Case Details: Pinnacle Vehicles and Services (P.) Ltd. v. Joint Commissioner, (Intelligence and Enforcement) - [2024] 169 taxmann.com 177 (Kerala)

Judiciary and Counsel Details

• Gopinath P., J.
• Ammu Charles, Adv. for the Petitioner. 
• J. Vishnu, Adv. for the Respondent.

Facts of the Case

The petitioner was a registered person under the CGST/SGST Acts, allocated to the jurisdiction of the Central Tax Authorities. The petitioner challenged the show cause notice issued by the State Tax Authority without jurisdiction and without any notification as contemplated by the provisions of Section 6(1) of the CGST Act.

High Court Held

The Kerala High Court noted that a reading of Section 6(1) of the CGST Act makes it clear that the officers appointed under the State Goods and Services Tax Act are authorised to be proper officers for the purposes of the Act, subject to such conditions as the Government shall, on the recommendations of the Council, by notification, specify. Unaided by authority, a reading of the provision suggests that the officers appointed under the State Goods and Services Tax Act are proper officers for the purposes of the Central Goods and Services Tax Act. It is only when any restriction or condition has to be placed on the exercise of power by any officer appointed under the State Goods and Services Tax Act that a notification as contemplated by the provisions of Section 6(1) of the CGST Act has to be issued.

Since the issue raised in this writ petition will affect several proceedings, and taking note of the view expressed by the Madras High Court in case of Tvl. Vardhan Infrastructure [2024] 145 taxmann.com 1/66 GST 1 (Mad.), which is contrary to the prima facie view that the Court has taken, the Court was of the opinion that this issue requires an authoritative pronouncement by a Division Bench of this Court.

List of Cases Reviewed

• Tvl. Vardhan Infrastructure v. Special Secretary, Head of GST Council Secretariat [2024] 145 taxmann.com 1/66 GST 1 (Mad.) (para 4) distinguished.

The post HC Placed Matter Before Division Bench to Decide Whether State Tax Authority Can Issue SCN Under CGST Act appeared first on Taxmann Blog.

Taxmann.com—3.0 is an advanced legal and tax research platform tailored for professionals, offering enhanced tools like a revamped search engine, personalised research options, and cloud-based collaboration. It simplifies complex legal queries with features like advanced filters, headnote search, judicial analysis, and real-time alerts, ensuring faster, more precise, and more efficient research. Built to optimise workflows, it redefines the research experience with cutting-edge algorithms and user-centric enhancements.

Table of Contents

1. What is Taxmann.com—3.0?
2. What’s New in Taxmann.com—3.0?
3. Why Choose Taxmann.com—3.0?

1. What is Taxmann.com—3.0?

Taxmann.com—3.0 is an advanced platform designed to meet the evolving needs of legal, tax and corporate professionals. This upgraded version revolutionises legal research by making it faster, more intelligent, and more intuitive. Beyond providing information, it equips users with powerful tools to enhance their workflow and productivity. Whether finding landmark judgments, delving into complex legal matters, or organising research efficiently, Taxmann.com—3.0 is engineered for professional excellence. With a revamped search engine and advanced research features, it ensures precision and efficiency in every aspect of legal and tax research.

2. What’s New in Taxmann.com—3.0?

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These tools are designed to keep your research organised and ensure you can focus on what matters most.

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The New Research Box simplifies and streamlines your workflow, making collaboration and organisation effortless.

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3. Why Choose Taxmann.com—3.0?

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• Proven Expertise – Trusted for decades, Taxmann.com remains the go-to platform for professionals across India

Taxmann.com—3.0 goes beyond delivering answers; it redefines how you work, empowering every decision with credible insights.

About Taxmann.com
Taxmann.com is India’s trusted legal research platform, offering streamlined and comprehensive solutions for legal and tax professionals. With decades of expertise, we’re committed to supporting your research needs and preparing you for what’s next.

The post [Launch Alert] Taxmann.com—3.0 | Advanced Legal and Tax Research Platform appeared first on Taxmann Blog.

News, dated 11-12-2024

Switzerland suspended the Most Favoured Nation (MFN) clause in its double taxation avoidance agreement (DTAA) with India, effective January 1, 2025.

