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Glimpses of Supreme Court Rulings

58 C.I.T. Delhi vs. Bharti Hexacom Ltd.

(2003) 458 ITR 593 (SC)

Capital or Revenue expenditure — Amortisation of Licence fees to operate telecommunication services — Payment of one-time entry fee and licence fee based on percentage of annual revenue earned — Both payments are capital in nature and to be amortised.

The National Telecom Policy of 1994 was substituted by the New Telecom Policy of 1999 dated 22^nd July, 1999. The said Policy of 1999 stipulated that the licencee would be required to pay a one-time entry fee and additionally, a licence fee on a percentage share of gross revenue. The entry fee chargeable would be the fee payable by the existing operator up to 31,sup>st July, 1999,calculated up to the said date and adjusted upon notional extension of the effective date. Subsequently, w.e.f. 1^st August, 1999, the licence fee was payable on a percentage of Annual Gross Revenue (“AGR”) earned. The quantum of revenue share to be charged as a licence fee was to be finally decided after obtaining recommendation of the Telecom Regulatory Authority of India (“TRAI”) but in the meanwhile, the Government of India fixed 15 per cent of the gross revenue of the licencee as provisional licence fee. On receipt of TRAI’s recommendation by the Government, adjustment of the dues was to be made.

Pursuant to the request of the Assessee, a licence was granted to it, inter alia on certain terms and conditions to establish, maintain and operate cellular mobile services. Accordingly, having accepted the Policy of 1999 and migrated there to, after paying the licence fee up to 31^st July, 1999, i.e., the one-time licence fee as stipulated in the Communication dated 22^nd July, 1999, the Respondent-assessee continued in the business of cellular telecommunication and associated value-added services, under the regime governed by the Policy of 1999.

The Assessee filed its return of income on 1^st November, 2004, for the assessment year 2003–2004 declaring nil income. The same was processed under Section 143(1) of the Act on 30^th March, 2006. The case was selected for scrutiny and a notice was issued to the Assessee under Section 143(2) of the Act, on 20^th October, 2005.

It was noted that an amount of ₹11,88,81,000, which was the licence fee paid by the Assessee on a revenue sharing basis, was claimed by the Assessee as revenue expenditure. In that regard, vide questionnaire dated 15^th November, 2006, the Assessee was required to explain as to why the said amount may, instead, be treated as capital expenditure and amortised over the remaining licence period of 12 years. The Respondent-Assessee furnished its response to the questionnaire, on 4^th December, 2006. On consideration of the Assessee’s response, an Assessment Order was passed on 27^th December, 2006, observing that the amount of ₹11,88,81,000, i.e., the licence fee paid by the Assessee on revenue sharing basis, which was claimed as a revenue expense, ought to have instead been amortised over the remainder of the licence period, i.e., 12 years. Accordingly, an amount of ₹99,06,750 was allowed as a deduction under Section 35ABB of the Act, and the remaining amount of ₹10,89,74,250 was disallowed and added back to the income of the Assessee.

Being aggrieved, the Assessee filed an appeal before the Commissioner of Income Tax (Appeal), New Delhi. In view of the decision of the Commissioner of Income Tax (Appeal) in the Assessee’s own case for the assessment year 2003–2004, it was reaffirmed vide order dated 27^th September, 2007 that the annual licence fee calculated on the basis of annual gross revenue of the Assessee would be revenue expenditure deductible under Section 37 of the Act.

Aggrieved by the said order, the Revenue preferred an appeal before the Tribunal, New Delhi. By order dated 24^th July, 2009, the Tribunal dismissed the Revenue’s appeal following its earlier order dated 29^th May, 2009 in ITA No.5335 (Del)/2003 in the case of Bharti Cellular Ltd., for the assessment year 2000–2001, the facts of which case were held to be identical to the facts of the case at hand. Being aggrieved, the Revenue filed an appeal before the High Court of Delhi.

The Delhi High Court in the judgment dated 19^th December, 2013 made the following preliminary observations:

i. Section 35ABB applies when expenditure of a capital nature is incurred by an Assessee for acquiring a right for operating telecommunication services. It is immaterial whether the expenditure is / was incurred before or after commencement of the business to operate telecommunication services but what is material is that the payment should be actually made. That Section 35ABB is not a deeming provision but comes into operation and is effective when the expenditure itself is of a capital nature and is incurred towards acquiring a right to operate telecommunication services or for the purposes of obtaining a licence for the said services. That Section 35ABB does not help in determining and deciding the question, as to, whether licence fee paid under the Policy of 1999 under the 1994 Agreement, was / is capital or revenue in nature.

ii. That there was no decision of the Supreme Court or any of the High Courts directly applicable to the factual matrix of the case.

The Delhi High Court discerned the facts of the present case as under:

i. The licence was issued under a statutory mandate and was required and acquired, before the commencement of operations or business, to establish and also to maintain and operate cellular telephone services.

ii. The licence was for initial setting up but, thereafter, for maintaining and operating cellular telephone services during the term of the licence.

iii. Contrary to what was stated, under the licence agreement executed in 1994, the considerations paid and payable were with the understanding that there would be only two players who would have unfettered right to operate and provide cellular telephone service in the circle. The payment, therefore, had the element of warding off competition or protecting the business from third-party competition.

iv. Under the 1994 agreement, the licence was initially for 10 years extendable by one year or more at the discretion of the Government / authority.

v. 1994 Licence was not assignable or transferable to a third party or by way of a sub-licence or in partnership. There was no stipulation regarding transfer or issue of shares to third parties in the company.

vi. Under the 1994 agreement, the licencee was liable to pay a fixed licence fee for the first three years. For the fourth year and onwards, the licencee was liable to pay variable licence fee @ ₹5,00,000 per 100 subscribers or part thereof, with a specific stipulation on minimum licence fee payable for the fourth to sixth year and with modified but similar stipulations from the seventh year onwards.

vii. The licence could be revoked at any time breach of the terms and conditions or in default of payment of consideration by giving 60 days’ notice.

viii. The authority also reserved the right to revoke the licence in the interest of the public by giving 60 days’ notice.

ix. Under the 1999 policy, the licencee had to forgo the right of operating in the regime of a limited number of operators and agreed to multiparty regime competition where additional licences could be issued without limit.

x. There was a lock-in period on the present shareholding for a period of five years from date of licence agreement, i.e., the effective date, and even transfer of shareholding directly or indirectly through subsidiary or holding company was not permitted during this period. This had the effect of ‘modifying’ or clarifying the 1994 agreement, which was silent.

xi. Licence fee calculated as a percentage of gross revenue was payable w.e.f. 1^st August, 1999. This was provisionally fixed at 15 per cent of the gross revenue of the licensee but was subject to the final decision of the Government about the quantum of revenue share to be charged as licence fee after obtaining recommendation of TRAI.

xii. At least 35 per cent of the outstanding dues,including interest payable as on 31^st July, 1999 and liquidated damages in full, had to be paid on or before 15th August, 1999. Dates for payments of arrears were specified.

xiii. Past dues up to 31^st July, 1999 along with liquidated damages had to be paid as stipulated in the 1999 policy, on or before 31^st January, 2000 or on an earlier date as stated.

xiv. The period of licences under the 1999 policy was extended to 20 years starting from the effective date.

xv. Failure to pay the licence fee on a yearly basis would result in cancellation of licences. Therefore, to this extent, licence fee was / is payable for operating and continuing operations as a cellular telephone operator.

On a consideration of the aforesaid aspects, the Delhi High Court held that the payment of licence fee was capital in part and revenue in part and that it would not be correct to hold that the whole fee was capital or revenue in nature in its entirety. It was further observed that the licencees / Assessees in question required a licence in order to start or commence business as cellular telephone operators; that payment of licence fee was a precondition for the Assessees to commence or set up the business. That it was a privilege granted to the Assessee subject to payment and compliance with the terms and conditions.

It was observed by the High Court that the licence granted by the Government or the concerned authority to the Assessee would be a capital asset and yet, since the Assessee had to make the payment on a yearly basis on the gross revenue to continue to be able to operate and run the business, it would also be in the nature of revenue expenditure. Having opined thus, the High Court decided to apportion the licence fee as partly revenue and partly capital and divided the licence fee into two periods, that is, before and after 31^st July, 1999 and observed that the licence fee that had been paid or was payable for the period upto 31^st July, 1999, i.e. the date set out in the Policy of 1999, should be treated as capital expenditure and the balance amount payable on or after the said date should be treated as revenue expenditure.

In an appeal filed before the Supreme Court by the Revenue, the Supreme Court noted the provisions of the Act and observed that Section 35ABB of the Act governs the treatment of expenditure incurred by entities to obtain a licence for operating telecommunication services in India. The provision addresses the tax treatment of such expenses and ensures that they align with the income tax framework. With effect from 1^st April 1996, this provision provides for amortisation of capital expenditure incurred for acquisition of any right to operate telecommunication services, regardless of whether such cost is incurred before the commencement of such business or thereafter. The cost is allowed to be amortised in equal installments in the years for which the licence is in force. The amortisation commences from the year in which such business commences (where such cost is incurred before the commencement of such business) or the year in which such cost is actually paid, irrespective of the method of accounting adopted by the Assessee for such expenditure.

The Supreme Court also noted provisions of the Telegraph Act, which is the parent legislation under which licences to establish, maintain or work a telegraph are issued.

