Fwd: Simple Analysis of Financial Information and Budget for FY 19-20 and Various Issues related to GST and Income Tax liability of Association and Members
Abhishek Anchlia
Dear Friends,
Through this mail, I am trying to reach out to all the owners-members of the ‘Fortune Towers Owners Welfare Association’ to share my views on the proposed increase in maintenance and capital expenditure proposed. I am very well aware that I am only 1 out of the 256 owners, who own a flat at this residential complex. And the majority will decide what is right for the society.
Like every one of you, I am equally interested to live in a society which offers high quality of life to our families (through well run common facilities and amenities for the common benefit of one and all in addition to good harmony and social togetherness).
I would like to present below my detailed analysis of the affairs of the society as depicted by the financial information provided by the society in the trailing mail.
Let’s take a look at the income and expenditure of the society (actuals for FY18-19 and Estimated FY 19-20) in a nutshell for a simple understanding:
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FORTUNE TOWERS OWNERS WELFARE ASSOCIATION |
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MADHAPUR, HYDERABAD |
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Particulars |
2018-2019 |
2019-2020 |
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Rs. In Lakhs |
Actuals |
Estimated |
Inc/(Dec) % |
|
INCOME (A+B+C) |
237.26 |
279.69 |
18% |
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|
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A. Total Maintainance Charges |
129.49 |
172.65 |
33% |
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Maintenance Charges @ Rs.1.50 Per Sft |
129.49 |
129.49 |
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Increased MC @ Rs.0.50 Per Sft |
- |
43.16 |
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|
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B. Other Income and Rentals |
37.82 |
35.00 |
-7% |
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Other Income |
12.69 |
13.00 |
2% |
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Shop Rents |
12.00 |
12.00 |
0% |
|
Club House Income |
5.92 |
5.00 |
-15% |
|
Entry Fee |
5.15 |
3.00 |
-42% |
|
Income from Main Advertisement |
1.00 |
1.00 |
0% |
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Misc capital Income |
1.06 |
1.00 |
-6% |
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|
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C. Interest on Corpus Fund |
69.95 |
72.04 |
3% |
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Interest on Corpus (FDs) |
47.91 |
50.00 |
4% |
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Interest on Tax free Bonds |
22.04 |
22.04 |
0% |
|
|
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EXPENDITURE (D+E+F) |
164.60 |
201.48 |
22% |
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D. Salaries & Payments for services (Security, H.K, Garbage, Garden etc) |
118.38 |
140.35 |
19% |
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E. Annual Maintenance charges (Lift, Generators, .C.Cameras etc.) |
17.71 |
20.00 |
13% |
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F. Other Expenditure (Repairs for Building , Electrical, Plumbing, Generator & Misce Expenses, etc.) |
28.50 |
41.13 |
44% |
|
Net Surplus/ (Deficit) |
72.66 |
78.22 |
8% |
Notes:
1. The above statement has been compiled from the information and data collected from the Email circulated by the Executive Committee of FTOWA under the signature of the Hon’ble Secretary of FTOWA (Email dated 20th April 2019 received at 11.34 AM)
2. Net Estimated Surplus will be INR 35 Lakhs for FY 19-20, if there is no increase in maintenance.
3. As per clause 12(ii), the interest from the deposits (Interest on FDs and Tax Free Bonds) shall be utilised for towards the maintenance of the common areas and Security of the Society. And therefore, interest on FDs and Tax Free Bonds amounting to INR 72 Lakhs approximately should be part of the operational income and expenditure of the society.
4. Capital purchase of INR 11 Lakhs in FY 19-20 and Building, Painting and Major repairs of INR 150 Lakhs should be drawn from the Corpus Fund as per Clause 12 (i) read with Clause 12 (iv) of the Memorandum of the Society – FTOWA regarding ‘Utilisation of Funds’ which states as below:
Extract of Clause 12 (i)
“The Corpus Fund shall be used for capital equipment and expenditure of high capital intensive nature which otherwise cannot be met out of maintenance subscription”
Extract of Clause 12 (iv)
“The funds available in the Corpus Fund Accounts, other than the interest on the same, shall be used for the purpose of exterior painting, structural repairs to the building, replacement or acquisition of any capital equipment like motor, lift, generators, security cameras etc. or major repairs to or replacement of water supply, drainage, cooking gas system etc.”
