The weighted average capitalization on the funds borrowed generally is 3.53% per annum (2016: 3.93% per annum).
1.. Net gain on sale of partial interest in subsidiary
As described in note 6 (IV), the Company has concluded the sale of 74% stake in TCDC with ST Telemedia. Accordingly, the Company has recorded a gain of Rs, 1,696.22 crores for the year ended 31 March 2017.
2. Provision for contractual obligation
During the current year, NTT Docomo Inc had filed a petition with the Delhi High Court for implementation of the arbitration award (damages along with cost and interest) by the London Court of International Arbitration. The Delhi High Court directed Tata Sons to deposit the damages including costs and interest in an escrow account. During the quarter ended 30 September 2016, the Company had remitted its share of Rs, 1,058.00 crores to Tata Sons. During the current year, based on the High Court Order dated 28 April 2017, the Company has made a provision of Rs, 872.01 crores towards the contractual obligation under the interse agreement being the difference between the fair value of equity shares to be repurchased, based on the valuation undertaken as at 18 November 2016 and the consideration payable to the buyer for discharge of the Company''''s obligation under the put option. The provision has been adjusted against the escrow deposit included in Non-current - Other financial assets.
3. Staff cost optimization
As part of its initiative to enhance the long term efficiency of the business, during the year the Company undertook organizational changes to align to the Company''''s current and prospective business requirements. These changes involved certain positions in the Company becoming redundant and the Company incurred a one-time charge of Rs, 0.39 crores (2016: Rs, 22.63 crores).
4. Employee Benefits
i. Defined Contribution Plan Provident Fund:
The Company makes contributions towards a provident fund under a defined contribution retirement benefit plan for qualifying employees. The provident fund is administered by the Trustees of the Tata Communications Employees'''' Provident Fund Trust and by the Regional Provident Fund Commissioner. Under this scheme, the Company is required to contribute a specified percentage of payroll cost to fund the benefits.
The rules of the Company''''s Provident Fund administered by the Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees'''' Provident Fund by the Government under the applicable law for the reason that the return on investment is lower or for any other reason, then the deficiency shall be made good by the Company. Having regard to the assets of the Fund and the return on the investments, the Company does not expect any deficiency in the foreseeable future. There has also been no such deficiency since the inception of the Fund.
Provident fund contributions amounting to Rs, 25.03 crores (2016: Rs, 24.28 crores) have been charged to the Statement of Profit and Loss, under Contributions to provident, gratuity and other funds in note 24 "Employee benefits".
ii. Defined Benefit Plan
The Company makes annual contributions under the Employees Gratuity scheme to a fund administered by Trustees covering all eligible employees. The plan provides for lump sum payments to employees whose right to receive gratuity had vested at the time of resignation, retirement, death while in employment or on termination of employment of an amount equivalent to 15 days salary for each completed year of service or part thereof in excess of six months. Vesting occurs upon completion of five years of service except in case of death.
b. Medical Benefit:
The Company reimburses domiciliary and hospitalization expenses not exceeding specified limits incurred by eligible and qualifying employees and their dependent family members under the Tata Communications Employee''''s Medical Reimbursement Scheme.
c. Pension Plan:
The Company''''s pension obligations relate to certain employees transferred to the Company from the Overseas Communications Service ("OCS") an erstwhile department of Ministry of Commerce, Government of India. The Company purchases life annuity policies from an insurance company to settle such pension obligations. During the year, the Company has incurred a charge of Rs, Nil (2016: Rs, 34.15 crores) to meet the additional pension obligation on account of increase in Pension and Dearness Allowance and has been included under Staff welfare expenses in note 24 "Employee benefits".
No other post-retirement benefits are provided to these employees.
The most recent actuarial valuation of the plan assets and defined benefit obligation were carried out as at 31 March 2017 by an independent actuary.
The details in respect of the status of funding and the amounts recognized in the Company''''s financial statements for the year ended 31 March 2017, 31 March 2016 and 1 April 2015 for these defined benefit schemes are as under:
The discount rate is based on the prevailing market yields of Government of India securities as at the balance sheet date for the estimated term of the obligations. The estimates of future compensation cost considered in the actuarial valuation take account of inflation, seniority, promotion and other relevant factors.