Following the MFN status suspension, Switzerland will no longer give the benefit of beneficial tax treatment to Indian residents. This implies that tax on income earned by Indian residents will be withheld at the rates specified in the India-Switzerland tax treaty only. For instance, dividends earned by Indian residents will be taxed at 10% in Switzerland under Article 10 of the DTAA instead of the current rate of 5%.

On December 11, 2024, the Swiss Finance Department announced that an Indian Supreme Court ruling in the Nestle from last year influenced this decision. The Supreme Court ruling in the case Nestle SA [2023] 155 taxmann.com 384 (SC)ruled in favour of Indian Tax authorities. It rejected the automatic application of the MFN clause under the India-Switzerland Tax Treaty.

Click Here To Read The Full Update

The post Switzerland Withdraws India’s ‘Most Favoured Nation’ Status, Citing Nestle SA Ruling appeared first on Taxmann Blog.

Notification No. SEBI/LAD-NRO/GN/2024/218; Dated: 12.12.2024

SEBI has notified the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024. The major changes include:

(a) mandating secretarial audits to be conducted by a secretarial auditor who must be a peer-reviewed CS

(b) making publication of financial results optional

(c) introducing detailed norms governing the eligibility, qualifications, & disqualifications of secretarial auditors, and

(d) prescribing a cooling-off period for secretarial auditors.

Click Here To Read The Full Notification

The post SEBI Introduces Significant Changes to LODR Norms Enhancing Governance and Transparency of Listed Entities appeared first on Taxmann Blog.

Case Details: Raunaq Prakash Jain vs. Income-tax Officer - [2024] 169 taxmann.com 298 (Jodhpur - Trib.)[28-11-2024]

Judiciary and Counsel Details

• Dr S. Seethalakshmi, Judicial Member & Rathod Kamlesh Jayantbhai, Accountant Member
• P.C. Parwal, FCA for the Appellant.
• Rajesh Ojha, CIT for the Respondent.

Facts of the Case

The assessee was an individual and salaried person. The assessee purchased Bitcoin (cryptocurrency) during the financial year 2015-16 and sold it during the financial year 2020-21. He invested sale consideration in the purchase of the property. The assessee filed return declaring long-term capital gain on the sale of Bitcoin and also claimed exemption under section 54F. The Assessing Officer held that the cryptocurrency was not a capital asset under section 2(14) and made it taxable under section 56 as income from other sources.

On appeal, the CIT(A) had held that Crypto Currency (Bitcoins) was not an asset as per section 2(14). Hence, the transfer as per section 2(47) as Long-Term Capital Gain was not applicable in the case of the assessee, and accordingly, he also confirmed the denial of deduction under section 54F to the assessee.

Aggrieved by the order, an appeal was filed to the Jodhpur Tribunal.

ITAT Held

The Tribunal held that the plain natural definition of ‘property’ as given in the Act is property of any kind held by an assessee, whether or not connected with his business or profession, in which a person owns something of value. Though cryptocurrency/virtual digital asset is also not a currency, it is not an asset within the meaning of section 2(14). The amendment made in the Finance Act 2022 has defined virtual digital assets (VDA) under section 2(47A), wherein the name given is virtual digital assets.

Thus, considering the plan vanilla meaning before the amendment as is to be understood at the time of purchase & sale of cryptocurrency (bitcoins), which is a right of the assessee attached to the investment made.

If the definition of the capital asset, as outlined in section 2(14), which states that ‘property of any kind held by an assessee, whether or not connected with his business or profession,’ is interpreted in the manner suggested by Explanation 1 to these sections, it becomes evident that ‘property’ encompasses and shall always include any right in or related to an Indian company, including the right of management, control, or any other right whatsoever.

Consequently, all rights are considered property, and therefore, the assessee’s right in Bitcoin, despite being a virtual asset, qualifies as a capital asset under section 2(14). Consequently, the Assessing Officer’s assertion that one must actually own something as property to qualify as a capital asset is incorrect. Even if an individual possesses a right or claim on a property, it is still considered a capital asset under section 2(14).

Further, section 2(47) defines transfer in relation to a capital asset to include the sale, exchange or relinquishment or extinguishment of any right therein. Therefore, in the instant case, the gain on the sale of bitcoin, which the assessee acquired, results in capital gain and is not chargeable under the head income from other sources.

