Friday, August 25, 2017

Dubai Villa gifted to Shah Rukh Khan not taxable as his professional receipt: Mumbai ITAT

Facts :

a) Shahrukh Khan (SRK) received Signature Villa as gift from a Dubai based public joint stock company. Assessing Officer (AO) was of opinion that said villa was assessable as 'professional receipt' being covered under Section 28(iv).

b) SRK had denied rendering any professional services and attributed the receipt of villa to simply a unilateral gratuitous act of gift by Dubai based Company on its Annual Day on account of natural love and affection which wasn’t taxable.

c) CIT(A) held in favour of SRK. Aggrieved-revenue filed the instant appeal before the tribunal.

Tribunal held in favour of assessee as under :

1) Mr. Shah Rukh Khan was one of the guest honour on the occasion of Annual day celebration of Donor-Company. He was under no obligation to attend such function and undertake any sort of brand endorsements.

2) Mere fact that he had attended annual day celebrations and addressed employees of said company, it could not be concluded that he had indulged in brand endorsement for Donor Company.

3) Further, gift received in kind had been brought to tax w.e.f. 01/10/2009 under section 56(2)(vii)(b). Earlier, only money received as gift in excess of Rs. 50,000 could be brought to tax vide Section 56(2)(vii)(a).

4) This case pertained to AY 2008-09 wherein old provision was applicable. Therefore, Signature Villa received as gift by SRK couldn’t be said to be out of exercise of profession and, thus, not taxable. - [2017] 84 taxmann.com 209 (Mumbai - Trib.)

Ind AS 20: EPCG exemption for import duty on capital goods is a Government Grant

Query

A company, say A Ltd. has received exemption of paying custom duty on imported capital goods subject to condition that it has to export the manufactured goods under Export Promotion Capital Goods (EPCG) scheme.

Whether such exemption by the government can be treated as government grant under Ind AS 20, Government Grants and Disclosure of Government Assistance? If yes, then which type of grant it is and how it will be accounted for?

Response

Government grants are defined in para 3 of Ind AS 20 as assistance by government to an entity in the form of transfers of resources subject to past or future compliance with certain conditions which are related with the operating activities of the entity. Therefore, in the present case, the exemption by government to pay custom duty on import of capital goods is a government grant under Ind AS 20.

The classification of government grant as the grant related to asset or grant related to income requires exercise of judgment and careful examination of terms and conditions of the grant. So, if a grant is classified as the grant related to asset then, as per paras 24 & 26 of Ind AS 20, the amount of the grant (fair value in case of non-monetary grant) should be recognised as deferred income and same is transferred to profit or loss over the useful life of the asset.

If the grant is classified as the grant related to income then, as per para 29 of Ind AS 20, the grant should be recognised as income on a systematic basis over the periods in which the entity recognises associated costs as expenses. In the present case, if the grant received is to compensate import cost of capital goods subject to condition of exporting then the grant should be recognised as income on a systematic basis that should be related to the fulfillment of export obligations.

However, if the grant is to compensate import cost of capital goods and condition to export the manufactured goods is secondary in nature then the grant should be recognised as income over the useful life of underlying capital good.