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J. K. Industries Ltd. & Anr Vs. Union of India & Ors [2007] Insc 1154 (19 November 2007)
2007 Latest Caselaw 941 SC

Citation : 2007 Latest Caselaw 941 SC
Judgement Date : Nov/2007

    

J. K. Industries Ltd. & Anr Vs. Union of India & Ors [2007] Insc 1154 (19 November 2007)

S.H. Kapadia & B. Sudershan Reddy

With Civil Appeal Nos.3478/2007, 3479/2007, 3480/2007 and 3482/2007. KAPADIA, J.

1. A short question which arises for determination in this batch of civil appeals is:

Whether Accounting Standard 22 (AS 22) entitled accounting for taxes on income insofar as it relates to deferred taxation is inconsistent with and ultra vires the provisions of the Companies Act, 1956 (the Companies Act), the Income-tax Act, 1961 (I.T. Act) and the Constitution of India?

2. M/s. J.K. Industries Ltd. is a public limited company. It was incorporated in 1951. It carries on the business of manufacture and sale of automotive tyres, tubes, sugar and agrigenetics. It has a registered office at Calcutta. It seeks to challenge AS 22 issued by Institute of Chartered Accountants of India (for short, Institute) which has been made mandatory for all companies listed in Stock Exchanges in India in preparation of their accounts for the financial year 2001-02 onwards.

3. On 7.12.06 the Central Government prescribed AS 22 under Section 211 (3C) of the Companies Act by the Companies (AS) Rules 2006. Before that date, AS 22, when issued in 2001, was challenged in writ petitions filed before Madras, Karnataka, Calcutta and Gujarat High Courts. On transfer petitions, under Section 139A of the Constitution, filed by the Institute, this Court vide order dated 17.2.03 was pleased to transfer the writ petitions filed in various High Courts to the Calcutta High Court.

Meaning and purpose of AS:

4. In its origin, Accounting Standard is a policy statement or document framed by Institute. Accounting Standards establishes rules relating to recognition, measurement and disclosures thereby ensuring that all enterprises that follow them are comparable and that their financial statements are true, fair and transparent. Accounting Standards (A.S. for short) are based on a number of accounting principles. They seek to arrive at true accounting income. One such principle is the matching principle. The other is fair value principle. The aim of the Institute is to go for paradigm shift from matching to fair value principle.

5. Today the revised Accounting Standards seeks to arrive at true accounting income. In the age of globalization the attempt is to reconcile the accounts of Indian companies with their joint venture partners abroad. The aim is to harmonise Indian Accounting Standards with International Accounting Standards.

With the object of bridging gap between IAS and IFRS, the Institute formulated new A.S. and introduced new concepts, e.g., Deferred Tax Accounting (AS 22 impugned herein), Segment Reporting (AS 17) etc.. However, as a matter of prudence and necessary adjustment, to arrive at real income, Accounting Standards require provision to be made for liabilities payable in future, provision to be made for contingencies, provision to be made for diminution, provision to reflect impairment and so on which have the effect of reducing incomes and were, therefore, not readily accepted by some enterprises and tax authorities.

6. The core of Accountancy is Book-keeping. The rules of Book-keeping are clear. For example, the value of a fixed asset mentioned in a Balance Sheet is based on cost which may involve subjective estimation of the amount to be apportioned. Similarly, the quantum of depreciation is again an estimate, which can vary depending on the persons preparing the accounts as to when and at what stage he wants to record the depreciation. Accounting Standards are an attempt to overcome some of these deficiencies of Accountancy. Accounting Standards involve codification of fundamental accounting rules, rules which explain and standardize the application of the fundamental rules to a variety of uncertain situations like retirement, contingencies, intangibles, consolidation, merger etc. Accounting Standards basically attempt to reduce the subjectivity and lay down rules so as to arrive at the best possible estimates. For example, net assets refer to the difference between total assets less liabilities but the value attributable to each asset and each liability is often subjective. It depends on estimates. This is where the Accounting Standards help. They reduce the subjectivity.

