The Hindu Business Line : Sonny, the new car is in your name

The transaction may have the trappings of a gift but there is no gift tax in vogue in India. Nor is gift liable to income-tax in the hands of the donee.

The loss baggage

IT IS A well-settled case law that the brought forward business loss can be set off against dividend income of the current year in case of a dealer in shares even though dividend is invariably assessed under income from other sources.

Can the same logic be extended to a person in the business of earning rental income? - R. Balaji, e-mail

Very much. There is no reason why it cannot be. Income from renting out of a building is pigeonholed as `income from house property' even if such renting out happens to be one's business.

The ratio of the case law, welcome and sagacious as it is, can be extended to a situation where there is a brought forward loss under the head business and there is a current income under house property.

The former can be set off against the latter.

After all, the substance of the case law is that a business loss can be set off against business profit no matter under which head it is assessed.

Deferred query

WHAT is the rate of tax for providing deferred taxation in terms of AS-22? - C. S. Moorthy, e-mail

The answer to your query is to be found in para 21 of AS-22 which says "deferred tax assets and liabilities should be measured using the tax rates and tax laws that have been enacted or substantively enacted by the balance-sheet date."

Thus, for 2002-2003, the balance-sheet date is March 31, 2003, and on this date the most recent rate and law would be furnished by Budget 2003.

At any rate if there is any variance between the Budget proposals and the final enactment in the form of Finance Act, such variance can always be reflected in the accounts.

Is rating green, amber or red?

IS CREDIT rating a recommendation to invest or disinvest? - Navnita Payne, New Delhi

No. In fact every credit rating report contains a disclaimer to the contrary, that is, such a rating is not a recommendation to buy, sell or hold. Credit rating is only an appraisal of the safety of an instrument.

Therefore, if an accredited credit rating agency has given `AAA' rating to, say, the debentures of three companies, all that it means is one can invest in any or all of these three.

Credit rating is never done of an equity instrument towards which perhaps is your query directed.

The reason why credit rating is not done of an equity instrument is not far to seek — equity investment or disinvestment depends upon both endogenous and exogenous factors many of them being volatile.

A rating agency may perhaps have to come out with a revised rating almost on a daily basis if it were to set out on such an adventurism.

Section 80HHC

CAN deduction under Section 80HHC be claimed in the face of current profit but enough unabsorbed depreciation of the past to subsume it? - Kranti Prasad, Guntur

No it is not possible. Now the law is explicit — depreciation would be granted whether claimed or not. And Section 32(2) deems unabsorbed depreciation as current year's depreciation.

I understand your anxiety. You want to have the cake and eat it too. You want to have best of both the worlds. You want to use Section 80HHC benefit when it is available because it cannot be carried forward and conserve unabsorbed depreciation for the rainy day.

But sorry buddy, you cannot get away with this kind of tax planning in view of the express provisions of the law.

Segment study

WHAT is the major thrust of the accounting standard on segmental reporting? - Betty, e-mail

AS-17 spells out what the reportable segments are. Before we go into this, it would be useful to understand the rationale of the standard.

Diversified companies with more than one product or service should not get away with an all-inclusive single account of its activities.

The readers in that case would not know the respective contribution of the individual divisions/products/services to the overall profitability of a concern.

Worse, in that case loss of one or more division could remain hidden under the cover of good profit reported by other division(s).

As an aside, it may be pointed out that while there is a clamour for presentation of consolidated accounts by a holding company, this is without prejudice to segmental reporting requirement.

As to what reportable segments are, I invite your attention to paragraphs 27-32 of the Standard. Broadly, for a product or service segment, the 10 per cent norm has been adopted — a segment's results and position should be furnished separately if it accounted for not less than 10 per cent of the total revenue or 10 per cent of the overall profits.

Grossly unclear

WHAT would constitute the `gross turnover' or `gross receipts' for a dealer dealing in stock and index futures? - Kranti Prasad, Guntur

When you say `dealer', one rules out trading on own account. The presumption is the share broker is in the business of executing orders in the futures market on behalf of his clients.

If that is the case, his gross receipts would include only the commission he is entitled to.

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

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