Coconut and Coir Sector Review (Inside)

FOCAL POINT

Newsletter from Raju and Prasad Chartered Accountants

May 2017 Volume 4, Issue 3

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Dear Reader,

Our editorial comments for this month are on the Ordinance of NPA.

This month we have covered the ‘Coconut and Coir Sector’ in our Industry Review.

Please give your views and also send this newsletter to your friends.

Regards

For Raju& Prasad Chartered Accountants

M Siva Ram Prasad Partner

Raju and Prasad Chartered Accountants Page 2 Contents

Contents ...... 2

Editorial ...... 3 Is it oversight or overseeing? Ordinance on NPA? ...... 3

Industry Review ...... 5 Coconut and Coir Industry ...... 5 Economic and Social Significance ...... 5 Cultivation: ...... 6 Government Initiatives ...... 7 Present Scenario ...... 8 Coconut Products ...... 9 COIR ...... 9 Coir Process ...... 9 Challenges of the Sector ...... 11 Recommendations of FAO ...... 12 Policy Watch ...... 13 Company Law ...... 13 Amendment to Companies (Acceptance of Deposits) Rules, 2014 ...... 13 RBI ...... 13 Disclosure in the “Notes to Accounts” to the Financial Statements- Divergence in the asset classification and provisioning by Banks ...... 13 Submission of Statutory returns (SLR-Form VIII) in XBRL platform ...... 14 Direct Tax...... 14 Exemptions under section 139AA of the Income Tax Act, 1969 ...... 14 Verdicts ...... 15 Direct Taxation ...... 15 Income from sub-leasing of house property earned by a firm or other assessee to be treated as Income from house property, unless if the firm had engaged in a systematic activity of providing service to occupants ...... 15 Sale of entire running business with all assets and liabilities in one go to be treated as slump sale of long term capital asset and section 50(2) shall not be attracted ...... 15 ►►► PHOTOGRAPH OF THE MONTH ...... 16

Raju and Prasad Chartered Accountants Page 3 Editorial

Is it oversight or overseeing? Ordinance on NPA

The bad loan situation is universal. The exercise of borrower vs. lender, there are information about NPAs is transparently many schemes that were drafted as a part of reported in bank’s balance sheets to a great win-win situation. extent. The provision coverage ratio, gross The number of schemes like CDR and CDR NPA and net NPAs are disclosed regularly. empowered group in the past have given Restructuring is a mechanism that helps the relief to many borrowers and it was proved borrower to recoup and enhance the that bad loans turned into successful units. performance in many adversities. In the entire Later SDR envisaging change in

Raju and Prasad Chartered Accountants Page 4 management with JLF decision was specifically in down trend, it is appreciable introduced in 2014-15 and S4A was that the government is vigorous in its efforts to introduced in 2015-16 to resolve the problems solve and resolve. of large borrowers. While this exercise is on, banks have a The recent ordinance only gives a legal problem of working out their ratios for capital framework to help banks in giving a legal adequacy, gross NPA percentage etc. In this sanctity for the various directives given by RBI. entire plan how wise it is to invoke the This is meant to help banks to fight the bankruptcy law in solving the problems. litigations by borrowers who will try to stall the What should be worked out today is sector process. The ordinance might give comfort specific ratios with and without infrastructure. level to bankers in giving haircuts to Where banks have committed their short term borrowers without fear of further funds for long term loans in infrastructure investigations, otherwise the ordinance only sector which will mismatch the asset-liability repeats the same frame work as in Debt management of banks. Restructuring Schemes. The overseeing It is time for banks to reorient on capital committee will be coordinating the multiple adequacy of the borrower and debt equity bankers to resolve the issue. It is a good norms for various industries. measure to convey the mood of the Today the need is for even changing the 90 government and urgency to resolve the days norm taking each industry specifically problem. instead of a blanket approach. The borrowed What one should wonder in the process is the concepts of NPA applicable to retail lending regulator who is regulating the banking is cannot be extended to industry, exports and asked to involve at a micro level to solve the infrastructure. It is high time that banks should problems. The time lines prescribed to concentrate on working capital finance and change the managements and to bring the retail lending and withdraw from term loan additional equity is not so practical, since the lending which should be done by specialized industry cannot be sold like an off the shelf financial institutions. item especially when certain sectors are M SIVA RAM PRASAD