“No Amount from the corpus fund shall be withdrawn, except with the approval of the General Body through a resolution”
“The agenda for the meeting with proposal for expenditure shall be circulated by the Executive Committee to all members with a notice of atleast one week before such General Body Meeting or Extraordinary General Body Meeting is called.”
“No Expenditure out of corpus fund beyond the quantum of addition and built up to the same during the year, shall be incurred unless a special resolution to that effect is passed by 2/3rds of the owner-members present in the General Meeting approving the same”
As per the above analysis and based on Memorandum of the Association, the various issues at hand which we should ask the Executive Committee for their clarifications are as below:
1) Revenue Deficit for the year: As depicted above, there is no revenue deficit for FY 19-20, instead, there is a revenue surplus of INR 35 Lakhs (without considering any increase in maintenance charges) and therefore, please justify the need and reasons for increase in maintenance subscription.
2) Statement of Capital Income and Expenditure: Also, please comment on why there is a separate statement of capital income and expenditure prepared and under what bye-law and Generally Accepted Accounting Practice, it has been prepared. Has this been audited by the Auditor of the Association and will be signed by the auditor?
3) Interest on Deposits cannot be used for operational expenditure.
As per clause 12(ii) of the memorandum of the society, the interest from deposits (including tax free bonds) amounting to INR 72 Lakhs estimated for FY 19-20, shall form part of other income in Income and Expenditure Account and cannot be reduced from the proposed capital expenditure. Can we have a clarification for accounting the interest on corpus fund as capital income as per the bye laws of the Memorandum of the Society.
4) Note 4 to Statement of Capital Income and Expenditure states that “Minimum 15 Crores in the corpus fund is required for safety of owners of the association”.
a) Is this statement based on any special resolution passed by the General Body meeting? If that is the case, why the same has not been raised as subscription to corpus fund as per clause 11 of the memorandum regarding “Raising of Funds”.
b) The Minimum amount of INR 15 Crores has been arrived by estimating the replacement value of all fixed assets of the society based on a report provided by competent technical person. If yes, can the General Body Meeting have a copy of the technical report?
5) GST related clarification: As per our understanding of the GST Act, any amount collected in excess of INR 7500 per flat per month, will fall under the ambit of GST and GST @ 18% shall be chargeable. As per the calculation, the total amount to be collected from owner members of the larger flats (3160 sft) will be INR 7900 per month (@ INR 2.50 including common electricity expenses), what will be the implication on the flat owners on the GST Liability? Why we have been not informed on the GST implication? Also, Has the EC taken any legal opinion on GST matter pursuant to the increase in maintenance?
6) Income Tax Related Clarification: If we increase the maintenance as proposed by the Executive Committee, is there any income tax liability which may fall on the association as the net surplus is taxable to Income Tax (even after considering depreciation claimable under the Income Tax Act of approximately of INR 50 Lakhs) and there can be potential Income Tax liability of INR 10 Lakhs for FY 19-20? Do we have any computation of taxable income provided by a Chartered Accountant on hand? Can we take a legal opinion from an Income Tax Practitioner on the Income Tax Liability for FY 18-19 clarifying that the association will have no income tax liability?
7) Approval for Capital Expenditure: As per Clause 12 (i) read with Clause 12 (iv), the Capital Expenditure estimated for the Building repairs and purchase of Capital Assets of INR 150 Lakhs and INR 11 Lakhs can only be incurred with a special resolution passed by the General Body with 2/3rd of the owners members present in the General Meeting approving the same. Further, the agenda for the meeting for expenditure shall be circulated by the Executive Committee to all Members with a notice of atleast one week before the meeting.
As the General Meeting called on 21st April 2019 has no agenda on the Capital Expenditure proposed, the same cannot be passed as a special resolution. Why the same has not been circulated as a specific agenda of the meeting?
In the end, I would like to highlight that if we have any reasonable understanding on the above issues, we can always agree for the increase in maintenance. Also, we can agree on the capital expenditure of INR 150 Lakhs once passed by a special resolution in the duly called General Body Meeting.
Best Regards,
Abhishek Anchlia
Owner-Member,
B-703 Fortune Towers
Pooja Mishra Khaitan
sunil amarlal hinduja
Fully agree!
Thanks.
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