Month: April
BCAJ April 1981
BCAJ April 1984
BCAJ April 1985
BCAJ April 1986
BCAJ April 1987
BCAJ April 1988
BCAJ April 1991
BCAJ April 1992
BCAJ April 1993
BCAJ April 1994
BCAJ April 1995
BCAJ April 1996
BCAJ April 1997
BCAJ April 1999
BCAJ April 2000
BCAJ April 2001
BCAJ April 2002
BCAJ April 2003
BCAJ April 2004
BCAJ April 2005
BCAJ April 2006
Social Networking: boon or bane
For the uninitiated, initially, social networks were networks
or meeting places set up by people who wanted to ‘keep in touch’ or team up
after starting their career. Facebook as we know it today, was akin to a
school/college yearbook — a photo album, the only difference being that it was
in the form of an electronic billboard, where one could look up old colleagues
and exchange information. With added impetus from technological advancement,
developments in networking technology and mobile phones, over time this
electronic billboard evolved to social networks as we know them today.
Presently, social networks, among other things, are :
à Forums for sharing materials;
à Virtual market places — to meet like-minded people,
share videos, pictures, thoughts, etc.
Social networks are unique in the sense that, while they
serve ones personal needs, they are equally useful in meeting one’s business or
professional needs. The following examples would illustrate this :
à
Social networks allow you to keep in touch with family members staying in a
different city (Yes, I am aware that we have the old & faithful postcard,
telegram, and yes the telephone rentals have dropped drastically so we can
always call our friends or send an sms or chat with them on the net, but
imagine reaching out to all your friends and relatives at one go with added
interactivity);
à
Social networks give you an impression of being in a space of your own. They
allow you to mingle with like-minded communities
(discussing ideas or experiences on your latest trek, purchase of new
camera, car, etc.);
à
Enhance social and political communications (Apparently social networking
contributed significantly to President Obama’s campaign);
à B-
Schools using it to send out information to its students
(IIM Calcutta took its first step in Dec. 2008, from
breaking news, blog links to CAT and campus-placement updates, the tweets on
‘IIMC’ reflect a broader use of Twitter than most celebrity users seem able
to comprehend).
Having understood this background, lets get on with the
basics.
There are various types of online social media — from social
networks of friends and professionals, to microblogging services, to video
sharing sites. To name a few:
Online friends networks:
Facebook:
The world’s largest social network, with hundreds of million
users, began when a small group of Harvard students, led by Mark Zuckerberg,
decided to keep in touch with each other. It soon opened out to other US
campuses and eventually in 2006, to everyone.
Orkut:
At one time Orkut India’s most popular social network, this
Google-owned service was set up by former Google engineer Orkut Büyükkökten in
his spare time. Once a hit with users, it is far behind in the global popularity
stakes. Orkut has faced some issues because of its previously open nature. After
legal problems in 2007, Orkut substantially cleaned up the network, but by then,
the damage was done — ‘high-end’ users had begun switching over to Facebook.
(Incidentally have you tried google buzz ?)
MySpace:
Quite popular with musicians and actors, who use the site to
host music and movie clips, this site was picked up by Rupert Murdoch’s NewsCorp
a few years ago and its immense popularity made Google give it a lucrative
advertising deal.
Video sharing:
YouTube:
YouTube has started a video revolution — it’s as simple as
that. The service — which allows anyone to upload video clips on to the net —
from your baby’s first steps to a music video that you recently shot — commands
a big chunk of Internet traffic today. According to estimates, every minute of
the day, over 10 minutes of content is being uploaded on to the service. (In
fact, you can watch IPL3 matches on this network).
Other video sharing services:
Hulu is a video service promoted by US TV network NBC and has
high-quality online broadcasts of their shows. Apparently, users from India
cannot access Hulu.
Other sites include Vimeo and DailyMotion.
Online professional networks:
LinkedIn:
According to last year’s statistics (current number would be
higher), there are 41 million users on LinkedIn, of which two million are from
India (the second-largest user base after the US). Virtually every large company
and executive has a LinkedIn account and there are examples galore of how India
Inc. is using LinkedIn to find talent and do more. Extremely popular among India
Inc. and growing by the day. This site is possibly unique among social networks,
in the sense that it claims to be profitable (i.e., Linkedin is showing profits)
through advertising and ‘premium’ membership.
Blogging:
Most blogging sites are also ‘social media’ by definition —
they allow anyone and everyone to create a blog. Also, if the blogger allows it,
anyone with net access can post a comment on the blog, which can be moderated.
Blogging is the oldest form of ‘read-write’ online social media, but has now
reached a stable phase. The most popular free blogging services online where
anyone can set up a blog are :
- Blogger/Blogspot
- WordPress
- LiveJournal
Microblogging :
Twitter :
This is a blazingly fast-growing service : one estimate put Twitter’s growth at a staggering 1,382% a month with an estimated 100 million users. (A Harvard study estimated that 10% of these users, by and large, cre-ated 90% of the content.) Twitter essentially allows users to send out their thoughts in 140 characters or less. Only a third of Twitter users are active, though, and India has an active ‘Twitterati’ of an estimated 10,000 people. Several Indian companies are now embracing the service. Immensely popular and highly useful during breaking news events such as 26/11. Some of the users who have left their indelible mark using this tool — Sashi Tharoor and of course Apro SRK.
While some dismiss them as a waste of time, Internet sites such as Facebook, Twitter, and LinkedIn have exploded in popularity, giving easy access to a potentially huge amount of new business.
Business and social media :
The ultimate transformation that is taking place today is within the business landscape, worldwide— and increasingly so in India — where compa-nies are beginning to leverage informal social net-works to engage customers, soothe ruffled feath-ers, strengthen their brands and even hire people. For companies in India, the reasoning is simple : While Indian PC and Internet penetration rates are relatively lower than the West, India has one of the largest Internet population in the world — some 60 million regular users (not including mobile access). Moreover, these users are the most sought-after customers with high disposable incomes, and companies with clear online media plans are waking up to the fact that they can reap the benefits of engag-ing with this audience. Those that don’t, risk losing the customers that they already have or slipping behind their more savvy competitors.
Here is a real life instance of how social media can influence change :
Take a look at the interactive digital marketing site that Tata Motors built when the Nano was launched. This site had games built into it, where people could customise colours and pick their favourite ones —thereby (ahem) sneakily helping the car company figure out which ones to use on the Nano. (A clever idea, but far removed from a social media forum.) However, when Tata Motors did launch the Nano, there was no mistaking its intention to use a full-fledged social media strategy. The company set up groups on Facebook and Orkut hoping to target the numerous official ‘Nano’-centric groups that had parked themselves on the site. To its complete surprise, it found that one unofficial group on Orkut dwarfed the official ones — and it would have been a fatal mistake to ignore members not under the official Nano fold. A spokeperson for the company said “We engage with people on these sites, too. We react to criticism of our car and try to explain our position. Also, we often find that before we can react to the criticism, there are other members who come up to defend the car.” As a matter of fact even presently, the official groups on these two sites, at around 17,000 members, are much smaller than the largest un-official group on Orkut with around 52,000 members.
Here’s another example :
Maruti Suzuki India is, strangely enough, a pioneer in online social marketing. Realising that there are several online communities for the highly popular Swift, it has created an online platform to bring together the 2,500 disparate online Swift users’ clubs in India. Earlier this year, the company actively enlisted bloggers and talked to the community during pre-launch activities for its latest Ritz.
There are others — Herseys, Dominos, Apollo Hospitals, Nokia — to name a few.
Avoiding traps :
Its important to understand that social media isn’t for everyone and should not be used for everything. For instance, the Chief Marketing Officer of a large corporate group shared his experience saying online social media is not an ideal platform for business to business (B2B) interactions. “It is a great way of getting messages about your company across, but I would neither buy nor I would sell anything using social media,” she says. Also, having a presence in online social media or running ads there doesn’t mean that the company will emerge an overnight success. In fact, far from it. “It is a misconception among many that this is a procedural thing, which it’s clearly not. It is a highly creative space that requires that marketers identify the space, the nature of stakeholders involved, what makes people tick within that space and, importantly, to listen to people—and not try and sell things to them.” According to experts, the biggest mistake that anyone can make is to use the medium to push their products.
Another problem is that of measuring success. Even though there are advanced analytical tools available on the Internet, classifying a ‘successful campaign’ in social media is extremely difficult and can also be manipulated using something called ‘click fraud’. There are few benchmarks to measure success online unlike television adverts. A company can claim any number of sign-ups for a digital campaign, but never release how many were translated into sales. Also, beware of social media experts. The landscape is littered with them, many of whom have no legitimate professional experience in the field. Much like the Internet company era, social media is the new in-thing and these hucksters are simply surfing the next big wave, hoping to get rich.
The second part of this article will be printed in the next issue of the BCAJ. Watch this space for the pitfalls and the dark side of social marketing.
From The President
Dear professional colleagues,
Accounting standards are formulated with a view to eliminate
the use of different accounting policies and practices, thereby ensuring
comparability of financial statements of different enterprises and providing
meaningful information to various users of financial statements to enable them
to make informed economic decisions.
A financial reporting system based on uniform standards
reposes faith of investors and contributes to the economic growth. Further,
global expansion of businesses has made enterprises recognise the advantages of
having a commonly understood financial reporting framework i.e., a single set of
accounting standards across the world.
The IFAC has formulated International Financial Reporting
Standards (IFRS) and has set the goal to achieve international convergence of
financial reporting standards. Presently, 100 countries are using IFRS. Even the
USA is joining in the promotion of and convergence with IFRS. The ICAI has
justifiably opted for convergence of Indian accounting standards with IFRS by
2011.
In the present Indian scenario, different sets of accounting
standards exist viz. standards formulated and pronounced by the ICAI, standards
prescribed u/s.211(3C) of the Companies Act, 1956, as per the advice of National
Advisory Committee for Accounting Standards and standards notified by the CBDT
u/s.145 of the Income-tax Act, 1961.
These different sets of accounting standards issued by
various authorities lead to confusion for the enterprises and the users of
financial statements. The compliance obligation of different accounting
standards on various entities are as under :
-
accounting standards
notified u/s.211(3C) of the Companies Act are to be compulsorily followed by
the companies. -
SEBI (Disclosure &
Investor Protection) Guidelines, 2000, stipulate that the ICAI standards
should be followed while preparing the financial statements in case of
conversion of a firm into a company. -
the listing agreement
provides for preparing the financial results as per the accounting standards
laid down by the ICAI or as applicable to the issuer under relevant statutes. -
RBI guidelines require
banks to comply with the standards promulgated by the ICAI, subject to
provisioning guidelines. -
Under Income-tax,
assessees are required to adopt accounting standards notified by the CBDT
u/s.145 of the Income-tax Act, 1961. -
Chartered Accountants are
mandated to ensure compliance of the accounting standards issued by the ICAI.
The differences, though minor, prevailing in the various sets
of accounting standards result in confusion. India too, should aim at adopting
one set of accounting standards at a time when the world is moving towards
convergence. When the standards issued by the ICAI are passed by the Council
having representatives from the Government, would it not be in the interest of
business enterprises and the users to have only one set of accounting
standards ?
Simultaneously, it is imperative that the Revenue authorities
too need to consider and accept the financial statements prepared following the
accounting standards. Tax laws should generally be in harmony with the
accounting standards. The accounting standards themselves are becoming
increasingly complex. When income computation for the purposes of taxation
deviates from the accounting profit, it only adds to the complexity and is bound
to result in litigation. The divergence from the accounting income should be
minimal. Accounting standards should not be defied merely for collecting revenue
at an earlier point of time. In this connection, the following observation of
the Supreme Court in J. K. Industries 165 Taxman 323, are relevant.
“Main object sought to be achieved by Accounting Standards
which are now made mandatory is to see that accounting income is adopted as
taxable income and not merely as the basis from which taxable income is to be
computed.”
While we march towards adopting IFRS, there is an area of
concern regarding application of accounting standards to small and medium-sized
enterprises (SMEs). The present requirement of compliance needs a review. SMEs
find it difficult to implement the complex standards. The concessions given to
SMEs are generally exemption from extensive disclosure and in some cases in
respect of measurement. This is not sufficient. SMEs form a very big component
of the economy and they should not be burdened with unduly heavy cost of
compliance without commensurate benefit. There is a need for change and what is
required is a set of simple accounting standards for SMEs.
With regards,
Rajesh Kothari
ICAI And Its Members
Case of ICAI v. Shri Deepak Parti and Anr. is reported on page 1424 of C.A. Journal for March, 2010. In this case, the complainant alleged that the member, in his capacity as Vice-Chairman, promoted an NBFC (M/s. Schematic Finance Ltd.). The complainant and her son were regularly investing funds in this NBFC. The NBFC used to give post-dated cheques for redemption money and interest. One of the deposits for Rs.6.70 lacs was made and NBFC gave post-dated cheque for this amount and interest due. This cheque when deposited in the bank, was returned unpaid. On inquiry, the complainant found that the NBFC company had closed its office. The matter was referred to the Company Law Board. The CLB fixed dates for repayment in instalments, but the CLB order was not complied with.
When the matter was referred to the disciplinary committee, it held that the member was guilty of ‘other misconduct’. The Council accepted this finding and referred the matter to the High Court with a recommendation that the name of the member be removed from the Register of Members for a period of six months.
The member did not appear before the Delhi High Court. On consideration of the report of the disciplinary committee and the finding of the Council, the High Court held that the name of the member be removed from the Register of Members for a period of six months.
2. Some ethical issues :
The Ethical Standards Board has considered some ethical issues and given its views on page 1406 of CA Journal for March, 2010. Some of the issues as decided by ESB are as under :
(i) Whether communication with previous auditor is necessary in case of appointment as statutory auditor by nationalised and other banks ?
Ans. : Clause (8) of Part I of the First Schedule to the CA Act is equally applicable in case of nationalised and other banks and also to Government agencies and, therefore, such communication is necessary.
(ii) Whether communication by the incoming auditor is mandatory with the previous auditor in respect of various audit assignments, like the concurrent audit, revenue audit, tax audit and special audits, etc. ?
Ans. : The requirement for communicating with the previous auditor would apply to all types of audits viz., statutory audit, tax audit, internal audit, concurrent audit or any other kind of audit. The Council has laid down detailed guidelines in this regard and the same are appearing at pages 166–168 of the Code of Ethics, 2009.
(iii) Whether a Chartered Accountant will be deemed to be guilty of professional misconduct if he accepts his appointment as an auditor immediately after intimating his appointment over the phone to the previous auditor ?
Ans. : The member would be held guilty of professional misconduct for the following reasons :
(a) That he had failed to communicate with the retiring auditor in writing; and
(b) That he did not wait for a reasonable length of time for a reply to be received from him.
(iv) Whether a Chartered Accountant can accept an appointment as auditor of a company without first ascertaining from it whether the requirements of S. 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with ?
Ans. : As per clause (9) of Part I of the First Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining from it whether the requirements of S. 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with. In this regard, the Council has laid down detailed guidelines that are appearing at pages 188–196 of the Code of Ethics, 2009.
(v) Whether a statutory auditor can be appointed in the adjourned meeting in place of existing statutory auditor where no special notice for removal or replacement of the retiring auditor is received at the time of the original meeting ?
Ans. : If any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditor received after the adjournment can be taken note of and acted upon by the company, since in terms of S. 190(1) of the Companies Act, 1956, special notice should be given to the Company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered. The meeting contemplated in S. 190(1) is undoubtedly the original meeting.
(vi) Whether a Chartered Accountant in practice is entitled to accept teaching assignment ?
Ans. : A Chartered Accountant in practice is allowed to accept teaching assignment in university, affiliated colleges, educational institution, coaching organisation, private tutorship under a specific permission of the Council, provided the direct teaching hours devoted to such activities taken together do not exceed 25 hours a week.
3. Treatment of preliminary expenses incurred on incorporation of a company:
i) Facts:
A company was incorporated in May, 2008 as a wholly-owned subsidiary of a Government of India enterprise under the administrative control of the Ministry of Oil & Natural Gas to implement city gas distribution by participating in the bidding process of the Petroleum & Natural Gas Regulatory Board (PNGRB) and also to set up CNG stations across the National Highway Corridor. The company spent an amount of Rs.1.26 crore towards incorporation expenses (preliminary expenses) during the period May 27, 2008 to March 31, 2009.
As the company had not started the commercial production, the ‘Statement of Incidental Expenditure During the Construction’ (IEDC) had been prepared instead of profit and loss account, complying with the specific requirements of Part II of Schedule VI to the Companies Act, 1956, giving suitable disclosure of specific items of expenditure.
The company had also incurred other pre-operative expenses. It had shown the preliminary expenses and pre-operative expenses in the statement of IEDC. The expenditure under the head IEDC was allocated to capital work-in-progress to be capitalised in future as part of Fixed Assets (AS-10). The company was of the view that the ‘start-up’ cost included expenses incurred for formation expenses of the company (preliminary expenses) as per para 56 of AS-26.
ii) Query:
The question before the Expert Advisory Committee (EAC) was whether the accounting treatment of pre-liminary expenses adopted by the company was in compliance with existing Accounting Standards and other generally accepted accounting principles?
iii) EAC opinion:
The committee, after considering paragraph 56 of AS-26 — ‘Intangible Assets’ and paragraph 9(3) of AS-10
— ‘Accounting for Fixed Assets’, came to the conclusion that the start-up costs of the nature of incorporation expenses (preliminary expenses) incurred for bringing the enterprise into existence in its corporate form cannot be said to be attributable to bringing an asset/project into existence. The requirements of AS-26 would apply to the expenditure incurred on incorporation of the company and not the requirements of AS-10. Accordingly, in accordance with AS-26, such preliminary expenditure should be expensed by way of a charge to the profit and loss account in the period in which these are incurred. Therefore, the committee was of the view that for this purpose profit and loss account will have to be prepared by the company even before the commencement of commercial operations. Since, the company has treated incorrectly the said expenditures in the year of incurrence, it should rectify this mistake in the next year as prior period items in accordance with AS-5. “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies”.
(Please refer pages 1425–1426 of C.A. Journal of March 2010)
4. New Committees of the Council:
The Council of ICAI has formed 6 statutory commit-tees and 28 non-statutory committees on 12-2-2010 for one year. Names of chairmen and vice-chairmen of these committees are as under:
i) Statutory Committees:
a) Chairman and Vice-Chairman of Executive, Examination, Finance and Disciplinary Committee (under old regulation) are
Shri Amarjit Chopra (President) and Shri G. Ramaswamy (Vice-President), respectively.
b) Board of Discipline —
Chairman Shri Amarjit Chopra
Disciplinary Committee (Under New S. 21B)— Chairman Shri G. Ramaswamy.
ii) Non-Statutory Committees — (Some Names)
a) Accounting Standards Board
CA Manoj Fadnis (C) and CA S. Santhanakrishnan (VC)
b) Auditing & Assurance Standards Board
CA Abhijit Bandyopadhaya (C) and CA R. S. Adukia (VC)
c) Audit Committee
Shri K. P. Shashidharan (C) and CA S. K. Agarwal (VC)
d) Board of Studies
CA Vinod Jain (C) and CA V. Murali (VC)
e) Direct Taxes Committee
CA J. P. Gokhale (C) and CA M. Devaraja Reddy (VC)
f) Indirect Taxes Committee
CA Bhavana Doshi (C) and CA M. N. Hiregange (VC)
g) Ethical Standards Board
CA Jaydeep Shah (C) and CA K. Raghu (VC)
h) Expert Advisory Committee
CA S. K. Maheshwari (C) and CA Anuj Goyal (VC)
i) International Taxation Committee
CA M. P. Sarda (C) and CA Dhinal A. Shah (VC)
j) Professional Development
CA Pankaj Jain (C) and CA C. S. Nanda (VC)
(For details please refer P. 1493-1497 of C.A. Journal for March, 2010)
5. Auditing Standards:
a) The following Revised Standards on Auditing (SA) have been published in C.A. Journal for March, 2010 at pages stated below. They will apply to Financial Statements for periods beginning on or after 1-4-2010.
i) SA 200 (Revised) — Overall objectives of the Independent Auditors and the Conduct of Audit in Accordance with Standards on Audit-ing (P. 1508–1520).
ii) SA 220 (Revised) — Quality Control for Audit of Financial Statements (P. 1521–1527).
iii) SA 501 (Revised) — Audit Evidence — Specific Considerations for Selected Items (P. 1528– 1530).
iv) SA 505 (Revised) — External Confirmations (P. 1531–1535).
v) SA 520 (Revised) — Analytical Procedures (P. 1536–1539).
vi) SA 620 (Revised) — Using the Work of an Auditor’s Expert (P. 1540-1545)
b) The following Exposure Draft is published on Standard on Assurance Engagements (SAE) 3000:
Assurance Engagements other than Audits or Reviews of Historical Financial Information (P. 1546– 1553).
6. ICAI News:
(Note : Page Nos. given below are from C.A. Journal for March, 2010)
i) New Branches of ICAI:
The following new Branches have been opened by ICAI on 13-1-2010 (P. 1505–1506):
a) Tirupati (SIRC)
b) Bhavnagar (WIRC)
c) Pali (CIRC)
d) Shri Ganga Nagar (CIRC)
e) Ratlam (CIRC)
ii) ICAI New Publications (P. 1498-1500):
a) e-learning CD on Windows, Network & Wi-Fi Security — An Intro.
b) e-learning CD on IS Security, Cyber Threats & Review — An Intro.
c) Technical Guide on IT Migration Audit.
d) Study on Compliance of Financial Reporting Requirements.
e) Technical Guide on Internal Audit of Treasury Functions in Banks.
iii) CA Examinations (P. 1501-1502):
a) PE II, PCE, IPCE and Final Examinations — 3rd to 17th May, 2010.
b) CPT — 20th June, 2010.
ICAI And Its Members
1. Disciplinary case :
In the case of ICAI v. Sri S. R. Bhandary, the
Registrar of Companies filed a complaint against the member alleging, inter
alia, that during the inspection of accounts of one of the companies,
certain violations of the Companies Act came to light which had a bearing on the
accounts and transactions of the company. The member who had audited the
accounts of the said company failed to report such violation in his audit report
on the accounts of the company.
The Disciplinary Committee and the Council came to the
conclusion that the member was grossly negligent in the performance of his
duties and he was guilty of professional misconduct under Clause (7) of Part I
of Second Schedule to the C.A. Act. The Council recommended to the High Court
that the member be reprimanded.
The Karnataka High Court has observed that the Council was
justified in taking the above view. The High Court has pointed out that the
member had not reported on the following matters.
The member did not qualify the following points in his report
dated 6-4-1992 :
(i) The Company acquired shares at Rs.14,59,510 in two
private limited companies. These investments were in excess of the limits laid
down u/s.372 of the Companies Act, 1956. The Company did not obtain prior
approval from the Government of India.
(ii) The Company paid interest of Rs.2,21,669 on share
application money received pending allotment. The payment was neither
authorised under the Companies Act, nor under the Memorandum and Articles of
Association of the Company. The payment is, therefore, unauthorised.
The High Court agreed with the Council and accepted its
recommendation that the member be reprimanded for his above negligence.
(Refer pages 1519-1520 of C.A. Journal, March, 2008)
2. Whether Auditor of a subsidiary company can be a Director of its
Holding Company :
The Ethical Standards Committee (Committee) of ICAI has
examined this issue in detail. In terms of Clause (II) of Part I of the First
Schedule to the C.A. Act, a practising C.A. cannot engage in any business or
occupation without permission of the Council. He can, however, be a
non-executive director of a company wherein he or any of his partners is not an
auditor. According to the Committee, the public conscience is expected to be
ahead of the law. Members are, therefore, expected to interpret the requirement
as regards independence much more strictly than what the law requires and should
not place themselves in positions which would either compromise or jeopardize
their independence.
In view of the above, the Committee has decided that an
auditor of a subsidiary company cannot be a director of its holding company, as
it will affect the independence of the auditor. On the same analogy, an auditor
of a holding company cannot be a director of its subsidiary company.
(Refer page 1590 of C.A. Journal, March, 2008)
3. Guidelines for fees payable for Special Audit u/s.142(2A) of Income-tax
Act :
As the members are aware, S. 142 (2D) of the Income-tax Act
was amended by the Finance Act, 2007 w.e.f. 1-6-2007. According to this
amendment, the audit fees for a Special Audit ordered on or after 1-6-2007
u/s.142(2A) is to be determined by the Chief Commissioner or Commissioner and to
be paid by the Central Government. For this purpose, guidelines have now been
issued by a Notification dated 5-2-2008 [298 ITR (St) P.1]. A new Rule 14B has
been added in the Income-tax Rules, which provides as under :
(i) Every Chief Commissioner has to maintain a panel of
Chartered Accountants.
(ii) The Chartered Accountant who is required to conduct
such Special Audit u/s.142(2A) has to maintain a time-sheet and has to submit
it to the Chief Commissioner/Commissioner along with his bill.
(iii) The Audit fees will not be less than Rs.3750 per hour
and will not be more than Rs.7500 per hour for the Chartered Accountant,
qualified assistants, semi-qualified and other assistants.
(iv) The Chief Commissioner/Commissioner will ensure that
the number of hours claimed for billing purposes is commensurate with the size
and quality of the report submitted by the Chartered Accountant.
(Refer page 1508 of C.A. Journal for March, 2008)
4. Accounting treatment in respect of amount withheld from a contractor in
respect of customs duty :
The Expert Advisory Committee (EAC) of ICAI has considered
the above issue in its opinion which appears on pages 1489-1492 of C.A. Journal
of March, 2008. In this case, the company had entered into a lump sum turn-key
agreement with a foreign contractor for installation of process plant. The
contractor submitted its bill which included customs duty paid by it. The
company raised objection with regard to payment of the customs duty, on the
ground that evidence in the form of proof of payment of customs duty was not
furnished. The company withheld the payment of customs duty to the contractor.
The matter was referred to an Arbitrator. The company raised the following two
questions :
(i) Whether the accounting treatment of capitalising plant
at the total lump sum price (including taxes and duties) payable to the
foreign contractor for lump sum turn-key contract is in order by providing for
liability for the amount withheld towards balance customs duty on account of
non-submission of customs documents, against which the contractor has invoked
arbitrator proceedings.
(ii) In case the answer to the above question is in the
negative, whether the amount withheld from the contractor, which is under
arbitration, is to be treated as contingent liability.
ICAI And Its Members
1. Code of Ethics : Whether a person who is not a partner of an audit firm can sign the audited financial statements and audit report on behalf of the audit firm is a question which is under debate at present. It may be noted that Clause (12) of Part I of First Schedule of the C.A. Act, 1949 provides that a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he allows a person not being a member of the Institute in practice, or a member, not being his partner to sign on his behalf or on behalf of the firm, any balance sheet, profit & loss account, report or financial statements.
The above Clause prohibits a member from allowing another member who is not his partner to sign any balance sheet, profit and loss account, or financial statements on behalf of his firm.
This Clause is to be read in conjunction with S. 26 of the C.A. Act which stipulates that ‘No person other than a member of the Institute shall sign any document on behalf of a Chartered Accountant in practice or a firm of such Chartered Accountants in his or its professional capacity.’
The Council has, however, clarified that the power to sign routine documents on which a professional opinion or authentication is not required to be expressed may be delegated in the following instances and such delegation will not attract the provisions of this clause :
- (i) Issue of audit queries during the course of audit.
-
- (ii) Asking for information or issue of questionnaire.
(iii) Letter forwarding draft observations/financial statements.
- (iv) Initialing and stamping of vouchers and of schedules prepared for the purpose of audit.
-
- (v) Acknowledging and carrying on routine correspondence with clients.
-
- (vi) Issue of memorandum of cash verification and other physical verification or recording the results thereof in the books of the clients.
(vii) Issuing acknowledgements for records produced.
(viii) Raising of bills and issuing acknowledgements for money receipts.
(ix) Attending to routine matters in tax practice, subject to provisions of S. 288 of the Income-tax Act.
(x) Any other matter incidental to the office administration and routine work involved in practice of accountancy.
It is also clarified that where the authority to sign documents given above is delegated by a firm of Chartered Accountants, the fact that the documents have not been signed by a Chartered Accountant is not a defence to the firm in an enquiry relating to professional misconduct.
However, the Council has decided that where a Chartered Accountant while signing a report, a financial statement or any other document is statutorily required to disclose his name, the member should disclose his name while appending his signature on the report or document. Where there is no such statutory requirement, the member may sign in the name of the firm.
Clause 124(2) of the Companies Bill, 2008 also provides that only a partner of the audit firm, as authorised by the firm, shall sign the audit report and financial statements on behalf of the audit firm.
2. EAC Opinion : The Expert Advisory Committee (EAC) has considered the question of deferred tax treatment in re
spect of assets given on finance lease (see pages 1515 to 1517 of C.A. Journal for March, 2009).
In this case a Government company was engaged in providing rolling stock assets to the Ministry of Railways (MOR) on finance lease. Hence, the rolling stock of assets given on finance lease were not capitalised in the books of the lessor company and shown as ‘lease receivables’ at an amount equal to the net investment in the leased assets as per revised Accounting Standard (AS-19) ‘Leases’. Therefore, the lessor company did not provide depreciation in the books of account but claimed it under the Income-tax Act, as per CBDT Circular No. 2, dated February 09, 2001.
However, while computing the total income, the company added notional depreciation under the Companies Act, even though not provided in the books of account, and claimed depreciation as per Income-tax Act. Thus, the difference in depreciation was considered by the company as a timing difference on which it provided deferred tax liability (DTL). On the these facts, the auditors were of the view that the company should treat the difference in depreciation as permanent difference and no DTL should be provided.
EAC has examined the above facts and stated in
para 12 of its opinion as under : “12. The committee is of the view that, with a view to reflect the true impact of the lease transaction on accounting income and taxable income, the lease transaction as a whole should be considered since the individual items are related. Accordingly, the difference between finance income for accounting purposes and tax finance income representing difference between the lease rental income and depreciation allowance for income-tax purposes originating in a particular year should be treated as timing difference for applying AS-22. This is based on the principle of ‘substance over form’.”
On the above basis EAC has concluded that the method followed by the company for determining DTL was not proper and it should follow the method suggested above.
(Note : Reading the above opinion, it appears that by following the above method the DTL will not get reversed in future and, therefore, this opinion of EAC requires reconsideration.)
3. Auditing Standards:
The following Auditing Standards are issued and published in C.A. Journal for March, 2009 on pages stated below.
(i) Reoised Standard on Auditing (SA) 510 :
Initial Audit Engagements – Opening Balances (Pages 1627-1632),
(ii) Revised Standard on Auditing (SA) 550: Related Parties (Pages 1633-1644)
iii) Standard on Internal Audit (SIA) 14: Internal Audit in an Information Technology Environment (Pages 1645-1648)
(iv) Standard on Internal Audit (SIA) 15 : Knowledge of the Entity and its Environment (Pages 1649-1651)
(v) Standard on Internal Audit (SIA) 16: Using the work of an Expert (Pages 1652-1(53)
4. ICAI News:
(Note: Page Nos. given below are from c.A. Journal for March, 2009)
(i) Enhancing Audit Quality :
Some observations made by the Financial Reporting Review Board are listed on page 1602 in order to enable members to improve the quality of audit of corporate bodies. These observation relate to presentation in financial statements and audit reports as under:
(a) Schedule VI of Companies Act, 1956.
(b) Standard on Auditing (SA) 700 – The Auditors’ Report on Financial Statements.
(c) CARO – 2003.
(ii) Campus Placement Programme – March/April, 2009:
ICAI has organised Campus Placement Programme for newly qualified chartered Accountants at various centres all over India. This scheme has been evolved to provide an opportunity, both to employing organisations as well as the young professional aspirants, to meet and explore the possibility of taking up positions in industry.
It may be noted that in the last such programme organised in August-September, 2008 at various centres, 77 recruiting teams of leading organisations of the country reviewed the bio-data of more than 3800 newly qualified chartered accountants. 874 candidates were offered employment in industry.
Those who have cleared C.A. Final Examination held in May, 2008 and November, 2008 can appear for this interview at the following centres.
(iii) ISA Qualification:
Members who have qualified in the Post-Qualification Course in Information Systems Audit can now use the title D.I.S.A. (lCAI) instead of existing title D.I.S.A. (ICA) (Page 1614).
(iv) Admission of Members in Service as Fellow Members:
The difficulties being faced by members in service while complying with the requirements for admission as fellow members in terms of Regulation 5(3) have been considered by the Council and it is decided that members who are not in practice be admitted to Fellow Membership provided the member has been an Associate Member for a continuous period of five years and submits a self-declaration to the effect that he has been in Government service or is ordinarily holding or has held for a continuous period of not less than five years anyone or more posts carrying duties relating to accounts, cost accounts, audit, finance, taxation, company law, administration and/ or secretarial work in :
(i) an educational institution approved by the Council, or
(ii) a private or government, industrial, commercial or trading undertaking having a minimum paid-up capital of Rs.25 lakhs or a minimum turnover of Rs.50 lakhs or a minimum paid-up capital of Rs.10 lakhs and a minimum turnover of Rs.30 lakhs or minimum total assets of Rs.50 lakhs.
(iii) Employed under a statutory authority; or
(iv) Employed under a local authority having within its jurisdiction a population of not less than 5 lakhs during each of the five years of his service.
The Council has also clarified that there will be no change in the eligibility requirements so far as members in practice and full-time paid assistants under practising Chartered Accountants or firm of Chartered Accountants are concerned.
It is further clarified that there will be no change in other conditions and requirements for admission as a Fellow Member.
For format of self-declaration form visit ICAI website www.icai.org. (Refer page 1615)
(v) ICAI Publication:
Code of Ethics (Revised 11th Education – 2009)
From The President
Dear BCAJ Lovers,
I am beginning to understand
the true meaning of the phrase “the pen is mightier than the sword”. With every
passing month, the feedback and responses to my page appear to be increasing in
frequency and in the amount of positive energy that they convey to me. I am very
thankful to all those who have continually sent me their views.
As I begin writing this month’s
page, we have just had an extraordinary event that the BCAS organized on 25th
March. At the Late Dilip N. Dalal Oration Fund Lecture meeting, we felicitated
some of the Mumbai based rank holders at the last CA Final examinations. We also
released the updated RTI publication authored by our past president Mr. Narayan
Varma. The highlight of the evening was BCAS’ felicitation of CA T.N. Manoharan,
past president of the ICAI on his being conferred the Padma Shri Award by the
Government of India. He then spoke on “Satyameva Jayate – Learning from the
Satyam Experience”. Every word he spoke came straight from his heart and touched
a chord in the hearts of everyone present. When he sat down, he got a standing
ovation – something which I have not witnessed during my long association with
BCAS. We at BCAS are proud of our member Mr. Manoharan and wish him many more
such achievements in future.
All of you would, by now, be
well aware that the IPL cricket matches are going on in full swing in various
corners of the country. I would like to talk about cricket at this time. And now
that I have your attention (considering what a cricket crazy nation we are), let
me clarify that it’s not the runs and wickets that I ant to talk about. But the
lessons that we all must learn from the IPL and its promoters.
Cricket, as you know, is an old
game. The basic objective of each team is to make more runs than the other team.
There are set rules of the game. What has IPL done for the game and for others
that is different? Cricket was once ruled by 5-day test matches. As the years
passed, test matches were replaced in terms of popularity by One Day
Internationals with 50 overs. Later, we graduated to day and night matches and
today, we have T-20 matches. Is there a difference? Has life changed for
everyone concerned (and also for those not concerned)? The answer is a loud and
clear YES! Let us see what changes have come about.
People no longer have the time
and the patience to watch 5-day test matches and, in many cases, even ODIs. They
want shorter matches so that their working hours do not get affected
substantially. Then, someone thought – why should the clothes worn by cricketers
be plain-jane white clothes? Why can’t they wear colourful clothes? So, IPL got
bright designer clothes for cricketers. What’s more, the colour of the balls,
bats and stumps too have changed to livelier ones as compared to before. Now we
have large screens in the stadium and spectators can see action replays there
too. Similarly, in order to help umpires take the right decision, we now have
third umpires. This reduces the possibility of unfair decisions.
How are the players affected?
They get tons of money, first of all to be selected in any team and then when
they play, they get money to endorse products. Secondly, because there are so
many teams, there is a requirement for so many more cricketers. This gives more
youngsters a chance to play. This, in turn, allows the selectors a larger pool
of cricketers to choose from while deciding on the national teams. Ultimately,
this raises the bar as far as performance is concerned. Even foreigners get to
play in the matches.
What do the spectators get?
They get complete entertainment. Every match gives a result so there is no
chance of a disappointing draw. There is ample scope for being innovatively
dressed and painted up to catch the cameraman’s eyes. There are event managers
at the stadium entertaining the people with songs, music and what not! People at
home get to watch Bollywood and other celebrities talking about and cheering
their teams.
The popularity of cricket
matches has started wooing people away from movies. This, in turn, has lured
movie stars to cricket and we now have several stars owning various teams. Even
industrialists are taking interest in the game. A classic example of multi
disciplinary partnership! Both professions stand to gain from this merger.
I can go on and on. But this
page is not allotted to me to talk about cricket. Let me come to the point. What
can we CAs learn from the IPL phenomenon? What can BCAS as an organization
learn? What can ICAI learn?
The most important lesson to be
learnt is to understand that people change over the years and so do their
preferences and wants. Every new generation thinks and acts differently. We have
got to understand that and learn to adapt to those changing needs. We cannot
afford to provide our services in the same manner as we used to do 20 years ago
or the way our senior CAs used to do. We need to understand the changing market
dynamics and try to latch onto the same. We also need to understand that loyalty
is fast becoming a thing of the past. Today, just as we have fans switching
loyalties from one team to another (and so also cricketers going from one team
to another when they are paid more), the time has come when our new clients
(especially the foreign ones) too don’t get emotionally attached to their CA or
the firm. The same is also the case with our staff. Time and again, we have read
news items bout high profile members moving from one reputed organization to
another. Is this not a reflection of the times that we are living in today?
Today, salary is the deciding factor in many cases while selecting a career. Let
us accept it and be prepared to pay what the market is offering. If we don’t, we
have no business to complain that we are not getting good staff. And why don’t
we offer higher salaries? Because, we complain that we don’t get higher fees.
And why don’t we charge higher fees? Maybe, we are afraid of losing our clients.
IPL tickets cost thousands of rupees today. That was not the case with test match tickets and ODI tickets. Yet, people pay these kind of charges. Why does that happen? It happens because they perceive a certain value for money when they go for such matches. The game is the same, the rules are the same, the objective is the same. But the value has gone up. Do we CAs know and understand our own value? Are we able to position our services well in the eyes of the public? I don’t need to spell out the answer to this one. The value of a profession is directly proportionate to the value of its members. We individuals are responsible for what our profession as a whole is perceived to be by others. We elect our leaders and our leaders decide our policies and our code of conduct and our rules and regulations and we follow these rules. How others see us depends on what face we show them. Have we bothered to take a look at our faces in the mirror to find out what others are seeing?
The marriage between Bollywood and sports has helped both. This classic merger is staring us in the face. Have we taken a step to create such win-win situations with other professions? We have only been reading about it but nothing concrete has emerged.
IPL has used latest technology to the fullest extent for marketing itself. Virtually, all the popular ways of communication have been used to the advantage of Brand IPL. This has, in the words of Mr. Lalit Modi, made the IPL a billion dollar enterprise. Have we, as CAs, whether personally or collectively as an organization, used technology effectively? IPL has been eminently successful in magnetically pulling all strata of people to it. If someone did not go to the IPL, then IPL reached out to that person. That is a clear message for organizations like the BCAS. We must reach out to people. If they don’t come to us, we have to reach out to them. We need to find out what the members of our profession want and also how far they are willing to travel to get what they want. If our members live in the suburbs of Mumbai, then we have to go to the suburbs. If not, be ready to accept falling numbers at our programs. This holds true not only for BCAS but for all other organizations. Today, IPL has become a symbol all over the cricketing world. Mr. Modi is known and respected by cricketers across the globe. Can BCAS become such an organization? Do we have it in us to capture the imagination of young CAs all over the world? Can we become a catalyst in changing the face of the profession? Do we have a Lalit Modi amongst us who can turn the picture on its head or the world on its head? Only time will tell!
I am aware that this message is highly debatable and many of you may not agree or may not want to agree. As always, I am open to discussion. I look forward to your feedback. In the meantime, we can all keep guessing and hoping and praying as to who will win IPL Season 3!
Exploration and development costs
5. Exploration and development costs :
‘Successful Efforts Method’ is being followed for accounting
of oil and gas exploration and production activities which include :
(a) Survey costs are expensed in the year in which these
are incurred.
(b) Cost of exploratory wells is carried as ‘Exploratory
wells in progress’. Such exploratory wells in progress are capitalised in the
year in which the producing property is created or is expensed in the year
when determined to be dry/abandoned.
(c) All wells appearing as ‘Exploratory wells in progress’
which are more than two years old from the date of completion of drilling are
charged to Profit and Loss Account except those wells which have proved
reserves and the development of the fields in which the wells are located has
been planned. Such wells, if any, are written back on commencement of
commercial production.
Revenue recognition :
12. Sale proceeds are accounted for, based on the consumer
price inclusive of statutory levies and charges up to the place where ownership
of goods is transferred.
13. The interest allocable to operations in respect of assets
commissioned during the year is worked out by adopting the average of debt
equity ratios at the beginning and closing of that year and applying the average
ratio of debt thus worked out to the capitalised cost.
14. Pre-project expenditure relating to projects which are
considered unviable/closed is charged off to revenue in the year of
declaration/closure.
Exploration and Development Costs
2. Exploration and Development Costs :
The Company generally follows the ‘Successful Efforts Method’
of accounting for its exploration and production activities as explained below :
(i) Cost of exploratory wells, including survey costs, is
expensed in the year when determined to be dry/abandoned or is transferred to
the producing properties on attainment of commercial production.
(ii) Cost of temporary occupation of land, successful
exploratory wells, development wells and all related development costs,
including depreciation on support equipment and facilities, are considered as
development expenditure. These expenses are capitalised as producing
properties on attainment of commercial production.
(iii) Producing properties, including the cost incurred on
dry wells in development areas, are depleted using ‘Unit of Production’ method
based on estimated proved developed reserves. Any changes in reserves and/or
cost are dealt with prospectively. Hydrocarbon reserves are estimated and/or
approved by the management committees of the joint ventures, which follow the
International Reservoir Engineering Principles.
Explanatory Notes :
1. All exploration costs including acquisition of geological
and geophysical seismic information, licence and acquisition costs are initially
capitalised as ‘Capital Work in Progress-Exploration Expenditure’, until such
time as either exploration well(s) in the first drilling campaign is determined
to be successful, at which point the costs are transferred to ‘Producing
Properties’ or it is unsuccessful in which case such costs are written off
consistent with para 2 below.
2. Exploration costs associated with drilling, testing and
equipping exploratory well and appraisal well are initially capitalised as
‘Capital Work in Progress — Exploration Expenditure’, until such time as such
costs are transferred to ‘Producing Properties’ on attainment of commercial
production or charged to the Profit and Loss Account, unless :
(a) such well has found potential commercial reserves; or
(b) such well test result is inconclusive and is subject to
further exploration or appraisal activity like acquisition of seismic, or
re-entry of such well, or drilling of additional exploratory/step out well in
the area of interest, such activity to be carried out no later than 2 years
from the date of completion of such well testing;
Management makes quarterly assessment of the amounts included
in ‘Capital Work in Progress-Exploration Expenditure’ to determine whether
capitalisation is appropriate and can continue. Exploration well(s) capitalised
beyond 2 years are subject to additional judgment as to whether facts and
circumstances have changed and therefore the conditions described in (a) and (b)
no longer apply.
Site restoration :
Estimated future liability relating to dismantling and
abandoning producing well sites and facilities whose estimated producing life is
expected to end during next ten years is expensed in proportion to the
production for the year and remaining estimated proved reserves of hydrocarbons
based on latest technical assessment available with the Company.
Revenue recognition :
(i) Revenue from the sale of crude oil and gas net of
Government’s share of Profit oil and Value Added Tax is recognised on transfer
of custody to refineries/others.
(ii) Sale is recorded at the invoiced price, which is
subject to the approval of the Government of India, Ministry of Petroleum &
Natural Gas (MOP&NG). The difference between the invoiced price and the final
approved price, if any, is adjusted in the year in which the aforesaid
approval is received.
Some Recent Judgments
I. High
Court :
1. Clearing
& Forwarding Agent :
CCE (Bangalore-I) v. Mahavir
Generics, 2010 (17) STR 225 (Kar.) The
Tribunal in this case had held that the assessee could not fall in the category
of C & F agent as their services did not include both clearing and forwarding
operations. The case is reported at Mahavir Generics v. Commissioner,
2006 (3) STR 276 (Tri.-Del.) and it was widely followed by the Tribunals in
various decisions subsequently. Consequently, the Revenue appealed to the High
Court.
The Revenue contended that while
interpreting the meaning the language employed in the statute itself shall
prevail over the dictionary meaning and submitted that in this regard, the
Tribunal ought not to have travelled beyond interpreting the Section and also
relied on Karnataka Power Transmission Corporation Ltd. & Another v. Ashok
Iron Works Pvt. Ltd., (2009 AIR SCW 1502). While the respondent referring to
Prabhat Zarda Factory (India) Ltd. v. CCE, Patna 2006 (2) STR 784
(Tribunal) contended that this decision was overruled by the Larger Bench in the
case of Larsen & Toubro v. CCE, Chennai 2006 (3) STR 321 (Tri.-LB) and affirmed
by the P&H High Court in the case of CCE v. United Plastomers,
2008 (10) STR 229 (P&H), the Tribunal was fully justified in allowing the
appeal.
The agreement of the party with
their principal was discussed in detail. In accordance with the agreement, the
assessee in addition to the other services also provided services of storage and
distribution and also decided the price of the goods on mutual consultation and
could also appoint stockists and dealers for the goods. The Court observed that
the assessee’s contentions were not acceptable mainly on account of the fact
that the assessee was named ‘consignment agent’ in the agreement and therefore
parties were ‘ad-idem’ when the contract was entered into as to what
their status would be and that the assessee was authorised by their principal to
appoint stockists, dealers and agents on their behalf and it was not a case of
mere commission agent but had responsibility of getting the goods stored by
clearing them and forwarding them to stockists, etc. If they were mere
commission agents, these charges would not have found place in the contract.
The Tribunal further observed
that in the case of L&T (supra) only the activity of procuring purchase
orders was involved and such activity was covered under BAS and would not fall
in the category of C & F agents. Similar facts existed even in the case of
United Plastomers.
The High Court also observed
that reliance could not be placed on the decision in the case of CCE,
Jalandhar v. Kulcip Medicines (P) Ltd. 2009 (20) STT 263 (P&H), as while
pronouncing the judgment of the said case reliance was placed on the Tribunal
order of the above case without consideration that the order of the Tribunal in
the above case was not final as the Revenue had preferred an appeal to the High
Court.
As regards the definition of C &
F agent, the Court ruled that even though the definition of Commission Agent is
defined under the Business Auxiliary Services, the interpretation of the clause
tantamount that the definition is also covered under C & F. Further it held that
the definition of C & F was an inclusive one and would cover activities rendered
by the assessee. Hence the appeal was decided in favour of the Revenue.
II. Tribunal :
2.
Auto dealer providing space to finance companies —
whether a BAS ?
M/s. Tribhuvan Motors Ltd. v.
Commissioner of Service Tax, Mangalore, 2010 TIOL 57 CESTAT
(Bang.)
The assessee, an authorised
automobile dealer, was registered under service tax. The Revenue contended that
he was also liable under the category of business auxiliary services (BAS) as he
was promoting the business of the financial institutions situated in his
premises. The assessee contended that no promotion was made by them and they
only gave a table space to the financial institutions and relied on the
decisions in the case of Silcon Honda v. CCE Bangalore, 2007 (7) STR 475
(Tri-Bang.) and CCE v. Chadha Auto Agencies, 2008 (11) STR 643
(Tri-Bang.).
Moreover the Tribunal observed
that there was no dispute with the fact that the assessee only provided table
space and was not promoting the business of the financial institution and
following the ratio in Chadha Auto Agencies (supra) allowed the appeal.
3. CENVAT
Credit :
HPCL v. CCE (Mangalore),
2010 (17) STR 426 (Tri- Bang.)
The assessee, engaged in the
business of refining crude and marketing of petroleum products, sought
registration under the category of storage and warehousing service. In
accordance with S. 3 of the Essential Commodities Act, oil companies are under
obligation to transport petroleum products in specified manner and area.
Pipelines are considered ideal for transportation of crude oil. The
transportation was done by PMHB, a joint venture company specifically promoted
for rendering services of transportation, which charged service tax to the
assessee. The assessee utilised such CENVAT credit for discharging the output
liability. The transportation for the crude oil was simultaneously done for
three other companies also along with the assessee. CENVAT was disallowed as it
was used for others as well.
The Tribunal held that as explained by the learned advocate, the transportation of the products of all the entities together was so done due to techno-logical necessity. Moreover, the Commissioner also stated that the transportation of goods belonging to the assessee in the pipeline was related to the business of the assessee. As the assessee’s case was strong, full waiver of pre-deposit was granted.
T. G. Kirloskar Automotive Pvt. Ltd. v. CCE (Bangalore), 2010 (17) STR 359 (Tri-Bang.)
The assessee was denied CENVAT credit of service tax paid on transportation provided to the employ-ees from their place of residence to factory and vice-versa, relying on the decision of M/s. Stanzen Toy-otestsu India Pvt. Ltd.
Accepting the assessee’s contention that the above-mentioned decision was set aside by the Divisional Bench in the case of M/s. Stanzen Toyotestsu India Pvt. Ltd. v. CCE as reported in 2009 (14) STR 316 (Tri-Bang.) and relying on CCE v. Cable Corporation of India Ltd., 2008 (12) STR 598 (Tribunal) 2008 (87) RLT 783 (CESTAT-Mum.), the assessee’s case was held covered and the appeal was allowed.
Skyline Builders v. CCE (Calicut), 2010 (17) STR 437 (Tri-Bang.)
The assessee rendered goods transport agency service and claimed the benefit of abatement under Notification No. 1/2006, dated March 1, 2006. The assessee was denied abatement on the ground that they had claimed credit also. It was contended by the assessee that CENVAT credit was later reversed. The Tribunal held that in the given circumstances, the abatement could not be denied and pre-deposit was granted.
CENVAT Credit : Whether any time limit applicable for taking credit ?
Pierlite India Pvt. Ltd. v. CCE (Ahmedabad), 2010 (17)
STR 237 (Tri-Ahmd.)
The assessee had taken CENVAT credit in November 2006 for the input services paid during the period January 2005 to October 2005 and plead-ed that no time limit has been prescribed for taking the credit and placed reliance on Coromandel Fertilisers Ltd. v. CCE (A), Visakhapatnam, 2009 (239) ELT 99 (Bangalore) and on Para 3.5 of the CBEC manual. Further the assessee at the time of taking the credit gave all the details of the transactions in writing in November 2006. The Revenue admitted that there was no time limit in the law for availment of credit but relied on the M/s. J. V. Strips Ld. v. CCE, Rohtak, 2007 (218) ELT 252 (Tri.-Del.) and CCE (Hyderabad) v. M/s. Mould-tek Technologies Ltd., 2006 (205) ELT 415 (Tri-Bang.) for extension of time limit for issuing the SCN.
The Tribunal held that the decision relied on by the Revenue in the case of J. V. Strips was pronounced by a Single Member, while the decisions relied on by the assessee are of Divisional Benches. Further the decision of Coromandel Fertilisers was pronounced on 26-8-2008, whereas the decision of J. V. Strips on 26-7-2007. It also observed that the decision of Mould-tek could not be followed as the same Bench had rendered the decision in Coromandel Fertilisers at a later date. In view of the above cases and that the assessee had written a letter in November 2006 clearly ruled out the invocation of extended period and allowed the appeal.
4. Consulting Engineer : Whether covers execution of processes ?
Ravi Paints & Chemicals v. Commissioner of Service Tax (Chennai), 2010 (17) STR 354 (Tri-Chennai)
The assessee provided the services of processing of raw material, periodical testing of raw materials, finished products, exercising quality control and maintaining machinery used for manufacturing of dry cement paints of M/s. Brilliant Coating Pvt. Ltd.
The Revenue contended that the assessee was covered under the Consulting Engineer’s service as noticing any defects and the requirement of pointing out them that has to be set right would involve advisory/consultancy services and reliance was placed on Nokia (I) Pvt. Ltd. v. Commissioner of Customs, Delhi (2006 (1) STR 233).
The Tribunal held that the nature of the services did not warrant any consultancy or advisory services. Moreover the Tribunal stated that the decision of Nokia should not be interpreted in narrow sense that in case the engineers are appointed for a certain job it has to be technical consultancy. Hence the assessee was held as not covered under the said service.
5. Construction of complex — (a) whether con-struction service or works contract service (b) whether entitled to 100% credit or 20% ?