The Supreme Court then referred to the terms of the Licence Agreement entered into under the Policy of 1994 and the terms of migration of the existing licencees to the New Telecom Policy, 1999 regime, with a view to examine whether the nature and character of the licence fee was changed in light of migration.

The Supreme Court, thereafter, made a detailed review of relevant case law detailing the nature and characteristics of capital expenditure and revenue expenditure and the tests to identify the same.

The Supreme Court culled out the broad principles / tests that have been forged and adopted by it from time to time, while determining whether a given expenditure is capital or revenue in nature.

The Supreme Court, having regard to the tests and principles forged by this Court from time to time, proceeded to consider whether the High Court of Delhi was right in apportioning the licence fee as partly revenue and partly capital by dividing the licence fee into two periods, i.e., before and after 31^st July, 1999 and accordingly holding that the licence fee paid or payable for the period upto 31^st July, 1999 i.e. the date set out in the Policy of 1999 should be treated as capital and the balance amount payable on or after the said date should be treated as revenue.

The Supreme Court answered the said question in the negative, against the assessees and in favour of the Revenue for the following reasons:

i. Reliance placed by the High Court on the decisions in Jonas Woodhead and Sons (1997) 224 ITR 342 (SC) and Best and Co. (1966) 60 ITR 11 (SC) and the decision of the Madras High Court in Southern Switch Gear Ltd. (1984)148ITR272(Mad) as approved by this Court (1998) 232ITR 359(SC) appeared to be misplaced in as much as the said cases did not deal with a single source / purpose to which payments in different forms had been made. On the contrary, in the said cases, the purpose of payments was traceable to different subject matters and accordingly, it was held that the payments could be apportioned. However, in the present case, the licence issued under Section 4 of the Telegraph Act was a single licence to establish, maintain and operate telecommunication services. Since it was not a licence for divisible rights that conceive of divisible payments, apportionment of payment of the licence fee as partly capital and partly revenue expenditure was without any legal basis.

ii. Perhaps, the decision of the High Court could have been sustained if the facts were such that even if the Assessee-operators did not pay the annual licence fee based on AGR, they would still be able to hold the right of establishing the network and running the telecom business. However, such a right was not preserved under the scheme of the Telegraph Act. Hence, the apportionment made by the High Court was not sustainable.

iii. The fact that failure to pay the annual variable licence fee led to revocation or cancellation of the licence vindicated the legal position that the annual variable licence fee was paid towards the right to operate telecom services. Though the licence fee was payable in a staggered or deferred manner, the nature of the payment which flowed was plainly from the licensing conditions and could not be recharacterised. A single transaction cannot be split up, in an artificial manner, into a capital payment and revenue payments by simply considering the mode of payment. Such a characterisation would be contrary to the settled position of law and decisions of the Supreme Court, which suggest that payment of an amount in installments alone does not convert or change a capital payment into a revenue payment.

iv. It is trite that where a transaction consists of payments in two parts, i.e., lump-sum payment made at the outset, followed up by periodic payments, the nature of the two payments would be distinct only when the periodic payments have no nexus with the original obligation of the Assessee. However, in the present case, the successive installments relate to the same obligation, i.e., payment of licence fee as consideration for the right to establish, maintain and operate telecommunication services as a composite whole. This is because in the absence of a right to establish, maintenance and operation of telecommunication services is not possible. Hence, the cumulative expenditure would have to be held to be capital in nature.

v. Thus, the composite right conveyed to the Assessees by way of grant of licences is the right to establish, maintain and operate telecommunication services. The said composite right cannot be bifurcated in an artificial manner, into the right to establish telecommunication services on the one hand and the right to maintain and operate telecommunication services on the other. Such bifurcation is contrary to the terms of the licensing agreement(s) and the Policy of 1999.

vii. Further, it is to be noticed that even under the 1994 Policy regime, the payment of licence fee consisted of two parts:

a) A fixed payment in the first three years of the licence regime;

b) A variable payment from the fourth year of the licence regime onwards, based on the number of subscribers.

Having accepted that both components, fixed and variable, of the licence fee under the 1994 Policy regime must be duly amortised, there was no basis to reclassify the same under the Policy of 1999 regime as revenue expenditure in so far as variable licence fee is concerned.

As per the Policy of 1999, there was to be a multi-licence regime in as much as any number of licences could be issued in a given service area. Further, the licence was for a period of 20 years instead of 10 years as per the earlier regime. The migration to the Policy of 1999 was on the condition that the entire policy must be accepted as a package and consequently, all legal proceedings and disputes relating to the period up to 31^st July, 1999 were to be closed. If the migration to the Policy of 1999 was accepted by the Assessees here in or the other service providers, then all licence fee paid up to 31^st July, 1999 was declared as a one-time licence fee as stated in the communication dated 22^nd July, 1999 which was treated to be a capital expenditure. The licence granted under the Policy of 1999 was non-transferable and non-assignable. More importantly, if there was a default in the payment of the licence fee, the entire licence could be revoked after 60 days’ notice. The provisions of the Telegraph Act, particularly Section 8 thereof, are also to the same effect. Having regard to the aforesaid facts and in light of the aforesaid conclusions, the Supreme Court held that the payment of entry fee as well as the variable annual licence fee paid by the Assessees to the DoT under the Policy of 1999 was capital in nature and may be amortised in accordance with Section 35ABB of the Act.

According to the Supreme Court, the High Court of Delhi was not right in apportioning the expenditure incurred towards establishing, operating and maintaining telecom services as partly revenue and partly capital by dividing the licence fee into two periods, that is, before and after 31st July, 1999 and accordingly, holding that the licence fee paid or payable for the period up to 31^st July, 1999 i.e. the date set out in the Policy of 1999 should be treated as capital and the balance amount payable on or after the said date should be treated as revenue. The nature of payment being for the same purpose cannot have a different characterisation merely because of the change in the manner or measure of payment or for that matter the payment being made on an annual basis.

Therefore, in the ultimate analysis, the nomenclature and the manner of payment are irrelevant. The payment post 31^st July, 1999 is a continuation of the payment pre-31^st July, 1999 albeit in an altered format which does not take away the essence of the payment. It is a mandatory payment traceable to the foundational document, i.e., the license agreement as modified post migration to the 1999 policy. Consequence of non-payment would result in ouster of the licensee from the trade. Thus, this is a payment which is intrinsic to the existence of the licence as well as trade itself. Such a payment has to be treated or characterised as capital only.

In the result, the judgment of the Division Bench of the High Court of Delhi, dated 19^th December, 2013 in ITA No.1336 of 2010 and connected matters, was set aside.

The judgments passed by the High Courts of Delhi, Bombay and Karnataka, following the judgment of the Division Bench of the High Court of Delhi, dated 19^th December, 2013, were also consequently set aside.

The appeals filed by the Revenue were allowed

BCAJ Admin

Sec 144C(2) — Draft Assessment Order — Due to oversight / inadvertence Petitioner did not inform the AO within 30 days period prescribed under sub-section (2) of section 144C of the Act that it had filed objection — AO passed assessment order unaware of the objection filed before DRP.

33 OmniActive Health Technologies Limited vs. Assessment Unit, Income Tax Department NFAC

[WP No. 474 Of 2024, Dated: 4^th March, 2024. (Bom.) (HC).]

Sec 144C(2) — Draft Assessment Order — Due to oversight / inadvertence Petitioner did not inform the AO within 30 days period prescribed under sub-section (2) of section 144C of the Act that it had filed objection — AO passed assessment order unaware of the objection filed before DRP.

Petitioner’s case is that section 144C(2) of the Act, inter alia, requires Assessee, should he choose to file reference before the Dispute Resolution Panel (DRP) to file such objection within 30 days from the receipt of Draft Assessment Order. The section also requires Assessee to file a copy of the reference with the Assessing Officer (“AO”) within the time limit prescribed. Section 144C(4) of the Act requires AO to pass a final order within one month from the end of the month in which the period of filing of objections before DRP and AO expires.

According to Petitioner, though section 144C of the Act requires Petitioner to communicate the objection filed before the DRP to the AO, due to oversight / inadvertence Petitioner did not inform the AO within 30 days period prescribed under sub-section (2) of section 144C of the Act that it had filed objection by way of an email dated 23^rd October, 2023. The AO, unaware of Petitioner having filed an objection before the DRP after expiry of the prescribed period of 30 days, proceeded to pass the assessment order dated 21^st November, 2023. Petitioner informed the AO only on 28^th November, 2023 about having filed objections with the DRP.

The Hon. Court observed that since Petitioner had already filed a reference raising its objections to the DRP within the 30 days period and section 144C(4) of the Act requires the AO to pass a final order including the view expressed by the DRP, the order dated 21^st November, 2023 of the AO is set aside. The AO shall take further steps in the matter after the DRP passes its order on the objection filed by Petitioner, in accordance with law.

BCAJ Admin

Sec 147 — Reassessment — Income Declaration Scheme, 2016 (“IDS, 2016”) — having issued a certificate under the IDS, 2016, after verifying the details filed by Petitioner, the declaration cannot be the basis to reopen the assessment of Petitioner.

32 Gaurang Manhar Gandhi vs. ACIT – 3(2)(1)

[WP NO. 2058 OF 2020,

Dated: 4^th March, 2024, (Bom) (HC)]

Sec 147 — Reassessment — Income Declaration Scheme, 2016 (“IDS, 2016”) — having issued a certificate under the IDS, 2016, after verifying the details filed by Petitioner, the declaration cannot be the basis to reopen the assessment of Petitioner.

