http://www.4shared.com/document/gW9_4LgD/SD_IFRS_US_GAAP_and_Indian_GAA.html
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Saturday, May 22, 2010
Accounting Standard Interpretation
http://www.4shared.com/dir/OH6NSqpl/AS_Interpretation.html
Above is the link to all the ASI issued by the ICAI
Above is the link to all the ASI issued by the ICAI
CheckList for Tax Audit
http://www.4shared.com/document/3iUuX4Ck/27_59_taxauditcheck_list.html
Above link for the Checklist regarding Tax Audit
Its a descriptive Checklist and also has details on how the Audit should be started or concluded
Above link for the Checklist regarding Tax Audit
Its a descriptive Checklist and also has details on how the Audit should be started or concluded
How can IFRS impact P&L topline?
How can IFRS impact P&L topline?
Top-line being a vital indicator of a company's performance, assessing how it can change in the IFRS regime is business critical. It is thus imperative that executives from across the organisation are drawn into the transition process.
Santosh Maller
As we approach the proposed date of transition to International Financial Reporting Standards (IFRS) in India, it becomes critical to assess the impact IFRS may have on a company's key financial parameters. One such parameter is a company's revenue popularly termed ‘top-line'. IFRS may confront a company with complex issues relating to measurement and/or timing of revenue recognition. In this article, we discuss a few such potential issues.
Multiple-Element Contracts: Many companies provide multiple products and/or services to their customers as part of a single arrangement. For example, software vendors often provide upgrades, training, installation or consulting in combination with a software licence, just as telecom companies sell handsets along with a subscription, and so on.
IFRS requires separate recognition of revenue for separately identifiable components of a single transaction to reflect the substance of the transaction. If an element has commercial substance on its own, its revenue should be recognised separately from other elements. Therefore, recognition of revenue for undelivered items of the contract has to be deferred till they are delivered.
Deferred consideration: IFRS requires revenue to be measured at the fair value of the consideration. Where realisation of the consideration is deferred beyond normal credit period, discounting to a present value is required; as such, an arrangement effectively includes a financing transaction.
This discounting of future receivables is done using an imputed interest rate, which is the more clearly determinable of the prevailing rate for a similar instrument by an issuer with a similar credit rating as that of the buyer or a rate of interest that discounts the nominal undiscounted amount to the current cash sales price. Such deferrals of consideration may be found in related party revenue arrangements within a group.
Embedded Derivatives: Many long-term revenue contracts have features such as price escalation clauses, foreign currency arrangements or other components that are sensitive to separate accounting under the principles for embedded derivatives in IAS 39. An embedded derivative is a component of a combined instrument that also includes a non-derivative host contract — with the effect that some of the cash-flows of the combined instrument vary in a way similar to a standalone derivative instrument.
For example, an Indian company enters into a US dollar-denominated construction contract with another Indian company (say, as part of a global competitive bidding process). In this case, the embedded foreign currency derivative may have to be separately accounted for, in turn, with an impact on the percentage of completion based contract revenue.
Joint Ventures: At present, IFRS allows use of proportionate consolidation for consolidating the financial results and position of joint ventures. In this method, revenues of a joint venture are proportionately included in the consolidated revenues.
There is an exposure draft issued under IFRS, which, inter alia, proposes to prohibit the use of proportionate consolidation method and mandates equity accounting method. Under this method, share of net results of the joint venture are accounted for instead of combining each P&L line item. Therefore, consolidated revenues would be excluding joint ventures' revenue, although consolidated profits would be inclusive of joint ventures' net results. This draft may be issued as a final standard before Indian companies go live on IFRS.
Apart from the ones mentioned above, there can be several other transition issues depending on the company's industry sector, the group structure, distribution channel structure, etc. Since top-line is a vital indicator of a company's performance, assessing the change it may undergo in the IFRS regime will be business critical. This will require careful understanding and assessment of revenue arrangements, improvement of business processes and enhancement of information systems.
It is, therefore, imperative that, apart from the accounting staff, executives from across the organisation are drawn into IFRS transition. Since, this process may take significant effort and time; it is imperative to start early.
(The author is a senior professional in a member firm of Ernst & Young Global. His views are personal.)
Top-line being a vital indicator of a company's performance, assessing how it can change in the IFRS regime is business critical. It is thus imperative that executives from across the organisation are drawn into the transition process.
Santosh Maller
As we approach the proposed date of transition to International Financial Reporting Standards (IFRS) in India, it becomes critical to assess the impact IFRS may have on a company's key financial parameters. One such parameter is a company's revenue popularly termed ‘top-line'. IFRS may confront a company with complex issues relating to measurement and/or timing of revenue recognition. In this article, we discuss a few such potential issues.