M/s. Puravankara Projects Ltd. v. Commissioner of Service Tax, Bangalore, 2010 TIOL 28 CESTAT BA
The assessee was engaged in the activity of construction and was registered under the commercial or industrial services and construction of complex services and also registered under Works Contract for the purposes of VAT. The Revenue contended that the assessee should be registered un-der the category of Works Contract for service tax. The Tribunal following the ratio of the decision in the case of Die-bold Systems Pvt. Ltd. v. CST, Chennai 2008 TIOL 489 CESTAT Mad. held that the assessee was already discharging the liability under the existing category for the period prior to 1-6-2007, when the works contract category was introduced, hence was not required to take fresh registration under works contract. Further the Tribunal also ob-served that the main activity of construction of flats and sale by the assessee per se did not involve any taxable service and therefore any ancillary activity forming part of the main activity could not be subjected to tax as works contract service. The various other services rendered by the assessee and the Tri-bunal’s observation on the same were as under :
1) Health and Fitness service : The assessee also constructed a gym in the residential complex and had charged the owners of flats. The Revenue contended that such services were covered under the Health & Fitness service and attracted service tax. The Tribunal stated that the facility was owned by the flat-owners and the assessee did not render any health & fitness service. Hence the same could not be considered as liable for service tax.
2) Real Estate Agent’s service : The assessee had entered into an agreement with the prospective buyers for the flats under construction.
The prospective buyers on their own accord would find other prospective buyers and sell the flat to them. In such a transaction the assessee collected transfer fee from the prospective buyers under the term of the agreement. The Revenue contended that the service pertained to real estate agency. The Tribunal stated that the consideration received as transfer fee could not be considered as real estate agent’s service.
3) Maintenance of Repair service : The assessee maintained flats constructed till such time they were transferred to the association of owners of the flats. In order to maintain the flats the assessee recovered expenses from the flat owners. Relying on the CBEC Circular that the reimbursable expenditure cannot form part of the value, the Tribunal held that reimbursement of such expenses was not subject to service tax.
The Revenue had also disallowed the input credit on the ground that the assessee should be allowed only 20% credit as the assessee rendered exempt services. The Tribunal held that the consideration received for transfer of right could not be considered exempt services and as such, the assessee could claim 100% CENVAT credit.
In view of the above observations, the Tribunal granted complete waiver and stay.
6. Custom House Agent (CHA) : Whether freight forwarding activity a part of CHA service ?
DHL Lemuir Logistics Pvt. Ltd. v. CCE (Bangalore), 2010 (17) STR 266 (Tri-Bang.)
The assessee registered as CHA according to the Revenue did not pay service tax on certain revenue streams. The assessee contended that he rendered two kinds of services (a) consolidation of cargo activities, and (b) CHA activity. The assessee also submitted a flow chart describing in detail the flow of services rendered by him. The services that were not included were :
a) Charge collect fees (CCX fees) : The fees pertain to collection and remittance of freight to in-ternational air and water carriers. It was held that the services so rendered are not covered by CHA’s services.
b) Break bulk fees : In case when cargo was transported from outside India to India, margin was paid to the assessee and in the case when cargo was transported from India to outside India the assessee would have paid the margin and hence this was not covered as CHA’s service.
c) Profit share from origin : In case of imports/ exports transactions made through third party as done in break bulk fees, margin was paid. This also was not considered as CHA’s services as break bulk fee itself is not CHA’s service.
d) Unallocated income : Charges collected for various services are accounted into respective revenue heads on raising of the invoice on the customer. Later in case of any modification, correction, reversal of charges the entries are passed through the unallocated income head. Hence the amounts under this head do not relate to CHA’s services.
e) Currency adjustment factor : This is collected as part of freight in order to cover the ex-change rate fluctuations and hence this does not pertain to CHA’s services.
f) Air/sea rebate : Air or ship carriers offer bulk space quota and the assessee is booked as the shipper and later the assessee collects the amount from the customers and the difference between the two rates is air/sea rebate. The nature of the amount is not covered as CHA’s services.
g) Commission/brokerage : IATA is a worldwide trade association of the international air transporters. The assessee being registered with IATA can sell the air cargo transportation to the passenger and receives commission as a percentage of freight booked. Similarly it renders services for shipping industry and these charges do not relate to CHA’s services.
h) Air freight incentive : Air carriers offer incentives in the quantum of cargo booked and hence the services are not related to CHA’s services.
i) Expenses, reimbursement billing : Charges are collected for expenses such as delivery charges, priority handling charges, courier charges, break bulk fees, statistical charges, etc. In case of such charges if margin is charged they shall be included in CHA’s services.
Hence the order was remanded to the Original Au-thority for determining the liability in the light of observations made by the Tribunal on various services and further directed to obtain CA certificate.
(Note : Readers may note that any kind of commission or brokerage income would be taxable as business auxiliary service while acting on behalf of a client at relevant time).
7. Jurisdiction :
CCE (Guntur) v. Integral Construction Company, 2010 (17) STR 380 (Tri-Bang.)
The assessee was providing the services of blast hole drilling, blasting, excavation, loading, transportation, dumping, etc. in the mines in Madhya Pradesh and accordingly, the services were covered under the category of site formation and clearance excavating and earthmoving demolition services. The SCN, however, was issued by CCE, Guntur.
The assessee in this case did not have centralised registration and therefore, technically for his various premises, he required separate registration. In the instant case, the Tribunal dismissed the appeal on the issue of jurisdiction based on the decision in the case of Ores India Ltd. v. CCE, 2008 (9) STR 157 (Tri.-Kol.).
8. Leasing of stalls : Whether taxable as Business Exhibition service ?
Karnataka Exhibition Authority v. CCE (Bangalore), 2010 (17) STR 296 (Tri-Bang.)
The assessee’s service of leasing of stalls during Dassera festival to the highest bidder was held taxable in revision order. Further, the assessee did not provide any direct service to the lessees of the stalls. The Tribunal held that the leasing of the stalls was not covered as Business Exhibition services and was allowed.
9. Management Consultancy : Whether ERP implementations covered ?
M/s. IBM India Pvt. Ltd. v. Commissioner of Service Tax, Bangalore, 2010 TIOL 167 CESTAT Bang.
The assessee provided services in relation to implementation and adoption of ERP software and did not pay service tax thereon. However in respect to their services of planning and advise relating to ERP, they discharged the liability under the category Management Consultancy services and the Revenue also agreed to this. In respect of services relating to implementation and adoption of ERP, according to the assessee they were covered under the Information Technology Software services effective from May 16, 2008 and the Revenue wanted to cover it under the Management Consultancy services. Reliance was placed on BCCI v. CST, [2007 (7) STR 384 (Mumbai-Tribunal)], Glaxo Pharmaceuticals [2005
ELT 171 CESTAT] and inter alia stating that in case of introduction of a new category, it is implied that the service was not taxable earlier.
The reasons highlighted were that the services were not in connection with the management of the organisation, the services should not be covered in the inclusive definition of management service and moreover the services rendered being of executory were not covered. Reliance was inter alia also placed on CCE, Mumbai-IV v. AISCO Engineering Pvt. Ltd., 2006 (5) STJ 171 (Tri-Mum.). The assessee also contended that prior to September 20, 2004 these services were exempted from service tax and with effect from September 10, 2004 the services were specifically exempted from the definition of consulting engineer’s service and that the exemption was removed only on the introduction of the new ser-vice of information technology from May 16, 2008. Reliance was placed on the case of Federal Bank Limited (2009 TIOL 584 CESTAT Bang.). The Tribunal relying on this decision and other decisions held that the services of implementation and adoption of ERP was not covered under the category of management consultancy services but was squarely covered as IT software service introduced from 16-5-2008.
10. Business Auxiliary Service : Money Transfer Service : Whether taxable ?
Muthoot Fincorp Ltd. v. CCE (Bangalore), 2010 (17) STR 303 (Tri-Bang.)
The assessee, an NBFC having network in vari-ous states entered into an agreement with Weiz-mann Forex Ltd., Cochin (WFL) which represented Western Union Financial Services Inc. (Western Union). The assessee provided money transfer service. The Revenue held that the service was a Business Auxiliary Service (BAS) and since it was rendered to a party in India there was no ‘export’.
The assessee contended that it was not covered under BAS as it did not promote the services of money transfer, but only displayed the publicity material given to them and it should be covered under the Banking and Financial services which covers transactions of money transfer with effect from May 01, 2006. Hence as the specific service came into force on May 01, 2006, the same could not be taxed from a prior date. Alternatively, if it was covered under the BAS, then Export Rules could exempt the service as one of the conditions stipulated by the Export Rules is that the services should be used outside India. The Tribunal ruled that even if the agreement was between the assessee and WLF, the beneficiary of the transaction was Western Union and the services so rendered by the assessee were utilised by Western Union outside India and hence this condition of the Export Rules was satisfied.
Further as regards the condition of receipt of consolidation in convertible foreign exchange, the Tribunal relied on Nipuna Services Ltd. v. CCE&ST, Hyderabad, 2009 (14) STR 706 (Tri-Bang.) that the condition was only applicable to Rules 3(1) and 3(2) of the Export Rules at given time. In case it was to be made applicable to Rule 3(3), then the Notification would have expressed so, but the Notification only mentioned Rule 3(1) and Rule 3(2) and the ap-peal was allowed accordingly.
11. Penalty : Not leviable when bona fide belief of non-taxability exists :
CCE (Ludhiana) v. Instant Credit, 2010 (17) STR 397 (Tri-Bang.)
The assessee acted as a Direct Sales Associate (DSA) and was therefore liable to service tax under the category of Business Auxiliary services and did not obtain registration as it had a belief as to non-taxability. However, on officers visiting the premises and insistence as to liability, the assessee paid service tax when the SCN was issued and pleaded for relief in penalty on bona fide belief. Since the Department did not have evidence of the assessee having intention of suppression, the Tribunal did not interfere with the decision of the Commissioner (Appeals) and held that no penalty was leviable.
Vista Infotech v. Commissioner of Service Tax, Bangalore, 2010 (17) STR 343 (Tri-Bang.)
The authorities noticed that the assessee, even though collecting service tax, did not deposit the same and pleaded financial hardship on account of non-payment by a major client. The assessee appealed against penalty and not against the confirmation of liability and interest and relied on the Board Circular No. 137/167/2006-cx-4, dated 3-10-2007 and further relied on the Tribunal’s decision in the cases of Essar Steel Ltd. v. CCE&C (Su-rat), 2009 (13) STR 579 (Tri-Ahmd.); Vee Aar Secure v. Commissioner of Service Tax, Bangalore, 2009
STR 50 (Tri-Bang.) and V.S.T. Tillers Tractors v. Commissioner of Central Excise, Mysore, 2009 (14) STR 159 (Tri-Bang.).
Observing that the assessee regularly paid the tax for the earlier period and the fact that the liability was discharged before the end of the proceedings, the assessee was held entitled to relief u/s.73(3) and relying on the judgments cited above, no penalty was held leviable.
12. Refund : Service tax paid on input services for period prior to 18-4-2006 :
Polyspin Ltd. v. CCE (Tirvunelveli), 2010 (17) STR 441 (Tri-Chennai)
The Commissioner (Appeals) upheld the order of the adjudicating authority for recovery of refund considering it as erroneously granted for input services not liable for service tax. The recovery proceedings were ordered for the refund of tax paid for the period prior to April 18, 2006, the date on which S. 66A came into effect when the assessee was not liable to tax. The Tribunal held that the refund could not be denied on the mere ground that the assessee was not liable to tax and hence the appeal was allowed.
13. Valuation : Material sold by advertising agency :
CCE (Chennai) v. Elegant Publicities, 2010 (17) STR 263 (Tri-Chennai)
Scanning charges and publicity material charges collected from customers by an advertising agency were contended by the Revenue as part of taxable service.
The assessee contended that they had not done any preparation, visualisation or conceptualisation of the publicity material but only purchased and sold the same to the customer. Since this was not successfully rebutted by the Revenue, it was held that mere sale and of publicity material is not a taxable service and similarly scanning also is not covered under the advertisement services.
Valuation : Material supply :
Hindustan Aeronautics Ltd. v. Commissioner of Service Tax (Bangalore), 2010 (17) STR 249 (Tri-Bang.)
The assessee undertook repair and overhauling of various engines received from the Ministry of Defence and others. The adjudicating authority concluded that the assessee did not discharge the correct service tax liability and the documents did not reflect the payment of sales tax on the value of material. The assessee submitted that in an identical issue in their own case, a final order was passed by the Tribunal in 2010 (17) STR (Tri-Bang.), the only difference being it was in the case of their helicopter division. Further the assessee submitted that they had availed the benefit of Notification 12/2003 and the same could not be denied. The invoices captured the material and labour cost separately and the documentary evidence of payment of sales tax was also provided. The Tribunal after considering the documentary proof of payment of sales tax held that the assessee could not be denied the availment of benefit of Notification 12/2003 and consequential relief was granted.
Right to Information
Part A : Decisions of CIC
Issue before the M.P. High Court was whether any public authority can make its own rules and prescribe thereby the fees to be paid for issue of information and copies of documents, etc.
Cantonment Board, Jabalpur (CBJ) passed the resolution and prescribed the fees to be paid under the RTI Act. Under it, fees prescribed were Rs.50 per page of A4 size (against Rs.2 as prescribed in the Central Government RTI rules).
The appellant was asked to deposit Rs.650 towards cost of providing information sought. He accordingly filed a writ. Before the Court, CBJ contended : “The Cantonment Board, Jabalpur has determined the schedule of fees looking to the schedule adopted by the M.P. Government and the Hon’ble High Court of M.P. The Cantonment Board, Jabalpur had done so as the expenses incurred in issuing copies and information were much higher than the fees being paid by the applicants seeking information. The Cantonment Board, Jabalpur being a local body akin to the Municipal Corporation adopted the schedule of fees existing for the Municipal Corporation in the State of M.P”.
Further, it was contended that the information is sought at times from various old records more than 50 years old. It requires involvement of staff which is already short. Considering these and various other aspects, reasonable cost for providing information has been prescribed vide Resolution No. 37, dated 20-12-2005, which is within the powers of the Cantonment Board, Jabalpur being municipal body. It has been mentioned specifically that the High Court has fixed minimum fees of Rs.50 per application in case of general application and Rs.500 in case of information related to tenders, documents, bids, business regulations and the actual cost of medium or printing cost price in case of other documents vide No. 15-R(J), dated 10-1-2006, copy of which is on records as Annexure R/2. However, during pendency of the writ petition, the Cantonment Board, Jabalpur acceded to the request of various sections of people and withdrew Resolution No. 37, dated 20-12-2005 vide Resolution No. 6, dated 13-9-2007. Accordingly, it is contended that the petition has been rendered infructuous.
The Court noted that although the resolution in question has already been withdrawn, in view of the stand taken by the respondents that the Resolution No. 37 was rightly passed and further in view of the relief for refund of costs it is thought proper to decide the issue raised herein.
It has been contended by the respondents that the Cantonment Board is a local body like Municipal Council and is well competent to make the rules regarding fees and costs as made by the Court. Suffice to say that the Chief Justice of the High Court is a competent authority within the ambit of definition as contained in S. 2(e) of the Act and therefore, by virtue of S. 28 it has powers to make rules with regard to fees and cost in exercise of powers under S. 28 of the Act. The Cantonment Board, Jabalpur being outside the purview of the term ‘Competent Authority’ within the meaning of S. 2(e) of the Act is not competent like the Chief Justice of High Court to make rules. In this view of the matter, the subject Resolution No. 37, dated 20-12-2005 was without any power and had no legal sanctity. Reliance on the prescription of fee and cost by the High Court is absolutely incorrect and misconceived. Since Resolution No. 37 has already been withdrawn, it is not required to be quashed.
Accordingly, the Court ruled that money received in excess is illegal and by no stretch of imagination it can be retained by CBJ contrary to their entitlement and CBJ was directed to refund the excess money out of the amount deposited by the applicant.
[2009 (1) ID 144 (M.P. High Court) : Amar Chand Bawaria v. Union of India and Others, W.P. No. 9264 of 2007, decided on 5-9-2008]
? Penalty – Reasonable cause Here, in this case, penalty of Rs.10,000 was imposed on the State PIO, S. P. Arora, estate officer of HUDA to be recovered in four monthly instalments for the lapse on his part for delay in furnishing the information. The Commission had also imposed a cost of Rs.2000 on account of considerable harassment to the applicant of the information.
The facts of the case were : The sequence of the events would show that the information was sought on 29-1-2007 on one plot when the file of the plot in question was lying with the Bank. The file was received back on 22-2-2007, but again sent to the Bank on 13-3-2007. The same was received on 30-3-2007 and information was supplied on 10-4-2007.
The Court held : “The penalty can be imposed only if there is no reasonable cause for not furnishing the information within the period of 30 days. The word ‘reasonable’ has to be examined in the manner which a normal person would consider it to be reasonable. The right to seek information is not to be extended to the extent that even if the file is not available for the good reasons, still steps are required to be taken by the officer to procure the file and to supply information. The information is required to be supplied within 30 days only if the record is available with the office. The inference cannot be drawn of the absence of reasonable cause for the reason that file could have been requisitioned back from the Bank. Since file was not available with the office, the inference drawn does not seem to be justified.”
In view thereof, the Court was of the opinion that the order of imposing penalty on the petitioner is not sustainable in law. Consequently, the writ petition was allowed. The impugned order passed by the State Public Information Commission was set aside.
[2009 (1) ID 1 (Pb & Hry. High Court) : S. P. Arora, SPIO Cum Estate Officer, HUDA v. State Information Commission, Haryana and Others, CWP No. 15288 of 2007, decided on : 17-10-2008]
Part B: The RTI Act
Standing Committee of the Parliament on RTI Act, 2005:
National Campaign for People’s Right to Information (NCPRI) has made a presentation before the above committee. Some of the items of the said presentation are worth noting to understand present deficiencies of the RTI Act.
In February 2009, two items were reported:
1. Level of awareness.
2. Use and misuse of the RTI Act.
In March 2009, another two items were reported:
1. Reduction of 20 years period for keeping docu-ments.
2. Voluntary disclosures.
Hereunder further 3 items:
Changes in S. 8 :
Though provisions u/ s.8 are all reasonable, one of the most misused Section of the Act, as seen through our study, is S. 7(9). This Section says that information shall ordinarily be provided in the form in which it is sought, unless it would disproportionately divert the resources of the public authority. Unfortunately, many government departments are hiding behind this Section to deny all sorts of information even though a close reading of the Section would make it clear that it does not allow you to deny any information, but only allows you to give it out instead in the form available. A circular from the Department of Personnel and Training has confounded the confusion further. Therefore, a clarification needs to be issued through all Information Commissions that this Section of the Act cannot be used to deny information, but only allows the PA to give asked-for information in the form available, rather than in the form asked for.
Another Section that is being misused to deny in-formation is S. 11(1). Again, a close reading of this Section makes it clear that:
(i) Only that information can be considered third-party under this Section, which has been treated as confidential by the third party. Therefore, all information about a third party does not come under this Section.
(ii) That even third-party information of this type cannot be withheld unless it is exempt u/ s.8 (1).
This Section of the Act is intended to give the concerned third party an opportunity to try and convince the PIa that the information asked for is exempt under one of the subsections of S. 8(1) or S. 9. Therefore, it obligates the PIO to give an opportunity to be heard to the third party.
However many PIOs are rejecting information that pertains to a third party even when it is not considered confidential by that third party, and without giving any notice to the third party or giving any ground for rejection u/s.8(1) or u/s.9, as required.
Penalties :
Though the quantum of penalty prescribed is appropriate for the present, unfortunately there is no inbuilt provision for it to be automatically enhanced. Therefore, it would be useful to have a provision, which raises the quantum of penalty on an annual basis, to keep pace with inflation.
The prescription that Rs.250 per day should be imposed as penalty might be appropriate for cases of delay, but is not appropriate for other categories of offences, like refusal to accept application, wrong-ful denial, giving false information, destroying information, etc. These offences cannot be measured in days. Therefore, it would be more appropriate if for these offences a minimum and a maximum penalty was prescribed, giving discretion of the quantum to the Commissioner. These could be a minimum of Rs.5,OOO and a maximum of Rs.50,000 to be raised in keeping with inflation.
It is also important that penalties should be imposable on public authorities if they violate the RTIAct. So, for example, a public authority that does not comply with S. 4 (suo moto) declaration provisions, or does not appoint PIOs and APIOs, or in any way violates the provisions of the RTI Act, should also be required to pay a penalty of a minimum of Rs.25,OOO and a maximum of Rs.5 lakhs.
Use of the RTI Act and refusal of information:
We have used the RTI Act over three hundred times in the last three years. A bulk of this has been as a part of our study to assess the implementation of the RTI Act. However, there are many other instances where we have filed RTI. One interesting case, where information was denied to us, related to our request for access to records regarding the appoint-ment of the Chief Information Commissioner and other Central Information Commissioners in 2005. Though the Central Information Commission or-dered that this information be given to us, it never was and our review petition with the Information Commission is pending for over a year.
We had also applied to the Prime Minister’s Office and to the Department of Personnel and Training for access to records pertaining to the Cabinet decision, in 2006, to amend the RTI Act. This was also denied to us because the Government claimed that as the matter was not yet over and was still under consideration of the Cabinet, it was exempt from disclosure.
RTI helps physically-challenged youth:
K. Sudalai, a physically-challenged youth of Palayamkottai in Tirunelveli district, might soon join the Tamil Nadu State Transport Corporation (TNSTC) as a bus conductor, thanks to the Right to Information (RTI) Act, 2005.
He had completed standard X in 1996 and possessed a conductor’s licence issued by the Regional Transport Authority. However, his name did not find place in the list of candidates eligible to apply for the post of bus conductor in Madurai Division of TNSTC.
When his enquiry as to why he was dropped from the selection despite necessary qualifications was not replied to, he submitted an application under the RTI Act. In reply, he was informed that physically-challenged persons were not fit to be appointed as conductors.
The reply helped the youngster file a writ petition in the Madras High Court to consider his candidature as enunciated in Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995.
Justice K. Venkataraman pointed out that as per the Notification published in the Union Gazette on March IS, 2007, bus conductor was one of the jobs that could be occupied by persons with orthopedic disabili ties.
He agreed with petitioner’s counsel G. Prabhu Rajadurai that there was no reason for the Madurai Division to reject physically challenged persons to the post of conductor when other Divisions were not doing so.
The Judge directed TNSTC to consider the petitioners’ plea within four weeks.
Disclosure of Ministers’ assets:
The controversial issue of disclosure of Ministers’ assets has been hanging fire for over a year. Applicant Subhash Chandra Agarwal had asked for information related to assets of Union Ministers and their kin.
In his order, Chief Information Commissioner Wajahat Habibullah said “the information is not disclosable except with the permission of the Speaker”. This is with reference to the disclosure of information related to Ministers who are LS members. If there is any equivalent rule with regard to the Rajya Sabha, this may also be exercised. The CIC has stipulated a time period of 30 days.
According to sources, there has been precedent when the Speaker has allowed disclosure of assets of LS members. Rules framed by the Parliament committee stipulate that LS members must submit assets in a sealed cover to the Speaker. The information is kept confidential till such time the Speaker deems fit. So far, the Government has been reluctant to part with the information and the PMO holds the view that information sought is exempt u/ s.8 of the RTI Act.
Compliance of S. 4 of the RTI Act:
Maharashtra Information Commission receives the highest number of appeals in this country. Nearly, 16000 appeals and complaints are pending before the State Commission, some of them as old as of 2006. It appears that if the inflow as is presently continues, it will never be able to cope with reduc-ing the pendency. Hence, SCIC Dr. Suresh Joshi has urged State Chief Secretary Johny Joseph to ensure that public servants uphold the spirit of implementation of the RTI Act. In a letter dated February 25, 2009, Joshi warns Public Information Officers (PIa) to implement RTI Act in its true spirit or face action.
In his letter, he writes: “We get the maximum RTI applications in the world and there is no reason why we should not be judged as the most transparent State. PIOs are the fulcrum of the Act. If they do not discharge their responsibilities properly, then there is a fine. If the PIa does not give information on time, it means he is a willful defaulter. He cannot then say tha”the did not know the Act or that he was not trained. We will strictly implement the procedure of the Act”.
Information on selection of Judges:
The Delhi High Court has stayed an order of the Central Information Commission (CIC) asking the Government to disclose documents on the appointment of the Himachal Pradesh Chief Justice, after the Centre pleaded that such information about Judges can’t be revealed under the RTI Act.
Challenging the CIC order that had asked the Govt. to reveal documents and file notings on the appointment of Himachal CJ Jagdish Bhalla, whose promotion file was returned by the then President A. P. J. Abdul Kalam in 2007, Additional Solicitor General P. P. Malhotra pleaded that such information was beyond the RTI purview. Justice S. Ravindra Bhat, after hearing his contention, stayed the CIC order and issued a notice to the RTI applicant on whose plea the Commission had passed the direction.
Numbers at CIC :
The following are the disposals of appeals/complaints at the Central Information Commission from October 2008 to January 2009 :
Data available with the Times of India (Tal), accessed through the Right to Information (RTI) Act, shows that the Maharashtra State Road Transport Corporation (MSRTC) incurred damages of around Rs.3 crore in various riots that broke out in different parts of the State in the 32 months between April 2006 and November 2008.
The recent Bombay High Court observation, saying leaders of rioting political parties should be made to pay for their supporters’ violence, has come as a shot in the arm for the transport utilities. MSRTC Vice-Chairman O. P. Gupta told TOI “the transport utility would cite the recent Court order that put the onus on political outfits to pay for damages. The political parties should be made responsible and pay up for the damages incurred”.
VIP Gifts:
The Central Information Commission has given the Ministry of External Affairs (MEA) 20 days to disclose the system of assessing gifts received by ‘political rulers’ and constitutional authorities, including the President of India, the Prime Minister and Judges of higher courts from foreign countries. Information Commissioner Annapurna Dixit directed the Central Public Information Officer of MEA to provide information about how the assessment of these gifts is done and the list of protocol order.
The decision came on an appeal filed by S. C. Agarwal seeking information on the “system fol-lowed on gifts received from foreign countries” by constitutional authorities and others, including the President, Vice-President, LS Speaker, PM, Ministers, Governors, Judges of higher courts, chiefs of three services and others in the protocol list. The appeal also sought a disclosure on whether these gifts were in their official capacity or kept in personal custody or deposited with the Government.
Right To Information
CIC’s decisions :
Schools, aided or otherwise, are covered under RTI :
In one interesting case, the Central Information Commission,
vide its order dated 18-5-2007, had directed the Directorate of Education, GNCT
of Delhi to obtain u/s.2(f) of the Act, the minutes of the Managing Committee
(MC) meetings from March 2002 to March 2007 from the Purna Prajna Public School,
Vasant Kunj, New Delhi and provide a copy to the appellant, Shri D. K. Chopra.
Subsequently, the ap-pellant informed the Commission that the PIO had not
complied with the above decision and when asked about it, the PIO stated that he
had no legal authority to obtain the information from the school.
The PIO at the hearing in this adjunct matter reiterated that
under the Delhi Education Act, the documents which could be obtained are
specified under Annexure-II in which the document, namely, minutes of the
meeting of the Managing Committee of schools is not included. The Department of
Education was therefore unable to acquire the minutes of the Managing Committee
from the concerned school as directed by the Commission. Though an official of
the respondent is a member of the MC, the PIO has, however, no access to the
minutes of MC.
In the decision, the Information Commissioner noted :
r
A major objective of the RTI Act is to ensure transparency and accountability in
functioning of the institutions, particularly the service providers that have
considerable interface with a larger section of people. The documents, in
question, contain such information that foretell about the health and vitality
of the schools which are responsible for preparing our children to lead the
nation. Moreover, the information asked for is an outcome of deliberations of
the major stakeholders — school authorities, teachers, representatives of PTA
and the Government of Delhi. The minutes of MCs are thus already in public
domain, as these are circulated among the members. How can it be treated as
confidential or secret ? Unfortunately, the Principal of the school and the PIO
have connived to withhold the minutes of the MCs for reasons that contravene
with the larger purpose of creating an information regime for good governance.
r
All the aided or unaided schools are performing
governmental functions to promote high quality of relevant education. An
official of the GNCT of Delhi is nominated by the Directorate of Education as a
member of the Management Committee of all the schools. The nominated member of
the Directorate of Education is therefore the custodian of the minutes of the
MCs u/s.5(4) of the RTI Act. And, there is no reason why such minutes,
reflecting the aspects of governance of the school, should not be put in public
domain. The Government has the control on the functioning of the schools and,
therefore, it has access to the information asked for. And, so has a citizen.
r
Not only the land allotted to private educational institutes is provided at
subsidised rates, but also the fees paid by the students/parents enjoy
income-tax concession. There is thus some element of indirect Government funding
in the activities of even private and un-aided schools. In view of this, the
respondent, which is represented through its officials on the Managing
Committee, is surely the custodian of the information asked for by the
appellant. The decisions of the MCs have significant bearing on the life and
career of the students as well as their parents/guardians and, therefore, there
is no reason why the minutes of the Managing Committee should not be disclosed
to the affected persons i.e., the citizens.
r
The PIO’s contention that the minutes of the MCs are not included in Annexure-II
of the Delhi Education Act and, therefore, he cannot acquire them is not
acceptable, as S. 22 of the RTI Act, 2005 has an overriding effect on all such
provisions that come in the way of promotion of transparency in functioning of
the schools, the activities of which are governmental in nature. The PIO is
directed again to furnish the information at the earliest under intimation to
the Commission.
r
In view of lackadaisical attitude of the concerned PIO and the principal of the
school towards the implementation of the RTI Act, the Commis-sion’s order dated
18-5-2007 has not been compiled with, which is unfortunate. The Director (Edu.),
Directorate of Education, GNCT of Delhi is therefore directed to initiate
appropriate action against the school, including cancellation/withdrawal of its
recognition, as the school has chosen to function in a manner which is not duly
transparent and is, thus, inconsistent with the ethos and purpose of the RTI
Act. An action taken report should be submitted to the Commission at the
earliest.
From the above decision, one can conclude that schools,
whether aided or otherwise, are covered under the RTI Act.
(Shri D. K. Chopra v. Directorate of Education, GNCT
of Delhi : Decision under F. No. CIC/MA/A/2007/00104 of 12-9-2007)
The RTI Act :
Chapter 4 of the Annual Report 2005-06 as published by the
Central Information Commission deals with overview of implementation of the RTI
Act, 2005.
It is a report u/s.25 of the RTI Act on the implementation of
the provisions of this Act during the year 2005-06 (for the period from
12-10-2005 to 31-3-2006).
The implementation report (IR) is made up of various charts and tables. It is interesting to note that in many aspects, the Ministry of Finance tops the chart, some noted as under:
Further, statistics show that out of 4770 requests received by the Ministry of Finance (which forms at least 20% of the total RTI requests in the year) they rejected 1748, which forms 51.6% of all the rejected applications in the year.
This disproportionately high ratio of rejection calls for introspection and training of the staff of public authorities under this Ministry in disposing of the RTI requests.
It seems that out of total 24436 RTI applications furnished in the year (as above) ended 31-3-2006, only 451 went for second appeal to the Central Information Commission (CIC). It disposed of 441 of them. CIC also received 252 complaints u/s. 18; it disposed of 241 of them as on 31-3-2006.
Other News
Mere existence of an investigation, no ground for refusal of information:
Recently, the Delhi HC strengthened the RTI law by interpreting its provisions. Justice S. Ravindra Bhat said: a person who has been accused of dowry demand by a woman or her parents is entitled to get information about the details of income-tax returns filed by the complainant.
One Bhagat Singh, who had been charged by his wife with demanding dowry, sought information about the complainant’s tax returns to prove that the latter spent money on the wedding from unknown sources or had concealed wealth. Any expenditure on marriage must be listed and the source of wealth accounted for.
It is apparent that the mere existence of an investigation process cannot be a ground for refusal of information. The authority withholding information must show satisfactory reasons as to why the release of such information would hamper the investigation process. Such reasons should be germane, and the opinion of the process being hampered should be reasonable and based on some material. Without this consideration, S. 8 and other such provisions would become the haven for dodging demands for information. Moreover, rights-based enactment is akin to a welfare measure and it should be open to liberal interpretation. Otherwise a social act becomes unsocial.
Editorial in DNA:
Given India’s notorious red-tapism, corruption and lack of official accountability, the importance of the Right to Information Act (RTI) cannot be overestimated. Since the RTI was implemented in October 2005, Indians have taken to it in a big way, sensing an opportunity to get information on matters critical to their local communities and to citizens in general.
The bigger problem is that the bureaucracy has still not fully come to terms with the full import of RTI, or if it has, then there have been attempts to ignore it. We have heard of all kinds of impediments, from the silly to the sinister, that are put in the way of the applicant. Then there are departments and ministries which find various excuses to stay out of the ambit of the RTI Act; in one recent case even the PMO was cagey about giving information on the disappearance of Subhas Chandra Bose. India has no law like in the US where archival material automatically comes into the public domain after 30 years. Most citizens will want information on things that touch their lives; but the general principle of openness should apply everywhere, and that is not happening.
Dial up for RTI :
The year 2008 may ring in Right to Information (RTI) on telephone as the Central Information Commission (CIC) has a proposal to open a call centre in Delhi for facilitation of RTI use.
In Bihar, a call centre has been in operation since january 2007. In case of information provided on telephone, the fee stipulated for the use of RTI is added to the telephone bill of the information seeker. .
The centre will also intensify the campaign to train and sensitise designated Public Information Officers on the RTI Act. Till now, only 10 percent of information officers and other government officials have been trained. The officers are being trained in Administrative Training Institutes in different states. These one-day to three-day courses have been devised by Yashada in Pune, Centre for Good Governance in Hyderabad and Institute of Secretarial Training and Management in Delhi.
The Chief Minister’s Relief Fund:
In this feature in February 2008, a small news item was given on this fund. Now the Chief Minister has conceded to get CM Relief Fund covered under the RTI Act. The disclosure obtained under the RTI application has shocked the citizens of the State.
The fund, which lists assisting people trapped in natural disasters as its sole objective, was registered with the Charity Commissioner in 1967. The RTI query has now revealed that a large part of the Rs.50 crore or thereabouts which the CM’s office received in donations between 2003 and 2005 (when first Sushilkumar Shinde and then Vilasrao Deshrnukh were at the helm) went to events conducted by institutions that were in no way related to calamities and disasters.
All details disclosed show blatant misuse of funds.
- RTI v. Courts and Legislative Bodies:
Right from inception of the RTIAct, there have been ongoing debates regarding powers of RTI Information Commissioners v. the powers of the Court Judges. Now conflicts have started between RTI Information Commissioners and the State Legislative Assembly. Taking serious note of the issue of notices to the Vidhan Sabha Principal Secretary by the UP Information Commission, the State Assembly resolved that any such summons will be considered a violation of the privileges of the House and necessary action will follow.
The decision of the House comes in the wake of the issuance of two notices by the Commission to the Principal Secretary R. P. Pandey on two petitions to the panel.
In both cases, the Secretary had pleaded that the House was not covered under the Act. On this, the applicants approached the State Information Commission, which in turn issued notices to Pandey. Meanwhile, both matters had been referred to the privileges committee, though one of the notices was later cancelled by the Commission.
- Mumbai gets first Information Commissioner:
Ramanand Tiwari is appointed as SIC stationed in Mumbai. It may be interesting to note that only 5% of SICs and CICs are non-bureaucrats, one of them is SIC for Pune division, Vijay Kuwalekar, who is a senior journalist.
- ATM operation:
Commercial banks cannot be compelled under the Right to Information (RTI) Act to divulge the operational details of their ATMs installed across cities, the Central Information Commission (CIC) has ruled. “Information pertaining to operation of ATMs is really a matter of commercial confidence. As a matter of fact, a lot of security is involved in such a procedure and such information cannot be given to any outsider,” CIC’s Information Commissioner Padma Balasubramanian held in a ruling on January 29.
- Fanners’ suicide:
According to information obtained under the RTI Act, more than 800 farmers committed suicide in the first six months of 2007.
The agrarian crisis has forced 607 farmers to commit suicide in Maharashtra, while 114 have ended lives in Andhra Pradesh. Seventy-three have killed themselves in Kamataka and 13 cases were reported from Kerala in the first half of the last year alone, the information revealed. This despite NDA-ruled States like Punjab and Gujarat having failed to furnish details about the number of farmer suicides to the Union Agriculture Department.
CENVAT Credit
3. CENVAT Credit :
(a) Repair and maintenance services used for residential
colony by appellant-manufacturer — Residential colony necessary as factory
situated in remote area — Presence of workmen on the spot required to maintain
continuity in manufacture — Impugned services relatable to business — Repairs
and maintenance and civil construction for residential colony held as being
input services and, credit thereon held as admissible — Rules 2(l), 3 and 14
of Cenvat Credit Rules, 2004.
[Manikgarh Cement v. CCE, (2008) 9 STR 554 (Tri —
Mumbai)]
(b) Service Tax paid was allowed as CENVAT credit in
impugned order in respect of commission paid to agent. However, Revenue filed
an application for stay of the said order. It was held that Input service
means any service used by manufacturer directly or indirectly in manufacture
of final products and their clearance from place of removal — Input service
includes services used in relation to advertisement and sales promotion — Stay
of impugned order not granted — S. 86 of the Act, Rules 2(l) and 3 of Cenvat
Credit Rules, 2004.
[CCE v. Abhishek Industries Ltd., (2008) 9 STR 562
(Tri — Del.)]
ORDERS OF THE COURT
Part A: ORDER OF THE
COURT
S. 8(1)(e) of the RTI Act :
8 writ petitions, including one
— The Institute of Chartered Accountants of India v. CIC [writ petition
(civil) No. 3607 of 2007], are decided by the High Court of Delhi on 30-11-2009.
As the judgment is of interest
to members of our profession, from the order which runs into 48 pages, I
reproduce verbatim the relevant four paras.
91. Respondent no. 2 herein —
Mr. Y. N. Thakkar had made a complaint alleging professional misconduct against
a member of the Institute of Chartered Accountants of India. The complaint was
examined by the Central Council in the 244th meeting held in July 2004 and was
directed to be filed as the Council was prima facie of the opinion that
the member concerned was not guilty of any professional or other misconduct. The
Council did not inform or give any reasons for reaching the prima facie
conclusion. In fact it is stated in the writ petition filed by the Institute of
Chartered Accountants of India that the Council was not required to pass a
speaking order while forming a prima facie opinion.
92. On 7th January, 2006
respondent no.2 filed an (RTI) application seeking details of reasons recorded
by the Council while disposing of the complaint. The information was not
furnished and was denied by the PIO and the first Appellate Authority on the
ground that the opinion expressed by the members of the Council was
confidential.
93. By the impugned order dated
31st January, 2007 the CIC has directed furnishing of information without
disclosing the identity of the individual members.
94. In the writ petition filed,
the Institute of Chartered Accountants of India has projected that respondent
no. 2 wants, and as per the impugned order, the CIC has directed furnishing of
deliberations and comments made by members of the Council while considering the
complaint, reply and the rejoinder. Respondent no. 2 has not asked for copy of
deliberation or the discussion and comments of the members of the Council. He
has asked for reasons recorded by the Council while disposing of his complaint.
During the course of discussion, members of the Council can express different
views. Confidentiality has to be maintained in respect of these deliberations
and furnishing of individual statements and comments may not be required in view
of S. 8(1)(e) and (j) of the RTI Act. However, I need not decide this question
in the present writ petition as the respondent no. 2 has not asked for copy of
the deliberation and comments. His application is for furnishing of reasons
recorded by the Council while disposing of the complaint. There is difference
between the reasons recorded by the Council while disposing of the complaint,
and comments and the deliberations made by individual members when the complaint
was examined and considered. Reasons recorded for rejecting the complaint should
be disclosed and there is no ground or justification given in the writ petition
why the same should not be disclosed. In fact, as per the writ petition it is
stated that the Council did not pass a speaking order rejecting the complaint
and it is the stand of the petitioner that no speaking order is required to be
passed while forming a prima facie opinion. It is open to the petitioner
to inform respondent no. 2 that no specific reasons have been recorded by the
Council. The consequence and effect of not recording of reasons is not subject
matter of the present writ petition and is not required to be examined here.
Writ petition is accordingly disposed of with the observations made above.
From the above, it will be
observed that it is important to seek information fully and properly. If the
applicant had asked for the comments and deliberations made at the Council
meeting of ICAI, he would have got it, but he had asked only the reasons
recorded by the Council. To make the reporting complete, I also reproduce the
Commission’s decision dated 31-1-2007 as referred to in para 93 of the above
order :
Commissions’ decision :
The CPIO has already furnished
partial information. He has, however, withheld the deliberations of the Council
on the ground that the opinion expressed by the Council members are
confidential. In the spirit of the RTI Act, which aims at creating conditions
for taking informed decisions, the views expressed by the public servants should
be put in public domain to prompt transparency in the decision-making process.
The CPIO is therefore directed to disclose the information sought, after due
application of S. 10(1) of the Act, within 15 working days from the date of
issue of this decision. The identity of an individual member, who may have
expressed his opinion on any issue of complaint should, however, be withheld,
lest the disclosure of identity should endanger his life and liberty.
Part B: THE RTI ACT
We have many RTI success stories
happening at clinics operating at BCAS Foundation and other places. But, we
never report them. However, when ‘The Miracle’ happened for Arvind Dalal, past
President of BCAS and ICAI, I thought it would be worth reporting. Hence, I
requested him to pen a few words and here they are :
The miracle that is RTI
by
Arvind Dalal
I am induced to write this
article on RTI of my personal experience prompted by Narayan Varma, so that it
may inspire others to resort to the unfailing remedy of RTI.
I have a small cottage in
Lonavala which I acquired in March 1993 and launched the document of sale deed
for registration with the seller and the advocate of both parties. I was
informed by the seller and the advocate that original sale deed duly registered
with the Registrar at Pune will be returned to me after ‘reasonable time’ duly
stamped on each page for registration.
Knowing as I do what is ‘reasonable time’ for income-tax proceedings, I did not bother about the registration for ten years even though that is an unreasonable period for registration of a document. But I started pursuing the matter since 2003 and for about four years I was given a stone-walling reply from the Registrar’s Office that the document is not received after registration, but it will take some more time and I will receive the same as soon as reasonable period is over.
Finally in 2007 I was told after several visits to the Registrar’s Office in Lonavala, that the document was received but for want of space in Lonavala office, it is sent to the Registrar’s office at Vadgaon-Maval about 20 miles away from Lonavala. I visited Vadgaon from time to time with my wife and with the advocate. Every time we were informed that the document will have to be searched out from a heap of documents and I must wait till evening to give them enough time to look for the same. My advocate also inquired several times at Vadgaon, but every time the reply was the same that it was not traceable.
I talked to Narayan Varma who suggested to make an application under the RTI Act and he helped me to prepare the application including questions there-in regarding how many documents were lodged for Registration in 1993, which were still pending in 2010 and how many were registered and returned to the applicants, what was the limit prescribed under the Act and more specifically when will my document, lodged in March 1993, be registered.
Within 15 days, I received a reply at my Mumbai address that my documents will be sent to me in due course but in the meanwhile, I could take inspection at Vadgaon by paying the necessary charges. I replied, thanking them for their letter sent after 17 years (Lord Ramachandraji’s vanvas was over in 14 years) and asking them to send original sale deed at the earliest. Lo and behold?! Within ten days, I get the original document in 2010 registered in 1993?!
The moral of the fairy tale is that one must invoke one’s rights as a citizen more frequently under the RTI Act, particularly when activist like Shri Narayan-bhai is out to help us and citizens must exercise their rights under statute given by the government by taking a little extra trouble?!
Part C: OTHER NEWS
Significant pronouncements by the Commission?:
Some time ago, when Shailesh Gandhi, CIC was in BCAS office – Mumbai, addressing RTI activists and journalists, he distributed compilation of 8 important profound pronouncements by the Central Information Commission. Herewith 5 & 6 thereof?:
(Continued from January 2010)
5. Sub judice?:
The Appellate Authority had claimed exemption u/s.8(1)(e), but the PIO has given no reason to justify how S. 8(1)(e) can apply.
The CIC decision cited by the respondent states ‘The matter is sub judice. The Appellate Authority has cor-rectly advised that information in question could be obtained through the Court which is examining the matter.’ No reasoning has been offered as to which exemption clause of the RTI Act applies. The only exemp-tion of S. 8(1) which might remotely apply and under which information can be denied is S. 8(1)(b) states, ‘information which has been expressly forbidden to be published by any Court of law or Tribunal or the disclosure of which may constitute contempt of Court;’
This clause does not cover sub judice matters, and unless an exemption is specifically mentioned, information cannot be denied. Disclosing information on matters which are sub judice does not constitute contempt of Court, unless there is a specific order forbidding its disclosure. I respectfully have to disagree with the earlier decision cited by the appellant since it is per incuriam.
This Commission rules that a matter being sub judice cannot be used as a reason for denying information under the Right to Information Act.
6. Privacy?:
U/s.8(1)(j) information which has been exempted is defined as?: “information which relates to personal information the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or State Public Information Officer or the Appellate Authority, as the case may be, is satisfied that the larger interest justifies the disclosure of such information?:” To qualify for this exemption the information must satisfy the following criteria?:
It must be personal information. Words in a law should normally be given the meanings given in common language. In common language we would ascribe the adjective ‘personal’ to an attribute which applies to an individual and not to an institution or a corporate.
From this it flows that ‘personal’ cannot be related to institutions, organisations or corporates. [Hence we could state that S. 8(1)(j) cannot be applied when the information concerns institutions, organisations or corporates.]
The phrase ‘disclosure of which has no relationship to any public activity or interest’ means that the information must have some relationship to public activity. Various public authorities in performing their functions routinely ask for ‘personal’ information from citizens, and this is clearly a public activity. When a person applies for a job, or gives information about himself to a public authority as an employee, or asks for permission, licence or authorisation, all these are public activities.
We can also look at this from another aspect. The state has no right to invade the privacy of an individual. There are some extraordinary situations where the State may be allowed to invade the privacy of a citizen. In those circumstances special provisos of the law apply, always with certain safeguards. Therefore it can be argued that where the State routinely obtains information from the citizens, this information is in relationship to a public activity and will not be an intrusion on privacy.
Certain human rights such as liberty, freedom of ex-pression and right to life are universal and therefore would apply in all countries uniformly. However, the concept of ‘privacy’ is related to the society and different societies would look at these differently. India has not codified this right so far, hence in balancing the right to information of citizens and the individual’s right to privacy, the citizen’s right to information would be given greater weightage.
Therefore we can accept that disclosure of informa-tion which is routinely collected by public authority and routinely provided by individuals, would not be an invasion on the privacy of individual and there will only be a few exceptions to this rule which might re-late to information which is obtained by a public au-thority while using extraordinary powers such as in the case of a raid or phone-tapping.
From the Budget speech of Pranab Mukherjee, Minister of Finance on February 26, 2010?:
Inclusive development?:
For the UPA Government, inclusive development is an act of faith. In the last five years, our Government has created entitlements backed by legal guarantees for an individual’s right to information and her/his right to work. This has been followed-up with the enactment of the right to education in 2009-10. As the next step, we are now ready with the draft of Food Security Bill which will be placed in the public domain very soon.
RTI is the new tool in divorce mudslinging?:
An interesting report in MIDDAY of 11-3-2010?:
Case 1?:
Ritika Sharma and her father claimed in the police complaint that they had provided Rs.30 lakh in dowry (in jewellery, cash and kind) to Ritika’s husband Mohan Sharma. Facing the prospect of imprisonment, Mohan Sharma filed an RTI application, seeking the income-tax details of his father-in-law.
It was revealed that Ritika’s father had only declared nominal income. It then became apparent that the claims made by the father-daughter duo about the dowry payment were false. The matter is sub judice. (Names changed)
Case 2?:
A month ago, Visakha Malhotra filed an RTI application seeking details of her ex-husband’s income after she was denied rightful maintenance following her divorce. Her husband had claimed that he was a busi-nessman. “Her petition was based on her right to live with dignity,” said a senior I-T official, on condition of anonymity. (Name changed)
According to income-tax officials, the trend of seeking RTI for dowry and maintenance cases began after a Delhi High Court judgment. In a 2007 case, Bhagat Singh was denied information regarding the earnings of his wife (with whom he had a discord), by the Income-tax Department, on the ground that the matter was being investigated. Singh, who was accused by his wife Saroj Nimal of accepting a dowry of Rs.10 lakh from her, filed a request with the Income-tax Department for investigating into his wife’s sources of income in view of the fact that she was a primary school teacher. In a landmark judgment, the Court directed the Income-tax Department to provide the information sought by Bhagat Singh.
The trend seems to be really catching on now. “There are around 30 ranges in the National Capital Region and each of these ranges processes or receives around 3 to 4 RTI applications seeking Income-tax details and most of them are related to either dowry harassment or maintenance cases.”
Tax refunds?:
At our RTI clinics, we assist many to make RTI application for the pending income-tax refunds. They invariably get the refund. The Times of India on March 15 reported on this subject and said?: Life just got better for millions who have ran from pillar to post for years to secure their tax refunds from the Income-tax (I-T) Department. In the landmark ruling, the Central Information Commissioner has passed an order which says “information on refunds is covered under the Right to Information (RTI) Act.”
M. L. Sharma, the Central Information Commissioner, while passing the order, said?:
“To deny the appellant information sought by him under clause (e) or clause (j) of S. 8(1) is nothing but misappreciation of law.”
“The information sought by the appellant is covered u/s.2(f) of the RTI Act and he has a right to seek information u/s.2(j) thereof. It is clarified that the appellant has not sought any information which the public authority is holding in fiduciary capacity.”
While directing the Income-tax Department to disclose information for the inordinate delay, he also ordered the issue of refunds within three months.
The CIC also rapped the Department for failing to appear in a hearing arranged by the Commission where the appellant was present.
Cabinet’s advice to the President of India?:
Pushing the boundaries in its interpretation of the Right to Information Act (RTI), the Central Information Commission (CIC) said advice given by the Union Cabinet to the President is liable for disclosure under the information law.
Referring to SC ruling on Article 74(2) on the question of constitutional privilege, Chief Information Commissioner Wajahat Habibullah ruled that though the Constitution said the Cabinet’s advice to the President could not be ‘inquired into’, it did not mean that such advice could not be ‘disclosed’. “It does not mean the nature of this advice can’t be disclosed,” he said while directing the President’s Secretariat to al-low checking of files pertaining to communication between former President Shanker Dayal Sharma and ex-PM Narasimha Rao on the issue of extending SC status to Dalits who had converted to Christianity.
Monitoring Govt. projects through the use of RTI?:
Although the State Chief Information Commissioner has asked alert citizens to monitor Government projects through the use of RTI, not many are satisfied with the way their efforts have found support.
The experience of Bhaskar Prabhu, an RTI activist and a member of Mahiti Adhikar Manch, an NGO that monitors Government spending, has not been good enough. Prabhu filed an application to monitor the money spent on grass beds at tree bases on Dr. Ambedkar Road in F/South ward, Mumbai. He also sought information on the expenses on iron guards around the trees. The details sought were for work orders worth Rs.7.26 lakhs that were passed in Octo-ber 2008 and January 2009. The work was to be completed by March 2009.
But the Public Information Officer (PIO) did not respond to his April 2009 application in time. After the hearing at the First Appellate Authority (FAA) in May 2009, the application got misleading and incomplete information.
“They did give information of grass beds, but not the locations of the work. It was impossible to see if the work was completed,” said Prabhu.
There was no information of the 164 iron grill tree guards for which money was already paid. The money set aside for the guards is 25% of entire amount. When he complained to the ward officer and deputy superintendent of gardens, it got known that around 20 guards were put and some petty penalty was imposed on the contractor. There is still no information to conduct the audit, a frustrated Prabhu said.
When contacted, H. Kale, Assistant Commissioner, F/ South ward, said, “The file is not in my hand anymore. It has been given to some other officers. We have slapped a fine of Rs.50,000 on the contractor.”
Skywalks in Mumbai?:
Even as Mumbaikars question the need for so many sky-walks in the city, reply given to a query under the Right to Information Act is an eye-opener. Each of the 67 sky-walks in Mumbai have been proposed by an elected representative — an MP, MLA or a corporator. In fact, there are cases where work on skywalk stopped because the local representatives initially supported it and then changed their stance, following opposition from sane people. Nearly all the requests have been made orally by elected representatives, stated the RTI replies to the Grant Road citizen Arvind Dagha’s queries.
Construction of 67 skywalks at a cost of Rs.1.400 crore has been taken up. Initially, around 50 skywalks were to be constructed at the cost of Rs.600 crore. That number was later increased to 67. A. K. Pehal, in charge of the skywalk project, said they were being constructed only after carrying out a study.
Stop attacks on RTI activists?:
In his Budget speech, Union Finance Minister Pranab Mukherjee said the weaknesses in government systems, structures and institutions posed a challenge to policy planners. He said our public delivery mechanisms prevented the country from realising its true potential. The analysis is spot on. So, how do we fix governance?? Transparency and accountability hold the key to good governance. Institutional reforms are necessary to achieve this. The Government plans to set up a financial sector legislative reforms commission and an independent evaluation office to assess public programmes. These are timely. Many enabling legislations have been passed in recent years to make administrators responsible to citizens. But laws alone aren’t enough. Mindsets also must change if the legal safeguards are to become effective.
The experience of the Right to Information (RTI) Act is instructive. The RTI Act has been a radical step to-wards making administration transparent and ac-countable. Civil society groups have used the RTI Act to expose corruption in public administration and ser-vices. But not all sections of society have reacted favourably to the Act. Often, bureaucrats refuse to part with information demanded under the RTI. A worse trend is to attack RTI activists physically. The latest case is from Maharashtra where a Thane-based RTI activist was shot at. The Government needs to curb such crimes. The message must go out that attacks on RTI activists will not be tolerated. Public delivery mechanisms can improve only if the State and civil society work together to plug loopholes in these systems.
