Saturday, June 10, 2017

Sec. 54 relief was available even if investment was made in new property before execution of sale deed

The issue before the Chennai ITAT was as under:

Whether assessee would be eligible for Section 54F relief when he had invested the sale proceeds in construction of new flat even prior to execution of sale deed? 

The Chennai ITAT held as under:

1. Section 54 of the Income-Tax Act (the Act) clearly says that if the assessee, within a period of one year before or two years after the date on which the transaction took place, purchased or within a period of three years after that date, constructed a residential house in India, then the assessee is eligible for deduction under Section 54 of the Act.

2. In this case, the investment was admittedly made one year before the date of sale of property. In view of language employed by Parliament in Section 54 of the Act, it is not the requirement that the sale consideration has to be invested in purchase of property. It is immaterial whether the assessee invested the sale consideration in purchasing of new flat after the date of sale or one year before the sale of property.

3. In this case, the assessee invested the sale consideration one year before the sale of property, therefore, the assessee is eligible for deduction under Section 54 of the Act. - [2017] 82 taxmann.com 164 (Chennai - Trib.)

Ind AS Transition: Govt. grant in the nature of promoters’ contribution to be transferred to Other Equity

Query

A company, B Ltd. is a first-time adopter of Ind AS from April 1, 2017. One year ago, it received a contribution from the government (which holds 100% shareholding in B Ltd.) in the nature of promoters’ contribution. As per the previous GAAP, the contribution was recognized as capital reserve in accordance with AS 12, Accounting for Government Grants. 

The company has following queries:-

1) How the contribution shall be treated on transition to Ind AS?

2) How the contribution shall be treated under Ind AS if the same has been received after transition to Ind AS?

Response

Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance deals with the contributions made by the government. Ind AS 20 does not cover contributions made by a government in the capacity of shareholder. So, Ind AS 20 is applicable only when the contribution is provided as a government, not as a shareholder. Where the contribution is in the nature of government grant then as per Ind AS 101, Firsttime Adoption of Indian Accounting Standards, Ind AS 20 shall apply retrospectively to the grant. Ind AS 20 requires the government grant to be recognised as income over the periods in which related expenditure is recognised as expense to profit or loss.

Where the contribution is in the nature of shareholder contribution which is recognised in capital reserve under previous GAAP, such contributions (i.e. capital reserve) should be transferred to any appropriate category under “Other Equity” at the transition date in accordance with para 10 of Ind AS 101.

Accordingly, in the present case,

1) B Ltd. is required to transfer the balance of contribution received from the government in the nature of promoters’ contribution to appropriate category under “Other Equity” at the transition date.

2) There will be no change on treatment of the contribution even of it is received subsequent to the transition date.

Reference

- Issue 3 of Ind AS Transition Facilitation Group Clarification Bulletin 9

10 Key Takeaways of Draft Rules on Credit Transfer Document

There were lots of rumors afloat that Indian Companies planned to scale down their inventories ahead of GST rollout to limit their losses. Dealers were afraid of paying high GST rate without any claim to credit of excise in absence of duty paying document. The all-powerful GST council intends to introduce “Credit Transfer Document” which will allow them to take credit of duty paid under earlier law subject to some conditions. Moreover, it has also been decided to bring amendment to CCR Rules, 2004 to make Credit transfer document as eligible document for claiming credit.

Click here to view full article

Replace this SLD ITAT lays down new mechanism to computer value of Rent Free Accommodation with this SLD ITAT lays down new mechanism to compute value of Rent Free Accommodation

Query

A company, say D Ltd. has adopted Ind AS voluntarily w.e.f April 1, 2015. In April, 2017, it purchased debentures of another company, E Ltd.

D Ltd. wants to know how interest on investment in debt of E Ltd. will be treated under Ind AS?

Response

The treatment of interest from investment in debt instrument depends upon the basis of subsequent measurement of investment, i.e. amortized cost, fair value through other comprehensive income or fair value through profit or loss.

(i) When the investment is measured at amortized cost, firstly interest revenue, calculated using the effective interest rate, should be added to the gross carrying amount of the investment. Subsequently, on receipt of interest from issuer of debt instrument, the amount of interest received shall be deducted from the gross carrying amount of the investment.

(ii) When the investment is measured at fair value through other comprehensive income, interest revenue from the investment should be recognized in the statement of profit & loss in accordance with paras 5.7.10 and 5.7.11 of Ind AS 109, Financial Instruments. In this case also, interest amount is calculated using effective interest rate.

(iii) When the investment is measured at fair value through profit or loss, an entity has the option either to adjust interest income with the fair value gains/losses or to recognize as income separately in accordance with para B5 (e) Ind AS 107, Financial Instruments: Disclosures.

Reference

- Issue 9 of Ind AS Transition Facilitation Group Clarification Bulletin 8