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Coconut and Coir Industry Economic and Social Significance grown in many South Asian countries, Africa Coconut is a very interesting tropical plant and America. The crop is grown in about 90 which has multiple utilities. The plants are countries in the world and it is said to be cultivated mostly in southern states of India propagated because of the travelers in sea in Kerala, Tamil Nadu, Karnataka and routes. Andhra Pradesh. The word `Kerala’ itself Long coast area in the country facilitates means `Land of Kera (Coconut)’. There is climatically the cultivation of coconut crop no historical evidence about the origin of though it is not widespread in Maharashtra. the plant, but it is said to have travelled Many parts of the plant can be used from Ceylon (Sri Lanka) to India. The crop is besides its fruits. The leaves are used in

Raju and Prasad Chartered Accountants Page 6 housing as roofing material, the trunks are also used in making houses, the dried parts are used as fuel, the fruits are consumed for drinking coconut water, kernel from the coconut is used in preparing food, dried kernel is also used in food preparation and oil is extracted out of the dried coconut kernel. The oil is used in preparation of medicines, used as edible oil, hair oil and loamy or laterite. The rocky soils and water for oil massaging etc. Coir is pealed from stagnant areas should be avoided. the coconut outer shell (husk) and is used Coconuts are grown with or without for many products of commercial use. With irrigation but drainage of water is essential, so many products and utilities the crop has without water being stagnant. Rainfall of economic significance. Practically there is 2000 mm per annum is required for non- no ritual or function for majority of Indians irrigated cultivation. Normally seedlings with without breaking a coconut and is age of one year are planted with space of auspicious. Perhaps for these reasons it is 25 feet. Intercropping is also done with known as Kalpa Vruksha (Tree of life or tree pineapples, pepper, turmeric, marigolds of prosperity). etc. In general tall varieties, semi tall (semi Cultivation: dwarf) varieties are grown in the country. The coconuts are grown in different soil CPCRI has developed dwarf varieties to conditions whether it is sandy, alluvial, yield tender coconuts with more water in the fruit. The varieties that are developed are root pest resistant. Popular among them are Kalpa Raksha, Chowgat orange dwarf, Kalpa Sree, Kalpa Jyothi, Kalpa Sreshta, Chandra Sankara, Kera Sankara, Chandra Laksha, Kalpa Samrudhi and Kalpa Sankara. The tall varieties like Kalpa Dhun, Kalps Pratiba, Kalpa Mitra, Chandra Kalpa, Kera

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Chandra, Kalpa Tharu and Kalpa Pattarita “Coconut“ is the king of vegetables, with its are grown depending on the soil condition Sap fruits, leaves, stem, root and all parts to feed, appease, shelter, cure and carry and moisture in wet land. mankind”, Jose Maria de Silva, LISBON Government Initiatives Directorate of Coconut development was Coconut research station was set up at setup in 1966. This was abolished in 1981 Kasar Gode as early as in 1916 by Provincial and Coconut Development Board was Government of Madras state which was established. The coconut development converted to Central Plantation Crop board concentrated on increasing the Research Institute (CPCRI) later. Thrust on area of land to cultivate coconuts with coconut development started in early years better methodologies with modern of 1940s. technologies and giving assistance to Government of India in 1943 farmers in market development. Kerafed recommended setting up of a statutory was setup in 1989 for integrated body. Indian Central Coconut Committee development of coconut production, was formed in 1945 to develop the sector processing and marketing. Later, Export from economic, commercial and technical Promotion Council was set up in April 2009 point of view. After independence, as part of Coconut Development Board. Table showing production and area under cultivation in the year 2015-16. Andhra Pradesh and Tamil Nadu have the highest productivity per hectare. S.No. States /Union Territories AREA ('000 Hectares) Production (Million nuts) Productivity (Nuts/ha) 1 Kerala 770.62 7429.39 9641 2 Tamil Nadu 459.74 6171.06 13423 3 Karnataka 526.38 5128.84 9744 4 Andhra Pradesh 103.95 1427.46 13732 5 West Bengal 29.51 373.58 12658 6 Odisha 50.91 328.38 6451 7 Gujarat 22.81 312.68 13706 8 Maharashtra 22.75 271.24 9775 9 Bihar 14.90 141.38 9489 10 Assam 19.73 132.59 6720 11 Chhattisgarh 1.85 30.54 16508 12 Tripura 7.20 29.51 4097 13 Nagaland 0.33 2.67 8091 14 Others 52.80 388.13 7351 All India 2088.47 22167.45 10614 Source: Horticulture Division, Dept. of Agriculture & Cooperation, Ministry of Agriculture & Farmers Welfare