(Editorial in The Times of India, dated 4-3-2010)
Sonia forces PM to put RTI amendments on hold?:
Plans to amend the Right to Information (RTI) Act have been put on ice, with Congress bosses taking up with the Government the complaint of the activists that the proposed changes would lead to dilution of the information law. Senior sources said the amend-ments will have to wait till the time the Government dispels fears of rights activists.
Congress Chief Sonia Gandhi wrote to PM Manmohan Singh some time ago, drawing his attention to the fear of activists. The PM and virtually the entire Government feel the amendments are necessary for smooth functioning of the Government and to keep out frivolous complaints, but Singh has agreed to hold consultations with stakeholders (read activists).
According to some reports, Singh is also in favour of excluding the office of the CJI from the RTI Act ambit. The amendments proposed by the PM would keep the office of the CJI out of the purview of the Act. However, Sonia Gandhi has opposed any such amendments.
PART D: Good Governance
This crisis is not about an individual. It is not about any one party. It is not about one international economic showdown. And, it is not a crisis which will be necessarily resolved by the next general elections, or the ones after that. The crisis that we are in is that two fundamental pillars of our republic, governance and democracy, which should be complimentary, have become antithetical to each other. This was not a situation envisaged by our Constitution makers. Their presumption was that democratic election would throw up a party, or a combination of parties, which on the basis of a stable majority would govern effectively in order to give back to the people what they had promised.
Governance and democracy must be complimentary to each other. There could be better solutions to the one I have proposed. But the blunt truth is that we must find a solution. We cannot afford to lose any more time. The people of India will not wait anymore.
PART C: Information on & Around
If all goes as planned, there will be no need to put an RTI application to get information about the Brihanmumbai Municipal Corporation (BMC) as the civic body, in a year’s time, plans to digitise each and every document and put it up on their website for all to see. Not a small feat as they have over 80 Crore papers to be displayed online.
“All these documents are important and they are so old that even turning pages can damage them. If we want to preserve these documents, getting them digitised is the only way,” said a senior civic official. “Once the digitisation is done, there will be no need to submit a right to information (RTI) application for obtaining information regarding the BMC,” said Sitaram Kunte, Municipal Commissioner.
Nagpur SIC:
On Saturday 16th March, Times of India reported: SIC heard three appeals and levied a fine of only Rs. 18,000 in all the last six months and so on. The State Information Commission (SIC) bench in Nagpur seems to be doing everything to blunt the Right to Information (RTI) Act, 2005, a legislation that has empowered common people against the system. Next day on Sunday, 17th March, Times of India issued clarification as under:
The state information commissioner, Bhaskar Patil, has pointed out that the headline ‘Nagpur info chief clears 3 of 1,849 pleas in 6 months’ is incorrect. He stated that the SIC had heard and disposed of 1,978 appeals and complaints from June to December last year, out of which it levied monetary fine in three cases. The SIC had also recommended ‘disciplinary action’ on 41 cases out of 1,849 second appeals and 485 complaints. The error is regretted.
Corruption and RTI:
The Central Vigilance Commission (CVC) has slammed the Department of Revenue in the Ministry of Finance and two of its key organs – the Central Bureau of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) – for shielding its allegedly corrupt senior officials.
In response to an RTI application filed by Economic Times, CVC has revealed the minutes of all annual review meetings held by it in 2012 with Central Vigilance Officers (CVOs) of various government sectors. The minutes of such meeting held on 27th July, 2012, with CVOs of the Revenue and Transport Sector reveal that CVC came down hard on the Department of Revenue, CBDT and CBEC for going slow against corruption. The minutes clearly state that CVC Pradeep Thakur said at the meeting that there is a “perceptible tendency” in the Department of Revenue of “trying to protect particularly senior officers” in the organisation. CVC asked Shashi Shekhar, the additional secretary (revenue) and CVO of Department of Revenue, to make concerted efforts to liquidate the pendency of corruption complaints, saying the commission was concerned over the inordinate delay in implementation of its advice for action.
Shielding top officers is a phenomenon in CBDT too, the minutes indicate. “CVC expressed its concern at the inordinate delays being caused by CBDT in finalising regular department action cases, implementation of CVC’s advice and in grant of sanction for prosecution. CVC stated that such delay indicated reluctance of the administration in taking action against senior officials and such delays, especially in grant of sanction for prosecution, are completely unacceptable. CVC also expressed its displeasure at the arbitrary fashion in which adjudicating officers are passing the orders while deciding cases of higher revenue implications,” the minutes say. CVC was similarly anguished about the large number of pendency of action against allegedly corrupt officials in CBDT, saying Supreme Court has recently made it mandatory for prosecution sanction to be granted within three months and officers intentionally delaying the same to be held accountable.
As per the CVC annual report for 2011, CBDT and CBEC were still to take action against a total of 474 corrupt officers against whom CVC advised action over six months ago. 330 such cases were pending in CBEC while 144 cases were pending in CBDT. In comparison, CBEC took action only against 69 of its officers last year while CBDT acted against just eight officers.
PART B: RTI Act, 2005
“As we proceed into the eighth year of the use of the RTI we need to look – not only at the shortcomings which we always do-but at our immense gains. Not so much to compliment ourselves as to strengthen our resolve to carry on with millions of our struggles that its use has spawned. The RTI has forced the re-distribution of power, demanded participatory decision-making and specific accountability. It has legitimised questioning as a part of decision-making. It has questioned representative democracy and pushed the system to acknowledge, though reluctantly, that it has an obligation to the sovereign citizen.
Sometimes, one has the good fortune to be a part of campaign for an issue that has a seminal impact on the lives of people. In all our collective dreams we define a space where equality will be an accepted norm and justice accessible. We have all thought and expressed the desire of a corruption-free India, where arbitrary use of power can be questioned and addressed. The Right to Information Act has addressed and facilitated the realisation of some of these dreams.
There was to begin with the unstated understanding that even confronting corruption needed an equal emphasis on the arbitrary use of power. In other words, RTI was fundamental to a democracy, and democracy, in order to stay alive with its principles intact, needed the RTI.
Once the law was made, the NCPRI accomplished a basic objective and many of its constituent members withdrew to the background. Many users, groups and organisations have grown. All of us continue to be amazed at the number of users, and the thousands of ways in which the law has empowered people to access food, shelter and justice, individually and collectively.It has been and continues to be a revelation of the ingenuity of the concerned citizen-user. An acid test of any legislation is its continued use even after meeting with road blocks and deliberate attacks, in this case even on our lives. RTI has addressed that challenge with persistence and diligence. We always said the devil lies in the details. The RTI users have continued to pursue and conquer these devils! The RTI empowers the citizen, or citizens, as the case may be, to challenge and question the State as part of their regular life, activities and campaigns.
Individual users all over the country have already revolutionised the interaction with the State with their imaginative use of the RTI. If we manage to work together, our collective work may have a great impact on India’s ethical future. It may force the system to keep its constitutional promises and forever change the face of governance in this country. It is true that India is not one of the easiest countries to live in, nor one of the most efficient bureaucracies to deal with. Yet, we live and must claim our rights as citizens and continually challenge unethical action, from the individual to all of its citizens and in every aspect through which the constitution guarantees our sovereignty.”
Representation
To,
Mr. P. Chidambaram
Honorable Finance Minister
Government of India,
North Block, Vijay Chowk,
New Delhi – 110001
Respected Sir,
Subject: Union Budget 2013-2014: Post Budget Recommendations on Indirect Taxes.
We have seen with interest the budget presented by your honor, on behalf of United Progressive Alliance (UPA) Government, in the Parliament on 28th February 2013 and appreciate your concern for challenges faced by the country and your efforts to accelerate economic growth.Our suggestion on various topics for rationalization of law, rectification of certain anomalies and correction of drafting, etc., are given in the enclosed representation relating to indirect taxes. We hope that our Representation will receive due consideration.
Thanking You,
For Bombay Chartered Accountants’ Society
Deepak R. Shah Govind G. Goyal
President Chairman, Indirect Taxes and Allied Laws Committee
Post budget memorandum 2013-14
Service Tax
1.1 The Bill has proposed to introduce a new section 78A for imposing a financial penalty up to Rs. 1,00,000/- on directors, managers, secretary or other officers incharge of the company for specified contraventions committed by a company.
1.2 In this regard, it may be noted that for similar contraventions, such persons are already liable to prosecution under Section 89 of the Act r.w. s. 9AA of the Central Excise Act. Thus, in view of the liability for prosecution there is no need to provide for penalty also. Such a corresponding penalty is absent in Customs, Excise and Income-Tax. Further, in any case separate penalties are already provided for the company which has defaulted.
1.3 Further, in absence of a corresponding amendment in s. 80 of the Finance Act, 1994 the defense of ‘reasonable cause’ u/s. 80 would not be available to the imposition of penalty under the above proposed section.
1.4 In view of the above, the new provision Section 78A is very harsh. It is hereby suggested that it should be deleted.
2. Section 90 & 91 – Proposal to define certain offenses as cognizable and provide power to arrest – to be deleted.
2.1. The Bill has proposed to introduce Section 90 to provide that notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under sub-clause (ii) of the sub-section 89 of the Act (i.e. person collects service tax and fails to pay within 6 months to the credit of Central Government) shall be cognizable and non bailable. Further, it is proposed to introduce section 91 to assign powers to Commissioner to authorize Central Excise officer (not below the rank of superintendent) to arrest the assessee who commits the specified offences under the law.
2.2. Historically, the Service Tax law has always recognized that a large number of service tax assesses are from the unorganized sector. Further, the process of provision of service is quite different from manufacture. Manufacturing takes place with a defined set of activities and within a defined boundary having its own sets of rules and regulations eg. Factories Act, 1948; Standards of Weights and Measures Act, 1976 etc. A service by contrast, has no defined set of activities or defined place. It may be rendered even from the home of a self-employed person. Thus, the wherewithal for the service provider is much less. Lastly, the evidence available for non-compliance in case of manufacturing units would be more easily decipherable as against the service sector. Hence, such provisions of the excise law should not verbatim be made applicable to service tax.
2.3. Secondly, in any case, prosecution is already provided for in Section 89 which could be invoked, if required, in the normal course.
2.4. Thirdly, providing the service tax department the power to arrest would inculcate a fear psychosis in the service tax paying fraternity which will be counter productive from the Government’s prospective. There could also be cases where interpretation and opinion may vary and hence providing impromptu power to arrest without going through the prosecution proceedings u/s. 89 would be unjustified.
2.5. In view of the above, it is hereby suggested that Section 90 and 91 proposed by the Bill should be deleted as Section 89 would meet the ends of justice.
3. Voluntary Compliance Encouragement Scheme (VCES)
3.1 The VCES has been introduced to grant waiver of interest and penalties in cases where tax has been unpaid as on 01.03.2013. The Scheme is not applicable in many cases where the assessee has either disclosed the taxes in return, but was unable to pay due to genuine financial hardships. Similarly, the Scheme is not applicable in cases where SCN has been served on the assessee. This results in a situation that the Scheme favours dishonest and non compliant assesses as compared to compliant assesses who have been victims of interpretation of dynamically changing law.
3.2 It is therefore suggested that the Scheme be extended to the following cases:
a. Where letter of enquiry or SCN has already been issued.
b. Cases where the tax has been paid but interest and penalties are not paid, even if the tax has been disclosed in the returns, demanded through a SCN or an Order or the matter is pending in litigation
c. Cases where the tax has not been paid but is disputed either at the adjudication level or appellate level, if the assessee agrees to pay the tax and withdraw the appeal, the interest and penalties should be waived.
3.3 It may be noted that by doing so, there is very little loss of Revenue to the Government since even in the past when such disclosure schemes have been declared, the Tribunals have been liberal in waiving penalties to similarly placed assesses who were not eligible for the Scheme.
3.4 In fact, extending the Scheme to such cases of litigation will result in a substantial increase in the revenue collection and would bring an end to many matters pending in litigation, leaving the adjudication and the appellate machineries to deal with genuine matters of dispute and ensure an expeditious disposal. This will also further the objective of the Government of setting a 365 day time frame for final disposal of the Appeal at the Tribunal level.
3.5 As regards the scheme, time limit should be prescribed for the following :
(a) rejection of declaration by designated authority under section 96 (2); and
4. Appeals to Tribunal – Certain drafting improvements
Section 86(5) is proposed to be amended to enable the Tribunal to condone a delay in filing the appeal by an assessee. Similarly, s. 86(4) also needs to be amended to enable the Tribunal to deal with the cross-objections filed by an assessee.
5.1 With the amendment of entry 19 in the mega exemption w.e.f from 1.4.13 all air-conditioned restaurants will be liable for Service Tax. This would bring a huge number of restaurants although the tax net pushing up the prices of eating out. The Excise Law has well appreciated that Excise Duty should not be applicable on food and food stuffs (Chap 1- Chap 22). Having alcoholic beverages may be a luxury but eating out for a substantial part of public may be a necessity. Secondly a host of small eating houses providing lunch at reasonable prices would be affected including cafeterias in hospitals, factory, offices etc.. Thirdly the threshold limit of 10 lakhs is too minimal for a restaurant.
5.2 In view of the above the following are suggested:
(i) Eating Houses/Cafeteria in factory, offices, hospitals should be exempted;
(ii) All restaurants, eating houses and messes having turnover up to Rs. 4 crore in a year (in line with excise) should be exempted.
Customs
6. Section 47 of the Customs Act
6.1 The section is proposed to be amended to reduce the interest-free period for payment of customs duty from 5 days to 2 days. It is difficult to get bills of entry assessed in 2 days, and in most cases, the reason for delay in clearance is not attributable to the assessee. It is therefore suggested that the interest-free period be retained at 5 days.
ICAI And Its Members
The Ethical Standards Board has given answers to some of the questions relating to Ethical issues at Pages 1364-66 of CA Journal for March, 2013. Some of these issues are as under:-
(i) Whether the statutory auditors consisting of ten or more members can conduct the branch audits of the same company?
Response
The Council has prescribed certain self-regulatory measures, in order to ensure a healthy growth of the profession and an equitable flow of professional work among the members. One of the recommendations of this nature is that the branch audits of a company should not be conducted by its statutory auditors consisting of ten or more members, but should be conducted by the local firms of auditors consisting of less than ten members. This should not be understood to mean any restriction on the right of the statutory auditors to have access over branch accounts conferred under the Companies Act, 1956. This restriction may not apply in the following cases:
(a) where the accounting records of the branches are maintained at the head office of the respective companies; and
(b) where significant operations of an undertaking or a company are carried out at its branch office.
(ii) Is there any ceiling on the fees to be accepted from one company?
Response
To ensure that the professional independence of a member in full-time or part-time practice does not appear to be jeopardised, he should, as far as possible, take care to see that the professional fees for audit and other services received by the firm in which he is a partner, by him and his partners individually and by firm or firms in which he or his partner are partners from one or more clients or companies under the same management, does not exceed 40% of the gross annual fees of the firm, firms and partners referred to above. ‘Companies under the same management” here would refer to the definition of this expression as provided in Section 370(1-B) of the Companies Act, 1956. Further, such ceiling on the gross annual professional fees of a member would be applicable, where such fees does not exceed Rs. 2 lakh in respect of a member or firm, including fees received by the member or firm for other services rendered through the medium of a different firm or firms in which such member or firm may be a partner or proprietor. No such ceiling on the gross annual professional fees of a member would be applicable in the case of audit of government companies, public undertakings, nationalised banks, public financial institutions or where appointments of auditors are made by the Government.
(iii) Can a member share profits with the widow of his deceased partner? Response When there are two or more partners and one of them dies, the widow of the deceased partner can continue to receive a share of the profit of the firm. A legal representative, say widow of a deceased partner, would be entitled to share the profits only where the partnership agreement contains a provision that on the death of the partner, his widow or legal representative would be entitled to such payment by way of sharing of fees or otherwise for the specified period.
2. EAC Opinion Accounting for common fixed assets constructed for a project under progress:
Facts: A Government of India company (Company) is engaged in the construction and operation of thermal power plants in the country. The company is involved in the construction of power projects. Every project has a defined capacity expressed in terms of Megawatts (MWs) and such capacity is further divided into stages and units. The company envisages construction of power projects that are around 1000/1320/2000/3000 MW in capacity. These normally consist of individual generating units of 500/660 MW capacity. The capacities are built in clusters called stages. Generally, each stage may consist of two or more units and power projects are constructed in phased manner. In coal based thermal power plants, coal is a basic fuel which is used in the process of generation of electricity. To cater to the coal requirement of a generating unit, a coal handling plant comprising track hopper, crusher house, conveyor and coal stock yard is constructed. Through the coal handling system, coal is supplied to the two different generating units of the first stage of the project. For the construction of coal handling system for two generating units of a stage, a single contract is awarded. The total package includes (a) construction of coal handling plant including conveyor system and the mechanical structure and (b) construction of separate coal supply arrangements beyond the crusher house to different generating units of the project. Thus, the coal handling plant is a common system catering to all generating units of the first stage of the power project. As per Accounting Standard (AS) 10, “Accounting for Fixed Assets” the company, on commercial declaration of the first unit of stage (Unit I) of the project has capitalised the cost of systems which have started functioning (including the cost of coal handling plant) alongwith the cost of first unit. As the cost of the portion of cold handling plant declared commercial is not directly available, the cost of coal handling system is technically estimated/assessed by a committee comprising members from Engineering, Finance and Erection Department of the project.
Query:
On these facts, opinion of EAC has been sought on the following issues: (i) whether the accounting treatment followed by the company for capitalisation of coal handling system on technical assessment/ estimates alongwith Unit ONE is in order? (ii) If answer to (i) is in negative, on what basis, the cost of coal handling system declared commercial alongwith Unit One should be capitalised?
EAC Opinion: After considering paragraphs 9.1 and 9.2 as well as 10.1 of AS-10, the Committee has expressed the view that the coal handling plant handles and processes the fuel required for operation of generating units. Thus, in the Company’s case, power generating units and coal handling system can be considered as composite plant which would be ready for its intended use only when either Unit One or Unit Two and coal handling system to the extent related to the relevant unit, are ready for commercial production. Therefore, those parts of composite plant which are ready for their intended use and can be operated independently of the remaining parts should be considered to be ready for commencement of commercial production/ intended use. Accordingly, in the Company’s case, coal handling system, although under construction but since substantially complete, such that Unit One is ready to commence commercial production, it would be correct to capitalise that cost of the coal handling plant which is necessary for making Unit One operational when unit One is ready to commence commercial production. As regards using technical estimates for determining the cost of related portion of coal handling plant which is to be capitalised, the Committee is of the view that technical estimates can be used provided these approximate the cost of such system reliably. [Refer pages 1402 to 1405 of C. A. Journal of March, 2013 ]
3. New Office Bearers of WIRC The following Office Bearers of WIRC are elected for 2013-14
(i) Chairman: CA Mangesh Kinare,
(ii) Vice Chairman: CA Parag Raval,
(iii) Secretary: CA Neel Majithia, and
(iv) Treasurer: CA Priti Savla. We congratulate the new team of WIRC and wish them successful year in office.
4. Chairman – Vice Chairman of some Important Committees of Central Council (Refer Pages 1479-1484 of CA Journal for March, 2013)
(i) Executive, Examination, Finance, Disciplinary Committees & Editorial Board
Chairman : CA Subodhkumar Agarwal, President
Vice Chairman : CA K Raghu, Vice President
(ii) Other Committees:
5. Revised Form of Audit Reports:
Audit Reports for Financial Statements for the periods beginning on or after 01-04-2012 have to be issued in the Revised format as suggested in the Revised Standard on Auditing (SA) 700 – Page 1485 of CA Journal for March, 2013.
6. ICAI News
(Note: Page Nos. given below are from C.A. Journal for March, 2013)
(i) Standard on Internal Audit (SIA) 18 – Related Parties
This Standard is published on Pages 1491-1494
(ii) New Publications of ICAI
(a) Compilation of Registration Provisions under VAT Laws of different States (Page 1489)
(b) Technical Guide on Accounting Issues in Retail Sector (P. 1489)
(iii) PCE – IPCE Results – November 2012 Examination (Page 1349)
(a) PCE: Both Groups 320(5.45%), Group I 1943 (22.17%) and Group II 1870 (14.78%)
(b) IPCE Both Groups 5720 (11.15%), Group I 25269 (25.14%) and Group II 20326 (21.13%)
From the President
The judiciary is a vital organ of any democratic setup responsible to provide, fair and expeditious justice to all. We citizens of India look upon our constitution for ensuring “Justice to all“. Everyone wishes that Justice which is the soul of a democratic society must be administered without fear or favour. Integrity, impartiality and intelligence are some of the important characteristics of the independent judiciary in a democratic setup.”
For many decades the Indian judicial system was considered to be above all forms of corruption and was expected to the last bastion of truth in a country that is plagued with lies and deceit. Can we say it is still the same?
The general impression is that Indian Judicial System is hostile towards the common man and general public but hospitable to rich, powerful and dishonest. When caught, a rich and powerful criminal would say, “I am innocent and I have full faith in our judiciary. It would do justice to me.” Do you call that justice is done, when he goes scot free from the courts, despite every bit of evidence against him. This has been state of affairs with all the scams and scandals, which came into public domain, in the recent years. As an ordinary citizen one always wonders – Why should a technicality allow an apparent crime to go unpunished, and if that is so why should one waste taxpayers money spent on investigation for years on end? Should we take it that Legal system in India favours the powerful people? A few known cases, like bail to Kalmadi and A. Raja , the lenient treatment to two MLAs who thrashed a cop, and the cop was suspended seem to strengthen the belief.
There is also the attitude of Society that dissuades persons from going to law enforcers. Even today, a visit from the police at your home for any reason encourages gossip in the entire locality. This negative societal bias coupled with the lack of reach has contributed to such negative thoughts for the judicial system. The responsibility for this cannot be attributed to any one individual or party, but must lie with the system itself which is not alive to local needs and problems.
Indian judicial system has been facing many problems and challenges in the course of dispensing justice. The major problem is the proceedings are lengthy and this delays the disposal which in turn leads to accumulation of cases and corresponding delay. The other problems are lack of efficiency in proper interpretation as well as implementation of laws. Apart from shortage of Judges the division of jurisdiction is also not proper and this is leading to an increase in the burden of the higher judicial forums including the Supreme Court. There are many other challenges and problems faced by the Indian legal system, which makes us think :
Whether our judicial system is turning weak ?
Are there any prospects of reform?
Despite all the above questions bothering us, we have a tremendous faith in Indian judiciary. Most of us believe that our judiciary is responsible and will provide fair and expeditious justice, and is the guardian of fundamental rights of the citizen. To me a legislation like the RTI Act gives much needed confidence.
It is the need of hour that legal and judicial setup be streamlined right from lower level so that the gradually deteriorating confidence of common man in the judiciary could be restored.
Over the past few years we do find increase in use of technology for in the judiciary for Data Storage. There are also structural reforms which might help in recruiting more judges and also spreading the reach of the courts to the remotest regions. Substantial improvement is required in the functioning of the courts, in order to minimise the time in disposing off the cases. Practically seen, there is no time limit fixed for arguing cases. Cases are being argued for months altogether in Indian Courts, while in USA, counsels are given exact time to argue the case. The number of holidays in India is far too much not only in judiciary, but in almost all departments.
Also it’s time to adopt and look at Alternate dispute resolution forums. Many structural reforms are required to improve the working standard of the judiciary so that the importance of this vital organ is not reduced and the confidence of people is not eroded further.
Lest you feel depressed by the thoughts that I have expressed let me end on a more cheerful note. Friends, there is a misconception people have about CAs, that we are of a very serious type, shy, reserved, and only workaholics. In reality this is not true, but we are only labelled as such. Many of us have great talent in other fields like instrumental music, singing, dance, dramatics, mimicry etc., but which is not known to the world. I am sure you all will agree that we professionals should showcase our hidden talents and show others that we are not only bookworms. Thinking How & When ?
Membership & Public Relations Committee of your Society has planned a BCAS Variety Programme on Friday, 7th June 2013 on the occasion of release of BCAS Referencer 2013-14. So let’s make the beginning and prove that we can do lot more than finance and calculations. I appeal to all of you to participate and also motivate your family members, fellow professionals or students to take part in the Variety performance show. Let’s prove to the world in this New financial Year that we are different !
With warm regards,
Yours truly,
Deepak R. Shah
Lecture Meeting
Mr. C. V. Sajeevan, Deputy Director Inspection, Registrar of Companies (ROC), explained provisions of Section 234 and 234A of the Companies Act 1956, which deal with the power of the Registrar to call for information and seizure of documents respectively. He also elaborated circumstances that may lead to inspection u/s. 209 or investigation u/s. 235 or 237. The learned faculty also responded to questions on the subject raised by members of the audience which included senior members of the profession. The webcast of the meeting is available on BCAS Web TV to the subscribers.
Direct Tax Provisions of the Finance Bill, 2013, 4th March 2013, at the Yogi Sabhagrah, Dadar, Mumbai
Mr. S. E. Dastur, Senior Advocate, addressed this annual lecture meeting on Direct Tax Provisions of the Finance Bill, 2013 with an audience of over 2,500 packed in the auditorium and many more through Live Webcast that witnessed approx. 4,800 Log-ins. In this landmark 25th annual meeting on the Finance Bill, Mr. Dastur presented a masterly and meticulous analysis of the various direct tax proposals of the Finance Bill 2013 which was blended with wit and humour. The live webcast attracted viewers from 65 cities including cities outside India from countries such as Bahrain, Germany, Netherlands, New Zealand, Romania, Singapore, the UK and the US. The webcast of the meeting is available free on BCAS Web TV for everyone.
Indirect Tax Provisions of the Finance Bill, 2013 jointly with Forum of Free Enterprise on 6th March 2013, at the Indian Merchants’ Chamber
Ms. Bhavana Doshi, Chartered Accountant, and Mr. Dadi B. Engineer, Solicitor and Advocate, analysed various Indirect Tax provisions of the Finance Bill, 2013 at this lecture meeting held jointly with the Forum of Free Enterprise. The audience included many young professionals and senior members of the profession who gained immensely from the analytical insights given by the learned speakers.
Service Tax and Other Indirect Tax Provisions of the Finance Bill, 2013 on 13th March 2013, at the Indian Merchants’ Chamber
Mr. Vikram Nankani, Advocate, presented an expert analysis of Service Tax and various other Indirect Tax provisions of the Finance Bill, 2013 at this lecture meeting to an audience of approx. 250 present, which benefitted from the critical analysis presented by the Learned Speaker. The Webcast of the meeting is available on BCAS Web TV to the subscribers.
Other Programmes
Seminar on SAP Security Audit & Control, 21st & 22nd February 2013, at the Society’s Office
The Infotech & 4i Committee organised this workshop on new and emerging areas, where the following Learned Faculties explained various aspects of SAP Security Audit & Control.
Topics |
coverage |
Speakers |
SAP Audit & |
SAP Environment & Audit Challenges SAP Control & Risks |
Mr. Babu Jayendran, |
User |
SAP Authorisation Concept & Challenges Roles,Authorisation |
Girish B S, Post Graduate Diploma in Advance Systems Management from |
Security |
Overview BASIS Audit |
|
Business |
Finance: Audit & Control Purchase to Pay Cycle: Audit & Control Order to |
Mr. Babu Jayendran, IIT, CA, |
Workshop on Partnership of Firms, 23rd February 2013, at the Society Office
The Indirect Taxes & Allied Laws Committee organised this workshop where the Learned Faculties dealt with various aspects of Formation, Registration and Taxation of Partnership Firms.
Faculty |
Topic |
Mr. |
Drafting |
Mr. |
Procedural |
Mr. |
Taxation |
Workshop on Continuous Control Monitoring, 12th March 2013, at the Hotel Orchid, Mumbai
The Accounting & Auditing Committee organised this workshop where the following Learned Faculties explained various aspects of Continuous Control Monitoring, with focus on Internal Audit as a Tool.
• Mr. Andrew Simpson, Chief Operating Officer, Caseware RCM Inc
• Mr. Deepjee Singhal, Chartered Accountant
The participants appreciated the valuable knowledge and experience shared by the Learned Faculties.
Letters
I am an avid reader of BCAJ. The article captioned “Accounting of Foreign Currency Translations,” which appeared in the February 2012 issue of the BCAJ, provided immense clarity on the subject. It captured all the complications in a precise and concise manner.
I request you to publish an article on the same subject giving stepby- step guidance on journal entries to be passed.
The Budget presented in Parliament by Hon. Finance Minister reminded me of the remark made by Vidya Balan, the heroine of Dirty Picture, with a slight modification – “Expenditure, Expenditure, Expenditure.” Source: Robbing the Future and Digging the Past (Retrospectively). All that remains for him to say is, “Aur main expenditure hoon.” And sure he is. The so-called deficit, both revenue and fiscal, has been reworked cleverly using divestment target (Rs. 30,000 Crore) which will never materialise (?), gap in the revenue and expenditure of over Rs. 1,85,000 crore, which is left unbalanced, assumes subsidy burden of 2% (which will in all probability be far more at 4% to 5% of GDP)… the list is endless, and of course there is the borrowing, the growing debt of the Centre and the States. As if not satisfied with it, they now want to turn into grave-diggers by digging money and taxes from the past with retrospective amendments dating back to 1961, when I was a threeyear- old baby and many of us were not even born. The Budget claims to aim at a faster, sustainable and more inclusive growth in a stable environment. FM reiterates in Para 8 of his speech. “I know that mere words are not enough. What we need is a credible road map backed by a set of implementable proposals to meet these objectives…” Good words indeed, but again empty words. Our new Budget jingle will be – “Spend it all, spend it all, spend it all the way. Oh what fun it is to spend, When you’re not answerable any way.” Yes, there are increased doses of expenditure in all areas of the economy. But it does not add up to a sustainable game plan. Then there is the regressive move to enlarge service tax burden by a whopping 20% from 10% to 12%, which will hit the poor and the middle-class the most. There is a lot of devil in the fine print as well – Alternate Minimum Tax extended to all taxpayers, then there is TDS @1% on transfer of immovable property, TCS of 1% on cash sale of gold/bullion and jewellery. Special tax courts for summary trials and prosecution makes us look like petty offenders, rather than honest law-biding citizens. To top it up is the GAAR. The whole sense that it conveys is an extreme authoritarian hegemonistic attitude, where rather than treating the tax payers as partners in progress they are made to look like criminals and cheats. Unless we act, our position would be as illustrated in the Sanskrit couplet “Ashwam Naiva, Gajam Naiva, Vyagrham Naivacha Naivacha, Ajaputram Balim Dadyat Devo Durbala Ghatakaha”. (Not the horse, nor the elephant, and never the tiger, it is the kid goat that is sacrificed to the Gods.) We will be the sacrificial lambs.
Chartered Accountant
Light Elements
When Herambha started to elaborate this issue, what is the role of a chartered accountant — a hero or a villain, or the most vulnerable character actor in the film? Is he a friend, philosopher and guide? Is he a partner in the nation-building? Is he being an auditor watchdog or a bloodhound or the HMV dog (His Master’s Voice)?
Herambha pulled the first string. “When you finally pass the Final C.A. examination you feel that you are a hero or heroine (look at the percentage of girls passing C.A.). But when you appear for the first time before an Assessing Officer — the ‘first fault-finding authority’ in the Income-tax Department, he makes you feel ‘zero’ with his bureaucratic arrogance and ignorance of basic tenets of justice. He is always on a different page. For reasons best known to him or to you, you are a villain of Income-tax Department. As time passes, you develop a thick skin to bear the brunt of comments of the income-tax authorities for the acts of omission and commission in terms of statutory compliances by your clients. You harbour a feeling of a vulnerable character actor in Hindi flick deserving no awards or cheers, neither in the theatre, nor outside the theatre. You are constantly nagged by the clients and the Department.
Next salvo by Herambha was about the role of C.A. as a friend, philosopher and guide. “Well, my dear friend, we are often referred to as a friend, philosopher and guide, particularly in the co-operative sector.” Any seminar on co-operative societies either begins or ends with a statement from the organiser or the faculty that “a chartered accountant is a friend, philosopher and guide” drawing thunderous applause from the audience, especially from C.A.s in the audience. It is a matter of serious research who coined this phrase ‘friend, philosopher and guide’. One can understand the terms friend and guide, but what about ‘the philosopher’. What philosophical need is there in the co-operative sector? God knows!
As soon as I begin to think over this, Herambha broached the next issue “Is C.A. a partner in nation-building?” We always proclaim that we are partners in nation-building. Are we really partners in nation-building? Supplementary question arises, are we sleeping or seasonal partners? Or are we minors admitted to the benefit of partnership? What are we?
While exploring this point, Herambha narrated a situation in a five-star hotel. Suppose a chartered accountant suddenly goes on long leave no one would bother or notice. But if the chief chef of the hotel were to go on long leave, it would create havoc in the kitchen. In short, Herambha concluded we chartered accountants produce nothing except compilations of facts and figures which supposedly present a true and fair view (a rare case indeed). Herambha gave very simple reasoning why we are partners in nation-building. We are so, because the Institute of C.A. of India is set up by an Act of Parliament.
Eventually Herambha came to the last issue. Is C.A., as an auditor, a watchdog or bloodhound or HMV dog? Herambha elaborated, “Look my dear friend, qualities of watchdog or bloodhound have evaporated over the years. C.A. is neither a watchdog nor a bloodhound; in most of cases he plays the role of an HMV dog. I mean, he just listens to the orders of his master.
It is said that we should not compromise our independence for any fear or favour while discharging our professional duties/responsibilities. This is all in theory. But in reality you can’t compromise your dependence for independence. On this point I could not argue with Herambha, because I started introspecting myself what role do I play as a chartered accountant?
FROM THE PRESIDENT
This has been a rather disappointing month. The Railway budget presented in Parliament raised so much controversy that one wondered whether the Finance Minister would be able to keep his scheduled date for presentation of the Budget. Perhaps, the Railway budget was to an extent a precursor of what was to follow. Although the speech of the Finance Minister on the floor of the house while presenting the budget did not inspire much confidence, after one read the fine print in the Finance Bill one felt really devastated. Much has already been said about the Budget. In fact, the editorial discusses retrospective amendments and questions their advisability. At the Society, we have already made our post-budget representation, and we hope that our voice will be heard in the corridors of power.
Talking of representations I often hear a refrain among many professionals, particularly the younger lot, that making such representations is an exercise in futility. Being an eternal optimist I do not concur with this view. I believe that as an institution of professionals it is our duty to bring to the notice of lawmakers the difficulties and problems that would arise if the provisions are enacted in the form they are proposed. The manner in which such a representation should be made, so that it attracts the requisite attention, can be discussed, but the making of representations cannot be dispensed with. It is often said that communicating with a stubborn bureaucracy is like banging your head against a wall. Many a time this is true, but there are exceptions. In a majority of cases the head is likely to suffer injury, but sometimes the ball will give me one.
Recently, all taxpayers are facing substantial hardship with their refunds being adjusted against non-existing demands. The Society has continuously been following both on formal and informal basis this issue with the authorities concerned. We were pleasantly surprised by the response of some officials in Mumbai as well as some of their counterparts in Bangalore. Although the effect of their action may not be all pervasive, even if it brings solace to some taxpayers, the representation of the Society and its efforts will have been rewarded. We hope that many more proactive officials are appointed in relevant positions, so that some of the hardships faced by taxpayers will be mitigated.
While the Budget has failed to provide any relief, the news of various scandals continues unabated. The anger and frustration of the Indian public is mounting, but it needs to be channelised, or else it will give way to despondency or indifference. Unfortunately, those who are currently spearheading the fight against corruption seem to have lost all clarity of purpose. One had hoped that after the break that they had taken, they would marshal their resources in a more efficient way and with better purpose. In a battle against corruption, the media hype can never replace a well-knit organisational structure. Some rounds of a battle against corruption may be won by sporadic action, but to win the war one will require a well thought-out strategy and substantial patience. One does not find this in the existing leadership of the movement against corruption.
Finally, one of the legends of Indian cricket Rahul Dravid called it a day. I have always admired the grace with which he carried himself both on the field and off it. There are very few cricketers for whom one can use the term gentleman, and Raul Dravid is one of them. The world has always been fascinated by the achievements of Sachin Tendulkar, but we forget that many a time the master was able to achieve what he did on account of the strength of the “wall”. I join the entire nation in saluting this fine person. In fact, politicians have quite a few things to learn from this man. He played life with a straight bat and retired with grace. If many of our politicians emulated his example their parties, and the nation would thank them.
Last July, you had entrusted me with the responsibility of leading this organisation. I have tried to shoulder the responsibility to the best of my ability. My only regret is that our members and the readers of this Journal do not express themselves about what they feel about the organisation. It is only if we at the Society hear from you that we will be able to change track if we are going wrong. I would be very happy to receive bouquets of praise, but I am also willing to face brickbats, because I am sure that they will be well intentioned and in the interests of the Society. It is only when there is total silence that we office bearers worry whether we are traversing the right path. Therefore, it is my earnest request to all of you to please communicate with me or any of the office bearers with your feedback.
We are coming to the close of what has been a turbulent financial year. All of you have worked very hard and deserve a small break. So let us look forward to a small vacation before we begin the daily grind in the new financial year. Therefore, before I sign off, let me wish all of you a very happy and prosperous new financial year!
FROM THE PRESIDENT
“If you want to make God laugh, tell him about your future plans” – Anonymus.
Indeed, man proposes, God disposes.
The way tsunami struck Japan on 11th March, 2011, and the consequent devastation in a very short span of time has proved the supremacy of nature over mankind. Thousands of people died and properties worth billions of dollars destroyed. What followed turned out to be one of the worst catastrophes in human history, perhaps next only to the manmade nuclear holocaust in the last century. But kudos to their spirit and resilience, the Japanese are facing this tragedy simply bravely – a lesson to be learnt by India and the whole world.
A tsunami like provision in the Finance Bill 2011 – 12 relates to “Point of Service Tax Rules” providing payment of service tax on accrual basis, rather than the existing system of cash basis (i.e. Payment of service tax on receipt basis), has been deferred for the time being. BCAS, in coordination with various other similar organisations, lodged a strong protest against the proposed changes, which coupled with provisions of prosecution on failure to raise invoices within 14 days of rendering services, would have created chaos amongst the professional fraternity. We appealed to the Finance Minister as well as the Prime Minister to have a relook. And we also had an opportunity to meet personally the Chairman CBEC to explain our concern in this regard.
The proposed Rules, for the time being, have been deferred till 30th June 2011 and would be introduced with effect from 1st July 2011 after certain modifications. BCAS, as also other professional bodies (including Lawyers, Architects, Tax Practitioners etc.), have requested that professionals be allowed to continue with the cash system for discharging service tax liability as hitherto. And the professionals may be allowed to rise “Tax Invoice” at the time of receipt of payments, as in vogue in UK and other western countries. I heartily thank all those who extended whole-hearted support to BCAS in this behalf and appeal to them to continue with our joint efforts until fair and rational provisions are put in place.
It is rather unfortunate that, as in the past several years, the Union Budget 2011-12 was passed by the Lok Sabha without any discussion. The opposition walked out of the House capitalising on “cash-for-vote” revelation, by the Wiki leaks. When I read through the memorandum in the Finance Bill explaining the amendments (especially those with retrospective effect), which states that the “amendment is sought to carry out the intention of the Parliament, I wondered as to whose intention it is really! For, when Finance Bills are passed by the Parliament, without any debate or even going through the rationale of a provision, how can one establish Parliament’s intention? Theoretically, it may be that the Parliament wanted a particular change made; but in effect, bureaucrats run the country, as most members of the Parliament have neither the time nor the inclination nor are they equipped to understand the legislative process and the concomitant implications. It is a sorry state of affairs, in that heavier responsibility is cast on professionals, trade and commerce to remain vigilant so as to protect the interests of the people and tax paying public. Indeed, vigilance is the price of liberty. I am reminded of the BCAS logo which says:”na bhayam chAsthi jAgrathaha”, meaning one is vigil need have no fear.
The biggest roadblock to India’s development is the “Reservation Policy”, based on caste, creed and religion. It divides the populace and makes for communal disharmony. Today, we find reservations in almost every walk of life, be it education, employment, politics and so on. Reservations, if any, should be based on economic criteria only, regardless of caste, creed and religion. Reservation in education has led to brain drain for decades. Recently Jats are demanding caste-based reservation, taking the Government to ransom. The Gurjars of Rajasthan secured reservation resorting to violent protests and disrupting normal life. It is high time that the Indian Constitution is amended to bury the cancerous “Reservation Policy” once and for all. Verily, the road to hell is paved with good intentions!
I congratulate CA G. Ramaswamy and CA Jaydeep Shah for taking over the reins of the ICAI as the President and the Vice-president respectively for the year 2011-12. I compliment CA Srinivas Joshi and CA Bhailal Patel for taking over as the Chairman and Vice-Chairman of WIRC of ICAI respectively. The ICAI President, CA G. Ramaswamy, has unveiled his detailed and ambitious plan of action encompassing diverse areas of the profession such as branding of the profession, Members in practice, industry, students, international initiatives etc. We extend our whole hearted cooperation in his endeavour not only in enhancing the image of the profession but also serving CAs across the globe.
A lecture meeting on “currency wars” addressed by CA Rashmin Sanghvi in February 2011 elicited very good response from members, in addition to generating a lot of interest in the arena of international economics and politics. Most recent wars were fought for different reasons though labelled “Justice and Peace”. Control of “oil” was one of the prime reasons for these wars. The recent attack on Libya by NATO is also viewed as such. The bigger crisis looming large in the horizon is scarcity of water. Indeed, “Water Crisis” could hit planet earth much sooner than the apprehended “oil crisis”. There is a dearth of potable water in the Middle East. Verily, water has assumed gigantic dimension. No wonder then that the World celebrated International Water Day on 22nd March 2011. The water crisis would be severer in overpopulated countries like India and I shudder to think about it, in the light of our gross neglect to tackle the emerging crisis. Well, sooner we realise, the better for all of us.
In my message for the month of February 2011, I referred to difficulties experienced by CA students in their exams and results. In order to help them prepare properly for their exams, CA. T. N. Manoharan, addressed them live through a webcast on 14th March 2011 on “How to prepare and write for CA Examinations”. The said video is now available for watch freely on the bcasonline.tv. This has already been watched by more than 3000 students/members. Along with this, we have put up the video of Anupam Kher’s motivational talk on “Power Within” delivered on 16th August 2010.
We are embarking on a new Financial Year. The past Financial Year will be remembered as the year of inflation, games and scams.
Let us pray that may the new Financial Year usher in peace and prosperity for one and all.
Mayur Nayak
Laws and Business
Meaning
(a) It is an instrument;
(b) The instrument must be executed by some person, known as the donor of the power;
(c) It must empower a person specified in the instrument, known as the donee of the power; and
(d) The donee must be empowered to act for and in the name of the donor.
The Bombay Stamp Act, 1958, defines a power-of-attorney includes any instrument empowering a specified person to act for and in the name of the person executing it and includes an instrument by which a person, not being a lawyer, is authorised to appear on behalf of any party in any proceeding before any Court, Tribunal or authority. However, it does not include a vakalatnama given to an advocate which is stamped with the court-fees.
Effect
(a) executes any instrument or does any act;
(b) under his own name, signature and seal, if seal is required;
(c) but under the ambit of the authority conferred on him by the donor of the power-of-attorney; then such instrument or act would be treated in law as if it had been execution or done in the name, signature and seal of the donor. The legal effect of the power is that the acts of the donee, when done under proper authority, are treated as if they were done by the donor. This is an important provision of the Act, which gives legal sanctity to all acts done by a donee on behalf of the donor.
Thus, the position of the donee-donor is similar to that of an agent and his principal. A power-of-attorney’s origins may be traced to the legal maxim qui facit alium facit per se, i.e., what one can do directly he can also do through an agent. But one crucial difference as compared with an agent-principal relationship is that an agent must sign in the principal’s name while the power-of-attorney holder signs his own name.
The object of the aforesaid section and of the Act is to effectuate instruments executed by an agent, but not in accordance with the rule of the Contract Act. It does not confer on a person a right to act through an agent. It presupposes that the agent has the authority to act on behalf of the principal and protects acts done by him in exercise of that authority but in the agent’s own name — Rao Bahadur Ravulu Subba Rao v. CIT, 30 ITR 163 (SC).
In the case of Suraj Lamp & Industries P. Ltd. v. State of Haryana, (2012) 1 SCC 656, the Supreme Court has held that a power-of-attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power-of-attorney is creation of an agency whereby the grantor authorises the grantee to do the acts specified therein, on behalf of the grantor, which when executed will be binding on the grantor as if done by him. It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee.
In State of Rajasthan v. Basant Nehata, (2005) 12 SCC 77, the Apex Court held that a grant of power-of-attorney is essentially governed by the Contract Act. By reason of a deed of power-of-attorney, an agent is formally appointed to act for the principal in one transaction or a series of transactions or to manage the affairs of the principal generally conferring necessary authority upon another person. A deed of power-of-attorney is executed by the principal in favour of the agent. The agent derives a right to use his name and all acts, deeds and things done by him and subject to the limitations contained in the said deed, the same shall be read as if done by the donor. A power-of-attorney is, as is well known, a document of convenience.
Execution of a power-of-attorney in terms of the provisions of the Contract Act as also the Powers of- Attorney Act is valid. The donee in exercise of his power under such power-of-attorney only acts in place of the donor subject of course to the powers granted to him by reason thereof. He cannot use the power-of-attorney for his own benefit. He acts in a fiduciary capacity. Any act of infidelity or breach of trust is a matter between the donor and the donee and does not affect an outsider.
Revocation of a power
(a) The donor expressly revokes all powers given by him;
(b) The donor dies;
(c) The donor becomes of unsound mind; or
(d) The donor becomes insolvent.
In any of the above situations, the power comes to an end. In Prahlad v. Laddevi, AIR 2007 Raj 166 it was held that a power comes to an end on the demise of the donor. Any acts done by the donee thereafter in pursuance of such a power are invalid.
However, if the donee not being aware of the above situations, does any act or makes any payment in good faith pursuant to the power-of-attorney, then he shall not be liable in respect of such payment or act. But any person interested in the money so paid shall continue to have a right against the recipient and he will have the remedy against the recipient as he would have had against the payer, if the payment had not been made by him.
According to the Indian Contract Act where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest. Thus, in cases where the power-of-attorney is coupled with interest it is irrevocable. For instance, A gives authority to B to sell A’s land, and to pay himself out of the proceeds, the debts due to him from A. This power cannot be revoked by A. In State of Rajasthan v. Basant Nehata, (2005) 12 SCC 77, the Apex Court held that except in cases where power-of-attorney is coupled with interest, it is revocable.
Evidence of power-of-attorney
The Indian Evidence Act, 1872 provides that any Court shall presume that every power-of-attorney executed before and authenticated by a Notary Public, Court, Judge, Magistrate, Indian Consul or Vice-Consul was so executed and authenticated. This is the reason why powers-of-attorney are notarised. The presumption about the authenticity is a mandatory provision. The Delhi High Court in the case of Kamala Rani v. Texamco Ltd., AIR 2007 Del. 147 has held that the onus lies on the other side to prove that the power-of-attorney is not genuine.
A power-of-attorney holder cannot depose and be cross-examined in Court on matters which only the principal is expected to have knowledge of — Janki V. Bhojwani v. IndusInd Bank Ltd., 2005 Vol. 107 Bom. LR 28 (SC).
Power-of-attorney of married woman
A married woman who is not a minor has powers, as if she were unmarried to appoint an attorney on her behalf.
Can a donee sign under Income-tax Act for donor?
If the Income-tax Act or the rules made thereunder specifically require the personal signature of the assessee, then the same cannot be delegated by way of a power-of-attorney. This is would be a circumcision of the field of operation of the Power-of-Attorney Act and such a curtailment of powers is not ultra vires — Rao Bahadur Ravulu Subba Rao v. CIT, 30 ITR 163 (SC). All that section 2 of the Act provides is that there can be a delegation of powers and the manner of doing so. However, if any other enactment requires a personal presence or signature, then the two Acts operate in separate fields. The Court laid down this principle under the 1922 Income-Tax Act in relation to signing an ap-plication for registration of a firm. The rules required the partner to personally sign the application. It may be noted that Rule 22(5) now expressly permits such an application to be signed by a power-of-attorney holder in the case of a person absent from India.
Stamp Duty
Under the Bombay Stamp Act, 1958, a power-of-attorney is liable to be stamped as follows:
(a) When executed for the sole purpose of registering documents — Rs.100. Most of the builders give a power-of-attorney in favour of their employees for registering the agreements for sale/flat ownership agreements with buyers.
(b) When authorising a person to act in a transaction — Rs.100.
(c) When given without consideration authorising specified relatives to sell or transfer immovable property — Rs.500.
(d) When any person other than cases covered by (c) above authorising to sell or transfer immovable property — the same duty as on a conveyance on the market value of the immovable property, e.g., 5% on the stamp duty ready-reckoner value. One of the ways to avoid payment of stamp duty was to give a power-of-attorney to a person authorising him to sell the property and receive consideration equal to the market value of the property for such a power. This method is very prevalent in Northern India. In 2008, the Bombay Stamp Act was amended to increase the duty on such a power from 1% to 5%. Thus, now such powers are at par with a conveyance of immovable property.
A power-of-attorney given to manage and sell an immovable property and hand over the consideration to the owner cannot be treated as a conveyance for consideration and hence, charged with stamp duty as on a conveyance — Suman Kumar Sinha v. State of Jharkhand, AIR 2009 Jharkand 53.
It is not necessary that every power-of-attorney ex-ecuted abroad must be presented before the Collector for adjudication of stamp duty. Only those powers which have been executed abroad and on which no stamp duty has been paid need to be adjudicated. If proper duty has already been paid, then nothing further needs to be done — Anitha Rajan v. Revenue Divisional Officer, AIR 2010 Kerala 153.
A power-of-attorney is to be compulsorily registered only if it creates an interest in immovable property and not otherwise — B. Maragathamani v. Member Secretary, Chennai Metropolitan Development, AIR 2010 Madras 61.
Transfer of property by power of attorney
A very popular mode of transferring immovable property in Northern India was by adopting a combination of a sale agreement, general power-of-attorney and a will. This facilitated the avoidance of a conveyance and thereby saving on stamp duty for the buyer. The modus operandi in such transactions was for the owner to receive the agreed consideration, deliver possession of the property to the purchaser and execute the following documents or variations thereof:
(a) A sale agreement by the vendor in favour of the purchaser.
(b) An irrevocable general power-of-attorney by the seller in favour of the purchaser authorising him to manage, deal with and dispose of the property without recourse to the seller.
(c) A will bequeathing the property to the purchaser (as a safeguard against the consequences of death of the seller before the transfer is effected).
The Supreme Court had in the case of Suraj Lamp & Industries Pvt. Ltd. v. State of Haryana, (2009) 7 SCC 363 referred to the “ill effects of what is known as general power-of-attorney sales”.
In its latest decision in the case of Suraj Lamp & Industries P. Ltd. v. State of Haryana, (2012) 1 SCC 656, the Court has held that there cannot be a sale of immovable property by execution of a power-of-attorney, nor can there be a transfer by execution of an agreement of sale and a power-of-attorney and will. It held that these kinds of transactions were evolved to avoid prohibitions/conditions regarding certain transfers, to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on transfers, to invest black money’ and to avoid payment of ‘unearned increases’ due to Development Authorities on transfer.
It also held that the observations of the Delhi High Court, in Asha M. Jain v. Canara Bank, 94 (2001) DLT 841, that the “concept of power-of-attorney sales have been recognised as a mode of transaction” when dealing with transactions by way of sale agreement/ general power of attorney/will are unwarranted, unjustified and unintendedly misleading the general public into thinking that such transactions are some kind of a recognised or accepted mode of transfer and that it can be a valid substitute for a sale deed. Such decisions to the extent they recognise or accept transactions by way of by way of sale agreement/ general power-of-attorney/will as concluded transfers are not good law.
The Apex Court however, carved out a niche for genuine transactions where the owner of a property grants a power-of-attorney in favour of a family member or friend to manage or sell his property, as he is not able to manage the property or execute the sale, personally. It also held that a power-of-attorney holder may however execute a deed of conveyance in exercise of the power granted under the power-of-attorney and convey title on behalf of the grantor.
It only clamped down upon transactions, where a purchaser pays the full price, but instead of getting a deed of conveyance gets a sale agreement/general power-of-attorney/will as a mode of transfer, either at the instance of the vendor or at his own instance.
Registering a property under a power
The Sub-Registrar of Assurances permits a power-of-attorney holder to register an instrument on behalf of the donor. However, the power must first itself be registered before the Sub-Registrar. For this purpose the donor and the donee must both go to the Sub-Registrar. Further, the Sub-Registrar insists that both the donor and the donee sign the power before him.
Conclusion
To sum up, a simple power-of-attorney has been the subject matter of great controversy and litigations. Chartered Accountants would be well advised to consider whether the power-of-attorney relied upon by their clients is valid or not. When in doubt, they should consider obtaining an opinion. One is reminded of the quote by W. H. Auden which ended as follows:
“……There is always another story, there is more than meets the eye.”
ICAI and its members
Ethical Standards Board of ICAI has considered some ethical issues which are published in the C.A. Journal of March, 2011 at P. 1344. Some of the these issues are as under.
(i) Issue: Can a Chartered Accountant in practice share his fees with the Government in respect of Government Audit?
