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Related party transaction

suryakant R Mardhekar (Associate) (45 Points)

15 March 2013

One Corporate Legal entity registed with Company Act 1956. The said Company is into Hospital Industry and taking investigation services from any other hospital which is not company and the same registered under trust which is exempted from Income tax service tax. Hence question comes whether transaction between these two hospitals(ie one company and other trust hospital) need to disclosed in financial statement of Corporate ie comapny as per AS 18 Related Party disclosure.

Request you to advice

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4 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 15 March 2013

As per AS-18 Related Party , RP transactions are required to be disclosed if there are common persons associated between the two entities

for e.g. if there are common directors between two companies and one of the director/directors is able to control the composition of the Board Of directors of the company, or is able to infuence the decision of the Board of the other company or if it has a controlling power of more than 51% then in such case related party transaction is siad to have takne place.

In your case your company is only taking investigation services from other entity whihc is not a company. From the data provided by you there is no element of control/influence as explained above. So it cant be said that related party is exisitng.

suryakant R Mardhekar (Associate) (45 Points)
Replied 16 March 2013

First of all let me Thanks to Mr. Karandikar for taking time to replying my query.

However there are few independent directors in corporate company are also holding position as a trustee in aforsaid trust hospital. In addition to this, the CEO of Trust hospital is also holding the position of independent director in Coporate Company.

As mentioned by you as per AS 18, there is need for disclosure of transaction if there are two common person associated between two entities Though in this scenerio one entity is corporate body which is into hospital industry and other entity is trust hospital which is not a corporate body hence requirement of disclosure is not applicable.

However if trustees of trust hospital and CEO of trust hospital is control the composition of board of director and is able to influence the board of the Corporate legal entity then still the answer will remain same or there is need to disclose the transaction between these two entities

Pls revert