jaitley said, adding that the government is taking steps to ease process of doing business by promising stability and predictability of policy, cutting short the time between decision of setting up business and actual implementation and easy and fewer approvals.

“There is a greater realisation that in a competitive world, it is not only attracting international investors but (also) domestic investors that is necessary and for that you have to easen business processes. That is an important work that is still in progress in India,” he said.

The minister said India has been moving forward in eliminating corruption in decision-making regarding projects and environment and FIPB clearances.

“Corruption dissuades people from investment, it adds to cost of investment, and I think it is an important milestone where India seems to be moving forward (in eliminating corruption)…

“With regard to allocation of natural resources and other government largesses, discretion have now completely been eliminated and everything is to be done by policy through market mechanism or bidding system which is transparent. A lot of laws have been straightened up,” Jaitley said.

Source : The Financial Express

GAAR still remains an irritant for FIIs, doubts persist over FII structure : 29-03-2016


MUMBAI: Anxiety still prevails among foreign institutional investors (FIIs) with regard to the General Anti Avoidance Rule (GAAR), which will come into effect from April 1, 2017. While the draft rules may have cleared the air over retrospective taxation and treatment of Participatory Notes ( P-notes), lawyers said doubts still persist around issues pertaining to the FII structure and their tax treatment in India.

There is confusion over how tax authorities will determine “commercial substance” to consider FII eligibility for claiming treaty benefit and also what “commercial substance” will be considered sufficient for this purpose. Will the substance once established be sufficient or will it have to be justified every year? There’s a belief that lack of clarity over this could lead to uncertainty.

FIIs are still awaiting clarity on what constitutes commercial substance and if it will be spelt out as clearly as it is in the Indo-Singapore treaty.

In Singapore, tax benefits are given to foreign investors considering the substance of the entity and not merely a conduit or shell company.

“The government should avoid any element of surprise over GAAR and issue guidelines in advance with regard to various rules involving commercial structure, onus and other powers that the taxmen will have under the new law,” said Rajesh Simhan, partner with Nishith Desai Associates. “Issuance of clear rules in advance could give more time to FIIs to prepare and take a conscious call.”

Any transaction that seemingly is structured to avoid tax will come under GAAR. Also, since the onus of establishing the intent to avoid tax is with the tax authorities, a lot of discretionary powers continue to be vested with the taxmen. This is an issue that is causing further discomfort.

Source : PTI

Utility for e-filing Service Tax Return for Oct,15 to Mar,16 : 28-03-2016


Utility for e-filing Service Tax Return (ST-3) for the period October, 2015 – March, 2016 is now available in both offline and online version. The last date of filing the ST-3 return for the said period is 25th April, 2016. To avoid congestion and inconvenience in the last minute, all assesses are requested to file their ST-3 return for the said period immediately and not to wait till the last date. The assesses can file return either online or use the offline utility by downloading the latest version from acesdownload.nic.in or from ‘DOWNLOADS’ Section of ACES website.

In case of any difficulty in accessing the ACES Application or in filing the ST-3 returns, the assesses can seek help of the ACES Service Desk by sending e-mail to aces.servicedesk@icegate.gov.in or calling up National Toll-free number 1800 425 4251. In general, the Service Desk functions on any working day from Monday to Friday between 9 AM and 7 PM & on Saturdays between 9 AM to 2.30 PM. But to help the assesses file their returns, it will remain open from 9 AM and 7 PM on all Saturdays in the month of April, 2016 and on last Sunday i.e.24-04-2016.In addition, the Service Desk will also remain open from 9AM to 7PM on the two Holidays falling on 15.04.2016 and 20.04.2016.

Source : The Hindu

When does an exemption notification becomes effective ? : 28-03-2016


Sec 5A (5) of the Central Excise Act, 1944 deal with provisions regarding effective date of a notification. It states as under:

(5) Every notification issued under sub-section (1) or sub-section (2A) shall,—

(a) unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette;

b) also be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations, Customs and Central Excise, New Delhi, under the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963).

Clearly, the notification will come into effect on the day specified in the notification, if any, else it will come into effect on the date of its issue by the Central Government for publication in the Official Gazette.

Suppose a tariff notification is issued by the government with no effective date and thus as per the aforesaid provision, the notification is effective on the same day. It presupposes that the entire day removal of goods is to be effected at the new tariff rate. However, till the time the notification is not available in the public domain, how the clearances made prior to the event will be made at new tariff rates is a puzzling question for the manufacturers. Will the department allow refund of excise duty in event of decline of tariff rates? Similar provisions exist in Custom laws.

It is significant here to look into the Hon’ble Supreme Court judgment in case of M/s Param Industries Ltd in 2015. The apex court held that

though the notification may have been published on the date when the goods were cleared, it was not offered for sale by the concerned Board, which event took place much thereafter. Therefore, it was not justified and lawful on the part of the Department to claim the differential amount of duty on the basis of said notification.”

The issue in the case was that the custom tariff was raised but the notification on the same was offered for sale at much later date. The courts held that for bringing the notification into force and make it effective, two conditions are mandatory, viz., (1) Notification should be duly published in the official gazette, (2) it should be offered for sale on the date of its issue by the Directorate of Publicity and Public Relations of the Board, New Delhi. In the present case, admittedly, second condition was not satisfied inasmuch as it was offered for sale only on 06.08.2001, as it was published on 03.08.2001 in late evening hours and 04/05.08.2001 were holidays.

Clearly, the court judgment came as a big relief to the assesses as it was to avoid unnecessary litigation with the department. The government however decided to amend the law and overruled the apex court judgement. Clause 139 of the Finance Bill, 2016 seeks to amend Section 5A so as to omit the requirement of  publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC.

The assesses are once again struck in the dilemma and the government is having the last laugh.

Extract of Clause 139 of the Finance Bill, 2016

Clause 139 of the Bill seeks to amend section 5A of the Central Excise Act so as to substitute sub-section (5) to provide that every notification issued under sub-section (1) or sub-section (2A) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette. It is further proposed to omit sub-section (6) thereof.

Extract of Amendment Proposed in Section 5A of  Central Excise Act, 1944 vide Finance Bill ,2016

139. In the Central Excise Act, 1944 (hereinafter referred to as the Central Excise Act), in section 5A,––

(i) for sub-section (5), the following sub-section shall be substituted, namely:––

“(5) Every notification issued under sub-section (1) or sub-section (2A) shall, unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette.”;

(ii) sub-section (6) shall be omitted.

Source : PTI

 

Sebi mulls new price discovery method for commodity spots : 28-03-2016


The Securities and Exchange Board of India (Sebi) is mulling the idea of introducing a new price discovery mechanism for the spot market, to ensure fairer pricing. An advisory committee of the market regulator is thinking of a price polling mechanism for all commodities and their derivatives, based on quality and quantity. A decision is likely at a meeting scheduled for the first week of April, said a senior official of Sebi. “The agri commodities market space is poorly managed as traders quote different prices. Commodity exchanges (comexes) are pushing the idea of uniform prices, similar to the prevailing derivatives market prices,” he said. Under the current mechanism, prices are collated from a number of physical market participants at various centres. The final settlement price is a part of the contract specification of the commodity. “There is lack of transparency in the current mechanism. There are many participants with vested interest. For any derivative contract, it is necessary to have a linkage between the derivative price and underlying spot prices,” said a Sebi source. The move was discussed at the first meeting of the Commodity Derivatives Market Advisory Committee in the first week of this month. Representatives from Sebi, commodity exchange officials and of the Agricultural and Processed Food Products Export Development Authority had met to discuss revamp of the entire pooling mechanism in comexes. “The main concern of the commodity space is that crop quality is not predictable. The new framework would ensure better accountability. Sebi has to keep a close watch on the physical markets to reduce difference between the polled and the actual spot price,” said Ajay Kedia, managing director, Kedia Commodities. – www.business-standard.com

 

Source : Business Standard

The Company e-Forms have been revised on MCA portal effective 27th March 2016. You are advised to download the latest version of forms from ‘Company Forms Download’ page on the MCA portal. The previous version of Company e-forms will not be compatible with the new MCA21 portal. The existing Company Forms have been revised.


Company e-Form

‘Google tax’ looms large: Marketing spend might go up : 25-03-2016


The government’s plan to expand the scope of equalisation levy proposed in the Union Budget, seeking to bring more transactions in the digital economy under the tax net, has left many e-commerce players fuming.

While many are still trying to understand the implications of the proposed guideline, dubbed the ‘Google tax’, some internet-led businesses have come out and said that it will impact their marketing budgets. That, in turn, could push up prices of products sold online, thereby making e-commerce less attractive without the regular discounts. Experts have also hinted at the possibility of litigations over the interpretation of how the ‘Google tax’ will be executed.

“Our cost of doing business in India just went up. An e-commerce company has to spend as much as 75 per cent of its investments on online advertisements,” said Sandeep Aggarwal, founder and chief executive of Droom.

He added the attractiveness of global social media and marketing giants such as Google, Twitter and Facebook have just gone down with this rule. “A company might just go to a smaller online marketing company, which is ready to undercut the taxes, maybe share it, which global companies might not do. This will come as a deterrent for advertising on major portals,” he added.

Although there are fears that the ambit of equalisation levy might be expanded over the years to include downloading of songs, movies and books, online consumption of news, software downloads, among other things, experts said clarity on these issues was needed before jumping to a conclusion.

“We need to go through the notification first before jumping the gun. There is a need for more clarity on a variety of issues. Also, the government is doing what is being done in many other countries,” said a senior official from industry body Nasscom.

This levy is India’s attempt to tax the digital economy in a non-adversarial manner and at the same time demonstrate its commitment to the global Base Erosion and Profit Shifting (BEPS) project and to raise more revenues for the country, said Amarjeet Singh, partner – tax at KPMG in India. “However, the manner in which the levy has been imposed might get tested in Indian courts.”

While there are fears that the brunt of the taxes would be finally borne by the end user or the consumer of these services, some e-commerce companies believe that restricting the levy to business-to-business (B2B) customers would curtail that.

“Equalisation levy is a step towards providing a level-playing field for Indian tech companies providing online services. By restricting the levy to B2B, direct consumer impact is limited. The Budget speech had spoken about online advertising services – by making the ambit broader, ambiguity is substantially lower,” said Kiran Vasireddy, senior vice-president at Paytm.

According to experts, the equalisation levy introduced by Finance Minister Arun Jaitley in the Budget is based on a considered view taken by the Committee on Taxation of E-commerce appointed by the Central Board of Direct Taxes, which consisted of members from Department of Revenue, industry representatives and select international tax experts.

“The recommendation given by the Committee was based on extensive reliance on final report (issued in September 2015) relating to Action 1 of BEPS project. The adoption of EL (equalisation levy) as a mode of taxing the digital economy in India was considered to be the simplest option as it shall entail only amendment to the domestic tax law against any other option where there was a requirement to renegotiate or amend existing DTAs (double taxation agreements). At the same time, the format of EL also ensured that the companies and payments being subjected to such levy are exempted from tax compliances in India,” said KPMG’s Singh.

Source : PTI

Inclusion of Interest Income in the Return of Income filed by Persons liable to Pay Tax : 25-03-2016


Information regarding interest earned by individuals and business entities on term deposit is filed with the Income Tax Department by banks including co-operative banks and other financial institutions and State treasuries etc. Form 26AS reflects only those payments on which tax has been deducted and it can be viewed by the individual tax payer by logging in towww.incometaxindiaefiling.gov.in. The information about interest payments without deduction of tax is also filed by the payer with the Department.

Central Board of Direct Taxes(CBDT) hereby informs the persons earning interest income that interest credited/received on deposits is taxable unless exempt under Section 10 of the Income-tax Act. Such interest income should be shown in the return of income even in cases where Form 15G/15H has been filed if the earning is not exempt under Section 10 of the Income-tax Act and the total income of the person exceeds the maximum amount not chargeable to tax.

Tax payers are advised to collect correct details of interest received or credited and

·         file their return of income for assessment year 2014-15 (if not filed already) on or before 31.03.2016 in case their total income exceeds the maximum amount not chargeable to tax.

·         revise their return of income for assessment year 2014-15/2015-16 if the return already filed does not include taxable interest income.

·         file return of income for assessment year 2015-16, if  not filed so far by including taxable interest income if any, on or before 31.03.2016 and avoid penalty u/s 271F.

For more details, you may contact your Assessing Officer or Toll free number 1800-180-1961.

Demurrer application challenging maintainability of oppression plea on basis of new question of law to be heard first : 25-03-2016


CL: Where issue of maintainability of main petition under section 397/398 involved mixed question of law and facts and demurrer application had been filed after said petition had been admitted and directions had been issued to file reply/rejoinder therein, demurrer application was to be heard and decided first at time of hearing main petition

■■■

[2016] 67 taxmann.com 226 (CLB – Kolkata)

COMPANY LAW BOARD, KOLKATA BENCH

Jain Link (P.) Ltd., In re

DHAN RAJ, MEMBER

C.A. NO. 1366 OF 2015
C.P. NO. 151 OF 2015

OCTOBER  8, 2015

Section 241, read with sections 242 and 244 of the Companies Act, 2013/Sections 397, read with sections398399402 and 403, of the Companies Act, 1956 – Oppression and mismanagement – Petitioners filed a company petition under section 397/398 (main petition) alleging acts of oppression and mis-management in affairs of respondent-company – Said main petition was admitted and accordingly respondents were allowed time to file reply and petitioners were granted time to file rejoinder – During time interval granted for filing reply in main petition respondents moved a company application challenging maintainability of petition – Thus, when main petition was again listed for hearing, company application was also listed alongwith it and further time was granted to file reply in main petition – Whether since issue of maintainability of main petition involved mixed question of law and facts, in interest of justice, demurrer application was to be heard and decided first based on applicable provisions of Companies Act, 1956/2013 and facts contained in company petition and reply and rejoinder thereto – Held, yes [Para 5.2]

FACTS

 

The petitioners filed a company petition alleging acts of oppression and mis-management in the affairs of the respondent-Company, which was pending for adjudication.
The respondents stated that in an earlier proceeding in connection with the respondent-Company, the petitioners, on the self same cause of action, had filed a Company Application seeking addition of the petitioners as parties, but in a period of four years, the petitioners could not establish themselves as shareholders of the respondent-Company and accordingly, the application was dismissed. Consequently, based on the aforesaid facts and also, on other grounds including suppression of material facts amounting to fraud, the respondents moved a Company Application, inter alia, praying for dismissal of the main company petition and also, stay of further proceedings in the main company petition till the disposal of the company application.
The Board had fixed the main company petition along with the company application for hearing and also, directions were given for filing of the reply in the main company petition.
In the meantime, the respondents moved an application recalling an order passed by this Board and praying for stay of the operation of the order and also, to hear and dispose of the abovementioned company application independently and without directing the filing of reply affidavit in the main company petition.
The petitioners contended that as such, this Board had the jurisdiction to hear out the application for dismissal as a preliminary issue before entering into the merits of the matter. Further, the petitioners having requested for extension of time to file the reply in the main company petition, it was now not open to the respondents to contend that they need not file reply to the main company petition.
The respondents however averred that a judicial forum does not have the jurisdiction to direct filing of pleadings in a company petition while considering a demurrer Application or an application for dismissal of the company petition. Moreover, the direction for filing of the reply/rejoinder in the main company petition was without jurisdiction and without any basis and was non-est in the eyes of law.

HELD

 

It is observed that the company petition is a composite petition under sections 397, 398, 399, 402, 403 & 406 of the Companies Act, 1956 as well as sections 58 & 59 of the Companies Act, 2013. Therefore, the issue of maintainability of the company petition entails the mixed question of law under section 399 of the Companies Act, 1956 and the facts as to the ‘Nil’ shareholding of the petitioners and hence, it is imperative that all the relevant facts as to the allegations contained in the company petition should be placed by the respondents in the reply to company petition and also, by the petitioners in the rejoinder. In this context, the ratio of the judgment in the case of T.K. Lathika v. Seth Karsandas Jamnadas [1999] 6 SCC 632 is fully agreeable which states that the Court is to decide the point of ‘maintainability’ of the petition and only if the point is found in the affirmative, the merits need to be gone into. However, this does not imply that the order passed by the Court for completion of the pleadings in the form of reply and rejoinder well before filing the demurrer application, will not be complied with especially when there is involvement of question of law and facts. [Para 5]
Under the aforesaid facts and circumstances, it is clear beyond doubt that there was no company application challenging the maintainability of the main company petition on 7-7-2015 and hence, after hearing the submissions/arguments of the petitioners as well as the respondents, the respondents were allowed 3 weeks’ time to file the reply and rejoinder was to be filed by the petitioners within 2 weeks from the date of receipt of the reply. Again, on 17-8-2015, when the matter was heard, an application challenging the maintainability was also moved and in the matter of main company petition, no issue/objection was raised as to the filing of the reply. Therefore, at the request of the respondents, further 10 days’ time was allowed to file the reply and rejoinder was to be filed within 3 days from the date of receipt of the reply. In view of this, the respondents are required to ensure compliance of the orders dated 7-7-2015 and 17-8-2015 in letter and spirit. Moreover, the petitioners have levelled the allegation that the respondent No. l company has illegally showed the shareholding of the petitioners as ‘Nil‘. Thus, there was no demurrer application on 7-7-2015 and hence, there was no question of consideration of issue of maintainability especially in view of the pleading of the petitioners that the respondent No. l Company has illegally showed the shareholding of the petitioners as ‘Nil‘. However, on 17-8-2015, the company application challenging the maintainability of the main company petition was also mentioned, After hearing the submissions on the said C.A., the petitioners were allowed one week time to file the reply and rejoinder was to be filed within one week from the date of receipt of the reply. In addition, both main company petition and the company application were listed for hearing on 8-9-2015. But, in the mean time, the present company application was mentioned on 3-9-2015 and on the same day, submissions/arguments were completed by the respondents as well as the petitioners. [Para 5.1]
In the present case, as stated above, the issue of maintainability involves the mixed question of law and facts. Therefore, in the interest of justice, the prayers made in the instant company application are partly allowed to the extent that the demurrer application be heard and decided first and for this purpose, the respondents are directed to file the reply to the company petition within 3 weeks and rejoinder, if any, be filed by the petitioners within 2 weeks from the date of receipt of the reply so as to consider the demurrer application first based on the applicable provisions of the Companies Act, 1956/2013 and the facts contained in the company petition, reply to the company petition and rejoinder thereto. [Para 5.2]
Company application is disposed of accordingly. [Para 6]

CASES REFERRED TO

 

Waverly Jute Mills v. Raymon & Co. AIR 1963 SC 90 (para 4), T.K. Lathika v. Seth Karsandas Jamnadas [1999] 6 SCC 632 (para 4.1), Universal Paper Mills Ltd. v. Dharam Godha [2011] 3 Cal. LT 190 (para 4.1), Saleem Bhai v. State of Maharashtra [2003] 1 SCC 557 (para 4.1) and Sushil Kumar Mehta v. Gobind Ram Bohra [1990] 1 SCC 193 (para 4.1).

