3.2  Query

Treatment of the value of revalued assets under MRTP Act.

1.A public limited company is engaged in the manufacture of various types of industrial products. A few years back, it set up a new unit called ‘Raw Edge Cogged Power Transmission Belt Division’ at its existing factory and is holding a valid industrial licence for this product.

2.The Department of Company Affairs have issued a default notice asking the company to register the abovesaid unit under section 26 read with section 20(b)(i) of the MRTP Act, 1969, since the licensed capacity of this unit is not less than one fourth of the total installed capacity in the country for the production of this product. The querist has stated that the company has contested that the new unit cannot be treated as a dominant undertaking under section 2(d) ibid, for the reason that its total investment for this unit is less than the prescribed limit of Rs. 1 crore. However, the company has not considered the amount added on revaluation of fixed assets in arriving at the total investment in the unit. Its contention is that revaluation amount is not to be considered for the following reasons: -

                        (a)            No cash investment is involved in revaluation.

(b) The term ‘amount added on revaluation’ itself suggests that the addition is only due to revaluation of assets and not due to any further cash expenditure.

(c) Revaluation of fixed assets is carried out by companies on their own discretion with a view to project better asset coverage to the institutions and there are no tangible benefits due to revaluation.

(d) Any decision or analysis made based on the revaluation figures will result in discrimination between two companies producing same type of product where one has carried out revaluation and the other has not.

3.The querist has sought the opinion of the Expert Advisory Committee on the following issue:

“For the purpose of determination of the quantum of investment in a new unit under section 20(b) of the MRTP Act, 1969, whether amount added on revaluation is to be included in the value of fixed assets.”

                                                                  Opinion                                        September 17, 1990

1. The Committee notes section 20 of the MRTP Act, 1969 (as amended by the Amendment Act, 1984) which states as below:

                        “20.            This Part shall apply to-

                        (a)            an undertaking if the total value of

                                    (i)            the assets of such undertaking, or

(ii) the assets of such undertaking together with the assets of its inter-connected undertakings,

is not less than twenty crores of rupees;

                        (b)            a dominant undertaking-

(i) where it is a single undertaking, the value of the assets of such undertakings, or

(ii) where it consists of more than one undertaking, the sum total of the value of the assets of all the inter-connected undertakings constituting the dominant undertaking,

is not less than one crore of rupees.

                        Explanation:   The value referred to in this section shall be, -

(i) in the case of an undertaking referred to in clause (a) or clause (b) as the case may be, the value of the assets of such undertaking on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does or does not apply to such undertaking; and

(ii) in the case of an inter-connected undertaking, the value of the assets of such undertaking on the last day of its financial year which closes during the calendar year immediately preceding the calendar year in which the question arises as to whether this Part does or does not apply to the undertaking referred to in clause (a) or clause (b).”

2. The Committee also notes para (w) of section 2 of the aforesaid Act which states as under:

“(w) “value of assets” in relation to an undertaking, means the value of its assets as shown in its books of account after making provision for depreciation.”

3.The Committee is accordingly of the opinion that for the purposes of section 20 of the MRTP Act, 1969, the value of assets means the value as shown by the books of account of the company. Therefore, the amount added on revaluation, since it figures in the books of account, is to be considered for the purposes of determination of the quantum of investment in a unit under section 20(b) of the MRTP Act, 1969.

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