Petitioner, an individual, filed his return of income on24^th July, 2014, declaring a total income of ₹88,13,470 for A.Y. 2014–15. Petitioner’s case was selected for scrutiny and Petitioner received a notice under section 143(2) of the Act and under section 142(1) of the Act calling upon Petitioner to provide various details / documents including details of long-term capital gains on sale of shares and short-term capital gain of office premises. Petitioner provided all the documents called for. Petitioner specifically provided details of the transactions reported in Bombay Stock Exchange for contracts of ₹10,00,000 and above. Petitioner made specific disclosure about transactions pertaining to sale of shares in Sunrise Asian Limited (“SAL”). Petitioner disclosed long-term capital gain on sale of shares of ₹6,44,61,215. Petitioner also gave the details of gain on sale of investments / shares / long term and disclosed that he had purchased and sold a quantity of 1,33,439 equity shares of SAL. The cost price is disclosed as ₹26,68,780 and the sale price is disclosed as ₹6,71,29,994.58 and a gain of ₹6,44,61,214.58 is also disclosed.

Subsequently, an assessment order dated 26^th April, 2016 came to be passed under section 143(3) of the Act. The assessment order also discusses long-term capital loss, short-term capital loss, etc. which were carried forward.

Following the introduction of Chapter IX dealing with Income Declaration Scheme, 2016 (“IDS, 2016”) by the Finance Act, 2016, which came into effect from1st June, 2016, till 30^th September, 2016, Petitioner, to get peace of mind, decided to take advantage of the IDS, 2016 and filed a declaration under section 183 of the Finance Act, 2016. Petitioner declared an amount of ₹6,84,61,220, which consisted of ₹6,44,61,215 pertaining to long-term capital gains on shares of SAL and ₹40,00,000 pertaining to cash income. Petitioner’s declaration was accepted pursuant to which Petitioner paid the amounts payable under the Finance Act, 2016 and Petitioner was also issued a certificate of declaration under section 183 of the Finance Act, 2016.

Over three and half years later, Petitioner received a notice dated 31^st March, 2021 issued under section 148 of the Act, stating that there was reason to believe Petitioner’s income chargeable to tax for A.Y. 2014–15 has escaped assessment within the meaning of section 147 of the Act. Petitioner was also provided with the reasons recorded for reopening. The reasons indicate that a total amount of ₹60,25,280 had escaped assessment, which needs to be taxed. This amount is in two parts, i.e., ₹26,68,780 paid by Petitioner for purchase of shares in SAL and ₹33,56,500 as assumed brokerage / commission paid. Reasons do not mention anywhere that this amount was paid or when it was paid or to whom it was paid. It proceeds on the assumption that for the kind of transaction Petitioner had indulged, an operator or broker charges a fixed commission, which might vary between 0.5 per cent to 5 per cent of the entire sale consideration and taking into account that the total sale consideration was ₹6,71,29,995, the brokerage that Petitioner might have paid would be ₹33,56,500, which needs to be taxed. This amount of ₹6,71,29,995 is the sale consideration, which Petitioner had disclosed in the computation of income filed along with the ROI and also during the assessment proceedings in response to a query raised by the Assessing Officer.

In response to the notice received under section 148 of the Act, Petitioner filed objections vide letter dated 17th September, 2021, and the same came to be rejected by an order dated 14^th February, 2022. Petitioner, therefore, filed this Petition.

The Hon. Court observed that under the IDS, 2016, and as per the clarifications of the IDS, 2016 dated 30th June, 2016, issued by the Central Board of Direct Taxes (“CBDT”), it is stated that the information contained in the declaration shall not be shared with any other law enforcement agency and not only that, it will not be shared within the Income Tax Department for any investigation in respect of a valid declaration. Since the declaration in Petitioner’s case was a valid declaration, the information as contained in the declaration filed by Petitioner could not have been made available to the AO, who issued the notice under section 148 of the Act. In answer to question no. 5 in the clarifications, which says “where a valid declaration is made after making valuation as per the provisions of the scheme read with IDS Rules and tax, surcharge and penalty as specified in the scheme have been paid, whether the Department will make any enquiry in respect of sources of income, payment of tax, surcharge and penalty” is an emphatic ‘NO’. The Hon. Court agreed with the contention that the information could not have been shared with the AO.

The Hon. Court observed that reliance placed on the declaration made under the IDS, 2016 is against the principles of natural justice and is not valid. Moreover, Respondents having issued a certificate under the IDS, 2016 after verifying the details filed by Petitioner, the declaration cannot be the basis to reopen the assessment of Petitioner.

The Hon. Court further observed that the reopening merely by deeming commission expenses of 5 per cent of total sale consideration of the shares and arbitrarily and in an adhoc manner fixing 5 per cent of the total sale consideration as commission expenses amounting to ₹33,56,500 cannot be accepted. Ad-hoc disallowances without pointing out any specific defects cannot be accepted. In fact, there is not even an allegation in the reasons to believe escapement of income that Petitioner had in fact paid any commission to any broker or operator. The AO proceeds on a surmise that there was no such free service available and, therefore, Petitioner would have paid brokerage. The AO having observed that the brokerage / commission varied between 0.5 per cent to 5 per cent does not even explain why he took into account 5 per cent as the brokerage paid and not 0.5 per cent or any other figure in that band.

The Hon. Court further observed that there has been no failure on the part of Petitioner to disclose any material fact, because in the computation of income filed by Petitioner, (a) Petitioner has disclosed long-term capital gain on sale of shares of ₹6,44,61,214.58, (b) purchase of 1,33,439 equity shares of SAL on 16^th September, 2011 for a total consideration of ₹26,68,780, (c) the sale of those shares between 30th July, 2013 up to 23^rd October, 2014 for a total consideration of ₹6,71,29,994.58 and (d) the gain of ₹6,44,61,214.58. The Petitioner gave the entire details relating to the transactions in shares of SAL and even in the assessment order, long-term capital loss, short-term capital loss, etc., are discussed. It is also recorded in the assessment order dated 26^th April, 2016 that capital gain was nil.

In the circumstances, the subject matter of capital gains in the shares of SAL was certainly a subject matter of consideration of the AO during the original assessment proceedings. Once a query is raised during the assessment proceedings and Assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is also not necessary that an assessment order should contain reference and / or discussion to disclose its satisfaction in respect of the query raised. Therefore, the reopening of the assessment is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and / or reason to believe that income chargeable to tax has escaped assessment.

In the circumstances, the impugned notice dated 31^st March, 2021 issued under section 148 of the Act quashed.

BCAJ Admin

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

96 Kamal VarandmalGalani vs. PCIT

[2024] 460 ITR 380 (Bom)

A.Y.: 2021–22

Date of Order: 20^th April, 2023

S 127 of ITA 1961

Transfer of case — Transfer from one AO to another subordinate to different higher authority — Condition precedent — Agreement between two higher authorities — Assessee should be given adequate opportunity to be heard — Mere speculation that assessee was connected to group of companies against whom search proceedings undertaken and that cases had to be centralized — Order of transfer not valid.

The assessee had been filing return of income for the past 22 years in Mumbai. The assessee was in receipt of show cause notice dated 24^th June, 2022 issued by the Principal Commissioner of Income-tax — 19 proposing to transfer the assessment jurisdiction to Deputy Commissioner of Income-tax — Central Circle, Jaipur to enable coordinated assessment with that of Veto Group on whom search proceedings were conducted u/s 132 of the Act. As per the show cause notice, the Principal Commissioner of Income-tax (Central) — Rajasthan had proposed for centralization of the case of the assessee with Veto Group at Jaipur, and therefore, the assessee was asked to file submissions. The assessee filed objections against the aforesaid transfer of jurisdiction on the grounds that there was no search conducted at the premises of the assessee. Only a survey was conducted u/s 133A that too in the case of one company LHPL in which the assessee was a director. There was no material found during the search conducted at Veto group which could be related to the assessee. Similarly, there was no incriminating material found in the course of survey at LHPL which could relate the assessee or even LHPL to Veto Group. Lastly, the show cause notice did not refer to any material collected by the Department against the assessee on the basis of which transfer of jurisdiction was proposed.

The objections of the assessee were rejected on the ground that the assessee was the director of LHPL which was proposed to be centralized with Jaipur jurisdiction and further that the assessee was a key person of the Veto Group. During the course of search / survey at various entities of the group, incriminating documents and data were found / seized / impounded which may relate to the assessee as well as other ssesses of the group. However, what is incriminating material was nowhere specified neither in the show cause notice nor in the order.

The Bombay High Court allowed the writ petition filed by the assessee and held as follows:

“i) The Instructions of the CBDT dated 17th September, 2008 make it clear that where an order of transfer is proposed for centralisation of cases, while sending a proposal for centralisation, reasons have to be reflected including the relationship of the assessee with the main persons of the group.

ii) The order passed u/s 127(2) of the Act did not reflect why it was necessary to transfer the jurisdiction from the Deputy Commissioner, Mumbai to Deputy Commissioner, Jaipur. None of the issues raised by the assessee had been dealt with either in the order disposing of the objections raised by the assessee much less had they been reflected in the order u/s 127(2) of the Act. The transfer of assessment jurisdiction from Mumbai to Jaipur would certainly cause inconvenience and hardship to the assessee both in terms of money, time and resources, and therefore, in the absence of the requisite material or reasons as the basis the order would be nothing but an arbitrary exercise of power and therefore liable to be set aside.”