Therefore, Accounting Standards help to arrive at the best possible estimates. This estimation/subjectivity is also on account of the conceptual difference between accounting income and taxable income. Accounting income is the real income. Tax laws lay down rules for valuation of inventories, fixed assets, depreciation, bad debts, etc. based on artificial rules and not on the basis of accounting estimates, which results in mismatch between accounting and taxable incomes. For example, a fixed rate of depreciation may, for some companies, result in computing lower than the actual income if the actual erosion in the value of the asset is lower than the depreciation calculated at the fixed rate and higher than actual income for others where assets erode faster. Accounting income is normally used as a relevant measure by most stakeholders. However, on account of artificial set of rules used in computation of taxable income one finds that accounting income differs from taxable income. Looking to these problems, the evolution of Accounting Standards and their greater application is necessary as it results in reducing the need for tax laws to depend upon artificial rules.

The object of Accounting Standards is, therefore, to standardize and to narrow down the options. The object of Accounting Standards is to evolve methods by which accounting income is determined. The object behind the Accounting Standards is to evolve methods by which accounting income is determined, made more transparent and leave less and less room for subjective selection of methods and provide for more attention to the quality of estimates used in arriving at accounting income.

7. The main object sought to be achieved by Accounting Standards which is now made mandatory is to see that accounting income is adopted as taxable income and not merely as the basis from which taxable income is to be computed.

Thus, if the rules by which inventories are to be valued are laid down in the Accounting Standards and are followed in the determination of accounting income, then tax laws do not need to lay down the rules and the tax authorities do not need to examine the computation of the value of inventories and its effect on computation of income. Similarly, if there is an accounting standard on depreciation which requires estimation of the useful life and prescribes the appropriate method for apportionment of cost of fixed assets over their useful life, it is unnecessary for tax laws to apply an artificial rule to decide the extent of allowance for depreciation.

8. Finally, the adoption of Accounting Standards and of accounting income as taxable income would avoid distortion of accounting income which is the real income.

Reasons for introducing AS 22:

9. In the backdrop of globalization and liberalization the world has become an economic village. Today, the capital market all over the world knows no barriers. Fiscal distances and barriers have been removed by developments in transport, communication and e-commerce. In this backdrop, Convergence of Accounting Standards is aimed at removing barriers in the flow of financial information and capital. Based on the above developments in the global economy and the Indian economy, the conceptual differences and consequent deviations in the National Accounting Standards and IFRS have got to be eliminated. For example, exchange difference in respect of unpaid liability for acquisition of an imported asset has been allowed in the past to be adjusted with the carrying costs of the fixed assets instead of recognizing the exchange difference in the profit and loss account.

10. Lastly, it is important to note that Accounting Standards and taxation of income are two independent subjects. The object behind AS is to remove this divergence by making Accounting Income a Taxable Income. Accounting income can never negate True Income.

Relevant provisions of the Companies Act, 1956 and Analysis thereof:

11. Before analyzing the provisions of the Companies Act, we quote hereinbelow the following provisions from the Companies Act which read as follow: PREAMBLE

The Companies Act, 1956 (ACT 1 OF 1956) [18th January, 1956] An Act to consolidate and amend the law relating to companies and certain other associations.

Be it enacted by Parliament in the Sixth Year of the Republic of India as follows:- PRELIMINARY Section 2(33) "prescribed" means, as respects the provisions of this Act relating to the winding up of companies except sub-section (5) of section 503, sub-section (3) of section 550, section 552 and sub- section (3) of section 555, prescribed by rules made by the Supreme Court in consultation with The Tribunal, and as respects the other provisions of this Act including sub-section (5) of section 503, sub-section (3) of section 550, section 552 and sub- section (3) of section 555, prescribed by rules made by the Central Government; ACCOUNTS Section 209. Books of account to be kept by company

(1) Every company shall keep at its registered office proper books of account with respect to-

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;

(b) all sales and purchases of goods by the company;

(c) the assets and liabilities of the company; and

(d) in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed, if such class of companies is required by the Central Government to include such particulars in the books of account:

Provided that all or any of the books of account aforesaid may be kept at such other place in India as the Board of directors may decide and when the Board of directors so decides, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place.

(2) Where a company has a branch office, whether in or outside India, the company shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns, made up to dates at intervals of not more than three months, are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).

(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein,-

(a) if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions; and

(b) If such books are not kept on accrual basis and according to the double entry system of accounting.

(4) The books of account and other books and papers shall be open to inspection by any director during business hours.