Shaunak MitraNikunj Berlia, Advocates, Pramit Kr. Ray, Sr. Adv., Aditya Kanodia and Anshumala Bansal, Advocates for the Appearing Parties.

ORDER

 

1. In this case, the Petitioners filed a Company Petition being C.P. No. 151/2015 under Sections 397, 398, 399, 402, 403 & 406 of the Companies Act, 1956 and Sections 58 & 59 of the Companies Act, 2013, alleging the acts of oppression and mis-management in the affairs of the Respondent Company, which is pending for adjudication. In the meantime, the Respondents Advocate moved an Company Application bearing C.A. No. 1366/2015, praying for stay of the operation of the Order dated 17.08.2015 passed by this Hon’ble Board by recalling the said Order dated 17.08.2015 and also, to hear and dispose of the C.A. No. 1231/2015 independently and without directing the filing of reply affidavit in the main Company Petition being C.P. No.151/2015. Precisely speaking, the Respondents/Applicants Advocate submitted that by an Order dated 17.08.2015, this Hon’ble Board has fixed the C.A. No. 1231/2015 along with the main Company Petition for hearing and also, directions were given for filing of the reply in the main Company Petition. It has also been averred that in an earlier proceeding being C.P. No. 686/2010 in connection with the Respondent Company, the Petitioners/Non-Applicants, on the self same cause of action, had filed a Company Application being C.A. No.46/2011 seeking addition of the Petitioners/Non-Applicants as parties, but in a period of four years, the Petitioners/Non-Applicants could not establish themselves as shareholders of the Respondent Company and accordingly, the C.A. No. 46/2011 was dismissed. Consequently, based on the aforesaid facts and also, on other grounds including suppression of material facts amounting to fraud, the Respondents/Applicants moved a Company Application being C.A. No. 1231/2015, inter alia, praying for dismissal of the main Company Petition being C.P. No. 151/2015 and also, stay of further proceedings in the main Company Petition till the disposal of C.A. No.1231/2015.

1.1 Further, it has been submitted that it is settled law that when an issue as to the maintainability of a Petition is raised, the same should be decided first without going into the merits of the matter. Also, the question regarding the jurisdiction of a Court has to be decided first and not at the time of hearing of the matter on merits. It has also been contended that as the Respondents/Applicants has filed a Company Application being CA. No. 1231/2015 praying for dismissal of the main Company Petition, inter alia, challenging the jurisdiction of this Hon’ble Board to entertain the Petitioners who do not qualify under Section 399 of the Companies Act, 1956, the filing of reply by the contesting party is irrelevant and unnecessary. Therefore, no Order should be passed directing filing of reply-affidavit on the main Company Petition before deciding an application for dismissal since such application is to be decided without looking into the averments in the written statement and any direction for filing of written statement is not sustainable in law. As such, this Hon’ble Board has the jurisdiction to hear out the application for dismissal as a preliminary issue before entering into the merits of the matter.

2. As recorded in the Order dated 03.09.2015, the Petitioners/Non-Applicants Advocate stated that he does not wish to file any reply in CA. No. 1366/2015 and hence, no rejoinder was required to be filed by the Respondents/Applicants Advocate.

3. The Petitioners/Non-Applicants Advocate argued that the Order dated 17.08.2015 was passed in presence of both the parties and when an Order is passed in presence of both the parties, the same cannot be recalled since recalling is only for ex parte Orders, as in Order IX Rule 13 of the CPC. Also, it has been recorded in the Order dated 17.08.2015 that the Respondents (Applicants herein) have requested for extension of time to file the reply in the main Company Petition. Therefore, having requested for extension of time to file the reply in the main Company Petition, it is now not open to the Respondents (Applicants herein) to contend that they need not file reply to the main Company Petition. In addition, the issue as to whether the reply to the Company Petition has to be filed or not, has become irrelevant since the last chance to file such reply has also come to an end, even before filing of the instant Company Application. Therefore, the Respondents (Applicants herein) do not have any right to file reply and nothing surfaced in this Application which has become infructuous. In fact, the intention of the Respondents (Applicants herein) is to delay the hearing of the main matter.

4. The Respondents/Applicants Advocate, while reiterating the averments made in the instant Company Application, has averred that a judicial forum does not have the jurisdiction to direct filing of pleadings in a Company Petition while considering a demurrer Application or an Application for dismissal of the Company Petition. Such being the position, the directions given for filing of the reply in the main Company Petition are wholly without jurisdiction which cannot be cured by the appearance of the parties in the proceedings, even if that is without protest because it is well settled that consent cannot confer jurisdiction Waverly Jute Mills v. Raymon & Co. AIR 1963 SC 90 (5 Bench). Further, as none of the Petitioners/Non-Applicants is the members of the Respondent Company, the question of the Company Law Board exercising any jurisdiction to give directions for filing of affidavits in the main Company Petition does not and cannot arise particularly at the stage when the Company Application being CA. No. 1231/2015 is pending consideration. As such, the direction for filing of the Reply/Rejoinder in the main Company Petition is without jurisdiction and without any basis and is non-est in the eyes of law. In addition, as suit can be filed as a matter of right vide Section 9 of CPC and at the threshold, the plaintiff does not have to plead and prove locus standi. However, the provisions of Section 399 of the Act mandate pleading and proof regarding the locus standi of the Petitioner to maintain an Application under Section 397/398 of the Act. As such, the onus on the part of the Petitioners in C.P. No. 151/2015 is more than that of an ordinary plaintiff. Besides, the Petitioners in C.P. No. 151/2015 could not show any principle of law to the contrary.

4.1 The Respondents/Applicants Advocate, in support of his submissions, has relied on the following decisions of the Hon’ble Courts:—

(a) T.K. Lathika v. Seth Karsandas Jamnadas [1999] 6 SCC 632, to state that the Court is to first decide the point of “maintainability” of the Petition and only if the point is found in the affirmative, the merits need to be gone into.
(b) Universal Paper Mills Ltd. v. Dharam Godha [2011] 3 Cal. LT 190, to state that the view of the Hon’ble High Court at Calcutta is binding upon the Company Law Board, Kolkata Bench to decide on the issue raised in the demurrer application without going into the merits of the matter.
(c) Saleem Bhai v. State of Maharashtra [2003] 1 SCC 557, wherein the Hon’ble Supreme Court has held “while deciding an Application under Order VII Rule 11 of the Code of Civil Procedure, direction given by the Court to file Written Statement is not in accordance with law.
(d) Sushil Kumar Mehta v. Cobind Ram Bohra [1990] 1 SCC 193, to state “Parties cannot by agreement give the Court jurisdiction which the legislature has enacted otherwise.” As such, the arguments on the part of the Petitioners/Non-Applicants that the Applicants in C.A. No. 1231/2015 are estopped from raising the point raised in the instant C.A. which was taken up for hearing, is without any substance and/or basis.

5. Having considered the Company Application and also, the submissions (oral and written) of the Advocates of the rival parties, it is observed that the Company Petition is a composite petition under Sections 397, 398, 399, 402, 403 & 406 of the Companies Act, 1956 as well as Sections 58 & 59 of the Companies Act, 2013. Therefore, the issue of maintainability of the Company Petition entails the mixed question of law under Section 399 of the Companies Act, 1956 and the facts as to the “Nil” shareholding of the Petitioners and hence, it is imperative that all the relevant facts as to the allegations contained in the Company Petition should be placed by the Respondent’s Advocate in the reply to Company Petition and also, by the Petitioners Advocate in the rejoinder. In this context, I am in full agreement with the ratio of the judgment in the case ofT.K. Lathika (supra), which states that the Court is to decide the point of “maintainability” of the Petition and only if the point is found in the affirmative, the merits need to be gone into. However, this does not imply that the Order passed by the Court for completion of the pleadings in the form of reply and rejoinder well before filing the Demurrer Application, will not be complied with especially when there is involvement of question of law and facts.

5.1 Under the aforesaid facts and circumstances, it is clear beyond doubt that there was no Company Application challenging the maintainability of the main Company Petition on 07.07.2015 and hence, after hearing the submissions/arguments of the Petitioners Advocate as well as the Respondents Advocate, the Respondents Advocate was allowed 3 weeks’ time to file the reply and rejoinder was to be filed by the Petitioners Advocate within 2 weeks from the date of receipt of the reply. Again, on 17.08.2015, when the matter was heard, C.A. No. 1231/2015 challenging the maintainability was also moved and in the matter of main Company Petition, no issue/objection was raised as to the filing of the reply. Therefore, at the request of the Respondents Advocate, further 10 days’ time was allowed to file the reply and rejoinder was to be filed within 3 days from the date of receipt of the reply. In view of this, the Respondents Advocate is required to ensure compliance of the Orders dated 07.07.2015 and 17.08.2015 in letter and spirit. Moreover, the Petitioners Advocate has levelled the allegation that the Respondent No. l Company has illegally showed the shareholding of the Petitioners as “Nil”. Thus, there was no demurrer application on 07.07,2015 and hence, there was no question of consideration of issue of maintainability especially in view of the pleading of the Petitioners Advocate that the Respondent No. l Company has illegally showed the shareholding of the Petitioners as “Nil”. However, on 17.08.2015, the Company Application being C.A. No. 1231/2015 challenging the maintainability of the main Company Petition was also mentioned. After hearing the submissions on the said C.A., the Petitioners/Non-Applicants Advocate was allowed one week time to file the reply and rejoinder was to be filed within one week from the date of receipt of the reply. In addition, both main Company Petition and C.A. No. 1231/2015 were listed for hearing on 08.09.2015. But, in the meantime, the present C.A. No. 1366/2015 was mentioned on 03.09.2015 and on the same day, submissions/arguments were completed by the Respondents/Applicants Advocate as well as the Petitioners/Non-Applicants Advocate.

5.2 In the present case, as stated above, the issue of maintainability involves the mixed question of law and facts. Therefore, in the interest of justice, the prayers made in the instant Company Application are partly allowed to the extent that the demurrer application be heard and decided first and for this purpose, the Respondents Advocate is hereby directed to file the reply to the Company Petition within 3 weeks and rejoinder, if any, be filed by the Petitioners Advocate within 2 weeks from the date of receipt of the reply so as to consider the demurrer application first based on the applicable provisions of the Companies Act, 1956/2013 and the facts contained in the Company Petition, reply to the Company Petition and rejoinder thereto.

6. C.A. No. 1366/2015 is disposed of accordingly.

7. No Order as to costs.

8. List the matter for hearing on 18.11.2015 at 10.30 a.m. Accordingly, the matter listed for hearing on 13.10.2015 at 10.30 a.m., stands cancelled.

DA hiked by 6 per cent, to benefit 1 crore government staff, pensioners : 24-03-2016


On the eve of Holi festival, the government today hiked dearness allowance (DA) by 6 per cent, benefiting over 1 crore central government employees and pensioners.

The hike, which will cost the exchequer an additional Rs 14,724.74 crore annually, will take effect from January 1, 2016, Telecom Minister Ravi Shankar Prasad told reporters after the meeting of the Union Cabinet which took the decision.

The burden on exchequer would be Rs 6,795.5 core towards central government employees and Rs 7,929.24 crore towards pensioners during 2016-17, he said.

The DA, which will benefit, 50 lakh central government employees and 58 lakh pensioners, will go up from the existing 119 per cent to 125 per cent.

Dearness allowance is paid as a portion of basic pay of employees to neutralise the impact of inflation. Pensioners get dearness relief.

The central government revises DA twice in a year on the basis of one year average of retail inflation for industrial workers as per a pre-determined formula.

In September last year, DA was increased to 119 per cent from 113 per cent with effect from July 1, 2015.

In April last year, the government had hiked DA by 6 percentage points to 113 per cent of the basic pay with effect from January 1, 2015.

Source : PTI

RBI revises liquidity measuring rules for Basel III : 24-03-2016


The Reserve Bank has revised certain rules on measuring liquidity for Basel-III norms, providing exemption to branches of foreign banks from submitting statement with regard to foreign currency.

In view of developments since the issue of circulars regarding Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards, feedback received from the stakeholders and experience gained, it has been decided to amend certain provisions of these guidelines, RBI said in a notification.

The revision also includes asking banks to exclude certain loans backed by deposits from liquidity coverage ratio calculations.

As branches of foreign banks do not hold any foreign currency, they are exempted from submitting this statement with effect from the date of this circular, the revised guidelines said.

All banks in India, including branches of foreign banks are required to report this on a monthly basis, going by the existing norms.

The revised guidelines comes into effect from February 1, 2016.

Source : Business Standard

‘Customs not justified in asking for CVD plus 4% special duty’ : 24-03-2016


We refer to the notification 12/2016-CE dated March 1, 2016 that amends S. No. 144 of the notification no. 12/2012-CE dated March 17, 2012 so as to fully exempt excise duty on ready mix concrete (RMC) manufactured at construction sites for use in construction at such sites. Can we remove part of the RMC manufactured at one site to another site on duty payment?

The explanation to that S. No. 144 says, “for the purpose of this entry, the expression ‘site’ means any premises made available for the manufacture of goods by way of a specific mention in the contract or agreement for such construction work, provided that the goods manufactured at such premises are solely used in the said construction work only.”

So, it appears that unless the entire production of RMC manufactured at site is used solely at the site, the exemption will be denied even for RMC used at the site. So it is better to avoid removal of any RMC manufactured at one site to another site, even on duty payment. It is better to seek clarification on this matter.

On re-import of exported goods, we have claimed exemption under notification 94/96-Cus dated December 16, 1996. Since we had not claimed any export benefits except clearance of goods without excise duty payment under UT-1, we have sought clearance of the goods on payment of excise duty not paid as per S. No. 1 (d) of the Table annexed to that notification. Are thecustoms justified in asking us to pay CVD at the current excise duty rate and also ask for four per cent special additional duty on that?

The notification exempts so much of the duty of customs leviable thereon which is specified in the said First Schedule, the additional duty leviable thereon under section 3 of the said Customs Tariff Act and special duty of customs leviable under sub-section (1) of section 68 of the Finance (No. 2) Act, 1996 (33 of 1996), as is in excess of the amount indicated in the corresponding entry in column (3) of the said Table.

Since the said Column (3) of S. No. 1(d) in the Table mentions only ‘amount of Central Excise duty not paid’, you need not pay anything more. I see no justification for customs to demand CVD at the current excise duty rate or ask for four per cent special additional duty on that.

We have obtained an EPCG authorisation for import of our capital goods but we want to procure the item from a domestic manufacturer. We have got an invalidation letter issued in his favour so that he can obtain an advance authorisation to import his inputs duty free. Can we now get the capital goods from him without excise duty payment?

No. There is no exemption notification to enable supply of capital goods to EPCG authorisation holders without payment of excise duty. However, refund of excise duty paid on the capital goods can be claimed under deemed export provisions either by the supplier or recipient of the capital goods.

Source : Business Standard

Notification No. F. No. A-42011/03/2016-Ad.II 23-3-2016


Notification for CRC phase-2 Incorporation – F. No. A-42011/03/2016-Ad.II – Dated 23-3-2016 – Companies Law

GOVERNMENT OF INDIA

MINISTRY OF CORPORATE AFFAIRS

Notification

New Delhi, 23rd March, 2016

S.O. (E) - In exercise of the powers conferred by sub-sections (1) and(2) of section 396 of the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the Act), the Central Registration Centre (herein after referred to CRC) established vide notification number. S.O. 218(E) dated 22nd  January 2016 shall also exercise functional jurisdiction of processing and disposal of e-forms and all related matters  pertaining to registration of companies under section 7, 8 and 366 of the Companies Act, 2013 having territorial jurisdiction all over India.

2. The CRC shall process forms pertaining to registration of companies i.e. e-forms (INC-2, INC-7 and INC-29 along with linked forms INC-22, DIR-12 and URC-1 and any other forms as may be notified by the Central Government) filed along with the prescribed fee as provided in the Companies (Registration of Offices and Fees) Rules, 2014.

