22 September 2008
A Co. is basically an investment company. It's nature of business is to acquire, hold shares and trade in mutual funds. The sole income is dividend. While computing tax, the entire income is taken to income from other sources and is exempt u/s 10(34). So though there is huge book profits (dividend income), for tax computation the Profits and gains from business or profession is a LOSS. This happens year after year. Is it right to create deferred tax on the brought forward business losses?
22 September 2008
Defered tax asset is to be created only if the company is virtuely certain that sufficient taxable income will emerge in the coming years. Otherwise not.
22 September 2008
Thanks for ur response.. How about creating deferred tax asset / liability on depreciation. i.e. timing difference b/w book depreciation and tax depreciation.. And moreover how the above mentioned company get a chance to show profits as per tax computation? Because only if it changes it's nature of business from investment to trading co. then will the dividend income be treated as PGBP. It is quite obvious that there is no question of creation of deferred tax asset/liability to this investment company as per AS-22. Am i right?
22 September 2008
A Co. is basically an investment company. It's nature of business is to acquire, hold shares and trade in mutual funds. The sole income is dividend. While computing tax, the entire income is taken to income from other sources and is exempt u/s 10(34). So though there is huge book profits (dividend income), for tax computation the Profits and gains from business or profession is a LOSS. This happens year after year. Is it right to create deferred tax on the brought forward business losses?
How about creating deferred tax asset / liability on depreciation. i.e. timing difference b/w book depreciation and tax depreciation.. And moreover how the above mentioned company get a chance to show profits as per tax computation? Because only if it changes it's nature of business from investment to trading co. then will the dividend income be treated as PGBP. It is quite obvious that there is no question of creation of deferred tax asset/liability to this investment company as per AS-22. Am i right?
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