(4A) The books of account of every company relating to a period of not less than eight years immediately preceding the current year together with the vouchers relevant to any entry in such books of account shall be preserved in good order :

Provided that in the case of a company incorporated less than eight years before the current year, the books of account for the entire period preceding the current year together with the vouchers relevant to any entry in such books of account shall be so preserved.

(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty:

Provided further that no person shall be sentenced to imprisonment for any such offence, unless it was committed wilfully.

(6) The persons referred to in sub-section (5) are the following namely :-

(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and;

(d) where the company has neither a managing director nor manager, every director of the company;

Section 210. Annual accounts and balance sheet

(1) At every annual general meeting of a company held in pursuance of section 166, the Board of directors of the company shall lay before the company-

(a) a balance sheet as at the end of the period specified in sub-section (3); and

(b) a profit and loss account for that period.

(2) In the case of a company not carrying on business for profit, an income and expenditure account shall be laid before the company at its annual general meeting instead of a profit and loss account, and all references to "profit and loss account", "profit" and "loss" in this section and elsewhere in this Act, shall be construed, in relation to such a company, as references respectively to the "income and expenditure account", "the excess of income over expenditure", and "the excess of expenditure over income".

(3) The profit and loss account shall relate-

(a) in the case of the first annual general meeting of the company, to the period beginning with the incorporation of the company and ending with a day which shall not precede the day of the meeting by more than nine months; and

(b) in the case of any subsequent annual general meeting of the company, to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than six months, or in cases where an extension of time has been granted for holding the meeting under the second proviso to sub-section (1) of section 166, by more than six months and the extension so granted.

(4) The period to which the account aforesaid relates is referred to in this Act as a "financial year" and it may be less or more than a calendar year, but it shall not exceed fifteen months :

Provided that it may extend to eighteen months where special permission has been granted in that behalf by the Registrar.

(5) If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of this section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that the provisions of this section were complied with and was in a position to discharge that duty:

Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

(6) If any person, not being a director of the company, having been charged by the Board of directors with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

Section 210A. Constitution of National Advisory Committee on Accounting Standards

(1) The Central Government may, by notification in the Official Gazette, constitute an Advisory Committee to be called the National Advisory Committee on Accounting Standards (hereafter in this section referred to as the "Advisory Committee") to advise the Central Government on the formulation and laying down of accounting policies and accounting standards for adoption by companies or class of companies under this Act.

(2) The Advisory Committee shall consist of the following members, namely :-

(a) a Chairperson who shall be a person of eminence well versed in accountancy, finance, business administration, business law, economics or similar discipline;

(b) one member each nominated by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949, the Institute of Cost and Works Accountants of India constituted under the Cost and Works Accountants Act, 1959 and the Institute of Company Secretaries of India constituted under the Company Secretaries Act, 1980;

(c) one representative of the Central Government to be nominated by it;

(d) one representative of the Reserve Bank of India to be nominated by it;

(e) one representative of the Comptroller and Auditor-General of India to be nominated by him;

(f) a person who holds or has held the office of professor in accountancy, finance or business management in any university or deemed university;

(g) the Chairman of the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 or his nominee;

(h) two members to represent the chambers of commerce and industry to be nominated by the Central Government, and

(i) one representative of the Securities and Exchange Board of India to be nominated by it.

(3) The Advisory Committee shall give its recommendations to the Central Government on such matters of accounting policies and standards and auditing as may be referred to it for advice from time to time.

(4) The members of the Advisory Committee shall hold office for such terms as may be determined by the Central Government at the time of their appointment and any vacancy in the membership in the Committee shall be filled by the Central Government in the same manner as the member whose vacancy occurred was filled.

(5) The non-official members of the Advisory Committee shall be entitled to such fees, travelling, conveyance and other allowances as are admissible to the officers of the Central Government of the highest rank.

Section 211. Form and contents of balance sheet and profit and loss account

(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the form set out in Part I of Schedule VI, or as near thereto as circumstances admit or in such other form as may be approved by the Central Government either generally or in any particular case; and in preparing the balance sheet due regard shall be had, as far as may be, to the general instructions for preparation of balance sheet under the heading "Notes" at the end of that Part :

Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of balance sheet has been specified in or under the Act governing such class of company.

(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto :

Provided that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of profit and loss account has been specified in or under the Act governing such class of company.

(3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, it is necessary to grant the exemption in the public interest.

Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.

(3A) Every profit and loss account and balance sheet of the company shall comply with the accounting standards.

(3B) Where the profit and loss account and the balance sheet of the company do not comply with the accounting standards, such companies shall disclose in its profit and loss account and balance sheet, the following, namely:-

(a) the deviation from the accounting standards;

(b) the reasons for such deviation; and

(c) the financial effect, if any, arising due to such deviation.

(3C) For the purposes of this section, the expression "accounting standards" means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub- section (1) of section 210A :

Provided that the standard of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub-section.

(4) The Central Government may, on the application, or with the consent of the Board of directors of the company, by order, modify in relation to that company any of the requirements of this Act as to the matters to be stated in the company's balance sheet or profit and loss account for the purpose of adapting them to the circumstances of the company.

(5) The balance sheet and the profit and loss account of a company shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose-

(i) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938;

(ii) in the case of a banking company, any matters which are not required to be disclosed by the Banking Companies Act, 1949;

(iii) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by both the Indian Electricity Act, 1910, and the Electricity (Supply) Act, 1948;

(iv) in the case of a company governed by any other special Act for the time being in force, any matters which are not required to be disclosed by that special Act; or

(v) in the case of any company, any matters which are not required to be disclosed by virtue of the provisions contained in Schedule VI or by virtue of a notification issued under sub-section (3) or an order issued under sub-section (4).

(6) For the purposes of this section, except where the context otherwise requires, any reference to a balance sheet or profit and loss account shall include any notes thereon or documents annexed thereto, giving information required by this Act, and allowed by this Act to be given in the form of such notes or documents.

(7) If any such person as is referred to in sub- section (6) of section 209 fails to take all reasonable steps to secure compliance by the company, as respects any accounts laid before the company in general meeting, with the provisions of this section and with the other requirements of this act as to the matters to be stated in the accounts, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both :

Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeing that the provisions of this section and the other requirements aforesaid were complied with and was in a position to discharge that duty :

Provided further that no person shall be sentenced to imprisonment for any such offence, unless it was committed wilfully.

(8) If any person, not being a person referred to in sub-section (6) of section 209, having been charged by the managing director or manager, or Board of directors, as the case may be, with the duty of seeing that the provisions of this section and the other requirements aforesaid are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months or with fine which may extend to ten thousand rupees, or with both:

Provided that no person shall be sentenced to imprisonment for any such offence, unless it was committed wilfully.

SCHEDULE VI (See section 211) 1[PART I Form of Balance-sheet] The balance sheet of a company shall be either in horizontal form or vertical form A. HORIZONTAL FORM] Balance sheet of .

[Here enter the name of the Company] As at [Here enter the date as at which the balance-sheet is made out.] Instructions in accordance with which liabilities should be made out LIABILITIES ASSETS Instructions in accordance with which assets should be made out Figures for the previous year Rs.

(b) Figur es for the curre nt year Rs.

(b) Figures for the previous year Rs.

(b) Figu res for the curr ent year Rs.

(b) *SHARE CAPITAL *FIXED ASSETS Terms of redemption or conversion (if any), or any redeemable preference capital to be stated, together with earliest date of redemption or conversion.

Authorised shares of Rs.each.

Distinguishing as far as possible between expenditure upon

(a) goodwill,

(b) land,

(c) buildings,

(d) leaseholds,

(e) railway sidings,

(f) plant and machinery,

(g) furniture and fittings,

(h) development of property,

(i) patents, trade marks and designs,

(j) live-stock and

(k) vehicles, etc.

*Under each head the original cost, and the additions thereto and deductions therefrom during the year, and total depreciation written off or provided up to the end of the year to be stated.

Where the original cost aforesaid and additions and deductions thereto, relate to any fixed asset which has been acquired from a country outside India, and in consequence of a change in the rate of exchange at any time after the acquisition of such asset, there has been an increase or reduction in the liability of the company, as expressed in Indian currency, for making payment towards the whole or a part of the cost of the asset or for repayment of the whole or a part of moneys borrowed by the company from any person, directly or indirectly in any foreign currency specifically for the purpose of acquiring the asset (being in either case the liability existing immediately before the date on which the change in the rate of exchange takes effect), the amount by which the liability is so increased or reduced during the year, shall be added to, or, as the case may be deducted from the cost, and the amount arrived at after such addition or deduction shall be taken to be the cost of the fixed asset.