3. The jurisdiction, processing and approval of name or names proposed in e-Form number INC-29 hitherto exercised by the respective Registrar of companies having  jurisdiction over incorporation of companies under theCompanies Act, 2013 and the rules made thereunder shall forthwith be exercised by Registrar, CRC.

4. The jurisdictional Registrar of companies, other than Registrar CRC, within whose jurisdiction the registered office of the company is situated shall continue to have jurisdiction over the companies incorporated by the Registrar, CRC under the Companies Act,  2013  for all other provisions of the Act and the rules made thereunder, which may be relevant after incorporation.

5. This notification shall come into force from 28th March, 2016.

[F. No. A-42011/03/2016-Ad.II]

(Manoj Kumar)

Joint Secretary to the Govt. of India

Notification No. F. No. 01/13/2013 CL-V(Pt-I) 23-3-2016


Companies (Incorporation) Second Amendment Rules, 2016 – F. No. 01/13/2013 CL-V(Pt-I) – Dated 23-3-2016 – Companies Law

Government of India

Ministry of Corporate Affairs

NOTIFICATION

New Delhi, 23rd March, 2016

G.S.R. .-In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules further to amend the Companies (Incorporation) Rules, 2014, namely:-

1.    (1) These rules may be called the Companies (Incorporation) Second Amendment Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2.   In the Companies (Incorporation) Rules, 2014, in the Annexure, for Form No. INC-11, the following form shall be substituted, namely:-

“Form No.INC-11

GOVERNMENT OF INDIA

MINISTRY OF CORPORATE AFFAIRS

Central Registration Centre

Certificate of Incorporation

[Pursuant to sub-section (2) of section 7 of the Companies Act, 2013 and rule 8 the Companies (Incorporation) Rules, 2014]

I hereby certify that <name of the company> is incorporated on this (i.e. FIRST, SECOND etc.) day of <Month of approval of work item in words> two thousand <YEAR of approval of work item in words> under the Companies Act. 2013  and that the company is <limited by shares/limited by guarantee/unlimited company>.

The CIN of the company is <CIN>.

Given under my hand at < Name of the city where the RoC  Office is located > this < Date of approval of the work item in words (i.e FIRST, SECOND etc.)> day of< Month of approval of the work item in words > <YEAR of approval of the work item in words

DSC

<Full name of the Authorising officer approving the work-item>

<Assistant Registrar of Companies/ Deputy Registrar of Companies/ Registrar of Companies>

For and on behalf of the Jurisdictional Registrar of Companies

Registrar of Companies

Central Registration Centre

Mailing Address as per the records available in Registrar of Companies office:

< Name of the company >

< Address of the correspondence/registered office of the company >”.

[F. No. 01/13/2013 CL-V(Pt-I)]

Amardeep Singh Bhatia, Joint Secretary

Note: The principal notification was published in the Gazette of India, Part II, Section 3, Sub-section (i) vide number G.S.R. 250(E) dated 31th March, 2014 and subsequently amended vide the following notifications:-

Serial Number

Notification Number Notification Date

1.

G.S.R. 349 (E) 01-05-2015

2.

G.S.R. 442 (E) 29-05-2015

3.

G.S.R.    99 (E) 22-01-2016

 

Notification No. : 21/2016 Dated: 23-03-2016


Income-tax (8th Amendment) Rules, 2016 – 21/2016 – Dated 23-3-2016 – Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

[CENTRAL BOARD OF DIRECT TAXES]

NOTIFICATION No. 21/2016

New Delhi, the 23rd March, 2016

INCOME-TAX

S.O. 1206 (E).- In Exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1.   (1) These rules may be called the Income-tax (8th Amendment) Rules, 2016.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, in rule 17C, after clause (viii), the following clause shall be inserted, namely:-

“(ix) Investment in “Stock Certificate” as defined in clause (c) of paragraph 2 of the Sovereign Gold Bonds Scheme, 2015, published in the Official Gazette vide notification number G.S.R. 827(E), dated the 30th October, 2015.”.

[F. No. 142/1/2016-TPL]

(R Lakshmi Narayanan)

Under Secretary (Tax Policy and Legislation)

Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (ii) vide number S.O. 969 (E) dated the 26th March, 1962 and last amended vide notification number S.O. 1155 (E) dated 18th March, 2016.

As March 31 tax-saving deadline nears, few options to choose from : 23-03-2016


It is just over ten days left to accomplish investments for claiming maximum tax exemption for the financial year 2015-16. Every tax assessee plans his/her investments and spreads it out across various instruments specified under section 80C of the Income Tax Act, 1961 (80C investments) to avail maximum tax benefit. The overall total limit for deduction under this section is Rs 1.5 Lakhs. This amount can be claimed irrespective of the assesse is an employee or self-employed.

Section 80C allows certain investments to be tax-exempt. It also allows tax exemption on incurring certain expenditure like principal amount of home loan, education fee for children. Deduction u/s 80C is available only to Individual or a Hindu Undivided Family (HUF).

If you haven’t yet made the investment for tax-saving purposes and are wondering where to invest your savings, there are a lot of options under the Income Tax Act. Below are some of the key investments/expenditure which qualify for the deduction under section 80C which you can choose from before March 31:

Provident Fund (PF) & Voluntary Provident Fund (VPF): PF is deducted from your salary. There are two portions of contributions: employer’s and employee’s. Portion of Employer’s contribution is exempt from tax, whereas employee’s contribution is counted towards 80C investments. An additional amount can also be contributed voluntarily (VPF). Interest on PF is exempt from tax.

Public Provident Fund (PPF): Deposit in PPF is limited to Rs 1.5 lakhs. One can deposit in PPF and count towards section 80C investments. Interest on PPF is exempt from tax.

Life Insurance Premiums: Life insurance premium paid for yourself, your spouse or your children is covered under this deduction. Premiums paid for more than one policies are eligible for counting under this section.

Equity Linked Savings Scheme (ELSS): Some mutual fund (MF) schemes are especially created for offering tax savings, and these are called Equity Linked Savings Scheme, or ELSS.

National Savings Certificate (NSC) (VIII Issue): Investment in NSC instrument is eligible for section 80C tax benefit. NSC is a time-tested tax saving instrument with a maturity period of five and ten years. The accrued interest which is deemed to be reinvested qualifies for deduction under Section 80C. However, the interest income is chargeable to tax in the year in which it accrues.

Fixed Deposit with Scheduled Bank: Tax-saving fixed deposits (FDs) of scheduled banks with tenure of 5 years are also entitled for section 80C deduction.

5-Yr post office time deposit (POTD) scheme: POTDs are similar to bank fixed deposits. Although available for varying time duration like one year, two years, three years and five years, only 5-Yr post-office time deposit (POTD) qualifies for tax saving under section 80C. The Interest is entirely taxable.

NABARD rural bonds: There are two types of bonds issued by NABARD (National Bank for Agriculture and Rural Development): NABARD Rural Bonds and Bhavishya Nirman Bonds (BNB). Out of these two, only NABARD Rural Bonds qualify under section 80C.

Unit linked Insurance Plan: ULIP stands for Unit linked Saving Schemes. ULIPs cover Life insurance with benefits of equity investments.

Infrastructure Bonds: The investment in infrastructure bonds issued by the infrastructure companies is eligible for deduction under Section 80C.

Pension Funds: Section 80CCC investment limit is clubbed with the limit of Section 80C – it means that the total deduction available for 80CCC and 80C is Rs. 1.50 Lakh. This also means that your investment in pension funds uptoRs. 1.50 Lakh can be claimed as deduction u/s 80CCC.

Loan Principal Repayment: The equated monthly instalment (EMI) is made to home loan consists of two components – principal and interest. The principal component of the EMI qualifies for deduction under Sec 80C, whereas the interest component is eligible for tax savings under section 24 of the Income Tax Act.

Stamp Duty and Registration Charges for a home: Stamp duty paid for buying a house is deductible expense under section 80C in the year of purchase of the house.

Sukanya Samriddhi Account: This scheme is a special deposit scheme launched last year for maximum two girl child. The money to be deposited is for 14 years in this account.Interest earned on this account is exempt from tax.

National Pension Scheme (NPS):Beyond the investments allowed under section 80C, section 80CCD(1A)and section 80CCE allows further deduction of contribution towards New Pension Scheme (NPS). This contribution is available in two portions: employee and employer.

Employee contribution in NPS: Eligible for tax deduction of up to 10% of salary or 10% of total gross income under section 80CCD(1A), within the limit of Rs 1.5 lakhs mentioned above.

Eligible for additional tax deduction of upto Rs. 50,000 under section 80CCD(1B) over and above limit of Rs. 1.5 lakhs.

Employer contribution in NPS: Eligible for tax deduction of upto 10% of salary under section 80CCD(2) without any upper cap.

It is the best time when investments can still be made and avail tax benefit for the financial year 2015-16 if not done so far.

Source :

Report of the Committee on Taxation to Examine the Business Models for E-Commerce : 23-03-2016


Report of the Committee on Taxation to Examine the Business Models for E-Commerce
A Committee on Taxation of e-commerce was constituted by the Central Board of Direct Taxes to examine the business models for e-commerce, identify the direct tax issues in relation to e-commerce transactions and suggest an approach to deal with these issues. The Committee included officers of the Central Board of Direct Taxes, representatives from the industry, the Institute of Chartered Accountants of India and tax experts. The Report of the Committee was received by the Government and taken into consideration in the preparation of Finance Bill, 2016. This Report provides the view of the Committee on issues related to taxation of e-commerce and recent international developments in this area.The Report is available on the website of the Income Tax Department

Source : PTI

Companies Bill: Layering restrictions on investment cos’ removed : 23-03-2016


 

India Inc has cause for cheer as the new Companies Bill has gone the whole hog to remove the restrictions around structuring of companies, giving them complete flexibility in designing efficient structures.

Both the existing layering restriction on investment companies and the one preventing certain class of companies from having more than the specified number of subsidiaries are proposed to be done away with.

Enabling provisions to this effect form part of the Companies (amendment) Bill 2016 introduced by Finance Minister Arun Jaitley in Lok Sabha last Wednesday (March 16).

The Companies Act 2013 had stipulated that a company can make investment through not more than two layers of investment companies.

The proposal to remove such restrictions should be seen as part of the government’s effort to improve the ease of doing business in India, say corporate law experts.

““These are welcome proposals in the new Bill. It would give freedom to companies to design and structure investments”, Lalit Kumar, Partner, J Sagar Associates, a law firm, said.

S.N.Ananthasubramanian, former President of the Company Secretaries Institute and advisor to several banks, said that work around tactics of compliance is sought to be tackled through a laissez faire approach.

“Read with steps to allow companies to have unrestricted object clause, this move seeks to significantly enhance the ease of doing business in the country”, Ananthasubramanian told BusinessLine.

Panel report

The government’s plan to do away with layering restrictions essentially flows out of the recommendations of the 10-member Companies Law Committee, which proposed 100 amendments to the existing company law enacted in 2013 by the UPA government.

In its report, submitted in late January this year, the committee had suggested that the layering restriction on investment companies be done away with. It had noted that there may be several legitimate business justifications for use of a multi-layered structure and such restriction hampers the ability of a company to structure its business.

It also felt that layering restrictions may become too obtrusive and impractical in the modern business world. Regulatory concerns arising out of earlier scams were also noted.

The committee said that sufficient safeguards have been built into the oversight mechanism of market regulator SEBI and stock exchanges, and the recommendations on Beneficial Ownership register requirements should dispel the regulatory concerns.

In India, most large corporate empires are controlled through ingeniously constructed pyramid of ownership, where the percentage of equity investments in the holding company is generally very small.

Companies Act 2013

The Companies Act 2013 was not the first instance when the government sought to rein in on any form of multi-tiered investment structures.

Even in 2003 — during the term of the earlier NDA regime, the Government had attempted to restrict the number of investment companies that could be floated by promoters. However, this did not see the light of the day.

Out of the 470-odd sections of the new Companies Act 2013, the Government has already notified 283 for implementation.

After the constitution of the National Company Law Tribunal and National Company Law Appellate Tribunal, most of the remaining 186 sections of the Company Law will be brought into force, sources said.

Source : The Hindu

 

Is VPF a good way to save for your retirement? : 22-03-2016


Madan Menon is a middle-aged government employee who is not too aware about investment products available today. However, he saves diligently, contributing as much as possible to his provident fund. He wants to invest the proceeds in post office saving schemes when he retires. He has been systematically increasing his contribution to the Voluntary Provident Fund (VPF) every year. Is he doing the right thing?

VPF is a contribution made by an employee towards the provident fund corpus, with no matching contribution from the employer. Since the amount is automatically deducted from the salary, it cultivates disciplined investing. The investment earns a fixed interest each year, as declared by the government, and the contributions are eligible for deduction under Section 80C of the Income Tax Act, up to a maximum of Rs 1.5 lakh each year.

The primary limitation here is Menon will not end up with a very sizeable corpus at retirement, having invested all his money in a fixed-interest paying instrument. To deal with inflation after he retires, he will need a large corpus, and the best way to build it is to use his earning years well. Over time, investments in assets such as equity mutual funds can grow much larger. Given his preference for safe investments, it is all the more important that he gives his corpus a chance to grow.

By starting an SIP in a diversified equity fund, and mandating his bank to deduct the amount on a specific date each month, he not only gets into the saving habit, but also give his money the chance to grow faster. Together with his PF contribution, this is a good way for Menon to invest in both a safe fixed income product and a long-term growth oriented product. Menon should keep in mind that the rules for withdrawal, loans and taxation for PF also apply to his VPF contributions. These  may be modified by the government, as proposed in Budget 2016-17 (and then rolled back), which would put him at the risk of ending up with all his investment eggs in one basket. Some diversification would therefore serve him well over the long term.
Source : Economic times

 

Amendment to Rule 6(3) of CCR involving ‘exempted services’ – a dangerous development : 22-03-2016


Taxindiaonlinelogo-jpg

By S Sivakumar, LL.B., FCA, FCS, ACSI, MBA, Advocate

WITH effect from 1-4-2016, in Rule 6 of the CCR, 2004, Sub-rules (2), (3), (3A) and (3B) have been substituted, in terms of which, a manufacturer/provider of taxable and exempted services shall pay an amount equal to 6%/7 % of the value of the exempted services subject to a maximum of the total credit available in the account of the assessee at the end of the period to which the payment relates, or pay an amount as determined under the new sub-rule (3A). The new rule has laid down the formula in terms of which, the portion of the common credit attributable to the exempted services would have to be reversed…but about this highly complicated formula requiring arithmetical skills to understand, later..

The newly inserted Explanation 3 reads as under:

“For the purposes of this rule, exempted services as defined in clause (l) of rule 2 shall include an activity, which is not a ‘service’ as defined in section 65B(44) of the Finance Act, 1994.”

This explanation is very dangerously worded, inasmuch as, any activity that is not treated as a ‘service’ under Section 65B(44) of the Finance Act, 1994 will be treated as an exempted service for the purpose Rule 6(3) and consequently, the quantum of the common credit attributable to exempted services that would need to be reversed, would go up significantly.

A reading of this new Explanation 3 would suggest that, activities such as sale of immovable property, interest income, income from actionable claims, etc. which are specifically mentioned in the exclusive part of the definition of ‘service’ under Section 65B(44) of the Finance Act, 1994 would get treated as exempted services. Thus, for a real estate developer, the activities involving receipt of interest income, proceeds from sale of immovable property, etc. would get treated as exempted services and the quantum of credit that would need to be reversed under Rule 6(3) would go up substantially.

Be that as it may…the new Explanation 3, as it is worded, also could lead to certain absurd situations wherein, even a pure sale transaction could get treated as an exempted service.Thus, if a manufacturer sells one of its office buildings, the sale proceeds could be treated as ‘exempted services’ necessitating a reversal of the common credit.

As it stands, even the sale of goods could get treated as exempted services, as the activity of sales can be treated as an activity, which is not a service. Taking the example of a car manufacturer who sells cars and also renders repair services of cars sold, the value of the cars sold, being an activity, could be treated as exempted services, resulting in a larger component of the common credit being required to be reversed.

Taking this discussion forward…. In the case of a works contractor, who is treated as a seller of goods as also a provided of services (to the extent of the ‘service’ portion of the works contract), the sale portion in respect of which, VAT is paid, could get treated as ‘exempted services’ for the purpose of Rule 6(3)

As TIOL readers can see…the new explanation is dangerously worded and could result in a significant increase in the quantum of the common credit to be reversed under Rule 6(3). Industry Associations would do well to ask for this new definition of ‘exempted services’ for the limited purpose of Rule 6(3) to be scrapped. One is not able to understand the rationale for this development, except to satisfy the sadistic pleasure of some Babus sitting in North Block.

If the Department interprets this new definition of exempted services to include sale value of goods, etc., it should be prepared to face litigation including issues challenging the constitutional validity of this new development, as in my strong view, the service tax law cannot get into issues concerning sale of goods, immovable property, etc.

Of course, sub-rule (3B) continues to give the benefit to banks and financial institutions to have the option of paying, on a monthly basis, an amount equal to 50% of the credit availed on inputs and input services in that month.

Before concluding….

