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Assisted a US-based water purification company with accounting, tax and compliance support services

Engagement: SKP was engaged by a US-based developer and manufacturer of innovative water purification and disinfection technology to provide integrated implementation support services to its wholly owned subsidiary in India. The client delivers technology and systems to distribute safe drinking water at affordable prices to those who lack access to the same.

The Indian subsidiary (the company) tied up with local panchayats in India who would help administer the supply and installation of Community Water Systems (CWS) in villages that were in dire need of safe drinking water. The company entered into an MoU with an NGO as their marketing agent to facilitate the functioning and administration of the CWS through the local Panchayats. Thus, there was a tripartite agreement between the company, NGO and local Panchayats for sale of the CWS and collection of service charge from the villagers who are the end customers of the supply of safe drinking water.

Key Objectives

  • Address key issues such as timing of the revenue recognition and treatment of commissions paid to the NGO.
  • Conceptualise an accounting system Panchayat-wise in order to capture data of each CWS project.
  • Examine the clauses of the tripartite agreement.
  • Examine whether the supply and installation and thereafter, the maintenance of the CWS by the company could be construed as an ‘infrastructure facility’ and if any tax benefits can be availed under section 80IA of the Income Tax Act, 1961.                                                                                                                               

Delivering Value

  • In addition to the predefined scope, SKP developed an innovative and critical revenue model addressing the complexity of the arrangement between the three parties. The CWS systems bought by the Panchayats were financed by a bank and the company collected the service charge in a fiduciary capacity for the Panchayats. SKP helped the client in formulating the accounting policy of revenue on sale of the CWS and apportionment of the service charge between the three parties based on the tripartite agreement.
  • SKP addressed the client’s requirements and provided the following integrated support services:
    • We designed the revenue model for the tripartite agreement ensuring it is compliant with the Accounting Standards and the erstwhile Schedule VI of the Companies Act, 1956.
    • We reviewed the draft tripartite agreement and suggested the clauses for sharing of revenue and expenses between the company, NGO and Panchayats.
    • We developed the internal control system for its operations and also helped the entity design the accounting system to capture information in line with the company’s agreements. The accounting system designed was robust and generated the Profit and Loss account for each CWS project (Panchayat).
  • SKP’s extensive research and in-depth understanding of the operations of the company resulted in the CWS’s facility being categorised as an ‘infrastructure facility’. This enabled the Company to avail 100% tax benefits as per the provisions of section 80IA of the Income Tax Act, 1961.