Multiple-Element Contracts: Many companies provide multiple products and/or services to their customers as part of a single arrangement. For example, software vendors often provide upgrades, training, installation or consulting in combination with a software licence, just as telecom companies sell handsets along with a subscription, and so on.
IFRS requires separate recognition of revenue for separately identifiable components of a single transaction to reflect the substance of the transaction. If an element has commercial substance on its own, its revenue should be recognised separately from other elements. Therefore, recognition of revenue for undelivered items of the contract has to be deferred till they are delivered.
Deferred consideration: IFRS requires revenue to be measured at the fair value of the consideration. Where realisation of the consideration is deferred beyond normal credit period, discounting to a present value is required; as such, an arrangement effectively includes a financing transaction.
This discounting of future receivables is done using an imputed interest rate, which is the more clearly determinable of the prevailing rate for a similar instrument by an issuer with a similar credit rating as that of the buyer or a rate of interest that discounts the nominal undiscounted amount to the current cash sales price. Such deferrals of consideration may be found in related party revenue arrangements within a group.
Embedded Derivatives: Many long-term revenue contracts have features such as price escalation clauses, foreign currency arrangements or other components that are sensitive to separate accounting under the principles for embedded derivatives in IAS 39. An embedded derivative is a component of a combined instrument that also includes a non-derivative host contract — with the effect that some of the cash-flows of the combined instrument vary in a way similar to a standalone derivative instrument.
For example, an Indian company enters into a US dollar-denominated construction contract with another Indian company (say, as part of a global competitive bidding process). In this case, the embedded foreign currency derivative may have to be separately accounted for, in turn, with an impact on the percentage of completion based contract revenue.
Joint Ventures: At present, IFRS allows use of proportionate consolidation for consolidating the financial results and position of joint ventures. In this method, revenues of a joint venture are proportionately included in the consolidated revenues.
There is an exposure draft issued under IFRS, which, inter alia, proposes to prohibit the use of proportionate consolidation method and mandates equity accounting method. Under this method, share of net results of the joint venture are accounted for instead of combining each P&L line item. Therefore, consolidated revenues would be excluding joint ventures' revenue, although consolidated profits would be inclusive of joint ventures' net results. This draft may be issued as a final standard before Indian companies go live on IFRS.
Apart from the ones mentioned above, there can be several other transition issues depending on the company's industry sector, the group structure, distribution channel structure, etc. Since top-line is a vital indicator of a company's performance, assessing the change it may undergo in the IFRS regime will be business critical. This will require careful understanding and assessment of revenue arrangements, improvement of business processes and enhancement of information systems.
It is, therefore, imperative that, apart from the accounting staff, executives from across the organisation are drawn into IFRS transition. Since, this process may take significant effort and time; it is imperative to start early.
(The author is a senior professional in a member firm of Ernst & Young Global. His views are personal.)
Friday, May 21, 2010
Everything regarding HUF's
FAQ on Constitution of HUF, HUF Property, Blending of Individual Property with that of HUF
May 18, 2010 General Info
Q.1 How does Hindu Undivided Family come into existence under Hindu Law as well as under Income-tax Act, 1961?
Ans. The concept of HUF under Hindu law as well as Income-tax Act, 1961 is the same. As stated earlier, HUF is purely a creature of law and cannot be created by an act of parties (except in case of adoption and reunion). A HUF is a fluctuating body, its size increases with birth of a male member in the family and decreases on death of a member of the family. Females go and come into HUF on marriage. In case of a sole male Hindu, strictly speaking, a HUF comes to existence automatically upon his marriage. It has been held [Refer : Gowli Buddanna v/s. CIT [(1966) 60 ITR 293 (SC)] that to constitute a joint Hindu family, it is not necessary that there has to be more than one coparcener in the family; a husband and wife can validly constitute a HUF.
Q.2 Whether a single person can constitute HUF?
Ans. No. A single person cannot constitute HUF. There has to be minimum two members to constitute a HUF. [Refer : C. Krishna Prasad v/s. CIT (1974) 97 ITR 493 (SC)]
Q.3 Can a son who is the sole surviving coparcener along with other females in the family after his father's death constitute an HUF?
Ans. Yes. As discussed in answer 10, to constitute a HUF, it is not necessary that there has to be minimum two co-parceners or minimum two male members in the family. In the given case, the HUF of the father will continue even after death of the father, with the son as Karta and other family members of the family as its members.
Q.4 What will be the position if the son is the sole male coparcener without any female members?