Accordingly, gain on the sale of cryptocurrency was to be taxed under the head capital gain and not under the head income from other sources before the lawmaker made the specific provision in the Act. Since the income on the sale of cryptocurrency is chargeable to tax under the head long-term capital gain, the AO was directed to allow the claim of deduction under section 54F to the assessee.

List of Cases Reviewed

• CIT v. Vegetable Products Ltd. 88 ITR 192
• Chief Commissioner of CGST v. M/s Safari Retreats Pvt. Ltd. Civil Appeal No. 2948 of 2023 order dated 3-10-2024 (Para 8) followed.

The post Bitcoin Was Capital Asset Before 01.04.2022; LTCG on Sale of Bitcoin Eligible for Sec. 54F Exemption | ITAT appeared first on Taxmann Blog.

Case Details: Arun Khanna v. Renu Sharma - [2024] 169 taxmann.com 224 (HC-Delhi)

Judiciary and Counsel Details

• Prateek Jalan, J.
• Ms Vaneeta Khanna for the Appellant.
• Hemant Kumar Yadav & Mohit Chaturvedi, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant filed a suit seeking recovery of an amount tendered by him to the respondent on the ground that respondent had filed a false, malicious and frivolous case against him under section 138 of the Negotiable Instruments Act, 1881, which was decided in favour of appellant by order of MM.

The Respondent filed an application under Order VII Rule 11 of CPC seeking rejection of the plaint on the ground that it did not disclose a cause of action. The Trial Court noted the respondent’s submission wherein it was stated that the judgment of the Metropolitan Magistrate MM) recorded the fact that the appellant had taken a loan from the respondent and that payment of Rs.1.37 lakhs by him to the respondent was made as a compromise.

Accordingly, the Trial Court, by the impugned order, rejected the plaint. It was evident from extracts of impugned judgment that the Trial Court had proceeded on the basis that the judgment of MM did not contain any finding to the effect that the cheque in question was not issued in discharge of legally enforceable debt or liability.

High Court Held

The High Court observed that since MM had recorded a clear conclusion that the appellant herein had successfully rebutted the presumption that the cheque was issued in discharge of a legally enforceable debt or liability, rejection of a plaint, at the threshold, based on a reading of the judgment of MM could not be sustained.

The High Court held that the Trial Court was required to confine its analysis to the plaint and documents annexed with it and could not, at the stage of Order VII Rule 11, render a conclusive finding regarding the discharge of a legally enforceable debt or liability, the plaint was to be restored to the file of the Trial Court for fresh consideration.

List of Cases Referred to

• Dahiben v. Arvindbhai (2020) 7 SCC 36 (para 11)
• Geetha v. Nanjundaswamy 2023 SCC OnLine SC 14 (para 12).

The post HC Sends Recovery Suit Back to Trial Court Due to Errors in Interpreting Metropolitan Magistrate’s Judgment on Cheque Dispute appeared first on Taxmann Blog.

Case Details: Ram Enterprises v. State of U.P. - [2024] 169 taxmann.com 180 (Allahabad)

Judiciary and Counsel Details

• Vipin Chandra Dixit & Shekhar B. Saraf, JJ.
• Aditya Pandey for the Petitioner.
• C.S.C. for the Respondent.

Facts of the Case

The petitioner was aggrieved by the demand of penalty order passed under Section 129(1)(b) of the Central Goods and Services Tax Act, 2017.The authorities have not challenged the invoice and/or e-way bill produced by the petitioner. Neither have they questioned the fact of purchase of the areca nuts from a third party, which was then being supplied by the petitioner to the consignee.

The petitioner also relied on Circular No. 76/50/2018-GST, dated December 31, 2018, which states that if the invoice or any other specified document is accompanying the consignment of goods, then either the consignor or the consignee should be deemed to be the owner.

High Court Held

The Allahabad High Court noted that the authorities were bound by the aforesaid circular dated 31-12-2018. Further, in the case of Halder Enterprises v. State of U.P. [2023] 157 taxmann.com 231, it was held that if the invoice mentions the name of the consignor, the consignor shall be deemed to be the owner.

This, the Court held that the impugned order was illegal and unjustified. The same was to be quashed and set aside with a direction to pass an order under section 129(1)(a) and thereafter release goods and vehicle upon payment of penalty in accordance with law.

List of Cases Reviewed

• Halder Enterprises v. State of U.P. [2023] 157 taxmann.com 231/[2024] 101 GST 313/2024 (80) G.S.T.L. 357/(2023) 13 Centax 144 (All.) (para 4) followed.

