The Hon’ble Finance Minister presented the Union Budget 2021 on 01 February 2021 wherein announced “No depreciation to be allowable on Goodwill from 01 April 2021” (assessment year 2021-22 onwards).
The tax authorities always argued that the depreciation on goodwill in business restructuring like Merger and Acquisition should be disallowed. The rationale beside that no allocable cost is actually incurred for the creating the goodwill and the goodwill is not specifically included in section 32 (Depreciation allowed on Tangible and Intangible Assets) of the Act. The matter has been argued at many judicial forums including the Supreme Court.
In 2012, Supreme Court settled this controversy in the case ofSmifs Securities Limited. In this case, depreciation on goodwill arising in the course of amalgamation, the Supreme Court held that the goodwill arising out of excess consideration paid on and over the fair value of assets on business acquisition would qualify as Intangible assets as “any other business or commercial rights of similar nature” applying the principle of ‘ejusdem generis’ to the words used in the meaning of intangible assets
Finance Bill, 2021, above controversy settled by amendments on prospective basis to clarify that no depreciation would be allowable on goodwill from 01 April 2021 (assessment year 2021-22 onwards).
The proposed amendments by Finance Bill, 2021 are as below:
1. Section 2(11) – Block of asset has been amended to clarify it does not include goodwill of a business or profession.
2. Section 32 has been amended that intangible depreciation is not allowable on goodwill of a business or profession. Further, definition of asset has been amended to exclude goodwill of a business or profession as an asset for the purpose of section 32.
3. Section 50 – Computation of capital gains in case of depreciable assets has been amended to provide that where goodwill forms part of block of asset for assessment year 2020-21 and depreciation has been claimed, the written down value of the block would be determined in the prescribed manner. The rules prescribing the computation mechanism will be notified in due course.
4. Section 55 – Cost of acquisition has been amended in relation to goodwill of a business or profession if:
(i) Goodwill acquired from a previous owner, the cost would be the purchase price of the owner
(ii) Goodwill acquired as a result of gift, amalgamation, and merger. Goodwill was acquired by previous owner; cost will be the cost to the previous owner
(iii) In all other cases- cost will be nil.
It is also been clarified that where depreciation has been claimed on the goodwill preceding to assessment year 2021-22, the same would be reduced from written down value of the block of intangible assets.
CSR is a responsibility of a Company’s towards the community and environment in which it operates. CSR is a way of conducting business, by which corporates contribute to the social good.
Companies contribute for the betterment of our society out of the profit as a mandatory provision under section 135 of Companies Act, 2013 for betterment of our society.
Applicability of CSR Provisions:
Every Company including its holding or subsidiary during the immediately preceding financial year having:
Turnover of Rs. 1000 crore or more, or
Net worth of Rs. 500 crore or more, or
Net Profit of Rs. 5 crore or more.
This provision also apply to the foreign companies having branch office in India and fulfills the above mention conditions.
However, if a company ceases to meet the above criteria for 3 consecutive financial years then the company need not required to comply with these Provisions till such time it meets the specified criteria.
Composition of CSR Committee:
Every Company which fulfills the above mentioned CSR provision shall be required to constitute a CSR Committee.
Committee Consist of 3 or more directors, out of that at least one director shall be an independent director. However, if the company is not required to appoint an independent director then shall have 2 or more directors in the Committee.
CSR Committee Consist of 2 directors in case of a private company.
CSR Committee Consist of at least 2 persons in case of a foreign Company of which one person shall be its authorized person resident in India and another nominated by the foreign company.
However, if the expenditure of the company against CSR is not more than Rs. 50 lakhs, then it is not required to form the committee.
Functions of CSR Committee:
The Corporate Social Responsibility Committee shall,—
(a) Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as per Schedule VII,
(b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a),
(c) Monitor the Corporate Social Responsibility Policy of the company from time to time.
Responsibility of Board of Directors:
The Board of every company referred to in sub-section (1) shall,—
(a) After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the Company and disclose contents of such Policy in its report and also place it on the Company’s website, if any, in such manner as may be prescribed; and
(b) Ensure that the activities as are included in Corporate Social Responsibility Policy is undertaken by the company or not; and
(c) Ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
(d) If the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount as clause (o) of sub-section (3) of section 134 of the Companies Act.
For the term above “average net profit” shall be calculated as per the provisions of section 198:
PARTICULARS
FY
Net profit after tax*
Add
Allowed Credits
Profit on sale of Immovable Property (Original Cost – WDV)
Less
Credits Disallowed
Premium on Shares or Debentures
Profit on sale of Forfeited Shares
Profit on sale of Immovable Property (Sale Value – Original Cost)
Surplus in measurement of asset or liability at fair value
Less
Expenses Allowed
All the usual working charges
Director’s Remuneration
Bonus or Commission paid to Staff
Tax on excess or abnormal profits
Tax on business profits imposed for special reasons
Interest on Debentures
Interest on Loans
Expenses on Repairs (other than Capital Expenditure)
Contributions made under section 181 (Bonafide Charitable Trusts)
Depreciation
Prior period items
Legal liability or compensation or damages
Insurance Expenses
Add
Expenses Disallowed
Income Tax
Compensations, damages, or payments made voluntarily
Capital Loss on sale of undertaking or part thereof (Not include losses on sale of asset)
Expenditure in P&L on measurement of asset or liability at fair value
*Net profit after tax is taken as base and accordingly the adjustments need to be considered.