Ans. In such a case, there will not be any HUF. However, upon marriage of such son, automatically, HUF will come into existence.
Q.5 Can a son being a member of HUF consisting of his father, himself and his brothers, form an HUF consisting of himself, his wife and minor son?
Ans. Under Hindu law, there can be a HUF within a HUF. Therefore, a son can have his own smaller HUF while he continues to be a member of his father's HUF. In his father's HUF, he is a mere member and in his own HUF, he is Karta.
Q.6 Whether a Hindu marrying Christian, and bringing up his daughter as Christian, can claim HUF status?
Ans. No. If the child is not brought up as a Hindu, confirming the habits and usages of Hinduism, such child will not be regarded as a Hindu. Consequently, there can not be a Hindu Undivided Family, as recognized by law. [Refer : Addl. CIT vs. G. Venkataraman [(1977) 109 ITR 247 (Mad)].
Q.7 Whether an assessee can claim a status of HUF on ground of legal obligation to maintain his wife after partition allotting shares to wife and children?
Ans. There is a difference of opinion among various courts on this issue. One view is that the status of Joint Hindu Family does not come to an end even if the wife is given a share on partition, as the status depends upon the relationship of husband and wife, which does not get snapped in case of partition, and the wife continues to be a member of her husband's family. [Refer : Prem Chand vs. CIT (1984) 148 ITR 440 (AP)].
Another view is that in such a case, the HUF comes to an end, till a son is born to or adopted by such couple. This view is based on the logic that the wife will have no right of maintenance or right to get a share on partition she has already taken her share [Refer : CIT vs. Radheshyam Agarwal (1998) 230 ITR 21 (Pat)]. The second view appears to be a correct view.
Q.8 Where the coparcener is an individual at the time of partition, whether he can constitute a HUF on marriage?
Ans. As discussed in answers 2 and 4, such coparcener along with his wife, can constitute HUF upon his marriage. However, as to whether the share received on partition becomes HUF property on marriage there is a difference of opinion among various Courts. The better view seems to be that it becomes HUF property.
Q.9 What is HUF Property?
Ans. A property owned by a HUF is HUF property. A HUF can acquire properties from various sources viz., on partition, by way of gift, through will, accretion to the existing properties, blending, by joint labour, etc. However, after the codification of major aspects of Hindu law in 1956, the concept of ancestral property is considerably diluted, as there is now a clear demarcation between individual property and HUF property of a Hindu male. Self acquired property of a Hindu male will pass on to his legal heirs as per the rules of succession and the legal heirs receive the property as individual property. So also the share of the deceased co-parcener in HUF, which otherwise devolves by survivorship to other co-parcener goes by succession to legal heirs, which they hold as separate property, if such co-parcener has left certain class of female relatives or a male relative who claims through such female relative, specified in Class I of the first schedule to Hindu Succession Act, 1956.
Q.10 Whether a family that does not own any property can have the character of Hindu joint family?
Ans. Yes, the concept of HUF is not related to possession of any property by the family nor the existence of such joint property is an essential pre-condition for constituting a HUF. This is because Hindus get joint family status by birth and joint property is simply an adjunct to the joint family.
Q.11 What is the nature of property received by a male member after his marriage but before a male child is born?
Ans. There is considerable controversy on these aspects. There are divergent views expressed by different courts from time to time. One view is that since a HUF, as known under Hindu law, can consist of even husband and wife only, once such a HUF has come into existence upon marriage of a Hindu male, such family can receive property from any source and regard the same as HUF property. However, the other view is that in such a case, a distinction should be made between a property that already has characteristic of a joint property, (for example, property received on partition) and other than such properties. In case of receipt of properties of the former kind, such family (that is, consisting only of husband and wife) can receive and treat such property as joint Hindu family property. But in case of latter (that is, in the cases like gift or will), unless there are at least two coparceners in the family, such HUF cannot receive or treat such property as HUF property. In other words, since, in such family of husband and wife, there is only one coparcener i.e. husband (wife being a mere member and not coparcener), if such HUF wants to receive and regard any property from an outside source as HUF property, then it has to have another coparcener in the family; i.e., son. The latter view seems to be a safer one.
Q.12 What is the nature of property received by a Hindu from his father and having only a wife and daughters in his family?
Ans. This will depend upon whether the property received by such Hindu from his father is father's individual property or property of father's HUF. In case of the former, such Hindu will be receiving the property as a legal heir of the father and the rules of succession as prescribed under Hindu Succession Act, 1956, will prevail. If the property is received from father's HUF, then it can form part of HUF of such Hindu. But the share of the father in the HUF, upon his death, can go to his legal heirs, which will be their individual property, if the father has left behind him any female relative or a male relative claiming through such female relative, as in Class I of the schedule to that Act.