The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets. This policy has been implemented during the current and prior years.
The Company''''s policy and objective for plan assets management is to maximize return on plan assets to meet future benefit payment requirements while at the same time accepting a low level of risk. The asset allocation for plan assets is determined based on the investment criteria approved under the Income Tax Act, 1961 and is also subject to other exposure limitations.
VIII A quantitative sensitivity analysis for significant assumption as at 31 March 2017 and 31 March 2016 is as shown below: (As per actuarial valuation report). The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the balance sheet.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from prior years.
iii. Leave plan and Compensated absences
Leave unveiled of by eligible employees may be carried forward / encashed by them / their nominees in the event of death or permanent disablement or resignation, subject to a maximum leave of 120 days in addition to accumulated leave balance available in accumulated quota.
For non executives
Leave unveiled of by eligible employees may be carried forward / encased by them / their nominees in the event of death or permanent disablement or resignation, subject to a maximum leave of 300 days.
The liability for compensated absences as at the year end is Rs, 74.04 crores (2016: Rs, 71.71 crores; 2015: Rs, 65.79 crores) as shown under non-current provisions Rs, 67.46 crores (2016: Rs, 64.40 crores; 2015: Rs, 59.63 crores) and current provisions Rs, 6.58 crores (2016: Rs, 7.31 crores; 2015: Rs, 6.16 crores). The amount charged to the Statement of Profit and Loss under Salaries and related costs in note 24 "Employee benefits" is Rs, 9.93 crores (2016: Rs, 8.35 crores). Refer table I above for actuarial assumptions on compensated absences.
5. Segment Reporting
The Board of Directors and the Managing Director of the Company together constitute the Chief Operating Decision Makers ("CODM") which allocate resources to and assess the performance of the segments of the Company. The Company''''s reportable segments are Voice Solutions ("VS") and Data and Managed Services ("DMS"). The composition of the reportable segments is as follows:
Voice Solutions (VS)
VS includes international and national long distance voice services.
Data and Managed Services (DMS)
DMS includes corporate data transmission services, virtual private network signaling and roaming services, television and other network and managed services.
i. Revenues and network and transmission charges are directly attributable to the segments. Network and transmission costs are allocated based on utilization of network capacity. Licence fees for VS and DMS have been allocated based on adjusted gross revenues from these services. Depreciation and certain other costs have been allocated to segments based on various allocation parameters. Segment result is segment revenues less segment expenses. Other income and exceptional items have been considered as "Unallowable".
d. Geographical Information
The revenues from operation have been allocated to countries based on location of the customers and information about its non-current assets# by location of assets are detailed below:
# All of the segment assets are located in India or in International territorial waters.
* Netherlands includes amounts recorded as revenues from Tata Communications (Netherlands) BV of Rs, 158.49 crores (2016: Rs, 238.89 crores). Tata Communications (Netherlands) BV is a central contracting party and a transfer pricing administrator for inter-company transactions between Tata Communications Limited and its international subsidiaries.
The Company applies Residual Profits Split Method ("RPSM") for recording transactions pertaining to International Telecommunications Services under its Transfer Pricing Policy. This policy governs the majority of the transactions between the Company and its international subsidiaries. The Company''''s subsidiary in the Netherlands is designated as the Central Contracting Party ("CCP") and Transfer Pricing Administrator ("TPA").
Derivatives not designated as hedging instruments:
The Company uses foreign exchange forward contracts to manage some of its transaction exposures. The foreign exchange forward contracts are not designated as cash flow hedges and are entered into for periods consistent with foreign currency exposure of the underlying transactions, generally within 1 year as at 31 March 2017, 31 March 2016 and 1 April 2015.
7. Financial Instrument
The significant accounting policies, including the criteria for recognition, the basis of measurement and the basis on which income and expense are recognized, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2(s) to the financial statements.
Carrying amounts of cash and cash equivalents, trade receivables, loans and trade payables as at 31 March 2017, 31 March 2016 and 1 April 2015 approximate the fair value because of their short term nature. Difference between carrying amounts and fair values of bank deposits, other financial assets, other financial liabilities and borrowings subsequently measured at amortized cost is not significant in each of the years presented.