Response: In respect of the Government Audit, the Institute has come across certain Circulars/Orders issued by the Registrar of various State Co-operative Societies wherein it has been mentioned that certain amount of audit fee is payable to the concerned State Government and the auditor has to deposit a percentage of his audit fee in the State Treasury by a prescribed challan within a prescribed time of the receipt of the audit fee. In view of the above, the Council considered the issue and while noting that the Government is asking auditors to deposit such percentage of their audit fee for recovering the administrative and other expenses incurred in the process, the Council decided that as such there is no bar in the Code of Ethics to accept such a assignment wherein a percentage of professional fees is deducted by the Government to meet the administrative and other expenditure.
(ii) Issue: Can a Chartered Accountant in practice use/fix a monogram of the Institute on any column/wall located inside the office or on professional documents ?
Response : In view of the directions under Clause (7) of Part I or the First Schedule to the CA Act, a Chartered Accountant in practice is not permitted to use/fix a monogram of the Institute on any column/wall located inside the office or on any professional document.
(iii) Issue: Whether a member in practice is allowed to become a whole-time director of a company?
Response: A member in practice may become a Managing Director or a whole-time Director of a body corporate within the meaning of the Companies Act, 1956, subject to guidelines of corporate practice. However, w.e.f. 1-4-2005, he is not entitled to do attest functions.
(iv) Issue: Can a Chartered Accountant working in a CA firm hold CoP?
Response: A Chartered Accountant working in a C.A. firm can hold CoP. He is not entitled to do any attest function.
2. Accounting for rescheduling of lease rentals:
Facts:
A non-listed company (Company) is a subsidiary of a listed public company. It is an NBFC registered with the RBI. The company has a network of branches over a large part of India to carry on its business. Hence, it takes on lease various properties for its branches. The company is not in the business of leasing and renting.
The company has entered into a lease agreement which has the following main features:
(i) The lease agreement is for a period of nine years.
(ii) The rent for the first three years is at market rate on the date of lease agreement and has an escalation clause applicable after every three years.
(iii) The lessee has the option to exit from the agreement by giving three months’ notice.
The company has stated that in current scenario, the real estate rates in India as well as abroad have undergone various changes due to global financial meltdown and the fall in the equity markets. The property rates have gone down substantially in the range of 30% to 40% and are expected to go down further. Consequently, the rent agreed initially has turned to be substantially high with respect to the current circumstances. The company has been successful in renegotiating the lease rentals of its premises downwards. The company has accounted for lease rentals since the inception of the lease on straightline basis with respect of original lease terms. The company has also stated that in its case, the lease term would be the entire nine-year period as the entity has already decided the same at inception.
Further, the company has also stated that in current scenario, since it has been able to successfully renegotiate the rent, it can be reasonably assumed that the rent actually paid by it reflects the benefit that accrues to the entity and accordingly, the rents actually paid should be debited as expense to the profit and loss account. Further, the company feels that the current scenario is such that the terms in the lease deed have a very high probability of being renegotiated in future. Thus, in view of the company the aforesaid agreed rentals in the agreement are likely to be renegotiated as a further fall is expected.
Query: On these facts, the company has sought the opinion of the Expert Advisory Committee (EAC), whether the principle of recognising lease rentals over the lease term on straight-line method is correct ? and whether the monthly rental should be accounted for at the value of actual lease rent paid in such a case.
EAC opinion: The basic issue raised in the query relates to accounting for lease rentals in the case of operating lease. After considering paragraph 23 of AS-19 the EAC is of the view that as per the principles of AS-19 any departure from the straight-line basis of recognisation of lease expenses under an operating lease must reflect the time pattern of the user’s benefit and therefore it should be considered from any angle of use of the leased asset in physical terms, rather than the benefit derived from the angle of market rate of lease property. Since the leased property in the instant case would be used by the lessee throughout the lease term on a consistent basis, even though the lease rentals have been reduced due to economic slow-down, the Committee is of the view that the lease rent should be recognised on a straight-line basis.
Hence, the revised lease rentals should be taken into account for determining the charge to the profit and loss account over the lease period of nine years. Accordingly, the lease rentals paid under the original lease deed and revised lease rentals payable over the remaining period of the lease as per the supplementary lease deed, should be considered for determining the amount of annual charge on account of lease rentals on straight-line basis. Any resultant adjustments on account of lease rent already recognised in past should be recognised in the current year’s profit and loss account. (Page Nos. 1364 of C.A. Journal of March, 2011)
3. New Accounting Standards: The Govt. has notified new Accounting Standards after convergence with IFRS on 25-2-2011. There are 35 Standards which are called ‘IndAS’. These will be implemented in a phased manner over the next 3 or 4 years. The date for implementation of the Phase No. 1 is not yet notified.
4. New Committees of the Council: The Council of the ICAI has formed seven standing committees and thirty-three non-standing committees on 12th February, 2011 for one year. It may be noted that these include five new committees viz. Public Interest Advisory, Members in Entrepreneurship and Public Services, IFRS Implementation, Co-operatives and NGOS and Disciplinary — Satyam Bench. Names of the Chairman and the Vice-Chairman of these committees are as under :
(i) Standing & Other Committees: Chairman and Vice-Chairman of the Executive, Examination, Finance and Disciplinary Committee (U/s.21D), are Shri G. Ramaswamy (President) and Shri Jaydeep N. Shah (Vice-President), respectively, and Chairman of Board of Discipline (u/s.21A), Disciplinary Committee (u/s.21B), and Disciplinary Committee — Satyam Bench (u/s.21B) is Shri G. Ramaswamy (President).
(ii) Non-standing Committees — Chairman
Sr. No. |
Name of the Committee |
Chairman |
|
|
|
(a) |
Accounting Standard Board |
Manoj Fardnis |
(b) |
Auditing & Assurance |
Abhijit |
|
Standard Board |
Bandyopadhyay |
(c) |
Board of Studies |
V. Murali |
|
|
|
(d) |
Continuing Professional |
Sumantra Guha |
|
Education |
|
Sr. No. |
Name of the Committee |
Chairman |
|
|
|
(e) |
Corporate Laws and |
S. Santhanakrishan |
|
Corporate Governance |
|
|
|
|
(f) |
Direct Taxes |
Sanjay K. Agarwal |
(g) |
Editorial Board |
G. Ramaswamy |
|
|
|
(h) |
Ethical Standards Board |
Subodh K. Agrawal |
|
|
|
(i) |
Expert Advisory |
Jayant P. Gokhale |
|
|
|
(j) |
IFRS Implementation |
Amarjit Chopra |
|
|
|
(k) |
Indirect Taxes |
Bhavna G. Doshi |
|
|
|
(l) |
Internal Audit |
Rajkumar S. Adukia |
|
Standards Board |
|
|
|
|
(m) |
International Taxation |
Mahesh P. Sarda |
|
|
|
(n) |
Members in Industries |
K. Raghu |
(o) |
Peer Review Board |
Pankaj I. Jain |
(p) |
Professional Development |
Amarjit Chopra |
|
|
|
(q) |
Research |
Nilesh S. Vikamsey |
|
|
|
(Refer Page Nos. 1428 to 1433 of C.A. Journal of March, 2011)
5. ICAI News:
(Note : Page Nos. given below are from C.A. Journal for March, 2011)
i) Amendment of Schedule VI to Companies Act:
The Government has modified the existing Schedule VI giving Form of Balance Sheet and Profit and Loss A/c. by a notification. The new format applies to all audited financial statements for the year 2010-11 and onwards. Therefore, the financial statements for 2010-11 and onwards will have to be prepared and published in the new form of Schedule VI.
ii) New buildings of ICAI:
Foundation stones for new ICAI Bhavans at Ahmedabad, Patna and Saharanpur Branches have been laid by our President. (Page 1316)
iii) Action Plan for 2011:
Our new President has announced his Action Plan during the term of his office in 2011-12. This includes actions to be taken about new initiatives for Branding ICAI, Members in Practice and Industry, Students and International Relations. (Pages 1320-1322)
iv) 61st Annual Function of ICAI:
61st Annual Function of ICAI was held at New Delhi on 11-2-2011. Details of the Function are at Pages 1334-1343.
v) Insurance against Professional Indemnity:
ICAI has arranged insurance protection for our members in practice and for C.A. Firms providing Professional Indemnity. ICAI has signed MOU with New India Assurance Co. Ltd. under which the insurance company will provide insurance scheme to our members at a heavily discounted premium. Under this scheme the insurance company will provide professional indemnity to our members and their firms. (Pages 1316 and 1436)
vi) Guidance Note on Audit of Property, Plant and Equipment:
The above guidance note has been issued by the Auditing and Assurance Standards Board of ICAI. This guidance note should be read with the ‘Preface to the Standards on Quality Control, Auditing, Review, Other Assurance and Related Services’ issued by ICAI. Full text of the Guidance Note is published on Pages 1442-1448.
vii) Scholarship for C.A. Students:
Board of Studies of ICAI is granting monthly scholarship to deserving students on following basis.
|
Sr. |
Scholarship name |
No. of |
Amount |
Eligibility criteria |
|
No. |
|
scholarships |
(p.m.) (Rs.) |
|
|
|
|
|
|
|
|
1. |
Merit |
30 |
1250 |
Granted to students whose names appear at |
|
|
|
|
|
of Merit lists of CPT/IPCC/PCC of Nov./Dec. |
|
|
|
|
|
|
|
2. |
Merit-cum-need |
30 |
1250 |
Available to rank-holders of CPT/IPCC |
|
|
|
|
|
Exam, provided their parent/guardians total |
|
|
|
|
|
come does not exceed Rs.1,50,0000 |
|
|
|
|
|
|
|
3. |
Need Based and |
50 |
1000 |
Available to students of PCC/IPCC/Final, |
|
|
|
|
|
parent/Weaker Sections guardians’ total |
|
|
|
|
|
does not exceed Rs.1,00,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Campus Placement for Articled Assistants:
Board of Studies of ICAI has introduced campus placement scheme for selection of Articled Assistants by C.A. Firms. This is in addition to the Online Placement Service already available at http://bosapp. icai.org The campus placement will be held between 15th and 30th April, 2011 in cities viz. Ahmedabad, Mumbai, Nagpur, Pune, Bangalore, Chennai, Ernakulam, Hyderabad, Kolkata, Indore, Jaipur, Kanpur, Ghaziabad, Chandigarh and New Delhi.
(Refer C.A. Students Journal for March, 2011, Page 33)
From The President
Apart from the doomsday predictions on the economic front, a mammoth fraud was revealed in the form of Satyam. Much has been written on the subject and I do not intend to add to the same in this communication. Three months have passed and we have very little authentic information as to the extent of the fraud, the manner in which it was committed and at whose door the blame lies.
There have been various reactions to this mega fraud from the industry, the regulators, the profession and the government. Some of the reactions are knee-jerk ones. There is a proposal which has been reported in the press that an entity which is being audited will have to restate/rectify accounts to give effect to the qualifications by the auditor. In my understanding, the roles of the auditor and auditee are today well defined. The respon-sibility of preparing financial statements is of the auditee, and the job of the auditor is to express an opinion on those financial statements. A change in this position will have far-reaching consequences. I appreciate that the opinion of the auditor needs to be respected, and should be disclosed / reported in a manner that it can be easily understood by users of financial statements. For that purpose various ways of reporting and other modalities should be thought of When an auditor blows the whistle, it must be in a manner that users of the financial statements hear it loud and clear. If they pay no heed, it will be their responsibility. Any change in the classical role of the auditor is perhaps uncalled for. The auditor after all expresses an opinion on the accounts. We as auditors must humbly accept that there could be a bona fide difference of opinion and in all humility appreciate that the auditor’s opinion may not be necessarily right. I am sure the Institute will consider all these aspects and deal with the proposal appropriately.
While the news on the economic front is depressing, I do not endorse efforts to change policies, so that unpleasant consequences of economic downturn do not reflect in the financial statements of corporates. While one understands the reluctance on the part of business houses to disclose weak financial position at times the adverse results are on account of ‘errors’ of judgement, to put it mildly. Many corporates had taken positions in currency derivatives. Theses have resulted in their incurring losses. There may also have been other losses due to fluctuations in currency rates. If there has been a financial impact it must be reflected in thefinancial statements. It would not be appropriate to sweep it under the carpet. At a time when we are advocating greater transparency, there seems to be no reason to disturb existing accounting norms which have been formulated after great thought. Admittedly, the losses are due to exceptional circumstances; but if events leading to losses have occurred in the year under review, their impact needs to be accounted for in the same year. It would not be prudent to wish away the reality in the hope that next year the problem will disappear. Consistency is a well-established principle in the accounting world, and we should not sidestep it for short term. It is only because financial statements are prepared on a consistent basis, that they become comparable and this aspect should be borne in mind when accounting standards are amended.
As far as banks are concerned, many of their assets have eroded in value due to the difficult economic situation. Many borrowers are unable to adhere to repayment schedules. Banks have rightly supported the borrowers by rescheduling the loans. However, if assets have really becomesub-standard or bad, the corresponding loss must be provided for. Merely liberalising the provisioning requirements will only postpone the problem and possibly aggravate it. Instead, it may be advisable to revise capital adequacy norms.
By the time I write my next communication, the general elections will be in progress. There is substantial disenchantment with the political class. All are yearning for change and many citizens’ groups are taking various initiatives, some of which I have referred to in earlier communications. It however takes substantial time for a change to occur. To expedite the change, the educated and the elite will have to shoulder far greater responsibility. The least they can do in this election is vote. I, therefore, appeal to all readers, their friends and families to exercise their right offranchise, for I am sure that if they do exercise it, they will make the right choice.
So do enjoy your vacation, but only after you have voted !
With warm regards,
ICAI and its members
Audited accounts of ICAI for the year ended 31-3-2011 have been recently released at the 62nd Annual Meeting held on 11-2-2012. The summarised position is as under.
2. Our New President and Vice-President
Shri Jaydeep Shah from Nagpur has been elected as President and Shri Subodh Kumar Agrawal from Kolkata has been elected as Vice-President of ICAI on 12th February. Our greetings and best wishes to both of them. We wish them a successful term of office in 2012-13.
3. New Committees of the Council
The Council of ICAI has formed seven standing committees and 31 other committees on 12-2-2012 for one year. Details of these committees are given on pages 1415 to 1421 of C.A. Journal for March, 2012.
Chairman and Vice-Chairman of the Executive, Examination, Finance and Disciplinary
Committee (u/s.21D) are Jaydeep Shah (President) and Subodh Kumar Agrawal (Vice-President), respectively. Chairman of Board of Discipline (u/s.21A), Disciplinary Committee (u/s.21B) and Disciplinary Committee — Satyam Bench (u/s.21B) is Jaydeep Shah (President).
(ii) Other Committees
Names of chairmen of some of the other committees are as under:
The following new officer bearers of WIRC are elected for 2012-13:
5. EAC Opinion
Accounting for Sales Returns
Facts
A company has been in the business of manufacture of readymade garments for the last 5 to 6 years. It sells its products to franchisees located across the country. The company has stated that the sale is said to be completed at the time when risks and rewards of ownership of goods are transferred to the franchisees. Readymade garment industry is subject to change in trends of fashion and as such, some of the goods are returned and the company accepts them back as sales returns. According to the company, sales returns are said to be completed when the goods have been physically received back in the factory premises and all the risks and rewards of ownership have been transferred to the company. Hence, the company records the sales returns in its books of account on their physical receipt. On the basis of the past trend, sales returns work out to be approximately 20 to 22% of the sales for the year.
The company has further stated that the company has accounted for the sales return received during the financial year up to the balance sheet date but has not reversed the sales returns likely to be received after the balance sheet date, on the basis of past trend. During the course of audit for the financial year 2010-11, the auditors have raised an objection regarding booking of revenue from sales. The auditors are of the opinion that since there is a past trend indicating the return of goods sold to franchisees, the company should effect the reversal of sales on March 31, 2011 to the extent that the goods sold in the year 2010-11 are likely to be returned by the franchisees in the year 2011-12 and subsequent years.
Issue for consideration
On the basis of the above, the company seeks the opinion of the Expert Advisory Committee (EAC) on the question as to whether the present policy of the company regarding recognition of sales returns after the date of the balance sheet in the books of account only upon the physical receipt of goods from the franchisees is correct or should record the sales returns received after the date of the balance sheet on estimated basis taking into account the past trend?
Opinion
After considering para 11 of the Accounting Standard (AS) 9, ‘Revenue Recognition’ and paragraph 10 of Accounting Standard (AS) 29, ‘Provisions, Contingent Liabilities and Contingent Assets’, the Committee is of the view that since obligation in respect of sales return can be estimated reliably on the basis of past experience and other relevant factors, such as fashion trends, etc., in the company’s case, a provision in respect of sales returns should be recognised. The provision should be measured as the best estimate of the loss expected to be incurred by the company in respect of such returns including any estimated incremental cost that would be necessary to resell the goods expected to be returned. The Commit-tee is also of the view that as per paragraph 52 of AS-29, provisions should be reviewed at each balance sheet date and, if necessary, should be adjusted to reflect the current best estimate. As far as actual sales returns that occur between the balance sheet date and the date of approval of financial statements are concerned, the Committee is of the view that necessary adjustments should be made in this regard to the amount of the provision.
(Refer pages 1355 to 1357 of C.A. Journal for March 2012)
6. Guidance Note on Accounting for Real Estate Transactions
The earlier Guidance Note on this subject issued by ICAI in 2006 has now been revised in 2012. The revised Guidance Note is published on pages 1436 to 1440 at C.A. Journal for March, 2012. AS -7 relating to ‘construction contracts’ applies to accounting by construction contractors. The revised guidance note deals with Accounting by ‘Real Estate Developers’, ‘Builders’ and ‘Property Developers’. It applies to all projects in real estate which commence on or after 1-4-2012 and also to projects which have commenced but revenue is being recognised for the first time on or after 1-4-2012.
7. Guidance Note on Accounting for Rate Regulated Activities
This is a new Guidance Note. The objective of this Guidance note is to recommend the recognition of a regulatory asset or regulatory liability if the regulator permits the entity to recover specific previously incurred costs or requires it to refund previously collected amounts and to earn a specified return on its regulated activities by adjusting the prices it charges to its customers.
The effective date for this Guidance Note will be announced later on. This Guidance Note is published on page 1442 to page 1447 of C.A. Jounral for March, 2012.
8. Guidance Note on Accounting for self– generated certified Emission Regulations
The objective of this Guidance Note is to provide guidance for accounting by entities generating carbon credits in India. It comes into force for accounting periods beginning on or after 1-4-2012. Text of the Guidance Note is on pages 1448 to 1453 of C.A. Journal for March, 2012.
9. ICAI News
(Note: Page Nos. given below are from C.A. Journal for March, 2012)
(i) Action Plan for 2012-13
Our new President has presented his action plan for his term of office. Details are given on pages 1310 to 1314. We hope the Council members and other concerned members will give him full co-operation to achieve his goals.
(ii) 62nd Annual Function of ICAI
62nd Annual Function of ICAI was held at New Delhi on 11-2-2012. Minister of Corporate Affiars Dr. M. Verrappa Moily inaugurated the function. Y. H. Malagam and T. N. Manoharan, Padmashree Awardees, were felicitated at the function. Details of the function are at pages 1322 to 1330.
(iii) Chartered Accountants (Amendment) Act, 2011
As reported in February issue of BCAS Journal, the above amendment Act was passed by the Parliament in December, 2011. It is now reported that this amendment Act has come into force with effect from 1-2-2012. (Refer page 1351)
(iv)CARO 2003 Report
It may be noted that under para 4(ix)(a) of CARO, 2003 Report, the statutory auditors are required to report on the matter relating to regularity of the company in depositing undisputed statutory cess. The statement on CARO, 2003, issued by ICAI has now been amended and it is clarified that till the Rules are prescribed u/s.441A of the Companies Act, the statutory auditors need not make any comment about depositing undisputed statutory cess. (Refer page 1422)
(v) Exposure draft
Exposure draft of Standard on Internal Audit (SIA), dealing with ‘Related Parties’ is published on pages 1454-1456. Last date for sending commends by members is 30-4-2012.
(vi) New ICAI publications
(a) Implementation Guide to Standard on Auditing (SA) 530 ‘Audit Sampling’.
(b) Implementation Guide to Materiality in Planning and Performing an Audit.
(c) Guide on Environmental Audit.
(d) Technical Guide on Stock and Receivable Audit.
(e) Educational Material on Indian Accounting Standard (Ind AS)1, ‘Presentation of Financial Statements’.
(f) Educational Material on Indian Accounting Standard (Ind AS)2, ‘Inventories’.
(g) Compendium of Opinions (Volume XXIX).
(h) Aspects of International Taxation — A study (Revised in 2012).
Part A : ORDERS OF the COURTS
Their contention before the High Court was that they are neither covered under items (a) to (d) u/s.2(h), nor under the ‘include’ part of that clause (h) as they are not owned, controlled or substantially financed directly or indirectly by funds provided by the appropriate government. Hence they are not ‘public authority’!
It was their contention that in order to get covered under that ‘includes’ part of the clause (h) the society has to be one which is owned or controlled by the government and in any case that ‘control’ exercised by the government should be ‘deep and pervasive’ control inasmuch as the management committee of the school should be controlled by and large by government nominees or by government authorities.
The Court held that these institutions are not ‘public authorities’ as they are not owned or controlled or financed by the government. None of these petitioners owes its existence to a notification or order of the Government, therefore, so far as this part, as to whether the petitioners are ‘public authorities’ is concerned, the same stands settled and it is held that institutions, such as the petitioners are not ‘public authorities’ under the Right to Information Act.
The Court considered another aspect of these writ petitions, that is though the petitioners may not be a ‘public authority’ as defined u/s.2(h) of the Act, whether the education department of the government or any other government department, being a public authority, through its Information Officer or the Appellate Authority under the Act can compel the petitioners to furnish information, which is being sought from these public authorities. For example in case the Public Information Officer in the Department of Secondary Education of Government of Uttarakhand is requested for information which pertains to any of the petitioner schools, the question would be, whether the Public Information Officer of such a public authority can compel the petitioner to furnish this information to that public authority. The answer to this is also to be found in the Act itself. The petitioners here would fall under the category of the ‘third party.’
Section 11 of the Act deals with the subject of ‘Third party information’. The Court took the view that section 11 would apply where petitioners have already given certain information to a public authority, let us say the Department of Education or any other State department. In case the petitioners attach any confidentiality to such information, they must inform the public authority of their intentions. The public authority thereafter, whenever it wants to disclose such an information to any citizen, it must give a prior notice u/s.11(1) of the Act to the ‘third party’, which is the petitioners in the present case and u/s.11(1) of the Act, when this notice has been given, the petitioners shall have an opportunity to represent before the public authority. In case, the public authority still decides to go ahead and furnish such information u/s.11(3) of the Act, this decision must be communicated to the third party who then has a right to file an appeal against this decision u/s.19 of the Act read with section 11(4) and then a right to file a second appeal. Apart from this, the ‘third party’ also has a remedy to directly approach the State Information Commission u/s.18(1)(f) of the Act.
The Court also considered one more aspect, i.e., section 8(1)(j) which relates to personal information. The Court considered 2 situations: One when the information is already held by the public authority such as department of education. In such a case the Court held that provisions of section 11 must be complied with before the information held is provided to the citizen-applicant. Two, the information is not held by the public authority, e.g., department of education. In such case the Court asked: Can the Public Information Officer compel the petitioners to furnish certain information from the records of the petitioners’ office even though such information has not been furnished under any provisions of law by the petitioners before this public authority?
The answer to it, the Court stated would be in negative as it would be an invasion on the privacy of these institutes not being a public authority. Moreover, in case such ‘information’ is not already there with such public authority, it cannot be information ‘which is held’ by the public authority and therefore, it would not be covered under the definition of ‘right to information’ given u/s.2(j) of the Act.
Note: In the last part of this decision it is held that the information which is not on the records of the public authority is not ‘held’ and is hence not covered u/s.2(j) defining ‘right to information’. This part is in contrast to the decision of CIC reported in March 2011, BCAJ. I note that under the definition of ‘right to information’ u/s.2(j) what is covered is not only ‘held’ by but also ‘under the control of’ any public authority. I would imagine that Department of Secondary Education, Government of Uttarakhand has ‘a control’ over all the schools to get whatever information it needs. On that assumption, one needs to consider whether this part of the decision is correct or not.
[Asian Education Charitable Society & Ors. v. State of Uttarakhand & Ors., decided on 9-2-2010 {2010 (2) ID 552}]
Section 8(1)(g): Section 8(1)(g) reads as under: Section 8(1), Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen:
(g) Information, the disclosure of which would endanger the life or physical safety of any person or identify the source of information or assistance given in confidence for law enforcement or security purposes;
The Jharkhand Public Service Commission, Ranchi (JPSC) filed a writ petition in the High Court of Jharkhand challenging the orders passed by the State Information Commission whereby it gave direction to JPSC to furnish the various information sought by the applicant.
The applicant had sought information regarding the names of the members of the interview board who selected candidates for the post of lecturers, etc.
The Commission directed JPSC to furnish the various information i.e., the names of the members of interview board, etc. to the applicant.
High Court of Jharkhand ruled as under:
“As regards the information regarding the names and identities of the members of the Interview Board, the same cannot possibly be furnished in view of the fact that confidentiality regarding the names and identities of the members of the Interview Board needs to be preserved.
Considering the facts and circumstances of the case and also in the light of the discussions made above, claim of the petitioner that the information sought for in respect of the names of the members of the Interview Board cannot be furnished since it would violate confidentiality, appears to be a reasonable objection.
[Jharkhand Public Service Commission v. State of Jharkhand and Others, decided on 19-5-2010. {RTI R1 (2011) 227}]
PART A : Decision of the H.C.
In the BCAS of July 2011, the Government’s Notification dated 09.06.2011 was reported under which the Central Board of Investigation (CBI) was exempted from the purview of the RTI Act (the Act) by including the CBI in the Second Schedule to the Act.
Above notification was challenged by a PIL before the High Court of Madras on the ground that it is ultra vires Article 14 of the Constitution of India.
According to the petitioner, in the light of the various scams, the country has become rudderless in the war on corruption and at this juncture, the Government instead of becoming more transparent has become reactionary by resorting to Section 24 of the Act by granting blanket exemption to the CBI. The petitioner further contended that respondents had over looked the first proviso to Section 24(1) of the Act under which information pertaining to allegations of corruption and human rights violation cannot be exempted under Section 24 of the Act. Further, Section 24 exempts only intelligence and security agencies and CBI which is an investigating agency cannot be granted a blanket exemption. It was also contended that the plea that investigative data requires confidentiality has been adequately taken care of in Section 8(1) (g) and (h) of the Act. It wass further submitted that Section 24(3) of the Act mandates that every notification issued under Section 24(2) shall be laid before each house of Parliament, and failure to do so renders the exemption null and void. It was the case of the petitioner that the exemption is bound to create chaos as several writ petitions will be filed challenging the orders passed by the Central Information Commission in their decisions against the CBI, since the CIC has no power to set aside the notification.
In reply, Union of India filed the counter affidavit inter alia contending that the exemption to the CBI under Section 24 is not a blanket exemption inasmuch as it is subject to the provisos to Section 24 of the Act. The exemption was granted after the Government received representation from the CBI stating that difficulty was being faced by it in its working and the legal opinion was received that opined that the CBI qualifies as a security and intelligence organisation under Section 24 of the Act.
The judgment of the High Court dismissing the writ petition runs into 21 printed pages and is very interesting. However, I herewith reproduce only the concluding part of it.
“We find no justifiable reasons to depart from such findings which appear to have been arrived at after considering all material placed before the Government, taken note of by the Committee of Secretaries and other authorities prior to issuance of the impugned Notification. Admittedly, there is no allegation with regard to the decision making process or that there was any arbitrariness in the procedure adopted so as to offend Article 14 of the Constitution. It is submitted by the learned Additional Solicitor General appearing for the first respondent that Notification has been placed before both Houses of Parliament and would be taken up for consideration in the ensuing Session.
In view of the above, we hold that the impugned Notification is neither ultra vires section 24 of the RTI Act nor violative of the provisions of the Constitution of India.
In the result the Writ Petition fails and same is dismissed. No costs, Consequently, connected Miscellaneous Petition is closed.”
[S. Vijaya lakshmi vs. Union of India & another w.p. 14788 of 2011 & M.A.1 of 2011 dated 09.09.2011.- Reported in RTI R1 (2012) 106-126]
From the President
As per a recent report published in The Wall Street Journal, India has the third largest number of billionaires in the world, with a combined fortune of $ 266 billion, up from fifth rank just a year ago. This news underscores the growing abundance of wealth post the economic liberalisation in India.
While many Indians have prospered enormously postliberalisation, the benefits of the growth have been grossly uneven, and a large part of India continues to cope up with dire poverty. Given its fiscal and budgetary limitations, the Government of India is unable to fund the needs of the masses, and its spending on various programmes achieve less than desired impact on development outcomes for the poor. The introduction of Corporate Social Responsibility is the Government’s endorsement of the need to rely on the critical role played by private philanthropy.
Given the enormous need, it is encouraging to find philanthropy gaining new momentum. The postliberalisation wealth-creators such as Azim Premji, Narayan Murthy and Shiv Nadar have committed substantial amounts, running into several billion dollars towards charity on the lines of Giving Pledge by Warren Buffet and Bill Gates. Their contributions have spurred on an eco-system of new-age charitable organisations maximising impact through strategic collaboration with the donors.
At the same time, there are thousands of small charitable institutions carrying out phenomenal work. As per the recently published India Philanthropy Report 2015 by Bain & Company, the country has added more than 10 crore donors since 2009 and had about 25 crore donors in 2013. India also improved its rank to 69 in 2014 from 134 in 2010 in the World Giving Index (WGI) published by the Charities Aid Foundation.
A question that arises is whether the tax and other policies of the Government are conducive to critically required private philanthropy. It appears that the attitude of the authority is that of distrust influenced by few bad examples. The difficulties are compounded by indifferent, and often corrupt, administration.
The CAG in its Report No. 20 of 2013 states, “Trusts are earning huge profit consistently, after spending meagre expenditure as compared to their total income, and accumulate it as surplus. These surpluses are used for creating fixed assets for earning more profit or are transferred to other trusts rather than for charitable purposes to avoid tax.”
Almost every year, the provisions pertaining to the charitable entities in the Income-tax Act have been amended, which bears testimony to the general mistrust the bureaucracy has towards this sector.
The Tax Administration Reforms Commission (TAR C) in its report submitted last year has commented, “The perceived misuse of voluntary organisations for tax evasion has led the finance ministry to curtail huge tax incentives.”
Unfortunately, this approach of reactionary amendments without a radical overhaul of the system, causes an adverse impact mainly on good charitable organisations. These changes do not take into account massive administrative burden which small charitable institutions are simply not equipped to cope up. At the same time, the bad ones continue to manage/manipulate the system often with the help from pliable administration.
It appears that the magnitude of perceived misuse of voluntary organisations is miniscule in comparison to their contribution to the Nation. Part of the Union Budget 2015 documents, the Statement of Revenue Impact of Tax Incentives under the Central Tax System (Annexure 12) reveals very interesting statistics about charitable entities:
total number of electronically filed returns of charitable entities till 30th November 2014, during FY 2014-15 is 99,076, as compared to 1,06,443 in the previous year
total amount applied by such entities for charitable and religious purposes in India aggregated to Rs. 2,25,472 crore during FY 2013-14, as compared to Rs. 2,00,274 crore in the previous year
total revenue impact arising from deductions u/s. 80G, 80GGA and 35AC is Rs. 1,112.60 crore for the financial year 2013-14, as compared to Rs. 862.60 crore in the previous year.
The total amount applied towards the charitable purpose during FY 2013-14 of Rs. 2,25,472 crore, amounting to approx. 2% of the GDP, nearly matches the Government’s receipts from income-tax revenue. It far exceeds the Government’s revenue expenditure on social services such as education and health at Rs. 25,572 crore. In comparison, the tax concessions to the Charitable Entities result in miniscule revenue loss in comparison.
There is no denying that, the laws and administration applicable to this sector are in need of a complete overhaul. The Financial Action Task Force, an independent intergovernmental body, has flagged risk of criminal and terrorist abuse in non-profit organisations. The Nagpur Bench of the Bombay High Court, while dealing with a PIL case involving a Charitable Trust set up by a newspaper accused of siphoning funds collected for relief for victims of the Kargil conflict, has observed that a legislation is necessary to regulate the contributions collected and monitor their utilisation.
The Second Administrative Reforms Commission mooted a suggestion to have a uniform law for charities and trusts which the Law Ministry is reportedly working on. The TAR C too, has recommended a national database of the non-profit sector to be made available to the public indicating their activities.
The above suggestion can bring about radical changes in the regulation of charitable organisations. The online availability of the financial reports and registration related details of the charitable institutions, on the lines of the MCA portal, will help the following:
Donors will be able to check the status of their 80G registration along with their PAN , the registration under the Foreign Contribution (Regulation) Act, etc.
Greater transparency of their financials will put pressure on the non-functioning charitable organisations and provide an opportunity to take action against such institutions.
The implementation of the Corporate Social Responsibility (CSR) regulations under the Companies Act, 2013 is expected to give further momentum to the philanthropic activities. Let us hope it will also accelerate the process of online national database and bring about greater accountability and transparency about the charitable organisations.
Philanthropy is not a new concept in India. It has been an integral part of our culture and tradition for ages, with a diverse range of community-specific traditions such as Daan, Sewa, Tithes and Zakat. The Government needs to acknowledge the due credit and ensure it acts as a facilitator in channelising collective efforts of the charitable organisations.
The BCAS along with the BCAS Foundation too have been engaged in various philanthropic activities which include relief in times of calamities and campaigning for the right to information which is critical to good governance. I take this opportunity to thank our stalwart leaders who have encouraged, pushed and lead the BCAS to channelise our collective energy towards making positive changes this World.
With warm regards,
Nitin Shingala
From Published Accounts
Compilers’ Note
SEBI had issued a circular No CFD/DIL/7/2012 dated 13th August 2012, whereby in its continuous endeavor to enhance quality of financial reporting had put in place a system to monitor audit qualifications contained in the audit report accompanying the audited financial statements submitted by listed companies. Given below is an instance where pursuant to the above circular and the due procedure followed by SEBI, the company has restated its published results to give effect to the audit qualifications.
Shreyas Shipping & Logistics Ltd
Proforma restated results as filed with stock exchange for the year ended 31st March 2014 (similar restated results were also filed for the year ended 31st March 2013)
Notes:
1) T his represents the restated results of the Company in terms of Securities and Exchange Board of India (SEBI) letter CFD/DIL/HB/OW/35709/2014 dated 12th December, 2014 whereby SEBI has directed the financial results for the year ended 31st March, 2013 to be restated giving effect to the impact of audit qualifications in terms of SEBI Circular No.CIR/CFD/ DIL/7/2012 dated 13th August, 2012 read with SEBI Circular CIR/CFD/DIL/9/2013 dated 5th June, 2013.
2) T he restatement for the year ended 31st March, 2013 and consequent restatement for the year ended 31st March, 2014 have been reviewed by the Audit Committee & approved by the Board in the meeting held on 11th February, 2015.
3) The restatement gives effect to the two qualifications in the audit report for the year ended 31st March, 2014:
a) T he Company has a policy of amortising Dry dock Expenses over 30 months. Accordingly Rs. 256.32 lakh out of unamortised amount at the beginning of the quarter have been charged to statement of profit and loss and balance amount of Rs. 469.09 lakh have been deferred to be amortised over the balance period. The Auditors have qualified their Review Report stating that this treatment is not in accordance with Accounting Standard and dry dock expenses are overstated to the extent of Rs. 256.32 lakh for the quarter and overstated by Rs.128.67 lakh for the previous quarter. Cumulatively the profit is overstated by Rs. 469.09 lakh as on 31st March, 2014 (to the extent carried forward), and the entire expenses should have been charged off to statement of Profit and Loss in the respective quarter itself.
b) T he Company has exercised the option provided by the Government notification dated 29th December, 2011, in furtherance to the earlier Government Notification dated 31st March, 2009, under Accounting Standard 11 to capitalise/adjust the foreign exchange differences arising on reporting of long term foreign currency monetary items in so far as they relate to acquisition of depreciable capital assets. Ministry of Corporate Affairs has clarified that borrowing costs as defined in Para 4(e) of Accounting Standard 16 (borrowing costs) need not be excluded for such capitalisation under Accounting Standard 11 notification w.e.f. 1st April, 2011. This has vindicated the Company’s stand on the issue but only from 1st April, 2011. If the capitalisation had been done after adjusting the borrowing cost, depreciation for the quarter would have been less to the extent of Rs. 2.94 lakh, Rs. 3.01 lakh for previous quarter, Rs.11.94 lakh for the year ended 31st March, 2014, Rs. 11.94 lakh for the year ended 31st March, 2013 & cumulative depreciation overstated by Rs. 59.88 lakh, Rs. 212.28 lakh would have been charged to statement of profit and loss as a prior year expenses & the Fixed assets and Reserves would have been less by Rs. 152.30 lakh. The Auditors had qualified this due to non-adoption of FA Q issued by ICAI (till 31st March, 2011).
c) Cumulative Impact of the above two qualifications is given effect to as follows:
4) The above restatement:
a) has not been given effect to the books of accounts and as per SEBI Circular CIR/CFD/DIL/9/2013 dated 5th June, 2013 will be given effect to in the books of accounts for year ended 31st March, 2015 as a ‘prior period item’ in accordance with Accounting Standard-6 ‘Net profit or loss for the period, prior period items & change in the accounting policies’.
b) is without giving effect to other Accounting Standards such as AS-4 – ‘Contingencies & events occurring after the balance sheet date’.
c) does not require any provision for income tax as the Company is covered by Tonnage Tax.
Direct Taxes
Ex-post facto extension of due date for filing TDS/TCS statements for FYs 2012-13 and 2013-14 for Government deductors -Circular No. 07/2014 dated 4th March, 2014
CBDT has extended the due date of filing of the TDS/TCS statement as prescribed under Section 200(3) /proviso to Section 206C(3) of the Act read with Rule 31A/31AA of the Income-tax Rules, 1962 to 31.03.2014 for a Government deductor and mapped to a valid AIN for –
(i) FY 2012-13 – 2nd to 4th Quarter
(ii) FY 2013-14 – 1st to 3rd Quarter
CBDT extends the due date of payment of final installment of advance tax to 18th March 2014 –F.No.385/8/2013-IT(B) dated 14 th March 2014
ICAI and its members
The Disciplinary Committee (DC) of ICAI has decided that some cases have been awarded punishment for professional or other misconduct. These cases are reported in the publication of ICAI “Disciplinary Cases” Vol-I. The Page Nos. given below are from this Book. The names of members are not given in order to maintain confidentiality.
(i) Case of Mr. O. P. P.
In this case the member had obtained a Tax Audit assignment of 13 Societies of Sahakari Banks in a particular District in the name of M/s RRCO, a C. A. Firm in which he was a partner. This was without informing the other partners of the firm. He prepared the letter heads of the Firm on his computer and prepared the seal of his firm. He submitted the Tax Audit Reports, using the above letter heads and seal etc. and affixed the signature of his partner on Audit Reports and related documents.
The above bogus Audit Reports and related documents were submitted to the Bank and the Income-tax Department. He collected the fees from the Bank and issued receipts. The amount was also collected by him personally without informing the Firm and other partners.
At the time of hearing before the D.C. the member did not appear. He also did not submit a written statement. The D.C., after considering the records held him guilty of professional misconduct under Clause (2) of Part IV of First Schedule to C. A. Act. On consideration of the facts of the case D.C. awarded punishment by way of Removal of the Name of the Member for a period of 3 months (P. 89-95 Vol. I Part I).
(ii) Case of Mr. J. L. K.
In this case the ROC informed ICAI that the Inspection u/s. 209A of the Companies Act was carried out in the case of R. L. Ltd. During the course of this inspection it was noticed that the member (Statutory Auditor) had failed to point out the following violations of the Companies Act:
(a) He did not report about Impairment of Investments;
(b) He did not report about non-provision of loss on Investment.
At the time of hearing before the D.C. the member stated that he had made an application u/s. 621A of the Companies Act for compounding the offence before the R.O.C. He also made submissions and tried to explain that AS-26 was not applicable in this case. However, on further questioning by the D.C., the member admitted his guilt and requested that D.C. may take a lenient view in the matter.
On consideration of the information received from the R.O.C. and submissions made by the Member, the D.C. held that the Member was guilty of professional misconduct under Clause (7) and (9) of Part 1 of the Second Schedule to the C. A. Act. With regards to the facts of the case the D.C. awarded punishment by way of “Reprimand” to the Member. (P. 96-103. Vol. I Part I).
(iii) Case of Mr. R. K. K.
In this case the Member was a full-time employment of CB Ltd. Simultaneously, he was also holding a Certificate of Practice (COP) and was carrying on the C. A. profession in the name of R. K. & Co. The Complainant alleged that during the course of his C. A. practice, he was also carrying on the Attest Function. This was not permitted under the C. A. Act and Regulations.
Before the D.C., the Complainant did not attend. The Member attended and submitted that it was his mistake which happened inadvertently. As soon as he came to know that he cannot do the attestation work under Regulation 190A he stopped doing attestation work.
The D.C. noted that the Member had taken permission of the Institute to hold COP while in fulltime employment. Therefore, it was his mistake to have done attestation work. However, the D.C. accepted the explanation of the Member that the said attestation work was undertaken due to the ignorance of the amendment in Regulation 190A and no mala fide intention on his part was proved. In view of this, the D.C. gave the benefit of doubt to the Member and held him Not Guilty of Professional Misconduct. (P. 33 – 36 Vol. I Part II).
2. Some Ethical Issues:
The Ethical Standards Board of ICAI has given answers to some Ethical Issues on Pages 1325-1326 of C. A. Journal for March, 2014. Some of these issues are as under:
(i) Issue No: 1
Whether a statutory auditor is eligible for appointment u/s. 217(6) of the Companies Act with the duty of seeing that the provisions of s/s. (1) to (3) of section 217 are complied with, particularly with regard to “Directors Responsibility Statement?”
The Companies Act, 1956 requires the Directors to prepare the Directors’ Responsibility statement regarding the fulfillment of their responsibilities to prepare the financial statements of the company in accordance with the applicable accounting standards and other generally accepted accounting policies and principles. The auditors’ responsibility is to express opinion on the financial statements, based on their audit. In view of the above, the question of asking the statutory auditor to certify the Directors’ Responsibility Statement does not arise.
(ii) Issue No: 2
Whether a member in practice will be liable in a case where he was alleged to have signed two balance sheets on two different dates for the same financial year, the first one with a clean report and the second one with a qualified report?
The action of the Chartered Accountant in signing the two Balance Sheets on two different dates for the same financial year will constitute as a professional misconduct under Clause (7) of Part I of Second Schedule to the C. A. Act which states that a member in practice shall be deemed to be guilty of professional misconduct, if he is grossly negligent in the conduct of his professional duties.
(iii) Issue No: 3
Can a Chartered Accountant receive his professional fees in advance partly or in full?
There is no bar in the C. A. Act or in the C. A. Regulations as well as Code of Ethics in taking the fees in advance.
3. EAC Opinion:
The consolidation of ESOP Trust in the stand-alone financial statements, the treatment of investment in their own shares for EPS calculation in the stand-alone financial statements and the treatment of ESOP Trust in the financial statements for tax audit purposes:
Facts:
A listed Company “A” Ltd., has the statutory year ending on 31st December. In the year 2011, the company started the new Employee Stock Option (“ESOP”) Scheme, whereby, the employees would be granted options (directly linked to individual, team and company performance) at an exercise price equal to the face value of the share (currently at INR 5). The company has created a Trust for this purpose, as the “ESOP Trust” or “ESOPT”. The ESOP Trust obtains its fund through a loan from the company, which it utilises for the purchase of the company’s shares. It receives shares from the company by way of fresh allotment. The ESOP Trust then allocate shares to employees for exercise of their right in exchange of cash and repays its loans.
The Company has drawn attention to Paragraph 45 of the “Guidance Note on Accounting for Employee Share based Payments” issued by the ICAI which states that as per the Accounting Standard (AS)- 21 “Consolidated Financial Statements,” the Trust created for the purpose of administrating the employee sharebased compensation should not be considered for consolidation. Therefore, the consolidation of gratuity trust, provident fund trust, etc., is not required. While Clause 22A.1 of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 requires that the accounts of the Trust should be included in the stand-alone financial statements of the company as if all the transactions of the Trust are those of the company. Therefore, the loan given by the company to the ESOPT will not appear in the company’s stand alone financial statements. Further, the shares held by the trust at the year end, the face
value of the shares should be shown as a deduction from the share capital and excess amount paid, over and above the face value, should be shown as deduction from security premium with details explaining the facts.
financial statement u/s. 44AB of the Income -tax Act,
1961 for the year ended 31st March. The company
being listed has also to follow the SEBI Guidelines.
Therefore, while preparing the annual accounts it
will follow the SEBI Guidelines and, while preparing
financial statements for 31st March, it will follow ICAI
Guidance Note
the opinion of the EAC on the issues (i) whether, in
the stand-alone financial statements of the company
for the year ended 31st December, the loan given by
the company to ESOPT should be shown as “Loans
to ESOPT” under “Assets” or operations of the
ESOPT should be included in the stand-alone financial
statements of company. If the operations of ESOPT
are included in stand-alone financial statements
of the company, then, how to disclose shares of
the company held by ESOPT? (ii) In the stand-alone
financial statements of company, for the purpose of
calculating basic and diluted earnings per share, how
do we consider investment in their own shares? (iii) Will
the above treatment also be followed in the financial
statements prepared u/s. 44AB of the Income-tax Act,
1961 for the year 31st March, i.e., the company requires
to follow the requirements of the ICAI’s Guidance
Note or the SEBI Guidelines?
companies, if there are certain differences between
“ the Guidance Note “ issued by ICAI and the “SEBI
Guidelines” then to what extent will the requirement
of the SEBI Guidelines differ from the Guidance Note,
the SEBI Guidelines will prevail?
statements, e.g., to meet the regulatory requirements,
the stand-alone financial statements of the company
should portray the picture as if the company itself
is administrating the ESOP Scheme The Committee
is of the view that this has two reasons viz; (i) the
company should recognise any expense arising from
the employee share based payment plans , and the
operations of the ESOPT are included in the standalone
financial statements of the company in so far
as the ESOP is concerned. In such a situation, in the
stand-alone financial statements of the company, the
“Loans to ESOPT” will not appear at all, i.e., loans to
ESOPT in the books of company should be eliminated
against the loan from the company as appearing in the
books of Trust. (ii) The amount representing the grant
date, intrinsic value of the options yet to be exercised
by the employees, will be added to the “Investment in
shares of the company” and the sum may be described
as “Shares held in trust for employees under ESOP
Scheme”. This should be presented as a deduction
from the share capital to the extent of face value
of the shares and Securities Premium to the extent
of amount exceeding the face value of shares. The
company should give a suitable note in the Notes to
Accounts to explain the nature of this deduction.
the employees would be granted stock options which
are directly linked to individual, team and company
performance. Therefore, the Committee is of the view
that such performance base employee stock options
should be treated as contingently issuable equity
shares under AS 20 and the principles enunciated in
AS 20 in respect of options and contingently issuable
equity shares are equally applicable for shares allotted
to ESOPT which, in turn, will be allotted in the future
to employees on exercising their options. For the
purpose of calculating basic EPS in the stand-alone
financial statements of the company, the shares
allotted to the ESOPT should be included in the shares
outstanding, only when the employees have exercised
their right to obtain shares, after fulfilling the requisite
vesting conditions. The shares allotted to the ESOPT
are treated as potential equity shares for the whole
or part of a particular reporting period depending on
the conditions. If the requisite-vesting conditions are
not fulfilled, the shares allotted to the ESOPT against
granted options should be considered for calculating
diluted earnings per share. When the shares are
allotted to the ESCOPT are considered for calculation
of basic and diluted EPS in both the situations, they are
weighted.
accounting year, the financial statements should be
in accordance with the SEBI Guidelines, while the
financial statements for the financial year should be
in accordance with the Guidance Note of ICAI. The
financial statements for the financial year should
adopt the same accounting policies and accounting
standards that have been adopted for preparing the
annual accounts that were laid at the AGM.
(i) Our New President and Vice-President
President and Shri Manoj Fadnis (Indore) has been
elected as our Vice-President for 2014-15 on 12th
February, 2014. We convey our greetings and best
wishes to both for a successful term of office.
(ii) New Committees for 2014-15
of the Council of ICAI have been constituted as per
details on Pages 1404-1407 of the March, 2014 C. A.
Journal.
2014)
227(3) of Companies Act, 1956.
1416. On Pages 1415-1416 the following amendment is
suggested.
As required by Section 227(3) of the Act, we
report that:
of Profit and Loss, and the Cash Flow Statement
comply with the Accounting Standards notified under
the Companies Act, 1956 read with the General Circular
15/2013 dated 13th September ,2013 of the Ministry
of Corporate Affairs in respect of section 133 of the
Companies Act, 2013.”
(ii) Comparision of Firms:
on Page 1422.
“It has been brought to the notice of some
members that certain entities are seeking
details of the Chartered Accounts firms, for the
purpose of making ranking of the various firms
through comparison of different parameters.
In this regard, members are hereby informed
that the sharing of details of their C. A. firms, in
the aforesaid manne,r does not fall within the
permitted categories, and would therefore be
violative of Item 6 of Part – I of First Schedule to
The C. A. Act. Further, as it is known beforehand,
that the information regarding firms would be
used for ranking purposes, the sharing of such
details would tacitly result in claiming superiority
of one firm over other, which is prohibited in
terms of the Advertisement Guidelines of the ICAI
under Item 7 of Part – I of first Schedule to The
Chartered Accountants Act, 1949. Members are,
therefore, advised to abstain from such sharing
of details of their Chartered Accountants firms.”
Harassment:
“Attention of the members and firms of
Chartered Accountants registered with the ICAI is
hereby drawn to the specific guidelines laid down
by the Hon’ble Supreme Court of India in certain
reported cases. In terms of the said relevant
judgement, followed by the enactment of The
Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013,
the guidelines so formed shall be applicable to
organisations/bodies/associations/institutions
and persons registered/affiliated with ICAI
including, the office of ICAI its organs at different
levels/locations and offices of members and firms
registered with it. Accordingly, all concerned are
required to follow the aforesaid guidelines in
letter and spirit. (P. 1423)
(iv) Amendment in AS-11:
1424. As members are aware Para 46-46A has been
introduced in AS-11 applicable to Companies. Now ICAI
has announced that these Para 46 and 46A shall be
deemed to be introduced in AS 11 as applicable to noncorporates
also.
on 10-02-2014 (P. 1419-20)
Ranigunj (EIRC)
Standard (Ind AS 7) Statement of Cash Flows
(P.1425)
Petrochemical Industry (P. 1425)
Beverages Industry (P. 1426)
(vii) Revision in Fee of Expert Advisory
Committee:The Fees to be paid for obtaining
Opinion of Expert Advisory Committee have
been increased. Revised Fees w.e.f. 01-04-2014
will be as under: (P.1429)
Annual Turnover exceeding Rs. 75,000/-
Rs. 50 Cr.
Limit on Tax Audit Assignments:
increased the limit on Tax Audit assignments u/s.
44AB of the Income-tax Act from 45 to 60 w.e.f 01-
04-2014. This increased limit will apply to Tax Audits
to be conducted during F.Y: 2014-15 and onwards.
Company Law
The Ministry of Corporate Affairs has amended Schedule VII to the Companies Act. The Schedule contains activities which may be included by Companies in their Corporate Social Responsibility Policies. In Schedule VII for items (i) to (x) and entries relating thereto, the following items and entries shall be substituted:
i. Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water;
ii. Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects;
iii. Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;
iv. Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air & water;
v. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts;
vi. Measures for the benefit of armed forces veterans, war widows and their dependants;
vii. Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports
viii. Contribution to the Prime Minister’s National relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, Other Backward Classes and minorities and Women;
ix. Contributions or funds provided to technology incubators located with academic institutions which are approved by the Central Government;
x. Rural development projects.
PART C: Information on & Around
In
a bid to ward off the alleged menace of “professional RTI
complainants”, four assistant commissioners of the BMC have adopted a
strategy. These officers, posted guards and got CCTV cameras installed
at various ward offices to check their entry into the premises.
These professional complainants have lodged their grievances on building violations at least 200 times in more than four wards.
Assistant
commissioners termed this as a moneymaking venture. “This has become a
business for them (professionals). They lodge complaints and extort
money from people. They try to create an atmosphere of fear by either
threatening the civic officials or the people.”
An advocate,
named and shamed in a list of “professional RTI complainant
(extortionist)”, prepared by the Brihanmumbai Municipal Corporation, has
been vindicated after the civic body apologised, saying that his name
had been wrongly included in the list.
“It is humiliating for me
to be branded as a professional complainant. I complained about this to
the BMC chief and the state’s chief information commissioner,” said
advocate, Pankaj Pande.
The BMC then gave a clean chit to Pande stating that his name was included in the list by mistake.
RTI Activists not dead:
AAP
Chief Arvind Kejriwal’s obituary reference to four RTI activists at a
large public gathering in Ahmadabad left his supporters red-faced as
three of them are alive.
He said the four were killed for asking
awkward questions and hailed them as martyrs for the cause of society.
Kejriwal got the first victim’s name right, Amit Jethava, who was killed
outside the high court, the other three- Bhagu Dewani (Porbandar),
Minakshi Goswami (south Gujarat) and M Bhambhani (Diu)-in fact survived
attacks provoked by their activism.
Sanjay Dutt’s parole:
The
Yerwada jail authorities have refused to disclose details of Sanjay
Dutt’s parole to an RTI applicant, saying the actor had requested that
the reasons supplied in his application for parole be kept private.