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Present Scenario 10,345 coconuts per hectare. The sector As per Press Information Bureau release on contributes nearly Rs. 20000 crores to the 2nd September, 2016, the country has GDP of the country. The export accounted produced 2044 crore nuts from 19.8 lakh for Rs. 1450 crores in 2015-16. The sector hectares with an average production of employs nearly 10 million people. Table showing export of Coconut Products during 2015-16. Sl. No. Item Quantity (in MT) Value (Rs. in lakhs) 1 Activated Carbon 61212.58 63208.13 2 Coconut Fatty Soap - 3177.06 3 Hair Cream - 1121.33 4 Coconut Oil 8549.97 17540.30 5 Coconut Water - 728.53 6 Copra 6749.21 5292.61 7 Desiccated Coconut 4260.97 5260.61 8 Dry coconut 18303.04 17846.79 9 Fresh coconut 39800.46 14960.52 10 Grated/sliced coconut 2163.52 3916.26 11 Oval coconut shell 1630.26 913.64 12 Shell charcoal 7565.85 2511.52 13 VCO (Virgin Coconut Oil) 818.33 2622.50 14 Misc. coconut products - 5924.59 Total 145024.38 Source: Coir Board

To achieve this over years Coconut Development Board, Central Crop Research Institute (CPCRI) and Coconut Export Development Council have developed and implemented number of programs like Production in Planting Materials, Integrated Farming, Technology Mission, Replanting & Rejuvenation and besides the promotion of 402 coconut processing units in the country.

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Coconut Products As mentioned earlier there are various products made out of coconut, few among them are bottled coconut water, coconut flower syrup, coconut palm jaggery, coconut palm sugar, copra, coconut oil, raw kernel, coconut cake, coconut shell based products like charcoal and activated carbon, coconut wood based production in the country. Co-operative products and coir pith. sector also entered the industry with COIR primary societies for coir supply and The word coir is derived from Malayalam manufacturing societies for products. word ‘Kayer’. Coir is fiber coming from the Coir Process outer peel (husk) of coconut fruits. Coir The coir is normally available in brown and ropes were used in shipping and ship white colours depending on the maturity of building in olden days. First industry in coir the fruit. Fiber is obtained by spike splitting was set up in Alleppey in Kerala in 1859 by or dehusking manually. This process is also Mr. James Darragh, an Irish man. Later done by machines. The fibers are graded number of Indian entrepreneurs and into long and short bristle fibers. After fiber is corporates entered the industry and is extracted, it is soaked in water for two to spread in all the southern states of India three hours and passed through a willowing which account for about 90% of coconut machine and impurities are eliminated, then it is passed through slivering machine to make it into sliver form and the slivers are spun into yarns in spinning mill. Then it is wound into rolls and dispatched to market. In this process coir pith is generated which is washed with water to reduce the high electric conductivity (E.C) and made into blocks after sieving and passed through

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block making machine. Then blocks are certain articles like pots, hanging baskets packed and sold. and poles for creepers are used in Coir products are many for regular use like gardening. Needled felts are also used in mats, creel mats, fiber mats, loop mats, soil rehabilitation, used as upholstery mesh mats, rope mats, gymnasia mats, products. Rubberised coir is used in mattings, ribbed matting, multi shaft mattresses and upholstery of automobile matting, cricket pitch mattings, rugs etc. industry etc. Geo textiles are used in preventing soil Coir board is giving marketing assistance erosion. Coir pith is used as soil conditioners and also export market assistance to in agricultural and horticultural activities, manufacturers of coir products. Table showing export of coir and coir products during 2014-15 and 2015-16 Q=Quantity in M Tones V=Value in Rs. Lakhs 2015-16 2014-15 % Growth Item Qty Value Qty Value Qty Value Coir Pith 408897 68808.56 316425 43295.24 29.2 58.9 Tufted Mat 45770 44316.03 41284 39725.96 10.9 11.6 Coir Fiber 255293 41767.11 219103 41923.34 16.5 -0.4 Handloom Mat 20386 22279.96 25353 23946.91 -19.6 -7.0 Geo textiles 4520 3531.72 4236 3270.28 6.7 8.0 Coir Yarn 4134 2820.82 4070 3000.89 1.6 -6.0 Curled Coir 9470 2510.07 12621 3732.00 -25.0 -32.7 Handloom Mattings 1706 1968.78 1667 1835.28 2.3 7.3 Rubberized Coir 678 971.74 897 1410.88 -24.4 -31.1 Coir Rope 517 396.61 614 391.92 -15.9 1.2 Power loom Mat 280 367.35 161 225.25 73.6 63.1 Coir Rugs & Carpet 307 282.5 135 146.10 127.1 93.4 Coir Other Sorts 46 94.79 71 85.79 -34.6 10.5 Power loom Matting 16 26.48 28 43.93 -44.6 -39.7 Total 752020 190142.52 626666 163033.77 20.0 16.6 Source: Coir Board, Ministry of MSME

