Accounting treatment of grant -in- aid received

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Snehanshu Kar Chaudhuri (Querist)
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12 July 2014 In the process of financial restructuring of a chronically sick central public sector Enterprises ,Govt of India waived its accumulated loan and interest.As a result the company earned net profit arising liability for payment of current tax.However due to its precarious fund condition,Govt. of India also provided it with fund assistance under Grant-in-Aid for payment of such Income Tax Liability.

In the stated circumstances,I am rather confused about the accounting treatment of such Grant- In -Aid,if it should be treated as capital Receipts in conformity with para 10 of AS-12.or it should be treated as Revenue Receipts in governance with para-18 of the said AS.
Awaiting Suitable response from the Experts in this regard.

Regards

Snehanshu Kar Chaudhuri

CA Sanjeev Kumar

CA Sanjeev Kumar (Expert)
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12 July 2014 Having regard to your case above, this grant does not fall in the para-10 as it does not qualify the condition referred in said para.

Further, such grant should be recognized as Revenue Grant under para-18 as the objective is to meet the tax liability as a result of such reconstruction.

Also, the above grant will also not be taxed since this is in the nature of capital receipt in line with section-28 of Income Tax Law.

Further also, the detailed notes to account need to be mentioned to show such case.

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Thanks

Snehanshu Kar Chaudhuri

Snehanshu Kar Chaudhuri (Querist)
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14 October 2014 Thanx for response. But I am little bit confused with your observation as there is a contradiction between para 2 and para 3.In the event it is recognized as income in the statement of Profit and Loss how could it not be taxed as it does not fall under Exempted Income.

Regards

Snehanshu Kar Chaudhuri

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