Fair value hierarchy:
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable and consist of following three levels:
Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs are other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs are not based on observable market data (unobservable inputs). Fair values are determined in whole or in part using a valuation model based on assumptions that are neither supported by prices from observable current market transactions in the same instrument nor are they based on available market data.
The investments included in level 2 of fair value hierarchy have been valued using quotes available for similar assets and liabilities in the active market. The investments included in level 3 of fair value hierarchy have been valued using the cost approach to arrive at their fair value. The cost of unquoted investments approximate the fair value because there is a wide range of possible fair value measurements and the cost represents estimate of fair value within that range.
8. Financial risk management objectives and policies
The Company''''s principal financial liabilities other than derivatives comprise loans and borrowings, trade and other payables and financial guarantee contracts The main purpose of these financial liabilities is to finance the Company''''s operations and to provide guarantees to support its operations. The Company''''s principal financial assets include loans, trade and other receivables, current investment and cash and cash equivalents that derive directly from its operations. The Company has investments on which gain or loss on fair value is recognized through Other Comprehensive Income and also enters into derivative transactions.
The Company is exposed to market risk, credit risk and liquidity risk. The Company''''s senior management oversees the management of these risks.
The Company''''s senior management ensures that financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company''''s policies and risk objectives. All derivative activities for risk management purposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is the Company''''s policy that no trading in derivatives for speculative purposes may be undertaken. The senior management reviews and agrees policies for managing each of these risks, which are summarized below:
a) Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price risk and commodity risk. Financial instruments affected by market risk include loans and borrowings, deposits, Fair value through Profit or loss, Fair Value through Other Comprehensive Income investments and derivative financial instruments.
The sensitivity analysis in the following sections relate to the position as at 31 March 2017 and 31 March 2016.
The analysis exclude the impact of movements in market variables on: the carrying values of gratuity and other post- retirement obligations, provisions and the non-financial assets and liabilities of foreign operations.
The following assumptions have been made in calculating the sensitivity analysis:
The sensitivity of the relevant profit or loss item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2017 and 31 March 2016 including the effect of hedge accounting.
The sensitivity of equity is calculated by considering the effect of any associated cash flow hedges and hedges of a net investment in a foreign subsidiary at 31 March 2016 for the effects of the assumed changes of the underlying risk.
b) Interest Rate Risk:
Interest rate risk is the risk that the future cash flows with respect to interest payments on borrowings will fluctuate because of changes in market interest rates. The Company''''s exposure to the risk of changes in market interest rates relates primarily to the Company''''s long-term debt obligations with floating interest rates.
c) Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company''''s exposure to the risk of changes in foreign exchange rates relates primarily to the Company''''s operating activities (when revenue or expense is denominated in a foreign currency) and the Company''''s net investments in foreign subsidiaries.
The Company''''s objective is to try and protect the underlying values of the Company''''s balance sheet forex exposures. Exposures are broadly categorized into receivables and payable exposures.
The Company manages its foreign currency risk by entering into derivatives on net exposures, i.e. netting off the receivable and payable exposures in order to take full benefit of Natural Hedge.
Non-crystallized (not in books) exposures for which cash flows are highly probable are considered for hedging after due consideration of cost of cover, impact of such derivatives on profit and loss due to MTMs (mark to market loss or gains), market / industry practices, regulatory restrictions, etc.
As regards net investments in foreign operations, hedging decisions are guided by regulatory requirement, accounting practices and in consultation and approval of senior management on such hedging action.
The foreign exchange rate sensitivity is calculated by aggregation of the net foreign exchange rate exposure and a simultaneous parallel foreign exchange rate shift of all the currencies by 5% against the functional currency of the Company.
The following analysis has been worked out based on the net exposures of the Company as of the date of balance sheet which would affect the Statement of Profit and Loss and Equity.
The following tables sets forth information relating to foreign currency exposure (net) as at 31 March 2017, 31 March 2016 and 1 April 2015.
5% appreciation/ depreciation of the respective foreign currencies with respect to functional currency of the Company would result in decrease/ increase in the Company''''s profit before tax by approximately Rs, 40.60 crores, Rs, 12.42 crores and Rs, 1.11 crores for the year ended 31 March 2017, 31 March 2016 and 1 April 2015 respectively.
d) Equity Price risk
The Company''''s listed and non-listed equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities.
