AS-22 Taxes On Income
This query is : Resolved
22 September 2008
A Co. is basically an investment company. It's nature of business is to acquire, hold shares and trade in mutual funds. The sole income is dividend. While computing tax, the entire income is taken to income from other sources and is exempt u/s 10(34). So though there is huge book profits (dividend income), for tax computation the Profits and gains from business or profession is a LOSS. This happens year after year. Is it right to create deferred tax on the brought forward business losses?
How about creating deferred tax asset / liability on depreciation. i.e. timing difference b/w book depreciation and tax depreciation.. And moreover how the above mentioned company get a chance to show profits as per tax computation? Because only if it changes it's nature of business from investment to trading co. then will the dividend income be treated as PGBP. It is quite obvious that there is no question of creation of deferred tax asset/liability to this investment company as per AS-22. Am i right?
A Co. is basically an investment company. It's nature of business is to acquire, hold shares and trade in mutual funds. The sole income is dividend. While computing tax, the entire income is taken to income from other sources and is exempt u/s 10(34). So though there is huge book profits (dividend income), for tax computation the Profits and gains from business or profession is a LOSS. This happens year after year. Is it right to create deferred tax on the brought forward business losses?
How about creating deferred tax asset / liability on depreciation. i.e. timing difference b/w book depreciation and tax depreciation.. And moreover how the above mentioned company get a chance to show profits as per tax computation? Because only if it changes it's nature of business from investment to trading co. then will the dividend income be treated as PGBP. It is quite obvious that there is no question of creation of deferred tax asset/liability to this investment company as per AS-22. Am i right?
23 September 2008
First please clarify if the nature of "business is to acquire and trade" how is it possible to hold it as other sources?
23 September 2008
Radhika, can u please answer the query for sri
23 September 2008
When the company acquires and hold shares, the nature of holding would be Investment and not trading. So the shares held would not be stock-in-trade in this case. Hence in this case the dividend income is exempt u/s 10(34). Only if it is trading in securities then the shares and securities will be stock and any income such as dividend, sale will be treated as PGBP. Am i clear?
24 September 2008
You can still hold shares as stock if the intent is to trade. Since yours is a company with the object of trading, it does business in shares and accordingly treat the income as from business.
16 October 2008
No this is basically investment company which does not trade shares but purchases them and holds it.. My query was not regarding the nature of business or the nature of treatment of income. My query was on DTA being created on the carried forward business loss, because i thought it is not in line with AS-22. I got confirmed that it is not right to create DTA on such Business losses because of lack of Virtual certainity of setting them off.
Anyway thanks for ur attempt to answer my query.
Anyway thanks for ur attempt to answer my query.
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