Wednesday, May 4, 2016

AS 18: Names of KMP having control over entity should be disclosed even if there is no transaction with them

A Managing Director (MD) (Mr. A) of a company (B Ltd) has 21% voting power in the company. Key Management Personnel (KMP) include MD of a company as per the definition given in AS 18, 'Related Party Disclosures'. So, Mr. A is a related party of B Ltd. As per an agreement between Mr. A and B Ltd., he has the power to direct financial and operating policies of A Ltd. So, he has control over B Ltd. as per the definition of 'Control' given in AS 18. During the year there were no transactions between Mr. A and B Ltd. In the financial statement B Ltd. has not made any disclosure in respect of Mr. A. The management of B Ltd. is of view that disclosure is not required if there is no transaction with related party (i.e., Mr. A).
Is contention of B Ltd. correct?
Para 21 of AS 18 requires that name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties.
In this case Mr. A is a related party of B Ltd. having control over it. So, with reference to Para 21 of AS 18 as mentioned above, B Ltd. should disclose the name of Mr. A and nature of relationship with him in the financial statement.

Click here to Know More at

No disallowance under sections 40(a)(ia) and 43B if assessee-trust was enjoying exemption under section 11

Whether disallowance under sections 40(a)(ia) and 43B could be made in a case of trust enjoying exemption under section 11 of the Income-tax Act (‘Act’)?
The tribunal held as under-
1)    Sections 11, 12 and13 deal with income from property held for charitable or religious purposes and the mode of computation of income subject to certain conditions. Accordingly, income of any charitable trust or society is exempt from tax, if such conditions are fulfilled.

2)    Sections 40(a)(ia) and 43B fall under Chapter IV-D of the Act. The said Chapter deals with computation of profits and gains from business or profession. The profits and gains from business or profession are computed under section 28. Section 29 provides the manner of computation of income under the head "profits and gains of business or profession", which states that the income referred to in section 28 shall be computed in accordance with the provisions of sections28 to 43D.

Comments on the Draft Rule for giving Foreign Tax Credit

1. Introduction:
Finance Act 2015, inserted, w.e.f. 01.06.2015, clause (ha) in sub-section 2 of Section 295. It enables the Board, subject to the control of Central Government, by a notification in the Gazette of India, to make rules specifying the procedure for grant of relief, deduction of any Income tax paid in any country or specified territory outside India u/s 90, or Section 90A or Section 91, against the income-tax payable under the Act. Accordingly, the Board has, in accordance with the recommendation made by the Committee constituted by it, vide LETTER [F.NO.142/24/2015-TPL], DATED 18-4-2016, announced Draft Rules for granting relief or deduction under section 90/90A/91 of the Income-tax Act, 1961.
2. Salient features of Draft Rule:
The salient features of the Rules are:

For the purpose of giving credit, Foreign tax means-


Tax covered in the Double Taxation Avoidance Agreement entered into by India with a country in terms of Section 90/90A.

Tax, being in the nature of Income tax referred to in clause (iv) of the Explanation to section 91, payable under the laws in force in a country, with which India does not have Double Taxation Avoidance Agreement.