At the reporting date, the exposure to unlisted equity securities at fair value was Rs, 4,564.08 crores as on 31 March
2017 (Rs, 3,683.15 crores as on 31 March 2016 and Rs, 3,915.82 crores as on 1 April 2015).
e) Credit Risk
Credit risk is the risk that the counterparty will not meet its obligations under a financial instrument or a customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.
f) Liquidity Risk
The Company monitors its risk of a shortage of funds using a liquidity planning tool.
The Company''''s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, preference shares, finance leases and hire purchase contracts.
Liquidity risk is defined as the risk that the Company will not be able to settle or meet its obligations on time or at a reasonable price. The Company''''s corporate treasury department is responsible for liquidity, funding as well as settlement management. In addition, processes and policies related to such risks are overseen by senior management.
The table below summarizes the maturity profile of the Company''''s financial liabilities based on contractual undiscounted payments.
9. Capital Management
The Company''''s objective for capital management is to maximize shareholder value, safeguard business continuity and support the growth of the Company. The Company determines the capital requirement based on annual operating plans and long-term and other strategic investment plans. The funding requirements are met through loans and operating cash flows generated. The Company is not subject to any externally imposed capital requirements.
10. Related party transactions
i. Names of related parties and nature of relationship
Sr. Category of related parties Names
a. Investing Parties (Promoters) and its affiliates Panatone Finvest Limited
Tata Sons Limited
Tata Teleservices Limited
Tata Consultancy Services Limited
TCS e-Serve International Limited
Tata Sky Limited
Tata Consultancy Services (South Africa) (PTY) Ltd.
Tata Business Support Services Limited
Tata AIG General Insurance Company Limited
Tata AIA Life Insurance Company Limited
Tata Capital Financial Services Limited
Tata Consulting Engineers Limited
Tata Sky Broadband Private Limited (formerly Quickest Broadband Private Limited)(w.e.f. 26 August 2015)
Tata International Limited
C-Edge Technologies Limited
Tata Housing Development Company Limited
Maha Online Limited
Tata Interactive Systems GmbH
Tata SIA Alrhre: Limited
Tata Asset Management Limited
Tata Advanced Systems Limited
MP Online Limited
AirAsia dndia1 Limited
Tata Securities Limited
Tata Advanced Materials Limited
Tata Realty and Infrastructure Limited
Advinus Therapeutics Limited
TASEC Limited (formerly TAS-AGT Systems Limited)
Tata Toyo Radiator Limited Tata International Wolverine Brands Limited Automotive Stampings and Assemblies Limited Nova Integrated Systems Limited
Tata Ficosa Automotive Systems Private Limited
(formerly Tata Ficosa Automotive Systems Limited)
Tata Capital Housing Finance Limited
Tata Capital Forex Limited (formerly TT Holdings &
Tata Value Homes Limited (formerly Smart Value Homes
Tata Auto Company GY Batteries Private Limited (formerly Tata Auto Company Batteries Limited)
Move On Componentes E Calcado, S.A.
Peepul Tree Properties Limited
Arvind and Smart Value Homes LLP
TRIL Inifoparf Limited TC Travel and Services Limited Kriday Realty Private Limited
Tata Autocomp Katcon Exhaust Systems Private Limited (formerly Katcon India Private Limited) (w.e.f. 19 May
Tata Sikorsky Aerospace Limited (formerly Tata Aerospace Systems Limited)
Tata Boeing Aerospace Limited (formerly Tata Aerospace Limited) (w.e.f. 6 November2015)
Sr. Category of related parties Names
Indian Rotorcraft Limited CMC Limited
Nectar Loyalty Management India Limited (ceased w.e.f.
22 August 20:6''''
Tata Unistore Limited (formerly Tata Industrial Services
Tai Air Limited e-Nxt Financials Limited
TRIL Amritsar Projects Limited (formerly TRIF Amritsar
TACO Sasken Automotive Electronics Limited
Tata Capital Limited
Tata Autocomp Hendrickson Suspensions Private Limited (formerly Taco Hendrickson Suspensions Private
WTI Advanced Technology Limited
Drive India Enterprise Solutions Limited (ceasedw.e.f. 01
Tata Autocomp Systems Limited Tata Industries Limited
b. Subsidiaries (Held Directly) Tata Communications Payment Solutions Limited
Tata Communications Transformation Services Limited
Tata Communications International Pte. Ltd.