The post Consignor Would Be Deemed to Be Owner of Goods If the Invoice Mentions the Consignor’s Name and Same is Not Challenged | HC appeared first on Taxmann Blog.

This weekly newsletter analytically summarises the key stories reported at taxmann.com during the previous week from December 09^th to 13^th, 2024, namely:

1. Section 50C’s legal fiction not applicable for WDV calculation in claiming depreciation on asset blocks;
2. GSTN issued new advisory on difference in value of Table 8A and 8C of Annual Returns FY 23-24;
3. Claiming of ITC under wrong head is only a technical mistake committed by assessee: HC;
4. SEBI introduces significant changes to LODR norms thereby enhancing governance and transparency of listed entities; and
5. Accounting for Software Development Costs with Ind AS 38 Compliance

1. 50C’s legal fiction not applicable for WDV calculation in claiming depreciation on asset blocks

During the year under consideration, the assessee had sold a factory building. The said property appeared as part of a block of assets in the books of account, and depreciation on the block of building was claimed by the assessee for income tax purposes. The stamp duty valuation of the said building was adopted at a much higher value than the actual sale consideration.

The assessee claimed depreciation on the remaining value of the written down value of the block of the building after reducing the actual sale consideration. During the assessment proceedings, the Assessing Officer (AO) held that based on the provision of section 50C, the depreciation should be worked out on the remaining value of the block of the building after reducing the stamp duty value of the building. Accordingly, the AO disallowed the excess depreciation.

On appeal, the CIT(A) upheld the AO’s order. Aggrieved by the order, the assessee filed an appeal to the Mumbai Tribunal.

The Tribunal held that the sole issue in dispute in the ground raised by the assessee was in respect of the computation of the ‘written down value’ (WDV) as per the provision of section 43(6)(c)(i)(B). According to section 32(1)(ii), depreciation on any block of asset is allowed at the rate of percentage prescribed under the rule on the ‘written down value’ of the block of asset. In Explanation 2 to Section 32(1), it is mentioned that for the purpose of sub-section (1), the ‘written down value’ of the block of the asset shall have the same meaning as in sub-section (c) of clause 6 of section 43.

Explanation 4 to Section 32 has prescribed that the expression ‘moneys payable’ and ‘sold’ shall have the same meanings as in the Explanation below sub-section (4) of Section 41.

On perusal of the provisions of section 41(4), it was clear that for the purpose of computing ‘written down value’, the value of the ‘moneys payable’ in respect of the property sold has to be reduced from opening written down value of block of the asset. The inclusive definition provided for insurance, compensation, etc. received in respect of the said property and the price for which the property is sold.

In the instant case, the sale consideration of the building sold is not more than the opening written down value (WDV) of the block, including the new building acquired. Therefore, section 50 does not result in any short-term capital and, hence, does not apply to the present facts of the case until all the buildings under the block are sold. In that case, section 50 would be attracted, and the AO could have substituted the sale consideration received by stamp duty valuation of the property.

Therefore, the deeming fiction of section 50C cannot be extended while working out the written-down value to claim deprecation on the block of the asset. The legislature has created the legal fiction under section 50C to compute the capital gain on selling capital assets. Similarly, while computing the profits and gains of the business, the legislature has introduced a legal fiction under section 43CA for substantiating the sale consideration by the Stamp Duty Value while transfer of assets other than the capital asset, i.e., stock-in-trade, but no specific fiction has been created while computing deprecation on the block of the assets for substantiating the sale consideration by the Stamp Duty Valuation Authority.

Thus, the present definition of the ‘moneys payable’ cannot be construed as including as the Stamp Duty Valuation of the property and, therefore, the legal fiction for substantiating the sale consideration by the Stamp Duty Value created under either section 50C or section 43CA cannot be extended to section 32 for claiming depreciation on the block of the asset. Accordingly, the disallowance made by the AO was deleted.

Read the Ruling

2. GSTN issued new advisory on difference in value of Table 8A and 8C of Annual Returns FY 23-24

The GSTN has noted that several concerns have been raised regarding mismatch between the values of table 8A and 8C of Form GSTR-9 for FY 23-24. Now, the GSTN has issued an advisory to inform that for FY 22-23 in table 8A of Form GSTR-9, values were getting auto populated from GSTR-2A; however, for FY 23-24 the same values are being auto populated from GSTR-2B. Therefore, to some extent, in Form GSTR-9 of FY 23-24, values in Table 8A will be inflated.

