The Hindu Business Line : Disinvestment vs privatisation

Though these two terms are loosely used interchangeably, there is vital difference between the two. Disinvestment may or may not result in privatisation. When the Government retains 26 per cent of the shares carrying voting powers while selling the remaining to a strategic buyer, it would have disinvested all right but would not have privatised, because with 26 per cent it can stall vital decisions for which generally a special resolution (three-fourths majority) is required. With the Government thus breathing down the neck of the strategic buyer, he can hardly take decisions that he wants to which privatisation is all about.

Loan from director

A NON-BANKING non-financial public company has taken a loan from its director at a very high interest which is much more than the maximum that is set under the deposit rules. Is this permitted? Should the auditor do something about this?

-- V. Murali, Bangalore

As you might be aware, deposits from directors are outside the purview of the deposit rules. But then, the auditor will have to examine the whole transaction in the light of one of the reporting requirements enshrined in the Manufacturing and other Companies (Auditor's Report) Order, 1988 — if the company has taken any loans, secured or unsecured from parties listed in the register maintained under Section 301, among others, whether the rate of interest and other terms and conditions of such loans are prejudicial to the interest of the company. A director himself is one such interested party. But then this does not ipso facto warrant an alarmist view from the auditor if, in fact, in relation to the size of the company and other relevant considerations, the size of such loan taken is indeed small.

AoP and BoI

BY MAKING it categorical that an AoP or a BoI would be treated as a person, no matter whether such AoP or BoI was established with the object of deriving income, profits or gains, the Finance Act, 2002 seems to have cleared the decks for taxing joint ventures in the nature of one-off arrangements that are so common these days, especially in the infrastructure front. My apprehension is, will this not lead to double taxation?

-- Kishore Samtani, Mumbai

Yes. This plus the insertion of a new Section 174A has indeed cleared the decks for assessing such loose and one-off associations. Section 174A in fact permits the tax administration to hasten assessment during the previous year itself without having to wait till the assessee files his return which would be long after the JV is dissolved. The anxiety is to pin down such JVs when they are active. There is no risk of double taxation because the regime for assessing AoPs and BoIs ensure that having assessed the AoP or the BoI, the members thereof are not taxed again when they receive their individual shares of profit or income.

`Princely' exemption

WHEN cost of education is going through the roof, the income-tax law offers a laughable exemption of Rs 100 per month per child subject to a maximum exemption in respect of two children towards education expenses and Rs 300 per month towards their hostel expenses. Further, the deduction to a student up to a maximum of Rs 40,000 towards repayment of loan for higher education seems to be misplaced — the tax benefit should be given to the parent so that he is enabled to fulfil this filial duty of his better.

-- R. Srinivasan, e-mail

There cannot be two opinions on what you say. The `princely' exemption of Rs 100 and Rs 300 should be done away with and replaced by a deduction under Chapter VI-A up to a liberal limit to take care of the education expenses incurred by a parent on his wards. Repayment of education loan instalments should be subsumed by such dispensation. Let the existing regime of incentive to the student coexist with the suggested regime because there are children who would rather not burden their parents and would take pride in standing on their own feet.

Missing bills

SOME of our suppliers and service providers are very slack in submitting their bills so much so that we are constrained to provide for the related expenditure in our accounts on accrual basis by way of provisions. Our auditors object to this practice. Will this pass muster under the income-tax law?

-- Krishna Chaitanya, e-mail

What perhaps makes your auditor allergic to this practice is the use of the term `provision' with its implications of lack of substantial accuracy. There is no reason why you should call recognition of an actual liability a provision. The fact that bills have not been received does not lessen your liability. Salary and rent are paid as a matter of course, aren't they, without bills being received but in pursuance of contract. There is no reason why a liability should not be similarly recognised if it has arisen in pursuance of a contract even though bill for the same has not been received.

Double depreciation

UNDER the block concept, from the written-down value, money payable in respect of any asset falling within that block which is sold, discarded, demolished or destroyed is required to be deducted. What happens when an asset is gifted?

-- Gowrish, e-mail

This indeed is a serious omission. The upshot is that despite the gift, the donor continues to get depreciation which simply is not on. The donee, too, gets depreciation which, in terms of Explanation 2 to Section 43(1), would be with reference to the WDV in the hands of the donor immediately prior to the gift. Depreciation to both the donor and the donee in respect of the same asset could not simply have been intended. But so long as this omission continues in the statute both would be justified in claiming depreciation.

US-64

WHAT is US-64 bond of the UTI? -- S. K. Jaiswal, e-mail

It is not a bond but unit issued by the UTI vide its maiden mutual fund venture in 1964. It has all along been an open-ended mutual fund scheme but is being wound up in June 2003 in view of certain unpalatable events that overtook the scheme.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

Article E-Mail :: Comment :: Syndication

Stories in this Section
Surviving labour shortage and acute competition

Disinvestment vs privatisation

The ABC of VAT

The owls are awake when others are asleep

How to escape collective stupidity