BCAJ Admin

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

95 TATA-ALDESA JVvs. UOI

[2024] 460 ITR 302 (Telangana)

A.Y.: 2014–15

Date of Order: 12^th June, 2023

Ss. 80IA, 263 and 264 of ITA 1961

Revision — Powers of Commissioner — Special deduction — Claim to deduction u/s 80-IA not made in return of income and assessment order passed — Principal Commissioner or Commissioner competent to consider claim for deduction — Matter remanded.

For the A.Y. 2014–15, the Assessing Officer passed an order u/s 143(3) of the Income-tax Act, 1961. Thereafter, the assessee filed an application before the Principal Commissioner u/s 264 in which it submitted that it had commenced its business operations during the previous year 2013–14, and accordingly, the A.Y. 2014–15 was the first year under assessment and that though it was entitled to claim deduction u/s 80-IA because of a bona fide error, it did not claim it either at the time of filing the return of income or during the assessment proceeding. The assessee also sought condonation of delay of 52 days. The Principal Commissioner condoned the delay and observed that the assessee did not opt to make the claim to deduction u/s 80-IA and that in the subsequent A.Y. 2015–16 also, the assessee did not make such claim before the Assessing Officer. He opined that the assessee chose not to claim deduction u/s 80-IA and declined to interfere u/s 264 in the order of the Assessing Officer.

The Telangana High Court allowed the writ petition filed by the assessee and held as under:

“i) There is a fundamental difference between sections 263 and 264 of the Income-tax Act, 1961. For invoking the power u/s 263, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner should be of the opinion that an order passed by the Assessing Officer or Transfer Pricing Officer is erroneous inasmuch as the order is prejudicial to the interests of the Revenue. In that event, he may call for the record of the proceedings before the Assessing Officer or the Transfer Pricing Officer and after making inquiry, may pass such an order as section 263 contemplates. But there is no such limitation in section 264 under which the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may either of his own motion or on an application by the assessee for revision, call for the records of any proceeding relatable to an order other than an order to which section 263 applies and after making due inquiry, he may pass such order thereon as he thinks fit; the only caveat being that such order should not be prejudicial to the assessee. It is not confined to legality or validity of an order passed by the Assessing Officer or a claim made and disallowed or a claim not put forth by the assessee.

ii) There was no limitation on the exercise of power u/s 264 by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. The order rejecting the assessee’s application was set aside. The matter was remanded to the Principal Commissioner for reconsideration of the revision application filed by the assessee u/s 264 on the merits after giving due opportunity of hearing to both the sides.”

BCAJ Admin

Revision — Writ — Powers of Commissioner — Commissioner cannot consider application where appeal lies or is pending — Prohibition does not apply where writ petition has been filed.

94 Ratan Industries Ltd. vs. Principal CIT

[2024] 460 ITR 504 (All.)

A.Y.: 2012–13

Date of Order: 11^th May, 2023

S. 264 of ITA 1961

Revision — Writ — Powers of Commissioner — Commissioner cannot consider application where appeal lies or is pending — Prohibition does not apply where writ petition has been filed.

The assessment proceedings for the A.Y. 2012–13 were completed. Against the assessment order, the assessee filed revision application u/s 264 of the Income-tax Act, 1961. The Principal Commissioner rejected the application on the grounds that as the writ petition, filed by the assessee against the order passed initiating reassessment proceedings u/s 143(3)/147 of the Act of 1961 on 30^th March, 2019, is pending consideration, in view of the provisions of section 264(4)(a) of the Act, no order can be passed u/s 264 of the Income-tax Act of 1961.

The Allahabad High Court allowed the writ petition filed by the assessee and held as follows:

“i) From a perusal of section 264(4)(a) of the Income-tax Act, 1961, it is clear that the Principal Commissioner or Commissioner shall not revise any order which is under challenge in a case where an appeal against the order lies to the Deputy Commissioner (Appeals) or to the Commissioner (Appeals) or to the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or, in the case of an appeal to the Commissioner (Appeals) or to the Appellate Tribunal, the assessee has not waived his right of appeal. The pendency of a writ petition before the High Court would not amount to pendency of any appeal before any authority.

ii) Once the proceedings were initiated for reassessment by the respondent and the competent authority proceeded to complete the assessment on 31^st December, 2019, no occasion arose as to any matter being pending before the High Court as the only challenge before the writ court was for initiation of proceedings u/s 143(3) read with section 147 of the Act. Once the reassessment was made and the proceedings were completed, the writ petition had practically become infructuous. The ground taken by the Principal Commissioner for rejection of the application did not hold any ground as the writ petition is not an appeal according to section 264(4)(a) of the Act. The rejection of the application for revision was not valid.

iii) In view of the above discussions, I find that the order dated 30^th March, 2022, passed by the Principal Commissioner of Income-tax-I, Agra, is unsustainable in the eyes of law and, as such, the same is hereby quashed and set aside. Respondent No. 1 is hereby directed to continue with the revisional proceedings initiated by the assessee-petitioner u/s 264 of the Act and shall decide the same expeditiously, in accordance with law.”

BCAJ Admin

Rent — TDS — Agreement with State Government for development — External Development Charges (EDC) paid under Agreement with State Government — Not in the nature of rent — No tax deductible on such charges.

93 DLF Homes Panchkula Pvt. Ltd. vs. JCIT(OSD)

[2023] 459 ITR 773 (Del.)

Date of Order: 24^th March, 2023

Ss. 194I read with 194C of the IT Act

Rent — TDS — Agreement with State Government for development — External Development Charges (EDC) paid under Agreement with State Government — Not in the nature of rent — No tax deductible on such charges.

The assessee was engaged in the business of developing real estate. The assessee made application to Director General, Town and Country Planning for grant of license for setting up an IT Park as well as a Group Housing Colony. As per the rules of Haryana Development and Regulation of Urban Areas Rules, 1976 (HUDA Rules), the assessee entered into agreement with the State Government of Haryana for setting up the IT Park and Group Housing Colony. The agreement required the assessee to pay proportionate development charges as and when required and as determined by the Director General.

The Assessing Officer held that the external development charges were in the nature of “rent” and, therefore, tax was liable to be deducted at source under section 194-I of the Act at the rate of 10 per cent. The Assessing Officer quantified the demand.

The Delhi High Court allowed the writ petition filed by the assessee and held as follows:

“i) The question as to the nature of external development charges payment was one of the issues that was required to be addressed by the Assessing Officer. He had concluded that the payment was ‘rent’ as it was in the nature of an arrangement to use land. It was not open to the Department to now contend that external development charges were payment made to a contractor under a contract and not ‘rent’ under an arrangement to use land.

ii) The Assessing Officer had held that tax was liable to be deducted at source u/s 194-I of the Act, and he had also proceeded to analyse the section and hold that external development charges were in the nature of rent. He had, in addition, also applied the rate of 10 per cent for assessing the assessee’s liability.

iii) The approach of the Revenue was flawed. The contention that the findings of the Assessing Officer regarding the nature of the external development charges as well as at the provisions referred by him for determining the assessee’s liability were not material was erroneous. The orders passed by the Assessing Officer raising a demand u/s 201(1) and (1A) of the Act were liable to be quashed.”

BCAJ Admin

Reassessment — Notice after three years — Limitation — Change in law — Effect of decision of Supreme Court in Ashish Agarwal — Conditions prescribed under amended provisions of section 149(1)(d) for extended period of limitation — Notices issued beyond limitation period stipulated under amended provisions of section 149(1)(a) not satisfying prescribed conditions — Barred by limitation. Reassessment — Notice after three years — Limitation — CBDT Instructions dated 11th May, 2022 — Validity — Instruction vague about “original date when such notices were to be issued” — Instruction to the extent it propounded “travel back in time” theory unsustainable.

92 Ganesh Dass Khanna vs. ITO

[2024] 460 ITR 546 (Del.)

A.Ys.: 2016–17 and 2017–18

Date of Order: 10^th November, 2023

Ss. 147, 148, 148A(b), 148A(d), 149(1)(a) and 149(1)(b) of ITA 1961

Reassessment — Notice after three years — Limitation — Change in law — Effect of decision of Supreme Court in Ashish Agarwal — Conditions prescribed under amended provisions of section 149(1)(d) for extended period of limitation — Notices issued beyond limitation period stipulated under amended provisions of section 149(1)(a) not satisfying prescribed conditions — Barred by limitation.

Reassessment — Notice after three years — Limitation — CBDT Instructions dated 11^th May, 2022 — Validity — Instruction vague about “original date when such notices were to be issued” — Instruction to the extent it propounded “travel back in time” theory unsustainable.

A bunch of petitions involving the A.Y.s 2016–17 and 2017–18 were before the Delhi High Court where the common issue to be decided by the Hon’ble High Court was whether the notices issued u/s 148 of the Act were maintainable having regard to clauses (a) and (b) of section 149(1). In other words, where the alleged escaped income is below the threshold of R50 lakhs, the period of limitation of three years as prescribed u/s 149(1)(a) will be applicable.