Hence, aforesaid value need not to be reported in the table 8C and Table 13 of GSTR-9 for FY 23-24. This is in line with the instruction number 2A given for the notified form GSTR 9 which states that Table 4, 5, 6 and Table 7 should have the details of current FY only. In this regard, GSTN Update dated December 9th, 2024 has been issued.

Read the GSTN Advisory

3. Claiming of ITC under wrong head is only a technical mistake committed by assessee: HC

The High Court of Kerala has recently held that there was no wrong availment of ITC if the appellant inadvertently showed the IGST component as nil and added bifurcated CGST and SGST components of IGST to existing figures showing eligible CGST and SGST credit. This ruling is given in the case of Rejimon Padickapparambil Alex v. Union of India [2024] 169 taxmann.com 152 (Kerala).

Facts

The assessee was a registered dealer and received various inward supplies of goods, both inter-state and intra-state. For the inter-state inward supplies, on which IGST was paid by the supplier, the assessee had to avail input tax credit. While filing Form GSTR-3B, instead of showing the IGST component in the eligible credit details, the assessee inadvertently showed the IGST component as nil and added the bifurcated CGST and SGST components of IGST to the existing figures showing eligible CGST and SGST credit.

This resulted in a mismatch between Form GSTR-2A and Form GSTR-3B. The Assessing Authority (AA) contended that the mismatch had resulted in the assessee utilising ‘unavailable credit’ towards payment of CGST and SGST on outward supplies. Further, the authority issued a notice demanding the return of the CGST/SGST amounts allegedly utilised in excess by the assessee.

High Court

The Kerala High Court held that Section 73 of the GST Act was attracted only when it appeared to a proper officer that any tax had not been paid or short paid or erroneously refunded or where input tax had been wrongly availed or utilised for any reason. In the instant case, there had been no wrong availment of ITC, and the only mistake committed by the assessee was an inadvertent and technical one. The mistake was also insignificant because there was no outward supply attracting IGST that was effected by him. Therefore, the Court set aside the order of AA and allowed the writ petition by quashing the demand order.

Read the Ruling

4. SEBI introduces significant changes to LODR norms thereby enhancing governance and transparency of listed entities

On December 12, 2024, SEBI notified the SEBI (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2024. The significant changes include (a) amendments to ‘Related Party Transaction’ norms, (b) enhanced ‘compliance officer’ norms for listed entities, (c) amendments to ‘Secretarial Audit and Secretarial Compliance Report’ and (d) ratification of related party transactions by Independent Directors. These changes aim to strengthen governance, enhance transparency and ensure stricter compliance by listed entities. Some of the key changes in detail are as follows –

4.1 ‘Acceptance of deposits by banks’ and ‘retail purchases by directors or employees’ will not be considered as RPT– [Regulation 2(1)(zc)]

SEBI has introduced amendments to Regulation 2(1)(zc) regarding related party transactions, by adding two exceptions. Thus, the following will not be considered as related party transactions.

• Acceptance of current account deposits and saving account deposits by banks in compliance with the directions issued by the RBI or any other central bank.
• Retail purchases from any listed entity or its subsidiary by its directors or its employees, without establishing a business relationship and at the terms which are uniformly applicable/offered to all employees and directors.

The amendment streamlines compliance for banks and listed entities by excluding routine transactions such as acceptance of deposits by banks and retail purchases by employees and directors. This reduces unnecessary regulatory scrutiny over these transactions, provided they adhere to prescribed conditions, enabling smoother operations while maintaining transparency.

4.2 SEBI strengthens the position of Compliance Officer – [Regulation 6(1)]

SEBI has notified key changes in Regulation 6 relating to the ‘Compliance Officer and his/her obligations’. As per the amended norms, a Compliance Officer must be an officer, who is in whole-time employment of the listed entity, not more than one level below the board of directors, and must be designated as a Key Managerial Personnel (KMP). The amendments strengthen governance by ensuring that the Compliance Officer holds a significant position within the organisation as a KMP.