One benefit flowing out of the substituted Rule 6(3)/(3A) is that, the default rule would be the reversal of the proportionate common credit, if the manufacturer/service provided does not intimate the Department of his choice as to whether he would want to go under the reversal route of elect to pay 6%/7% of the value of exempted services. In the current system, the Department has been insisting that the manufacturer/service provider should pay service tax at the percentages specified under sub-rule (3A), in case he has not intimated the Department of his choice. Further, under the substituted rule, it is clearly mentioned that the credit attributable to taxable services would not form part of the common credit necessitating the reversal process. This has been effected probably to get over the effect arising out of the Mumbai CESTAT decision in THYSSENKRUPP INDUSTRIES (I) PVT LTD Vs COMMISSIONER OF CENTRAL XCISE, PUNE reported in 2014-TIOL-1825-CESTAT-MUM, wherein, the Tribunal had held that, the credit that would need to be considered for reversal under Rule 6(3A) would be the total credit and not the common credit, in the absence of an amendment to the statute. The Government has rightly responded, in what could be termed as an industry friendly move.

Till now, many assessees have been taking the view than an activity that cannot be considered a service in the first place, cannot also be considered as an exempted service, for purposes of reversal of common credit. This view can no longer hold.

Even the current version of Rule 6(3) has been so confusing that many Audit Teams have thought it fit not to look into the reversal of common credit. The new formula read with the amended definition of ‘exempted services’ is bound to confuse matters further. In my view,the onus would be on the Department to prove that, some credit of inputs and/or input services has been used for providing the activities that would now be covered under the amended definition of ‘exempted services’ and without this, the assessee can take a justifiable stand that, he is not required to reverse the proportionate credit.

As a Chartered Accountant, I found it difficult to understand the new formula, even after several rounds of reading. It is anybody’s guess as to how the hapless assessee would understand the new law relating to reversal of common credit attributable to exempted services.

These developments do not augur well for a Government that keeps talking of ‘ease of doing business’.

Lastly…. we must bear in mind that the new sub-rules have been ‘substituted’ with effect from 1-4-2016. As students of law, we know that the effect of a substitution is that, it changes the law from the time the relevant provisions have been in the statute. Thus, can the Department seek to apply the new definition of ‘exempted services’, vis-à-vis Rules 6(3)/(3A) for the periods earlier to 1-4-2016? The assessee can always fight these attempts by taking the view that, being a retrograde provision seriously affecting the rights of the assessee, the provision cannot be retrospectively applied. Of course, the assessee can also take the view that the other positive effects arising out of the Rule including the default option being the reversal of the common credit, have to be retrospectively applied, being beneficial provisions.

Cannot all the bright minds in the TRU come together and carve out a simple yet practical rule 6 of CCR?

EFS INSTRUCTION NO. 55 – 22-3-2016


U/s 276CC of Income Tax Act 1961 – Identify the potential cases for prosecution – Order-Instruction – Dated 22-3-2016 – Income Tax

EFS INSTRUCTION NO.55

DATED 22-3-2016

As per Central Action Plan 2015-16, Systems Directorate was directed to identify the potential cases for prosecution under section 276CC (prosecution for non-filing of return of income). Earlier, non-filers for AY 2013-14 were identified by Systems Directorate for NMS Cycle-3. The last date for filing the return of income for the AY 2013-14 was 31-3-2015, and therefore the taxpayers identified under NMS Cycle-3 that have neither filed the return of income nor have submitted the response have been identified as potential prosecution cases under section 276CC.

2. These cases have been pushed into a functionality named “Actionable Information Monitoring System (AIMS) (Path: ITD→ EFS → CIB → AIMS). The functionality provides an option to view ITS information and to mark the case as “Proposed for prosecution” and “Not proposed for prosecution”. The EFS Instructions are available on i-taxnet (Path: Resources → Downloads → Systems → ITD Instructions → Instruction -EFS/CIB).

3. The Assessing Officers may be instructed to view the information and take necessary action under section 276CC if the conditions prescribed under section 276CC are fulfilled.

[F. NO. JDIT(S)-2(4)/SYSTEMS DIRECTORATE/CBDT/011/2014-15]

F. No. DIT(S)-2/Form26QB/100/2015 – 22-3-2016


Correction of statement cum challan relating to TDS on sale of property u/s 194IA of the IT Act Withdrawal of Standard Operating Procedure (SOP) – Circular – Dated 22-3-2016 – Income Tax

DIRECTORATE OF INCOME TAX (SYSTEMS)

E-2, GROUND FLOOR, A.R.A. CENTRE, GROUND FLOOR,

JHANDEWALAN EXTENSION, NEW DELHI-110055

F. No. DIT(S)-2/Form26QB/100/2015

Date: 22.03.2016

To,

All Principal CCsIT, PCsIT and CIT(CO) & Admn.

Sir /Madam,

Sub: Correction of statement cum challan relating to TDS on sale of property u/s 194IA of the IT Act Withdrawal of Standard Operating Procedure (SOP)-reg.

Kindly refer to the above.

2. Section 194IA of the IT Act relates to TDS on Sale of property. Form 26QB is an  online statement- cum-challan to be filled and submitted by the buyer of the property for making TDS payment on sale of property. It contains details of buyer, seller, property being sold, sale consideration, tax deposit details etc. Being an internet challan, no correction can be made by the bank branches through the existing RT18 mechanism.

3. Keeping in view various representations received, SOP vide F. No. DIT(S)-2/Form 26QB/100/2015 dtd 20/04/15 was issued for processing the requests of change in form 26QB, on case to case basis, as per defined rules, till such time that an alternative online approach was finalised. Accordingly, the office of the ADGIT(S)-2 has been processing applications requesting for correction in form 26QB.

4.  Now, CPC-TDS has enabled functionality for online correction in form 26QB from 29/02/2016. Communication No. CIT/CPC-TDS/15-16 dtd 02/03/2016 on ‘Enablement of 26QB correction facility and role of TDS officers’ from CPC-TDS is enclosed.

5. In view of the online functionality being made available, the SOP dated 20/04/15 for correction in form 26QBchallan is being withdrawn with immediate effect. The field formations and taxpayers may be advised to use the functionality made available by CPC-TDS.

Yours faithfully

(Sanjeev Singh)

Addl. Director General (System)-2

Enclosure : As above

 

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AST INSTRUCTION NO.141 – 22-3-2016


Selection of Scrutiny for Cases Selected Manually on Basis of Recommendations of CPC for Assessment Year 2013-14 – Order-Instruction – Dated 22-3-2016 – Income Tax

AST INSTRUCTION NO.141

DATED 22-3-2016

Communications have been received from field offices that the Assessing Officers are unable to view the reasons for selection for scrutiny in the ITD system for the cases which are manually selected on the basis of suggestions by CPC as the window to retrieve the reasons has been disabled.

2. The functionality for viewing such cases which are selected by AO under Manual Scrutiny on the basis of suggestions by CPC for A.Y. 2013-14 and for which order under section 143(3) of the Act has still not been passed, has been enabled in the ITD system and can be accessed by entering the following path in ITD System:

“AST → Processing → CPC Interface → List of scrutiny cases from CPC”

[F. NO. DGIT(S)/ADG(S)-2/CASS/2014-15

Why some states could delay real estate regulator Bill : 22-03-2016


The Real Estate Regulation Bill may trigger a Centre-state clash as some states, including Maharashtra, Haryana and West Bengal, already have similar rules in place.

The Real Estate (Regulation and Development) Bill, 2013, passed in Parliament recently, seeks to create a set of rights and obligations for developers and buyers. Developers will now have to set aside 70 per cent of sales proceeds from a project in an escrow account and get mandatory approvals before launching a project. Also, buyers and developers will be paying the same interest rate on defaults. This, however, is a model Bill and states can have their own rules based on it.

Many developers have already started bargaining with state governments to not bring under-construction projects in the ambit of the Bill. Many have also requested state governments for a less stringent imprisonment clause.

Experts say the Bill differs from existing laws in many states. States can continue to apply their laws regulating real estate as long as they are not contradicting the central one.

According to PRS Legislative Research, while the central Bill mandates establishing a statutory regulatory authority to register projects in a state, West Bengal has delegated this function to a government department.

The clause mandating 70 per cent of the funds collected from buyers of a project to be kept in an escrow account is also inconsistent with the new Bill as many states have allowed for greater flexibility in usage of funds.

While Maharashtra Housing Regulation and Development Act, 2012 mandates that the entire amount collected from buyers be kept in a separate account, the draft Haryana Real Estate (Regulation and Development) Bill, 2013 mandates at least 70 per cent of the amount collected from buyers be used for the particular project.

Punjab, West Bengal and Uttar Pradesh have hinted they would prefer to continue with existing state laws on real estate, PRS said. This will make it difficult to have one set of regulations across India.

Pankaj Kapoor, founder and CEO, Liases Foras, a real estate research firm, says states are bound to follow the model Bill.

“It is in favour of the consumer. It is mandatory for them to follow the model under a section of the Constitution. Although they can delay the implementation of the Bill, ultimately they will have to do it.”

 

Minister for urban development Venkaiah Naidu has been seeking cooperation from states for faster clearances to projects to make this Bill, which will override all state legislations, a success. “Our ultimate intention is to ensure consumer satisfaction. Once the Bill is notified, you will get more investments in the real estate sector, early clearances and property prices will come down.”

 

After the Bill is put into place, it will make it mandatory for all residential and commercial projects to register with the regulator. It also provides for imprisonment of up to three years in case of promoters and up to one year in case of real estate agents and buyers for any violation of orders of Appellate Tribunals or monetary penalties or both.

 

The mandatory registration for projects has been brought down to 500 sq m area, or those comprising eight flats. Also, a clear definition of carpet area and a system that would require the consent of two-thirds of the buyers in case there are changes in project plans.
INCONSISTENT RULES
  • While the central Bill mandates establishing a statutory regulatory authority, West Bengal has delegated this to a government department
  • While the central Bill says that 70% of the funds collected from buyers of a project should be kept in an escrow account, some state governments have allowed for greater flexibility
  • The Maharashtra Housing Regulation and Development Act, 2012, mandates the entire amount collected from buyers be kept in a separate account
  • States such as Punjab, West Bengal and Uttar Pradesh say they would prefer to continue with existing laws to regulate real estate
  • Experts say while the central rules will eventually overrule the state norms, some states might delay implementation

Source : Business Standard

Notification No. S.O. 1217(E) 21-3-2016


Rescinding of a sector specific Special Economic Zone for food processing and related services at Hassan in the State of Karnataka – S.O. 1217(E) – Dated 21-3-2016 – Special Economic Zone

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

NOTIFICATION

New Delhi, the 21st March, 2016

S.O. 1217(E).-WHEREAS, M/s. Karnataka Industrial Area Development Board, a fully owned State Industrial Promotion Organization in the State of Karnataka, had proposed under section 3 of the Special Economic Zones Act, 2005 (28 of 2005), (hereinafter referred to as the said Act) to set up a sector specific Special Economic Zone for food processing and related services at Hassan in the State of Karnataka;

AND, WHEREAS, the Central Government, in exercise of the powers conferred by sub-section (1) of section 4 of the said Act read with rule 8 of the Special Economic Zones Rules 2006, had notified an area of 159.733 hectares at above Special Economic Zone vide Ministry of Commerce and Industry Notification Number S.O. 573(E) dated 12th April, 2007;

AND, WHEREAS, M/s. Karnataka Industrial Area Development Board vide their letter dated 3rd January, 2008 has proposed for reduction of the area from 159.733 to 115.33 ha at the above Special Economic Zone;

AND, WHEREAS, the Board of Approval (BoA) in its 22nd Meeting held on 25th February, 2008 has approved the above reduction in area subject to the condition that no tax benefits have been availed by the developer for the area to be deleted.

AND, WHEREAS, M/s. Karnataka Industrial Area Development Board has now proposed for full denotification of 159.733 hectares area at the above Special Economic Zone;

AND, WHEREAS, the State Government of Karnataka has given its “No Objection” to the proposal vide letter No. VTPC/SEZ/KIADB-NOC/DD/2014-15, dated 13th July, 2015;

AND, WHEREAS, the Development Commissioner, Cochin Special Economic Zone has recommended the proposal for full de-notification of the Special Economic Zone;

NOW, THEREFORE, in exercise of the powers conferred by first proviso to rule 8 of the Special Economic Zones Rules 2006, the Central Government hereby rescinds the above notification except as respects things done or omitted to be done before such rescission.

[F. No. F. 2/387/2006-SEZ]

DR. GURUPRASAD MOHAPATRA, Jt. Secy.

RBI rejects banks’ demand to defer MCLR : 21-03-2016


The Reserve Bank of India has rejected bankers’ demand to defer the operationalisation of MCLR, or marginal cost of funds based lending, even as many lenders said that they are not ready to adopt the system. The new system will be operational from April 1 and many banks fear that their margins will be hit if the new method is implemented, while others said that the cost of lending could also go up.

In a closed-door meeting held recently between senior RBI and bank officials, the central bank told lenders that it doesn’t want to extend the deadline since it was conveyed to them in December itself.

MCLR is a new method that banks will have adopt to declare the lending rates, and it will replace the base rate. The new rate has to be a tenor-linked rate with a reset clause at least once a year. For the customer, the MCLR that is prevailing on the day the loan is sanctioned, will be in application till the next reset even if the benchmark rate changes.

MCLR is a new method that banks will have adopt to declare the lending rates, and it will replace the base rate. The new rate has to be a tenor-linked rate with a reset clause at least once a year. For the customer, the MCLR that is prevailing on the day the loan is sanctioned, will be in application till the next reset even if the benchmark rate changes.

On the calculation of MCLR, the RBI has said that banks have to fac tor in the incremental cost of funds and not the average cost. Therefore, margins of banks with huge share of fixed rate loans and higher share of low cost deposits will not be hurt.

However, in case of a falling interest rate scenario, interest rates of new deposits would not come down as fast as the reset on the new loans.Thus, the banks’ incremental cost may fall marginally in six months, but a large chunk of loans could be due for reset either on monthly or quarterly basis, thereby hurting banks margins -the difference between the cost of funds and yield on investments. The new method is introduced after the RBI felt that policy rate transmission was not effective under the base rate system -the rate at which banks lend to best-rated borrower. The RBI has lowered policy rates -which is the repo rate -by 125 basis points over the past 15 months. But banks have lowered interest rates by just about 60-70 basis points.

Bankers complained that they were unable to pass on the rate cut benefits to borrowers since rates on liabilities side-on deposits were at a fixed rate, while rates on the loan books were on a floating rate basis.

 Source : PTI

Small savings rates cut: PPF, senior citizen scheme, deposits to earn less : 21-03-2016


The government on Friday sharply reduced interest rates on small savings schemes across the board, including that on Public Provident Fund, Senior Citizen Savings Scheme and announced the highest reduction of 130 basis points in the case of one-year time deposit, as per an office order issued by the finance ministry. The rates on small savings schemes have been reduced to align them to market rates.

Since the government is now moving on revising interest rates on such schemes every quarter, the new rates, therefore, will be applicable from April 1 to June 30. Effective April 1, interest rate payable on 1 year time deposit has been slashed to 7.1 per cent from 8.4 per cent.

Interest rate on Public Provident Fund (PPF) scheme will be cut to 8.1 per cent for the period April 1 to June 30, from 8.7 per cent, at present. Rate on Kisan Vikas Patra is being lowered to 7.8 per cent from 8.7 per cent. Interest rates on Sukanya Samriddhi Account Scheme, which was launched by Prime Minister Narendra Modi especially for the girl child, too are being reduced to 8.6 per cent from 9.2 per cent.

Terming the decision slashing of interest rates as a “normal exercise of resetting” rates in March every year, Economic Affairs Secretary Shaktikanta Das said, according to a report.
“This will enable banks to consequently reduce their deposit rates and extend loan and credit to public and borrowers at lower rates.” Interest rate on five-year Senior Citizen Savings Scheme has also been reduced to 8.6 per cent from 9.3 per cent. The popular five-Year National Savings Certificates will earn an interest rate of 8.1 per cent as against 8.5 per cent. A five-year Monthly Income Account will fetch 7.8 per cent as opposed to 8.4 per cent now.
The government had on February 16 announced moving small saving interest rates closer to market rates, but said that the interest rate and the spread that some of these schemes enjoy will remain untouched. However, on Friday the government slashed rates on all schemes.
In its February 16 statement, the finance ministry had said: “The Sukanya Samriddhi Yojana, the Senior Citizen Savings Scheme and the Monthly Income Scheme are savings schemes based on laudable social development or social security goals. Hence, the interest rate and spread that these schemes enjoy over the G-sec rate of comparable maturity viz., of 75 bps, 100 bps and 25 bps respectively have been left untouched by the Government.” On Friday, however, the rates on these three scheme were reduced by 60-70 basis points.

While the interest rate on Post Office savings has been retained at 4 per cent, the same for term deposits of one to five years has been cut. Two-year time deposit will now earn 7.2 per cent instead of 8.4 per cent, three-year time deposit will earn 7.4 per cent instead of 8.4 per cent, five-year time deposit will earn 7.9 per cent instead of 8.5 per cent. Five-year recurring deposit will earn 7.4 per cent instead of 8.4 per cent.
Arguing that such rates limit the banking sector’s ability to lower deposit rates in response to the monetary policy of the RBI, Centre had made a case for lowering rates on some schemes. The RBI has cut the repo rate, by 125 basis points since last January, but the banks reduced their lending rate by only about 70 basis points. The RBI is slated to review its monetary policy on April 4.