Owing to the COVID-19 pandemic, Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act was enacted where the due dates / time limit / limitation were extended. Under the TOLA, the end date for proceedings and compliances referred to in section 3(1) of the said Act (which included the compliance regarding the issue of notice u/s 148) was 31^st March, 2021. The Finance Act was amended in 2021 whereby significant amendments were made to the provisions relating to reopening of assessment. Sections 147 to 151 were substituted and new provisions u/s 148A and 151 were also introduced. The controversy arose when CBDT issued two notifications, i.e., Notification 20 of 2021, whereby the period of limitation as per provisions of section 149 was extended from 31^st March, 2021 to 30^th April, 2021 and Notification No. 38 of 2021 further extended the period of limitation to 30^th June, 2021. An Explanation was added in both the Notifications which provided that provisions of sections 148, 149 and 151 as existed prior to amendment by Finance Act 2021 shall apply. In other words, the Notifications provided that the old provisions would apply even when the amended provisions were in force. Thus, the Departmentissued notices under the unamended provisions of section 148.

Several petitions were filed before the High Court challenging the notice on broadly two grounds, i.e., the notices could not have been issued under the old provisions when new provisions were in force and the notices were barred by limitation as per the amended provisions of section 149. The High Courts quashed the notices which were issued under the old provisions based on the Explanation contained in the aforesaid Notifications. The Union of India challenged the decision of the High Court before the Supreme Court and the Hon’ble Supreme Court, vide its judgment in Ashsish Agarwal’s case reported in 444 ITR 1 (SC) held that as a one-time measure the notices issued u/s 148 of the Act be treated as notice issued u/s 148A(b) of the amended provisions.

Pursuant to the decision of the Supreme Court, the CBDT issued Instruction dated 11^th May, 2022 in compliance with the directions of the Supreme Court in Ashish Agarwal’s case. Accordingly, a second round of notices / communications were issued by the Assessing Officers. The assessees filed their objections once again against the notices.

Amongst the various objections taken, one of the objections was that the time limit prescribed u/s 149(1)(a) had expired and given the fact that the income chargeable to tax which had allegedly escaped assessment amounted to less than ₹50 lakhs, the revenue could not take recourse to the extended limitation period provided in clause (b) of sub-section (1) of section 149 of the 1961 Act. The Department rejected this objection of the assessee and proceeded to pass order u/s 148A(d) of the Act holding it to be fit case for issue of notice u/s 148 and thereby, notices were issued u/s 148 of the Act. It is this second notice issued u/s 148 which is now the subject matter of challenge before the High Court in the bunch of petitions.

The Delhi High Court allowed the petitions and held as under:

“i) Section 149(1) of the Income-tax Act, 1961 as amended by the Finance Act, 2021 mandates that no notice u/s 148 for reopening the assessment u/s 147 would be issued for the relevant assessment year after a period of three years has elapsed from the end of the relevant assessment year. The Assessing Officer can invoke the extended limitation period if the conditions precedent prescribed in clause (b) of sub-section (1) of the amended section 149 are fulfilled. Under clause (b) of sub-section (1) of section 149 one of the conditions for invoking the extended period up to ten years is that income chargeable to tax which has escaped assessment amounts to, or is likely to amount to, ₹50 lakhs or more for the assessment year in issue. Therefore, after the coming into force of the Finance Act, 2021, in cases where, for the relevant assessment year, the alleged escaped income is less than ₹50 lakhs, notice u/s 148 could only be issued for commencement of reassessment proceedings within the limitation period provided in clause (a) of section 149(1) as amended. If proceedings are wrongly initiated, estoppel, waiver or res judicata principles cannot apply in such situations.

ii) The time limit for reopening assessments under the new regime introduced by the Finance Act, 2021 was reduced from six years to three years and only in respect of ‘serious tax evasion cases’, that too, where evidence of concealment of income of R50 lakhs or more in a given period was found, has the period for reopening the assessment been extended to ten years. In order to ensure that utmost care is taken before invoking the extended period of limitation, approval should be obtained from the Principal Chief Commissioner at the highest hierarchical level of the Department. Where escapement of income is below ₹50 lakhs, the normal period of limitation, i.e., three years would apply.

iii) In UOI vs. Ashish Agarwal [2022] 444 ITR 1 (SC); [2023] 1 SCC 617, the Supreme Court held that it would be open to the Department to advance submissions based on the provisions as amended by the 2021 Act and those that might otherwise be available in law. Since the Supreme Court, in no uncertain terms, ruled that the judgments of the various High Courts, which included the decision in Mon Mohan Kohli vs. Asst. CIT [2021] SCC OnLine Del 5250; [2022] 444 ITR 207 (Delhi), stood “modified or substituted” to the extent indicated in the directions issued by the court, it would follow that all rights and contentions would be available to the assessees, notwithstanding any observations made in that judgment which curtailed the defences available to the assessees u/s 149.

iv) The law declared by the Supreme Court, under article 141 of the Constitution of India, is binding on every authority, including the High Court, which would necessarily have to be given effect. The Supreme Court’s directions issued under article 142 are no different.

v) The Supreme Court’s directions issued u/s 142 would show that the court noted that the power of reassessment which existed before 31^st March, 2021 continued to exist till 30th June, 2021, with alteration in procedure brought about upon the enactment and enforcement of the 2021 Act. The Supreme Court, in no uncertain terms, declared Explanation A(a)(ii)/A(b) of the Notifications dated 31st March, 2021 and 27^th April, 2021, ultra vires the parent statute, i.e., the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. These Explanations sought to impose the un-amended provisions of sections 148, 149 and 151 of the 1961 Act, although the substituted provisions were in force. It specifically observed that the Legislature was aware of the situation when it enacted the 2021 Act. Its observations made it clear that the amended section 149 continued to operate despite attempts to the contrary made by the introduction of the Explanations in the notifications dated 31^st March, 2021 and 27^th April, 2021.

vi) There was no power invested under the 2020 Act, and that too through notifications, to amend the statute, which had the imprimatur of the Legislature and since, with effect from 1^st April, 2021, when the 2021 Act came into force, the Notifications dated 31^st March, 2021 and 27^th April, 2021, which were sought to be portrayed by the Department as extending the period of limitation, were contrary to the provisions of section 149(1)(a) of the 1961 Act, they lost their legal efficacy. The extension of the end date for completion of proceedings and compliances, a power which was conferred on the Central Government u/s 3(1) of the 2021 Act, could not be construed as one which could extend the period of limitation provided u/s 149(1)(a) of the 1961 Act.

vii) Section 149(1)(a) applied to the A.Ys. 2016–17 and 2017–18. The third proviso only excluded the timeframe obtaining between the date when the notice u/s 148A(b) was issued and the date by which the assessee filed its response within the time and extended time provided in the notices in question. Therefore, the date could not be shifted beyond the date when the original notice under the unamended section 148 was issued, which was treated as notice u/s 148A(b) of the 1961 Act. Concededly, these notices were issued between 1^st April, 2021 and 30^th June, 2021, by which time the limitation prescribed u/s 149(1)(a) had already expired. The fourth proviso had no impact on the outcome of the cases at hand, as it provided for a situation where, after the exclusion of the timeframe referred to in the third proviso, the time available to the Assessing Officer for passing an order u/s 148A(d) was less than seven days. Neither the judgment of the Supreme Court rendered in Ashish Agarwal nor the 2020 Act allowed for any such recourse to the Department, i.e., that extended reassessment notice would ‘travel back in time’ to their original date when such notices were to be issued and thereupon application of the provisions of the amended section 149 of the 1961 Act.

viii) The provisions contained in the Instruction dated 11^th May, 2022, were beyond the powers conferred on the CBDT u/s 119 of the 1961 Act and were ultra vires the amended provisions of section 149(1) of the 1961 Act.

ix) The decision in Ashish Agarwal did not rule on the provisions contained in the 2020 Act or the impact they could have on the reassessment proceedings u/s 147 of the 1961 Act. The 2020 Act conferred no such power on the CBDT. There is no clarity in the Instruction dated 11^th May, 2022 regarding the ‘original date when such notices were to be issued’. The provisions of the Instruction dated 11^th May, 2022 in question are also unsustainable because they are vague. “Certainty” in taxing statutes is one of the ground norms, as ordinarily, they are agnostic to equitable principles.

x) The principle of constructive res judicata was not applicable. The orders passed u/s 148A(d) and the consequent notices issued for the A.Ys. 2016–17 and 2017–18 under the amended provisions of section 148 of the 1961 Act were unsustainable. The references made in paragraphs 6.1 and 6.2(ii) of the Instruction dated 11^th May, 2022 issued by the CBDT to the extent they propounded the ‘travel back in time’ theory, was bad in law.”

BCAJ Admin

Income from other sources — Shares received at price higher than market value — Determination of fair market value — Change in prescribed formula with effect from 1st April 2018 — Formula that prevails during relevant A.Y. 2014–15 applicable — Application of amended formula as on date of assessment order by AO — Not sustainable.

91 Principal CIT vs. Minda Sm Technocast Pvt. Ltd.

[2024] 460 ITR 7 (Del.)

A.Y.: 2014–15

Date of Order: 4^th August, 2023

S. 56(2)(via) of ITA 1961: Rule 11UA of IT Rules 1962

Income from other sources — Shares received at price higher than market value — Determination of fair market value — Change in prescribed formula with effect from 1^st April 2018 — Formula that prevails during relevant A.Y. 2014–15 applicable — Application of amended formula as on date of assessment order by AO — Not sustainable.