VSNL SNOSPV Pte. Ltd (ceased w.e.f. 26 March 2017)
STT Global Data Centres India Private Limited (ceased w.e.f. 18 October 2016)
Tata Communications Collaboration Services Private
Tata Communications Lanka Limited
c. Subsidiaries (Held Indirectly) Tata Communications (Australia) Pty Limited
Tata Communications (Belgium) SPRL Tata Communications Services (Bermuda) Limited Tata Communications (Bermuda) Limited Tata Communications (Canada) Limited Tata Communications (America) Inc.
Tata usmmllmaaUsru (Thailand'''' Limited
Tata Communications (Middle East) FZ-LLC
Tata usmmllmaaUsru (UK'''' Limited
Tata dommurlcatlor: (France) sAs
Tata Communications Deutschland GmbH
Tata usmmllmaaUsru "Guam) LLC
Tata usmmllmaaUsru ''''Horg Kong Limited
Tata usmmllmaaUsru ''''Hurgary'''' LLC
Tata usmmllmaaUsru dolauJ'''' Limited
TCPoP usmmllnuaUsru GmbH
Tata Communications (Malaysia) Sdn. Bhd.
Tata Communications (New Zealand) Limited
Tata Communications (Taiwan) Limited
Tata Communications (Italy) S.r.l
Tata usmmllmaaUsru (Japan) KK
ITXC IP Holdings S.a r.l
Tata Communications (Nordic) AS
Tata Communications (Poland) Sp. Zoo
Tata Communications (Portugal) Unipessoal LDA
Tata usmmllmaaUsru ( Russia'''' LLC
Tata Communications (Portugal) Instalacao E
idanuteiuas'''' De Redes LDA
Tata Communications Services (International) Pte. Ltd.
Tata Communications (Spain) S.L
Tata Communications (Sweden) AB
Tata Communications (Switzerland) GmbH
Tata Communications (Netherlands) B.V.
Tata Communications Beijing (Technology) Limited Neotel (Pty) Ltd. (ceased w.e.f 10 February 2017)
SEPCO Communications Pty Ltd.
Neotel Business Support Services (Pty) Ltd. (ceased w.e.f
february 20 1 7
TCNL1 B.V. (Liquidated w.e.f. 26 August2014)
TCNL2 B.V. (Liquidated w.e.f. 26 August2014)
VSNL SNOSPV Pte. Ltd (w.e.f 27March 2017)
Tata Communications (South Korea) Limited (w.e.f. 28
Tata Communications Transformation Services Pte Limited (w.e.f. 30 September 2016)
Tata Communications Transformation Services (Hungary) Kft. (w.e.f 19 December2016)
Tata Communications Transformation Services (US) Inc (w.e.f 16 February 2017)
Tata Communications (Brazil) Participators Limited (w.e.f. 2 February 2017)
Tata Communications (Brazil) Communicators Limited (w.e.f. 22 February2017)
Nexus Connation (SA) Pty Limited (w.e.f. 10 February
d. Associate United Telecom Limited (w.e.f 4 September 2014)
STT Global Data Centres India Private Limited (w.e.f 19
Smart ICT Services Private Limited (w.e.f. 22 April2016)
e. Associate of a subsidiary Number Portability Company (Pty) Ltd. (ceased w.e.f 10
STT Tal Seng Pte Limited (w.e.f 18 May 2016)
Telena Holdings B.V. (w.e.f. 20 January2017)
f. Key Managerial Personnel Mr Vinod Kumar
Managing Director and Group CEO
2. Claims for taxes on income
Significant claims by the revenue authorities in respect of income tax matters relate to disallowance of deductions claimed under section 80 IA of the Income Tax Act, 1961 from assessment years 1996-97 onwards and transfer pricing adjustments carried out by revenue authorities. The Company has contested the disallowances / adjustments and has preferred appeals which are pending.