Oshiwara
resident, Ramesh Patil, had made an RTI application to the jail in
October last year, asking to know the specific illness for which Dutt
was granted a 14-day furlough in September, which was extended by
another two weeks.
The jail’s reply to Patil also said that Dutt
was a “third person” and that Patil had nothing to do with the actor,
and had no locus standi to ask for details of the actor’s parole.
This
forced Patil to move the Appellate Officer for RTI at the jail;
expressing his objection to the unsatisfactory reply he was given.
Following
this, Patil was called for an RTI hearing on 11th February at Yerwada
jail. At the hearing, the authorities merely repeated what they had
communicated to him earlier. According to Patil, he was also shown a
letter allegedly written by Dutt requesting that his personal details be
kept private from unknown persons.
“Dutt is not a third person
but a convicted criminal undergoing punishment in jail; how can the jail
authorities say he is a ‘third person’? On 21st March, when Dutt is due
to return to Yerawada Central Jail, he would have spent 118 of his 305
days of imprisonment-almost 40% of the time he is supposed to serve
either on furlough for the treatment of his leg pain, or on parole
sought citing his wife Manyata’s illness. This clearly means any convict
can now write a letter and can escape from imprisonment, and if this is
the law, then I think it needs to be amended immediately,” Patil said.
PART B: RTI Act , 2005
A City consumer forum has ruled that Complaints on RTI cannot be entertained under the Consumer Protection Act.
RTI & Political Parfies:
Political Parties, including the Congress and BJP, have ignored a four-week deadline set by the Central Information Commission (CIC) and could be liable for Rs. 25,000 fine or even de-registration.
The Commission had issued a showcause notice on 7th February to six national political parties – Congress, BJP, NCP, BSP, CPI and CPM – seeking an explanation on why they had not complied with its 3rd June order which mandated that the six parties came under the Information Act and must appoint public information officers to respond to RTI queries.
A full bench of the Commission had declared that the six political parties were substantially funded indirectly by the Central Government and they had the character of public authority under the RTI Act as they performed public functions.
The Commission had given them six weeks to comply with the RTI Act but so far none of the parties has followed the direction, prompting RTI activist Subhash Agrawal, who was one of the petitioners in the case, to file three non-compliance complaints before it.
Agrawal said the Commission should hold an early hearing and recommend stringent action, including deregistration of the parties, by the Election Commission.
The CIC can also fine the parties up to Rs. 25,000. The CIC inaction has been preceded by the government bringing a bill to exclude political parties from the ambit of RTI Act. Though the bill was tabled in Lok Sabha and received support from a House panel, it was finally not taken up.
The stringent opposition to “weakening” the Act and the message that political parties were against transparency led to the bill being put on hold. However, the CIC has dragged its feet in taking any action against parties clearly in violation its own order. (Courtesy: Times of India dated 10-03-2014)
Congress Manifesto:
Congress will release its election manifesto on 21st March; a document that the party believes will win it votes in the tough battle. Sonia Gandhi is scheduled to release the manifesto in the company of her son, Rahul.
One key issue is of reservation in the private sector, a poll promise from Congress in UPA-2. Congress also wants to hammer home its rights based approach like RTI, NREGA, etc., by promising those on health, pension and sanitation.
Maharashtra Information Commission:
With the appointment of new IC, Maharashtra now has 7 IC as under:
Maharashtra Information Commissioners
1. Ratnakar Gaikwad – Chief Commissioner, Mumbai
2. Ravindra Jadhav – Amravati
3. D. B. Deshpande – Aurangabad
4. Ms. T. F. Thekekara – Konkan
5. Ajitkumar Jain – Greater Mumbai
6. P. W. Patil – Nasik
7. M. H. Shah – Pune
From published accounts
Revision of Consolidated Financial Statements pursuant to subsequent amalgamation of 2 subsidiaries with another subsidiary
Sun Pharmaceutical Industries Ltd. (31-03-2013) From the Notes to the Consolidated Financial Statements
The
consolidated financial statements of the Company for the year ended
31st March, 2013 were earlier approved by the Board of Directors at
their meeting held on 28th May, 2013 on which the Statutory Auditors of
the Company had issued their report dated 28th May, 2013. Consequent to
the Order dated 26th July, 2013 of the Hon’ble High Court of Bombay
sanctioning the scheme of arrangement u/s. 391 and 394 of the Companies
Act, 1956 for amalgamation, with effect from 1st September, 2012, the
appointed date, of Sun Pharma Medication Private Ltd and Sun Pharma
Drugs Private Ltd into Sun Pharma Laboratories Limited (SPLL), all
wholly owned subsidiaries of the Company, the financial statements of
SPLL were revised only to give effect to the said scheme of arrangement,
effective from 1st September, 2012. In view of the above, the earlier
approved consolidated financial statements are revised only to
incorporate the revised financial statements of SPLL.
From Auditor’s report on Consolidated Financial Statements (Extracts)
(a)
The consolidated financial statements of the Company for the year ended
31st March, 2013 were earlier approved by the Board of Directors at
their meeting held on 28th May, 2013 which were audited by us and our
report dated 28th May, 2013, addressed to the Board of Directors,
expressed an unqualified opinion on those financial statements.
Consequent to the Order dated 26th July, 2013 of the Hon’ble High Court
Bombay sanctioning the Scheme of arrangement for amalgamation of two of
the wholly owned subsidiaries of the Company, namely, Sun Pharma
Medication Private Limited and Sun Pharma Drugs Private Limited into
another wholly owned subsidiary of the Company, namely, Sun Pharma
Laboratories Limited, the financial statements of Sun Pharma
Laboratories Limited were revised to give effect to the said
amalgamation, effective from 1st September, 2012, the appointed date. In
view of the above, the earlier approved consolidated financial
statements are revised by the Company to incorporate the revised
financial statements of Sun Pharma Laboratories Limited. (Refer Note 56)
(b) Apart from the foregoing event, the attached consolidated
financial statements do not take into account any events subsequent to
the date on which the consolidated financial statements were earlier
approved by the Board of Directors and reported upon by us as aforesaid.
Our opinion is not qualified in respect of these matters.
Dated: 28th May, 2013 (9th August, 2013 as to effect the amendment discussed in the ‘Emphasis of Matter’ paragraph above).
Effect of amalgamation not given in view of pending approvals from all High Courts
Tech Mahindra Ltd. (31-03-2013)
From the Notes to the Financial Statements
The
Board of Directors of Tech Mahindra Limited in their meeting held on
21st March, 2012 have approved the scheme of amalgamation and
arrangement (the “Scheme”) which provides for the amalgamation of
Venturbay Consultants Private Limited (Venturbay), Satyam Computer
Services Limited (MSAT), C&S System Technologies Private Limited
(C&S), Mahindra Logisoft Business Solutions Limited (Logisoft) and
CanvasM Technologies Limited (CanvasM) with Tech Mahindra Limited
(TechM) u/s. 391 to 394 read with Sections 78, 100 to 104 and other
application provisions of the Companies Act, 1956. The Scheme also
provides for the consequent reorganisation of the securities premium of
TechM. The Appointed date of the Scheme is 1st April, 2011.
The
Board of Directors of TechM has recommended to issue two fully paid up
Equity Shares of Rs. 10 each of TechM for every 17 fully paid Equity
Shares of Rs. 2 each of MSAT. As the other amalgamating companies are
wholly owned by TechM/MSAT, no shares would be issued to shareholders of
these companies.
The Bombay Stock Exchange and the National
Stock Exchange have conveyed to the Company, their no-objection under
Clause 24(f) of the Listing Agreement to the said Scheme. TechM has also
received approval of Competition Commission of India for the said
Scheme. The Scheme was approved by the requisite majority of the equity
shareholders of TechM and MSAT in the court convened meetings held on
7th June, 2012 and 8th June, 2012 respectively. A Separate Special
Resolution was also passed at the above mentioned meeting of the equity
shareholders of TechM held on 7th June, 2012, whereas the requisite
majority of the equity shareholders approved the reduction of its
securities premium account. Thereafter, TechM, Venturbay, C&S,
Logisoft and CanvasM had filed Petitions on 25th June, 2012 respectively
with the Honourable Bombay High Court seeking approval for the proposed
Scheme. The Petitions were admitted by the Honourable Bombay High Court
on 20th July, 2012 and the Honourable Bombay High Court has approved
the Scheme of Amalgamation and passed an order to that effect on 28th
September, 2012. MSAT had filed its Petition on 27th June, 2012 with the
Honourable High Court of Andhra Pradesh, and the said petition was
admitted on 9th July, 2012. Hearing in the matter is concluded before
the Honourable High Court of Andhra Pradesh closed for summer vacation
and the order is awaited.
The merger is effective only on the
last of the dates on which the certified copies of the orders of the
High Court of Judicature at Bombay and the High Court of Judicature at
Andhra Pradesh are filed with the Registrar of Companies (‘ROC’), Mumbai
and Pune, Maharashtra, and the ROC, Hyderabad, Andhra Pradesh
respectively; and as the Approvals of High Court of judicature at Andhra
Pradesh is yet to be received, the effect of the merger is not
considered in the financial statements.
FROM THE PRESIDENT
Appearing for any of the CA exams? I am not going to wish you luck, for I don’t believe in luck. Let me instead extend my congratulations to you for choosing this profession. It is one of the most respected, versatile and lucrative professions. I say this with confidence as I have received all this thanks to my being a CA. This profession has given me a solid grounding. It is not superficial. Thanks to the hours put in for the exams, I have proved to myself that I can work very hard if the situation calls for it. A very important aspect in my future career. All the juggling that we, as CA students, have to do between the library, coaching classes, office and then yet being socially active, teaches us the need for planning and prioritising. This is something that all successful people do all the time. It is thanks to the solid grind that this profession has given me, which encompasses self-study, articleship and tough exams, that I have benefitted a lot. That’s the power of the reputation of this course.
But for me the most important gain was the in-depth exposure to the businesses of my clients during articleship and thereafter. While the curriculum gave me financial acumen, I learned commerce from client interaction. This came in good stead when I headed business units for an MNC. Today, CAs can be seen in all walks of life. “Versatile CA” as the BCAS calendar for this year says. Mr. Nandan Nilekani – in politics and in the legislature, Mr. Shekhar Kapoor – in the film industry, Mr. Deepak Parekh -in the banking industry, Mr. Prannoy Roy and Mr. Ronnie Screwvala – in the media, to name a few. All these luminaries are CAs.
All of them went through the same rigmarole as I did and now you will. They had a dream and so do you. They worked hard and smart at the same age as you all are today. Are you willing to work hard too?
Recently we had Mr. Nilesh Vikamsey speak to over 400 students on how to study for the exam. He gave some excellent practical tips and tricks. The video is available on BCAS WebTV. Please do view it.
My daughter is appearing for her IPCC this May. As a father, I am pained to see her put in so many hours preparing for her exams. I am aware of so many parties, outings and other programmes she gives a skip. She doesn’t show it but I am sure she must be sad and somewhere deep down has doubts. Both, on whether she can clear her exams and whether all this is worth it. Fortunately, I am a CA and having gone it through myself, I know exactly what her state of mind is. But seeing her toil so much, much more than I did, I am confident she will triumph. If it is of any solace, let me tell you that sadly every CA student goes through this state of mind. And when you clear the exam all that is forgotten. You walk taller.
Hard work never killed anyone. But hard work has a pattern. Our bodies are designed to withstand hardships when we are young and healthy. With age, your ability to work hard diminishes. The smart people recognise this and put in as much hard work in their younger age and reap benefits of that as they grow older. Even if you want to one day at the age of 50 decide that now you will work hard, your body will not support you. So while you could and had no need, you didn’t and when you needed and were willing, the body failed you. Think what is smarter.
That doesn’t mean that it should be all work and no play. But what is the right balance? Should play be a reward for all the hard work or should hard work be a filler between the partying? If you take the 16-17 hours of your waking time, how much of these can be devoted to studies? Are 9-10 hours too much? The average hours put in daily by a working individual are over 10 hours. The really ambitious ones do this and more, easily and happily. Take any successful person as an example. Would Sachin Tendulkar have been the world’s best and most revered cricketer if not for the hours of practice he put into the sport at a very young age? At the start of his career, Shah Rukh Khan slept on the streets of Mumbai and worked day in and out to now become known as the King Khan. Till date he is reputed to be a workaholic. Dhirubhai Ambani was born in a middle class family. He made the famous Ambani family. He started working towards his goal from a very young age.
If you are appearing for the exams this May then you have already dreamt of being a CA, invested some time in either self-study or attending coaching classes, many of you even cleared IPCC and started articleships. But you have developed self-doubts; confidence is wavering, frustration setting in. Right? This is no time for such emotions. I urge you to not give up now. In fact, give it your best. Study like you have never studied before. Work hard. Take care of your health. Indulge in your favourite activities to refresh your minds. Eat well. Sleep well. Hug your parents. Pray not for results, but the ability to work hard. Assume the results will be just 3% again and believe you will be part of that 3%. Go watch Chak De! again. Watch that motivational speech again and again. He who perspires in practice bleeds not in war. If you dream of heaven, be prepared to die for it.
May I request all my CA friends reading this, to convey this message to their article students in their office and outside.
I once again compliment all the students. Yashasvi Bhavva.
Here’s wishing everyone happiness and love.
With Warm Regards
Naushad A. Panjwan
Miscellanea
1. Spiritual
1.
When You Are Aware, Life Is a
Movement of Joy
Someone met me recently and said, “I find it
difficult to listen to my spouse; he speaks so much, most of the time, I don’t
understand what he is saying.” I told her, “Listening to your spouse is like
reading the terms and conditions of a freeware you want to download from the
internet. It is long, and you don’t understand much, but still you click on
agree.” In the same way, to build a rapport with your spouse, just agree, and
when he calms down, try to discuss. Next time, when you find your spouse giving
a long lecture, and you need to convince him, do not be in a hurry. Wait for an
opportunity to explain your point of view.
We should learn the art of handling
difficulties gracefully. There is no one way. We have to be alert and let the
purity of alertness and goodness to guide you in handling difficult situations.
Our past knowledge is trapping us often. At the same time, we have to transform
gracefully. Our past should be a point of reference for increased awareness,
rather than a block.
Our past knowledge, conclusions, opinions,
hurts; they influence our listening and thinking. Our unconscious is leading
our life mechanically. When we are alert, we become conscious of our
unconscious and that enables us to lead a better life instead of bitter life.
Are you conscious of the fact that one is
unconscious to oneself? You say this is mine or that is mine. But, if you are
alert and conscious, you will realise that all that you have said as ‘mine’ is
not yours. You are riding a dream.
What you think is mine is not in the true
sense yours. You are using them for your need in a remarkably subtle sense. You
say your son is yours, for you have a dream that he will do this and that to
you. But, your son also has a dream and he feels this or that will make him
complete. So, one is using the other for fulfilling one’s dream, and in that
sense wants others to serve him.
All things and persons can be snatched away
from you, and what is capable of being snatched away is not yours. What cannot
be snatched away from you is your consciousness. Your body is given to you by
your parents. Your knowledge is given to you by books and other sources. These
can be snatched away from you.
Only our consciousness is intrinsically
ours, and in the true sense, we are not unaware what this consciousness is. We
are unconscious of our consciousness. When we are dependent on the things that
can be snatched away, and when it is snatched away by time, we feel cheated and
betrayed. It is our error in understanding.
If one understands that all things are
capable of being snatched one will not depend on it emotionally. Hence emotions
will have clarity and is free. You will be a giver of life, and not a beggar of
life. You will put your energy in understanding yourself, and when you
understand yourself as conscious, you will realise this consciousness, which is
your nature, is fullness and completeness. With fullness when you live life,
your life will be a movement of joy and not wanting joy.
(Source: Times of India dt 14.03.2017)
2.
Social
2.
Hawking won the world’s respect
– and gave disabled people like me hope – Frances Ryan
Growing up disabled, I had few role models.
But this brilliant, witty scientist helped shift the negative stereotypes many
face. As with most of the famous figures whose passing now hits us via a news
alert on our phones, I never met Stephen Hawking. In the vastness of the entire
universe, you could say I was one speck and he was another. And yet I thought
of him as a continual presence in my life, who – perhaps paradoxically, in the
light of his illness, not to mention of his work on time – would always be
there, somehow.
Growing up disabled in Britain, I didn’t
have many role models. There are hardly any statues of disabled leaders, no
great lives with chronic disability documented in the history books. As a
child, it’s easy to believe that disabled people have never really existed, and
that when they did, it was as cripples to be pitied or burdens on society. In
Hawking, we had a figure – brilliant, witty, kind – who confounded the negative stereotypes and the low expectations
so often forced on those of us with a disability.
He wasn’t without faults (accusations of
sexism were notable). He was also afforded opportunities – from wealth to
healthcare to being non-disabled throughout school – that clearly enabled his
success, opportunities too few young disabled people, facing cuts to multiple
strands of support, enjoy today. But his groundbreaking research, as well as
tireless commitment to the NHS and concern over Brexit, established him as
someone who, though physically stripped of his voice, should be listened to.
In the rush to eulogise a figure such as
Hawking the risk is that the media coverage either fails to acknowledge his
disability – and to ignore him being a disabled person is as regressive as a
white person saying they “don’t see colour” – or falls into condescending
cliches and objectification. Within hours of the news of his death breaking, I
saw headlines that reflected the (often well-intentioned) negative attitudes
that so often plague discussions of disabled people: ones of “inspiration”,
“overcoming disability” and references to “tragedy”. BBC Radio 5 Live asked
listeners if Hawking had “inspired” them – a question unlikely to be posed
about non-disabled academics. The Daily Mail referred to his “total disability”
while at the other end of the spectrum, John Humphrys used Radio 4’s tribute
segment to ask: “Did the science community cut him a lot of slack because he
was so desperately disabled?”
Even the Guardian’s obituary mentioned how
“despite his terrible physical circumstance, he almost always remained positive
about life”, as if it was a surprise that a world-renowned scientist with a
loving family could ever find happiness. Cartoonists illustrated him in heaven
– a place Hawking did not believe existed – standing up, as if finally free
from his wheelchair (an invention, much like his voice synthesiser, that
actually empowered him to engage with society). Even sentiments such as “He
didn’t let his disability define him” – as Marsha de Cordova, shadow
disabilities minister (and herself disabled) tweeted – verge on repeating the
ingrained belief that disability is an inherently negative thing: a part of
identity that, unlike race or sexuality, should be played down.
This is not to say that Hawking’s disability
didn’t help shape him. The thought that he had a sharply limited life
expectancy – it was originally believed he would die within two years of his
motor neurone disease diagnosis – by all accounts inspired Hawking to enjoy the
present, and spurred on his hunger for scientific discovery. But to reduce a
world-famous academic’s existence to one of tragedy and pluck respects neither
the reality of a disabled life nor the love, success, humour and fulfilment
that clearly marked Hawking’s. It is reminiscent of the countless “inspirational”
memes and posters that throughout his life featured Hawking’s image – often
using his body as inspiration for non-disabled people (“If he can succeed, so
can you!”) or criticising “lesser” disabled people (“The only disability is a
bad attitude”). Hawking, like all of us, deserves more than lazy, ableist
tropes.
Amid all the tributes to Hawking’s
contribution to scientific discovery, I would like to remember what he
contributed – perhaps unknowingly – to many disabled people: a sense of pride,
encouragement and hope. This was a genius who gained the world’s respect from
his wheelchair. Hawking’s achievements alone will not have begun to overturn
deep-seated prejudice, but he has played a significant part in shifting the
misconceptions that still routinely mark too many disabled people’s lives.
Hawking’s lesser-known lesson is one I hope others growing up disabled will be
left with: we can all reach for the stars.
(Source: www.theguardian.com)
3. World News
3.
Plastic particles found in
bottled water
Tests on major brands of bottled water have
found that nearly all of them contained tiny particles of plastic. In the
largest investigation of its kind, 250 bottles bought in nine different
countries were examined. Research led by journalism organisation Orb Media
discovered an average of 10 plastic particles per litre, each larger than the
width of a human hair.
Companies whose brands were tested told the
BBC that their bottling plants were operated to the highest standards. The
tests were conducted at the State University of New York in Fredonia.
Commenting on the results, Prof Mason said:
“It’s not catastrophic, the numbers that we’re seeing, but it is
concerning.” Currently, there is no evidence that ingesting very small
pieces of plastic (microplastics) can cause harm, but understanding the
potential implications is an active area of science.
(Source: bbc.com)
4.
A cheap Chinese TV threatens to
topple LG, Samsung & Sony’s India apple cart
Can Xiaomi replicate its smartphone success
in televisions? Its entry into the segment with TVs priced at as much as half
that of the top three —LG, Samsung and Sony — has taken the market by surprise
over the past few weeks. The leaders don’t yet have a strategy to counter the
Chinese company’s disruptive pricing, four senior industry executives said,
asking not to be named.
“While it’s a wait-and-watch scenario right
now, we have been asked to keep our ears to the ground to closely track
Xiaomi,” said a senior executive with one of the largest television makers.
“The scope to react right now is also limited for they are selling models at
almost throwaway prices which, if we have to match, it will completely disrupt
the pricing strategy.”
In less than a month of its foray into
televisions, Xiaomi has launched 32-inch, 43-inch and 55-inch models — sizes
that together account for 80% of the total television market by volume.
Its 32-inch set is sold at Rs.13,999
compared with a starting price of Rs. 24,000 for a similar specification model
from one of the three top brands. The 43-inch set is priced at Rs. 22,999
compared with Rs. 36,000-plus for a rival model while in the 53-inch segment,
Xiaomi’s model is tagged at Rs. 39,999, about half that of one from the top
three. The executives cited above said the top three brands are hoping that the
Chinese company won’t be as successful in TVs as the business calls for sales
and servicing strategies that differ from those for handsets.
(Source: gadgetsnow.com)
5.
Wipro chairman unveils 3D metal
printing facility in Bengaluru
Global software major Wipro’s three
dimensional (3D) metal printing facility was unveiled by its Chairman Azim
Premji in this tech hub on 14 March. “The 12,000 sq.ft. centre has various
capabilities that include building up technology, post-processing, research,
characterisation and validation facilities,” said the city-based IT major
in a statement here. The company, however, did not disclose the cost of this
high-tech facility.
The software major’s 3D printing business
unit, Wipro3D, has been providing services to aerospace, space, industrial,
automotive, healthcare, oil and gas and heavy engineering sectors in the
country. Wipro3D was set up in 2012 here under the Wipro Infrastructure
Engineering, a hydraulic cylinder manufacturing unit of the software major. The
company soon plans to take its 3D printing services across the world, said the
statement, although no details were specified of its expansion plans.
(Source: firstpost.com)
Ethics And U
Arjun (A) — Very sorry, Bhagwan. Got held up in income tax office.
S — Why? Now all scrutiny assessments must be over. April is a relaxing month. Isn’t it?
A — For CAs, there is no relaxation at all. We have to work like donkeys. There is so much harassment for recovery of tax.Clients’ accounts are attached, prosecution notices are being issued like a child’s play.
.
S — Is it? Why prosecution?
A — The less said the better. I.T. authorities have innovative brains. They are always searching for new avenues to harass the assessees. And the entire burden falls on CAs – with no fees!
S — Anyway! That’s a permanent headache of our country.
A — I feel, bureaucracy does not want transparency. They don’t want discipline and digitalisation.
S — Why? That will reduce their workload.
A — But they may be having vested interests in allowing the state of confusion to continue. They may be interested in manual intervention, for reasons best known to them!
S — That’s an endless subject. Last time, we discussed the preliminaries of NFRA.
A — Yes. I remember. Now I am worried about bank audits. Days are very bad for CAs.
S — I agree. CAs are projected to be main culprits in all financial frauds. That’s unfortunate. But sometimes, you CAs also behave very loosely.
A — What do you mean? We work round the clock – with no family life. And we are the most underpaid profession.
S — May be! But you don’t follow even simple systems. First and foremost is the time discipline. You people are never on time!
A — It is partly true. But we are always at the mercy of others!
S — You have made yourselves vulnerable; always a soft target. You have allowed yourselves to be taken for granted.
A — What to do? Business community is so dominant! We can’t afford to say ‘no’ to them. They simply go away and catch hold of another CA.
S — That’s the pity. You lack unity. You come together for academic discussions; but never for collective action! And you have developed a habit of ‘managing’ everything.
A — Yes. Even CPE hours we try to ‘manage’. But the recent episode of bank frauds has caused turmoil in the profession. I wonder whether I should do any bank audit at all!
S — If you act methodically, you should have nothing to fear from.
A — But they don’t allow us to work systematically. There are strict timelines. A big branch to be audited in barely 3 to 4 days. And no one co-operates. Poor branch manager alone has to face the music.
S — But what prevents you from keeping your own papers right? Tell me, do you write to previous auditor?
A — Why should we write? Appointment is made by RBI or the Board of a nationalised bank.
S — My dear, Arjun. There is no exception to clause (8). Whosever appoints you, whatever be the organisation, and whatever be the type of audit, writing to previous auditor is a must.
A — But then how can we meet the deadline if we wait for his reply?
S — In this particular context, you need not wait; but writing you cannot avoid.
A — I must keep this in mind.
S — Moreover, you don’t keep working papers. You know that the work should not only be done; but it should be seen to be done. And while doing audit, you should always have professional skepticism.
A — What is that? You mean we should suspect everything?
S — No. Not that way. But you cannot afford to accept everything in good faith and at face value.
A — But when reputed organisations produce documents before us, how can we disbelieve that?
S — But you should learn to verify independently the truth of every statement of a client. He should get a feeling that you verify every document, it has a psychological impact. And when there is slightest of suspicion, you should take it to its logical end.
A — What you say is right. Very often, we just leave it like that. We avoid to escalate the matter.
S — Do you ensure that your assistants are properly trained? Tell me, have you ever read the Standards on Auditing?
A — You mean SAs?
S— Yes. I believe, most of you carry out the audit just by common sense, without studying the relevant material properly. You never make efforts to upgrade yourselves. Do read SA 200 and SA 240 before you do any audit now.
A — But we really slog. We do the work sincerely. And there is no time for documentation and correspondence.
S — That is precisely where you lack. Documentation is a must.
A — I know. There are many big firms. They do not really do much indepth audit; but merely compile thick files of working papers.They command fat fees. All these laws and ethics, I feel, apply only to small people like us. After all, might is right.
S — Don’t say so.
A — I have a few friends who have affiliations with some foreign firms and they enjoy the brand, they do advertising under the corporate shield, they do anything they like. Nobody is going to ask them in our country.
S — Arjun, I understand your grievance. But don’t worry. Now Supreme Court has taken serious cognizance of all these activities of Multinational firms.
A — Oh! When was that? Good, Good. Tell me some details.
S — Supreme Court delivered its decision on 23rd February, 2018. Very detailed discussion. I suggest you read it yourself. But don’t read it just for fun. Learn something from it and try to implement the basic principles of ethics.
A — O Lord! I always obey your commands!
!!OM Shanti!!
Note:
This dialogue is in the context of recent scandal of PNB, ensuing bank audits and also the Hon’ble Supreme Court decision in respect of Multinational Accounting Firms (MAFs). – Civil Appeal No. 2422 of 2018 [Arising out of Special Leave Petition (civil) no. 1808 of 2016].
Corporate Law Corner
1. Yenugu Krishna Murthy vs. UOI
W.P. Nos. 7819, 7820/2018 and 7821/2018 (GM-RES)
Date of Order: 26th February, 2018
Section 164(2) read with section 167 of the
Companies Act, 2013 – The said section is constitutionally valid – Validity of
provision of law cannot be questioned merely because it operates a little
harshly on the directors of defaulting company
FACTS
Y was a director under the
Companies Act, 2013. His DIN status appeared as “disqualified” on the website
of Ministry of Corporate Affairs. The reason for the same in brief was
“Violated Section 164(2)(a)”. Y admittedly, did not seek a copy of
the order from the Registrar Of Companies (“ROC”). Further neither had he approached
ROC nor was he served any show cause notice or adjudication order u/s. 164(2)
of Companies Act, 2013 (“the Act”).
Before the High Court, it
was urged that directors were put in a very piquant and irreparable situation
and even if, disqualification on account of non-filing of financial statements
and Annual Returns in one company does take place for which they may not be
personally liable, they incur the ‘disqualification’ u/s. 164(2)(a) of the Act
and they are deemed to have vacated the office of the director in other such
companies also as per section 167 of the Act.
HELD
The High Court held that
the writ petitions in the instant case were premature as the directors did not
even try to approach the appropriate authority under the Act, namely, the ROC,
seeking even a copy of the order u/s.164(2)(a) of the Act, which might have
been passed by it. In absence of adequate facts the High Court could not
conclude whether Y was at fault or not; whether he had brought the relevant
facts to the notice of the ROC or not.
If Y had approached the ROC
with the relevant facts, it would be duty bound to pass a reasoned and speaking
order. ROC has the quasi-judicial powers and an obligation under the Act to
pass such appropriate orders in the matter.
As far as constitutional
validity of sections were concerned, the High Court observed that provisions
could not be held to be illegal, unconstitutional or ultra vires merely
because they may operate harshly against the Directors of the defaulting
company. It observed that the academic questions or the legislative wisdom is
not the subject matter to be decided by the Courts of law unless such questions
are raised in properly instituted cases, based on proper factual foundation of
the case.
Accordingly, the writ
petitions were dismissed by the Court.
2. Dr. Reddy’s Research Foundation vs. Ministry of Corporate
Affairs
[2018] 142 CLA 351 (AP HC)
Date of Order: 6th October, 2017
Rule 14 of the Companies (Appointment and Qualification of
Directors) Rules, 2014 – There is a lacuna in the procedure that is required to
be followed by the Companies, which are defaulted in filing their annual
returns and the consequent disqualification of the Directors to rectify the
defect.
FACTS
D Co had failed to furnish
annual returns for the years 2011-12 to 2015-16 and financial statements for
the years 2012-13 to 2015-16. Consequently, the directors of the company were
disqualified to act as directors under the provisions of Companies Act, 2013.
Rule 14 of the Companies (Appointment
and Qualification of Directors) Rules, 2014, prima facie provides for
rectifying the defect by enabling the defaulting companies to file their
returns. The company will have to act through its Directors in order to do so.
However, as the directors are disqualified, they are not able to file these
returns because the e-platform through which this is required to be done cannot
be accessed owing to the disqualification.
D Co thus, approached the
High Court seeking remedy for the inherent inconsistency.
HELD
The High Court observed
that there is a lacuna in the procedure that is required to be followed by the
Companies, which are defaulted in filing their annual returns and the
consequent disqualification of the Directors to rectify the defect.
Taking a note of the
anomalous situation, the High Court directed that the DIN of the directors be
restored in respect of D Co so that they are able to submit the returns in
accordance with Rule 14.
3. Power Grid Corporation of India Ltd. vs. Jyoti Structures Ltd.
[2018] 142 CLA 285 (Del HC)
Date of Order: 11th December, 2017
Section 14 of the Insolvency & Bankruptcy Code, 2016 read with
section 34 of Arbitration And Conciliation Act, 1996 – Proceedings u/s. 34 of
Arbitration Act which are in favour of corporate debtor would not be stayed
even though a moratorium has been granted to such corporate debtor.
FACTS
Arbitral tribunal had given
an award dated 20.05.2016 which was in the nature of pure money decree in
favour of J Co. Counter claim of P Co had been rejected by the Arbitrator and
claim of J Co was upheld. During the pendency of these proceedings u/s. 34 of
the Arbitration And Conciliation Act, 1996, (“Arbitration Act”) an application
u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) was filed by a
financial creditor against J Co. Through an order dated 04.07.2017 the National
Company Law Tribunal (“NCLT”) admitted the application and declared a
moratorium in terms of section 14 of the Code.
P Co filed a petition u/s.
34 of the Arbitration Act claiming that proceedings under said section be kept
in abeyance in terms of embargo contained under section 14(1)(a) of the Code.
HELD
The High Court having read
the provisions of section 14(1) of the Code observed that the term ‘proceedings’
as is mentioned in section 14(1)(a) of the Code is not preceded by the word
‘all’ to indicate the moratorium provisions would apply to all the proceedings
against the corporate debtor. The High Court relied on the report of the
Bankruptcy Law Reforms Committee which demonstrated that moratorium is to apply
to recovery actions and filing of new claims against the corporate debtor and
the purpose behind moratorium is that there should be no additional stress on
the assets of the corporate debtor.
It was argued that once the
moratorium comes into effect, no proceedings against the corporate debtor may
continue. However, the High Court held that it was important to consider the
nature of these proceedings. Stay of
proceedings against an award in favour of the corporate debtor would rather be
stalking the debtor’s effort to recover its money and hence would not fall in
the embargo of section 14(1)(a) of the Code.
It was held that
proceedings would not be hit by section 14 of the Code due to following
reasons:
(a) “ ‘proceedings’ do not mean ‘all proceedings’;
(b) moratorium under section 14(1)(a) of the Code
is intended to prohibit debt recovery actions against the assets of corporate
debtor;
(c) continuation of proceedings under section 34
of the Arbitration Act which do not result in endangering, diminishing,
dissipating or adversely impacting the assets of corporate debtor are not
prohibited under section 14(1)(a) of the Code;
(d) the term ‘including’ is clarificatory of the
scope and ambit of the term ‘proceedings’;
(e) the term ‘proceeding’ would be restricted to
the nature of action that follows it i.e. debt recovery action against assets
of the corporate debtor;
(f) the use of narrower term “against the
corporate debtor” in section 14(1)(a) as opposed to the wider phase
“by or against the corporate debtor” used in section 33(5) of the
Code further makes it evident that section 14(1)(a) is intended to have
restrictive meaning and applicability;
(g) the Arbitration Act draws a distinction
between proceedings under section 34 (i.e. objections to the award) and under
section 36 (i.e. the enforceability and execution of the award). The
proceedings under section 34 are a step prior to the execution of an award.
Only after determination of objections under section 34, the party may move a
step forward to execute such award and in case the objections are settled
against the corporate debtor, its enforceability against the corporate debtor
then certainly shall be covered by moratorium of section 14(1)(a).”
Once the
moratorium is declared the decision to continue with the objections need to be
taken only by the Resolution Professional. The High Court observed that in the
peculiar circumstances of this case where a counter claims was preferred by the
objector, though rejected, it would be appropriate if the interim resolution
profession be made aware of the proceedings and he consents to its
continuation.
Allied Laws
1.
Naina Kala Sharma and Ors. vs.
Deepak Kumar Rai AIR 2018 (NOC) 4 (SIK.)
Hindu Law – Coparcenary – Suit for
Partition – Cannot demand share in Father’s property when self acquired. [Hindu
Succession Act, 1956 S.6]
The case of the Appellants is that the
Appellant No. 1 was married to the Respondent in the year 1993 and Appellants
No. 2 and 3 were born from the wedlock. A property(suit land) was gifted to
Appellant no. 1 by her father.
The issue was whether the Appellants no. 2
and 3 have any right, title or interest over the Suit land and the building
constructed thereon?
It was argued that the Mitakshara concept of
coparcenary is based on the notion of the birthright of son, son’s son and
son’s son’s son.
It was observed by the Court that the
daughter has also been made coparcener by virtue of Hindu Succession
(Amendment) Act, 2005.
It was held that the Law laid down in
Mitakshara in regard to father’s right of disposition of his self acquired
property, held that the father of a joint Hindu family governed by Mitakshara
law has full and uncontrolled powers of disposition over his self-acquired immovable
property and his male issue could not interfere with these rights in any way.
Hence, no rights were conferred to
Appellants No. 2 and 3 for partition, in view of the property being the self
acquired property of the Respondent.
2.
Naveen Kumar vs. Vijay Kumar
And Ors Civil Appeal No. 1427 of 2018 (Arising out of SLP (C) No.18943 of 2016)
(SC)
Owner – As appearing on records – Liable to
pay compensation. [Motor Vehicles Act, 1988, S.2(30)]
In the present case, an accident had taken
place where the Tribunal had granted an award holding the first
respondent(original owner/first owner) responsible together with the driver. It
was contended that there were a series of transfers which took place, however,
the name in the records were not changed/altered.
It was observed by the apex court that the
expression ‘Owner’ in section 2(30), it is the person in whose name the motor
vehicle stands registered who, for the purposes of the Act, would be treated as
the ‘owner’. However, where a person is a minor, the guardian of the minor
would be treated as the owner. In a situation such as the present where the
registered owner has purported to transfer the vehicle but continues to be
reflected in the records of the registering authority as the owner of the
vehicle, he would not stand absolved of liability.
The principle underlying the provisions of
section 2(30) is that the victim of a motor accident or, in the case of a
death, the legal heirs of the deceased victim should not be left in a state of
uncertainty. A claimant for compensation ought not to be burdened with
following a trail of successive transfers, which are not registered with the
registering authority. To hold otherwise would be to defeat the salutary object
and purpose of the Act. Hence, the interpretation to be placed must facilitate
the fulfilment of the object of the law.
It was held that since in the present case,
the First respondent was the ‘owner’ of the vehicle involved in the accident
within the meaning of section 2(30), the liability to pay compensation stands
fastened upon him.
3.
Gurbax Singh vs. Harminderjit
Singh AIR 2018 (NOC) 136 (P. & H.)
Registration – Period of Lease –
Admissibility. [Transfer Of Property Act, 1882, S.106, 107]
It was contended that since the lease
agreement was not specifically shown to be for a period of more than one year,
it was therefore not required to be compulsorily registered.
It was observed that a perusal of section
107 of the T. P. Act shows that any instrument by which a lease of immovable
property is created, either from year to year, or for any term exceeding one
year, or by which a yearly rent is reserved, must only be a registered
instrument.
Any other lease may either be by way of a
registered instrument or even by oral agreement accompanied by delivery of
possession. The proviso to section 107 does stipulate that the State Government
may by notification in the official gazette direct that leases of immovable
property other than leases from year to year or even for any term exceeding one
year or reserving an yearly rent, may be made by unregistered instrument, or
orally, even without delivery of possession. However, no notification issued by
the Government of Punjab has been brought to the notice of this Court by
learned counsel for the appellant, by which any lease as is required to be
registered u/s. 107, is exempted from being so registered.
In the facts of the case, since there was a
rent increase every 15 years by 3%, it was deemed that the lease agreement was
executed for a term exceeding 1 year and hence was supposed to be compulsorily
registered.
4.
The State of Jharkhand and Ors.
vs. Lalita Devi Kejriwal and Ors. AIR 2018 JHARKHAND 7
Registration – Where properties are
situated. [Registration Act, 1908 (S.30)]
It was held that the registration of
properties in Mumbai, which were situated in Ranchi, was in utter violation of
section 30 of the Indian Registration Act 1908 as amended by Bihar Amended Act,
1991. By virtue of this amendment in Indian Registration Act, 1908, the
documents of sale or transfer of the properties must be registered at the place
where the immovable property is situated.
5.
The State of Jharkhand and Ors.
vs. Lalita Devi Kejriwal and Ors. AIR 2018 JHARKHAND 7
Sale – Late mutation of name – Non-joinder
of co-sharer – Unregistered Letter – Invalid [Transfer of Property Act, 1882, S.47]
It was observed that mutation of the names
after registration did not take place for as long as a period of 5 years.
Further, a letter written by the owner of the plots in question was also relied
upon, of which no evidence was provided. Neither the co-sharers joined as
parties to the suit. After taking into consideration the factual matrix as
above, it was held that the sale deed was not valid.
From Published Accounts
Audit Reporting as per revised
Standard on Auditing (SA 701)
Compilers’ Note
The
International Auditing and Assurance Standards Board (IAASB) has issued revised
and new International Standards on Auditing (ISAs) for audit reporting. These
audit reporting ISAs are applicable for all reports issued after 15th
December 2016 onwards.
With a view
to align the Standards on Auditing (SAs) in India, ICAI has also issued revised
reporting standards which are effective for audits of financial statements for
periods beginning on or after April 1, 2017. The said date was subsequently
deferred by 1 year to now become effective for audits of financial statements
for periods beginning on or after April 1, 2017. ICAI has also, in March 2018,
issued an implementation guide to SA 701.
One of the
key features of the revised audit reports is the inclusion of a paragraph
called “Key Audit Matters” (KAM). KAM are defined as those matters that, in the
auditor’s professional judgement, were of most significance in the audit of the
financial statements of the current period. KAM are selected from matters communicated
with TCWG.
Given below
are 2 illustrations of the KAM paragraph included in the audit reports for the
year 2017 of two entities listed overseas.
Unilever N.V. / PLC
Key Audit
Matters – Consolidated Financial
Statements
Recurring risks Revenue recognition
Indirect
tax contingent liabilities
Direct
tax provisions
Event driven Business combinations –
Carver
Disposal
of Spreads business –
presentation
in the financial statements
KEY AUDIT
MATTERS: OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
Key audit
matters are those matters that, in our professional judgement, were of most
significance in the audit of the Financial Statements and include the most
significant assessed risks of material misstatement (whether or not due to
fraud) identified by us, including those which had the greatest effect on: the
overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team.
We summarise
below the key audit matters, in decreasing order of audit significance, in
arriving at our audit opinions above, together with our key audit procedures to
address those matters and, as required, where relevant, by law for public
interest entities, our results from those procedures.
These
matters were addressed, and our results are based on procedures undertaken, in
the context of, and solely for the purpose of, our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate opinion on these
matters.
|
The |
Our |
Revenue Refer |
Revenue is measured net of
Revenue is recognised when |
Our u Accounting u Control u Tests u Within a number of the Group’s markets, u Agreeing a sample of claims and rebate u Critically assessing manual journals posted u Our u Expectation u Assessing u Our The results of our testing |
Indirect Refer |
Contingent liability |
Our u Control u Our u Enquiry of lawyers: u Assessing disclosures: u Our The results of our testing |
Direct Refer |
The Group has extensive |
Our u Control testing: u Our tax expertise: Use u Challenging the assumptions using our own u Assessing disclosures: Our u The results of our testing were |
Business Carver Refer
|
On 1st November
|
Our u Control testing: u Assessing principles: u Benchmarking assumptions: u Assessing disclosures: Our u The results of our testing were |
Disposal – Refer
|
On 15th December
The Spreads business
The presentation of the |
Our u Control testing: u Tests of details: u Agreeing the assets and liabilities u Testing application: u Assessing disclosures: Our u The results of our testing were |
Investment Unilever N.V. Refer
Unilever PLC
Refer
|
The carrying amount of the
We do not consider the
|
Our u Control design: u Tests of details: u Our sector experience: For u Benchmarking assumptions: u Assessing disclosures: Our u The results of our testing were
|
Intangible Unilever N.V.
Refer
|
The carrying amount of
We do not consider the
|
Our u Control design: u Tests of details: u Our sector experience: u Benchmarking assumptions: Comparing u Sensitivity analysis: u Assessing disclosures: Our u The results of our testing were
|
Diageo
PLC
Key audit matters
Key audit matters are those matters that, in
the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on:
the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of
our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. This is not
a complete list of all risks identified by our audit.
Key audit |
How our audit |
Carrying value of Refer to the Report of the Audit Committee Intangible assets The group has goodwill of £2,723 million,
Goodwill and
Management has determined
|
We evaluated the
Our audit
u Benchmarking Diageo’s key market-related u Assessing the reliability of cash flow u Testing the mathematical accuracy and u Understanding the commercial prospects of u For USL goodwill and USL brands, assessing u For
We assessed the
Based on our |
Taxation Refer to the – Contingent
The group operates
Where the amount
We focused on the
This included
|
We evaluated the
We used our tax specialists
We challenged
This included
We assessed the
|
Presentation of
Refer to the
Exceptional items
In the past few |
We evaluated the
We considered the
|
The nature of
This year the
u The release of liabilities recorded in the u A charge in respect of a customer claim in u A charge in respect of a claim received from u A gain in respect of the finalisation of the Our specific are
|
The audit
We challenged
We assessed the
We also considered
No such material
|
Provisions and
Refer to the
The group faces a
|
We evaluated the
Our procedures u Where u Discussing open matters and developments u Meeting u Assessing and challenging management’s u Circularising relevant third party legal
Based on the
We assessed the |
Post-employment Refer to the
The group has
The valuation of
|
We evaluated the
We used our u Assessing u Verifying that the discount and inflation u Reviewing the calculations prepared by
Based on our
|
How we tailored
We tailored the
The group operates
We identified two
|
Certain specific
Together, the
Where the work was
Senior members of
|
Direct Taxes
Circular No. 6 dated 24th January 2017
2. Place of Effective Management guidelines shall not apply to a company having turnover or gross receipts of Rs. 50 crores or less in a financial year
Circular No. 8 dated 23rd February 2017
3. Amendment to Rule 114(1) and Rule 114A(1) to provide for a common application form for allotment of PAN/TAN for certain classes of persons to be notified. Income -tax (2nd Amendment) Rules, 2017
Notification No. 9 dated 9th February 2017
4. Newly incorporating company electronically can apply for PAN in form INC 32 using digital signature as specified by Ministry of Corporate affairs. After generation of Corporate Identity Number, MCA will forward data in prescribed Form 49A to Income tax Authorities using digital signature
Notification No. 2 dated 9th March 2017
5. India and Belgium sign Protocol amending the India-Belgium Double Taxation Avoidance Agreement and Protocol
-Press Release dated 9th March 2017
6. Protocol amending the DTAA between India and Israel to come into effect from 14th February 2017
Notification no. 10/2017 dated 14.2.2017
7. Standard Operating Procedures prescribed by CBDT for verification of cash transactions vis-à-vis Demonetisation
8. Under revised India – Korea DTAA – CBDT has clarified that applications for bilateral APA involving international transactions with AE in Korea for the APA period beginning Fiscal Year 2017¬ 18 can be filed along with request for rollback provision in prescribed form – Press Information Bureau dated 17th March 2017
9. CBDT issues clarification on taxation and investment regime under the Pradhan Mantri Garib Kalyan Yojana, 2016
Circular no. 8/201/ dated 14th March 2017
RBI /FEMA
12. FED Master Direction No. 1/2016-17 dated February 22, 2017
Master Direction – Money Transfer Service Scheme (MTSS)
This Notification contains the updated Master Direction 1 on MTSS. The Master Directions contains a list of Circulars and Notifications that have been consolidated vide this Direction and are Annexed to this Direction. Reporting instructions with respect to this Direction are mentioned in the Master Direction on Reporting.
13. Notification No. FEMA.385/2017-RB dated March 03, 2017
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2017
This notification contains two amendments to Notification No. FEMA 20/2000-RB dated 3rd May 2000 – Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017. Both the amendments pertain to FDI in an Indian LLP.
1. Sub-Regulation (9) of Regulation 5 is substituted as follows: –
“5 (9) A person resident outside India (other than a citizen of Pakistan or Bangladesh) or an entity incorporated outside India (other than an entity in Pakistan or Bangladesh), not being a Foreign Portfolio Investor or Foreign Institutional Investor or Foreign Venture Capital Investor registered in accordance with SEBI guidelines, may contribute foreign capital either by way of capital contribution or by way of acquisition / transfer of profit shares in the capital structure of an LLP under Foreign Direct Investment, subject to the terms and conditions as specified in Schedule 9”
2. Schedule 9 is substituted by a new Schedule 9.
The new Schedule 9 will be known as – The Scheme for Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLP) formed and registered under the Limited Liability Partnership Act, 2008.
The details as to eligible investors, eligible investment, eligibility of LLP, pricing, mode of payment and reporting are given this Notification.
Part D ETHICS, GOVERNANCE & ACCOUNTABILITY
Openness, accountability, and honesty define government transparency. In a free society, transparency is government’s obligation to share information with citizens. It is at the heart of how citizens hold their public officials accountable.
Governments exist to serve the people. Information on how officials conduct the public business and spend taxpayers’ money must be readily available and easily understood. This transparency allows good and just governance.
– Dalai Lama
Part C Information on & Around
An RTI query filed by activist Anil Galgali has revealed that the Chief Minister’s Office (CMO) incurs a monthly expenditure of Rs. 7.7 lakh to pay the officers on special duty (OSD). Galgali feels that the performance of these officers ought to be evaluated and appraised to justify the remuneration.
The CMO, however, feels these OSDs are discharging important duties. “All these officers have contributed immensely in various projects and flagship programmes of the government and the chief minister monitors their performance personally”, the CMO reacted in a written note. It mentioned that governance programmes, such as Aaple Sarkar, Right to Services Act and War Room that led to “good and speedy governance” were handled by OSDs.
The state is also using modern communication platforms such as Twitter, Facebook and WhatsApp. These candidates are handling it for the government to make the state schemes and decisions reach out to people. The OSDs have played an important role in the recent Make in India Week. The CMO still has vacancy for two OSDs.
‘Make In India’ logo designed by foreign firm
The logo of Prime Minister Narendra Modi’s much-hyped Make in India initiative, which aims to brand India as a manufacturing hub is designed by a foreign company’s Indian arm, reveals an RT I query. Replying to query by a Madhya Pradesh-based activist, Chandra Shekhar Gaur, Union Commerce and Industry ministry replied, “No tenders were invited for designing Make in India logo. In 2014-15, tenders were invited by the ministry for appointing a creative agency. And on the basis of this tender, Weiden+Kennedy India Limited, was chosen”.
While replying to another query, the ministry informed that Weiden+Kennedy India Limited was hired for Rs. 11 crore for advertising and promotion of Make In India campaign, for 3 years — Rs. 4.32 crore for financial year 2014-15, Rs. 3.6 crore each for 2015-16 & 2016-17, said the reply in the last week of December.
Speaking to TO I, Gaur said, “It feels good to hear about ‘Make in India’ and the campaign also talks good about our country. It’s a good initiative, but it would have been better and sent a stronger message if this was done by an Indian firm. There is no dearth of creative talent in India.”
HC refuses info under RTI for want of manpower
The Public Information Officer (PIO) of the Madras High Court Bench has refused to furnish information sought for by an advocate under the RT I Act, since “it is not readily available and collection of the same involves verification of voluminous records and huge manpower which is not possible.”
K. H. Elavazhagan, Registrar (Administration)-cum- PIO of the Bench, had said so in a written reply sent to the RT I applicant, A. Kannan, who had sought details of private cases filed by law officers representing the State government before their appointment to the posts of Special Government Pleader, Additional Public Prosecutor and Government Advocate in June 2011.
10 Janpath bigger than PM’s 7 RCR
Congress president Sonia Gandhi has one of the largest residences among politicians in the country, bigger than even the Prime Minister’s official abode at 7 Race Course Road in size. President Pranab Mukherjee and Vice-President Hamid Ansari are the only others who can boast of set-ups more palatial than the politically potent 10 Janpath. But while Rashtrapati Bhavan, the Vice- President’s residence and 7 RCR are official residences, Gandhi’s home at 10 Janpath is specifically allotted to her, irrespective of her status as Member of Parliament. The Gandhi residence is spread over 15,181 sq. m. while the Prime Minister’s is smaller at 14,101 sq. m., according to the Central Public Works Department.
Apex Court refuses to share pending ruling data
Fifteen years after its verdict that the confidence of litigants would be shaken if judgments were kept pending for years, the Supreme Court recently refused to share information under the RT I Act on the cases reserved for judgment. It also dismissed a plea to maintain the data on its pending judgments and make the information public under the RT I Act.
Closing the option for litigants and public-spirited persons to know details of cases which have been waiting endlessly for final decision, even though arguments are long over, the apex court refused to interfere with a Delhi High Court decision which said the court registry could not be directed to collect information on how long judgments on cases remained pending under the Right to information Act.
After a case is heard by a court, it reserves its verdict in the case. There is a certain time gap between this and declaration of the court’s decision or judgment. The case remains pending till the judgment is delivered. However, the Supreme Court’s refusal to be made accountable under the RT I Act is despite the Central Information Commission (CIC) ruling to disclose the number of pending or “reserved” judgments.
60% of discretionary fund used for Karnal, Gurgaon ignored
Haryana Chief Minister, Manohar Lal Khattar had released Rs. 14.30 crore for the state in 2014-15 under the discretionary fund. However, an RT I reply from the government has revealed that it has not spent a penny of this fund in Gurgaon.
The government in its reply said Rs. 8.76 crore, a whopping 60% of the entire amount was spent in Karnal, the CM’s constituency.
Chief Ministers’ discretionary fund is meant to provide immediate relief during calamities, disasters and other similar incidents when the other government machinery is slow and bound by rules and regulations. The apex court in 2011 had upheld this quota stating that the power of the chief minister to give monetary relief was power accompanied with duty.
While the funds in the CM’s discretionary quota are meant exclusively for an emergency, what is surprising is that Khattar has bestowed a major part of his largesse to only six villages in Karnal for development work.
Part B RTI Act, 2005
As a part of its e-governance initiatives, the Delhi government will begin accepting online filing of RTI applications within the next 3 months. According to government sources, the online RT I project is in the pipeline along with the project to set up e-Mandis, which will also make the sale of agricultural produce more transparent.
The project will help citizens file applications seeking information pertaining to any government department, make payments online and receive replies through e-mail. Currently, RTI applications are filed in person or by post.
The online applications, sources said, will have a payment gateway similar to an e-commerce platform and payments will be enabled by credit or debit cards, or netbanking. The government is currently working on setting up the infrastructure to ensure appropriate channeling of applications to the concerned departments. A back-end set up will also have to be created to channel the RT I fees to the concerned department, said sources. In addition, the government is also training its officials to gradually shift the RTI setup to a paperless office. Sources said training of government employees will also take some time before all RT I operations become paperless. The government, however, will rope in various departments to be able to complete the process within the next three months. About the e-Mandi project, sources said it was conceptualised to regulate the prices of agricultural produce and eliminate the monopoly of some vendors. This will ensure that details of all products are online. If the sale of some product is stuck, their availability or otherwise can be seen online, said a source. The project is still nascent and will take time to be planned and executed. While both the projects have received the government’s nod, the cost involved in setting them up is still being worked out, said officials. The majority of the expenses, they said, would be on setting up the online platforms and back-end operations.