4.3 Amendments to ‘Secretarial Audit and Secretarial Compliance Report’ – [Regulation 24A]

SEBI has introduced certain amendments to the Secretarial Audit and Secretarial Compliance Report. The amendments are as follows –

(a) Appointment of Peer reviewed Company Secretary for Secretarial Audit

Every listed entity and its material unlisted subsidiaries must undertake a secretarial audit conducted by a Peer-Reviewed Company Secretary and annex a secretarial audit report with the annual report of the listed entity.

“Peer Reviewed Company Secretary” means a Company Secretary in practice, who is either practicing individually or as a sole proprietor or as a partner of a Peer Reviewed Practice Unit, holding a valid certificate of peer review issued by the Institute of Company Secretaries of India.

(b) Appointment of Secretarial Auditor

The listed company must appoint a Secretarial Auditor on the recommendation of the board of directors of the company.

(c) Tenure of Secretarial Auditor

A listed entity must appoint or re-appoint an individual as Secretarial Auditor for not more than one term of five consecutive years and a Secretarial Audit firm as Secretarial Auditor for not more than two terms of five consecutive years, with the approval of its shareholders in its Annual General Meeting.

Further, any association of an individual or firm as the Secretarial Auditor of a listed entity before March 31, 2025, will not be counted when calculating their tenure.

(d) Removal or Resignation of Secretarial Auditor

The entity may remove the Secretarial Auditor with the approval of its shareholders in its Annual General Meeting, or the Secretarial Auditor may resign from his office in that listed entity before the completion of the term as Secretarial Auditor.

(e) Eligibility, Qualifications and Disqualifications of Secretarial Auditor

Only a peer reviewed Company Secretary Firm including a limited liability partnership whose majority of partners are practising in India or an individual is eligible to be appointed as Secretarial Auditor and who has not incurred any disqualifications as specified by the Board. However, if the appointed auditor incurs any of the disqualifications after the appointment, then such an auditor must vacate the office, and the vacation shall be deemed to be a casual vacancy.

4.4 Ratification of ‘Related Party Transactions by Independent Directors’ – [Regulation 23(2) & 23(3)]

SEBI has introduced an amendment to Regulation 23(2) concerning Related Party Transactions. New clauses (e) and (f) have been added to the second proviso of the regulation. As per the amended norms, the members of the audit committee, who are independent directors, can now ratify related party transactions within three months from the date of the transaction or in the immediate next meeting of the audit committee, whichever is earlier, subject to certain conditions.

The following are the conditions for ratification:

• the value of the ratified transaction(s) with a related party, during a financial year shall not exceed Rs 1 crore;
• the transaction is not material in terms of policy on materiality of related party transactions;
• rationale for inability to seek prior approval for the transaction must be placed before the audit committee at the time of seeking ratification;
• the details of ratification must be disclosed along with the disclosures of related party transactions;
• any other condition as specified by the audit committee.

Further, remuneration and sitting fees paid by the listed entity or its subsidiary to its director, key managerial personnel, or senior management (except those part of the promoter or promoter group) will not require the approval of the audit committee, provided that these payments are not material as per the policy on materiality of related party transactions.

Also, the Audit committee may grant omnibus approval for related party transactions proposed to be entered into by the listed entity or its subsidiary.

The amendment provides greater flexibility in handling related party transactions by allowing independent directors to ratify such transactions within three months or in the immediate next meeting. This reduces procedural delays while ensuring that the transactions remain within the defined limits and are adequately disclosed.

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5. Accounting for Software Development Costs with Ind AS 38 Compliance

Organizations often face challenges when accounting for costs incurred in the development of software, particularly when the software is intended for internal use. Key issues include differentiating between the research and development phases, determining whether costs meet the recognition criteria for intangible assets, and ensuring compliance with relevant accounting standards. These challenges arise due to the evolving nature of software development projects, which often involve significant initial research, technical evaluations, and subsequent development activities.

Ind AS 38, Intangible Assets provides specific guidance on the recognition and measurement of intangible assets, particularly for internally generated intangible assets like software. According to the standard, an intangible asset shall be recognized only when it is probable that future economic benefits will flow to the entity, and the cost of the asset can be measured reliably. Costs incurred during the research phase must be expensed as they arise because, at this stage, it is not possible to demonstrate the existence of an asset that will generate probable future economic benefits. Conversely, costs incurred during the development phase can be capitalised, provided that specific criteria are met. These criteria include demonstrating technical feasibility, intent, and ability to complete the asset and the reliable measurement of costs attributable to the asset.