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Challenges of the Sector Though India produces 31% of the world’s coconuts and about 70% of coir products, the sector has certain challenges.  Like any other agricultural sector this crop also faces problems of pests, termites etc, besides climatic changes and cyclones.  The sector is mostly concentrated in  Coir composite developed by coir southern states of India which poses a board is to be popularised to replace problem of transport to other areas in Medium Density Fiber (MDF) board, the country. wood boards, plywood and plastic  Replanting in place of old plants not boards. giving sufficient yield, is not done  Unlike other countries the value added regularly. products like face creams, moisturisers,  The sector is not concentrated in terms body lotions, shampoos, scrubs, insect of land holding. The coconuts are grown repellents etc. are not made and as a domestic plant as well as coconut marketed in India and abroad. farms. Collection and marketing of the  India being a large market, most of the fruit and coir is difficult due to its spread produce is consumed in India and there in wide area. There is need to increase is need to increase export of value more farmers’ societies. added products.  The training and skill development of  Competition in the international market workers is needed to produce quality from Vietnam, Fiji, Indonesia and products consistently. Philippines can be combated with value  About 30% coir only is used in coir added products. product manufacturing, rest of the  Cultivation of coconuts should be material is used as fuel. The other dried propagated in other states. parts of the plant are also used as fuel. Coconut Development Board, Central Crop Research Institute, Coir Board have done a commendable job in development

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of the sector. Their activities should be  Inter cropping, keeping in mind the food expanded throughout the country. security, increase in profitability in Recommendations of FAO agriculture with development of poultry, FAO study on coconut industry in Asia goat farming, honey bee keeping etc. Pacific Region made certain  Adopting Good Agriculture Practices recommendations for maintaining quality (GAP) with Integrated Pest of coconuts, their yield and to fight Management (IPM) and organic diseases. FAO emphasized on certification.  Selection of good quality mother palms,  Promotion of research on health benefits development of hybrid varieties for of coconut oil on heart disease, better yields as well as disease Alzheimer’s disease etc. resistance. Implementing the recommendations will  Development of seed banks, gene help facing the challenges of the sector banks, seed gardens and replacement and coconut development should be of old plants. made a part of National Development  Giving technical inputs, technology Program to achieve integrated rural exchange among the countries in the development. region for making high value added - Team at Raju and Prasad products along with sourcing appropriate processing equipment.

` Raju and Prasad Chartered Accountants Page 13 Policy Watch

Company Law

Amendment to Companies (Acceptance of Deposits) Rules, 2014 The Ministry of Corporate Affairs vide notification dated 11th May, 2017 has amended the Companies (Acceptance of

Deposits) Rules, 2014 where in rule 2, sub- rule (1), in clause (c), in sub clause (XVIII) of The RBI vide notification no. RBI/2016-17/283 the said rules, after the word “Domestic has notified, to ensure greater Venture Capital Funds” the words transparency, a disclosure to be made in “Infrastructure Investment Trust” has been the notes to accounts of the ensuing inserted and in rule 5, in sub-rule (1) for the annual financial statements wherever, proviso the following provision has to be i. the additional provisioning requirements substituted, namely-“Provided that the assessed by RBI exceed 15 percent of companies may accept deposits without the published net profits after tax for the deposit insurance contract till the 31st, reference period, or March, 2018 or the availability of deposit ii. the additional Gross NPAs identified by insurance products whichever is earlier. RBI exceed 15 percent of the published http://www.mca.gov.in/Ministry/pdf/Compan incremental Gross NPAs for the iesAcceptanceofDeposits_12052017.pdf reference period, or iii. Both (i) and (ii).