Explanation 1: This paragraph shall apply in relation to all balance-sheets that may be made out as at the 6th day of June, 1966, or any day thereafter and where, at the date of issue of the notification of the Government of India, in the Ministry of Industrial Development and Company Affairs (Department of Company Affairs), G.S.R. No. 129, dated the 3rd day of January, 1968, any balance sheet, in relation, to which this paragraph applies, has already been made out and laid before the company in Annual General Meeting, the adjustment referred to in this paragraph may be made in the first balance-sheet made out after the issue of the said notification.

Explanation 2:-In this paragraph, unless the context otherwise requires, the expressions "rate of exchange", "foreign currency"

and "Indian Currency" shall have the meanings respectively assigned to them under sub-section (1) of section 43A of the Income-tax Act, 1961 (43 of 1961), and Explanation 2 and Explanation 3 of the said sub-section shall, as far as may be, apply in relation to the said paragraph as they apply to the said sub-section (1).

In every case where the original cost cannot be ascertained, without unreasonable expense or delay, the valuation shown by the books shall be given. For the purposes of this paragraph, such valuation shall be the net amount at which an asset stood in the companys books at the commencement of this Act after deduction of the amounts previously provided or written off for depreciation or diminution in value, and where any such asset is sold, the amount of sale proceeds shall be shown as deduction.

Particulars of any option on un-issued share capital to be specified.

Issued (distinguis hing between the various classes of capital and stating the particulars specified below, in respect of each class) shares of Rs. each Where sums have been written off on a reduction of capital or a revaluation of assets, every balance sheet, (after the first balance sheet) subsequent to the reduction or revaluation shall show the reduced figures and with the date of the reduction in place of the original cost.

Particulars of the different classes of preference shares to be given.

Subscribed (distinguis hing between the various classes of Capital and stating the particulars specified below in respect of each class.) Each balance sheet for the first five years subsequent to the date of the reduction, shall show also the amount of the reduction made.

(c) shares of Rs. each.

Similarly, where sums have been added by writing up the assets, every balance-sheet subsequent to such writing up shall show the increased figures with the date of the increase in place of the original cost. Each balance sheet for the first five years subsequent to the date of writing up shall also show the amount of increase made.

Rs. called up.

Explanation.- Nothing contained in the preceding two paragraphs shall apply to any adjustment made in accordance with the second paragraph.

Of the above shares shares are allotted as fully paid- up pursuant to a contract without payments being received in cash.

Specify the source from which bonus shares are issued, e.g., capitalisatio n of profits or Reserves or from Share Premium Account.

Of the above shares ___ shares are allotted as fully paid- up by way of bonus shares+ Any capital profit on reissue of forfeited shares should be transferred to Capital Reserve.

Less: calls unpaid:

1[(i) By managing agent or secretaries and treasurers and where the managing agent or secretaries and treasurers are a firm, by the partners thereof, and where the managing agent or secretaries and treasurers are a private company by the directors or members of that company.] (ii) By directors.

(iii) By others.

Add:

Forfeited shares (amount originally paid up)].

Additions and deductions since last balance sheet to be shown under each of the specified heads.

*RESERVES AND SURPLUS INVESTMENTS

*Aggregate amount of companys quoted investment and also the market value thereof shall be shown.

The word "fund" in relation to any "Reserve"

should be used only where such Reserve is specifically represented by earmarked investments.

(1) Capital Reserves.

Showing nature of investments and mode of valuation, for example, cost or market value and distinguishing between- Aggregate amount of companys unquoted investments shall also be shown.

(2) Capital Redemption Reserve.

*(1) Investments in Government or Trust Securities.

All unutilised monies out of the issue must be separately disclosed in the Balance Sheet of the company indicating the form in which such unutilised funds have been invested.

(3) Share Premium Account (cc).

*(2) Investments in shares, debentures or bonds (showing separately shares fully paid-up and partly paid-up and also distinguishing the different classes of shares and showing also in similar details investments in shares, debentures or bonds of subsidiary companies.

(4) Other Reserves specifying the nature of each Reserve and the amount in respect thereof.

(3) Immovable properties.

Less: Debit balance in profit and loss account (if any) (h).

(4) Investments in the Capital of partnership firms.