Source : Business Standard

Notification No. : 20/2016 Dated: 21-03-2016


M/s. Ascendas IT Park (Chennai) Ltd. Notified as an industrial park for the purposes of Section 80-IA(4) – 20/2016 – Dated 21-3-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 20/2016

New Delhi, the 21st March, 2016

(INCOME-TAX)

S.O. 1172(E).- Whereas the Central Government in exercise of the powers conferred by clause(iii) of sub-section (4) of section 80-IA of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the said Act), has framed and notified a scheme for industrial park, by the notification of the Government of India in the Ministry of Finance (Department of Revenue, Central Board of Direct Taxes) vide number S.O. 51(E), dated the 8thth January, 2008;

And whereas M/s. Ascendas IT Park (Chennai) Ltd. having its registered office at 1st Floor, Pinnacle Building, International Tech Park, CSIR Road, Taramani, Chennai – 600 113 has developed an industrial park named “Crest” and “Zenith” at Plot No.9, Survey No.TS 8/1, Block No.9 Survey No.TS1/7, Block No.7, Survey No.TS 9/2 Block No.9 and Survey No.TS 1/1, Block No.7, Kanagam Village Thiruvanmiyur Village, Mambalam-Guindy Taluk/ Mylapore-Triplicane Taluka, Chennai, Tamil Nadu – 600 113.

Now, therefore, in exercise of the powers conferred by clause (iii) of sub-section (4) of section 80-IA of the said Act, read with rule 18C of the Income-tax Rules, 1962, the Central Government hereby notifies the undertaking from the date of commencement of the industrial park that is the 31st March, 2011 being developed and being maintained and operated by M/s. Ascendas IT Park (Chennai) Ltd., as an undertaking and the project named “Crest” and “Zenith” placed at Plot No. 9, Survey No.TS 8/1, Block No. 9, Survey No. TS1/7, Block No. 7, Survey No. TS 9/2 Block No. 9 and Survey No. TS 1/1, Block No. 7, Kanagam Village Thiruvanmiyur Village, Mambalam-Guindy Taluk/ Mylapore-Triplicane Taluka, Chennai, Tamil Nadu–600 113 for the purposes of the said clause (iii) subject to the terms and conditions mentioned in the Annexure to this notification.

ANNEXURE

The terms and conditions on which the approval of the Government of India has been accorded for setting up of an industrial park by M/s. Ascendas IT Park (Chennai) Ltd.

(i) Name of the industrial undertaking : M/s. Ascendas IT Park (Chennai) Ltd.
(ii) Proposed location : Plot No.9, Survey No.TS 8/1, Block No.9 Survey No.TS1/7, Block No.7, Survey No.TS 9/2 Block No.9 and Survey No.TS 1/1, Block no.7, Kanagam Village Thiruvanmiyur Village, Mambalam- Guindy Taluk/ Mylapore-Triplicane Taluka, Chennai, Tamil Nadu – 600 113.
(iii) Minimum constructed floor area : 15,000 square meters.
(iv) Proposed industrial activities : As defined in Industrial Park Scheme, 2008 notified by the Government of India, Ministry of Finance (Department of Revenue, Central Board of Direct Taxes) vide notification Number. S.O. 51(E), dated the 8th January, 2008.
(v) Percentage of allocable area earmarked for industrial use : 75% or more.
(vi) Percentage of allocable area earmarked for commercial use : 10% or less.
(vii) Minimum number of industrial units : 30 units.
(viii) Date of commencement : 31st March, 2011.

2. The industrial park shall be construed as developed on the date of its commencement that is, the 31st March, 2011.

3. The industrial park should be owned by one undertaking.

4. The tax benefits under the Income-tax Act, 1961 shall be available to the undertaking only if minimum number of thirty industrial units are located in the industrial park and for the purpose of computing the minimum number of industrial units, all units of a person and his associated enterprises shall be treated as a single unit.

5. No industrial unit, alongwith the units of an associated enterprise, shall occupy more than twenty five per cent. of the allocable area.

6. The tax benefits under the Income-tax Act, 1961 shall be available only to the undertaking notified by this notification and not to any other person who may subsequently develop, develops and operates or maintains and operates the notified industrial park, for any reason.

7. The undertaking, subject to the fulfillment of the term and conditions mentioned in this notification, may at its option claim deduction under clause (iii) of sub-section (4) of section 80-IA of the Income-tax Act, 1961 for any ten consecutive assessment years out of fifteen years beginning from the assessment year relevant to the date of commencement of industrial park mentioned in this notification.

8. The industrial units located in the industrial park shall undertake only those activities as specified in Industrial Park Scheme, 2008 mentioned above.

9. The undertaking shall keep separate books of accounts for the industrial park and shall file its income tax returns by the due date before the Income-tax Department.

10. This notification shall be invalid, if-

(i) the application on the basis of which the approval is accorded by the Central Government contains wrong information or misinformation or some material information has not been provided in it;

(ii) it is for the location of the industrial park for which approval has already been accorded in the name of another undertaking,

and M/s. Ascendas IT Park (Chennai) Ltd. shall be solely responsible for any repercussions of such invalidity.

11. The undertaking shall furnish an annual report to the Central Board of Direct Taxes in Form IPS-II as provided in the Industrial Park Scheme, 2008 mentioned above.

12. The terms and conditions mentioned in this notification as well as those included in the aforesaid Industrial Park Scheme, 2008 should be adhered to during the period for which benefits under the said scheme are to be availed and in case the undertaking, fails to comply with any of the conditions, the Central Government may withdraw the aforesaid approval.

13. Any amendment of the project plan without the approval of the Central Government or detection of such amendment in future, or failure on the part of the undertaking to disclose any material fact, shall invalidate the approval of the industrial park.

[F. No. 178/34/2011-ITA-I]

DEEPSHIKHA SHARMA, Director

FinMin reiterates stand on jewellery excise, as GST preparation : 18-03-2016


While the jewellery trade continues its stir for withdrawal of the one per cent excise duty announced in the Union Budget, the finance ministry does not indicate a compromise.

“There is no question of a rollback,” said a ministry official, on condition of anonymity, adding: “Our internal calculations show the government will get only about Rs 1,000 crore (a year) from the levy.”

The strike entered the 17th day on Thursday, also marked by a big rally at Delhi’s Ramlila Maidan.

“What are they scared of? We have given them all the assurance that they want. The taxman will not visit their premises,” said the official. The ministry has instructed field formations against interfering with the business functions of manufacturers. Instructions to tax officials say no stock declaration will be required to be made to the excise tax authorities by jewellery makers. And, tax officials have been told not visit the premises of these assessees for routine purposes like stock verification of records. And, to ensure export consignments are not delayed on account of the new levy.

The official said the one per cent duty was a preparation for the coming national goods and services tax (GST) regime. “If they cannot pay one per cent excise, how will they pay the higher tax under GST,” he asked.

A panel chaired by chief economic adviser Arvind Subramanian has proposed taxing of gold and precious metals at two to six per cent under GST, as against the standard rate of 17-18 per cent.

As against an excise exemption limit of 1.5 crore a year for normal small scale industry, the jewellery sector has an exemption limit of Rs 6 crore. Jewellers with a turnover below Rs 12 crore in a financial year will be eligible for exemption up to Rs 6 crore the next year.

Source : The EconomicTimes

Notification No. : 19/2016 Dated: 18-03-2016


Income tax (7th Amendment) Rule, 2016 – Amends rule 114E regarding Information Return or Statement of Financial Transactions – 19/2016 – Dated 18-3-2016 – Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

[CENTRAL BOARD OF DIRECT TAXES]

Notification No.19/2016

New Delhi, the 18th March, 2016

S.O.1155 (E)- In exercise of the powers conferred by section 285BA, read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend theIncome-tax Rules, 1962, namely:-

1. This rule may be called the Income–tax (7thAmendment) Rule, 2016 and shall be deemed to have come into force from the 1st day of April, 2015.

2. In the Income-tax Rules, 1962 (hereinafter referred to as the Rules), in rule 114E,-

(i) in the marginal heading, after the words “Information Return”, the words “or Statement of Financial Transactions” shall be inserted;

(ii) in sub-rule (1), for the words “annual information return”, the words “annual information return or statement of financial transactions, as the case may be,” shall be substituted;

(iii) in sub-rule (4),-

(I) in clause (a),-

(A) for the word “return”, wherever it occurs, the words “return or statement” shall be substituted;

(B) in both the provisos, for the words and figure “Annual Information Return-Administrator”, wherever they occur, the words and figure “Annual Information Return or Statement of Financial Transaction- Administrator” shall be substituted;

(II) in clause (b),-

(A) in the long line, for the word “return” , the words “return or the statement” shall be substituted;

(B) in clause (ii), for the word “return”, the words “return or the statement” shall be substituted;

(iv) in sub-rule (7), for the words “Annual Information Return”, the words “Annual Information Return or Statement of Financial Transaction” shall be substituted;

(v) in this rule, except sub-rules (1), (4) and (7), for the word “return”, wherever it occurs, the words “return or statement” shall be substituted.

3. In the Appendix II to the Rules, in Form No.61A,-

(a) for the words “Annual Information Return”, wherever they occur, the words “Annual Information Return or Statement of Financial Transactions” shall be substituted;

(b) for the word “return”, wherever it occurs, the words “return or statement” shall be substituted.

4. Rule 114E of the Rules, as amended by this rule shall be applicable for the specified financial transactions carried out during the period from 1st April, 2015 to 31st March, 2016.

[F.No.142/28/2012-(SO)TPL]

(Ekta Jain)

Deputy Secretary to Government of India

Note:- The principal rules were published vide notification S.O. 969 (E), dated the 26th March, 1962 and last amended vide notification S.O.1146 (E), dated the 17th March 2016.

Pradhan Mantri Fasal Bima Yojana : 18-03-2016


The Union Cabinet on Wednesday approved the launch of Pradhan Mantri Fasal Bima Yojana (Prime Minister Crop Insurance Scheme) in which the premium rates to be paid by the farmers have been brought down substantially so as to enable more farmers avail insurance cover against crop loss on account of natural calamities. The scheme will come into effect from the upcoming kharif season.

Under the new scheme, farmers will have to pay a uniform premium of two per cent for all kharif crops and 1.5 per cent for all rabi crops. For annual commercial and horticultural crops, farmers will have to pay a premium of 5 per cent. The remaining share of the premium, as in previous schemes, will continue to be borne equally by the Centre and the respective state governments.

 With farmers having been required to pay a premium share of as high as 15 per cent in several areas in the country, there has been a long-standing discussion on the need to bring down these rates. The Centre’s move to bring down and cap these interest rates is being viewed as a major government policy outreach towards the farmers.

The Centre currently has a bill of Rs 3,100 crore on account of its share of the premium for the 23 per cent crops that are currently insured in the country. Once 30 per cent of the crop comes under insurance cover, the Centre’s financial liability is estimated to go up to Rs 5,700 crore. This financial liability is expected to touch a whopping Rs 8,800 crore once the target of bringing 50 per cent crop under insurance is achieved in three years, officials said. As the Centre’s financial liability goes up, the bill of the states where the scheme gets implemented will also go up correspondingly.

Under PMFBY, there will no upper limit on government subsidy and even if balance premium is 90 per cent, it will be borne by the government. “Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping was done to limit government outgo on the premium subsidy. This capping has now been removed and farmers will get claim against full sum insured without any reduction,” the government said. “The use of technology will be encouraged to a great extent. Smart phones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments,” the government said. The new Crop Insurance Scheme will also seek to address a long standing demand of farmers and provide farm level assessment for localised calamities including hailstorms, unseasonal rains, landslides and inundation. Calling it a “historic” decision, Union home minister Rajnath Singh said that this scheme will act like a “safety shield” for the farmers and will protect them against the vagaries of nature. “This new crop insurance scheme will have the lowest premium for farmers in the history of independent India. The new scheme has taken care of the anomalies in the existing two schemes and added new provisions,” Singh said. Agriculture minister Radha Mohan Singh called it a “amrit yojana” and added that the scheme will also cover post-harvest losses.

Source : PTI

SMEs, MSMEs turn to peer-to-peer lending as bank credit dips : 18-03-2016


Prolonged slowdown in the corporate sector and the rising bad loans has forced banks to squeeze funding to micro, small and medium enterprises. As a result these small businesses are increasingly turning to online platforms to raise funds.

These online portals works in the space of peer-to-peer lending (P2PL) arrangements, which allows an individual to lend money to other unrelated individuals without assistance from any financial intermediary.

“We have seen more demand coming in from the SME and the MSME sector, especially the ones that are new in the space because they find it difficult to get loan from the banks as they may not have the required income/bank documents etc in place, as a result we have seen an increased demand from this segment,” said Vaibhav Pandey, CEO of i2ifunding.com.

As per the Reserve Bank of India data, credit to small industries between January 23, 2015-January 22, 2016 grew at 2.4% as compared to 12.7% a year ago. In the same period, bank credit to medium enterprises degrew by 7.1% compared to a growth of 0.7% a year ago. According to RBI guidelines, micro and small enterprises are those in which the loan size is up to Rs 5 crore.

Shankar Vaddadi, Founder, i-lend.in, another P2P lending platform also terms the SME and MSME category as a “massive segment.”

“Since it is very difficult to get an unsecured loan for either first time borrower or people who may not have all the required documents needed by a bank. These people come on to the online platform and avail credit with ease.”

Pandey also added that with the demand ha also been increasingly coming from the new players entering the e-commerce segment.

“E-commerce has been a big driver. This is because on one hand we have new players from that segment scouting for funds. And on the other hand because several small entrepreneurs are getting to sell their products online which in turn are leading to an increased demand for capital for which they are coming to us.”

This comes at a time when the Reserve Bank of India is looking at ways to regulate this sector. Currently, it does not come under the ambit of the banking regulator. However, considering that this sector has been gaining momentum in the last couple of years, RBI is now looking at monitoring this sector.

Several online portals have sprung up in India to facilitate such lending and some have also secured private funding from investors, but it is still at a nascent stage compared with countries such as the US and China.

Source : Business Standard

Notification No. S.O. 1219(E) 17-3-2016


De-notification of 23.75.0 hectares of sector specific Special Economic Zone for Electronics/Telecom Hardware and support services including trading and logistics activities at SIPCOT Industrial Area, Sriperumbudur, Tamil Nadu – S.O. 1219(E) – Dated 17-3-2016 – Special Economic Zone

 

MINISTRY OF COMMERCE AND INDUSTRY

(Department of Commerce)

NOTIFICATION

New Delhi, the 17th March, 2016

S.O. 1219(E).-Whereas, M/s. State Industries Promotion Corporation of Tamil Nadu Limited had proposed undersection 3 of the Special Economic Zones Act, 2005 (28 of 2005), (hereinafter referred to as the said Act) to set up a sector specific Special Economic Zone for Electronics/Telecom Hardware and support services including trading and logistics activities at SIPCOT Industrial Area, Sriperumbudur in the State of Tamil Nadu;

And, whereas, the Central Government, in exercise of the powers conferred by sub-section (1) of section 4 of the said Act read with rule 8 of the Special Economic Zones Rules 2006, had notified an area of 189.77.1 , 41.36.9 hectares and de-notified 11.83.2 hectares at SIPCOT Industrial Area, Sriperumbudur in the State of Tamil Nadu from Special Economic Zone vide Ministry of Commerce and Industry Notifications Numbers S.O. 2141 (E) , 1308 (E) and 677 (E) dated 22nd December, 2006 , 31st July, 2007 and 02nd March, 2015 respectively;

And, whereas, M/s. State Industries Promotion Corporation of Tamil Nadu has now proposed for de-notification of 23.75.0 hectares at the above Special Economic Zone;

And, whereas, the State Government of Tamil Nadu has given its “No Objection” to the proposal vide letter No. 2495/MIE.2/2016-1 dated 22nd February, 2016;

And, whereas, the Development Commissioner, Madras Special Economic Zone has recommended the proposal for de-notification of an area of 23.75.0 hectares of the Special Economic Zone;

Now, whereas, the Central Government is satisfied that the requirements under sub-section (8) of section 3 of the said Act and other related requirements are fulfilled;

Now, therefore, in exercise of the powers conferred by second proviso to sub-section (1) of section 4 of the Special Economic Zones Act, 2005 and in pursuance of rule 8 of the Special Economic Zones Rules, 2006, the Central Government hereby de-notifies an area of 23.75.0 hectares, thereby making resultant area as 195.55.8 hectares, comprising the survey numbers and the area given below in the table, namely:-

TABLE

S. No.

Name of the Village

Survey No.

Area to de-notified (in Hectares)

(1)

(2)

(3)

(4)

1.

Sirumangadu

5 Part

0.660

2.

6 Part

0.820

3.

135Part

0.700

4.

136 Part

4.265

5.

137

1.640

6.

138

1.145

7.

139 Part

0.787

8.

150 Part

0.420

9.

151 Part

1.156

10.

152 Part

0.530

11.

153 Part

2.098

12.

154 Part

0.586

13.

155 Part

1.309

14.

156 Part

0.120

15.

157 Part

0.750

16.

Thrumangalam

351 Part

1.620

17.

352

0.670

18.

353 Part

0.565

19.

354 Part

1.642

20.

355 Part

0.717

21.

356 Part

1.550

Total

23.75.0 hectares

Total Area of SEZ after above deletion

195.55.8 hectares

[F. No. F.2/146/2006-SEZ]

Dr. GURUPRASAD MOHAPATRA, Jt. Secy.

Notification No. : 18/2016 Dated: 17-03-2016


Income-tax (6th Amendment) Rules, 2016 – Method of determination of period of holding of capital assets, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47. – 18/2016 – Dated 17-3-2016 – Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF DIRECT TAXES

Notification

New Delhi, the 17th March, 2016

S.O. 1146 (E).- In exercise of the powers conferred by section 2, read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (6th Amendment) Rules, 2016.

