Home List Manuals Income TaxIncome Tax - Ready ReckonerICDS with Comparisons - Income computation and disclosure standards This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
ICDS V : Tangible Fixed Assets - Income Tax - Ready Reckoner - Income TaxExtract ICDS V : TANGIBLE FIXED ASSETS This ICDS covers assets being land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and not held for sale in the normal course of business. The principal aspect dealt with by this ICDS is the treatment with respect to what would constitute Actual Cost i.e. determination as to whether an expenditure incurred in connection with a Tangible Fixed Asset is to be capitalised or is to be treated as a revenue expenditure. 1. Scope:- Since this ICDS specifically deals with only tangible fixed assets, intangible assets are outside the purview of this ICDS. Hence fittings are not specifically covered under the definition of Tangible fixed Assets as per this ICDS; however, since the same are considered as part of Block of Assets, the provisions of this ICDS shall also be accordingly applicable to Fittings either under Plant and Machinery or Furniture. Since intangible assets are excluded from the scope of this ICDS, for the purpose of computation of income, the treatment of intangible assets would be based on the normal provisions of the Act and accounting principles. Tangible fixed assets:- Asset being land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. 2. Identification of Tangible Fixed Assets:- ICDS does not have the concept of materiality and therefore one will have to consider the principle of enduring benefit of the asset for the purpose of treating the particular item as tangible fixed asset. Stand-by equipment and servicing equipment are to be capitalised. Machinery spares shall be charged to the revenue as and when consumed. When such spares can be used only in connection with an item of tangible fixed asset and their use is expected to be irregular, they shall be capitalised. Note:- An item of Property, Plant and Equipment shall be recognised as asset, if and only if, it is probable that future economic benefits associated with the item will flow to the entity and the cost can be measured reliably. 3. Components of Actual Cost:- The actual cost of an acquired tangible fixed asset shall comprise its purchase price, import duties and other taxes, excluding those subsequently recoverable, and any directly attributable expenditure on making the asset ready for its intended use. Any trade discounts and rebates shall be deducted in arriving at the actual cost. The cost of a tangible fixed asset may undergo changes subsequent to its acquisition or construction on account of pricee adjustment, changes in duties or similar factors, or exchange fluctuation as specified in ICDS on the effects of changes in foreign exchange rates. Note:- If any subsidy or grant receivable from Government relatable to acquisition of an asset is concerned, then such amount shall be excluded from the actual cost of the asset. In case of an asset acquired from a country outside India, the increase or reduction in liability of the assessee while making payment towards the cost of the asset or repayment of the moneys borrowed for acquiring the asset in consequence of change in the rate of exchange, shall be added to or deducted from the actual cost. In a situation where assets are acquired in India by availing a foreign currency loan or borrowing, ICDS VI does not specifically provide for treatment in such cases. Thus the income and expenditure on account of exchange differences in respect of capital account transactions have been held as income not liable to tax, being capital receipt, and expenditure not allowable, being capital loss. Administrative and general overhead expenses that are specifically attributable to construction of a project or to the acquisition of a tangible fixed asset or bringing it to its working condition are to be included as part of the cost of the project or the asset, as the case may be. However, administration and general overheads in case of a running concern would be considered as revenue expenditure unless such expenditure is specifically attributable to the construction of an asset and hence would not form part of the actual cost. The expenditure incurred on start-up and commissioning of the project, including the expenditure incurred on test runs and experimental production, shall be capitalised. The expenditure incurred after the plant has begun commercial production, that is, production intended for sale or captive consumption, shall be treated as revenue expenditure. 4. Self- constructed Tangible Fixed Assets:- In arriving at the actual cost of self-constructed tangible fixed assets, the cost of construction that relate directly to the specific tangible fixed asset and costs that are attributable to the construction activity in general and can be allocated to the specific tangible fixed asset shall be included in actual cost. Any internal profits (e.g. inter-departmental/inter-branch profits in case of self-constructed asset) are to be eliminated in arriving at such cost. 5. Non- monetary Consideration:- This ICDS provides that where an asset is acquired in exchange for another asset or in exchange for shares or other securities, the actual cost of the asset acquired to be recognised, is the fair value of the asset so acquired. 7. Improvements and Repairs:- An asset may undergo improvement and repairs from time to time. This ICDS provides that any expenditure in the nature of repairs or improvements that increases the future benefits from an asset beyond the previously assessed standard of performance is to be added to the actual cost and to that extent this clause deals with cases of replacements rather than mere repairs to assets. The cost of an addition or extension to an existing tangible fixed asset which is of a capital nature and which becomes an integral part of the existing tangible fixed asset is to be added to its actual cost. Any addition or extension, which has a separate identity and is capable of being used after the existing tangible fixed asset is disposed of, shall be treated as separate asset. 8. Valuation of Tangible Fixed Assets in Special Cases:- Where a fixed asset is owned jointly with others, the proportionate share of actual cost, depreciation and written down value is to be grouped with similar assets that are fully owned by the assessee. In case of assets of an undertaking engaged in generation or generation and distribution of power, such cost, depreciation and written down value would be determined on the basis of cost borne in such jointly held assets. In case of purchase of several assets for a consolidated price, the consideration is to be bifurcated between various assets on a fair basis. 9. Depreciation:- This ICDS refers to the provisions of Act for computation of depreciation on tangible fixed asset. Section 32(1) of the Act read with Rule 5(1A) , Rule 5(1) and Appendix IA , Appendix I of the Income-tax Rules provide for deduction of depreciation at prescribed percentage on the actual cost of the asset in case of undertakings engaged in generation or generation and distribution of power and on written down value in case of any block of assets. This ICDS does not have a provision for change in the method of depreciation and revaluation of fixed assets, since these are not relevant under the Act. 10. Transfers:- Under transfers ICDS draws reference to the provisions of the Act for computation of income arising on transfer of a tangible fixed asset. Accordingly, income on transfer is to be computed by applying relevant provisions of the Act. For this purpose, provisions of section 41(2) (business income) and those falling under Chapter IV-E (Capital Gains) need to be complied with. 11. Disclosures:- Following disclosure shall be made in respect of tangible fixed assets, namely:- description of asset or block of assets rate of depreciation actual cost or written down value, as the case may be additions or deductions during the year with dates; in the case of any addition of an asset, date put to use; including adjustments on account of- (i) Central Value Added Tax credit claimed and allowed under the (ii) CENVAT Credit Rules, 2004 ; (iii) change in rate of exchange of currency; (iv) subsidy or grant or reimbursement, by whatever name called. depreciation Allowable; and written down value at the end of year. The disclosures prescribed by this ICDS are similar to the requirements of clause 18 of Form 3CD .
|