(5) Surplus i.e., balance in profit and loss account after providing for proposed allocations , namely:- (5) Balance of unutilised monies raised by issue.

Dividend, Bonus or Reserves.

(6) Proposed additions to Reserves.

(7) Sinking Funds.]

SECURED LOANS: CURRENT ASSETS, LOANS AND ADVANCES:

Loans from Directors, Manager should be shown separately.

(1) Debentures A. CURRENT ASSETS Mode of valuation of stock shall be stated and the amount in respect of raw material shall also be stated separately where practicable.

Interest accrued and due on Secured Loans should be included under the appropriate sub-heads under the head "SECURED LOANS".

(2) Loans and Advances from Banks.

(1) Interest accrued on Investments Mode of valuation of works-in-progress shall be stated.

The nature of the security to be specified in each case.

(3) Loans and Advances from subsidiarie s.

(2) Stores and spare parts.

In regard to Sundry Debtors particulars to be given separately of-

(a) debts considered good and in respect of which the company is fully secured; and

(b) debts considered good for which the company holds no security other than the debtors personal security; and

(c) debts considered doubtful or bad.

Where loans have been guaranteed by managers and/or directors, a mention thereof shall also be made and the aggregate amount of such loans under each head (4) Other Loans and Advances.

(3) Loose Tools.

Debts due by directors or other officers of the company or any of them either severally or jointly with any other person or debts due by firms or private companies respectively in which any director is a partner or a director or a members to be separately stated.

Terms of redemption or conversion (if any) of debentures issued to be stated together with earliest date of redemption or conversion.

(4) Stock-in- trade.

Debts due from other companies under the same management within the meaning of sub-section (1B) of section 370, to be disclosed with the names of the Companies.

(5) Works-in- Progress.

The maximum amount due by directors or other officers of the company at any time during the year to be shown by way of a note.

(6) Sundry debtors- The provisions to be shown under this head should not exceed the amounts of debts stated to be considered doubtful or bad and any surplus of such provision if already created, should be shown at every closing under "Reserves and Surplus" (in the liabilities side) under a separate sub-head "Reserve for Doubtful or Bad Debts".

(a) Debts outstanding for a period exceeding six months.

In regard to bank balances, particulars to be given separately of-

(b) Other debts.

(a) the balances lying with Scheduled Banks on current accounts, call accounts and deposit accounts;

Less: Provision (b) the name of the bankers other than Scheduled Banks and the balance lying with each such banker on current accounts, call accounts and deposit account the maximum amount outstanding at any time during the year from each such banker; and (7A) Cash balance on hand.

(c) the nature of the interest, if any, of any director or his relative or the in each of the bankers (other than Scheduled Banks) referred to in (b) above.

(7B) Bank balances- All unutilised monies out of the issue must be separately disclosed in the Balance Sheet of the company indicating the form in which such unutilised funds have been invested.

(a) with Scheduled Banks, and (b) with others.

B.LOANS AND ADVANCES

*The above instructions regarding "Sundry Debtors" apply to "Loans and Advances" also.

(8) (a) Advances and loans to subsidiaries.

(b) Advances and loans to partnership firms in which the company or any of its subsidiaries is a partner.

(9) Bills of Exchange.

(10) Advances recoverable in cash or in kind or for value to be received, e.g., Rates, Taxes, Insurance, etc.

(11) ***] (12) Balances with Customs, Port Trust, etc. (where payable on demand).

UNSECURED LOANS: MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted):

Loans from directors, manager should be shown separately.

Interest accrued ant due on Unsecured Loans should be included under the appropriate sub-heads under the head "Unsecured Loans".] (1) Fixed Deposits.

(1) Preliminary expenses.

Where loans have been guaranteed by managers and/ or directors, a mention thereof shall be made and also aggregate amount of such loans under each head.

(2) Loans and Advances from subsidiarie s.

(2) Expenses including commission or brokerage on underwriting or subscription of shares or debentures.

See note (d) at foot of Form (3) Short Term Loans and Advances:

(3) Discount allowed on the issue of shares or debentures.

(a) From Banks.

(4) Interest paid out of capital during construction (also stating the rate or interest.) (b) From others.

(5) Development expenditure not adjusted.

(4) Other Loans and Advances:

(6) Other items (specifying nature).

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