(2) They shall come into force from the 1st day of April, 2016.

2. In the Income-tax Rules, 1962, after rule 8A, the following rule shall be inserted, namely:-

“8 AA. Method of determination of period of holding of capital assets in certain cases.- (1) The period for which any capital asset, other than the capital assets mentioned in clause (i) of the Explanation 1 to clause (42A) of section 2 of the Act, is held by an assessee, shall be determined in accordance with the provisions of this rule.

(2) In the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in clause (x) of section 47 of the Act, there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion.”

[Notification No. 18/2016][F.No.142/1/2016-TPL]

[Ekta Jain]

Deputy Secretary (Tax Policy & Legislation)

Note:- The principal rules were published vide notification number S.O. 969 (E), dated the 26th March, 1962 and last amended vide notification S.O.No.1101 (E), dated the 15th March , 2016.

8/2016 – 17-3-2016


Modification of Instruction 9/2006 – Circular – Dated 17-3-2016 – Income Tax

ircular No. 8/2016

F. No.24619512013-A&PAC-I

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, 17th March, 2016

Subject:- Modification of Instruction 9/2006- reg.

Instruction 9 of 2006 lays down the guidelines and procedure for attending to Revenue Audit Objections. The Instruction inter-alia mandates the initiation of remedial action in case the Revenue Audit Objection is not accepted by the Department. The Board has considered the effect of such remedial action and its ultimate fate in appeal. Accordingly, to mitigate the effects of the Instruction, para 4 and para 5 of the Instruction are deleted with immediate effect and replaced by the following:

4. Remedial Action:

(i) An Audit objection should be accepted and remedial action should be taken in a case where the audit objection relating to an error of facts or an issue of law is found to be correct.

(ii) Appropriate remedial action should invariable be initiated within two months of the receipt of the Local Audit Report, and necessary orders should be passed within six months thereafter.

(iii) Where the PCIT/ CIT does not accept the Audit objection, he may record his reasons for doing so and inform the AG accordingly within two months from the date of receipt of the LAR. No remedial action needs to be taken in such cases.

5. Second appeal in cases involving Revenue Audit Objection:

The adverse order of the first appellate authority in cases involving revenue audit objections should be carefully scrutinised by the PCIT/ CIT, and appeal should not be preferred if the order is justified either in law or on facts. Reasons for not filing appeal may be recorded by the PCIT/ CIT.

(J.K Chandnani)

US (A&PAC)-II,

CBDT, New Delhi.

Lower fines, but more powers to assessing officers : 17-03-2016


On the one hand, the government is trying to reduce litigation by giving additional freedom to income-tax assessees and reducing penalties. On the other, the assessing officer (AO) has been given unlimited powers in certain situations.

A sore point that has emerged from the Finance Bill 2016 is the creation of two new categories of misdemeanours: Under-reporting and misreporting. The penalties have been pegged at either 50 per cent or 200 per cent of the evaded tax for the two categories, respectively. AOs can’t levy a rate in between at their discretion.

A more critical clause is worrying tax experts: The recourse to appeal has been more difficult for the assessee. The proposed laws say if the case is classified as one of under-reporting, the penalty can be waived off only if the assessee accepts the order and pays the relevant tax with interest within the stated period, usually 30 days. More importantly, in case the officer classifies the case as one of misreporting, there is no recourse to filing an appeal. The assessee will need to file a writ petition in a high court to challenge the order.

“According to the regulations, an assessee can go to income-tax tribunal only against the orders of the commissioner. But, if the order is passed by the AO, then the court is the only recourse as one cannot approach tribunals against the orders passed by the AO,” says Gautam Nayak, tax partner at CNK & Associates. Tax experts say this is a harsh provision and, hence, necessary changes might be made in the final Finance Bill as this goes against the principle of natural justice.

The new penalty regime could create a fresh set of complications for taxpayers. Although the government has done its best to define the two new terms, there is a fine line between what constitutes under-reporting and misreporting.

In the earlier regime, the AO could levy a penalty on the tax payer for concealment of income or for furnishing inaccurate particulars. The penalty ranged from 100 per cent to 300 per cent of the evaded tax. However, when the AO issued an order under Section 143(2), the assessee could offer an explanation. If the AO was satisfied with the explanation, the assessee had to pay only the tax. The AO had the power to waive penalty and interest.

Experts say the government has tried to explain the new terms under-reporting and misreporting.

“While no proper legal definition of what constitutes under-reporting and misreporting has been provided, the newly inserted Section 270A (which replaces Section 271) of the income tax Act, 1961, provides all that is needed to implement such penalties,” says Amar Gahlot, tax consultant at Lakshmikumaran & Sridharan Attorneys.

The government has provided a list of cases where under-reporting shall not apply. Cases of misreporting have been specified as follows: misrepresented or suppressed facts; not recorded any investment or receipt or recorded false entry in the books of account; claimed any expenditure not substantiated by evidence; and not reported any international transaction, to which transfer pricing provisions would apply. “Looking at these situations, it seems where the default seems to be malafide, it would be considered as misreporting,” says Gahlot.

Some legal experts also see a few positives for taxpayers in the new provisions. Says Rakesh Nangia, managing partner of Nangia & Co, “In the past, every case where there was a dispute led to a penalty. But now, the government has included a new clause: Where the assessee offers an explanation and the income tax authority is satisfied that the explanation is bonafide, and all the materials have been disclosed; in such cases, there will be no penalty. By including this clause, the government has ensured that many cases will not be subject to penalty.”

Adds Kuldip Kumar, partner and leader (personal tax) at PwC India: “The proposed new laws take into consideration the genuine mistakes one can possibly make and have them out of the purview of penalty.” The absence of precedents is yet another drawback. Says Delhi-based High Court lawyer Prakash Kumar: “For older terms like concealment of income and furnishing inaccurate particulars, several judgments of the High Court and the Supreme Court existed, which served as precedents. Now, it will take some time before cases based on these new terms go to the higher courts and the judges interpret these laws.”

Source : The Economic Times

Over 75% of claims paid under PM scheme : 17-03-2016


The claims settlement under the low-cost life insurance scheme, Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), is going great guns with over 75 per cent of the claims paid in a remarkably fast manner.

As the financial year winds to a close, it appears that the basic objective of increasing life cover as a means of social security has been met handsomely.

As on March 3, 2016, total subscriptions to the PMJJBY scheme stood at 2.95 crore. Out of this 19,877 claims have been reported and 16,281 have been paid. While 3,339 claims are outstanding, 257 claims were rejected according to the information available with bankers and insurers. Life Insurance Corporation (LIC) of India had the maximum share in the scheme paying almost 6,582 schemes out of the 8,728 claims received. SBI Life Insurance and IndiaFirst Life Insurance occupied the second and third slots respectively.

Life insurance coverage

Only a fraction of the population is covered by insurance. Life insurance penetration as a percentage of the Gross Domestic Product (GDP) is around 3.80 per cent despite the presence of 25 public and private insurers in India. With a twin purpose of expanding coverage and keeping it affordable, PMJJBY was launched in May, 2015. Under this, adults in the age group of 18 to 50 would be covered through a group insurance scheme linked to their bank accounts for a nominal premium of ₹330 an annum.

This was in a sense an attempt to replicate the success of the PM’s Jan Dhan Yojana which achieved near total success by bringing bank accounts to all willing families.

Insurers had good reasons to demur initially. Firstly, there was no actuarial experience based on which the rate of ₹330 was decided. Secondly, while the product was designed for the poor – it was not known whether they would indeed buy it. Thirdly, safeguards were still minimal — and there were no health check ups. There was therefore a legitimate fear of underpricing the risk, and the fear of fraudulent claims. Today, 10 life insurance companies have joined in, hoping to widen their reach and setting aside whatever misgivings they may have had initially.

But after the claims started pouring in, insurers are also grappling with some of their fears coming true. Amitabh Chaudhry, MD, HDFC Standard Life, said, “There is a risk of claims occurring soon after enrolment suggesting some anti-selection. This has been experienced by some industry players.”

Possibility of fraud is also being suspected by others. RM Vishakha, MD & CEO, IndiaFirst Life, said about 30 per cent claims received by her company are of suspicious nature since they have come in within the first 45 days.

Chaudhry suggests that this risk could be mitigated if a waiting period is introduced, that is, claims occurring after a waiting period of say, three months, are considered valid.

A senior executive of SBI Life said on the condition of anonymity that in some cases, fraud cannot be ruled out.

Waiting period

As a remedy, insurers have already requested the Finance Ministry to introduce a minimum-day exposure norm.

“The high level of suspicious transactions is a tragedy. We shouldn’t penalise the other 70 per cent because of this. So, if we have a longer waiting period, I think this will reduce,’’ said Visakha.

When asked about the likely stress on companies on account of claims payout, IRDAI Chairman TS Vijayan said there was no sufficient information yet on the burden on the insurers and the experience being gained could be used for improving the scheme further. The Finance Ministry has asked for data and will take a decision soon.

Source : The Hindu

LETTER F.NO.DGIT(S)/DIT(S)-3/AST/SCRUTINY/CONSOLIDATATION OF TDS/99/2015-16 – 17-3-2016


Consolidation of TDS Entries in Cases Having More Than 1000 Entries for Scrutiny Selected Cases Pertaining to Assessment Year 2013-14 – Circular – Dated 17-3-2016 – Income Tax

LETTER F.NO.DGIT(S)/DIT(S)-3/AST/SCRUTINY/CONSOLIDATATION OF TDS/99/2015-16

DATED 17-3-2016

Kindly refer to subject matter.

2. It has been noticed in previous years that in several cases having large number of TDS claims in ITR and TDS entries in Form NO. 26AS, AOs face technical difficulty while passing the assessment order under section 143(3)on AST system towards the end of March. This is due to the large data set involved in matching and also because entire data has to be viewed by the AO on the screen which fails during March peak times due to network congestion. This problem was seen in large courier or transport companies have several 1000 TDS entries.

3. As a proactive step, this Directorate has undertaken the exercise of consolidation of TDS entries at a TAN level for assessees (PAN) having more than 1000 TDS credit entries for scrutiny selected cases pertaining to AY 2013-14. This would mean that the TDS claims in the Assessee ITR as well as 26AS entries for a particular TAN would be grouped and matched earlier itself. It has been observed that such consolidation has reduced the number of TDS rows from several 1000 to a few hundreds. This would greatly simplify the matching and computation of tax and interest at the time of passing of order before the TB date. However, it may be noted that in the event that any fresh TDS credit is reported after such consolidation, the same can be allowed later at the time of rectification.

4. The list of cases where such consolidation has been done is placed at i-taxnet at the path mentioned below. The jurisdictional AOs are advised to complete the assessment in these cases well in advance, even though the process has been simplified, to eliminate any last minute changes/difficulties.

Resources → Downloads → Systems → Instructions-AST → Consolidation of TDS entries_List of cases

5. This issues with the approval of Pr.DGIT(S).

DGBA.GAD.NO. 2968/42.01.029/2015-16 – 17-3-2016


Scheme for Collection of Dues of Financial Year 2015-16 – Circular – Dated 17-3-2016 – Income Tax

CIRCULAR DGBA.GAD.NO. 2968/42.01.029/2015-16

DATED 17-3-2016

Please refer to Circular DGBA.GAD.No.4285/42.01.029/2014-15 dated March 25, 2015 advising the procedure to be followed for reporting and accounting of collection of Direct Taxes (CBDT) and Indirect Taxes (CBEC) and transactions of Departmentalized Ministries at the Receiving/Nodal/Focal Point branches of your bank for the Financial Year 2014-15.

2. The Government of India has decided that the date of closure of Residual Transactions for the month of March 2016 be fixed as April 10, 2016 for the Financial Year 2015-16.

3. In view of the ensuing closing of government accounts for the financial year 2015-16, please reiterate the instructions to your branches regarding introduction of special messenger arrangements at your receiving branches. Receiving branches not situated locally should also adopt special arrangements such as courier service etc. for passing on challans/scrolls etc. to the Nodal/Focal Point branches so that all payments and collections made on behalf of government towards the end of March are accounted for in the same financial year.

4. As regards reporting of March 2016 transactions by Nodal/Focal Point branches in April, the branches may be advised to follow the procedure as outlined in the Annex. To sum up, the Nodal/Focal Point branches will be required to prepare separate sets of scrolls, one pertaining to March Residual Transactions and another for April Transactions during the first 10 days of April 2016. The Nodal/Focal Point branches should also ensure that the accounts for all transactions (revenues/tax collections/payments) are effected at the receiving branches upto March 31, 2016 in the accounts for the current financial year itself and are not mixed up with the transactions of April 2016. Also, while reporting transactions pertaining to March 2016 upto April 10, 2016, the transactions of April 2016 should not be mixed up with “March Residual Transactions.”

5. The procedure now followed for reporting and accounting of transactions of Non- Civil Ministries viz. Defence, Posts, Railways and Telecommunications (which was revised with effect from October 1, 1993), is similar to the procedure for reporting and accounting of transactions of Departmentalised Ministries. The special arrangements for reporting March transactions by receiving branches to Nodal/Focal Point branches and the procedure for reporting March 2016 transactions in April 2016 by Nodal/Focal Point branches as indicated in paragraphs 3 and 4 above are also applicable to the reporting of transactions of Non-Civil Ministries. The branches of your bank handling the Non-Civil Ministries transactions, if any, may, therefore, be advised to follow the above procedure.

6. Kindly issue necessary instructions in the matter to your branches concerned immediately.

ANNEX

Reporting of March Transactions

Beginning from April 1, 2016, the Nodal/Focal Point branches will segregate on a daily basis all scrolls/challans pertaining to March 2016 received from the receiving branches concerned and prepare separate main scrolls for:

(a) scrolls for transactions of March 2016 or earlier period (i.e. effected during the previous financial year 2015-16) and

(b) scrolls pertaining to current transactions (i.e. those effected from April 1, 2016 onwards).

2. The main scrolls for March 2016 transactions prepared from April 1 to April 10, 2016 are to be distinctly marked as March Residual – 1, March Residual – 2 and so on upto April 10, 2016. In other words, serial number should be allotted in consecutive order for each main scroll of March 2016 transactions sent from April 1 to April 10, 2016. These scrolls alongwith the copies of daily summary of Receipts and Payments prepared separately for March 2016 transactions will be forwarded to the Departmental Officials concerned (i.e. Zonal Accounts Officers/Pay and Accounts Officers and Designated Officers) in the usual way. The Nodal/Focal Point branches will also be required to report the above transactions to the Link Cell through separate Daily Memos. These advices must be sent to enable the Link Cell of each bank at Nagpur, to make daily settlement with Reserve Bank of India, Central Accounts Section (CAS) Nagpur. On receipt of advices from the Nodal/Focal Point branches, the Link Cell should segregate the advices for the March Residual transactions and forward them separately to Reserve Bank of India, CAS, Nagpur. This procedure should continue upto and inclusive of April 10, 2016 only. All transactions reported thereafter by the receiving branches will be reported and accounted for in the usual manner in the accounts of the month of report irrespective of the date of transaction. Following the special arrangements for March 2016 transactions, it is necessary for the Nodal/Focal Point branches to prepare two sets of DMS to be submitted to Zonal Accounts Officers/Pay and Accounts Officers for March 2016 transactions – one for transactions upto March 31, 2016 and another for March Residual Transactions adjusted by Nodal/Focal Point branches with Reserve Bank of India, Central Accounts Section, Nagpur, during April 1 to April 10, 2016.

Since the Nodal/Focal Point branch will also be reporting the April 2016 transactions pertaining to year 2016-17 in addition to March Residual transactions, monthly statement for April transactions should be compiled and furnished to Zonal Accounts Officers/Pay and Accounts Officers in the usual way. In order to distinguish the April 2016 (year 2016-17) and March Residual Transactions, the statement pertaining to March Residual Transactions should be clearly marked as “March Residual Account”.

Note: As advised in our circular GA.NB.No.376/42.01.001/1995-96 dated May 22, 1996 all the cheques/amounts realized on or before March 31, 2016 should be treated as transactions relating to the current financial year as “March 2016 or March Residual Transactions”, the reporting of which may take place during the month of April (upto April 10, 2016). But if any cheque is tendered on or before March 31, 2016 and realized on or after April 1, 2016, it will be treated as transaction for the next financial year as “April Transactions”. Accordingly, the banks will prepare separate scrolls for March 2016 and April 2016 (year 2016-17) transactions.

Notification No. : 17/2016 Dated: 16-03-2016


Agreement for Avoidance of double taxation and prevention of fiscal evasion with foreign countries – Republic of Indonesia – 17/2016 – Dated 16-3-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

NOTIFICATION NO. 17/2016

New Delhi, the 16th March, 2016

(INCOME-TAX)

S.O. 1144(E).-Whereas, an Agreement between the Government of the Republic of India and the Government of the Republic of Indonesia for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income was signed at New Delhi on the 27th day of July, 2012 (hereinafter referred to as the said Agreement);

And whereas, the said Agreement entered into force on the 5th day of February, 2016, being the date of the later of the notifications of the completion of the procedures required by the respective laws for entry into force of the said Agreement, in accordance with paragraph 2 of Article 30 of the said Agreement;

And whereas, sub-paragraph (a) of paragraph 3 of Article 30 of the said Agreement provides that the provisions of the said Agreement shall have effect in India in respect of income derived in any fiscal year beginning on or after the first day of April next following the calendar year in which the said Agreement enters into force;

Now, therefore, in exercise of the powers conferred by sub-section (1) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that all the provisions of said Agreement, as annexed hereto, shall be given effect to in the Union of India.