3. Other claims:
i. Telecom Regulatory Authority of India ("TRAI") reduced the Access Deficit Charge ("ADC") rates effective 1 April 2007. All telecom services providers including National Long Distance ("NLD") and International Long Distance ("ILD") operators in India are bound by the TRAI regulations; accordingly the Company has recorded the cost relating to ADC at revised rates as directed by TRAI. However, BSNL continued to bill at the ADC rate applicable prior to 1 April 2007. BSNL had filed an appeal against the TRAI Interconnect Usage Charges ("IUC") regulation of reduction in ADC and currently this matter is pending with the Supreme Court. The possible liability on the Company is Rs, 311.84 crores (2016: Rs, 311.84 crores, 2015: Rs, 311.84 crores).
ii. On 19 February 2013, DoT issued a licence fee demand amounting to Rs, 193.05 crores, (being Rs, 92.86 crores for financial year 2006-07 and Rs, 100.19 crores for financial year 2007-08, including Rs, 102.06 crores, being interest as on 28 February 2013) for financial years 2006-07 and 2007-08, based on special audit reports of auditors appointed by DoT. The total demand including interest is for Rs, 331.43 crores (2016: Rs, 290.30 crores, 2015: Rs, 254.30 crores). The Company has challenged the said demand notice in the Madras High Court which has vide its orders dated 1 March 2013, granted a stay-order against the said demand. Further, the Company is also contesting a licence fee claim of Rs, 198.89 crores (2016: Rs, 169.85 crores, 2015: Rs, 144.14 crores) (including interest and penalty) for financial year 2005-06. However, the said demand notice includes the items which are already the subject-matter of petitions/appeals, pending for hearing in the Supreme Court of India, for the previous years.
iii. TRAI in December, 2012 issued International Telecommunication Access to Essential Facilities at Cable Landing Stations (Amendment) 2012 ("Regulation") dated 21 December 2012 seeking to regulate access facilitation charges, collocation charges, restoration charges and cancellation charges, wherein TRAI fixed the charges for access facilitation and collocation at cable landing stations, effective 1 January 2013. Since, prescribing such charges, adversely affected the Company, being aggrieved by the Regulation, the Company filed writ petition in the High Court, Chennai to set aside the impugned Regulation. On 24 January 2013, the High Court granted an ex parte, ad-interim stay on applicability of the impugned Regulation. On 11 November 2016, the Company has filed an appeal in the division bench of Madras High Court against the above court order and the same is pending with division bench for hearing. However, given the uncertainty on the timing of resolution, during the current year, the
Company has recorded a provision towards reversal of revenue for Rs, 46.26 crores and other expense include a reversal towards operating and maintenance recovery of Rs, 98.78 crores. In 2016, Rs, 154.54 crores was included under contingent liabilities.
iv. Upon expiry of the Company''''s ISP license on 24 January 2014, DoT vide letter dated 20 February 2014 extended the validity of the said license for 3 months with condition that entire ISP revenue will be subject to license fees. This conditional extension by DoT, was challenged by the Company in TDSAT, which granted a stay subject to submission of undertaking that if petition fails then applicable license fees would be payable along with interest. Considering the above facts, the Company has disclosed an amount of Rs, 303.56 crores (2016: Rs, 176.31 crores, 2015: Rs, 80.08 crores) under contingent liabilities.
v. Other claims of Rs, 139.03 crores (2016: ?160.91crores, 2015: Rs,177.35crores) mainly pertain to routine suits for collection, commercial disputes, claims from customers and/or suppliers and claims from Employee State Insurance Corporation (ESIC).
4. The Company has taken appropriate professional advice in respect of the claims / appeals and has taken all necessary steps to protect its interest. Based on expert opinion, no provision is required in respect of these claims / appeals.
5. Future cash flows in respect of the above matters are determinable only on receipt of judgments/ decisions pending at various forums/ authorities.
i. Capital Commitments:
Estimated amount of contracts remaining to be executed on capital account, not provided for amount to Rs, 173.01 crores (2016: Rs, 184.30 crores, 2015: Rs, 208.24 crores) (net of capital advances).
ii. Other Commitments:
1. As on 31 March 2017, the Company has issued Letters of Comfort for the credit facility agreements in respect of various subsidiaries:
*The Company has undertaken to the lenders of TCPSL that it shall not reduce its ownership holdings below 51% without the consent of TCPSL''''s lenders.
