Treatment of capital reserve
This query is : Resolved
22 February 2008
Sir,
Please guide on the following case.
Facts of the case
1. X is a Govt. Company formed for developing land , its income being subsidy received from Govt. for administrative and other purposes.
2. During the period from 1975 to 1986 it took loan from Bank for giving loan to cultivators etc..
3. Up to 91-92 the Company raised Rs.705 lacs as share capital. The Company could not repay the loan from Bank since the cultivators defaulted in repayment. The loan and accumulated interest came up to Rs.4700 lacs. Amount incurred for work was Rs.1300 lacs and loan given to cultivators together with interest came up to Rs.1300 lacs.The loss accumulated up to Rs.3200 lacs.
4. During the year 2000 the Government took over the loan payable to Bank and the amount was converted into Capital reserve .The loan given to cultivators and the amount shown under work was also written off.
The query
Now the Company is proposing to adjust the accumulated loss against the Capital reserve.
Kindly clarify whether the Company is justified in doing so.
Also what are its implications in Income tax ?
Sir, The required information are furnished below.
1. The amount was given by the Govt. as Grant-in-aid.There was no other condition specified.
2. The decision to convert the grant in aid to capital reserve was taken by the Company and conveyed to Govt.
3. The Income tax assessment has not yet been completed.
Please advice.
Please guide on the following case.
Facts of the case
1. X is a Govt. Company formed for developing land , its income being subsidy received from Govt. for administrative and other purposes.
2. During the period from 1975 to 1986 it took loan from Bank for giving loan to cultivators etc..
3. Up to 91-92 the Company raised Rs.705 lacs as share capital. The Company could not repay the loan from Bank since the cultivators defaulted in repayment. The loan and accumulated interest came up to Rs.4700 lacs. Amount incurred for work was Rs.1300 lacs and loan given to cultivators together with interest came up to Rs.1300 lacs.The loss accumulated up to Rs.3200 lacs.
4. During the year 2000 the Government took over the loan payable to Bank and the amount was converted into Capital reserve .The loan given to cultivators and the amount shown under work was also written off.
The query
Now the Company is proposing to adjust the accumulated loss against the Capital reserve.
Kindly clarify whether the Company is justified in doing so.
Also what are its implications in Income tax ?
Sir, The required information are furnished below.
1. The amount was given by the Govt. as Grant-in-aid.There was no other condition specified.
2. The decision to convert the grant in aid to capital reserve was taken by the Company and conveyed to Govt.
3. The Income tax assessment has not yet been completed.
Please advice.
22 February 2008
Following clarifications are needed:
1.What are the terms and conditions the Governmnt took over the Bank loan?
2.What was the basis of the company treating the taking over of loan as a capital reserve?
3.Have the accumulated losses been assessed by IT authorities?
1.What are the terms and conditions the Governmnt took over the Bank loan?
2.What was the basis of the company treating the taking over of loan as a capital reserve?
3.Have the accumulated losses been assessed by IT authorities?
11 March 2008
Sir,
The required information are furnished.
The required information are furnished.
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