[F.No.503/4/2005-FTD-II]

RAJAT BANSAL, Jt. Secy.

AGREEMENT

BETWEEN

THE GOVERNMENT OF THE REPUBLIC OF INDIA

AND

THE GOVERNMENT OF THE REPUBLIC OF INDONESIA

FOR THE AVOIDANCE OF DOUBLE TAXATION

AND THE PREVENTION OF FISCAL EVASION

WITH RESPECT TO TAXES ON INCOME

The Government of the Republic of India and the Government of the Republic of Indonesia, desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and with a view to promoting economic cooperation between the two countries, have agreed as follows:

CHAPTER I

SCOPE OF THE AGREEMENT

Article 1

PERSONS COVERED

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

Article 2

TAXES COVERED

1. This Agreement shall apply to taxes on income imposed on behalf of a Contracting State or of its political subdivisions or local authorities, irrespective of the manner in which they are levied.

2. There shall be regarded as taxes on income all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property and taxes on the total amounts of wages or salaries paid by enterprises.

3. The existing taxes to which the Agreement shall apply are in particular:

(a) in the case of the Republic of India:

the income tax, including any surcharge thereon;

(hereinafter referred to as “Indian tax”);

(b) in the case of the Republic of Indonesia:

the income tax;

(hereinafter referred to as “Indonesian tax”).

4. The Agreement shall also apply to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any significant changes that have been made in their respective taxation laws.

CHAPTER II

DEFINITIONS

Article 3

GENERAL DEFINITIONS

1. For the purposes of this Agreement, unless the context otherwise requires:

(a) the term “India” means the territory of India and includes the territorial sea and airspace above it, as well as any other maritime zone in which India has sovereign rights, other rights and jurisdiction, according to the Indian law and in accordance with international law, including the United Nations Convention on the Law of the Sea 1982;

(b) the term “Republic of Indonesia” means the territory of the Republic of Indonesia as defined in its laws, and parts of the continental shelf, exclusive economic zone and adjacent seas over which the Republic of Indonesia has sovereignty, sovereign rights or jurisdiction in accordance with the United Nations Convention on the Law of the Sea 1982;

(c) the terms “a Contracting State” and “the other Contracting State” mean the Republic of India or the Republic of Indonesia as the context requires;

(d) the term “person” includes an individual, a company, a body of persons and any other entity which is treated as a taxable unit under the taxation laws in force in the respective Contracting States;

(e) the term “company” means any body corporate or any entity that is treated as a body corporate for tax purposes;

(f) the term “enterprise” applies to the carrying on of any business;

(g) the terms “enterprise of a Contracting State” and “enterprise of the other Contracting State” mean respectively an enterprise carried on by a resident of a Contracting State and an enterprise carried on by a resident of the other Contracting State;

(h) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except when the ship or aircraft is operated solely between places in the other Contracting State;

(i) the term “national” means:

(1) any individual possessing the nationality of a Contracting State; and

(2) any legal person, partnership or association deriving its status as such from the laws in force in a Contracting State;

(j) the term “competent authority” means:

(1) in the case of the Republic of India, the Finance Minister or his authorised representative;

(2) in the case of the Republic of Indonesia, the Minister of Finance or his authorised representative;

(k) the term “tax” means Indian or Indonesian tax, as the context requires, but shall not include any amount which is payable in respect of any default or omission in relation to the taxes to which this Agreement applies or which represents a penalty or fine imposed relating to those taxes;

2. As regards the application of the Agreement at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Agreement applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.

Article 4

RESIDENT

1. For the purposes of this Agreement, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation, or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof. This term, however, does not include any person who is liable to tax in that State in respect only of income from sources in that State.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of both Contracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident only of the State in which he has a permanent home available to him; if he has a permanent home available to him in both Sates, he shall be deemed to be a resident only of the State with which his personal and economic relations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident only of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident only of the State of which he is a national;

(d) if his residential status cannot be determined by reason of subparagraphs (a) to (c) in that sequence, the competent authorities of the Contracting States shall endeavour to settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which its place of effective management is situated cannot be determined, then the competent authorities of the Contracting States shall endeavour to settle the question by mutual agreement.

Article 5

PERMANENT ESTABLISHMENT

1. For the purposes of this Agreement, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term “permanent establishment” includes especially:

(a) a place of management;

(b) a branch;

(c) an office;

(d) a factory;

(e) a workshop;

(f) a warehouse in relation to a person providing storage facilities for others;

(g) premises as sales outlet;

(h) farm or other place where agricultural, forestry, plantation or related activities are carried on; and

(i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

3. The term “permanent establishment” also encompasses:

(a) a building site or a construction or assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last for a period of more than 183 days;

(b) a drilling rig or working ship used for exploration or exploitation of natural resources, but only if so used for a period more than 183 days;

(c) the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 91 days within any twelve month period.

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

(a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

(e) the maintenance of fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of an independent status to whom paragraph 7 applies-is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person:

(a) has, and habitually exercises, in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or

(b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.

(c) habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself.

6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies.

7. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other Contracting State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

8. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

CHAPTER III

TAXATION OF INCOME

Article 6

INCOME FROM IMMOVABLE PROPERTY

1. Income derived by a resident of a Contracting State from immovable property, including income from agriculture or forestry, situated in the other Contracting State may be taxed in that other Contracting State.

2. The term “immovable property” shall have the meaning which it has under the law of the Contracting State in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, rights to which the provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources. Ships and aircraft shall not be regarded as immovable property.

3. The provisions of paragraph 1 shall also apply to income derived from the direct use, letting, or use in any other form of immovable property.

4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services.

Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

3. In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, in accordance with the provisions of and subject to the limitations of the tax laws of that State. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged, (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or, except in the case of banking enterprise, by way of interest on money lent to the head office of the enterprise or any of its other offices.

4. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary. The method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article.

5. No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

7. Where profits include items of income which are dealt with separately in other Articles of this Agreement, then the provisions of those Articles shall not be affected by the provisions of this Article.

Article 8

SHIPPING AND AIR TRANSPORT

1. Profits derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.

2. If the place of effective management of a shipping enterprise is aboard a ship, then it shall be deemed to be situated in the Contracting State in which the home harbor of the ship is situated, or, if there is no such home harbor, in the Contracting State of which the operator of the ship is a resident.

3. The term “operation of ships or aircraft” means business of transportation by sea or by air of passengers, mail, livestock or goods carried on by the owners, lessees or charterers of ships or aircraft, including the sale of tickets for such transportation on behalf of other enterprises, the incidental lease of ships or aircraft and any other activity directly connected with such transportation.

4. Notwithstanding the provisions of paragraphs 1 and 2, profits from sources within a Contracting State derived by an enterprise of the other Contracting State from the operation of ships in international traffic may be taxed in the first-mentioned State, but the tax imposed in that Contracting State shall be reduced by an amount equal to 50 per cent thereof.

5. Profits derived by a transportation enterprise which is a resident of a Contracting State from the use, maintenance, or rental of containers (including trailers and other equipment for the transport of containers) used for the transport of goods or merchandise in international traffic shall be taxable only in that Contracting State unless the containers are used solely within the other contracting State.

6. For the purposes of this Article interest on investments directly connected with the operation of ships or aircraft in international traffic shall be regarded as profits derived from the operation of such ships or aircraft if they are integral to the carrying on of such business, and the provisions of Article 11 shall not apply in relation to such interest.

7. The provisions of paragraph 1 shall also apply to profits from the participation in a pool, a joint business or an international operating agency.

Article 9

ASSOCIATED ENTERPRISES

1. Where

(a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly.

2. Where a Contracting State includes in the profits of an enterprise of that State -and taxes accordingly – profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of the Agreement and the competent authorities of the Contracting States shall if necessary consult each other.

3. The provision of paragraph 2 shall not apply where judicial, administrative or other legal proceedings have resulted in a final ruling that by actions giving rise to an adjustment of profits under paragraph 1, one of the enterprises concerned is liable to penalty with respect to fraud, gross negligence or wilful default.

Article 10

DIVIDENDS

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 % (ten per cent) of the gross amount of the dividends.

This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid.

3. The term “dividends” as used in this Article means income from shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on business in the other Contracting State of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the holding in respect of which the dividends are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

5. Where a company which is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State, nor subject the company’s undistributed profits to a tax on the company’s undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in such other State.

Article 11

INTEREST

1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 % (ten per cent) of the gross amount of the interest.

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State, provided that it is derived and beneficially owned by:

(a) the Government, a political sub-division or a local authority of the other Contracting State; or

(b) (i) in the case of India:

(1) Reserve Bank of India;

(2) Export-Import Bank of India; and

(3) National Housing Bank;

(ii) in the case of the Republic of Indonesia:

(1) Bank Indonesia (the Central Bank of Indonesia);

(2) Pusat Investasi Pemerintah (the Centre for Government Investment); and

(3) Lembaga Pembiayaan Ekspor Indonesia (the Indonesia Eximbank); or

(c) a statutory body or any institution wholly owned by the Government of the Contracting States, as may be agreed from time to time between the competent authorities of the Contracting States;

4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor’s profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State, in which the interest arises, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

6. Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.

7. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount of interest. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 12

ROYALTIES AND FEES FOR TECHNICAL SERVICES

1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10% (ten per cent) of the gross amount of the royalties or fees for technical services.

3. (a) The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

(b) The term “fees for technical services” as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

5. (a) Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

(b) Where under sub-paragraph (a) royalties or fees for technical services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for technical services relate to services performed, in one of the Contracting States, the royalties or fees for technical services shall be deemed to arise in that Contracting State.

6. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount of royalties. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement.

Article 13

CAPITAL GAINS

1. Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

2. Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

3. Gains derived by an enterprise of a Contracting State from the alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft shall be taxable only in that Contracting State in which the place of effective management of the enterprise is situated.

4. Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

5. Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State.

6. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3, 4 and 5 shall be taxable only in the Contracting State of which the alienator is a resident.

Article 14

INDEPENDENT PERSONAL SERVICES

1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State except in the following circumstances when such income may also be taxed in the other Contracting State:

(a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or

(b) if his stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 91 days in any period of twelve months; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State.

2. The term “professional services” includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, surgeons, dentists and accountants.

Article 15

DEPENDENT PERSONAL SERVICES

1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.

Article 16

DIRECTORS’ FEES

Directors’ fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or similar organ of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17

ARTISTES AND SPORTS PERSONS

1. Notwithstanding the provisions of Articles 14 and 15, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as a sportsperson, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

2. Where income in respect of personal activities exercised by an entertainer or a sportsperson in his capacity as such accrues not to the entertainer or sportsperson himself but to another person, that income may, notwithstanding the provisions of Articles 7, 14 and 15, be taxed in the Contracting State in which the activities of the entertainer or sportsperson are exercised.

3. The provisions of paragraphs 1 and 2 shall not apply to income from activities performed in a Contracting State by entertainers or sports persons if the activities are substantially supported by public funds of one or both of the Contracting States, a local authority or public institution thereof. In such a case, the income shall be taxable only in the Contracting State of which the entertainer or sportsperson is a resident.

Article 18

PENSIONS AND ANNUITY

1. Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid in consideration of past employment and annuity paid to a resident of a Contracting State shall be taxable only in that State.

2. The term “annuity” means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.

Article 19

GOVERNMENT SERVICE

1. (a) Salaries, wages and other similar remuneration, other than a pension, paid by a Contracting State, or a political subdivision, or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority or body shall be taxable only in that State;

(b) However, such salaries, wages and other similar remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

(i) is a national of that State, or

(ii) did not become a resident of that State solely for the purpose of rendering the services.

2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that other State.

3. The provisions of Article 15, 16, 17, and 18 shall apply to salaries, wages and other similar remuneration, and to pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority body thereof.

Article 20

PROFESSORS, TEACHERS AND RESEARCH SCHOLARS

1. A professor, teacher or research scholars who is or was a resident of one of the Contracting States immediately before visiting the other Contracting State for the purpose of teaching or engaging in research, or both, at a university, college, school, museum or other approved institution in that other Contracting State shall be exempt from tax in that other State on any remuneration for such teaching or research for a period not exceeding two years from the date of his first arrival in that other State.

2. This Article shall not apply to income from research if such research is undertaken primarily for the private benefit of a specific person or persons.

3. For the purposes of this Article, an individual shall be deemed to be a resident of a Contracting State if he is resident in that Contracting State in the fiscal year of income in which he visits the other Contracting State or in the immediately preceding fiscal year of income.

4. For the purposes of paragraph 1, “approved institution” means an institution which has been approved in this regard by the competent authority of the concerned Contracting State.

Article 21

STUDENTS AND APPRENTICES

1. Payments which a student or apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that State, provided that such payments arise from sources outside that State.

2. The benefits of this Article shall extend only for such period of time as may be reasonable or customarily required to complete the education or training undertaken, but in no event shall any individual have the benefits of this Article:

(i) in the case of student: for more than five consecutive years from the date of his first arrival for the purposes of his education in the Contracting State;

(ii) in the case of apprentice: for more than two consecutive years from the date of his first arrival for the purposes of his training in the Contracting State.

Article 22

OTHER INCOME

1. Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that State.

2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply.

3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing Articles of this Agreement and arising in the other Contracting State may also be taxed in that other State.

CHAPTER IV

METHODS FOR ELIMINATION OF DOUBLE TAXATION

Article 23

METHODS FOR ELIMINATION OF DOUBLE TAXATION

1. Where a resident of a Contracting State derives income which, in accordance with the provisions of this Agreement, may be taxed in the other Contracting State, the first-mentioned State shall allow as deduction from the tax on the income of that resident an amount equal to the income tax paid in that other State. Such deduction shall not, however, exceed the part of the income tax as computed before the deduction is given, which is attributable as the case may be, to the income which may be taxed in that other State.

2. Where in accordance with any provision of the Agreement, income derived by a resident of a Contracting State is exempt from tax in that State, that State may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

CHAPTER V

SPECIAL PROVISIONS

Article 24

LIMITATION OF BENEFITS

1. The provisions of this Agreement shall in no case prevent a Contracting State from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion, whether or not described as such.

2. A resident of a Contracting State shall not be entitled to the benefits of this Agreement if its affairs were arranged in such a manner as if it was the main purpose or one of the main purposes to take the benefits of this Agreement.

3. The case of legal entities not having bonafide business activities shall be covered by the provisions of this Article.

Article 25

NON-DISCRIMINATION

1. Nationals of a Contracting State shall not be subjected in the other Contracting State to any taxation or any requirement connected therewith, which is other or more burdensome than the taxation and connected requirements to which nationals of that other State in the same circumstances, in particular with respect to residence, are or may be subjected. This provision shall, notwithstanding the provisions of Article 1, also apply to persons who are not residents of one or both of the Contracting States.

2. The taxation on a permanent establishment which an enterprise of a Contracting State has in the other Contracting State shall not be less favorably levied in that other State than the taxation levied on enterprise of that other State carrying on the same activities. This provision shall not be construed as obliging a Contracting State to grant to resident of the other Contracting State any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which it grants to its own residents.

3. Enterprises of a Contracting State, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of the other Contracting State, shall not be subjected in the first-mentioned State to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to other similar enterprises of the first mentioned State are or may be subjected.

4. Except where the provisions of paragraph 1 of Article 9, paragraph 7 of Article 11, or paragraph 6 of Article 12 apply, interest, royalties and other disbursement paid by an enterprise of a Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first-mentioned State.

5. In this Article the term “taxation” means taxes which are the subject of this Agreement.

Article 26

MUTUAL AGREEMENT PROCEDURE

1. Where a person considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Agreement, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident or, if his case comes under paragraph 1 of Article 25, to that of the Contracting State of which he is a national. The case must be presented within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Agreement.

2. The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to arrive at a satisfactory solution, to resolve the case by mutual agreement with the competent authority of the other Contracting State, with a view to the avoidance of taxation which is not in accordance with the Agreement. Any agreement reached shall be implemented notwithstanding any time-limits in the domestic law of the Contracting States.

3. The competent authorities of the Contracting States shall endeavour to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the Agreement. They may also consult together for the elimination of double taxation in cases not provided for in the Agreement.

4. The competent authorities of the Contracting States may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs. The competent authorities, through consultations, shall develop appropriate bilateral procedures, conditions, methods and techniques for the implementation of the mutual agreement procedure provided for in this Article.

Article 27

EXCHANGE OF INFORMATION

1. The competent authorities of the Contracting States shall exchange such information (including documents or certified copies of the documents) as is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Article 1 and 2

2. Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

3. In no case shall the provisions of paragraphs 1 and 2 be construed so as to impose on a Contracting State the obligation:

(a) to carry out administrative measures at variance with the laws and the administrative practice of that or of the other Contracting State;

(b) to supply information (including documents or certified copies of the documents) which is not obtainable under the laws or in the normal course of the administration of that or of the other Contracting State;

(c) to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which would be contrary to public policy (ordre public).

4. If the information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3, but in no case shall such limitations be construed to permit a Contracting state to decline to supply information solely because it has no domestic interest in such information.

5. In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.

Article 28

ASSISTANCE IN COLLECTION

1. The Contracting States shall lend assistance to each other in the collection of revenue claims. This assistance is not restricted by Articles 1 and 2. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of this Article.

2. The term “revenue claim” as used in this Article means an amount owed in respect of taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation thereunder is not contrary to this Convention or any other instrument to which the Contracting States are parties, as well as interest, administrative penalties and costs of collection or conservancy related to such amount.