2. The Company has issued a support letter to Tata Communications International Pte. Limited (TCIPL), aggregating Rs, 5,034.82 crores (2016: Rs, 7,344.35 crores, 2015: Rs,6,095.73 crores) for providing financial support enabling, in turn, TCIPL to issue such support letters to certain subsidiaries with negative net worth as at 31 March 2017 in various geographies in order that they may continue as going concerns.
3. The Company has committed loan facility to wholly owned subsidiaries to the tune of Rs, 3,795.75 crores (2016: Rs, 6,843.60 crores, 2015: Rs, 6,728.24 crores) as at 31 March 2017, utilization of which is subject to future requirements and appropriate approval processes from time to time.
i. Tata Communications International Pte. Ltd which is a wholly owned subsidiary of the Company has investments in 39 subsidiaries as at 31 March 2017.
ii. As at 31 March 2016, VSNL SNOSPV Pte. Ltd has made the following investments in equity and preference shares of its subsidiaries: 1,462,770,590 in Neotel Pty Ltd. and 1,799,272,516 in SEPCO Communications Pty Ltd.
11. Details of loans given, investment made and guarantee given covered u/s 186 (4) of the Companies Act, 2013 are provided in note no. 7, 6 and 8.
12. Events after the reporting period
There are no subsequent events between the year ended 31 March 2017 and signing of financial statements as on 4 May 2017 which have material impact on the financials of the Company except for the provision for contractual obligation as referred in note 29, which has been adjusted in the Standalone Financial Statements.
13. Approval of financial statements
The financial statements were approved for issue by the board of directors on 4 May 2017.
14. First time adoption of ind AS
These are the Company''''s first standalone financial statements prepared in accordance with Ind AS. The accounting policies set out in note 2 have been applied in preparing the standalone financial statements for the year ended 31 March 2017, the comparative information presented in these standalone financial statements for the year ended 31 March 2016 and in the preparation of an opening Ind AS balance sheet at 1 April 2015 (the Company''''s date of transition). In preparing its opening Ind AS balance sheet, the Company has adjusted the amounts reported previously in standalone financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (Indian GAAP).
A. Exemptions and exceptions availed
The transition as at 1 April 2015 to Ind AS was carried out from Previous GAAP. The exemptions and exceptions applied by the Company in accordance with Ind AS 101 - First time adoption of Indian Accounting Standards, the reconciliation of equity and total comprehensive income in accordance with Previous GAAP to Ind AS are
— pained below:
A.1 ind AS optional exemptions
a. Designation of previously recognized financial instruments
Ind AS 101 allows an entity to designate investments in equity instruments at Fair Value through Other Comprehensive Income on the basis of the facts and circumstances at the date of transition to Ind AS. The Company has designated certain equity instruments held at 1 April 2015 as Fair Value through Other Comprehensive Income.
b. Fair value measurement of financial assets or financial liabilities at initial recognition
The Company has applied requirements of fair value measurement of financial assets and financial liabilities at initial recognition for transactions entered into on or after date of transition to Ind AS.
A.2 ind AS mandatory exceptions
a. De-recognition of financial assets and liabilities
The Company has elected to apply the de-recognition provisions of Ind AS 109 prospectively from the date of transition to Ind AS.
b. Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets (investment in debt instruments) on the basis of the facts and circumstances that exist at the date of transition to Ind AS. The Company has applied the above requirement prospectively.
An entity''''s estimates in accordance with Ind ASs at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with Previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error. Ind AS estimates as at 1 April 2015 are consistent with the estimates as at the same date made in conformity with Previous GAAP. The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under Previous GAAP:
- Investment in equity instruments carried at Fair Value through Other Comprehensive Income;
- Investment in preference instruments carried at Fair Value through Profit or Loss;
- Impairment of financial assets based on expected credit loss model. fair value through OCI and accordingly all gains and losses on these investments needs to be recorded through Reserve for equity instrument through other comprehensive income. Accordingly, for the year ended 31 March 2016, provision made towards diminution in value of TTSL investment Rs, 251.52 crores have been reclassified from exceptional item to Other Comprehensive Income and fair value gain of Rs, 2.38 crores on equity instrument has been recognized in Other Comprehensive Income. As a result, fair value gain of Rs, 98.42 crores and fair value loss of Rs, 347.56 crores has been recognized in Reserve for equity instrument through other comprehensive income as at 1 April 2015 and 31 March 2016 respectively.
