AS-22

Hey, I have some different opinion.

I Think that as Income Tax, 1961 has given right to take credit of Advance Tax, so DTL arising from 43B transaction can be setoff against capital gain tax provided appropriate disclosures have been given.

Originally posted by : Kunal Agrawal
	No doubt bare AS-22 does not contain exact word 'Current Tax Assets' but same has been used in many books for referencing various pronouncements issued by ICAI.

Hi Kunal,

The below is the extract of para 27 of bare text of AS-22

Note the words in yellow. The asset of Current tax, for the sake of brevity, is referred to as Current tax asset

Like you said, there is no exact word called as "Current Tax Asset"

27. An enterprise should offset assets and liabilities representing current tax if the enterprise:

(a) has a legally enforceable right to set off the recognised amounts; and

 

(b) intends to settle the asset and the liability on a net basis.

actually same has posted in this post about it, so I clarified

Well thanks for your reply.

Originally posted by : Kunal Agrawal
	Hey, I have some different opinion. I Think that as Income Tax, 1961 has given right to take credit of Advance Tax, so DTL arising from 43B transaction can be setoff against capital gain tax provided appropriate disclosures have been given.

No No you cant. DTL's of other heads cannot be set off against DTA's of Capital gains (Captial losses). 

The ASB has issued Interpretation 4 to clarify this, which says

"The deferred tax asset in respect of loss under the head ‘Capital gains’ should be recognised and carried forward only to the extent that there is virtual certainty / reasonable certainty,supported by convincing evidence that  sufficient future taxable income will be available under the head ‘Capital gains’ against which such loss can be set-off as per the provisions of the Act.

Originally posted by : nikita
	Originally posted by : Kunal Agrawal Hi! Current Tax Assets means the 'Tax payable as per Tax Laws for the reporting period'.  tax payable as per tax law is cuerrent tax and not current tax assets.

You are right Ms. Nikita

Current Tax is entirely different from Current tax asset (i.e asset representing Current tax)

Current tax asset (Advance tax) is paid on an estimate basis within due dates.

Current tax is the actual tax liability computed as per tax laws, and the same is disclosed as liability (Provision for tax)

One is an asset & the other is liability. Also, in most of the cases the amounts are not same (as the actual tax liability will be settled only during filing returns) 

hi

Answer for your first question

legally enforceable right is just a statement which means that the reporting entity should be able to reverse the timing difference. AS 22 is applicable only on timing difference. Timing difference is some difference which is capable of being reversed in future. So inorder to report a timing difference, an entity must be certain that it will have a right to reverse the same. there is no statutory meaning for the term.

Answer to question 2

tax expense is equal to current tax plus deferred tax. there is no common use of current tax asset and current tax liability. in simple terms, they are advence tax paid or tax payable.

Answer to question 3

Reasonable certainity is a positive expectation of reversal of deferred tax liability reported now. we can assume it to be a 51:49 chance of reversal of timing difference. as far as virtual certainity is concerned there should be a 90:10 chance of reversal. this type of certainity is required in reporting of deferred tax assets

Originally posted by : krishna Teja
	Originally posted by : Kunal Agrawal Hey, I have some different opinion. I Think that as Income Tax, 1961 has given right to take credit of Advance Tax, so DTL arising from 43B transaction can be setoff against capital gain tax provided appropriate disclosures have been given. No No you cant. DTL's of other heads cannot be set off against DTA's of Capital gains (Captial losses).  The ASB has issued Interpretation 4 to clarify this, which says "The deferred tax asset in respect of loss under the head ‘Capital gains’ should be recognised and carried forward only to the extent that there is virtual certainty / reasonable certainty,supported by convincing evidence that  sufficient future taxable income will be available under the head ‘Capital gains’ against which such loss can be set-off as per the provisions of the Act.

ASI-4 address the issue when DTA in respect of Capital Gain losses be made.

Setting off is governed by Disclosure para of AS-22

The words used in the AS r current Assets and not Current tax asset...there is nothing like current tax asset.

Current tax mean the tax for the year for which the financial statements have been prepared. Current tax does not include advance tax paid and current tax is shown in the profit and loss account by deducting from the profit for the current and on the other hand it is shown in the balance sheet liability side as cuurent tax is the provision for income tax made for the current yerar in which financial statements have been prepared.

Current tax liability means tax  liability for year for which the financials have been prepared.

Rishabh read the question 1 of may 2010 (final new course) and accounting standard as well you will find the words CURRENT TAX ASSET and CURRENT TAX LIABILITY.

1. Legally enforceable right to set off DTA and DTL means that the enterprise can, by virtue of provisions of tax laws set off losses (which are considered while creating DTAs) against incomes (which are considered while creating DTLs)  in future period.

Example: As capital losses cannot be set off against business income, DTA created for capital losses should not be set off against DTL created for business profits (depreciation and like items)

2. Current Tax assets and Current Tax liabilities mean Advance Taxes Paid (Tax Credits) and Tax Payable respectively.

3. Virtual certainty means overwhelming certainty that DTAs would be reversed.

" As per AS-22 one of the condition for setting of DTA and DTL is enterprise has a legally enforceable right to set-off  the recognized amounts."

I think what legally enforceable right could also mean is that say the Company has to pay taxes in different countries, and in 1 country its a DTA and another a DTL. So those 2 would not be legally enforceable to be set off as they are in different countries.