3. When a revenue claim of a Contracting State is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of collection by the competent authority of the other Contracting State. That revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.

4. When a revenue claim of a Contracting State is a claim in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other Contracting State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection.

5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a Contracting State for purposes of paragraph 3 or 4 shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such. In addition, a revenue claim accepted by a Contracting State for the purposes of paragraph 3 or 4 shall not, in that State, have any priority applicable to that revenue claim under the laws of the other Contracting State.

6. Proceedings with respect to the existence, validity or the amount of a revenue claim of a Contracting State shall only be brought before the courts or administrative bodies of that State. Nothing in this Article shall be construed as creating or providing any right to such proceedings before any court or administrative body of the other Contracting State.

7. Where, at any time after a request has been made by a Contracting State under paragraph 3 or 4 and before the other Contracting State has collected and remitted the relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases to be

(a) in the case of a request under paragraph 3, a revenue claim of the first-mentioned State that is enforceable under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, or

(b) in the case of a request under paragraph 4, a revenue claim of the first-mentioned State in respect of which that State may, under its laws, take measures of conservancy with a view to ensure its collection,

the competent authority of the first-mentioned State shall promptly notify the competent authority of the other State of that fact and, at the option of the other State, the first-mentioned State shall either suspend or withdraw its request.

8. In no case shall the provisions of this Article be construed so as to impose on a Contracting State the obligation:

(a) to carry out administrative measures at variance with the laws and administrative practice of that or of the other Contracting State;

(b) to carry out measures which would be contrary to public policy (ordre public);

(c) to provide assistance if the other Contracting State has not pursued all reasonable measures of collection or conservancy, as the case may be, available under its laws or administrative practice;

(d) to provide assistance in those cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the other Contracting State.

Article 29

MEMBERS OF DIPLOMATIC MISSIONS AND CONSULAR POSTS

Nothing in this Agreement shall affect the fiscal privileges of members of diplomatic missions or consular posts under the general rules of international law or under the provisions of special agreements.

CHAPTER VI

FINAL PROVISIONS

Article 30

ENTRY INTO FORCE

1. Each of the Contracting States shall notify the other Contracting State through diplomatic channels the completion of the procedures required by its law for the bringing into force of this Agreement.

2. This Agreement shall enter into force on the date of the later of the notifications referred to in paragraph 1 of this Article.

3. The provisions of this Agreement shall have effect as follows:

(a) In India, in respect of income derived in any fiscal year beginning on or after the first day of April next following the calendar year in which the Agreement enters into force.

(b) In Indonesia;

(i) in respect of taxes withheld at source: for amounts paid or credited on or after the first day of January next following the date on which this Agreement enters into force, and

(ii) in respect of other taxes: for any tax year commencing on or after the first day of January next following the date on which this Agreement enters into force.

4. The Agreement between the Government of the Republic of India and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and Prevention of fiscal evasion with respect to taxes on income signed at Jakarta on the 7th August, 1987 shall cease to have effect when the provisions of this Agreement become effective in accordance with the provisions of paragraph 3 of this Article.

Article 31

TERMINATION

This Agreement shall remain in force indefinitely until terminated by one of the Contracting States. Either Contracting State may terminate the Agreement, through diplomatic channels, by giving notice of termination at least six months before the end of any calendar year beginning after the expiration of five years from the date of entry into force of the Agreement. In such event, the Agreement shall cease to have effect:

(a) In India, in respect of income derived in any fiscal year on or after the first day of April next following the calendar year in which the notice is given.

(b) In Indonesia;

(i) in respect of taxes withheld at source: for amount paid or credited on or after the first day of January in the calendar year immediately following that in which the notice of such termination is given, and

(ii) in respect of other taxes: for any tax year commencing on or after the first day of January in the calendar year immediately following that in which the notice of such termination is given.

In WITNESS WHEREOF, the undersigned, duly authorised thereto, have signed this Agreement.

Done at New Delhi the twenty-seventh day of July 2012 in two identical originals each in the Hindi, Bahasa Indonesia and English languages, all texts being equally authentic. In case of divergence of interpretation, the English text shall prevail.

For the Government of the Republic of India

(S. M. KRISHNA)

MINISTER FOR EXTERNAL AFFAIRS

For the Government of the Republic of Indonesia

(Dr. R. M. MARTY M. NATALEGAWA)

MINISTER FOR FOREIGN AFFAIRS

PROTOCOL

At the moment of signing the Agreement this day concluded between the Government of the Republic of India and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, the undersigned have agreed upon the following provisions which shall be an integral part of the Agreement.

1. With reference to paragraph 1 of Article 7 (Business Profits), it is understood that profits derived from the sale of goods or merchandise of the same or similar kind as those sold, or from other business activities of the same or similar kind as those effected, through that permanent establishment, may be considered attributable to that permanent establishment if it is proved that:

(i) this transaction has been resorted to in order to avoid taxation in the Contracting State where the permanent establishment is situated, and

(ii) the permanent establishment in any way was involved in this transaction.

2. It is understood that the provisions of paragraphs 1 and 2 of Articles 11 (Interest) and 12 (Royalties and Fees for Technical Services) shall not apply and provisions of Article 7 (Business Profits) shall apply if the income is effectively connected with business activities referred to in paragraph 1 of this Protocol.

3. Notwithstanding anything contained in this Agreement, it is understood that nothing shall prevent a Contracting State from charging the profits of a permanent establishment of an enterprise of the other Contracting State at a rate of tax which is higher than that imposed on the profits of a similar company of the first-mentioned State and it shall neither be construed as discriminatory with respect to Article 25 (Non-discrimination) nor as being in conflict with the provisions of paragraph 3 of Article 7 (Business Profits).

4. For purposes of Article 7 where a company which is a resident of a Contracting State has a permanent establishment in the other Contracting State, the profits attributable to the permanent establishment may be subjected to an additional tax or branch profits tax in that other State in accordance with its law, but such tax so charged shall not exceed a rate of 15%(fifteen per cent).

5. It is understood that in the event of conflict in application between the provisions of this Agreement and the provisions of production sharing contracts relating to the exploitation and production of oil and natural gas in a Contracting State entered into by the Government or any person authorized by it, the latter shall prevail.

6. In respect of paragraph 2 of Article 27 (Exchange of Information), it is understood that, information received by a Contracting State may be used for other Government enforcement purposes when such information may be used for such other Government enforcement purposes under the laws of both States and the competent authority of the supplying State authorises such use.

In WITNESS WHEREOF, the undersigned, duly authorised thereto, have signed this Protocol.

Done at New Delhi the twenty-seventh day of July 2012 in two identical originals each in the Hindi, Bahasa Indonesia and English languages, all texts being equally authentic. In case of divergence of interpretation, the English text shall prevail.

For the Government of the Republic of India

(S. M. KRISHNA)

MINISTER FOR EXTERNAL AFFAIRS

For the Government of the Republic of Indonesia

(Dr. R. M. MARTY M. NATALEGAWA)

MINISTER FOR FOREIGN AFFAIRS

Notification No. : 15/2016 Dated: 16-03-2016


Section 10(46) of the Income-tax Act, 1961 Central Government notifies Karnataka Urban Water Supply and Drainage Board a Board constituted under the Karnataka Urban Water Supply and Drainage Board Act, 1973 (Karnataka Act No. 25 of 1974), in respect of the following specified income arising to that Board – 15/2016 – Dated 16-3-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 15/2016

New Delhi, the 16th March, 2016

S.O. 1139(E).- In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, the Karnataka Urban Water Supply and Drainage Board a Board constituted under the Karnataka Urban Water Supply and Drainage Board Act, 1973 (Karnataka Act No. 25 of 1974), in respect of the following specified income arising to that Board, namely:-

(a) Establishment, administrative and supervision charges collected as a percentage of project cost prescribed by the Karnataka Public Works Department Accounts Code of Government of Karnataka;

(b) Water charges collection for supply of water to local bodies and directly to consumers;

(c) Interest on investments and fixed deposit in banks;

(d) Rent collected for letting out head office building ‘JAL BHAWAN’;

(e) Forfeiture of earnest money deposit.

2. This notification shall be effective subject to the conditions that the Karnataka Urban Water Supply and Drainage Board -

(a) shall not engage in any commercial activity;

(b) activities and the nature of the specified income remain unchanged throughout the financial years; and

(c) shall file return of income in accordance with the provision of clause (g) of sub-section (4C) of section 139of the Income-tax Act, 1961.

3. This notification shall be deemed to have been apply for the financial year 2014-2015 and shall apply with respect to the financial years 2015-2016, 2016-2017, 2017-2018 and 2018-2019.

[F. No. 196/6/2015-ITA-I]

DEEPSHIKHA SHARMA, Directo

Notification No. : 16/2016 Dated: 16-03-2016


Section 10(46) of the Income-tax Act, 1961 Central Government notifies National Biodiversity Authority for dealing with specified income – 16/2016 – Dated 16-3-2016 – Income Tax

MINISTRY OF FINANCE

(Department of Revenue)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION No. 16/2016

New Delhi, the 16th March, 2016

S.O. 1138(E).-In exercise of the powers conferred by clause (46) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies for the purposes of the said clause, “National Biodiversity Authority” an authority established under the Biological Diversity Act, 2002 (18 of 2003) in respect of the following specified income arising to that Authority, namely:-

(a) amount received in the form of grant-in-aid from the Government of India;

(b) amount received in the form of interest;

(c) benefit sharing fee and royalty received;

(d) amount received in the form of penalty and application fees.

2. This notification shall be effective subject to the following conditions, namely:-

(a) the National Biodiversity Authority shall not engage in any commercial activity;

(b) the activities and the nature of the specified income of the National Biodiversity Authority shall remain unchanged throughout the financial years; and

(c) the National Biodiversity Authority shall file return of income in accordance with the provision of clause (g) of sub-section (4C) of section 139 of the said Act.

3. This notification shall be deemed to apply for the period 01.06.2011 to 31.03.2012 and financial years 2012-13, 2013-14, 2014-15 and shall apply with respect to the financial year 2015-2016.

[F. No. 196/28/2012-ITA-I]

DEEPSHIKHA SHARMA, Director

F.NO.287/30/2014-IT (INV.II)-VOL-III – 16-3-2016


Uploading of Information Related to Penny Stock in Respect of Assessees – Circular – Dated 16-3-2016 – Income Tax

LETTER F.NO.287/30/2014-IT (INV.II)-VOL-III

DATED 16-3-2016

REF : EFS Instruction No.53 of Directorate of Systems dated 08.03.2016

Kind attention is invited to the above referred EFS Instruction issued by the System Directorate regarding handling cases of Penny Stocks (suspect Long Term Capital Gains/Short Term Capital Loss etc).

2. It is informed that the said instruction is in the context of investigation conducted by Kolkata Investigation Directorate in respect of large number of penny stock companies, whose share prices were artificially raised on the Stock Exchanges in order to book bogus claims of Long Term Capital Gains or Short Term Capital Loss by various beneficiaries. Extensive investigation, including search and seizure/survey action on entry providers, riggers, beneficiaries etc. was conducted by the Investigation Directorate in such cases. Based upon outcome of such investigation and analysis of the data, the Systems Directorate has now uploaded details of such information in respect of individual assessees who have made transactions in such penny stocks.

3. Vide EFS Instruction under reference a new button ‘Penny Stock’ has been added on Individual Transaction Screen (ITS) to display information related to penny stock, now enabled on the screen of the Assessing Officers (AOs). Available information regarding the manipulative transactions has been captured in the functionality, including the investigation report of the Kolkaia Investigation Directorate. The functionality also contains a guidance note for the Assessing Officers. Such details are visible to the AOs of those assessees whose particulars have emanated out of the investigation report of Kolkata Investigation Directorate and whose cases have been considered actionable, at this stage. The details are also visible to supervisory officers of such AOs.

4. In case of any difficulty in viewing the information on ITS, Shri Vipul Agarwal, JDIT (Sys) 2(1) could be contacted on 0120-2770052 or email at vipul.agarwal@nic.in

5. The undersigned is directed to request that necessary directions may kindly be issued to the officers working under your jurisdiction to access this functionality and ensure that information available in the ‘Penny Stock’ functionality which may be useful for the purpose of cases presently under scrutiny, is examined and considered while finalizing assessments and considering reopening of cases under section 148 of the IT Act, 1961.

6. This issues with the approval of Member (Inv), CBDT.

Real Estate Bill to be discussed in Lok Sabha : 16-03-2016


With just three working days left in the first half of the Budget session, the Centre will press for the passage of key bills in Parliament.

The Whistle Blowers Protection (Amendment) Bill, 2015 is listed for consideration and passing in today’s business in the Rajya Sabha whereas, in Lok Sabha, the Real Estate (Regulation and Development) Bill would be discussed.

The first half of the session is concluding on Wednesday, and will resume on April 25 after a recess of over one month.

The Real Estate Bill was passed by the Rajya Sabha last week. The ruling dispensation at the Centre would be keen to see that the Real Estate Bill gets the nod of the lower house and Aadhar Bill, which is passed by the Lok Sabha, gets passed in the upper house.

The Real Estate Bill would face no hurdle in the lower house in view of majority of the ruling NDA.

With regard to Aadhar Bill, it is certain to sail through as, being a Money Bill, the upper house has to return it within a duration of 14 days.

The Rajya Sabha will resume discussion on the Rail Budget whereas the Lok Sabha on General Budget along with appropriation bills on Monday.

Source : PTI

EPF tax rollback: Winning the tax battle, but losing the returns war : 16-03-2016


You should have your own retirement savings plan in place by way of simple, steady investing in high-yielding asset classes whose returns will ensure taxes, regulations and regulators matter little over the long term.

You might rejoice now at the withdrawal of the Budget’s 2016-17 proposal to tax employees provident fund (EPF) on maturity. But it may not please you when I say that you may have won the tax battle but run the risk of losing the returns war. Lower contribution (since you mostly invest only to save taxes) and lower returns from the traditional options of provident fund may leave you with a much lower corpus than you ought to have.

Let us look at the entire issue from the perspective of what the government is seeking to achieve and what it means to you.

The current and previous ruling governments have tried various means to get EPFO (Employees’ Provident Fund Organisation) as well as investors themselves to adapt a bit to market-linked investing.

– One, it had asked the EPFO to invest a portion (15-20%) of their corpus in equities (index-linked). This did not yield much result but finally a measly 5% of the incremental corpus was agreed to be invested. Hardly a proportion to yield any results for the investor or for the government to reduce its burden from ‘subsidised’ rates.

– Two, one of its other market-linked products, NPS, did not have much corporate takers. In Budget 2015, the government stated that it will look at eventually making an employee choose between either EPF or National Pension System (NPS).

– Three, in a significant move, it changed the way interest rates would be set for small-savings schemes and said rates would be reset every quarter. That means your balance in EPF or PPF can earn different rates every quarter and in the current falling rate scenario, that means your returns will simply move southward, forcing you to move to better yielding options.

– Four, the Economic Survey this year, too has noted how a chunk of ‘wealthy’ investors are the ones to take maximum advantage of benefits in small-savings schemes including provident funds and the need to at best postpone taxability and not entirely exempt it (move to EET).

In all this, the message is clear. One, the government want small savings to belong to genuinely small investors and not those seeking tax haven and safety besides good returns.

Two, the government does not intend to continue its ‘subsidy’ raj in the interest rates and would at least like part of it to be linked to market forces. Paying just 25 basis points more than gilt securities for PPF/EPF is a clear indication.

Three, with deepening gilt market, the government has enough ways to raise resources than to depend on public money. It does not need local players alone to buy its bonds; there are FIIs in hoards, now.

The budget proposal (before rollback), although harsh, was trying to convey that investors need to broad-base their investments. They need to change their attitude towards investing.

As those who have observed the government instruments rates will agree, interest rates, whether in EPF, PPF or other government schemes have clearly been on a downward trend post the late 1990s. There is no way we will go back to the period of 12% returns.

All this means, the government needs you and you need to move to market-linked instruments that deliver superior returns, rather than getting stuck with the idea of saving taxes (at all costs) alone. Just as the government cannot bear the cost of providing for an aging population, you will yourself find it hard to fend for your needs with higher cost of living and lower returns.

By trying to place EPF and NPS on an even footing, the government wanted to send across the message that now, investors have to look for superior returning products and not just tax-saving product.

Unfortunately, the move was too sweeping and less thought out to be accepted. Here’s the trouble with the Budget proposals.

As a result of the rollback, NPS continues to remain a weak option, despite the 40% exemption on withdrawal (as up to 20% will still be taxed out of the 60% allowed to be withdrawn). On the other hand, EPF and PPF will continue to swell, with investors unaware that they may be among the mediocre returning options, given that the rates are set to be more dynamic.

If the intention of the government was to force people into properly channelising the lump-sum they receive on retirement into products that give out regular income, then it could simply have demanded proof of such income-generating investment to avoid tax on withdrawal. Any withdrawal, before retirement, must be taxed to deter investors from pulling out their entire corpus.

Pension plans, which are low yielding, should not be the only option when it comes to parking such proceeds. Why not give an array of schemes – including options such as Post Office Senior Citizens’ Scheme or for that matter low-risk mutual funds and government bonds to ensure investors create their own ‘income’ stream?

Unfortunately, this did not happen in the recent Budget. However, the road-map laid thus far is pointing to only one direction: a move towards market-linked products if you are saving for retirement. This may yet reappear in a new avatar for all you know. And it’s better for you if they do.

So what should you do as an investor? Looking up to the Government to p