Part A Decision of Supreme Court
The Supreme Court held that candidates in recruitment examinations can seek scanned copies of answer sheets and tabulation of interview marks under the Right to Information (RT I) Act, but the right to information does not extend to disclosure of names of examiners.
A Bench of Justices M.Y. Eqbal and Arun Mishra in the case ‘Kerala Pub. Service Commn. & Ors. vs. State Information Commn. & Anr’ said disclosure of those who evaluated their mark sheets would not be in public interest.
The Apex Court held:
“The request of the information seeker about the information of his answer sheets and details of the interview marks can be and should be provided to him. It is not something which a public authority keeps it under a fiduciary capacity. Even disclosing the marks and the answer sheets to the candidates will ensure that the candidates have been given marks according to their performance in the exam. This practice will ensure a fair play in this competitive environment, where candidate puts his time in preparing for the competitive exams, but, the request of the information seeker about the details of the person who had examined/checked the paper cannot and shall not be provided to the information seeker as the relationship between the public authority i.e. Service Commission and the Examiners is totally within fiduciary relationship. The Commission has reposed trust on the examiners that they will check the exam papers with utmost care, honesty and impartially and, similarly, the Examiners have faith that they will not be facing any unfortunate consequences for doing their job properly. If we allow disclosing name of the examiners in every exam, the unsuccessful candidates may try to take revenge from the examiners for doing their job properly. This may, further, create a situation where the potential candidates in the next similar exam, especially in the same state or in the same level will try to contact the disclosed examiners for any potential gain by illegal means in the potential exam.”
Ethics and U
Shrikrishna (S) — Yes Arjun, how was the budget?
Arjun (A) —You mean Union Budget of 2016-17? It was very nice!
S — What was nice about it?
A — FM has touched upon many pain-points of tax payers. Has tried to rationalise many provisions.
S — Oh! You CAs believe that Budget means Finance Bill. That too, only Direct tax. One needs to see the broader picture; the economic part as well.
A — I agree. But those astronomical figures of a few lakh crores; and high-dream schemes really don’t make any meaning. Statistics is always deceptive.
S — Still, you should try to understand those things.
A — What you say is right. But who has the time to go through it? You know how hectic March is for us.
S — But you have no choice. Clients will expect a communication from you about the salient features.
A — So many people and firms bring out the booklets. Our BCAS budget booklet is excellent. S — T hat’s true. But have you bothered to buy them and distribute among your clients? You should educate your clients.
A — We are running around for completion of scrutiny assessments; service tax calculations, and what not!
S — And what about bank audits that will come in April?
A — That reminds me. I need to attend branch audit seminars. I have also to complete my CPE hours! A headache!
S — But why did you not complete it before? Why wait till the last date; and do it only in extended time?
A — That is in our blood now! We CAs don’t like to do things in time.
S — So that at the last moment, you can act to be too busy!
A — But these compliances keep us busy round the year. There is no respite to think of anything creative.
S — There is one more important thing that you CAs have not taken seriously! And that may invite trouble.
A — He Bhagwan! What do you mean? Any more burden?
S — Yes. Income Computation Disclosure Standards. ICDS.
A — I have heard about it. What exactly is it?
S — You are mainly practising income tax. Then you should know it. There are 10 ICDS and the Income for financial year 2015-16 was supposed to be computed by applying ICDS.
A — Oh, My God! Really, is it applicable? So our advance tax estimates also were to be done by ICDS?
S — Of course! Materiality, Revenue Recognition, Foreign Exchange, Inventory Valuation and so many of them. All affecting taxable income.
A — But have they not postponed it? Such a new thing made applicable all of a sudden!
S — They brought it last year only. But you always expect extension of every compliance.
A — Lord, we meet here to discuss our Code of Ethics. What has ICDS to do with the Code of Ethics?
S — You are mistaken, my dear! Technical competence is a fundamental part of ethics. You are a professional. If you are not up-to-date in knowledge, how will you render proper service?
A — That’s a point.
S — Technical lapses, lack of basic knowledge on the part of a CA, are considered to be misconduct.
A — Is it negligence?
S — Certainly.
A — But is there any effect on accounts?
S — No. On account of ICDS, you need not change the accounts. But tax provision will be affected.
A — Then our audit will also be affected. It is a part of statutory compliance.
S — And not doing it properly is a gross-negligence; or at least a lack of due diligence!
A — Clause (7) of part I of Second Schedule! Right? S — Very good! You remember so much!
A — So now, I need to update myself on Ind AS and ICDS! That means, my summer vacation is gone!
S — Don’t sacrifice your vacation. But always have knowledge update in your priority list. Be pro-active and avoid last moment tensions.
A — I agree. It affects our health; quality of work suffers; and in general, there is trouble.
S — Timely action will bring you peace in practice.
A — You are absolutely right, Lord, as always! Om shanti !!!!!
From the President
Greetings!
Spring is here. Many trees in Mumbai have fresh light green leaves. Mumbai streets sprinkled with yellow Peltophorum blossoms are quite a sight! Hues in heat give some respite to our eyes, at least. Indian Laburnum should bloom soon and you can identify them, as these are totally golden yellow blossom laden trees without any greens. To the otherwise sultry weather, trees with bright flowers give a colourful and cheerful touch.
The Lecture Meeting on Finance Bill 2016 addressed by respected Shri S. E. Dastur, Senior Advocate has been a sought after lecture meeting each year. This year, the number of proposed amendments in the direct tax provisions were numerous and therefore the interest was even more. The lecture meeting held at Yogi Sabhagruh, at Dadar was packed with nearly 2,500 professionals and tax payers. The proceedings of the meeting were also webcast live. There were 4,000+ connections watching the live webcast. This was his 28th speech on the Finance Bill and we are indeed grateful to him for that.
Just like we had short videos on budget expectations, which I hope you had a chance to look at, a short video on post budget analysis by various professionals is posted on the Society’s You Tube channel. A number of tax professionals have given their views on various aspects of the Finance Bill. This video was shot at Yogi Sabha Gruh just before Mr. Dastur’s lecture. I believe that we have to go digital in many more ways. Video as a medium often is easier to comprehend the topic than reading, especially when it is focussed on a specific topic and is succinct. At the Society we will roll out more digital initiatives, especially after our office is renovated.
The Society conducted its Annual FEMA conference where the RBI officials were present. The Executive Director, Mr. B. P. Kanungo inaugurated the conference and gave a wonderful keynote address. On hearing the RBI senior officials one would feel tremendous amount of comfort about this regulator which is critical to the economy of the nation. He mentioned that the spirit of FEMA is carefully preserved by the RBI resulting in a shift from intrusive monitoring to document based monitoring. He mentioned that RBI was committed to facilitate ease of doing business and therefore numerous regulations / circulars will be folded back to 19 regulations. In this context even master circulars under FEMA have been replaced by 17 Master Directions from 1st January 2016. Two more master directions are soon to be kept in the public domain. It was heartening to learn that the RBI was committed to the principle of growth with stability. He mentioned that the laws had to be simple, comprehensible and easy to enforce and that the central bank was working at reducing definition differences with other Acts such as the Companies Act, 2013 amongst several other changes that are likely to get rolled out in the coming months.
The changes in tax provisions brought out by the Union Budget give a mixed picture. The compliance burden remains and faith in taxpaying citizens is low. However, the economic growth seems to be in focus in a big way. Several changes either through the budget or otherwise are notable in this context. The unified agricultural market scheme on e platform will be a major boost. The National Digital Literacy Mission will cover more than 6 crore households. The Real Estate Bill finally brings in a regulator to regulate important areas affecting millions and is rightly skewed in favour of the consumer. The recent Companies (Amendment) Bill, 2016 clarifies, amends several facets of a badly drafted and hastily enacted law. The government opened the gates for FDI for e-retail. This sector with about Rs. 65,000 crores in investment in the last 10 years is bound to see massive changes in the way this sector works in a digital age. The FII inflows are at 3 year high. A rate cut from RBI is impending. The budget seeks to curtail fiscal deficit to 3.5% of GDP in accordance with the FRBM Act, 2003. The clearance of new defence procurement policy, categorising Indian Designed, Developed and Manufactured (IDDM) could spell a boost to manufacture of defence material in India. We are eager to see the bankruptcy code become a reality. In other words there are positive indicators, in spite of severe challenges meteorologically, economically, and politically.
This year we can celebrate 25 years of liberalisation of Indian economy. The present government will complete 2 years too. Overall, India has come a long way from where it was. The Modi Sarkar seems to be doing something right, at a level that can change the game in many areas. The Prime Minister certainly has been a pragmatic modernizer of the role of the government in an economy like ours.
The virtuous cycle of creating demand by putting money in the hands of a billion people is still a moving target. Large investment in India in the private sector still looks risky. Although creation of jobs is the top priority, there are about Rs. 13 Lakh crores of projects stuck in some approval issue. Even if most of these are unlocked, it can result in meaningful employment and gainful compensation for millions of youth entering the work force.
Wishing you all happy new financial year beginning from 1st April!
Glimpses Of Supreme Court Rulings
1. Sedco Forex International Inc. vs. Commissioner of
Income Tax, Meerut and Ors. (2017) 399 ITR 1 (SC). A. Ys.: 1986-87, 1987-88, 2000-2001.
Non-resident
– Prospecting for, or extra production of mineral ore – All amounts pertaining
to the aforesaid activity which are received on account of provisions of
services and facilities in connection with the said facility are treated as
profits and gains of the business under section 44BB – The fixed amount which
was paid to the Assessees in respect of the contract which was indivisible was
towards mobilisation fee and the same was not for reimbursement of expenses as
the same was payable irrespective of the amount of expenditure incurred and
thus was covered by the provisions of section 44BB.
In the group of appeals
that came up for hearing before the Supreme Court, the appeals filed by Sedco
Forex International Inc., M/s. Transocean Offshore Inc., M/s. Sedco Forex
International Drilling Inc. respectively were taken up as lead matters and,
therefore, for the sake of brevity, the factual matrix from the said appeals,
was considered for answering the question involved.
During the years under
consideration, the Assessees were engaged in executing the contracts all over
the world including India in connection with exploration and production of
mineral oil. The Assessees were companies incorporated outside India and,
therefore, non-resident within the meaning of section 6 of the Act. The
Assessees entered into agreements with ONGC, Enron Oil and Gas India Ltd. The
aforesaid agreements provided for the scope of work along with separate
consideration for the work undertaken. Since the dispute was about mobilisation
charges, the Supreme Court noted clauses in respect thereof which read as
under:
“Operating
Rate-Receipts for undertaking drilling operations computed by per day rates
provided in the contract. The operating rates shall be payable from the time
the drilling unit is jacked-up and ready at the location to spud the first
well.
Mobilisation-charges
for the transport of the drilling unit from a location outside India to a
location in India as may be designated by ONGC”.
In addition to the above,
Assessees also received amounts from the operator towards reimbursement of
expenses like catering, boarding/lodging, fuel, customs duty, the supply of
material etc., with which the Supreme Court was not concerned.
The Assessees filed their
return of income declaring income from charter hire of the rig. The same was
offered to tax u/s. 44BB of the Act. In the case of Sedco Forex International
Inc., the Assessee did not include the amount received as mobilisation charges
to the gross revenue for the purpose of computation u/s. 44BB of the Act. In
the case of Transocean Offshore Inc., the Assessee included 1% of the
mobilisation fees. The mobilisation fees were offered to tax on a 1% deemed
profit basis on the ratio of the CBDT Instruction No. 1767 dated July 1, 1987.
The AO
included the amounts received for mobilisation/demobilisation to the gross
revenue to arrive at the “profits and gains” for the purpose of
computing TAX u/s. 44BB of the Act. The Commissioner of Income Tax (Appeals)
confirmed the action of the AO. The Income Tax Appellate Tribunal in the case
of Sedco Forex International Inc. dismissed the appeal of the Assessee and the
action of the AO was upheld insofar as the mobilisation charges were concerned.
In the case of Transocean Offshore Inc., the ITAT upheld the view taken by the
Assessee and directed the AO to assess the profits on mobilisation charges at
1% of the amount received. This was done following the Circular of CBDT
Instruction No. 1767 dated July 1, 1987 and decision of the third Member in the
case of Saipem S.P.A. vs. Deputy Commissioner of Income Tax 88 ITD 213 (Del).
The High Court held that the mobilization charges reimbursed inter alia
even for the services rendered outside India were taxable u/s. 44BB of the Act
as the same were not governed by the charging provisions of sections 5 and 9 of
the Act. Even on the issue of reimbursement in M/s. Sedco Forex International
Drilling Inc., the High Court followed its earlier judgments dated September
20, 2007 and May 22, 2009 to hold that reimbursement of expenses incurred by
the Assessee was to be included in the gross receipts, and taxable u/s. 44BB of
the Act.
According to the Supreme
Court the issue that needed examination
was as to whether mobilisation charges received by the Assessees could be
treated as ‘income’ u/s. 5 of the Act and would fall within the four corners of
section 9, namely, whether it could be attributed as having arisen or deemed to
arise in India.
The Supreme Court noted
that the argument of the learned Counsel appearing for the Assessees was that
the amount was received by way of reimbursement of expenses for the operation
carried outside India and the payment was also received outside India. It was
on this premise, entire edifice was built to argue that it was not an
“income” and, in any case, not taxable in India at the hands of the
Assessees which were foreign entities.
The Supreme Court noted
Clause 3.2 of the Agreement dated September 3, 1985 and Clause 4.2 of the
Agreement dated July 12, 1986. Clause 3.2 of the Agreement dated September 3,
1985 pertained to providing the Shallow Dash Water Jack Up Rig against which
payment was made to the Assessees. This Clause said that the Assessees shall be
paid ‘mobilisation fee’ for the mobilisation of drilling unit from its present
location in Portugal to the well location designated by ONGC, offshore Mumbai,
India. Fixed amount was agreed to be paid which was mentioned in the said
Clause. The aforesaid mobilisation fee was payable to the Assessees after the
jacking up of the drilling at the designated location and ready to spud the
well. After the aforesaid operation, Assessees were required to raise invoice
and ONGC was supposed to make the payment within 30 days of the receipt of this
invoice. Insofar as Clause 4.2 of Agreement dated July 12, 1986 was concerned,
it related to mobilisation of drilling unit. Here again, ‘mobilisation fee’ was
payable for the mobilisation of the drilling unit from the place of its origin
to the port of entry (Kandla Port, Mumbai). Hence, a fixed amount of
mobilisation fee was payable under the aforesaid contracts as
“compensation”. Contracts specifically described the aforesaid
amounts as ‘fee’. According to the Supreme Court it was in this hue, it had to
consider as to whether it would be treated as “income” u/s. 5 of the
Act and could be attributed as income earned in India as per section 9 of the
Act. For this purpose, section 44BB(2) had to be invoked.
The Supreme Court noted that
section 44BB starts with non-obstante clause, and the formula contained
therein for computation of income is to be applied irrespective of the
provisions of sections 28 to 41 and sections 43 and 43A of the Act. It was not
in dispute that Assessees were assessed under the said provision which was
applicable in the instant case. For assessment under this provision, a sum
equal to 10% of the aggregate of the amounts specified in sub-section (2) shall
be deemed to be the profits and gains of such business chargeable to tax under
the head ‘profits and gains of the business or profession’. Sub-section (2)
mentions two kinds of amounts which shall be deemed as profits and gains of the
business chargeable to tax in India. Sub-clause (a) thereof relates to amount
paid or payable to the Assessee or any person on his behalf on account of
provision of services and facilities in connection with, or supply of plant and
machinery on hire used, or to be used in the prospecting for, or extraction or
production of, mineral oils in India. Thus, according to the Supreme Court all
amounts pertaining to the aforesaid activity which are received on account of
provisions of services and facilities in connection with the said facility are
treated as profits and gains of the business.
This Clause clarifies that
the amount so paid shall be taxable whether these are received in India or
outside India. Clause (b) deals with amount received or deemed to be received
in India in connection with such services and facilities as stipulated therein.
Thus, whereas Clause (a) mentions the amount which is paid or payable, Clause
(b) deals with the amounts which are received or deemed to be received in
India. The Supreme Court therefore was of the opinion that in respect of amount
paid or payable under Clause (a) of sub-section (2), it was immaterial whether
these were paid in India or outside India. On the other hand, amount received
or deemed to be received have to be in India.
The Supreme Court held that
from the bare reading of the clauses, amount paid under the aforesaid contracts
as mobilisation fee on account of provision of services and facilities in
connection with the extraction etc. of mineral oil in India and against the
supply of plant and machinery on hire used for such extraction, Clause (a)
stood attracted. Thus, this provision contained in Section 44BB had to be read
in conjunction with sections 5 and 9 of the Act and sections 5 and 9 of the Act
could not be read in isolation.
The aforesaid amount paid
to the Assessees as mobilisation fee had to be treated as profits and gains of
business and, therefore, would be
“income” as per section 5. This provision also treats this income as
earned in India, fictionally, thereby satisfying the test of section 9 of the
Act as well.
The Supreme Court
reiterated that the amount which was paid to the Assessees was towards
mobilisation fee. It did not mention that the same was for reimbursement of
expenses. In fact, it was a fixed amount paid which could be less or more than
the expenses incurred. Incurring of expenses, therefore, would be immaterial.
According to the Supreme Court, it was also to be borne in mind that the
contract in question was indivisible. Having regard to these facts in the
present case as per which the case of the Assessees got covered under the
aforesaid provisions, the Supreme Court did not find any merit in any of the
contentions raised by the Assessees.
In the batch of appeals,
before the Supreme Court there was a solitary appeal which was preferred by the
Director of Income Tax, New Delhi (Revenue) against the judgment of the High
Court of Uttarakhand. The computation of income of the Assessee was done u/s.
44BB of the Act.
However, the amount which
was sought to be taxed was reimbursement of cost of tools lost in hole by ONGC.
The Supreme Court held that it was thus, clear that this was not the amount
which was covered by sub-section (2) of section 44BB of the Act as ONGC had
lost certain tools belonging to the Assessee, and had compensated for the said
loss by paying the amount in question. On these facts, conclusion of the High
Court was correct. Even otherwise, the tax effect is Rs. 15,12,344/-.
Therefore, that Civil Appeal filed by the Revenue was dismissed.
2. K. Lakshmanya and Company vs. Commissioner of
Income Tax and Ors. (2017) 399 ITR 657 (SC) A.Y.s:
1993-94, 1994-95.
Refund –
Interest on refund – Section 244A is even wider than section 244 and is not
restricted to refund being issued to the Assessee in pursuance to an order
referred to in section 240. Under this section, it is enough that the refund
becomes due under the Income-tax Act, in which case the Assessee shall, subject
to the provisions of this section, be entitled to receive simple interest.
The Assessee, being a
partnership firm, filed a return for assessment years 1993-94 and 1994-95 and
once the order of assessment was completed, interest under sections 234(A) to
(C) was levied.
Aggrieved by this levy of
interest, the Assessee filed an application before the Settlement Commission,
requesting the Commission to waive the interest on the ground that it caused
hardship to it. The Settlement Commission, by its order dated 22.03.2000,
referred to a circular of the CBDT which gave it the power to waive such interest;
and by the aforesaid order, interest was partially waived for the assessment
years in question. On an application made by the Assessee, the Assessing
Officer, by his order dated 25.04.2000 refused to grant interest on the refund
that was payable, and was not paid, within three months from the specified
date. This was done on two grounds, namely, that the provisions of section
244A do not provide for payment of
interest on refund due on account of waiver of interest that is charged under
sections 234(A)-(C) of the Act and second, that the power assumed by the
Settlement Commission for waiver of interest, by following the CBDT circular
referred to, does not enable the Commission to provide for payment of interest
u/s. 244A.
An appeal that was filed
before the C.I.T. (Appeals) was allowed. This was done by referring to a
judgment of the Madras High Court in Commissioner of Income-Tax vs. Needle
Industries Pvt. Ltd. 233 ITR 370 and with reference to the CBDT circular
which enabled the Settlement Commission to waive interest. An appeal by the
Revenue to the Income-Tax Appellate Tribunal was dismissed. However, in appeal
to the High Court, by the judgment dated 09.12.2009, the High Court of
Karnataka held that, since waiver of interest was within the discretion of the
Settlement Commission, no right flowed to the Assessee to claim refund as a
matter of right under law. In the aforesaid circumstances, the judgements of
the Tribunal and C.I.T. (Appeals) were set aside and the Assessing Officer’s
order was restored.
The question that arose
before the Supreme Court therefore was whether the High Court of Karnataka at
Bangalore was correct in holding that the Assessee in the present case was not
entitled to interest u/s. 244A of the Income-Tax, 1961 Act, when refund arose
to it on account of interest that was partially waived by an order of the
Settlement Commission.
According to the Supreme
Court, a reading of the section 240 showed that refund may become due to the
Assessee, either as a result of an order passed in appeal or other proceedings
under this Act. It was clear that refund that arises as a result of an order
passed u/s. 245(D)(4) was an order passed in “other proceedings under this
Act”. Thus, it was clear that the Assessee in the present case was covered
by section 240 of the Act.
The Supreme Court noted
that when it comes to interest on refund, section 244, which applied to
assessment years up to and including assessment year 1989-90, makes it clear
that it would apply where a refund is due to the Assessee in pursuance of an
order referred to in section 240. It is only if the Assessing Officer does not
grant the refund within three months from the end of the month in which such
order is passed, that the Central Government shall pay to the assesses simple
interest on the amount of refund due.
According to the Supreme
Court, section 244A is even wider than section 244 and is not restricted to
refund being issued to the Assessee in pursuance to an order referred to in
section 240. Under this section, it is enough that the refund becomes due under
the Income-tax Act, in which case the Assessee shall, subject to the provisions
of this section, be entitled to receive simple interest.
The Supreme Court was of
the view that the present case would fall outside sub-clauses (a) and (aa) of
this provision and, therefore, fall within the residuary clause, namely
sub-clause (b) of section 244A.
The Supreme Court held that
the Madras High Court in Needle Industries Pvt. Ltd. (supra) concerned
itself with the position prior to the advent of section 244A. It found that the
expression “refund of any amount” used by section 240 and 244 would
include not only tax and penalty but interest also. It was, therefore, held
that the clear intention of Parliament is that the right to interest will
compensate the Assessee for the excess payment during the intervening period
when the Assessee did not have the benefit of use of such money paid in
whatsoever character. The Supreme Court further noted that in Sandvik Asia
Ltd. vs. CIT (2006) 280ITR 643 (SC), it had expressly approved the decision
of the Madras High Court.
The Supreme Court also
referred to its decision in CIT vs. HEG Ltd. (2010) 324 (331) (SC) which
considered the meaning of the expression “where refund of any amount become due
to the assessee” in section 244A(1).
The Supreme Court referred
to its decision in UOI vs. Tata Chemicals Ltd. (2014) 363 ITR 658 (SC)
and observed that it clearly showed that a corresponding right exists, to
refund to individuals any sum paid by them as taxes which are found to have
been wrongfully existed or believed to be, for any reason, inequitable.
The statutory obligation to
refund, being non discretionary, carries with it the right to interest, also
making it clear that the right to interest is parasitical. The right to claim
refund is automatic once the statutory provisions have been complied with.
The Supreme Court held that
of the view that the expression “due” only means that a refund
becomes due if there is an order under the Act which either reduces or waives
tax or interest. It is of no matter that the interest that is waived is
discretionary in nature, for the moment that discretion is exercised, a concomitant
right springs into being in favour of the Assessee. According to the Supreme
Court the C.I.T. (Appeals) and the ITAT were therefore correct in their view
and that consequently, the High Court was incorrect in its view that since a
discretionary power has been exercised, no concomitant right was found for
refund of interest to the Assessee.
The appeals were
accordingly allowed by the Supreme Court.
3. Commissioner of Income Tax vs. Modipon Ltd.
(2018) 400 ITR 1 (SC)A.Y.:1993-94,
1996-97,1998-99
Business
expenditure – The advance deposit of central excise duty constitutes actual
payment of duty within the meaning of Section 43B and, therefore, the Assessee
is entitled to the benefit of deduction of the said amount.
The question that was
involved in the appeals before the Supreme Court was formulated as under:
“Whether the Assessee is
entitled to claim deduction under 43B of the Income Tax Act, 1961 in respect of
the excise duty paid in advance in the Personal Ledger Account (“PLA”
for short)?”
The Revenue urged that
though levy of excise is on manufacture of excisable goods, actual payment of
duty is at the stage of removal. The advance duty paid in the PLA is
adjusted/debited from time to time, against clearances/removal made by the
Assessee. Unless such clearances/removal are made and excise duty is debited
from the advance deposit there is no actual payment of duty so as to entitle an
Assessee to the benefit of deduction u/s. 43B of the Income-tax Act which
contemplates deduction only against actual payment as distinguished from
accrual of liability. It was urged on behalf of the Revenue that the amount in
deposit was akin to a loan and under the provisions of Central Excise Rules,
part or whole of the said amount could be refunded to the Assessee. It was
further submitted that Under Rule 21 of the Central Excise Rules, 1944, at any
time before removal, the Commissioner or the other authorities prescribed
therein may remit duty in respect of manufactured goods lost or damaged or
otherwise unfit for consumption or marketing. The amount of advance deposit,
therefore, did not represent actual payment of duty so as to entitle an
Assessee to the benefit of deduction under section 43B. Accordingly the orders
of the High Courts challenged in the appeals were liable to interference.
In reply, the learned
senior Counsel appearing for the Assessee has submitted that u/s. 3 of the
Central Excise Act, the event for levy of excise duty is the manufacture of
goods though the duty is to be paid at the stage of removal of the goods.
Pointing out the provisions of Rule 173G of the Central Excise Rules, 1944 it
was submitted that the advance deposit of central excise duty in a current
account is a mandatory requirement from which adjustments are made, from time to
time, against clearances effected. Though, Sub-rule (1)(A) contemplates refund
from the current account, such refund could be granted only on reasons being
recorded by the concerned authority i.e., the Commissioner on the application
filed by the Assessee. Refund is not a matter of right. The amount deposited in
the PLA is irretrievably lost to the Assessee. Payment of central excise duty
takes place at the time of deposit in the PLA, though the deposit is on the
basis of an approximation and the precise amount of duty qua the goods removed
is ascertained at the stage of removal/clearances. The said facts, according to
the learned Counsel, would not make the deposit anything less than actual
payment of duty.
The Supreme Court noted
that deposit of Central Excise Duty in the PLA is a statutory requirement. The
Central Excise Rules, 1944, specify a distinct procedure for payment of excise
duty leviable on manufactured goods. It is a procedure designed to bring in
orderly conduct in the matter of levy and collection of excise duty when both
manufacture and clearances are a continuous process. Debits against the advance
deposit in the PLA have to be made of amounts of excise duty payable on
excisable goods cleared during the previous fortnight. The deposit once made is
adjusted against the duty payable on removal and the balance is kept in the
account for future clearances/removal. No withdrawal from the account is
permissible except on an application to be filed before the Commissioner who is
required to record reasons for permitting an Assessee to withdraw any amount
from the PLA. Sub-rules (3), (4), (5) and (6) of Rule 173G indicates a strict
and vigorous scrutiny to be exercised by the central excise authorities with
regard to manufacture and removal of excisable goods by an Assessee. According
to the Supreme Court, the self removal scheme and payment of duty under the Act
and the Rules clearly showed that upon deposit in the PLA the amount of such
deposit stood credited to the Revenue with the Assessee having no domain over
the amount(s) deposited.
The Supreme Court was of
the view that the analogy of decisions in C.I.T. vs. Pandavapura Sahakara
Sakkare Karkhane Ltd. 198 ITR 690 (Kar.) and C.I.T. vs. Nizam Sugar
Factory Ltd. 253 ITR 68 (AP) would apply to the case in hand, in which, it
was held that where Assessee had no control over the amounts received, the same
could not be taxed in its hands.
The Supreme Court observed
that the Delhi High Court in the appeals arising from the orders passed by it
had also taken the view that the purpose of introduction of section 43B was to
plug a loophole in the statute which permitted deductions on an accrual basis
without the requisite obligation to deposit the tax with the State.
Resultantly, on the basis of mere book entries an Assessee was entitled to
claim deduction without actually paying the tax to the State. Having regard to
the object behind the enactment of section 43B and the preceding discussions,
the Supreme Court held that the legislative intent would be achieved by giving
benefit of deduction to an Assessee upon advance deposit of central excise duty
notwithstanding the fact that adjustments from such deposit are made on
subsequent clearances/removal effected from time to time.
The Supreme Court concluded
that the High Courts were justified in taking the view that the advance deposit
of central excise duty constitutes actual payment of duty within the meaning of
section 43B and, therefore, the Assessee is entitled to the benefit of deduction
of the said amount.
The Supreme Court dismissed
the appeals and affirmed the orders of the High Courts of Delhi and Calcutta
impugned in these appeals.
4. ITO
vs. Venkatesh Premises Co-op. Society Ltd. (Civil Appeal No. 2708 of 2018 dated
12.3.2018 arising from SLP(C) No. 30194/2010)
Principle
of mutuality – Certain receipts by cooperative societies, from its members i.e.
non-occupancy charges, transfer charges, common amenity fund charges and
certain other charges, are exempt from income tax based on the doctrine of
mutuality.
A common question of law
that arose for consideration in a batch of appeals before the Supreme Court was
as to whether certain receipts by cooperative societies, from its members i.e.
non-occupancy charges, transfer charges, common amenity fund charges and
certain other charges, are exempt from income tax based on the doctrine of
mutuality.
The challenge was based on
the premise that such receipts were in the nature of business income,
generating profits and surplus, having an element of commerciality and
therefore exigible to tax.
The assessee in one of the
appeals (Civil Appeal No.1180 of 2015 – Sea Face Park Co.Op. Housing Society
Ltd. vs. Income Tax Officer) assailed the finding that such receipts, to
the extent they were beyond the limits specified in the Government notification
dated 09.08.2001 issued u/s. 79A of the Maharashtra Cooperative Societies Act,
1960 (hereinafter referred to as ‘the Act’) was exigible to tax falling beyond
the mutuality doctrine.
The Supreme Court noted the
primary facts, for better appreciation from SLP (C) No.30194 of 2010 (ITO
vs. Venkatesh Premises Co-op. Society Ltd.). The assessing officer held
that receipt of non-occupancy charges by the society from its members, to the
extent that it was beyond 10% of the service charges/maintenance charges
permissible under the notification dated 09.08.2001, stands excluded from the
principle of mutuality and was taxable. The order was upheld by the
Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal held
that the notification dated 09.08.2001 was applicable to cooperative housing
societies only and did not apply to a premises society. It further held that
the transfer fee paid by the transferee member was exigible to tax as the transferee
did not have the status of a member at the time of such payment and, therefore,
the principles of mutuality did not apply. The High Court set aside the finding
that payment by the transferee member was taxable while upholding taxability of
the receipt beyond that specified in the government notification.
The Supreme Court held that
the doctrine of mutuality, based on common law principles, is premised on the
theory that a person cannot make a profit from himself. An amount received from
oneself, therefore, cannot be regarded as income and taxable. Section 2(24) of
the Income-tax Act defines taxable income. The income of a cooperative society
from business is taxable u/s. 2(24)(vii) and will stand excluded from the
principle of mutuality. The essence of the principle of mutuality lies in the
commonality of the contributors and the participants who are also the
beneficiaries. The contributors to the common fund must be entitled to
participate in the surplus and the participators in the surplus are contributors
to the common fund. The law envisages a complete identity between the
contributors and the participants in this sense. The principle postulates that
what is returned is contributed by a member. Any surplus in the common fund
shall therefore not constitute income but will only be an increase in the
common fund meant to meet sudden eventualities. A common feature of mutual
organisations in general can be stated to be that the participants usually do
not have property rights to their share in the common fund, nor can they sell
their share. Cessation from membership would result in the loss of right to
participate without receiving a financial benefit from the cessation of the
membership.
The Supreme Court noted
that in the appeals before it, transfer charges were payable by the outgoing
member. The Supreme Court held that if for convenience, part of it was paid by
the transferee, it would not partake the nature of profit or commerciality as
the amount is appropriated only after the transferee is inducted as a member.
In the event of non-admission, the amount is returned. The moment the
transferee is inducted as a member the principles of mutuality apply. Likewise,
non-occupancy charges are levied by the society and is payable by a member who
does not himself occupy the premises but lets it out to a third person. The
charges are again utilised only for the common benefit of facilities and
amenities to the members. Contribution to the common amenity fund taken from a
member disposing property is similarly utilised for meeting sudden and regular
heavy repairs to ensure continuous and proper hazard free maintenance of the
properties of the society which ultimately enures to the enjoyment, benefit and
safety of the members. These charges are levied on the basis of resolutions
passed by the society and in consonance with its byelaws. The receipts in the
present cases are indisputably been used for mutual benefit towards maintenance
of the premises, repairs, infrastructure and provision of common amenities.
The Supreme Court further
held that any difference in the contributions payable by old members and fresh
inductees cannot fall foul of the law as sufficient classification exists.
Membership forming a class, the identity of the individual member not being
relevant, induction into membership automatically attracts the doctrine of
mutuality. If a Society has surplus FSI available, it is entitled to utilise
the same by making fresh construction in accordance with law. Naturally such
additional construction would entail extra charges towards maintenance,
infrastructure, common facilities and amenities. If the society first inducts
new members who are required to contribute to the common fund for availing
common facilities, and then grants only occupancy rights to them by draw of
lots, the ownership remaining with the society, the receipts cannot be
bifurcated into two segments of receipt and costs, so as to hold the former to
be outside the purview of mutuality classifying it as income of the society
with commerciality.
The Supreme Court with
reference to decision in The New India Cooperative Housing Society vs. State
of Maharashtra 2013 (2) MLJ 666 relied upon by the Revenue to contend that
any receipt by the society beyond that permissible in law under the
notification was not only illegal but also amounted to rendering of services
for profit attracting an element of commerciality and thus was taxable held
that the challenge by the aggrieved was to the transfer fee levied by the
society in excess of that specified in the notification, which was a completely
different cause of action having no relevance to the present controversy.
According to the Supreme
Court, it was not the case of the Revenue that such receipts has not been
utilized for the common benefit of those who have contributed to the funds.
Also, there was no reason
to take a view different from that taken by the High Court, that the notification
dated 09.08.2001 is applicable only to cooperative housing societies and has no
application to a premises society which consists of non-residential premises.
In the result, all appeals
preferred by the Revenue were dismissed by the Supreme Court and Civil Appeal
No.1180 of 2015 preferred by the assessee society was allowed.
From the President
Dear Members,
Surfing the net one evening, I found an interesting quote:
Contentment is the highest gain, Good
Company the highest course, Enquiry the highest wisdom, and Peace the highest
enjoyment
How true, how true… but I realised
it’s even more relevant if you are a highly respected and eagerly awaited
Journal and now on its way to celebrate the fiftieth anniversary of the
prestigious BCA Journal starting this April.
It has been very exciting and eventful
five decades that have gone by; and BCAJ has captured the essence of a growing
India as it oscillated between turbulence and smooth sailing. I see BCAJ as a
tireless marathon runner striding effortlessly as it straddles time, with well
researched and incisive articles for tax and accounting professionals, both in
practice and industry.
BCAJ has also been in a way like a
compass, pointing us all in the right direction with its vast spectrum of
analytical articles and updates, on diverse subjects such as Direct Tax,
Indirect Tax, International Tax, Accounting & Auditing and Information
Technology. Keeping pace with the requirements of the ‘digi-gen’, E-journal
access has been made available with the added advantage of a repository
spanning 17 years.
I would like to extend hearty
congratulations to the entire team behind the Journal – past and present on
behalf of all its readers. It is their long hours of painstaking efforts that
have made the BCAJ a solid foundation and a beacon of inspiration to all! I
wish the team all the very best in the years ahead in taking the journal to the
next level.
Last week around thirty thousand
farmers marched to Mumbai to press for their various demands to the Government.
What was remarkable is that these farmers protested with dignity and discipline.
On the last lap of their journey they walked almost 15 hours to avoid
disrupting the students from taking their final exams. What’s commendable was
the pain the farmers took to ensure no pain to the citizens of Mumbai. The
farmers dispersed as quietly as they came, but not before getting written
assurances.
When one looks at the statistics, the
enormity of the problem dawns with tremendous clarity. We have 90 million
families or around 54% of Indians engaged in agriculture, who after toiling
relentlessly day after day, generate a mere 14% of the nation’s GDP. Worse
still, the farmers seem to be on a lose-lose treadmill. If their crops fail,
they have little to sell and no profit. And in case of a bumper crop, the price
gets depressed, curtailing any serious profit. I believe some serious thinking
is required to go far beyond merely providing remedial aid. Innovative
solutions need to be chalked out in tandem with modern technology to transform
their lives and raise their living standards.
Grappling with the challenge of
employment generation, the government has focused on giving an impetus to the
services sector. Accounting for over 55% of the nation’s GDP, the service
sector has the possibility of stimulating domestic growth as well as winning
lucrative export opportunities. In this direction, twelve Champion Sectors in
services have been identified and a fund of Rs. 5,000 crore has been proposed
to accelerate support initiatives.
Accounting & Finance Services is
one of the 12 identified Champion Sectors where the Government is promoting
development to realize their true potential, increased productivity and
competitiveness which will further boost exports of diverse services from
India. However, experts feel that “there are miles to go…” before this sector
can harness the global opportunity. Being a regulated profession with a
licensing regime globally; there is a need to enter into many more MoUs with
foreign accounting institutes and mutually recognise each other’s
qualifications. The Indian accounting education system needs to be revamped to
match the challenges of globalisation. And lastly the curriculum is outdated
and needs to be in sync with market realities. Technology and new economy will
impact our profession immensely. Probably curriculum needs to capture that
impact in coming times. In fact curricula need to be futuristically and not
reactively structured if the profession has to meet these challenges. These
impediments need to be sorted if Indian accounting firms are to transit from
back end transactional processing work to big ticket contracts.
Related to this, the Hon. Supreme
Court recently in a case ordered the Government to set up a panel to suggest
changes in laws to regulate multi-national accounting firms. The Bench ruled
that the panel to also look into the framework needed to enforce Sections 25
and 29 of the CA Act and the statutory Code of Conduct for Chartered
Accountants needs to be revisited appropriately. The Panel will also look into
the need of an exclusive oversight body for the auditors’ profession because of
conflict of interest of auditors with consultants.
The PNB scam has opened quite a can of
worms and has been in the news right from the day it broke. The general public
is outraged at the audacity and arrogance of the key accused. They are furious
with the bank officials who colluded or were scapegoats in the racket. They are
upset with RBI and market regulators for not unearthing the fraud…and the
politicians who allegedly allowed the swindlers to scoot with the loot. The
auditors too are being investigated and castigated for not raising a red flag.
Action and measures have been initiated by the government and RBI to prevent a
recurrence. Even ICAI has demonstrated its commitment to discipline errant CAs.
Representations to the Government on
key issues have always been taken up by the Society and it is regular in
interacting with the regulators. Recently BCAS along with the CA Associations
of Lucknow, Karnataka and Ahmedabad made an appeal to make statutory branch
audits of PSB banks more stringent. In a joint representation to RBI it has
listed several important issues/recommendations that need to be urgently
addressed by RBI and others for an effective audit coming up for the year ended
March 2018.
The World Bank in its bi-annual India
Development Update has been mildly critical of GST, calling it one of the most
complex with the second highest tax rate in the world. Comparing 115 countries,
the report says as many as 49 have a single slab; while 28 use two slabs and
five (including India) use four non-zero slabs. The Update also points out to
the positive impulse expected from India’s novel GST system which, is likely to
improve the domestic flow of goods and services, contribute to the
formalization of the economy and sustainably enhance growth.
Despite the recent momentum, attaining
a growth rate of 8 percent and higher on a sustained basis will require
addressing several structural challenges. India needs to durably recover its
two lagging engines of growth – private investments and exports – while
maintaining its hard-won macroeconomic stability. Crucial steps in this process
include cleaning up banks’ balance sheets, realizing the expected growth and
fiscal dividend from the GST, and continuing the integration into the global
economy.
As we start the new fiscal year each
member has jotted new ideas, new goals and new budgets and will be translating
them into action points. What is important to note is that the digital
revolution is cascading across every sphere of practice causing widespread
disruption besides redefining clients’ expectations. For the professionals of
the future, the ability to adapt their skills to the changing needs will be
critical. The time it will take for skills to become irrelevant will shrink.
There will be work for people with growth mindsets, but those with fixed
mindsets will be replaced with machines. The skills of yesterday will be
obsolete tomorrow. The future workforce need to align its skillsets to keep
pace with time.
As sunshine energy and a green
environment become increasingly the priority of our lives and nation, we at
BCAS have decided to discontinue our hard copy version of the monthly
Newsletter. Its content is being majorly covered in the BCAJ and regular
updates regarding upcoming programmes are accessible on our website and through
email. The VP Communique and a snapshot of programs of the Society will be sent
as a e-copy each month. We do hope our members will understand our
responsibility to practice green initiatives, instead of merely talking about
them.
With the start of the new fiscal year,
I look forward to getting more feedback from all of you about the opportunities
and challenges we should tackle in the months ahead.
Feel free to write to me on
president@bcasonline.org
With kind regards
CA.
Narayan Pasari
President
Direct Taxes
– Circular No. 6/2016 dated 29.02.16
In continuation to the earlier Instruction No. 1827, dated 31st August, 1989 and Circular No. 4 of 2007 dated 15th June, 2007 further clarifications have been provided by CBDT for considering income from sale of shares as Capital gains or Business Income as under:
i) If the assessee has treated the securities in his books as stock in trade, the same should be accepted
ii) In case holding period of the securities is more than a year and the assessee wants to treat it as a Capital asset, then the AO needs to accept it provided the treatment is consistently followed by the assessee in the subsequent years.
iii) In all other cases, the earlier mentioned Instructions and Circular be considered for determination of the nature of income.
iv) These guidelines would not apply to transactions the genuineness of which are questionable.
It is further clarified that these are broad guidelines and the determination needs to be based on the facts of the case.
2 Clarification by CBDT that the provisions of DTAA between India and UK would be applicable in case of a partnership resident in either state and its income be taxed either in the hands of the entity or beneficiaries/partners
– Circular No. 02/2016 dated 25.02.2016
3 CBDT has issued an Office Memorandum for clearing the pending refunds wherein the timeline for clearance laid down in Office Memorandum dated 29.01.2016 be reduced to 15 days for notices u/s. 245 of the Act valid till 31.3.16
– Office Memorandum dated 07.03.2016
4 CBDT extends the benefit of higher monetary limits laid down in Circular 21 of 2015 dated 10.12.2015 for filing appeals to Cross Objections filed by Department before ITAT and references made to the High Court u/s. 256(1) and 256(2) of the Act
– Letter No: F.No.279/Misc./M-142/2007-ITJ (Part) dated 08.03.2016
5 CBDT clarifies on the status of the EPC consortiums when to be treated as AOP –
Circular no. 7/2016 dated 7th March 2016
Certain broad parameters are laid down for NOT treating the EPC consortiums as AOP and thereby not taxing it as a separate entity:
i) Clear independence exists between each member in terms of responsibility, resources and risk for the scope of work defined for him.
ii) Each member earns profit/loss for his scope of work though all together can share contract price at the gross level for accounting convenience.
iii) R esources in terms of men and materials used by each member are under his risk and control parameters.
iv) There is no unified control and management of the consortium and common management is for administrative convenience and co-ordination.
v) Other facts and circumstances which point out that consortium is not an AOP.
It is further clarified that this Circular shall not be applicable in cases where all or some of the members of the consortium are Associated Enterprises within the meaning of Section 92A of the Act. In such cases, the Assessing Officer will decide whether an AOP is formed or not keeping in view the relevant provisions of the Act and judicial jurisprudence on this issue.
Guidelines for Implementation of Transfer Pricing Provisions – Instruction No. 15/2015, dated 16th October, 2015 replaced by Instruction No. 3/2016 dated 10th March 2016 ( full text available on www.bcasonline.org
6 CBDT reaffirms its view point of not adopting coercive action against payees for TDS which is not deposited by the payer and directs the AO to follow the Directives issued in letter dated 01.06.2015.
–Office memorandum – no: F.No. 275/29/2014- IT (B) dated 11th March 2016
From Published Accounts
directives pursuant to ‘Basis of Qualified Opinion’ – disclosures in
Consolidated Financial Statements GMR Infrastr uct ure Ltd . (31-3-2015)
From Notes to Consolidated Financial Statements
NOTE 30
During
the year ended 31st March, 2015, the Company (‘GIL’) received a letter
from National Stock Exchange of India Limited (‘NSE’) whereby Securities
and Exchange Board of India (‘SEBI’) directed NSE to advise the Company
to restate the consolidated financial statements of the Group for the
year ended 31st March, 2013 for the qualifications in the Auditor’s
Report for the year then ended in respect of the matters stated in the
Paragraph 1 and 2 of ‘Basis for Qualified Opinion’ in the said Auditor’s
Report, pursuant to the Paragraph 5(d)(ii) of the SEBI Circular
CIR/CFD/DIL/7/2012 dated August 13, 2012. Further, SEBI vide Circular
CIR/ CFD/DIL/9/2013 dated 5th June, 2013 had clarified that restatement
of books of account indicated in Paragraph 5 of the aforesaid circular
shall mean that the Company is required to disclose the effect of
revised financial accounts by way of revised proforma financial results
immediately to the shareholders through Stock Exchanges. However, the
financial effects of the revision may be carried out in the annual
accounts of the subsequent financial year as a prior period item.
In
response to its representations made, the Company received a letter
from SEBI dated 27th April, 2015, whereby SEBI has reiterated its
earlier advice for restatement of financial results, in terms of the
aforementioned circulars. Further, SEBI has advised the Company to
restate financial results for financial year 2012-13 and 2013-14 and the
effect of these restatement adjustments may be carried out in the
annual accounts of the financial year 2014-15, as a prior period item in
terms of the aforementioned circulars. With regard to matter described
in note 43(iii), the Group made adjustments in these consolidated
financial statements for the year ended 31st March, 2015. With regard to
the matter described in note 44(ii)(b), the Hon’ble High Court of
Delhi, while hearing the writ petition filed by the Group in this
regard, directed SEBI not to insist on restatement of accounts till the
next hearing date, which is scheduled on 4th September, 2015. Further,
the High Court of Delhi directed the Company that if the accounts for
2014-15 are prepared, the aforementioned issue will be reflected in the
accounts and the effect of both capitalisation and non-capitalisation on
the net worth will also be disclosed in due prominence, in the
financial accounts prepared by the Company. Refer note 44(ii)(b) for the
disclosure of such effects.
NOTE 44 – MATTERS RELATED TO CERTAIN POWER SECTOR ENTITIES
i) …
ii) a) …
b)
In respect of plant under construction at Rajahmundry, pending securing
supply of requisite natural gas, the Group has put on hold active
construction work of the plant. The management of the Group believes
that the indirect expenditure attributable to the construction of the
project and borrowing costs incurred during the period of uncertainty
around securing gas supplies qualifies for capitalisation under
paragraphs 9.3 and 9.4 of AS -10 and paragraphs 18 and 19 of AS -16. The
subsidiary setting up the plant had approached the Ministry of
Corporate Affairs (‘MCA’) seeking clarification/relaxation on
applicability of the aforementioned paragraphs to the gas availability
situation referred in note 44(ii)(a) above. MCA vide its General
Circular No. 35/2014 dated 27th August, 2014 on capitalisation under
AS-10 and capitalisation of borrowing cost during extended delay in
commercial production has clarified that only such expenditure which
increases the worth of the assets can be capitalised to the cost of the
fixed assets as prescribed by AS 10 and AS 16. Further, the circular
states that cost incurred during the extended delay in commencement of
commercial production after the plant is otherwise ready does not
increase the worth of fixed assets and therefore such costs cannot be
capitalised. The Group approached MCA seeking further clarification on
the applicability of the said Circular to its Rajahmundry plant and
pending receipt of requisite clarification, the Group has continued the
capitalisation of the aforesaid expenses of Rs.1,104.92 crore (including
Rs. 424.97 crore for the current year) cumulatively upto 31st March,
2015. Further as detailed in note 30 above, during the year ended 31st
March, 2015, the Company received a letter from NSE whereby SEBI has
directed NSE to advise the Company to restate the consolidated financial
statements of the Group for the year ended 31st March, 2013 as regards
the qualification on continuance of capitalization as stated aforesaid,
post cessation of active construction work. SEBI advised the Company
that the effect of these restatement adjustments may be carried out in
the annual accounts of the financial year 2014-15, as a prior period
item. The Company filed a writ petition with the Hon’ble High Court of
Delhi in this regard. In response to the writ petition filed by the
Company, the Hon’ble High Court of Delhi directed the Company that if
the accounts for 2014-2015 are prepared, the aforementioned issue will
be reflected in the accounts and the effect of both capitalisation and
non-capitalisation on the networth will also be disclosed in due
prominence, in the financial accounts prepared by the Company.
Accordingly the effect of charging off the above expenses to the
consolidated statement of profit and loss on the net worth of the Group
is disclosed below:
*
Net worth has been calculated as per the definition of net worth in
Guidance Note on “Terms used in Financial Statements” issued by the
Institute of Chartered Accountants of India.
From Auditors’ Report
Basis for Qualified Opinion
1.
As detailed in Note 44(ii)(b) to the accompanying consolidated
financial statements for the year ended 31st March, 2015, GMR
Rajahmundry Energy Limited (‘GREL’), a subsidiary of GIL, not audited by
us, has capitalised Rs. 424.97 crore and Rs. 1,104.92 crore for the
year ended and cumulatively upto 31st March, 2015 respectively towards
indirect expenditure and borrowing costs (net of income earned during
aforementioned period) incurred on a plant under construction where
active construction work has been put on hold pending securing supply of
requisite natural gas and has approached the Ministry of Corporate
Affairs (‘MCA’) seeking clarification on the applicability of the
General Circular 35/2014 dated 27th August, 2014 issued by MCA. However,
in our opinion, the aforesaid capitalisation of such expenses is not in
accordance with the relevant Accounting Standards. Had the aforesaid
expenditure not been capitalised, loss after tax and minority interest
of the Group for the year ended and cumulatively upto 31st March, 2015
would have been higher by Rs. 393.88 crore and Rs. 1,059.62 crore
respectively. In respect of the above matter, our audit report for the
year ended 31st March, 2014 was similarly qualified. In this regard,
also refer sub-paragraph 2 and 4 in Emphasis of Matter paragraph.
2.
As detailed in Note 43(iii) to the accompanying consolidated financial
statements for the year ended March 31, 2015, GMR Kishangarh Udaipur
Ahmedabad Expressways Limited (‘GKUAEL’), a subsidiary of GIL, not
audited by us, issued a notice of intention to terminate the Concession
Agreement with National Highways Authority of India (‘NHAI’) during the
earlier year and a notice of dispute to NHAI invoking arbitration
provisions of the Concession Agreement during the current year. Both the
parties have appointed their arbitrators and the arbitration process is
pending commencement.
As at 31st March, 2015, GKUAEL has
incurred and capitalised indirect expenditure and borrowing costs of
Rs.130.99 crore (including Rs. 6.56 crore incurred during the year ended
31st March, 2015) and has given capital advances of Rs. 590.00 crore to
its EPC Contractor. The Group also provided a bank guarantee of Rs.
269.36 crore to NHAI. Pursuant to the notice of dispute, GKUAEL
terminated the EPC contract on 15th May, 2015, transferred the aforesaid
project costs of Rs. 130.99 crore to claims recoverable and consequent
to the letter received from National Stock Exchange of India Limited
(‘NSE’), as referred in note 30 to the accompanying consolidated
financial statements, the Group has made a provision of Rs. 130.99 crore
towards such claims recoverable including Rs. 124.43 crore pertaining
to earlier years.
The notice of dispute and initiation of
arbitration proceedings, indicate the existence of a material
uncertainty that may cast a significant doubt about the going concern of
the GKUAEL and its impact on the net assets/bank guarantee provided by
the Group. Having regard to the uncertainty, we are unable to comment on
the final outcome of the matter and its consequential impact on the
consolidated financial statements for the year ended 31st March, 2015.
In respect of the above matter, our audit report for the year ended 31st
March, 2014 was similarly qualified. In this regard, also refer
sub-paragraph 2 in Emphasis of Matter paragraph.
3 and 4 – not reproduced
Qualified
Opinion In our opinion and to the best of our information and according
to the explanations given to us, except for the effect of the matters
described in sub-paragraphs 1 and 4 and the possible effect of the
matters described in sub-paragraphs 2 and 3 in the Basis for Qualified
Opinion paragraph, the aforesaid consolidated financial statements give
the information required by the Act in the manner so required and give a
true and fair view in conformity with the accounting principles
generally accepted in India, of the consolidated state of affairs of the
Group as at 31st March, 2015, its consolidated losses and its
consolidated cash flows for the year ended on that date.