The assessee purchased 48 per cent of the equity of a company from three entities at a price of ₹5 per share. For the A.Y. 2014–15, the assessee submitted the valuation report of a chartered accountant who had determined the value of the shares at ₹4.96 per share in terms of rule 11UA of the Income-tax Rules, 1962, as applicable in the period in issue, i.e., the A.Y. 2014–15. The Assessing Officer valued the shares at ₹45.72 per share, taking into account rule 11UA of the Rules, as on the date when the order was passed and added the difference to the income of the assessee.

The Commissioner (Appeals) upheld the addition. The Tribunal deleted the addition.

The Delhi High Court upheld the decision of the Tribunal and held as under:

“i) The formula prescribed under rule 11UA of the Income-tax Rules, 1962 required calculation of the fair market value by taking into account, inter alia, the book value of the assets shown in the balance-sheet. This underwent a change with effect from April 1, 2018, which resulted in the fair market value of unquoted shares being calculated by taking into account, inter alia, the value of assets such as immovable property, adopted by ‘any authority of the Government’ for the purposes of payment of stamp duty.

ii) The Assessing Officer had committed an error in applying the formula contained in rule 11UA of the Rules, which was not applicable to the A.Y. 2014-15 in question as on the date of passing the assessment order and the error was continued by the Commissioner (Appeals). The assessee had applied the formula prescribed in rule 11UA which was applicable for the A.Y. 2014-15. The error was corrected by the Tribunal and therefore, there was no reason to interfere in its order.”

BCAJ Admin

Block assessment — Procedure — Notice u/s 143(2) — Condition precedent for block assessment — Failure to issue notice u/s 143(2) — Not a curable defect u/s 292BB.

90 Chand Bihari Agrawal vs. CIT

[2024] 460 ITR 270 (Patna)

Date of Order: 25^th July, 2023

Ss. 143(2), 158BC and 292BB of ITA 1961

Block assessment — Procedure — Notice u/s 143(2) — Condition precedent for block assessment — Failure to issue notice u/s 143(2) — Not a curable defect u/s 292BB.

A search was conducted at the premises of the assessee. Subsequently, a notice u/s 158BC was issued on 10^th December, 2003 directing the assessee to file the return within a period of one month. Thereafter, a notice u/s 142(1) was issued on 9^th November, 2004, wherein the assessee was required to file a return in response to the notice issued u/s 158BC issued earlier. The assessee filed the return on 22^nd November, 2004. Assessment was made and order was passed u/s 158BC. The assessment was completed without issuing any notice u/s 143(2) of the Act.

The assessee’s appeals before the CIT(A) as well as the Tribunal were dismissed. The Tribunal observed that the return filed by the assessee was non-est as the same was filed beyond the outer limit of 45 days u/s 158BC, and therefore, the Assessing Officer was entitled to proceed for assessment even without the issuance of notice u/s 143(2) of the Act. Further, the Tribunal held that in the event that assessment is defective, the defect was cured by operation of section 292BB. Though section 292BB was introduced later, the Tribunal held that it was merely a procedural clarification, and since the assessee co-operated in the assessment, 292BB would apply.

The Patna High Court allowed the appeal filed by the assessee and held as follows:

“i) Though block assessment under Chapter XIV-B of the Act is a complete code in itself, the procedure under Chapter XIV for regular assessment in so far as it is applicable to block assessments stands incorporated under clause (b) of section 158BC as Circular No. 717, dated August 14, 1995 ([1995] 215 ITR (St.) 70, 98) clarifies the requirement of law in respect of service of notice u/ss. 142, 143(2) and 143(3) of the Act. It is declared that “even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice u/s 143(2) of the Act.

ii) Section 292BB only speaks of a notice being deemed to be valid in certain circumstances, when the assessee has appeared in any proceeding and co-operated in any enquiry relating to assessment or reassessment. It does not take in the circumstance of a complete absence of notice; which does not stand cured u/s 292BB, especially in the teeth of such notice being found to be mandatory under the Act.

iii) The search and seizure was conducted in the residential-cum-business premises of the assessee on February 27, 2003. On the basis of the recovery made, a notice u/s 158BC of the Act was issued on December 9/10, 2003. The assessee was directed to file a return within a period of one month. A further notice u/s 142(1) of the Act was issued on November 9, 2004 wherein again the assessee was required to file a return in response to the notice issued u/s 158BC. The subsequent notice was issued u/s 142(1), to which the assessee responded with a return filed within almost twelve days. The assessment was completed much after, but without issuing a notice u/s 143(2). The assessment completed u/s 158BC without a notice u/s 143(2) could not be sustained and had to be set aside.”

BCAJ Admin

Assessment — Effect of self-assessment — Tax paid on self-assessment entitled to refund and interest on refund.

89 Mrs. SitadeviSatyanarayanMalpani& Others vs. ITSC

[2023] 459 ITR 758 (Bom.)

A.Ys.: 1989–90 to 1996–97

Date of Order: 30th June, 2023

S. 244A of ITA 1961

Assessment — Effect of self-assessment — Tax paid on self-assessment entitled to refund and interest on refund.

Pursuant to a search carried out at the premises of the assessee, an application for settlement was filed u/s 254C(1) of the Income-tax Act, 1961, for the A.Ys. 1989–90 to 1996–97. The Application was admitted on 22^nd April, 1998. As per the order, the assessee was required to pay additional tax on the income disclosed. The assessee paid the additional tax and furnished copies of the challans. Pending application, the assessee filed a working of tax and interest for verification and also stated that the assessee shall pay the shortfall, if any. In response, the assessee received communication stating that a sum of ₹55,03,494 was payable by the assessee on account of tax and interest. In response, the assessee submitted that the payments made by the assessee had not been considered and thereby requested that the calculations be revised. During the course of hearing before the Settlement Commission, the assessee furnished the copies of challans. The assessee was informed that the balance amount of ₹1,16,511 was payable and to cover the said shortfall, the assessee made payment of ₹1,30,000. On 3^rd August, 2008, an order was passed holding that the application filed by the assessee was not maintainable due to non-compliance of section 245(2D) of the Act and the application was held to have abated u/s 245HA(1)(ii) of the Act.

On writ petition, the assessee contended that the assessee had in fact paid more than the amount he was required to pay on self-assessment. The Settlement Commission contended that credit for such excess tax paid had already been granted to assessee but no interest was payable on the same as excess tax paid was arising out of self-assessment tax paid by assessee which was not eligible for any interest.

The Bombay High Court allowed the petition of the assessee and held as follows:

“i) Tax paid on self-assessment would fall u/s 244A(1)(b) of the Income-tax Act, 1961, i.e., the residual clause covering refunds of amount not falling u/s 244A(1) of the Act and as confirmed by a circular issued by the CBDT (Circular No. 549 dated October 31, 1989 * [1990] 182 ITR (St.) 1), the payment should be considered to bea tax and interest thereon would be payable to the assessee.

ii) It was clear that the tax payable was only ₹19,52,372 whereas the total tax paid was ₹20,06,280 which would leave an excess amount of ₹53,098 as paid. It was not denied that there was an excess tax paid of ₹53,098 but the stand of the Department was that credit for such excess tax paid had already been granted to the assessee but no interest was payable thereon as the excess tax paid arose out of self-assessment tax paid by the assessee which was not eligible for any interest. This was not correct. The assessee had complied with his obligations under the provisions of section 245D of the Act. The order rejecting the application for settlement of cases was not valid.

iii) In the circumstances, we are quashing and setting aside the impugned order dated January 3, 2008.We direct the matter to be placed before the InterimBoard for Settlement constituted u/s 245AA for consideration. Since the matter is old, the petitioners shall file a copy of the settlement application that was originally filed on April 27, 1997 before the Board within two weeks of this order being uploaded. The photocopy shall be certified as true copy by the advocates/chartered accountant of the petitioners. The Interim Board shall dispose of the application on merits in accordancewith law.”

BCAJ Admin

Explanation 5 to Section 9(1)(i) of the Act — Substantial viewership of Channel in India cannot be a reason to hold that Channel is situated in India; situs of intangibles is the situs of owner.

16 Star Television Entertainment vs. DCIT

ITA No: 1814/1813/Mum/2014

A.Ys.: 2009-10

Date of Order: 8^th December, 2023

Explanation 5 to Section 9(1)(i) of the Act — Substantial viewership of Channel in India cannot be a reason to hold that Channel is situated in India; situs of intangibles is the situs of owner.

FACTS

Assessee, a Hong Kong based company, transferred ‘Star World’ channel vide a business agreement, to one of its sister concerns based in Hong Kong. The Taxpayer did not offer the gain arising out of such transaction to tax in India based on the contention that the transaction was undertaken between two non-residents and the underlying asset (i.e., channel) was not situated in India and, hence, no income accrued or can be deemed to accrue or arise in India.

AO contended that the transfer of the Channel would result in a trigger of indirect transfer provisions under the Act. Further, gains arising from transfer of channel can be deemed to accrue or arise in India and, hence taxable in India basis the following arguments:

• The very nature of the asset and its ability to regularly generate income from India created a strong nexus and business connection with India.

• Various elements of the asset being the brand name, logo, contents, permits, customer base (advertisers), substantial viewer base etc. were located in India hence the situs of the channel was in India.

DRP upheld order of AO. Being aggrieved, assessee appealed to ITAT.