Under previous GAAP, long term preference investments were measured at cost less diminution in value which is other than temporary. Under Ind AS, these long term preference investments are classified as Fair Value through Profit or Loss and accordingly all gains and losses on these investments needs to be recorded through Statement of Profit and Loss. As a result, fair value gain on these instruments of Rs, 581.03 crores and Rs, 555.09 crores for 31 March 2016 and 1 April 2015 is recognized in total equity. For the year ended 31 March 2016, fair value gain of Rs, 25.94 crores has been recognized in Statement of Profit and Loss.
Under previous GAAP, mutual funds were measured at lower of cost or fair value. Under Ind AS, these investments are classified as Fair Value through Profit or Loss and accordingly all gain and losses on these investments needs to recorded through Statement of Profit and Loss.
As at 1 April 2015, fair value gain on these instruments of Rs, 1.08 crores is recognized in total equity and fair value loss of Rs, 0.11 crores for year ended 31 March 2016 is recognized in Statement of Profit and Loss.
Under previous GAAP, any premium or discount arising at the inception of forward contract not intended for trading or speculation purpose, is amortized as expense or income over the life of contract and contract were restated at the closing spot exchange rate. Under Ind AS, derivative financial instrument are recognized at fair value. Due to reversal of premium amortization and revaluation of forward contract at fair value, the impact of Rs, 0.61 crores has been recognized in Statement of Profit and Loss for the year ended 31 March 2016. No adjustments required on the date of transition 1 April 2015 as there were no open forward contract in the financials for standalone.
ii. Dividend (including dividend tax)
Under previous GAAP, dividends on equity share recommended by the board of directors after the end of the reporting period but before the financial statement were approved for issue were recognized in the financial statement as a liability. Under Ind AS, such dividends are recognized when the financial statements are approved by the shareholders in the Annual General Meeting. The effect of this change results in an increase in total equity by Rs, 147.50 crores and Rs, 188.66 crores as at 31 March 2016 and 1 April 2015 respectively. There is no impact on profit as a result of this adjustment.
iii. Annuity contracts
Under previous GAAP, annuity plan receivables are recognized at undiscounted amount. Under Ind AS, this needs to be recognized at net present value of expected inflow. As a result, an impact of Rs, 1.15 crores has been recognized in finance cost for the year ended 31 March 2016. Impact of Rs, 18.65 crores and Rs, 19.80 crores has been recognized in equity as at 31 March 2016 and 1 April 2015 respectively.
IV. Trade receivables
Under previous GAAP, the Company had created allowance for trade receivables based on incurred loss model. In Ind AS, impairment allowance has been calculated based on expected credit loss model. As a result, for the year ended 31 March 2016, Rs, 1.91 crores provision for expected credit loss is recognized in Statement of Profit and Loss and impact of Rs, 11.44 crores and Rs, 9.53 crores has been recognized in equity as at 31 March
2016 and 1 April 2015 respectively.
V. Employee benefits
Under previous GAAP, actuarial gains and losses on re-measurement of the net defined benefit liability/ asset was recognized in Statement of Profit and Loss. Under Ind AS, actuarial gains and losses on re-measurement of the net defined benefit liability / asset are recognized in Other Comprehensive Income. Accordingly, Rs, 13.72 crores on re-measurement of the net defined benefit liability / asset is reclosed to other comprehensive income from employee cost resulting in increase in net profit for the year ended 31 March 2016. However, the same does not result in difference in equity or total comprehensive income.
Vi. Tax adjustments
Tax adjustments include tax impact on account of differences between Previous GAAP and Ind AS. These adjustments have resulted in a decrease in equity under Ind AS by Rs, 124.34 crores and Rs, 141.03 crores as at 31 March 2016 and 1 April 2015 respectively. Also, resulted decrease in net profit by Rs, 10.22 crores for th