Activities permitted under CSR:
Eradicating extreme hunger and poverty;
Promotion of education;
Promoting gender equality, and empowering women;
Reducing child mortality;
Improving maternal health;
Combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria, and other diseases;
Ensuring environmental sustainability;
Rural development projects
Slum area development.
Protection of national heritage, art, and culture
Employment enhancing vocational skills, social business projects;
Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development, and
Relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women, and such other matters as may be prescribed.
Other Important Point:
The Company shall give preference to the local areas around it where it operates, for expenditure earmarked for Corporate Social Responsibility activities.
CSR is not a donation or charity so 80G deduction not allowed on this expenditure.
However, if the expenditure of the company against CSR is not more than Rs. 50 lakhs, then it is not required to form the committee.
Penalty Provision:
The Government has amended the provision of Section 135 through the Companies (Amendment) Act, 2019 and inserted penalty provisions for companies as well as officers in default as follows;
a) Penalty for Companies: The company shall be punishable with a fine which shall not be less than 50,000 rupees and it may extend to 25 lakh rupees, and
(b) Penalty for Officer in default: Every officer of such company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with a fine which shall not be less than 50,000 rupees but it may extend to 5 lakh rupees, or with both.
Income tax Benefits:
It is very much clear that expenditure incurred as CSR is notincurred wholly and exclusively for the purpose of carrying on business so not allowed as tax deduction. But if such expenditures are in nature described in Section 30 to 36 of the Income Tax Act, 1961 shall be allowed as deduction.
THE ABOVE AMENDMENT SHALL BE APPLICABLE FROM 1ST APRIL, 2015
A private limited company is requires to file certain forms as an annual Compliance.
Form MGT-7
Form MGT-7 which includes information about the company, its shareholders, Directors, KMP etc. as on 31st March and filed with ROC. As per Section 92 & Rule 11, 12 of Companies (Management & Administration) Rule 2014 all class of Companies included small company and one Person Company (OPC) must file this form within 60 days from the date of Annual General Meeting of the company.
Form AOC-4
Filing of form AOC-4 for submitting financial statements (Profit & Loss and Balance Sheet) along with Board’s report, Auditors’ report, Statement of subsidiaries in Form AOC-1, details of CSR policy etc. AOC-4 must be certified by Company Secretary or Practising Chartered Accountant and filed with the ROC.
Form MGT-8
Form MGT-8 is a certification given by a Practising Company Secretary, under Section 92(2) of Companies Act 2013.
MGT-8 filling is applicable on Companies:
A listed company or
A company with paid-up share capital of Rs 10 crore or more or
Turnover of Rs. 50 crore or above
Form DPT-3
DPT 3 is a form to file details of deposits or say transaction not considered as deposit under rule 2(1)(c) of the Companies (Acceptance of Deposit) Rules, 2014.
DPT-3 filling is not applicable on:
Government companies
Banking companies
NBFC
Form ADT-1
Filing form ADT-1 regarding appointment or change in auditor if any during the year
Form DIR-3
Filing DIR-3 KYC Form for KYC of directors having a Director Identification Number (DIN No.).
Filing of KYC of company on yearly basis.
All the above form need to file within time allowed as per Companies Act. 2013
Some more activities need to be done
All the Director have to provide MPB-1 to the company specify their interest in other entities in the first board meeting of financial year.
Dir-8 is to be given by directors to the company every year in the initial board meeting about their disqualification.
Minutes book of Board Meeting and Annual General Meeting should be maintained in writing, signed and kept by company.
Apart from all above if there is a change in anything, the company had to take note of it and if required to file the form to ROC, then it should be filed on time.
A producer company is a body of farmers/ agriculturists, Incorporation of producer company is for benefits given to Farmers Under Companies Act 1956, a Producer Company can be formed as per Section 581C of Chapter II of Companies Act, 1956 by 10 individuals (or more) or 2 institutions (or more) or by a combination of both (10 individuals and 2 institutions) having their business objective as per Section 581B as one of the follows:
Procurement
Production
Harvesting
Grading
Pooling
Handling
Marketing
Selling, or Export
Processing including preserving, drying, distilling, brewing, vinting, canning and packaging of produce of its Members
Manufacture, sale or supply of machinery, equipment or consumables mainly to its Members
Providing education on the mutual assistance principles to its Members and others
Rendering technical services, consultancy services, training, research and development
Insurance of producers or their primary produce
Promoting techniques of mutuality and mutual assistance
Any other activity, ancillary or incidental to any of the activities mentioned above.
Registration Procedure
The process of Registering a Producer Company is similar to register a Private Limited Company.
First step is to obtain Digital Signature (DSC) and Director Identification Number (DIN) for the proposed first Directors of the company.
An application for name reservation in Form INC-1 is to be filed with the relevant Registrar of Companies (ROC) along with 6 names in the order of preference.
As per the Act the name of a producer company must end with the words “Producer Company”.
an application for incorporation is to be filed in the prescribed format for the incorporation of the Producer Company along with following documents:
The directors consent Letter in the Form DIR – 2 and details in DIR – 8
All the drafted documents must be attached to Forms INC – 7, INC – 22 and DIR – 12 and uploaded to the ROC website.
When Registrar is verified with the application and the documents filed for incorporation of Producer Company, he will approve the same and issue Certificate of Incorporation.
Benefits for Producer Companies
In Indian Economy more than 60% of population depends upon agriculture activities for their livelihood. But our Farmers are struggle a lot to cop of this problem Government of India introduced the Producer Company’s concept to the Indian economy. IN this concept many farmers and Primary Producers come together and get many benefited as follows:
