The Ministry of Finance has declared that Goodwill, in general, is not a depreciable asset and in fact depending upon how the business runs; goodwill may see appreciation or in the alternative no depreciation to its value. Therefore, there may not be a justification of depreciation on goodwill in the manner there is a need to provide for depreciation in case of other intangible assets or plant & machinery. The Budget 2021-22 proposes that goodwill of a business or profession will not be considered as a depreciable asset and there would not be any depreciation on goodwill of a business or profession in any situation.

The following updates have been proposed in the Income Tax Act, 1961

• Section 2(11) – block of assets shall not include goodwill of a business or profession;
• Section 32(1)(ii) – goodwill of a business or profession shall not be considered as an asset for the purpose of the said clause and therefore not eligible for depreciation. Further, it is also proposed to amend Explanation 3 to sub-section (1) of the said section to provide that goodwill of a business or profession shall not be considered as an asset for the said sub-section;
• Substituting the section 55(2)(a) – in relation to a capital asset, being goodwill of a business or profession, or a trade mark or brand name associated with a business or profession, or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, or tenancy rights, or stage carriage permits, or loom hours,-

(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and

(ii) in the case falling under sub-clause (i) to (iv) of sub-section (1) of section 49 and where such asset was acquired by the previous owner (as defined in that section) by purchase, means the amount of the purchase price for such previous owner; and

(iii) in any other case, shall be taken to be nil

• Section 49(1)(i) to 49(1)(iv) – in case of goodwill of business or profession acquired by the assessee by way of purchase from a previous owner, any deduction on account of depreciation under section 32 of the Act has been obtained by the assessee in any previous year preceding the previous year relevant to the assessment year commencing on or after the 1st April, 2021, then the cost of acquisition will be the purchase price as reduced by the depreciation so obtained by the assessee before the previous year relevant to assessment year commencing on 1st April, 2021

Advance Tax payment based on High Value Transactions
Income tax department is sending messages to pay advance tax on the basis of High Value Transactions shown in Form 26AS. If high value transactions are performed, then it will be shown in Form 26AS and you have to pay advance tax and show income in return accordingly.

The Finance Act 2015 amended the test of residence of companies by inserting a concept called Place of Effective Management (POEM).

Section 6(3) of Income Tax Act, 1961 – As per Finance Act, 2015

‘A company is said to be resident in India in any previous year, if

•  It is an Indian company; or

•  It’s place of effective management, at any time in that year, is in India.

Place of effective management” (POEM) has been defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

Concept of ‘Active Business Outside India’ (ABOI)

A company shall be said to be engaged in “active business outside India” if

•  its passive income is not more than 50% of its total income; and

•  less than 50% of its total assets are situated in India; and

•  less than 50% of the total number of employees are situated in India or are resident in India; and

•  the payroll expenses incurred on such employees is less than 50% of its total payroll expenditure.

For the purpose of determining whether an entity is engaged in ABOI or not, the average data of the previous three years should be considered. For example, if POEM is determined for AY 2020-21, i.e., FY 2019-20, then average data of FY 2018-19, FY 2017-18 and FY 2016-17 are to be considered. If in case the company has been in existence for less than three years, then the average data of the period for which the company has been in existence will be considered.

Updates on Companies Act and Rules thereunder

Filing of e-Form MGT – 7A

The Ministry of Corporate affairs has promulgated The Companies (Management and Administration) Amendment Rules, 2021 which came into effect from 05.03.2021.

As per the amendment One Person Company and Small Company shall file their Annual Return from the Financial Year 2020-21 onwards in e-Form MGT-7A and all the other Companies shall continue to file their Annual Return in e-Form MGT-7.

About new e-Form MGT-7A

1. E-Form for OPC and Small Companies only.

2. One has to select the Type of Company i.e. OPC or Small Company.

3. Date of AGM is not applicable in case the Company is OPC.

4. Particulars of Associate Companies (including joint venture) are not applicable for OPC.

5. Detail of unclassified share capital is not applicable for OPC.

6. Break-up of Share Capital is not applicable for OPC.

7. Detail of Shares/ Debenture transfer is not applicable for OPC.

8. Shareholding Pattern (promoter/ public) is also not applicable for OPC.

9. Member/ other meeting details are not applicable for OPC.

10. Board Meetings detail is also not applicable for OPC.

11. Attendance of Directors is also not applicable for OPC.

12. Certification by a practicing professional is also not required on this form.