19 November 2007
XYZ co ltd. has two subsidiary co's viz. ABC ltd and PQR ltd.
The books of accounts of two subsidiary are maintained at H.O.
Basically the transactions of two subsidiary are entered by the employee on the payroll of XYZ ltd.This means that there are no employees on the payroll of two subsidiary's.
what would be treatment as per IT ? The question definately crack in our mind that without employee how the transactions been entered.
As an auditor what should be our opinion in such cases ?
19 November 2007
IF THERE ARE NO EMPLOYEES ON PAYROLL,THE EXISTENCE OF COMPANY IS NOT IN QUESTION. AS LONG AS THE COMPANY IS NOT DECLARED AS DEFUNCT( IF NO BUSINESS IS CARRIED , YOU MAY GET NOTICE FROM ROC WHY NOT TO WIND UP). SO LONG AS THE UNIT IS EXISTING IN BOOKS OR ON PAPER, WE STILL NEED TO COMPLY WITH INCOMETAX RETURN FILING TILL IT IS DEFUNCT. WE NEED TO FILE COMPANY LAW RETURNS ALSO TILL THE UNIT IS LEGALLY DEFUNCT.THERE IS NO ESCAPE. WE SAY THE COMPANY IS EXISTING. SO WE NEED TO COMPLY WITH ALL THE STATUTORY OBLIGATIONS UNDER ALL APPLICABLE LAWS. ENTERING TRANSACTIONS BY OUTSOURCING THE ACCOUNTING OR ANY OTHER JOB IS VERY COMMON. SO NOT TO WORRY ON THAT COUNT. AS AN AUDITOR , ONE NEEDS TO STATE ABOUT ALL COMPLIANCES INCLUDING UNDER INCOME TAX, COMPANY LAW AND ALL APPLICABLE LAWS. SMALL BENEFITS ARE GIVEN BY LAW WHERE NO EMPLOYEES ARE THERE, LIKE NO FBT ATTRACTED WHERE THERE ARE NO EMPLOYEES AS EMPLOYER AND EMPLOYEE RELATION IS VITAL FOR LEVY OF FBT. BUT WHAT IS THE COMMERCIAL LOGIC OF CARRYING A DEAD WOOD AND HOW LONG? IF WE REPLY THIS QUESTION SINCERELY, WE KNOW WHAT TO DO THEN? R.V.RAO
19 November 2007
You are stating that they are subsidiary but not state that whether 100%subsidiary or not.As per Companies Act if more than 51% of share held by parent company it is a subsidiary company.In the eye of income tax law both viz holding and subsidiary companies are two distinct entity.Hence all the Provisions of Income tax act applicable to holding company equally applicable to subsidiairies.
No employees in subsidiary company means A.O.may argue that,the subsidiary companies are benami one to holding company and he may try to make the protective assessement.
Regarding auditing,you have to give financial statments of subsidiary along with holding company report.
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