Emphasis of Matter
We
draw attention to the following matters in the notes to the
accompanying consolidated financial statements for the year ended 31st
March, 2015:
1. …
2. N ote 30 regarding the receipt of a
letter by GIL from NSE whereby Securities and Exchange Board of India
(‘SEBI’) has directed NSE to advise GIL to restate the consolidated
financial statements of the Group for the year ended 31st March, 2013
for qualifications in the Auditor’s Report referred in the
aforementioned note, within the period specified and in terms of clause
5(d)(ii) of the SEBI Circulars dated 13st August, 2012 and 5th June,
2013. The Group has made adjustments in these consolidated financial
statements with regard to the matter described in note 43(iii) to the
accompanying consolidated financial statements. With regard to the
matter described in note 44(ii) (b) to the accompanying consolidated
financial statements, the Hon’ble High Court of Delhi, while hearing the
writ petition filed by the Group, directed SEBI not to insist on
restatement of accounts till the next hearing date. Also refer
sub-paragraphs 1 and 2 in Basis for Qualified Opinion paragraph.
3. …
4.
N ote 44(ii)(a) regarding (i) cessation of operations and the losses
including cash losses incurred by GMR Energy Limited (‘GEL’) and GMR
Vemagiri Power Generation Limited (‘GVPGL’), subsidiaries of GIL, and
the consequent erosion of net worth resulting from the unavailability of
adequate supply of natural gas; and (ii) rescheduling of the commercial
operation date and the repayment of certain project loans by GREL,
pending linkage of natural gas supply. Continued uncertainty exists as
to the availability of adequate supply of natural gas which is necessary
to conduct operations at varying levels of capacity in the future and
the appropriateness of the going concern assumption is dependent on the
ability of the aforesaid entities to establish consistent profitable
operations as well as raising adequate finance to meet their short term
and long term obligations. The accompanying consolidated financial
statements for the year ended 31st March, 2015 do not include any
adjustments that might result from the outcome of this significant
uncertainty.
5 to 11 – not reproduced
Our opinion is not qualified in respect of the aforesaid matters.
ETHICS AND U
(Timely communication)
Arjun (A) – Oh God! I am really tired. March is a nightmare!
Shrikrishna (S) – YI know. But you are quite used to such pressures.
A – I agree. But too many things come at a time. Advance tax, Service tax, time-barring returns and on top of it, gearing up for bank audits! Attend seminars!
S – Time-barring returns? Why? They remain pending for two years.
A – Yes. Our clients simply don’t move. They are lethargic and don’t respond to our calls!
S – But do you write to them in time?
A – Who has time to write? We make phone calls. Our staff reminds the clients and their staff. Somehow, writing becomes difficult.
S – Why? You have technology at your command. You must initiate your action in time, by writing to the concerned people. You need to communicate with the client’s staff as well as with the client directly.
A – What you say is right. Otherwise, clients keep on blaming us only, for their own lapses. They expect too much from us.
S – Yours is perhaps the only profession that takes the burden on its own head to remind and follow up with the clients.
A – You said it!
S – You develop bad habits for the clients and then keep on crying. This is solely because you don’t communicate in appropriate manner and time! And with appropriate person ! It is the key of success in all walks of life; even in personal life.
A – True. But we are always doing fire-fighting. There is no peace of mind to sit and write.
S – That reminds me. You were saying, bank audits will be allotted and you need to gear up for it. But do you write to the previous auditor?
A – It is allotted by the banks who are Government organisations. Where is the need to take NOC from previous auditor?
S – You are mistaken. Firstly, there is no requirement of obtaining NOC as such. You have to simply communicate with the previous auditor in writing. That too, before accepting the audit. And the Council has recommended that it should be sent by registered post only.
A – But even for Government audits?
S – Of course, yes. It is immaterial who appoints you. I understand that bank branch audits are to be completed within a short time. But you can’t escape the requirement of writing. Also verify whether his undisputed audit fees have been paid.
A – Oh My God ! Many of us don’t do that. They are under an impression that it is not required for Government audits.
S – Remember, it is required not only for statutory audit; but for all types of audits – be it concurrent, internal, tax-audits and whatever.
A – Email won’t do? or courier ? or hand delivery ?
S – Why do you always think of bypassing the norms? Is it so difficult to send by registered post? If you send by hand, there should be clear proof that the previous auditor has received it.
A – What if his address is changed?
S – See, you have to send it to the last known address. And there are many ways of finding out the address, if you really wish.
A – Anyway. Where else we need to be alert?
S – Good question. See, Finance Bill is presented in February and it takes effect from April. There are many changes directly affecting your clients. Do you ever take the trouble of preparing a list or a note of provisions affecting your clients.
A – Actually, so much literature is available. Why do the same effort?
S – My dear Arjun, how many clients will understand what is relevant for them? There is so much of material; but one has to give them tailor-made suggestions. One has to pin-point what action and caution he should take. And also explain the gravity.
A – I understand. It is always good to educate the clients.
S – Not only clients; but your own staff and articled trainees. Do you ever take any trouble of training your own team? Otherwise, how will they perform well? How will they deliver what is expected of them?
A – I agree, Lord !
S – And remember, you have to do it now. Well in time !
A – But many of our articles are on leave these days for their exams. That is another trouble.
S – But you can do it as soon as they resume working.
A – Good that you told this. I will plan it properly during this May. Ours is a group of CA firms. I will share this idea with them so that there will be many articles who can benefit.
S – Good. But do it in time. You need to be proactive. Timely planning and communication is in your own interest. And a trained staff can make your life simpler.
A – Yes, My Lord. I will try to inculcate this habit. Otherwise, things will go beyond our control; and every year, same stress will continue. Namaskar to You.
S – You are blessed!
Om Shanti.
Note:This dialogue is based on clause 8 of part I of First Schedule to the CA Act; and also underlining the importance of timely communication.
Allied Laws
Dewsoft Overseas (P) Ltd. vs. Commissioner of Service Tax, New Delhi 2016 (341) E.L.T. 321 (Tri – Del.)
As per facts on record, the dispute related to classification of the services provided by the appellant. The Tribunal vide its Final Order, by adopting the Larger Bench decision in the case of Great Lakes Institute of Management Ltd., rejected the appeal on merits. Thereafter, the said order of the Tribunal was appealed against by the appellant before the Hon’ble Supreme Court, who vide their order, granted leave to appeal in the matter. It is seen that the Hon’ble Supreme Court was also pleased to grant stay of recovery of penalty, subject to the appellants depositing the service tax along with interest within a period of two months.
Prior to the filing of appeal before the Hon’ble Supreme Court, the appellant had also moved an application for rectification of mistake before the Tribunal in terms of section 35C(2) of the Central Excise Act, 1944 on the ground that the Tribunal disposed of the appeal only on merits and did not consider the plea of limitation raised before it. It was contended that the non-consideration of limitation issue amounted to mistake on the part of the Tribunal, thus requiring rectification. The fact of filing of application for rectification before the Tribunal was also disclosed before the Hon’ble Supreme Court in the memo of appeal filed before the Hon’ble Apex Court.
The Assessee failed to bring to the notice of the Tribunal during the course of proceedings of the Miscellaneous Application, about the pendency of the appeal filed by the Assessee in the Apex Court. The Assessee had also failed to produce the material fact about the payment of service tax done on the directions of the Apex Court.
The Revenue’s case is limited to the point that the order of the Tribunal was obtained by fraud since the material facts were not disclosed before the Tribunal by the Assessee, even after being aware of the same, since the same law firm was handling the matter in appeal before the Supreme Court.
It was held by the Apex Court that the Advocate was under legal duty to bring to the notice of the Bench, at the time of disposal of Miscellaneous application, the above factual developments irrespective of the fact as to whether the Tribunal in that case would have decided or not decided the Miscellaneous application. It is a well-settled principle that one who comes to the Court seeking justice must come with clean hands. The fraud vitiates everything and the fact of non-disclosure of the order of the Hon’ble Supreme Court has the effect of making the order in Miscellaneous Application void ab initio.
Intentionally or unintentionally, the fact remains that the Bench was not appraised of the order of the Hon’ble Supreme Court. Non-disclosure of the relevant facts and obtaining of a favourable order by not bringing the relevant facts to the notice of the Bench abuses the due process of law and vitiates the very order so obtained. As such, the Court deemed it fit to recall the order passed.
2. Document – Memorandum of Partition – Creating or affecting the rights of any party – Required to be mandatorily registered – If unregistered – Inadmissible as evidence [Contract Act 1872, Section 8; Registration Act 1908, Section 17; Stamp Act 1899, Section 35]
Bhanwari Devi vs. Arvind Kumar and Ors. AIR 2016 RAJASTHAN 198 (Jaipur Bench)
Brief facts stated that a suit was filed by the petitioner for possession of the property on the ground that a property along with other properties came into the possession of the petitioner’s father-in-law, as a result of a family settlement between her father-in-law and the father-in-law’s son.
However, it was contested by the defendant-respondent that the document in question cannot be presented as evidence as it was not registered and no stamp duty had been paid.
The question to be resolved by the Hon’ble Court was whether the said document was a mere memorandum of the partition already done, stating the events which is factual in its nature, and would be an admissible evidence? Or whether the document was in the nature of giving rise to a title or right or any extinguishment of a right, by itself, hence attracting the provisions of the Registration Act, 1809, whereby the registration was compulsory and in case of non-registration, could not be admissible as evidence in the court of law?
The Court held that from the language used in the document, the court was convinced that the document was not merely a memorandum or record of a prior partition/family settlement/family arrangement but it was an instrument of partition requiring compulsory registration and for want of registration it was inadmissible in evidence and it could not be admitted in evidence.
3. Ejusdem Generis – Principle cannot be applied ignoring the natural meaning of the words used by the Legislature. [West Bengal Value Added Tax Act, 2003; Section 2(11)]
Tata Motors Finance Limited, ICICI Bank Limited and Family Credit Limited and Another vs. Assistant Commissioner of Sales Tax, Joint Commissioner of Sales Tax and Assistant Commissioner of Sales Tax Salt Lake Charge and Others [2016] 88 VST 227 (Cal) (HC)
Petitioners were a banking company and non-banking finance company. Petitioners granted loans to persons intending to purchase vehicles against hypothecation of vehicles by way of security under loan-cum-hypothecation agreements. The Tribunal held that Petitioners were dealers as per definition u/s. 2(11) of the West Bengal Value Added Tax Act. Hence, the present Petitions.
The question which required consideration by the court was, whether in respect of disposal of vehicle for recovery of loan, petitioners were liable for tax as dealers as per definition in section 2(11) of Act?
Under section 2(11), the term ‘Dealer’ was defined as under:
“‘Dealer’ means any person who carries on the business of selling or purchasing goods.
(b) Government, a local authority, a statutory body, a trust or other body corporate…etc”
Since the section was clear, the principles of Ejusdem Generis need not be resorted to.
It was held by the Court that the word used in clause(b) particularly the word “a trust” does not appear nor was shown to have anything in common with the preceding word “a statutory body”. Similarly, the word “body corporate” was not shown to have any common characteristic with the preceding word “trust”. The theory of ‘ejusdem generis’ cannot be applied in construing clause(b) of sub-section11 of section 2 of the aforesaid Act.
4. Precedent – Reference made by the co-ordinate bench to a larger bench – Would not amount to stay of earlier verdict – nor would it amount to the earlier verdict being inoperative. [Constitution of India, Article 141; Section 140, Section 163A, Motor Vehicles Act, 1988]
New India Assurance Co. Ltd. vs. Vinod C.s. & Ors.air 2016 (Noc) 766 (H.p.)
The main issue was whether a person would be entitled to take shelter u/s. 163A of the Motor Vehicles Act, 1988, where the person involved in the accident, was a victim due to his own rash and negligent actions or due to someone else’s acts or some other reason.
Various cases were cited before the Honourable Court wherein the issue that under sub-section (4) of section 140, there is a specific bar, whereby the concerned party (owner or insurance company) is precluded from defeating a claim raised u/s. 140 of the Act, by ‘pleading and establishing’, ‘wrongful act’, ‘neglect’ or ‘default’, but there is no such or similar prohibiting clause in section 163A of the Act. It was mentioned that the earlier verdict was not accepted by the later bench and hence was placed before the learned Chief Justice of India for referring the matter to a larger Bench for a correct interpretation of the scope of section 163A of the Motor Vehicles Act, 1988.
It was held by the High Court that merely because a verdict of the earlier bench is doubted by a subsequent co-ordinate bench, the earlier order does not become inoperative. It would also not amount to stay of the earlier verdict.
Unless and until the earlier decision is varied, it remains intact and the reference made by the subsequent co-ordinate bench cannot have any adverse consequence insofar as the declaration of the law is concerned.
Glimpses of Supreme Court Rulings
Vatsala Shenoy vs. JCIT (2016) 389 ITR 519 (SC)
One S. Raghuram Prabhu started the business of manufacturing beedies in the year 1939. His brother-in-law joined him in the year 1940 and this sole proprietorship was converted into a partnership firm with the name ‘M/s. Mangalore Ganesha Beedi Works’ (hereinafter referred to as the ‘firm’). It was reconstituted thereafter from time to time and lastly on June 30, 1982. Partnership deed dated June 30, 1982 was entered between thirteen persons with the same name. Duration of this firm was five years, which period could be extended by six months. Thereafter, the affairs of the firm had to be wound up as provided in Clause 16 of the Partnership Deed. The firm was dissolved on December 06, 1987 by afflux of time after extending the life of the firm by a period of six months, as per the terms stipulated in the Partnership Deed. However, because of the difference of opinion among the erstwhile partners, the affairs of the firm could not be wound up.
Therefore, two of the partners of the firm filed a petition before the High Court under the provisions of Part X of the Companies Act, 1956 for winding up of the affairs of the firm in terms of section 583(4)(a) thereof. The said petition was registered as Company Petition No. 1 of 1988. Significantly, though the firm stood dissolved on December 06, 1987, and thereafter Company Petition No. 1 of 1988 for the winding up proceedings after dissolution was filed in the High Court, the business of the partnership firm continued because of the interim order passed by the High Court. This was because of the agreement of the partners, as stipulated in the Partnership Deed itself, providing that on dissolution, the firm was to be sold as a continuing concern to that partner(s) who could give the highest price therefor.
Considering the clauses in partnership deed, specific order dated November 05, 1988 was passed by the High Court permitting the group of partners, seven in number, who had controlling interest, to continue the business as an interim arrangement till the completion of winding up proceedings. Ultimately, the orders dated June 14, 1991 were passed in the said company petition for winding up the affairs of the firm by selling its assets as an ‘ongoing concern’. Though this order was challenged by some of the partners by filing special leave petition in Supreme Court, the same was dismissed as withdrawn in the year 1994. In this manner, orders dated June 14, 1991 became final, which had permitted the sale of the firm, as an ongoing concern, to such of its partner(s), who makes an offer of highest price. Reserve price of Rs.30 crore was also fixed thereby mandating that the price cannot be less than Rs.30 crore. The successful bidder was also required to accept further liability to pay interest @ 15% per annum towards the amount of price payable to partners from December 06, 1987 till the date of deposit. In the order dated June 14, 1991, it was also directed that the successful bidder shall deposit the offer price together with interest with the Official Liquidator within a period of sixty days of the date of acceptance of the offer.
On the aforesaid terms, these partners individually or in groups offered their bids. Bid of Association of Persons comprising three partners (hereinafter referred to as ‘AOP-3’), at Rs. 92 crore, turned out to be the highest and the same was accepted by the High Court vide order dated September 21, 1994. AOP-3 deposited this amount of Rs. 92 crore with the Official Liquidator on November 17, 1994 and with the occurrence of this event, assets of the firm were treated as having been sold to
AOP-3 on November 20, 1994. Even actual handing over of the business of the firm along with its assets by the Official Liquidator to the said AOP-3 took place on January 07, 1995.
Since the firm stood dissolved with effect from December 06, 1987, upto December 06, 1987, it is the firm which had filed the income tax returns in respect of the income which it had earned, for payment of income tax thereupon. However, as mentioned above, though the firm was dissolved, but the business continued because of the orders passed by the High Court keeping in view the provisions contained in the Partnership Deed. The income that was earned from the date of dissolution till the date of winding up and when the firm was sold to AOP-3 was assessed at the hands of dominant partners controlling the business activities (seven in number) as “Association of Persons” (AOP), meaning thereby, the income from the business of the said firm December 06, 1987 till winding up was assessed as an AOP. At the same time, these Assessees were also filing their individual returns as well.
The Assessees filed the return for the Assessment Year 1995-1996. It is in this Assessment Year the assets of the firm were sold as ongoing concern to AOP-3 on September 21, 1994. The Assessing Officer, while making the assessments, bifurcated this Assessment Year into two periods. One period from April 01, 1994 to November 20, 1994 (as AOP of the partners who had continued the business in that capacity in previous years). Second period from November 20, 1994 till March 31, 1995 (as the business was handed over to AOP-3 and the assessment was treated as that of AOP-3). While doing so, the Assessing Officer observed that the entire capital gains on the sale as a going concern of the business of the firm as well as the proportionate profits for the period April 01, 1994 to November 20, 1994, when the controlling AOP was carrying on business as computed in accordance with the order of the High Court in Company Petition No. 1 of 1988, on a notional basis a sum of Rs. 9,57,57,007 should be taxed in the hands of the firm. However, according to the Assessing Officer, to protect interests of the Revenue, the same amounts were included in the assessment of the AOP for the first period.
The income and tax computations were made separately for the two periods in the order of assessment. The Assessing Officer apportioned the consideration among the various assets comprised within the business with further splitting between short term and long term capital gains. While the aforesaid treatment was given to the assessment of the income of the firm, insofar as the Assessees as individuals (partners) were concerned, on the same date the Assessing Officer made assessment in their cases also by including therein the proportionate share from out of Rs. 92 crore (the amount of auction bid) as capital gain at their hands and bifurcated the same into long term and short term gain.
The approach adopted by the Assessing Officer was to take into consideration market value of the assets of the firm, viz. land, building and plant & machinery, which had already been evaluated by the Registered Valuers. The market value of these three assets was Rs. 21,52,90,000. Since total sale consideration at which the firm was sold was Rs. 92 crore, balance amount of Rs. 70,47,10,000 was treated as representing goodwill of the firm which was taxed as long term gain. This mode of arriving at short term and long term capital gain and taxing it accordingly by the Assessing Officer has received the stamp of approval by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, as well as the High Court.
The argument of the learned senior Counsel for the Assessees was that since it was a sale of an ongoing concern, it had to be treated as a slump sale within the meaning of section 2(42C) of the Act and, therefore, it was not permissible for the Assessing Officer to assign the amount of Rs. 92 crore into different heads of land, building and machinery and treating balance amount as goodwill. It was a capital asset as an ongoing concern which was sold at Rs. 92 crore and in the absence of provisions relating to mode of computation and deductions at the relevant time, which were inserted subsequently only with effect from April 01, 2000, as per the decision in the case of PNB Finance Limited [307 ITR 75- SC], the consideration was to be treated as capital receipt and no capital gain was payable thereon.
Second submission of the learned senior Counsel for the Assessees pertained to the payment of tax on the income which the business earned from April 01, 1994 till November 20, 1994. The learned Counsel argued that as per the orders of the High Court in the winding up petition, 40% of this income was retained by AOP-3 as a tax component because of the reason that for business income of the earlier years, after the dissolution, the same was taxed as an AOP. Therefore, the individual partners could not be taxed on the said business income in the year in question, as held in Radhasoami Satsang, Saomi Bagh, Agra vs. Commissioner of Income Tax 193 ITR 321 and Commissioner of Income Tax vs. Excel Industries Ltd. 358 ITR 295. His related submission was that in any case this amount was not received by the Assessees as it was retained by AOP-3 and, therefore, tax was not payable by the Assessees.
The Supreme Court held that on the aforesaid facts, it became clear that asset of the firm that was sold was the capital asset within the meaning of section 2(14) of the Act. Once it is held to be the “capital asset”, gain therefrom is to be treated as capital gain within the meaning of section 45 of the Act.
According to the Supreme Court, the Assessees, however, were attempting to wriggle out from payment of capital gain tax on the ground that it was a “slump sale” within the meaning of section 2(42C) of the Act and there was no mechanism at that time as to how the capital gain is to be computed in such circumstances, which was provided for the first time by Section 50B of the Act with effect from April 01, 2000. However, in the opinion of the Supreme Court this argument failed in view of the fact that the assets were put to sale after their valuation. There was a specific and separate valuation for land as well as building and also machinery. Such valuation had to be treated as that of a partnership firm which had already stood dissolved.
The Supreme Court further held that as per the definition of slump sale in section 2(42C), sale in question could be treated as slump sale only if there was no value assigned to the individual assets and liabilities in such sale. This had obviously not happened. The Supreme Court observed that not only value was assigned to individual assets, even the liabilities were taken care of when the amount of sale was apportioned among the outgoing partners. Once it was held that the sale in question was not slump sale, obviously section 50B also did not get attracted as this section contained special provision for computation of capital gains in case of slump sale. As a fortiori, the judgment in the case of PNB Finance Limited also was not applicable.
The Supreme Court, in the aforesaid scenario, held that when the Official Liquidator has distributed the amount among the nine partners, including the Assessees herein, after deducting the liability of each of the partners, the High Court had rightly held that the amount received by them was the value of net asset of the firm which would attract capital gain.
The partnership firm had dissolved and thereafter winding up proceedings were taken up in the High Court. The result of those proceedings was to sell the assets of the firm and distribute the share thereof to the erstwhile partners. Thus, the ‘transfer’ of the assets triggered the provisions of section 45 of the Act and making the capital gain subject to the payment of tax under the Act.
Insofar as argument of the Assessees that tax, if at all, should have been demanded from the partnership firm was concerned, the Supreme Court held that on the facts of this case that may not be the situation, the firm had dissolved much before the transfer of the assets of the firm and this transfer took place few years after the dissolution, that too under the orders of the High Court with clear stipulation that proceeds thereof shall be distributed among the partners.
Insofar as the firm was concerned, after the dissolution on December 06, 1987, it had not filed any return as the same had ceased to exist. Even in the interregnum, it was the AOP which had been filing the return of income earned during the said period. In this context, the Court also noted the detailed observations of the High Court which, interalia, explained the effect of sale of business conducted by the court among the partners under clause 16 of the partnership deed as : “once the partnership is dissolved, the partners would become entitled to specific share in the assets of the firm which is proportionate to their share in sharing the profits of the firm and they are placed in the same position as the tenants in common and for the purpose of dissolution and u/s. 47 of the Indian Partnership Act, 1932…”…”.. it is clear that the order passed by the assessing authority confirmed in the first appeal and by the Income-tax Appellate Tribunal (Special Bench) holding that the appellants as erstwhile partners are liable to pay capital gain on the amount received by them towards the value of their share in the net assets of the firm are liable for capital gains u/s. 45 of the Act. The said finding is justified..”
Advert to the second argument, the Supreme Court noted that it had been argued that insofar as income of the firm in the Assessment Year in question was concerned, it could not be taxed at the hands of the Assessees. According to the Supreme Court, there was merit in this submission.
First, and pertinently, it was an admitted case that 40% of the said income was allowed by the High Court to be retained by the successful bidder (AOP-3) precisely for this very purpose. This 40% represented the tax which was to be paid on the income generated by the ongoing concern being run by the Association of Persons, as authorised by the High Court. Secondly, in the previous years, the Department had taxed the AOP and this procedure had to continue in the Assessment Year in question as well.
According to the Supreme Court, the High Court had dealt with this aspect very cursorily, without taking into consideration the aforesaid aspects. The High Court dealt with the issue as to how the business income/revenue income was to be treated/calculated, but the question of taxability at the hands of the Assessees has not been touched upon at all.
The Supreme Court allowed the appeals partly only to the extent that business income/revenue income in the Assessment Year in question was to be assessed at the hands of AOP-3, in terms of the orders of the High Court, as AOP-3 retained the tax amount from the consideration which was payable to the Assessees and it was AOP-3 which was supposed to file the return in that behalf and pay tax on the said revenue income.
Insofar as the appeals preferred by the Revenue were concerned, they arose out of the protected assessment which was made at the hands of the partnership firm. As the Supreme Court upheld the order of the Assessing Officer in respect of payment of capital gain tax by the Assessees, these appeals were rendered otiose and were disposed of as such.
Note: The above judgment is based on the peculiar facts of that case and specific provisions of the partnership deed as well as earlier orders of the High Court and the Apex Court. As such, this should be read and understood in that context.
2. Advance Tax – In cases where receipt is by way of salary, deduction u/s. 192 is required to be made and no question of payment of advance tax could arise in such cases and thus provisions for interest for default of advance in payment of advance tax (section 234B) and for deferment of advance tax (section 234C) would have no application
Ian Peter Morris vs. ACIT (2016) 389 ITR 501 (SC)
The Appellant-Assessee along with three others had promoted a company, namely, “Log in Systems Innovations Private Limited” (the acquiree company) in the year 1990. The said company was acquired by one Synergy Credit Corporation Limited (the acquirer company). The Appellant was offered the position of executive director in the acquirer company for a gross compensation of Rs. 1,77,200 per annum. This was by a letter for an offer of appointment dated October 8, 1993. On October 15, 1993, an acquisition agreement was executed between the acquirer company and the acquiree company on a going concern basis for a total consideration of Rs. 6,00,000. On the same date, i.e., October 15, 1993, a non-compete agreement was signed between the Appellant-Assessee and the acquirer company imposing a restriction on the Appellant from carrying on any business of computer software development and marketing for a period of five years for which the Appellant-Assessee was paid a sum of Rs. 21,00,000. The question that arose in the proceedings commencing with the assessment order was whether the aforesaid amount of Rs. 21 lakh was on account of “salary” or the same was a “capital receipt”.
The Assessing Officer held it to be an addition to salary for the Assessment Year 1994-95. The Commissioner of Income-tax (Appeals) held it to be a capital receipt not exigible to tax. The Tribunal reversed the order of the first appellate authority and held it to be revenue receipt covered by the provisions of section 17(1)(iv). The Tribunal sustained the levy of interest u/s. 234B and 234C as consequential in nature. The High Court upheld the order of the Tribunal.
The Appellant-Assessee filed a Special Leave Petition before the Supreme Court. A limited notice was issued confining the scrutiny of the court to correctness of levy of interest as ordered/affirmed by the High Court.
The aforesaid limited notice, therefore, had to be understood to have concluded the issue with regard to the nature of the receipt, namely, that the same was salary.
The Supreme Court held that a perusal of the relevant provisions of Chapter XVII of the Act (Part A, B, C and F of Chapter XVII) would go to show that against salary a deduction, at the requisite rate at which income tax is to be paid by the person entitled to receive the salary, is required to be made by the employer failing which the employer is liable to pay simple interest thereon.
The provisions relating to payment of advance tax is contained in Part “C” and interest thereon in Part “F” of Chapter XVII of the Act. In cases where receipt is by way of salary, deduction u/s. 192 of the Act is required to be made. No question of payment of advance tax under Part “C” of Chapter XVII of the Act can arise in cases of receipt by way of “salary”. If that is so, Part “F” of Chapter XVII dealing with interest chargeable in certain cases (section 234B – Interest for defaults in payment of advance tax and section 234C–Interest for deferment of advance tax) would have no application to the present situation in view of the finality that has to be attached to the decision that what was received by the Appellant-Assessee under the non-compete agreement was by way of salary. The Supreme Court allowed the appeals for the aforesaid reasons. The Supreme Court set aside order of the High Court so far as the payment of interest u/s. 234B and section 234C of the Act was concerned.
Note: The above judgment should now be read with the proviso to section 209(1) inserted by the Finance Act, 2012 w. e. f 1/4/2012.
From Published Accounts
REPORTING AS PER REVISED INTERNATIONAL AUDITING STANDARDS (ISAS) ON AUDIT REPORTING
Compilers’ Note
The International Auditing and Assurance Standards Board (IAASB) has issued revised and new International Standards on Auditing (ISAs) for audit reporting. These audit reporting ISAs are applicable for all reports issued after 15th December 2016 onwards.
With a view to align the Standards on Auditing (SAs) in India, ICAI has also issued revised reporting standards which are effective for audits of financial statements for periods beginning on or after April 1, 2018.
One of the key features of the revised audit reports is the inclusion of a paragraph called “Key Audit Matters” (KAM). KAM are defined as those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. KAM are selected from matters communicated with TCWG.
Given below are some illustrations of the KAM paragraph included in the audit reports of some listed entities in the UAE for audit reports issued after 15th December 2016 for the year 2016.
EMIRATES ISLAMIC BANK PJSC
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditors’ responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The result of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying consolidated financial statements.
(a) Impairment of financing and investing receivables
Due to the inherently judgmental nature of the computation of impairment provisions for financing and investing receivables, there is a risk that the amount of impairment may be misstated. The impairment of financing and investing receivables is estimated by management through the application of judgment and the use of subjective assumptions. Due to the significance of financing and investing receivables and related estimation uncertainty, this is considered a key audit risk. The corporate financing and investing receivables portfolio generally comprise larger receivables that are monitored individually by management. The assessment of financing and investing receivables loss impairment is therefore based on management’s knowledge of each individual borrower. However, retail financing and investing receivables generally comprise much smaller value receivables to a much greater number of customers. Provisions are not calculated on an individual basis, but are determined by grouping product into homogeneous portfolios. The portfolios are then monitored through delinquency statistics, which drive the assessment of financing and investing receivables loss provision. The portfolios which give rise to the greatest uncertainty are typically those where impairments are derived from collective models, are unsecured or are subject to potential collateral shortfalls.
The risks outlined above were addressed by us as follows:
– For corporate customers, we tested the key controls over the credit grading process, to assess if the risk grades allocated to the counterparties were appropriate. We then performed detailed credit assessment of all financing and investing receivables in excess of a defined threshold and financing and investing receivables in excess of a lower threshold in the watch list category and impaired category together with a selection of other financing and investing receivables.
– For retail customers, the impairment process is based on projecting losses based on prior historical payment performance of each portfolio, adjusted for current market conditions. We have tested the accuracy of key data from the portfolio used in the models and reperformed key provision calculations.
– We compared the Group’s assumptions for collective impairment allowances to externally available industry, financial and economic data. As part of this, we critically assessed the Group’s estimates assumptions, specifically in respect to the inputs to the impairment models and the consistency of judgement applied in the use of economic factors, loss emergence periods and the observation period for historical default rates. We have made use of specialists to assess the appropriateness of the collective impairment calculation methodology.
Other information
Management is responsible for the other information. Other information consists of the information included in the Group’s 2016 Annual Report, other than the consolidated financial statements and our auditors’ report thereon. We obtained the report of the Bank’s Board of Directors, prior to the date of our auditors’ report, and we expect to obtain the remaining sections of the Group’s 2016 Annual Report after the date of our auditors’ report.
NATIONAL GENERAL INSURANCE CO (PSC)
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
1. Insurance contract liabilities
Refer to note 5 and 13 of the financial statements.
Valuation of these liabilities involves significant judgement, and requires a number of assumptions to be made that have high estimation uncertainty. This is particularly the case for those liabilities that are recognised in respect of claims that have occurred, but have not yet been reported (“IBNR”) to the Company. IBNR and life assurance fund is calculated by an independent qualified external actuary for the Company.
Small changes in the assumptions used to value the liabilities, particularly those relating to the amount and timing of future claims, can lead to a material impact on the valuation of these liabilities and a corresponding effect on profit or loss. The key assumptions that drive the reserve calculations include loss ratios, estimates of the frequency and severity of claims and, where appropriate, the discount rates for longer tail classes of business.
The valuation of these liabilities depends on accurate data about the volume, amount and pattern of current and historical claims since they are often used to form expectations about future claims. If the data used in calculating insurance liabilities, or for forming judgements over key assumptions, is not complete and accurate then material impacts on the valuation of these liabilities may arise.
Our response: Our audit procedures supported by our actuarial specialists included:
– evaluating and testing of key controls around the claims handling and case reserve setting processes of the Company. Examining evidence of the operation of controls over the valuation of individual reserve for outstanding claims and consider if the amount recorded in the financial statements is valued appropriately;
– obtaining an understanding of and assessing the methodology and key assumptions applied by the management. Independently re-projecting the reserve balances for certain classes of business;
– assessing the experience and competence of the Company’s actuary and degree of challenge applied through the reserving process;
– checking sample of reserves for outstanding claims through comparing the estimated amount of the reserves for outstanding claims to appropriate documentation, such as reports from loss adjusters; and
– assessing the Company’s disclosure in relation to these liabilities including claims development table is appropriate.
2. Insurance and other receivables
Refer to note 4, 5 and 11 of the financial statements.
The Company has significant premium and insurance receivables against written premium policies. There is a risk over the recoverability of these receivables. The determination of the related impairment allowance is subjective and is influenced by judgements relating to the probability of default and probable losses in the event of default.
Our response:
– our procedure on the recoverability of insurance and other receivables included evaluating and testing key controls over the processes designed to record and monitor insurance receivables;
– testing the ageing of trade receivables to assess if these have been accurately determined. Testing samples of long outstanding trade receivables where no impairment allowance is made with the management’s evidences to support the recoverability of these balances;
– obtaining balance confirmations from the respective counterparties such as policyholders, agents and brokers;
– verifying payments received from such counterparties post year end;
– considering the adequacy of provisions for bad debts for significant customers, taking into account specific credit risk assessments for each customer based on period overdue, existence of any disputes over the balance outstanding, history of settlement of receivables liabilities with the same counterparties; and
– discussing with management and reviewing correspondence, where relevant, to identify any disputes and assessing whether these were appropriately considered in determining the impairment allowance.
3. Valuation of investment properties
Refer to note 5 and 9 of the financial statements.
The valuation of investment properties is determined through the application of valuation techniques which often involve the exercise of judgement and the use of assumptions and estimates.
Due to the significance of investment properties and the related estimation uncertainty, this is considered a key audit matter.
Investment properties are held at fair value through profit or loss in the Company’s statement of financial position and qualify under Level 3 of the fair value hierarchy as at 31st December 2016.
Our response:
– We assessed the competence, independence and integrity of the external valuers and read their terms of engagement with the Company to determine whether there were any matters that might have affected their objectivity or may have imposed scope limitations on their work:
– We obtained the external valuation reports for all properties and confirmed that the valuation approach is in accordance with RICS’ standards and is suitable for use in determining the fair value in the statement of financial position;
– We carried out procedures to test whether property specific standing data supplied to the external valuers by management is appropriate and reliable; and
– Based on the outcome of our evaluation, we determined the adequacy of the disclosure in the financial statements.
MASHREQBANK PSC
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit |
How our |
Impairment |
|
The management
The accounting
The Group uses two
Individually assessed facilities These represent
Impaired
Impairment loss is
Collectively assessed facilities The management of
Allowances against |
Our audit
We tested the
u System-based and manual u Controls over the impairment u Controls over u Controls over governance and
We also assessed
Individually assessed facilities We tested a sample
Where impairment
We examined a
Collectively assessed facilities For the collective
We recalculated
We performed
|
|
|
Valuation |
|
The fair value of |
Our audit
For a sample of
We have also |
Valuation of Insurance contract liabilities |
|
As at 31st December 2016,
As set out in note 3.l8 and note 4.6,
This is particularly the case for
Furthermore, valuation of life
The valuation of these liabilities
|
Our audit procedures included:
u Testing the underlying Group u Evaluating and testing of u Evaluating and testing of u Checking samples of claims u Re-performing
In addition, with u performed necessary reviews u reviewed the actuarial • appropriateness • review • sensitivities • risk • consistency • general
|
IT systems and controls over financial reporting |
|
We identified IT systems and controls |
We assessed and
In events
|
From The President
Dear Members,
Technology is constantly re-inventing the world, and now it appears to be doing it at an incredibly accelerated pace. Today there are robotic arms that perfectly prepare Michelin starred recipes and pilot programs for self-driving cars, buses, trucks, and trains all across the world. Artificial Intelligence is blurring the line between rule and process driven tasks and creative jobs. It is already making its presence felt in the world of commercial music, like jingles and background scores for events. It is only a matter of time a higher quality of music will be composed by more complicated algorithms. Basic journalism and putting together legal briefs are some of the other areas being invaded by artificial intelligence. It is expected that biggest tech-driven disruption will be in the banking sector.
An excited doctor friend was telling me how wearable medical devices are teaming up with machine learning to save lives. Machine learning, also referred to artificial intelligence, he explained allows us to see patterns in data that were invisible before. And with high-speed data analytics and complex algorithms at work, this distilled data can be used to diagnose earlier and intervene faster to prevent suffering and save lives.
Undoubtedly, technology is a very fascinating topic, but what is more interesting is the repercussions it can have on the Indian economy. Technology is a two-edged sword – it can cut time and obstacles and dramatically multiply productivity and abundance. Technology also cuts a substantial quantum of costs and human labour. So, we have greater efficiency at reduced costs, but it also means widespread loss of jobs! In India where there is no welfare system that could mean well-stocked shelves but no people to buy them.
Numerous techno breakthroughs are rapidly shrinking the job market. The writing is on the wall! Industry veterans have warned that automation and artificial intelligence are rapidly displacing people and causing large-scale job losses. This situation is only set to get further aggravated in the near future. By 2025, 200 million young people in India are expected to be unemployed.
Technology has already demonstrated that cars can be assembled and surgeries performed by robots. Yes, technology proliferation will lead to widespread loss of jobs across all strata…from equity analysts to lower paid and less skilled workers. Even audit is prone to tech-driven disruption. So, what is the way ahead? Should India just avoid certain technologies and focus on the ones with the greater application? Or should we keep our R&D centers going full speed ahead and capitalize on marketing the patents and breakthroughs to a globally receptive market? These questions will keep bothering us and time will only tell…
Disruption also in Elections
March was a month that had us gripped by election results. What a finale it was with the BJP getting a sweeping majority in UP and Uttarakhand. It did not end here but continued its magic by grabbing both Manipur and Goa where it did not get a clear majority. One wonders whether Artificial Intelligence could have predicted this outcome. After crunching the data and trends, it is clear that the high voter turnout was the result of strong and continuous communications, particularly through rallies and social media. Voter mobilization was also undertaken in a more systematic manner with greater planning. Finally, it was the promise of a bundle of benefits that swayed voter direction. Now the key question is whether UP can shed its shady past and be re-invented to become a preferred destination for individuals, companies, tourists…
GST- knocking at our doors
The much awaited GST is progressing at a brisk pace and is very much on track to be rolled out from July 1. Designed to replace a slew of central and state taxes, GST is all set to transform Asia’s third largest economy into a single market for the first time. The GST Council, the driving force and apex decision making body for GST (with representation from the central govt. and all the state govts.) has met twelve times and ironed out many contentious issues.
Finance Minister Arun Jaitley was very appreciative of the operating style of the council when he remarked, “…not a single decision had been taken by voting…it was a deliberative democracy and federalism in action that all decisions have been taken by consensus.” As you read this, Lok Sabha too has cleared all four GST bills now all the action in State assemblies.
The GST regime will have a set of nine rules, out of which the council has already approved five – pertaining to registration, payment, refunds, invoices and returns. The remaining four rules, viz. composition, valuation, input tax and credit transitions are in the process of being formulated. Early April, the council will undertake the key task of assigning various commodities to the different tax slabs – 5%, 12%, 15% and 28%.
GST Training at BCAS
It is estimated that there are some 22-lakh indirect tax assessees currently in India, a number which will balloon to 70 lakh with the implementation of GST. The government is roping in various bodies to help in the task of familiarizing and training people in the basics of GST. BCAS has been recognized as an Accredited Training Partner by the Government for imparting GST training to the trade and industry. A team of ten volunteers from the Indirect Taxation Committee has agreed to devote their time and efforts for this mission and to work with the Government in Nation building. My sincere regards to them. A two-day GST Workshop with 380 participants from all over India has just concluded, and there will be many more in the months to come. Indirect Tax RSC has been planned in the month of June with GST as the focus. I request you all to keep a check on the announcement and enroll at the earliest to avoid disappointment.
YRRC – an event to remember
10th to 12th March 2017 marked the 4th Year of the flagship BCAS Youth Event – the Youth Residential Refresher Course, organized jointly with the YMEC of ICAI this year. This year’s YRRC was a trend-setter from which a cue shall be taken for all future Youth events across the profession. The days were loaded with top-of-the-line speakers across various professions with topics ranging from tax and accounts to leadership and entrepreneurship to workshop on mock stock markets and nights packed with fun activities like treasure hunt and movie night; the YRRC was everything it promised to be and more. It was heartening to see the participants attend 100% and participate 110% in each and every session. The sincerity, commitment, dedication, intelligence, capabilities, excitement and energy of this new breed of Chartered Accountants gives me hope that the future of our profession is in able hands.
Felicitation and Interaction with President of ICAI – Shri Nilesh Vikamsey
Another landmark event was felicitation of Shri Nilesh Vikamsey – President of ICAI on 9th March 2017 and very candid interaction on the future of the profession. Shri Nilesh Vikamsey outlined his approach of showcasing the efforts of the profession for the society at large and towards nation building through contribution at various ministry levels on the upgrading of their accounting systems. He also lauded the efforts of BCAS for its contribution in upgrading the knowledge base of the professionals and also in providing pro active suggestions at the economy level. Vice President Mr. Naveen N. D. Gupta though not able to attend due to his pre-occupation at New Delhi, conveyed his sincere thanks for organizing the meeting. We also acknowledge the active participation of Central Council Members Shri Nihar Jambusaria and Shri Prafulla Chhajed, who interacted actively. There was presence of managing committee members, many past presidents, and active core committee members, who aired their views.
“Great minds discuss ideas. Average minds discuss events. Small minds discuss people.” – Mahatria Ra
SOCIETY NEWS Part 1
15th and 22nd December, 2018 and 5th, 12th
and 19th January, 2019 at BCAS Conference Hall
BCAS successfully conducted
its 19th Study Course on Double Taxation Avoidance Agreement at BCAS
Conference Hall spanning over 7 Full Days – 1st, 8th, 15th
and 22nd December, 2018 and 5th , 12th and 19th
January, 2019. As a result of continuous refinement, the Study Course was
designed to cover all the articles of DTAA, FEMA / BEPS / MLI / GAAR, Transfer
Pricing, Source Rules under Income Tax Act, 1961, TDS u/s. 195, Substance v/s
Form and other relevant provisions. The lectures were delivered by 25 eminent
faculties who shared their experience by way of case studies on critical topics
like Residence (including case studies and POEM) and PE. The Study Course was
attended by 64 participants with diverse background such as Senior
Professionals, Practicing CAs, Young Professionals associated with Big and SME
Accounting Firms. The Study Course was an eagerly awaited event amongst the
Practitioners of International Taxation from all around the country and was
well received and appreciated by the participants. The participants were hugely
enlightened with the knowledge imparted by learned speakers.
Technology Initiatives Study Circle
Study Circle Meeting on “Data Analytics and
use of CAATs” held on 22nd January, 2019 at BCAS Conference Hall
Technology Initiatives
Committee of the Society conducted a Study Circle Meeting on “Data Analytics
and use of CAATs” on 22nd January, 2019 at BCAS Conference Hall. The
study circle was led by CA. Murtaza Q. Ghandiali, who is a Practicing Fellow
Chartered Accountant and also having diploma in cyber law & information
technology from Mumbai University.
The Speaker discussed Data
Analytics and how to use CAATs tools more effectively along with practical
examples and shared his in-depth knowledge with the participants. He also
resolved all the questions raised by the participants during the session.
The participants benefited
a lot and appreciated the efforts put in by the Speaker and group leaders.
BEPS Study Circle
Study Circle Meeting on
“Impact of MLI” held on 28th and 30th January, 2019 at
BCAS Conference Hall.
Study Circle Meeting was
held on 28th January, 2019 on Impact of MLI on Treaties entered into
by India with UK, Netherland and Belgium, at BCAS Conference Hall. The
discussion was led by Mr. Jimit Devani, Ms. Barkha Dave and Ms. Darshani Shah.
A very analytical presentation was given and an ‘Article by Article’ discussion
on clauses of MLI was done. The speakers also made references to other Treaties
entered into by India as well.
To keep the momentum on,
the next meeting was held on 30th January, 2019 for further
discussions. Again a very interactive and informative session, the learned
speakers agreed to update the presentation with the inputs received during the
meetings and circulate to the participants.
The participants
appreciated the efforts put in by the speakers and benefitted a lot from the
sessions.
Lecture Meeting on “Changing Professional
Opportunities for Corporate Social Responsibility in India” held on 6th
February, 2019 at BCAS Conference Hall
Corporate and Allied Laws
Committee organised a meeting on the captioned subject at BCAS Conference Hall
which was presented by CA. Zubin Billimoria who has authored a book on the same
topic.
The
speaker provided a holistic view of Corporate Social Responsibility prevailing
since post-independence era and its evolution in the form of personal and
professional social responsibility. He spoke on various aspects of Corporate
Social Responsibility with regard to 4 P’s viz., People, Planet, Profit and
Process. He also shared broad framework for CSR commencing from internal
restructuring and reorganisation to reporting requirements of CSR citing some
good examples and anecdotes on social responsibility.
His in-depth knowledge and
passion towards the subject made the lecture meeting insightful, interesting
and knowledge enriching. He very diligently shared the professional
opportunities in CSR for professionals, consulting agencies and NGOs at large.
The meeting was a huge takeaway for the participants.
International Economics Study Group
International Economics Study Group Meeting
on “The Modi Government – Building India of our Dreams” held on 14th
February, 2019 at BCAS Conference Hall
International Economics
Study Group conducted a meeting on 14th February, 2019 at BCAS
Conference Hall to discuss “Road to 2019 – Modi`s perspective”. CA. Shalin
Divetia presented his well researched theme “The Modi Government – Building
India of our Dreams” covering Challenges faced by Modi Govt., Addressing
Core Issues (Inequality in Living Standards, Lack of Economic Opportunities,
Corruption & Security), Permanent Solutions, Holistic Approach, Vision
backed by Execution, International Relations, Civilisational Pride. Modi
Government has launched schemes that encompass human lifecycle: Infancy, For
the Young, Family necessities, Risk Protection and Retirement. He also brought
out how Modi has attempted in Bridging Rural-Urban Divide, Initiative for
farmers, creating Economic Opportunities (Mudra Yojna, Make in India, Ease of
Doing Business, and Innovation), Tackling Corruption & NPAs, Economic
Reforms – GST & IBC, and International Relations.
CA. Harshad Shah
highlighted that 2019 Election has turned From Cakewalk to Contest and World’s
biggest election has suddenly become competitive. He highlighted few key themes
for this election such as:
Will Women Decide
India’s 2019 Elections? – Women have become a focal point of the BJP’s 2019
re-election campaign. When we empower the women in a family, we empower the
entire house-hold and have thus brought Women Centric Schemes. Women Turnout is
dramatically increasing from 2014.
“Welfare Hook”– Big
Ticket Popular Schemes – 22 to 50 crore beneficiaries.
Health,
Pension, Electricity, Gas – 10% Reservation to
Economically backward, Financing of MSMEs and Traders, KIsan Yojana, Tax Sops
for Middle Class Salaried & Small traders
Social
Media – India has 30 crore Facebook users, 20 crore WhatsApp Members
(In 2014, they had only 5 crore), Twitter 3.44 crore, 45 crore Smart phones (3
times more than 2014 election) 1.14 billion mobile phone connections. Remember
2016 US Election?
UP
Mahagathbandhan – Caste, Religion, Mathematics in politics,
1+1 doesn’t always equal 2 when 2 or more parties with diverse views, caste
matrix, ideology join together and fights compound.
Big 4 toss up states – Bengal,
Orissa, Tamilnadu, and Kerala
Numbers
Game – Higher Voter Turnout benefits BJP & People vote differently
for state and general elections
Critical
Issues – Farm Distress, Loan Waivers, Unemployment, Ram Mandir, Cow,
Polarisation, Triple Talaq etc.
CA.
Rashmin Sanghvi deliberated upon “Is this the beginning of Cold War II after
Trump withdrawing from Nuclear Missile Treaty” and brought out historical
perspective of Cold War 1 which was between 2 Super Powers USA (NATO) &
USSR. This time it`s between USA (not NATO) & China plus Russia and is
playing out through different wars – Trade, Currency, Space, Cyber etc.
The sessions were a good
learning experience for the participants
“Interactive Session with Students for
Success in CA Exams” held on 16th February 2019 at BCAS Conference
Hall
The BCAS Students Forum
under the auspices of the HRD Committee organised an Interactive session with
students for success in CA Exams on 16th February, 2019 at BCAS
Conference Hall. Students Forum had invited CA. Mayur Nayak and CA. Atul Bheda
to guide students on how to crack CA exams. They both left the audience spell
bound.
CA. Rajesh Muni, Chairman
of HRD Committee in his opening address welcomed the speakers and the student
participants. He discussed about the activities which are undertaken by HRD
Committee throughout the year and motivated the students to actively take part
in the same.
CA. Mihir Sheth, Honourable
Joint Secretary of BCAS through his inspiring words encouraged the students.
CA. Raj Khona, HRD committee member then introduced the speakers and also
shared his experience in clearing the CA exams.
CA. Mayur Nayak took the
students through his own journey on how he turned his weaknesses into
opportunities and how he prepared to crack CA final exams in first attempt with
a Rank. His session was truly motivational and inspired the students to work
hard and excel in their exams. CA. Atul Bheda took the students through the
entire ICAI exam process and solved various myths and misunderstandings
regarding the same. He provided practical tips and tricks to be implemented in
order to crack the same exams. His session was very informative and
knowledgeable to the participating students.
Around 60 students got
enlightened from this interactive session and their feedback was very positive.
BEPS Study Circle
Study Circle Meeting on “OECD Report on
addressing the Tax Challenges of the Digitalisation of the Economy” held on 21st
February, 2019 at BCAS Conference Hall
Study Circle Meeting was
held on 21st February, 2019 on OECD Report on “Addressing the Tax
Challenges of the Digitalisation of the Economy” at BCAS Conference Hall. The discussion was led by CA. Ganesh
Rajgopalan and CA. Rashmin Sanghvi.
OECD released “Public
Consultation Document – Addressing the Tax Challenges of the Digitalisation of
the Economy” and sought public comments on key issues identified in a public
consultation document on possible solutions to the tax challenges arising from
the digitalisation of the economy. The last date for submission of comments was
1st March, 2019 and therefore, the meeting was held to discuss the
report and the background thereof and also to take inputs from the participants
to enable BCAS to finalise its comments.
CA. Ganesh Rajgopalan
presented masterly overview of the paper and CA. Rashmin Sanghvi gave the
understanding of background facts which helped the participants to understand
the report in proper perspective. The participants benefited immensely from the
efforts put in by the speakers on the subject.
Technology Initiatives Committee
Half day workshop on “Technology as an
enabler for Compliance on Audit Documentation” held on 22nd
February, 2019 at BCAS Conference Hall
Technology Initiatives
Committee conducted a half day workshop on “Technology as an enabler for
Compliance on Audit Documentation” on 22nd February, 2019 at BCAS
Conference Hall. The Workshop was conducted by CA. Ashesh Jani who has domain
experience thereof in solutioning, architecting, customising and execution of
technology tools for ensuring compliance on audit documentation.
The speaker dealt with the
topic very systematically by providing insights on importance of thorough audit
documentation while conducting the audit assignments and essentials of
maintaining audit documentation in digital form. He also discussed various
issues and the control point to mitigate the issues while dealing with
technology for maintenance of audit documentation.
The program was truly
enthralling with participants. The participants appreciated the in-depth
insight given by the learned Speaker.
“9th Ind AS Residential Study Course” held on 28th February to 2nd March, 2019
The 9th Ind AS RSC was held at The Gateway Hotel, Taj Group, Nashik from 28th February to 2nd March, 2019 where 107 participants from across the country participated in this Mahakumbh of learning on Ind AS subject, based on the concept of Group discussion and Presentation. This year, the topics chosen for Group Discussion were of Topical importance like Ind AS 115 on “Revenue from contracts with Customers”, Ind AS 109 on “Financial Instruments”, other Ind AS topics like Ind AS 16 PPE, Ind AS 21 Foreign Currency Differences, Ind AS on Consolidation, Jt. Control, etc. There were 3 papers for presentation on very important and highly relevant topics like Ind AS 116 Leases, Ind AS and MAT, Audit Reporting under the revised Reporting Standards etc.
The list of Topics and the paper writers/presenters name is as under:-
Sr. No. | Paper | Author | GD or Presentation |
1. | Case Studies on Ind AS 115 | CA. Anand Banka | GD |
2. | Case Studies on Various Important Ind ASs | CA. Santosh Maller | GD |
3. | Case Studies on Financial Instruments | CA. V. Venkat | GD |
4. | Audit Reporting under Revised Reporting Standards | CA. S. Vasudeva | Presentation |
5 | Impact of Ind AS on MAT | CA. Santosh Maller | Presentation |
6 | Ind AS 116 Leases | CA. Manan Lakhani | Presentation |
The RSC Started on Friday, 28th February, 2019 with the group discussion on case studies on Revenue from contract with customers, Ind AS 115. The participants were divided into 3 groups to have a great learning and sharing experience. The group leaders had put in lot of efforts to prepare their PPTs for better discussion on the allotted Topics.
At the RSC inauguration function, CA. Sunil Gabhawalla, President BCAS, CA. Himanshu Kishnadwala, Chairman Accounting & Auditing Committee, CA. Abhay Mehta Jt. Secretary, CA. Amit Purohit and CA. Rajesh Mody, Convenors were present. The President – BCAS, in his opening remarks welcomed all the participants and wished all of them a great learning experience. He also briefly elaborated on the activities undertaken at BCAS and invited non-members to become members to gain uninterrupted knowledge.
