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S. Murlidharan

I UNDERSTAND that MAOCARO is not applicable to private limited companies with effect from July 1, 2003. Is this true? -- K. S. Iyer, Mumbai

Yes. The Companies (Auditor's Report) Order 2003, which supersedes the 1988 order, excludes from its purview "a private limited company with a paid-up capital and reserves not more than Rs 50 lakh and has not accepted any public deposit and does not have loan outstanding Rs 10 lakh or more from any bank or financial institution and does not have a turnover exceeding Rs 5 crore."

The order comes into force from July 1, 2003, and would thus apply to auditors' reports rendered on or after that date. You would note that the various conditions set out so as to be outside the purview of auditor's report in this regard are cumulative and not disjunctive.

The relevant portion cited above in the order conferring exemption to private companies has not been happily worded. Does the limit relating to turnover apply to the financial year under reference? It seems the answer is in the affirmative though things could have been made clearer.

Similarly, should the company never have accepted deposits from the public or should not have done so only during the year under reference which is the subject of auditor's report? Things should have been made explicit and unambiguous.

Rebate for land?

IS TAX rebate available for investment in land also? I know it is available for investment in a house. -- Perumal, e-mail

No, unless the land is meant for construction of a residential house. The section curiously contemplates only instalment or part payment to housing development authorities, cooperatives or companies though the department cannot possibly have any objection to full payment.

ADRs, GDRs

WHY are ADRs and GDRs issued by companies? -- Kanaiya Sinha, e-mail

Normally an Indian company accesses residents of India when it goes to the primary market. Naturally the funds thus raised are Indian rupees. A company in need of capital denominated in US dollars resorts to ADRs or GDRs. American depository receipts (subscribed to by investors in the US) or global depository receipts (subscribed to by investors in Europe) are designated in foreign currency (so far invariably in US dollars) and are traded in foreign bourses. There is another reason for issuing such instruments. The Indian and US markets are not identical much less homogenous.

Quite a few Indian IT companies during the halcyon days took advantage of the marked preference for tech shares in the US and offered their shares at a price that were much more than the ruling Indian quotation. These instruments are fungible — ADR/GDR can be converted to shares denominated in Indian rupees and vice-versa so long as the ADR/GDR under issue does not exceed the sanctioned limit.

Merger doctrine

WHAT is the doctrine of merger under Section 263 of the I-T Act? -- Ankur Gupta, e-mail

The doctrine of merger has it that an order appealed against no longer exists once the appellate authority passes its own order on the issue. In other words, the first order merges with the order of the higher appellate authority.

Under Section 263, the Commissioner has the power to revise any order passed by the assessing officer (AO) which he considers to be erroneous and hence prejudicial to the Revenue.

This section makes it clear that if the order of the appellate order has been appealed against only in part, as it normally happens, the remaining part of the order of the AO not appealed against, comes within the purview of the revisionary jurisdiction of the Commissioner.

But for this provision, the Commissioner could not have laid his hands on the erroneous orders of the AOs that have been appealed against partially resulting in the error going unchecked.

80G, 80GG

A PERSON has business income of Rs 2 lakh and has donated Rs 20,000 which is fully deductible under Section 80G. He lives in a rented house. How much will he be eligible under Section 80GG for deduction towards such rent? -- K. N. Srinivas Sharma, e-mail

Let us assume he has paid a monthly rent of Rs 3,000 and has satisfied all the conditions prescribed by the section. The amount which can be deducted is the least of the following amounts — rent paid in excess of 10 per cent of total income or Rs 2,000 per month or 25 per cent of the total income. His total income is Rs 1.8 lakh after deducting donation. The rent paid by him of Rs 36,000 is in excess of 10 per cent of his total income by Rs 18,000. And this is the least of the three figures required to be juxtaposed. He, therefore, is eligible for a deduction of Rs 18,000 under Section 80GG.

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

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