RBI The disclosure shall be made in the following format Disclosure in the “Notes to Accounts” to the Financial Statements- Divergence in the asset classification and provisioning by Banks

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S.No. Particulars Amount 1 Gross NPAs as on March 31, 20XX as reported by the bank 2 Gross NPAs as on March 31, 20XX as assessed by RBI 3 Divergence in Gross NPAs (2-1) 4 Net NPAs as on March 31, 20XX as reported by the bank 5 Net NPAs as on March 31, 20XX as assessed by RBI 6 Divergence in Net NPAs (5-4) 7 Provisions for NPAs as on March 31, 20XX as reported by the bank 8 Provisions for NPAs as on March 31, 20XX as assessed by RBI 9 Divergence in provisioning (8-7) 10 Reported Net Profit after Tax (PAT) for the year ended March 31, 20XX Adjusted (notional) Net Profit after Tax (PAT) for the year ended March 11 31, 20XX after taking into account the divergence in provisioning https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI283469DAF40467844C9824637E9A90466D3.P DF notified the below list of persons as Submission of Statutory returns (SLR- exempted from the provisions of section Form VIII) in XBRL platform 139AA of the Income Tax Act, 1969 which RBI vide notification no. RBI/2016-17/302 mandates all the eligible persons to obtain dated 11th May, 2017 has notified that the Aadhaar number card on or after 1st July, statutory returns of SLR Form VIII which was 2017 and to quote the same in their return previously filed on PCRPCD platform shall, of income. from the month of April, 2017, be filed in (i) residing in the States of Assam, Jammu XBRL (Extensible Business Reporting and Kashmir and Meghalaya; Language) platform. (ii) a non-resident as per the Income-tax https://rbidocs.rbi.org.in/rdocs/notification/P Act, 1961; DFs/NOTI302F2863474360D4C89A92EAE7544B 85777.PDF (iii) of the age of eighty years or more at any time during the previous year; Direct Tax (iv) not a citizen of India.

Exemptions under section 139AA of http://www.incometaxindia.gov.in/communi the Income Tax Act, 1969 cations/notification/notification37_2017.pdf

The Central Board of Direct Taxes vide notification dated 11th May, 2017 has

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Verdicts Direct Taxation Income from sub-leasing of house property earned by a firm or other assessee to be treated as Income from house property, unless if the firm had engaged in a systematic Sale of entire running business with activity of providing service to all assets and liabilities in one go to occupants be treated as slump sale of long

-vide Supreme Court of India vide Raj term capital asset and section Dadarkar & Associates Vs. Assistant 50(2) shall not be attracted Commissioner of Income-tax. -vide decision of Supreme court of India The honourable Supreme Court of India vide Commissioner of Income-tax. Ahd. Vs. Equinox Solution (P.) Ltd vide Raj Dadarkar & Associates Vs. Assistant The honourable Supreme Court of India vide Commissioner of Income-tax held that Commissioner of Income-tax. Ahd. Vs. where the assessee-firm acquires lease hold Equinox Solution (P.) Ltd held that in case rights in a premises for more than 12 months where an assessee company had sold its he shall be deemed owner u/s 27(iiib) of entire running business with all assets and the Act and income earned from sub- liabilities in one go, it shall be treated as slump leasing of house property shall be treated sale of a 'long term capital asset' and be as income from house property and not as taxed accordingly; section 50(2) shall not profits and gains from business or profession attracted as it applies to a case where only as assessee-firm was not engaged in any block of assets are transferred by assessee. systematic or organized activity of https://www.taxmann.com/filecontent.aspx? providing service to the occupiers of the Page=CASELAWS&id=101010000000174862&is shops/stalls so as to constitute the receipts xml=Y&search=&tophead=true&tophead=true from them as business income though a Disclamer clause exists in the partnership deed of the Information in this Newsletter, charts, articles, assessee-firm showing that the business of or any other statements regarding market or any other financial information, is obtained the assessee-firm is to take the premises on from the sources, which we feel reliable. We rent and sub-let the same. do not warrant or guarantee the timeliness or accuracy of the information.The reader https://www.taxmann.com/filecontent.aspx? shall not take any decision based on the Page=CASELAWS&multipage=false&id=10101 facts or figures of the newsletter without 0000000175255&isxml=Y&search=&tophead=tr professional advice. ue&tophead=true

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►►► PHOTOGRAPH OF THE MONTH Ibis searching for its prey- at Sewri Mud Flats, Mumbai - Clicked by M Siva Ram Prasad

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