Dear professional Colleagues,
The Companies Act 2013, which has partially replaced Companies Act, 1956, by introducing certain new provisions related to corporate law. The Companies Act 2013 partially made effective w.e.f. September 12, 2013, and introduce effective 98 sections. One of important change made by The Companies Act 2013 is that now all the companies are required to have a uniform financial year. In other words every company's financial year will be the period ending on 31 March every year.
Now let us discuss the provision and implications related to Financial Year under New Companies Act, 2013 and Erstwhile Companies Act, 1956.
Position in Erstwhile Companies Act, 1956
The term 'Financial year' was defined in section 2(17) of the Companies Act, 1956. As per section 2(17), The term 'Financial year' in relation to any body corporate means, the period in respect of which any profit and loss account of the body corporate laid before it in Annual General Meeting is made up, whether that period is a year or not.
Hence a company was at its liberty to follow any financial year whether or not it ends on 31st March. However, for the purpose of Income Tax, accounts will have to be made on 31st March.
In simply terms the period to which the balance sheet and profit and loss account to be laid before a company in Annual General Meeting relate is called a "financial year".
It is pertinent to quote Section 210(4) of the Companies Act, 1956, here. As per section 210(4) a financial year may be less or more than a calendar year, but it shall not exceed fifteen months. The financial year may extend to eighteen months, where special permission has been granted in this connection by the concerned Registrar of Companies [Proviso to section 210(4)]. Thus, annual accounts may be prepared for a period up to eighteen months with the special permission of the Registrar on the application submitted in the Form 61.
Position in New Companies Act, 2013
Needless to mention that in terms of the Income-tax Act, 1961, it is mandatory for companies to follow uniform accounting year, i.e., ending 31st March. Hence to align with the provisions of the Income tax Act, companies to have a uniform financial year ending on 31 March each year.
In this regard kindly go through the section 2(41) of the Companies Act 2013, which is reproduced below:
“financial year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year:
Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause;
As is evident from the reading of second proviso to section 2(41) of the Companies Act, 2013, a company or body corporate, existing on the commencement of Companies Act, 2013, not having financial year ending on the 31st day of March every year, shall, within a period of two years from such commencement, must ensure its financial year will be the period ending on 31 March every year.
I would request to all the learned readers to share their opinion with respect to above interpretation and opinion regarding financial year of a Company/Body Corporate under Companies Act, 2013.
With best regards
CS Ankur Garg
CAclubindia