In software development, activities such as market research, user feedback analysis, and feasibility studies are part of the research phase. Since these are exploratory in nature, their costs must be recorded as expenses in the profit and loss account under Ind AS 38. However, when the project progresses to the development phase where the software’s design and functionality are defined, and its completion is technically feasible, costs for tasks such as programming, system integration, and testing can be capitalized as an intangible asset, provided they meet the criteria outlined in the standard.

For example, an organisation decided to develop accounting software to enhance its internal processes. During the initial phase, the company incurred costs related to market analysis and stakeholder interviews. These research phase costs were expensed in accordance with Ind AS 38, as they did not meet the criteria for recognition as an intangible asset. In the subsequent development phase, the organization worked on coding, integrating the software with its existing systems, and implementing security protocols. These development phase costs were capitalized, as they fulfilled the recognition criteria under the standard. By distinguishing between the research and development phases and applying the relevant provisions, the organization ensured compliance with Ind AS 38 and provided an accurate reflection of its financial position.

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CA Siddharth Patel – [2024] 169 taxmann.com 286 (Article)

1. Introduction

Ind AS 19 deals with the accounting and disclosure of employee benefits, including defined benefit plans such as pensions and gratuities. When a defined benefit plan is in surplus (i.e., the fair value of plan assets exceeds the present value of defined benefit obligations), it raises the question of how much of that surplus can be recognized as an asset in the financial statements. This is where the concept of the asset ceiling comes into play.

Ind AS 19 mandates an entity to recognize the liability as per the provision of the standard but it does not obligate the entity to have an earmarked fund to settle such liability, considering there are no statutory requirement to create a fund. However, if an entity chooses to fund such liability, it needs to net off it to the extent of funding available in its Financial Statement.

For example, if the defined benefit plan liability recognized under the provisions of Ind AS 19 amounts to Rs. 100, and the entity has an earmarked fund of Rs. 40 to offset this liability, the net defined benefit liability at the end of the reporting period would be Rs. 60 (i.e., Rs. 100 – Rs. 40). Para 8 of Ind AS 19 clarifies the adjustment of asset against the liability through the definition of net defined benefit liability (asset) as explained hereunder: –

The net defined benefit liability (asset) is the deficit or surplus, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling.

The deficit or surplus is:

(a) the present value of the defined benefit obligation less

(b) the fair value of plan assets (if any).

The article broadly covers the following aspects:

•  What is asset ceiling?
• Why does funding exceed the liability?
• Why the asset ceiling restriction?
• How to measure the asset ceiling amount?
• How to account the asset ceiling restriction? and
• Conclusion

2. What is asset ceiling?

There may be cases where an entity has excess funding exceeding the amount of its obligation in which case such excess funding is adjusted against the defined benefit plan liability and the net defined benefit asset is shown in the financial statements. However, there is a limit up to which such excess funding can be adjusted against the liability and this is where the concept of asset ceiling comes into play.

First, let’s understand the definition of asset ceiling as given in paragraph 8 of Ind AS 19.

Asset ceiling: The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Additionally, attention is drawn to Paragraph 64 of Ind AS 19, which specifies the restriction on recognizing surplus up to the asset ceiling limit. The relevant extract of Paragraph 64 is provided below for reference.

64 When an entity has a surplus in a defined benefit plan, it shall measure the net defined benefit asset at the lower of:

(a) the surplus in the defined benefit plan; and

(b) the asset ceiling, determined using the discount rate specified in paragraph 83.

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The post [Opinion] Decoding the Asset Ceiling in Ind AS 19 | Ensuring Accurate Financial Reporting appeared first on Taxmann Blog.

Editorial Team – [2024] 169 taxmann.com 287 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week.

1. UAE amends corporate tax law for incorporating Pillar 2 Global Minimum Tax
2. EU adopts new rules for withholding tax procedures (FASTER)
3. Germany issues second draft law on Pillar 2 global minimum tax amendments and
4. France publishes decree on implementation of Pillar 2 Global Minimum Tax Rules

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The post [World Tax News] UAE Amends Corporate Tax Law for Incorporating Pillar 2 Global Minimum Tax and More appeared first on Taxmann Blog.