Q.13 Whether property acquired by gift by the assessee from his mother with an intention of his mother that the money should be used for the benefit of his family is HUF property or not?
Ans. Subject to answer 20, HUF can receive gifts from anybody, including a stranger. In any case, as held by the Supreme Court, [Ref : CIT vs. K. Satyendra Kumar (1998) 232 ITR 360] (SC)] a gift by mother also can be a source of HUF property.
Q.14 Can a coparcener blend his self-acquired property with that of HUF?
Ans. Yes, a co-parcener can blend his self-acquired property with that of HUF by throwing his individual or self-acquired property into family hotchpot or by impressing such property with the character of HUF property.
Q.15 Whether such blending of individual property with that of HUF requires consent of other members of the family?
Ans. No, the act of blending does not require consent of other members of the family. The act is an unilateral act and is a matter of individual volition. There is no question of family either accepting it or rejecting it. Such blending does not constitute a transfer. [Ref : CIT v/s. A. Krishna Murthy (1978) 113 ITR 133 (AP)]
Q.16 Can the act of the coparcener blending individual property into HUF be considered as revocable transfer?
Ans. No, once blending is done, it is not revocable. There is no provision for retransfer, directly or indirectly, of the whole or any part of the income or assets to the transferor. As such, there is no question of blending being regarded revocable transfer for the purpose of Income-tax Act, 1961. [Refer : Addl. CIT vs. A. R. Sahasranamam (1977) 109 ITR 493 (Mad)]
Q.17 Can a coparcener blend his individual property into his smaller HUF wherein he is a Karta, while continuing to be a member of the bigger HUF consisting of his father, himself and his brothers?
Ans. A co-parcener can be co-parcener of two joint Hindu families. The blending is at his option, he may blend his property with either of the HUFs. In that view of the matter, a co-parcener can blend his individual property with his smaller HUF, wherein he is Karta, while continuing to be a member of the bigger HUF consisting of his father, himself and his brother. [Refer : CIT vs. M. M. Khanna (1963) 49 ITR 232 (Bom)]
Q.18 What will be the position where the smaller HUF consists of only his wife and minor daughter?
Ans. As discussed in answer 20, there are divergent views on the aspect of the treatment of the property received by a HUF, consisting of only husband, wife and minor daughter. The Supreme Court in the case of Surjit Lal Chhabda vs. CIT [(1975) 101 ITR 776)], on similar facts has held that in such a case, such husband cannot blend his individual property, which has no ancestral characteristic, with his HUF property.
Q.19 Is it necessary for the HUF to have any ancestral property prior to receiving the property from one of the coparceners?
Ans. No, it is not necessary for the HUF. Even an empty hotchpot can receive and hold any property that is thrown into it by the co-parcener [Refer : CIT vs. S. Sivaprakasa Mudaliar (1983) 144 ITR 285 (Mad)]
Q.20 Can a female member of the family blend her individual property into the HUF?
Ans. Blending is a power given only to co-parceners. Since females are not co-parceners, a female member of a joint family cannot blend her individual property with HUF property. [Refer : Mallesappa vs. Desai (AIR (1961) SC 1298) and Pushpa Devi v/s. CIT [(1977) 109 ITR 730 (SC)]
Q.21 Will the clubbing provisions be applicable with respect to any income generated from such blended or converted property?
Ans. Yes, the clubbing provisions u/s. 64(2) of the Income-tax Act as well as section 4(1A) of the Wealth-tax Act are specifically introduced to tax income/wealth arising from such blending. Under the Income-tax Act, the income arising from such converted property will be deemed to be income of the transferor individual. Moreover, on partition of such property, in case such property is distributed to wife of such individual, the income arising therefrom shall be continued to be taxable in the hands of the transferor individual. Similarly under the Wealth-tax Act, the converted property is deemed to be the asset belonging to the individual and when such converted property has been the subject matter of partition, the converted property or any part thereof, which is received by wife of the individual on such partition, shall be deemed to be the property belonging to such individual and as such will be includible in the wealth of such individual.
Exam Scheduler
Below is the Study Plan which my friend followed in Finals in Nov 09 exams
He cleared it with flying colors
I did the same for May 2010 exams & my exams were better than others
He cleared it with flying colors
I did the same for May 2010 exams & my exams were better than others
Recent Judgement:Real Estate Developer - Sale of land held as stock-in-trade to be treated as business income and not capital gains
Income tax - real estate developer - sale of land held as stock-in-trade to be treated as business income and not capital gains: ITAT
MUMBAI, MAY 18, 2010: IN case of land transactions there appears to be a trend to escape from paying tax by forming a partnership firm. In this case also, the issue is whether the partnership firm constituted by the assessee with four other persons was constituted only for the purpose of tax evasion, and whether once it is held that firm was bogus then the profits accrued on transfer of land held as stock in trade is to be assessed as "business profits".