- Himanshu Kishnadwala then briefly explained the importance and relevance for such RSC and outlined the events for next 2 days. At this occasion, the publication on “FAQs on Standards on Auditing – Part I” was released at the hands of CA. Sanjay Vasudeva, past Vice Chairman of AASB of ICAI. The Booking was opened for outstation members and the response was very positive.
Then the paper writer of 1st GD paper CA. Anand Banka presented his views and gave clarity on the issues covered by him. The evening ended with the Presentation Paper on “Reporting requirements under Revised Reporting Standards” presented by CA. Sanjay Vasudeva.
Next morning CA. Santosh Maller gave his views on the issues covered by his paper and he also clarified on the issues raised by the members. There was also a Presentation Paper on Ind AS and MAT by CA. Santosh Maller, who ably covered the most difficult and sought after subject in a very lucid manner. After a break, the groups assembled to discuss the 3rd GD Paper on Financial Instruments Standard.
The last day of the RSC started after the gruelling schedule of the previous day. The session started with the presentation of views by CA. V. Venkat on very complex Topic of Financial Instruments Standard. He also replied to members’ queries in his unique style to the fullest satisfaction of the members.
The last session of the RSC was a paper on Ind AS 116 – Leases which was aptly dealt by CA. Manan Lakhani. He covered the whole topic with lots of case studies and explained the complex standard. The RSC ended with a concluding session where in 8-10 members who were 1st time participants expressed their experience at the RSC.
The chairman thanked the participants for making the event a grand success. The Jt. Secretary, CA. Abhay Mehta thanked CA. Himanshu Kishnadwala for successfully planning and executing such an important event this year by setting highest benchmark for quality learning.
The participants got highly enlightened with the knowledge shared by the learned and experienced speakers.
“What Next? – A Career Planning Talk for Fresh Chartered Accountants” held on 8th March, 2019 at BCAS Conference Hall
The Seminar and Membership Development Committee organised a career planning talk for Fresh Chartered Accountants on the topic of “What Next?” on 8th March, 2019 at BCAS Conference Hall which was addressed by CA. Mudit Yadav, a TEDx speaker and Success Coach.
The session began with opening remarks by Chairman of committee CA. Narayan Pasari who briefed the young audience about BCAS and its activities. He also encouraged new CAs to join BCAS and become part of the knowledge sharing. CA. Sunil Gabhawalla, President, BCAS also addressed the gathering and inspired them to aim high and become respected professionals with immense integrity. A Rank holder of Nov. 2018 was felicitated and he shared his views on success in
CA exams.
The speaker CA. Mudit Yadav took up the following major issues faced by young professionals like:
(a) How to choose the ideal career path for yourself? (b) Difference between an average and a star professional. (c) Habits of the most extraordinary professionals. (d) How to develop the mindset of a true professional? (e) How to develop a sharper executive presence? (f) How can you be a pioneer of the future of CA profession?
- Mudit Yadav also shared his personal experience around his career and challenges he faced while carving out his career in unconventional and non-traditional field as a motivational speaker.
The talk was attended by more than 60 fresh Chartered Accountants who extensively benefited from the talk and experiences shared by the Speaker.
Half-Day Workshop for Senior CAs – Get the most from your smart phone! held on 9th March, 2019 at BCAS Conference Hall
HRD Committee organised half day workshop for the benefit of Senior CAs (including spouse) and those who were not familiar with their smart phone and mobile apps, on 9th March, 2019 at BCAS Conference Hall.
The first session was conducted by young and dynamic CA. Pankaj Singhal who narrated the benefit of various Banking Support Apps and Mobile Wallets. The participants were guided to download various apps like PhonePe, UTS, PayTM, Google Maps and Uber. He assisted them to register on these apps and perform transactions.
The second session was conducted by a senior and well-experienced techie CA. Yazdi Tantra who narrated the benefits of Google. He gave live training on optimum use of Google through Voice Search and performing simple arithmetic calculations, setting reminders and alarms, exploring time/weather in any city, playing a song or current news, translating in various languages and many more benefits of Google. He also explored various apps like Tripit, Shush, MAadhar, DigiLocker, Senthisfile.com, Blinkist, True Caller, Camscanner, Texpand, Skedit, Life360, Voter Helpline, Otter-Voice Notes and Calm.
The entire session was very interactive and participants were provided hands on experience on usage of various mobile apps. The faculties too were energetic in guiding the participants who were overwhelmed on knowing numerous benefits of a smartphone which till date was used largely by them for only making calls.
Lecture Meeting on “Recent Important Decisions in Income Tax” held on 13th March 2019 at BCAS Conference Hall
BCAS organised a lecture meeting on Recent Important Decisions in Income Tax on 13th March, 2019 at BCAS Conference Hall which was addressed by CA. Rajan Vora. The Speaker gave his insights on important decisions delivered by various courts and tribunals and the rationale behind those decisions, amongst other decisions on different topics and issues. He further explained far reaching impact of recent Supreme Court decision u/s. 68. The Speaker also responded to the queries raised by the participants during the Q&A session.
The lecture meeting was a good learning and very enlightening experience for the participants.
Suburban Study Circle Meeting on “The Banning of Unregulated Deposit Schemes Ordinance, 2019” held on 16th March, 2019
The Suburban Study Circle had organised a meeting on “The Banning of Unregulated Deposit Schemes Ordinance, 2019” on 16th March, 2019 at Bathiya & Associates, Andheri East which was addressed by CA. Janak Bathiya.
The Speaker made a detailed presentation on the section wise analysis of the “The Banning of Unregulated Deposit Schemes Ordinance, 2019” which was promulgated by the Hon’ble President of India Shri Ram Nath Kovind on 21st February, 2019. The Speaker explained some of the Important Provisions as noted below:
Meaning of Unregulated Deposits, Applicability of this Ordinance to Proprietors, Partnership Firm, LLP, Company etc., Impact on Existing Loans and Advances or Deposits, how to ensure compliance of this Ordinance, Grievance, Appeal, etc.
The practical examples helped the participants in understanding the latest ordinance. The participants learnt a lot from the presentation shared by the speaker.
International Economics Study Group
Study Group meeting on the topics “How IBC is Revitalising Indian Economy” and “Current Economic & Geopolitical Developments” held on 19th March, 2019 at BCAS Conference Hall
International Economics Study Group conducted a meeting on 19th March, 2019 at BCAS Conference Hall to discuss “How IBC is Revitalising Indian Economy and Current Economic & Geopolitical Developments”. CA. Pravin Navandar (Insolvency Professional) led the discussion and presented his thoughts on the subject. He presented various provisions of IBC and how it is helping in resolving many big ticket NPAs such as – Essar Steel are getting handed over to new owners. He brought out India`s ranking in implementation of IBC, many finer provisions of the law, Supreme Court`s speedy disposal of some cases and bringing out clarity in law.
He also brought out how IBC has overriding effect on all other laws relating to insolvency and bankruptcy matters and how the new owners are reviving the sick units with increasing capacity utilisation and workers playing very important role in driving India to New age of economic growth. He also brought out how many Corporations are now taking preventive steps making sure that they don’t default and not land themselves in Insolvency proceedings. Bank lending will resume once IBC helps to clean up Balance Sheets of Banks and they get their stuck dues. India will develop an environment with ease of selling and buying Businesses. Financial Risk to Foreign Lenders would be decreased (faster and higher recovery), Foreign Investors now invited to take ready units without existing promoters and India will have much higher FDIs in Debt segment etc.
This has resulted in quantum jump of 30 places in World Bank`s “ease of doing business” in India. Lenders have been able to recover Rs.1.43 lakh crore from their NPAs. Truly, IBC is not just a Surgical Strike, it`s a full-fledged war on NPAs. Due to fear of IBC proceedings, many promoters are now approaching banks/financers and trying to regularize their loan accounts.
- Harshad Shah brought out developing situation in Venezuela which has largest proven Oil (one of the best quality) reserve in the world. USA is intending for a regime change in Venezuela where as China and Russia have economic interest to recover their debt from Venezuela. He also brought out reasons for sudden appreciation in exchange rate of Indian Rupee.
The sessions were very interactive and interesting for the participants to understand about the current Indian Economy.
Four Day Study Course on Foreign Exchange Management Act (FEMA) held on 15th, 16th, 22nd and 23rd March 2019 at BCAS Conference Hall
Four Day Study Course on FEMA was conducted at BCAS Conference Hall on 15th, 16th, 22nd and 23rd March 2019. There were 14 presentation sessions and one Panel Discussion. The Course started with a topic “Understanding of FEMA” and it went on to cover various other subjects such as Practical aspects of FDI in Real Estate Sector, Immovable Property in India & Outside India, Export and Import of Goods & Services, Setting up of a Liaison Office, Branch Office & Project Office in India & outside India, FDI, Outbound Investment, Borrowing(ECB), Due Diligence/Audit from FEMA Perspective, Practical aspects of filing various forms under FEMA, Practical aspects of Money Laundering, Fugitive economic offence, Black Money Act, Compounding of offence etc. The study course concluded with a Panel Discussion wherein the participants got answers to various tricky questions. A total of 90 participants enrolled for the Course amongst whom many participated from outside Mumbai.
Eminent faculties shared their knowledge and experience with the Participants who got enriched immensely.
REPRESENTATIONS
1. Dated: 6th
March, 2019
To: Tax Policy and
Statistics Division, Centre for Tax Policy and Administration, Organisation for
Economic Cooperation and Development (OECD)
Subject: Thanking
OECD for providing an opportunity to study and offer comments in the
consultation document on Addressing the Tax Challenges of the Digitalisation
of the Economy
Representation by:
International Taxation Committee of the Bombay Chartered Accountants’ Society.
2. Dated: 18th
March, 2019
To: Principal Chief General Manager, Non-Resident Foreign Account
Division (NRFAD)-Policy Division, Foreign Exchange Department, Reserve Bank of
India
Subject: Private
Trusts for Indian assets-clarification required
Representation
by: International Taxation Committee of the Bombay
Chartered Accountants’ Society.
MISCELLANEA
1. Economy
1. 1.
Startups cheer as rule changes ease path for receiving new investments
CBDT clarifies relief like an increase in the limit
to Rs 25 crore and raising of benefit period to 10 years will be available from
February 19.
Indian startups are cheering the bonanza of the
proposed implementation of the recent changes to the ‘angel tax’ from February
19. The Department for Promotion of Industry and Internal Trade (DPIIT) has
announced new norms including a change in the definition of startups to help
budding entrepreneurs to benefit from the full range of the angel tax
concession, media reports say.
The new norms that the Central Board of Direct
Taxation (CBDT) has issued raise the limit of investments that can benefit from
angel tax norms to Rs 25 crore. The angel tax is the income tax payable on
capital unlisted companies raise through the issue of shares where the share
price is in excess of the fair market value of the shares sold. The excess
realisation is treated as income and taxed accordingly. The angel tax was first
introduced in the 2012 Union Budget by then finance minister Pranab Mukherjee
to tackle money laundering. The tax has come to be called angel tax because it
mostly affects angel investments in startups.
The CBDT will implement the detailed framework the
DPIIT has formulated for which it recently issued a new clarification,
according to a report in The Economic Times. The CBDT has said section 56
(2)(viib) of the Income Tax Act prescribing the angel tax will not apply to
consideration in excess of the fair value of shares issued to an investor if
the funds had been received in accordance with the DPIIT’s conditions. In the
past, the amount a startup raises by the issue of shares in excess of the fair
market value was being deemed as income from other sources liable to be taxed
at 30 per cent, deterring angel investors.
The new provisions have also raised the investment
limit for a startup to seek exemption under the section to Rs 25 crore from Rs
10 crore. The startups would also be able to avail themselves of the tax
benefits for up to 10 years as against seven years earlier, according to
reports. The only condition is that the startup will have to submit a
self-declaration about the use of the raised amount to the DPIIT, which will be
forwarded to the CBDT.
“……this was a procedural notification which the
CBDT was required to issue to put in place the mechanism for claiming benefit
given to startups by the earlier DPIIT notification. Startups are elated the
notification came at a time when many said they had received notices under
Section 56(2)(viib), adversely affecting their businesses. The CBDT has
reportedly directed the field staff to clear the proceedings if the tax demands
have been raised.
(Source: International Business Times – By
Prathapan Bhaskaran, 8 March 2019)
2. 2.
Government completely bans import of solid plastic waste to fight pollution
It is to be noted that China had banned such
imports a few years ago, in the meanwhile India became one of the largest
importers of plastic waste.
The central government has now completely banned
the imports of solid plastic waste/scrap into the country. The decision has
been taken to fight the ever-growing plastic waste in India. As per the
official data, the country generates 25,940 tonnes of plastic waste daily. In
the past, such imports were partially banned as only the special economic zones
(SEZ) were allowed to import such solid wastes. Additionally, the government
had also allowed the imports of plastic waste/scrap by export-oriented units
(EOUs) which used to procure it from abroad as post-recycling resources.
Quoting one of the environment ministry officials,
national daily, the Times of India reported that keeping up with India’s
commitment to completely phase out single-use plastic by 2022, the government
has now entirely banned the imports of solid plastic waste. He added, “The
country has now completely prohibited the import of solid plastic waste by
amending the Hazardous Waste (Management & Trans-boundary Movement) Rules
on March 1.” He further said that the rules were changed because of the huge
mismatch between waste generation and recycling capacity in the country.
It is to be noted that China had banned such
imports a few years ago. Meanwhile, India became one of the largest importers
of plastic waste. In India, many companies were misusing the partial ban on the
pretext of being in an SEZ. The country lacks the adequate capacity to recycle
plastic waste and it is because of this reason a huge amount of such wastes
remains uncontrolled. This eventually causes heavy damages to soil and water
bodies. A study conducted by the Central Pollution Control Board (CPCB) shows
that out of 25,940 tonnes of plastic waste per day around 10,376 tonnes remains
uncollected. The figures are astonishingly high as it is almost 40 per cent of
the total waste generated.
The ministry has made changes in the existing
rules, now white category (practically non-polluting or very less polluting) of
industries will dump their hazardous wastes generated to authorised users,
waste collectors or disposal facilities. Since its inception in 1950, global
plastic production has increased exponentially, from 2 million tonnes to 380
million tonnes in 2015. Its sheer convenience — lightweight and durability –
has made this man-made material present in every sphere of human existence. In
the last 70 years, 8.3 billion tonnes of plastic have been produced.
(Source: International Business Times – By Ashesh
Shukla, 7 March 2019)
3. 3.
Cross-border insolvency law changes to boost ease of doing business in India
A separate section in the Insolvency and Bankruptcy
Code (IBC) modelled after international best practices will help partners in
foreign tie-ups.
A proposal by the Narendra Modi government to tweak
the bankruptcy law to tackle cross-border insolvency is expected to boost the
country’s ease of doing a business ranking, media reports say. India made huge
strides in the World Bank’s Ease of Doing Business ranking to reach 77th
spot among 190 countries in 2018 from 100 in 2017.
The government proposes to bring about the changes
through an ordinance amending the Insolvency and Bankruptcy Code (IBC) and
adding a chapter on cross-border insolvency, a report said. The amended law is
aimed at giving comfort to foreign investors in India and vice-versa. The new
law will reduce the time for exchanging information with another country,
encouraging foreign investors and multi-lateral agencies such as the World
Bank.
A panel headed by Corporate Affairs Secretary
Injeti Srinivas recommended using the model law formulated by the United
Nations Commission on International Trade Law, known as the UNCITRAL model,
which has been accepted by 44 nations including some from where India’s major
investments originate like the US, the UK and Singapore. A cabinet nod for the
new law is soon expected, according to a report in Business Standard.
In view of the general election 2019 in a couple of
months, only the next government may introduce a bill in parliament. Such
cross-border insolvency provisions empower foreign creditors to get back money
lent to Indian corporate entities. The reciprocity of the law makes it easier
for Indian companies to claim their dues from foreign companies. The
cross-border insolvency provisions in sections 234 and 235 of the IBC have not
yet been notified and cannot be enforced. The amended law will replace the
provisions and make the Indian law up to international best practices.
The government is aware of the limitations of any
law handling cross-border insolvency because in the case of some foreign
governments bilateral treaties are required for effective execution, an
unidentified official in the Ministry of Corporate Affairs told the newspaper.
Such treaties take a long time finalising as each
one is different and all through the protracted negotiations, foreign investors
will be uncertain of the provisions. The ambiguity will also affect Indian
courts and the National Company Law Tribunal (NCLT), which have to handle each
case separately.
The compulsion for an altogether separate section
for handling insolvency of cross-border investors is to make the law more
comprehensive based on a global model so to encourage its global acceptance.
The new law will revolutionise the key aspects of cross-border insolvency
litigation. The law will give direct access to foreign insolvency professionals
and foreign creditors to participate in or commence domestic insolvency
proceedings against a defaulting debtor. Under the law, foreign proceedings and
remedies will find acceptance in Indian courts. It will enable cooperation
between domestic and foreign courts and domestic and foreign insolvency practitioners
as also coordination between two or more concurrent insolvency proceedings in
different countries, according to sources.
(Source: International Business Times – By
Prathapan Bhaskaran, 5 March 2019)
2. Science
4. 4.
New study finds evidence of extraterrestrial life on Mars; could revolutionise
future space missions
The discovery of alien life on Mars is expected to
revolutionise future Mars missions and planetary colonisation projects.
Conspiracy theorists including popular
extraterrestrial researcher Scott C Waring have been long alleging that alien
life might be thriving or might have thrived on Mars. Adding heat to these long
spanning claims, a new study published in the Journal of Astrobiology and Space
Science has suggested the possible presence of alien life forms on the Red
Planet.
As per the new study report, NASA’s Curiosity Rover
has snapped images of fungi and algae on Mars. Even though NASA has not
admitted or denied the conclusions made in the study, several space experts
strongly believe that this research report is indisputable proof of alien
presence on Mars.
It should be noted that the potential alien life
which has been now spotted on Mars are not evolved, but rather simple living
beings like fungi and algae.
As per Dr Regina Dass of the Department of
Microbiology, School of Life Sciences, India, the lead author of the study,
Curiosity Rover has sent at least 15 images that show fungi and algae growing
on the Martian surface.
“There are no geological or other abiogenic
forces on Earth which can produce sedimentary structures, by the hundreds,
which have mushroom shapes, stems, stalks, and shed what looks like spores on
the surrounding surface. In fact, fifteen specimens were photographed by NASA
growing out of the ground in just three days,” said Dass, Express.co.uk
reports.
Dr Vincenzo Rizzo, a
National Research Council biogeologist revealed that the seasonal fluctuations
of methane in the Martian atmosphere can be connected with natural life-and-death
cycles of organic matter on earth.
The study report is expected to revolutionise
future space missions to Mars. Upcoming probes to Mars by NASA is expected to
analyse these Martian fungi so that the habitat in which they are thriving can
be studied in depth. Potential life on Mars, even in its simplest form will
also raise the hope of surviving on Mars during colonisation.
Earlier, SpaceX founder Elon Musk had revealed that
he will surely go to Mars despite minimal chances of survival. With this new
discovery, it has been proved that alien life, at least in the simplest form
can survive on the Red Planet, and this will surely elevate the projects which
are being now carried out aiming at colonizing Mars.
A few weeks back, self-proclaimed researcher Scott
C Waring had claimed to have spotted fossil-like structures on Mars. In a post
on his website ‘UFO Sightings Daily’, Waring argued that Mars was once home to
an alien civilisation. The researcher also urged United States President Donald
Trump to make him the head of NASA, so that he can unveil the unknown mysteries
surrounding alien life on the Red Planet.
(Source: International
Business Times – By Nirmal Narayanan, 25 March 2019)
STATISTICALLY SPEAKING
1. Inflation rate in India from 2012 to 2018
2. Top 10 Fastest Growing cities in the World,
2019-35
3. Budget 2019 – Increase in direct tax
collection
4. Mumbai Roads
5. Commuting time to be included in working
hours
ETHICS AND U
Arjun (A) — Bhagwan, we meet every
month. I always get valuable insights
from you.
Shrikrishna — I also enjoy talking to you and
observe how you are following the principles from Geeta
A — I must admit that Kauravas
had a huge army; many times more than ours. But we won only because we followed
your advice.
S —Even today, you are in constant
war against evil. You can fight it only with the shield of ethics and sword of
action. If you want to be independent, you need to be eternally vigilant.
A—True. Times have changed.
People’s thinking has changed. Now we CAs are expected to be blood-hounds and
not mere watch-dogs.
S—Many scams are revealing
direct or indirect involvement of your clan. People are perceiving auditor’s
involvement. This is very dangerous.
A—I have the same dilemma as I
had in the Mahabharata what to do. It is whether to continue to act as
Auditor?
S—I understand your anxiety.
But what else can you do?
A—Krishna I feel like giving
up all audit and signing assignments.
S—That’s not the answer. A
professional like you cannot think of running away. Do you think there is no
risk in rendering other services like advisory?
A—The reality is that all
authorities are after our blood. They harass our clients – result – all
tensions come on us.
S—That’s precisely what I had
advised you in Geeta. Be detached. Yours’ probably is the only
profession that gets emotionally involved with the client.
A—We are trapped in a vicious
circle. On one side laws are radically changing. New laws are coming. Our own
Institute’s rules and regulations are a little too much for a small entity. On
the other hand, there is lack competent manpower. We can’t afford to employ too
many qualified people. The irony is that our clients don’t appreciate our
efforts and are also not willing to pay for our services! They take us for
granted.
S—That’s because they don’t
find any value addition. The client perceives your services as mere compliance.
A—Krishna but that is a wrong
perception. By ensuring compliance we save them from penalty and prosecution.
Another issue that bothers us is : How much to study? Under pressure we neglect
our health and family. There is no time to relax and live – we merely exist.
S—Today, you seem to be too
stressed.
A—Yes. As it is, every March
is like this. March mars our mood!
S—(smiles). In Geeta, I
advised you to be a ‘sthitapradnya’ – a balanced and steady mind.
Unperturbed by anything!
A—Krishna, it is easy to advise, but difficult to
follow. See how many fronts we have to fight – advance tax, GST, planning for
closure of books, gearing up for bank audits! To add to this our
assistants/trainees are on exam leave! On top of this the tax authorities are
all out for coercive recoveries! How can they have target oriented tax
assessments and recoveries? Government’s thinking is strange!
S—Arjun, why are you whaling?
I understand your difficulties. But today all professions are sailing in the
same boat. Please remember your very survival depends on the laws made by the
Government! Don’t complain about complicated and confusing laws.
A—I envy other professions –
that perform and also enjoy without any tension!
S—That’s a wrong impression.
Grass is always greener on the other side.
A—What was the point you were
making?
S—See, you criticised the
Government. Now elections are coming. It is your duty to vote consciously. And
also educate and motivate others to do so! As intellectual professionals you
owe a duty to the nation and society.
A—That’s OK. But this year I
am worried about bank audits! The recent scams are frightening!
S—Ensure that you write to the
previous auditor. Better talk to him and get fair idea and opinion about the
branch you are going to audit. Also, keep the record of your work – working
papers. In short, be diligent, meticulous and careful. Timely communication
backed by proper evidence will help you in doing the work smoothly. Remember,
work should not only be done; but it should be seen that it is done.
A—Yes, Lord! I cannot run away
from the profession. Everywhere the
things may be the same. Whatever I do, I must do it properly and diligently. I
seek your blessing!
S—You are always blessed, My
Dear!
Om
Shanti.
RIGHT TO INFORMATION (r2i)
PART A I DECISION
OF SIC
- SIC awards Rs. 10,000 relief to RTI
applicant
Telangana State
information Commission has awarded a compensation of Rs. 10,000 to a senior
citizen who was fighting for information regarding her revised pension and
other records from the medical department for the last 10 months. Dr TSS
Lakshmi (76), a retired professor of dermatology/Medical Superintendent of
Osmania General Hospital, had filed a Right To Information petition in December
2017 seeking information from the Director of Medical Education on the revision
of her pension details. “Provide me with the xerox copy of my service register
and information of health card and a copy of the proposal for revision of pay
fixation and pension,” said the applicant in the petition. However, the
applicant did not get the required information even after 30 days of the
standard procedure time mentioned under the RTI Act, 2005.
In the follow up hearing of the case, she
was informed by the Public Information Officer that there were no records of
her data. Irked by the PIO’s response, the Chief Information Commissioner Dr
Raja Sadaram Soma ruled in favour of Lakshmi. He said that the complainant
retired in 2002 and that she has been drawing pension from the State,
suggesting that the PIO’s response was not convincing at all.
(Source:http://www.newindianexpress.com/states/telangana/2019/mar/17/sic-awards-rs-10000-relief-to-rti-applicant-1952150.html)
- RTI applicant can choose mode of information collection: SIC
The State Information Commission has held
that it is for the information seeker under the Right to Information Act to
choose the mode of collecting the required information and that the State
Public Information Officer (SPIO) has no discretionary power to dictate any
particular mode.The commission made the observation while issuing a show cause
notice to the SPIO of the Revenue Divisional Office, Kottayam, for asking an
information seeker to visit the office and gather the required information by
perusing the relevant files there.
The commission pointed out that as per
section 2(j) of the RTI Act, right to information meant the information held by
or under the control of any public authority and which include the right to
inspect work, documents, records, and take note, extracts or certified copies
of documents or records. The Commission pointed out that section 2(i)(ii)(iii)
and (iv) of the Act spoke of the right of the information seeker to gather
information by adopting his/her own mode of choice.
(Source:https://www.thehindu.com/news/national/kerala/rti-applicant-can-choose-mode-of-info-collection-sic/article26493229.ece)
PART B I RTI ACT, 2005
- With the RTI Law in Place,
Rafale Deal Secrets Can’t Be Called ‘Stolen’
For discovering an incriminating document from the defence department, a
journalist is threatened. For attaching those documents to a public interest
litigation, a lawyer is threatened with prosecution under the Official Secrets
Act. The battle is now between the freedom of speech and official secrecy. Can
official deals, if wrongful, be protected under the curtains of secrecy?
In the wake of resistance and criticism from media bodies and the public,
the attorney general said the government had no intention of prosecuting
journalists and lawyers for using the ‘documents’.
Then Centre filed an affidavit on March 13, 2019 stating that those who
leaked were guilty of penal offences including theft. It was claimed that
annexed notes were marked ‘secret’, and exempted from disclosure even under the
Right to Information Act. It also raised a point under the Evidence Act, on the
use of evidence derived from unpublished official records relating to the
affairs of the state without permission.
These claims reflect the intention to attack the review petition on
technical grounds, without condemning the veracity of the contents that
strengthen allegations. First of all, it is not a trial in which admissibility
of evidence need to be thoroughly examined; the government can raise those
points in the trial that happens after the investigation the petitioners
are seeking. The facts of the case have to be considered to decide whether a
probe should be ordered.
The second point is on the documents being marked ‘secret’. Which part of
the deal is secret, and why? The test established by the Supreme Courts of
India and the US in several cases to withhold a document as secret is the
doctrine of ‘clear and present’ danger. The Pentagon Papers case in the
US and Raj Narain’s case against Indira Gandhi in India, the Supreme Courts
laid down the norm that the danger should be so clear that secrecy needs to be maintained.
In Pentagon Papers, failures of the US Army in Vietnam were leaked
by the New York Times, Washington Post and others. The US
government wanted to prevent newspapers from publishing these reports, citing
‘national security’. In the Raj Narain case, the Centre was refusing to
share the blue book for the then prime minister’s visit during electioneering,
even many years after the event. The Centre has a duty to explain how a dissent
note from three negotiators would pose a clear and present danger to
‘security’.
To say that this document could not have been disclosed even under RTI
Act is legally not tenable, because the RTI Act provided for disclosure of
defence details and information from exempted organisations as well in the
context of corruption and human rights violation. The political executive
cannot use the Official Secrets Act and a ‘national security’ defence, without justifying them, to hide the truth and prevent a
probe.
The very origins of the Official Secrets Act was to muzzle the voice of
the opposition and criticism. The pre-independence 1923 Official Secrets Act
promotes secrecy and confidentiality around ‘governance’. It is shocking that
attorney general, representing the Centre, said the prosecution had stolen
‘secret’ documents and pleaded with the Supreme Court not to consider the
stolen parts of the deal papers.
The review of the apex court’s December 14 decision will have very
serious implications because the petitioners – Yashwant Sinha, Arun Shourie and
Prashant Bhushan – are seeking an FIR against Prime Minister Narendra Modi and
others involved in the Rafale deal.
Relying largely on documents published in the media, the petitioners want
the Supreme Court to reverse their conclusion about the absence of alleged
commercial favouritism, because certain critical information was suppressed
from judicial scrutiny.
The AG attacked the review petition, claiming the documents were stolen
and then attached to the petition before the bench, which means the petitioners
are involved. It is in this context that the threat of prosecution under the
Official Secrets Act has to be examined.
Though the AG has retreated from this threat, it has stirred a debate
about practical application of provisions of the Official Secrets Act, because of
their inconsistency with the Right to Information Act, 2005. One must see how
official secrets are valid when transparency is the law and disclosure the
rule. Secrecy is now an exception.
More than a threat to the freedom of press and due process, the use and
abuse of the Official Secrets Act threatens good governance and promotes
corruption.
CULTURE OF SECRECY
As rightly observed by the Second Administrative Reforms Commission, the
Official Secrets Act is founded on colonial mistrust of people and primacy of
officials who deal with citizens. The culture of secrecy was established
through this draconian law.
The commission’s recommendation to repeal it was rejected. In 2017, a
committee of the cabinet secretariat recommended making the Act more transparent,
at least. That was not acted on.
On the one hand, the government fills information commissions with former
bureaucrats to discourage disclosure, and on the other promotes the use of the
Official Secrets Act. The pre-independence Congress party had resolved to
repeal the Act, but every party including the Congress has used it to stifle
voices. When it is used in the forum of the Supreme Court to stall a probe into
the Rafale deal, the public must doubt the commitment to transparency and zero
tolerance of corruption.
Every document is not a secret and every leak is not a crime under the
Official Secrets Act. Criminality lies in “intending to benefit enemy country
directly or indirectly”. Sections 3 and 5 of the Act refer to making or
accessing a sketch, plan, model or note or document which is useful to the
enemy or wrongfully communicating it, which is likely to affect the sovereignty
and integrity of India, security of state or friendly relations with foreign
state.
THE ACT DOES NOT DEFINE ‘SECRECY’
The most interesting factor is that the Officials Secrets Act does not
define ‘secret’ or ‘official secret’, and does not provide a ‘classification’
of documents. The Manual of Departmental Security Instruction (MODSI) of the
Ministry of Defence has laid down procedures and criterion for classification
of documents as ‘top secret’, ‘secret’ and ‘confidential’.
Papers containing vital information which cannot be disclosed for reasons
of national security are classified as ‘top secret’, and these must not be
disclosed to anyone for whom they are not essential. Such papers include
references to current or future military operations, intending movements or
disposition of armed forces, shaping of secret methods of war, matters of high
international and internal political policy, ciphers and reports derived from
secret sources of intelligence.
The ‘secret’ classification is reserved for papers the disclosure of
which could cause administrative embarrassment or difficulty, an internal
breach of peace and amity, injury to the interest and prestige of the
government, or would be of advantage to a foreign nation or enemy.
The ‘confidential’ category is reserved for papers containing information
the unauthorised disclosure of which, while not endangering national security,
would be prejudicial to the interests of the nation, any government activity or
individuals, or would cause administrative embarrassment or difficulty or be of
an advantage to a foreign nation. In S.P. Gupta, the Supreme Court
rejected the criteria of ‘embarrassment to the government’.
OFFICIAL SECRETS ACT VS RTI
Section 2 of the Official Secrets Act defines ‘document’ as ‘document
includes part of a document. This means if any part of the document is secret’,
then the disclosure of part other than ‘secret’ part also can be denied.
Section 10 of RTI Act provided for separation of the ‘secret’ part and
release of the rest.
This is the conflict between these two Acts. Section 22 of the RTI Act
expressly provided that the provisions of the RTI Act shall have effect
notwithstanding anything inconsistent therewith contained in the Official
Secrets Act, 1923, and any other law for the time being in force or in any
instrument having effect by any law other than the RTI Act.
This was further fortified in section 8(2), which stated that information
exempted under sub-section (1) or exempted under the Official Secrets Act, 1923
can be disclosed if public interest in the disclosure overweighs the harm to
the protected interest.
The Bofors scandal was the result of a media investigation and the
leakage of key documents. In fact, the official radio of Sweden released
threads of the bribery to Indian dealers behind the Bofors deal with India.
This could happen because there is a Freedom of Press Act in Sweden, which
granted people the right to information back in 1766. The transparency law
ensures corruption-free defence deals.
STOLEN TRUTHS
In this context of a 21st century access law overriding a
97-year-old British relic law of secrecy, one has to see whether all papers of
negotiations, undue increase in the price, irrational preference of Anil Ambani
to HAL, ignoring the ‘make in India’ policy, dissent of three members of
seven-member negotiating team against a parallel bargain by the PMO in Rafale
deal, etc., can be considered as ‘official secrets’.
Even if agreed that they are stolen, as contended by the AG, the
documents accessed by the media are not condemned as false. This strengthens
the plea to review the Supreme Court’s December 14 decision. The government has
a duty to tell the apex court and people which part of the Rafale deal could
harm security interests, and disclose the rest.
Whether citizen, journalist or lawyer, shouldn’t everyone have the right
to criticise and challenge the purchase of Rafale fighter aircraft at a price
much higher than earlier estimated?
M. Sridhar Acharyulu is a former Central Information Commissioner and a
professor of media law at Bennett University.
(Source:https://thewire.in/law/rafale-deal-official-secrets-act-rti)
PART C I INFORMATION ON & AROUND
- Movie Ticketing Apps Not Allowed to
Charge ‘Internet Handling Fee’ from Customers, Says RBI In Response to RTI
Query
An RTI query has revealed that portals like BookMyShow levy an extra
‘internet handling fee’ against each ticket, which is in violation of the RBI’s
Merchant Discount Rate (MDR) regulations that were issued by the Reserve Bank
of India on Dec 6, 2017.
As per the regulations, the merchant (in this case, the movie theater)
is supposed to pay an amount to the bank against every transaction made by
customers using a credit or debit card as per MDR regulations.
However, movie ticketing apps may be allowing the merchant to transfer
this fee onto unwitting customers by charging it from them in the form of
“internet handling fee”. This fee includes 18 percent Integrated GST
(IGST) which the customer is supposed to pay.
(Source:https://www.news18.com/news/buzz/rti-bookmyshow-overcharging-customers-rbi-meity-2068071.html)
- Rural distress: Farmer suicides in Maharashtra
doubled in last 4 years, reveals RTI
In the last four years, Amravati division, commonly known as Vidarbha,
recorded highest number of suicides, at 5,214.This was followed by Aurangabad
division, also known as Marathwada, with 4,699 farmer suicides.
At a time when drought has been declared in about half of Maharashtra –
about 150 tehsils out of 360 – a Right to Information query has revealed that
the number of farmer suicides in the state has doubled in the last four years.
In a letter to the National Human Rights Commission (NHRC), the
Maharashtra government says between 2011 and 2014, which is when the
Congress-NCP was in power, 6,268 famers committed suicide. The number rose
sharply by 91 per cent to 11,995 from January 2015 till the end of 2018.
“The core issues of farmers related to the distress in the rural
area is mostly related to the credit, cost and the crop pattern adopted by the
farmers. The issues of health, rural unemployment and natural climate are also
very significant,” Kishore Tiwari, head of Vasantrao Shetti Swawalamban
Mission, Maharashtra government.
(Source:https://www.moneycontrol.com/news/india/rural-distress-farmer-suicides-in maharashtra-doubled-in-last-4-years-reveals-rti-3617231.html)
- Only one musk deer in country’s zoos,
reveals RTI reply
Only one musk deer is present across zoos in the country, according to a
response obtained under the Right to Information Act.
The Central Zoo Authority, under the Ministry of Environment, Forest and
Climate Change (MoECC), stated that the lone male musk deer was in a zoo in
Himachal Pradesh.
A Noida-based RTI activist had sought details on the population of musk
deer across states in the country, both in zoos as well as in the wild. He had
also asked statistics related to the poaching of the wild species, if any.
“There is only single male musk deer (that) exists in recognized zoo
(Himalayan Nature Park, Kufri as on 31.03.2018),” said the Central Zoo
Authority, which maintains the records of captive animals in zoos.There are
seven musk deer species of the genus Moschus and all of them are endemic to
Asia.
(Source:https://www.tribuneindia.com/news/nation/only-one-musk-deer-in-country-s-zoos-reveals-rti-reply/739473.html)
- Does The Office Of CJI Come Under The
Purview Of RTI Act? SC Finally Lists Its Own Appeal Before Constitution Bench
In the list of cases to be heard by the Constitution bench of the
Supreme Court from March 27th, the Supreme Court has included its
own appeal against a Delhi High Court judgment that had held that the Supreme
Court and the Chief Justice of India are “public authorities” under
the Right to Information Act. Three Judge bench of Delhi High Court comprising
the then Chief Justice A P Shah, Justice Vikramjeet Sen and Justice S
Muralidhar had upheld the single bench judgment that Supreme Court and the
Chief Justice of India have statutory duty to furnish information sought by
citizens regarding the functioning and administration of the Supreme Court. The
single bench had dismissed the challenge against the order of Central
Information Commission whereby it had directed the Supreme Court CPIO to
provide the information requested by Subhash Chandra Agarwal for supply of
information concerning declaration of personal assets by the Judges of the
Supreme Court.
(Source:https://www.livelaw.in/top-stories/constitution-bench-hearing-list-143623)
- Only 920 MBBS seats added in 5 years
against 10,000 approved: RTI
Only 920 MBBS (Bachelor of Medicine and Bachelor of Surgery) seats have
been added in the government medical colleges against the approved 10,000, in
the last five years, reveals an RTI.
According to the RTI filed by Chandra Shekhar Gaur, a resident of Madhya
Pradesh, the government has approved 36 medical colleges for adding 2,615 MBBS
seats in Andhra Pradesh, Gujarat, Jharkhand, MP, Odisha, Punjab, Rajasthan,
Tamil Nadu, Uttarakhand, West Bengal, Manipur and Karnataka.
It also released Rs 685 crore in 2015-18 for 12 states for increasing
the number of MBBS seats.
In Andhra Pradesh and Rajasthan, only 50 new seats each have been added
against the approved 150 and 350 seats, respectively, in Karnataka, 350 seats
have been created against the approved 550, the RTI revealed.
In states like Jharkhand, MP, Tamil Nadu, Uttarakhand, West Bengal and
Manipur not a single seat has been added.
According to the RTI, 450 seats were to be created in MP. But even after
sanction of Rs 108 crore in three years for the four government-owned medical
colleges, not a single seat has been added.
In Tamil Nadu, too, over Rs 82 crore has been released by the Centre to
add 345 seats. But the seat count remains the same.
States like Odisha (200 seats), Gujarat (170 seats) and Punjab (100
seats) have upgraded their medical colleges and increased the requisite number
of MBBS seats.
In 2014, a cabinet committee of the UPA government had approved the
Ministry of Health and Family Welfare’s proposal relating to the
Centre-sponsored scheme for upgradation of government medical colleges and
increasing the number of MBBS seats. It was also announced that Rs 10,000 crore
would be invested for increasing the MBBS seats. Of this, the Centre was to
contribute Rs 7,500 crore and states/UTs Rs 2,500 crore.
The funding pattern was to be 90:10 between the central and the state
governments for northeastern states and the special category states. The ratio
of 70:30 was decided for other states.
Creation of one MBBS seat cost around Rs 1.20 crore, according to the
cabinet committee in 2014.
Again in 2018, the cabinet approved the proposal for adding 10,000
under-graduate seats by 2020-21 and 8,058 post-graduate seats — 4,058 in the
first phase by 2018-19 and 4,000 in the second phase by 2020-21.
(Source:https://www.moneylife.in/article/only-920-mbbs-seats-added-in-5-years-against-10000-approved-rti/56456.html)
- Two years after demonetisation: Okaying
note ban, RBI rejected govt claim on black money, fake notes
Less than four hours before Prime Minister Narendra Modi announced
demonetisation on November 8, 2016, the Central Board of the Reserve Bank of
India (RBI) gave its approval to the scheme but also rejected, in writing, two
of the key justifications — black money and counterfeit notes — that he would
make in his televised address to the nation.
The minutes of the 561st meeting of the RBI’s Central Board,
which was convened hurriedly in New Delhi at 5.30 pm that day, reveal that the
central bank’s directors described the move as “commendable” but also warned
that demonetisation “will have a short-term negative effect on the GDP for the
current year”.
The minutes were signed by RBI Governor Urjit Patel on December 15,
2016, five weeks after the meeting was held. In all, six objections, described
as “significant observations”, were recorded in the minutes by the RBI Board.
The RBI directors, after receiving a proposal draft of the scheme from the
Ministry of Finance on November 7, 2016, argued that the government’s
reasoning, that the withdrawal of HD (high denomination) currency notes of Rs
1,000 and Rs 500 would help in curbing black money and restrict circulation of
counterfeit cash, did not really hold good.
The minutes list out the justifications given by the Ministry of
Finance.
RBI Red Flags
• Short term
negative on GDP
• Rs. 400 crore
fake notes not very significant share of total cash
• Most black money
not held in cash but gold, real estate • Adjustment for inflation, difference
between economic growth and cash available not so stark.
(Source:https://indianexpress.com/article/india/two-years-after-demonetisation-okaying-note-ban-rbi-rejected-govt-claim-on-black-money-fake-notes-5438516/)
- SBI has found fraud worth Rs 7,951.3
crore in Apr-Dec: RTI reply
The State Bank of India has said as much as Rs 7,951.29 crore involving
1,885 cases of fraudulent activities have come to light during the first nine
months of the current fiscal year. In a reply to a right to information query,
the nation’s largest lender said, the first quarter reported 669 cases of
fraudulent activities amounting to Rs 723.06 crore, the second quarter saw 660
cases involving an Rs 4,832.42 crore and the third quarter reported 556 cases
amounting to Rs 2,395.81 crore. According to RTI activist Chandrashekhar Gaud,
the bank shared the data on Feb. 25.
Though he had also sought information about the financial losses to its
customers due to these fraudulent activities, the SBI refused to share the same
saying such information is exempted from disclosure under section 7 (9) of the
RTI Act of 2005. The bank did not share details of frauds such as phishing,
online, debit, credit cards fraudulent transactions or borrowers engaging in
fraudulent activities with the borrowed money.
(Source:https://www.bloombergquint.com/business/sbi-has-found-fraud-worth-rs-7-951-3cr-in-apr-dec-rti-reply#gs.1xytaa)
- Maharashtra: No internal committees in
ministers’ offices to receive, address sexual harassment complaints
In a response to a Right to Information (RTI) application filed by The
Indian Express, the office of Maharashtra Chief Minister Devendra Fadnavis said
no IC has been established. In addition, none of the ministers’ offices have
such an IC either.
The Sexual Harassment of Women at Workplace (Prevention, Prohibition and
Redressal) Act, 2013, mandates that all places of employment with 10 or more
employees are mandated to have a functioning IC. While the Maharashtra CM
Secretariat has 110 employees, including 20 women, all the ministers’ offices
have more than 10 employees. In all, there are 38 ministers, including the
Chief Minister.
An RTI request was filed with the CM Secretariat seeking to know the
date of formation of the IC as per the provisions of law. In its reply, Public
Information Officer Geeta Yadav said, “The establishment works related to the
CM Secretariat is handled by the Desk 21 of the General Administration
Department (GAD),” and hence, such a committee was not established at the CM
Secretariat. “However, appropriate action is being taken in the matter after
seeking remarks from the concerned departments,” the reply added.
(Source:https://indianexpress.com/article/cities/mumbai/no-internal-committees-in-ministers-offices-maharashtra-sexual-harassment-complain-5605934/)
PART D I RTI CLINIC-SUCCESS STORY
RTI Clinic of BCAS was approached by Mr.
Gandhi whose goods (Bales) were in the custody of the GST department and a
penalty was charged to him. It was mentioned that on payment of the penalty his
goods would get released by the department, but even after 3 months of paying
the penalty the goods were not released. After filing of a RTI application the
goods were released by the department.
RTI Clinic in April 2019: 2nd, 3rd,
4th Saturday, i.e. 13th, 20th and 27th 11.00 to 13.00 at BCAS premises. _
GLIMPSES OF SUPREME COURT RULINGS
1.
CIT (Exemptions) vs. Jagannath
Gupta Family Trust (2019) 411 ITR 235 (SC)
Charitable purpose – The High Court allowed
the appeal mainly on one ground, namely, that one bogus donation would not
establish that the activities of the trust are not genuine – According to the
Supreme Court, the High Court had committed error in entertaining the appeal
against the remand order passed by the appellate-authority, and in quashing the
order of cancellation of registration
Jagannath Gupta Family Trust (the Trust), a
registered Trust u/s. 12AA of the Income Tax Act, 1961, (for short ‘the Act’)
and also approved u/s. 80G(5)(vi) of the Act, was created with an avowed object
of public and charitable purposes, namely, medical relief, education, any other
causes of public utility etc. The Trust is running an Engineering College.
A survey was conducted u/s. 133A of the Act,
in the premises of School of Human Genetics and Population Health (SHGPH),
Kolkata by the Investigation Wing on 27.01.2014. During the said survey the
Income-tax Department noticed a donation entry of Rs. 37,00,000/- (Rupees
Thirty-Seven Lakh) in two tranches in the months of February and March, 2013.
According to the Department, such donation given to the Trust was bogus and
sham. The donor did not actually donate such amount, such entry was shown by
receiving the amount in cash from the Trust, by retaining commission.
In view of such allegation, the Commissioner
of Income-tax (Exemptions) initiated the proceedings for cancellation of
registration and issued a show-cause notice to the Trust on 04.12.2015. The
Trust replied to the same and contested the proceedings. The main plank of the
defence was that the procedure adopted by the Department was contrary to the
principles of natural justice. It was also the case of the Trust, that though a
statement of the representative of the donor was recorded and on the said basis
proceedings were initiated for cancellation of registration, but the Trust was
not given any opportunity to cross examine such representative.
After receipt of the explanation to the
show-cause notice, alleging that the activities of the Trust were neither
genuine nor as per the objects of the trust, further alleging that the
transaction in question was only a money laundering, therefore, receipt of
donation in lieu of cash was never the object of the trust and as such it was
to be treated as ingenuine and illegal activity. It was also held that such activities
were carried out by the Trust not only in one year but in several years.
By recording the aforesaid findings, the
primary authority, by order dated 15.03.2016, in exercise of power u/s. 12AA(3)
of the Act, cancelled the registration of the Trust.
Aggrieved by the order of cancellation dated
15.03.2016, the Trust filed an appeal before the Income Tax Appellate Tribunal,
at Kolkata. The appellate authority, recorded a finding that, though the
statement of the donor was made basis for initiating proceedings for
cancellation of registration of the Trust, but the Trust was not given an
opportunity to cross-examine the representative. The appellate-authority held
that an opportunity of cross-examination of the representative of the donor was
to be given to the Trust. The appellate-authority set aside the order dated
15.03.2016 and remanded the matter for fresh consideration by primary
authority.
Aggrieved by the order of the appellate
authority dated 10.04.2017, the Trust filed an appeal, before the High Court of
Calcutta. By the impugned order, the High Court allowed the appeal by order
dated 18.09.2017 and quashed the order of cancellation of registration. The
High Court held that while it was possible that a particular donation may be
bogus or fictitious and, the Trust may be assessed to tax therefor and other
steps could be taken but the single donation which was allegedly bogus, would
not establish that the activities of the trust were not genuine and not being
carried out in accordance with the objects of the trust. It also held that if
there were multiple bogus transactions of similar kind, it may lead to
reasonable assessment for the Competent Authority to hold that the trust was
engaged in such activities which could be said to be not genuine or not in
conformity with the objects of the trust.
The Commissioner of Income tax (Exemptions),
Kolkata, aggrieved by the Order dated 18.09.2017 passed by the High Court of Calcutta filed an appeal before the Supreme Court.
The Supreme Court noted that in the
proceedings initiated for the cancellation of registration, mainly it was the
case of the Trust that proceedings for cancellation were initiated only on the ex-parte
statement of the representative of the donor, without giving any opportunity to
the Assessee. It noted that though a survey was also conducted on the Trust,
but nothing adverse was found during such survey to support the case of the
Revenue, to cancel the registration. The Supreme Court, on the perusal of the
order passed by the High Court, found that the High Court had allowed the Writ
Petition mainly on one ground, namely, that one bogus donation would not
establish that the activities of the trust are not genuine.
According to the Supreme Court, such a reason
assigned by the High Court was erroneous and ran contrary to the plain language
of section 12AA(3) of the Act. In view of the serious allegations made against
the Trust, it was a matter for consideration of the issue, after giving
opportunity as pleaded by the Trust but the High Court had committed error in
entertaining the appeal against the remand order passed by the
appellate-authority, and in quashing the order of cancellation of registration.
The Supreme
Court therefore set aside order of the High Court, but however, clarified that
it had not expressed any opinion on merits, and it was open to the Commissioner
of Income Tax (Exemptions), Kolkata to consider all the issues on its own
merit, uninfluenced by the observations made by the appellate authority, the
High Court or in this order by it.
FROM PUBLISHED ACCOUNTS
Audit
Reporting as per revised Standard on Auditing (SA 701)
Compilers’
Note
The
International Auditing and Assurance Standards Board (IAASB) has issued revised
and new International Standards on Auditing (ISAs) for audit reporting. These
audit reporting ISAs are applicable for all reports issued after 15th
December, 2016 onwards.
With a
view to align the Standards on Auditing (SAs) in India, ICAI has also issued
revised reporting standards which are effective for audits of financial
statements for periods beginning on or after 1st April, 2017. The
said date was subsequently deferred by 1 year to now become effective for
audits of financial statements for periods beginning on or after 1st April,
2018. ICAI has also issued an implementation guide to SA 701.
One of the
key features of the revised audit reports is the inclusion of a paragraph
called “Key Audit Matters” (KAM). KAM are defined as those matters that, in the
auditor’s professional judgment, were of most significance in the audit of the
financial statements of the current period. KAM are selected from matters
communicated with TCWG.
Given
below is an illustration of the KAM paragraph included in the audit of interim
consolidated financial statements.
Infosys
Ltd: (9 months ended 31st December, 2018)
Key
Audit Matters
Key audit matters are those
matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the interim consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
KEY AUDIT MATTER |
RESPONSE TO KEY AUDIT MATTER |
Accuracy of revenues and onerous obligations in
Estimated effort is a critical estimate to determine revenues
Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial
|
Principal Audit Procedures Our ? Evaluated the design of internal controls ?Tested the access and ? Selected a sample of ? Selected a sample of ? Reviewed a sample of ? Performed analytical
Conclusion Our procedures did not identify any material exceptions. |
Reasonableness of carrying amount of assets
Carrying amounts of assets reclassified from “held for sale” is
Recoverable amounts of assets reclassified from “held for sale”
Refer Note 1.5f and 2.1.2 to the Interim Consolidated Financial |
Principal Audit Procedures Our audit procedures consisted of challenging management’s key
Conclusion The assumptions and inputs have been appropriately considered in |
CORPORATE LAW CORNER
1 Commissioner of Income Tax vs. Gopal Shri
Scrips Pvt. Ltd. [2019] LSI-87-SC-2019(NDEL) (SC) Civil Appeal No. 2922 of 2019 Date of Order: 12th March, 2019
Section 560(5)
of the Companies Act, 1956 – In the event name of a company has been struck off
the Register of companies, liability, if any, of every director, manager or
other officer who was exercising any power or management, and of every member
of the company, would continue and could be enforced as if the Company had not
been dissolved.
FACTS
Commissioner of Income-tax (“CIT”) Jaipur (IT department) had
filed an appeal u/s. 260A of the Income Tax Act, 1961 in the High Court of
Rajasthan (Jaipur Bench) against the order of Income Tax Appellate Tribunal
(“ITAT”). During the course of the hearing of the said appeal, status of G Pvt
Ltd was sought. ROC had issued communication to the court that name of G Pvt
Ltd been struck off from the register and said company was dissolved. The High Court
of Rajasthan held that the appeal filed has become infructuous and accordingly
dismissed the appeal u/s. 260A of IT Act, 1961. An SLP was filed in Supreme
Court challenging the order of High Court of Rajasthan, dismissing the appeal
of IT department.
HELD
The Supreme Court (SC) examined the
provisions of section 560(5) of the Companies Act, 1956 and held that the High
Court failed to notice section 560 (5) proviso (a) of the Companies Act and
further failed to notice Chapter XV of the Income Tax Act which deals with
“liability in special cases” and its clause (L) which deals with
“discontinuance of business or dissolution”.
The SC further observed that the
aforementioned two provisions, namely, one under the Companies Act and the
other under the Income Tax Act specifically deal with the cases of the
Companies, whose name has been struck off u/s. 560 (5) of the Companies Act.
The SC further concluded that these
provisions provide as to how and in what manner the liability against such
Company arising under the Companies Act and under the Income Tax Act is
required to be dealt with.
Since the High
Court of Rajasthan did not decide the appeal keeping in view the aforementioned
two relevant provisions the order of the High Court is not legally sustainable
and hence was set aside. The case was accordingly remanded to the High Court
for deciding the appeal afresh on merits in accordance with law keeping in view
of the relevant provisions of Companies Act and the Income tax Act.
(Note: This judgment was delivered in the
context of section 560(5) (a) of the 1956 Act, dealing with the striking of the
name of the Company. 2013 Act covers identical provisions u/s. 248 and hence
this case is relevant in the current context).