HELD

• Delhi High Court in the case of Cub Pty Ltd¹ held that the situs of intangibles (such as Channel, here) is the situs of the owner i.e., outside India. The down-linking license obtained by the assessee from Ministry of Information and Broadcasting of India, establishes that ownership of the channel is situated outside India. Accordingly, applying the ratio of Delhi High Court, ITAT held that the situs of the channel is also outside India.

• Delhi High Court decision in the case of Asia Satellite Telecommunications Co Ltd² supports that merely because the footprint area includes India and the viewers of the channel are located in India, does not amount to carrying on a business in India.

• The indirect transfer provision under the Act is a deeming provision which deems that a share or
interest in a company or entity located outside India is located in India, if such share or interest derives substantial value from assets in India. However, there is no such specific provision with regard to the situs of intangible assets.

• Without prejudice, the indirect transfer provisions require that for an asset to be deemed as being situated in India, it must derive substantial value from assets in India. While there may be merit in the argument that viewership in India may affect the determination of whether the Channel derives substantial value from India, AO has not brought any material on record to show that the Channel derives substantial value from assets in India.

• ITAT held that gains from transfer of channel is not taxable in India.

2(2016) 71 taxmann.com 315
3 332 ITR 340

BCAJ Admin

Article 5 of India-Singapore DTAA — For computation of duration of Service PE, only time spent in India needs to be considered. Presence in India should not include days during which employees did not render any services to the client such as days of vacation and business development. Further, presence should be computed based on solar days i.e. day on which more than one employee is present in India should be counted as one day.

15 Clifford Chance PTE Ltd. vs. ACIT

[2024] 160 taxmann.com 424 (Delhi – Trib.)

ITA No: 2681 & 3377/Del/2023

A.Ys.: 2020-21 & 2021-22

Date of Order: 14^th March, 2024

Article 5 of India-Singapore DTAA — For computation of duration of Service PE, only time spent in India needs to be considered. Presence in India should not include days during which employees did not render any services to the client such as days of vacation and business development. Further, presence should be computed based on solar days i.e. day on which more than one employee is present in India should be counted as one day.

FACTS

Assessee, a tax resident of Singapore provided legal services to its clients in India. Part of the services were provided remotely from outside India and some services were rendered by the employee physically present in India. Assessing Officer (AO) held that the assessee had Service PE in India as the duration threshold of 90 days as provided in the DTAA was exceeded. AO also included the duration of services provided from outside India, total presence of employees in India inclusive of vacation, non-billable hours in the form of business development and computed period based on man-days. On appeal, DRP upheld the order of AO.

Being aggrieved, the assessee appealed to ITAT.

HELD

• For the purpose of Service PE clause, the actual performance of services in India is essential and only duration of the employees physically present in India for furnishing services are to be taken into account.

• Assessee does not have Service PE in India as its employees were present for 44¹ days which is less than the 90 days threshold.

• For calculating presence in India, following days should be excluded.

• Days when no service was rendered to the client i.e. employees vacation period.

• Days when employees performed non-revenue generating activities i.e. business development such as identification of customers, technical presentation/providing information to prospective customers, developing market opportunities, providing quotations to customers.

• Presence in India should be computed based on solar days i.e. days on which more than one employees are present in India should be counted as one day.

1 Assessee substantiated this based on time sheet, HR system and employees declaration

BCAJ Admin

Sec. 40A(2)(b).: Disallowance u/s 40A(2)(b) is not justified on merely estimating that more income should have been earned from subcontracting without bringing any comparable figures.

68 Tapi JWIL JV vs. Income-tax Officer

[2023] 108 ITR(T) 27 (Delhi – Trib.)

ITA NO. 6722 (DELHI) OF 2018

A.Y.: 2014-15

Date of Order: 16^th October, 2023

Sec. 40A(2)(b).: Disallowance u/s 40A(2)(b) is not justified on merely estimating that more income should have been earned from subcontracting without bringing any comparable figures.

FACTS

M/s TAPI Prestressed Products Ltd. (‘TPPL’) and M/s JITF Water Infrastructure Ltd. (‘JWIL’) had entered into an agreement to form a Joint Venture (JV) with the specific purpose of bidding for construction of 318 MLD 70 MGD Sewage Pumping Station etc. on design, build and operate basis. The contract was awarded by Delhi Jal Board to the assessee JV. TPPL had executed the work and raised bills for ₹15,02,04,381/- to the assessee JV. The assessee JV had raised bills for ₹15,52,33,963/- to Delhi Jal Board. The assessee JV had filed its ITR declaring total income of ₹1,75,600/-.

The AO had passed the assessment order u/s 143(3) in the status of AOP, determining the total income at ₹1,20,77,763/- while making disallowance u/s 40A(2)(b) at ₹1,18,92,163/-. AO held that the assessee JV had suppressed its profit by making excessive payment to TPPL. To work out the amount to be disallowed u/s 40A(2)(b), the AO had applied the net profit rate of 8% on the Sub-Contract Expenses (net) of ₹14,86,52,038/-, and thus arrived at a figure of ₹1,18,92,163/-.

On appeal the CIT(A) held that profit in the hands of the assessee JV should also be calculated by applying a rate of 3.78 per cent and worked out the total income of the assessee JV at ₹ 56,19,047.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that the AO never alleged nor enquired into the issues nor:

i. recorded his finding that the books of account were not correct and complete

ii. doubted the genuineness of the expenses incurred by the assessee JV

iii. brought on record any material to prove that the expenses incurred by the assessee JV were excessive or unreasonable having regard to the fair market value; and

iv. recorded his finding that he was rejecting the books of account

The ITAT observed that the provisions of section 40A(2)(b) are applicable to the expenses which are considered to be excessive or unreasonable, having regard to the fair market value of the goods / services or facilities for which the payments are made. The AO had made disallowance u/s 40A(2)(b), by opining that the assessee JV should have earned income from sub-contracting.

The ITAT held that section 40A(2)(b) had no application to the income aspect of the assessee JV. The AO had not brought any comparable figures to disallow the expenditure, moreover with the structuring of the JV, provisions of Section 40A(2)(b) were not attracted.

Hence, the ITAT held that the AO had fallen into error in determining the profit @ 8 per cent and also invoking the provisions of Section 40A(2)(b) and the CIT(A) had also erred in determining the profit of the assessee @ 3.78 per cent equal to the profit of one of the parties to the JV.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

Sec. 69B.: Where the assessee has provided the necessary explanation about the nature and source of unrecorded transactions / assets and the necessary nexus with assessee’s business income has been established, such unrecorded transactions cannot be considered as unexplained and thus, deeming provisions of section 69B cannot be invoked.

67 Montu Shallu Knitwears vs. DCIT

[2024] 109 ITR(T) 1 (Chd – Trib.)

ITA NO. 21 (CHD) OF 2023

A.Y.: 2019-20

Date of Order: 1^st December, 2023

Sec. 69B.: Where the assessee has provided the necessary explanation about the nature and source of unrecorded transactions / assets and the necessary nexus with assessee’s business income has been established, such unrecorded transactions cannot be considered as unexplained and thus, deeming provisions of section 69B cannot be invoked.

FACTS

The assessee is a partnership firm engaged in the business of manufacturing of wearing apparels. A survey action u/s 133A was carried out at the business premises of the assessee on 29.08.2018. During the course of the survey, certain discrepancies were encountered in physical verification of stock and in order to buy peace of mind, the assessee had surrendered an amount of ₹50,00,000/- as additional business income for the FY 2018-19. The assessee had credited said amount of ₹50,00,000/- in its profit & loss account for the year ending 31^st March, 2019 and the assessee had paid tax at normal rates on such surrendered amount in its Return of Income filed on 30^th September, 2019.

The assessee’s case was selected for scrutiny and notice u/s 143(2) was issued on 29^th September, 2020. The case of the assessee was finalised and assessment order dated 28^th September, 2021 was passed, wherein the AO had assessed total income at ₹1,90,22,390/- after making additions of ₹50,00,000/- on account of disallowance u/s 37 of the Act and applied provisions of section 115BBE of the Act on alleged application of Section 69B of the Act.

Aggrieved by the assessment order, the assessee filed an appeal before the CIT(A). The CIT(A) in its order deleted the disallowance of ₹50,00,000/- u/s 37 of the Act and upheld the application of Section 69B r.w.s. 115BBE on account of the amount surrendered by the assessee during the course of survey proceedings.

Aggrieved by the order, the assessee filed an appeal before the ITAT.

HELD

The ITAT observed that it is a settled legal proposition that there is difference between the undisclosed income and unexplained income and the deeming provisions are attracted in respect of undisclosed income however, the condition before invoking the same is that the assessee has either failed to explain the nature and source of such income or the AO doesn’t get satisfied with the explanation so offered by him.

The ITAT observed that the stock physically found had been valued and then, compared with the value of stock so recorded in the books of accounts and the difference in the value of the stock so found belonging to the assessee had been offered to tax.

The ITAT held that the Revenue had not pointed out that the excess stock had any nexus with any other receipts other than the business being carried on by the assessee. There was thus a clear nexus of stock physically so found with the stock in which the assessee regularly deals in and recorded in the books of accounts and thus with the business of the assessee and the difference in value of the stock so found was clearly in the nature of business income.