Facts fo the case
Assessee, a builder, acquires rights over one plot located at Ghat-Koper. He enters into partnershipv(PF) with four other persons on 17.04.2003 and retires from the firm after 7 days after receiving his share of profit and development expenses. AO takes the view that the creation of PF was a camouflage and the real purpose was tax evasion. Before the CIT(A) the assessee argues that whatever has been received by the assessee on retirement is taxable as capital gain but the taxable event will arise only when he sold the properties received by him on retirement.
Revenue filed appeal before the ITAT which has held that,
++ The device of constituting partnership firm with the assessee as one of its partners and then his retirement after 11 days on the basis of retirement deed, the stamp papers for which were purchased simultaneously with the formation of the partnership firm, do go to show that the assessee was not genuinely inducted in and then removed from the firm as partner in the said firm. On the other hand the reality of the transaction which can be viewed by the naked eyes is that the assessee agreed to sell development right in Ghatkopar plot to the four persons.
++ In order to extinguish or defer the genuine tax liability on account of such transaction of sale, a circuitous route was adopted by which the assessee was to first join the partnership firm and then retire from it within few days leaving the development right in Ghatkopar plot with the firm for the agreed consideration. We, therefore, hold that the assessee was neither genuinely inducted in nor actually retired as partner from the firm;
++ It is trite that any profit or gain on the transfer of stock in trade is regarded as business income and there is no question of assessing any part of it under the head `Capital gains'.
++ Under such circumstances and further considering the fact that the assessee himself showed income of Rs 30,61,451 as assessable under the head `Profits and gains of business or profession', the entire income from this transaction is to be regarded as "business income" and no part of it can be taxed under the head `Capital gains'.
Revenue's appeal partly allowed.
(In the case of DLF Universal Limited (2010-TIOL-16-ITAT-DEL-SB) it was held that partnership firm was bogus and the profits on transfer of land bank were held to be capital gains and not business profits - Editor's Note)
MUMBAI, MAY 18, 2010: IN case of land transactions there appears to be a trend to escape from paying tax by forming a partnership firm. In this case also, the issue is whether the partnership firm constituted by the assessee with four other persons was constituted only for the purpose of tax evasion, and whether once it is held that firm was bogus then the profits accrued on transfer of land held as stock in trade is to be assessed as "business profits".
Facts fo the case
Assessee, a builder, acquires rights over one plot located at Ghat-Koper. He enters into partnershipv(PF) with four other persons on 17.04.2003 and retires from the firm after 7 days after receiving his share of profit and development expenses. AO takes the view that the creation of PF was a camouflage and the real purpose was tax evasion. Before the CIT(A) the assessee argues that whatever has been received by the assessee on retirement is taxable as capital gain but the taxable event will arise only when he sold the properties received by him on retirement.
Revenue filed appeal before the ITAT which has held that,
++ The device of constituting partnership firm with the assessee as one of its partners and then his retirement after 11 days on the basis of retirement deed, the stamp papers for which were purchased simultaneously with the formation of the partnership firm, do go to show that the assessee was not genuinely inducted in and then removed from the firm as partner in the said firm. On the other hand the reality of the transaction which can be viewed by the naked eyes is that the assessee agreed to sell development right in Ghatkopar plot to the four persons.
++ In order to extinguish or defer the genuine tax liability on account of such transaction of sale, a circuitous route was adopted by which the assessee was to first join the partnership firm and then retire from it within few days leaving the development right in Ghatkopar plot with the firm for the agreed consideration. We, therefore, hold that the assessee was neither genuinely inducted in nor actually retired as partner from the firm;
++ It is trite that any profit or gain on the transfer of stock in trade is regarded as business income and there is no question of assessing any part of it under the head `Capital gains'.
++ Under such circumstances and further considering the fact that the assessee himself showed income of Rs 30,61,451 as assessable under the head `Profits and gains of business or profession', the entire income from this transaction is to be regarded as "business income" and no part of it can be taxed under the head `Capital gains'.
Revenue's appeal partly allowed.
(In the case of DLF Universal Limited (2010-TIOL-16-ITAT-DEL-SB) it was held that partnership firm was bogus and the profits on transfer of land bank were held to be capital gains and not business profits - Editor's Note)
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