The ITAT held that no physical distinction in unaccounted stock was found by the Revenue. The difference in stock so found out by the authorities had no independent identity and was part and parcel of the entire stock in the normal course of business. It could not be said that there was an undisclosed asset which existed independently. Thus, what was not declared to the department was receipt from business and not any investment as it could not be correlated with any specific asset and the difference should be treated as business income. Therefore, the income of ₹50,00,000/- surrendered during the course of survey cannot be brought to tax under the deeming provisions of section 69B of the Act and the same had to be assessed to tax under the head “business income”. In the absence of deeming provisions, the question of application of section 115BBE did not arise and normal tax rate was applied.

In the result, the appeal of the assessee was allowed.

BCAJ Admin

Section 2(22)(e) can be invoked only in the hands of the common shareholder who was in a position to control affairs of both the lender company and the receiving company, and not in the hands of the receiving company.

66 ApeejaySurrendra Management Services Pvt. Ltd. vs. DCIT

ITA Nos.: 987 & 988 / Kol/ 2023

A.Y.s: 2013-14 and 2014-15

Date of Order: 19^th February, 2024

Section 2(22)(e)

Section 2(22)(e) can be invoked only in the hands of the common shareholder who was in a position to control affairs of both the lender company and the receiving company, and not in the hands of the receiving company.

FACTS

The assessee-company received a sum of ₹5.50 crores as loans / advances from another group company, “APL”.

The assessee was not a registered shareholder of the lender company, APL. However, there was a common shareholder, “KSWPL”, who held substantial interest in both the assessee (57.86 per cent shares) and the lender company (99.96 per cent shares). The lender company had sufficient accumulated profits for distribution in its books.

The Assessing Officer treated the loan / advance as deemed dividend under section 2(22)(e) in the hands of the assessee.

Aggrieved, assessee filed an appeal before CIT(A) who confirmed the addition.

The assessee filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows:

(a) Considering the provisions of the Companies Act, 2013 and the legislative intent of section 2(22)(e), the beneficial ownership was with KSWPL under whose substantial control, loan from APL was granted to the concern, i.e. assessee. The assessee could not influence the decision making of company KSWPL. Similarly, APL could not influence the decision making process of KSWPL. In both the companies, the controlling interest (substantial interest) was held by KSWPL. It is, in fact, KSWPL who was in a position to influence the decision making process of the two companies. Therefore, the deeming fiction of section 2(22)(e) could be applied only in the hands of KSWPL who was the beneficial owner of shares in both, the lender and the receiving company.

(b) A loan or advance received by assessee (a concern) was not per se in the nature of income. It was, in fact, deemed accrual of income under section 5(1)(b) in the hands of the beneficial shareholder and not in the hands of the receiver (concern) who was a non- shareholder.

(c) Even going by the observations of the Supreme Court in CIT vs. National Travel Services (2018) 89 taxmann.com 332 (SC), the beneficial shareholder was KSWPL under whose controlling interest and influence APL had given loan / advance to the assessee. Accordingly, the deeming provisions of section 2(22)(e) were attracted on KSWPL.

Accordingly, the Tribunal held that no addition under section 2(22)(e) can be made in the hands of the assessee-company.

BCAJ Admin

Where the claim of exemption under section 11 of the assessee-Board was on the basis of commercial principles of accountancy and in accordance with directions of the Government of India, such exemption was allowable.

65 DCIT vs. National Fisheries Development Board

ITA No.: 244 / Hyd / 2023

A.Y.: 2015-16

Date of Order: 13^th February, 2024

Section 11, 13(1)(d)

Where the claim of exemption under section 11 of the assessee-Board was on the basis of commercial principles of accountancy and in accordance with directions of the Government of India, such exemption was allowable.

FACTS

The assessee was a Board established by the Central Government to act as a nodal agency in developing activities of fisheries among various states in the country.

The major source of receipt of the assessee was grants from the Central Government, and the outflow was release of grants to the State Governments.

In accordance with the accounting procedure and directions issued by the Government of India, the assessee followed the following treatment in its books of accounts-

(a) When the grants from Central Government were received, the same were kept on the liability side;

(b) When the grants were paid to the State Governments for implementing the projects, the same were kept in advances account;

(c) When the amount sanctioned to the State Governments was spent by the implementing agencies / State Governments, utilisation certificate was submitted to the Central Government through the assessee. Such amount was treated as expenditure in the Income & Expenditure Account of the assessee.

(d) The amount so spent (including the administrative expenses of the assessee) was recognised as income in the Income & Expenditure Account.

For assessment year 2015-16, assessee filed the return of income declaring NIL income by claiming exemption under section 11 on the basis of the accounting principles followed by the assessee.

The Assessing Officer did not accept the treatmentof the assessee and contended that the assesse had not utilised 85 per cent of the income, being the total grants-in-aid / refunds received during the year and therefore, the shortfall in application below 85 per cent was liable to be taxed. He also contended thatthe assessee had invested ₹1.55 crores in equity shares in one Sasoon Dock Matsya Sahakara Samstha Ltd., and continued to hold the investment so made, and thereby contravened section 13(1)(d) read with section 11(5).

CIT(A) allowed the appeal of the assessee observing that the treatment of the assessee was based on commercial principles of accountancy and made in compliance with the regulations of the Government of India.

Aggrieved, the revenue filed an appeal before the Tribunal.

HELD

The Tribunal observed as follows-

(a) The assessee had been treating only such part of grants that were utilized by the implementing agencies as income and only such part of the funds released to the implementing agencies in respect of which the utilisation certificates were received as expenditure. This method of accounting followed by the assessee in treating the income and expenditure irrespective of the year of receipt of grant had not been appreciated or referred to by the Assessing Officer so as to find out any defects or reasons to reject the same.

(b) Given the position of the assessee in respect of the funds vis-à-vis the implementing agencies, it wasn’t possible to treat all the grants as receipts and all the allocations as expenditure. Such an approach was not at all scientific, because there was no income element on grant of funds by the Central Government, nor any expenditure incurred merely by allocation. Therefore, there was no illegality or irregularity in the method of accountancy followed by the assessee in treating the funds utilised by the implementing agencies as income and the funds covered by the utilisation certificate as expenditure.

(c) If the contention of the tax department was accepted, then as against the actual grants during the current year to the tune of ₹ 146.40 crores, the assessee had spent a sum of ₹178.13 crores which included the expenditure on account of the grants received for the current year as against the earlier year, which was more than 85 per cent of the grants received. Further, such treatment disturbed the method of accounting consistently followed by the assessee.

(d) Vis-à-vis the contention under section 13(1)(d),there was no contradiction to the plea taken by the assessee that such an investment was made in Sasoon Dock Matsya Sahakara Samstha Ltd., in the financial year 2008-09 and not during the current year and never in the earlier years any objection on that aspect was taken. It was also not in dispute that registration under section 12AA granted by the authorities in favour of assessee was continuing. In these circumstances, the ground raised by the Assessing Officer was liable to be rejected.

Accordingly, the appeal of the revenue was dismissed.

BCAJ Admin

Where the assessee passed away before framing of the assessment order, no assessment could be made in the name of the deceased without bringing the legal heirs of such person on record. In the absence of specific provision requiring the legal heirs to intimate the tax department, assessment cannot be valid only for the reason that the legal heirs failed to inform the department about the death of the assessee.

64 Bhavnaben K Punjani vs. PCIT

ITA No.: 138 / Rjt / 2017

A.Y.: 2007-08

Date of Order: 15^th February, 2024

Where the assessee passed away before framing of the assessment order, no assessment could be made in the name of the deceased without bringing the legal heirs of such person on record.

In the absence of specific provision requiring the legal heirs to intimate the tax department, assessment cannot be valid only for the reason that the legal heirs failed to inform the department about the death of the assessee.

FACTS

During the financial year 2006-07, the assessee sold certain immovable property purportedly for less than stamp value.

The assessee passed away on 15^th October, 2013. However, no intimation regarding the demise wasgiven to the tax department by the legal heirs of the assessee.

The Assessing Officer initiated reassessment proceedings under section 147 seeking to adopt stamp value of the property under section 50C; accordingly, he passed best judgment assessment under section 143(3) / 144 read with section 147 vide order dated 23^rd February, 2015 in the name of the assessee, that is, after the assessee expired.

PCIT passed an order under section 263 dated 24^th March, 2017 revising the said assessment order on the ground that while framing the assessment order, the Assessing Officer did not ascertain the cost and year of acquisition of the property and therefore, the order was made without proper inquiry and investigation.

Aggrieved, the assessee filed an appeal before the ITAT.

HELD

The Tribunal observed that-

(a) in absence of any specific statutory provision under the Income Tax Act which requires the legal heirs to intimate the income tax department about the death of the assessee, the assessment order cannot be held to be valid in the eyes of law only for the reason that the legal heirs of the deceased assessee had not informed the income tax department about the death of the assessee.

(b) Since no assessment can be framed in the name of a person who has since expired, any assessment order framed in the name of a deceased person without bringing the legal heirs of such person on record, is invalid in the eyes of law.

Accordingly, since the original assessment order was not valid in law, the Tribunal also set aside the order of PCIT passed under section 263.

BCAJ Admin

The Bookkeeping in Electronic Mode

Bookkeeping is a way of recording a company’s financial transactions in an organised manner. Bookkeeping creates a trail of all the transactions and serves as evidence for financial reporting. This practice of bookkeeping or maintaining books of account is not an option; multiple laws, like the Companies Act, 2013, Income Tax Act, and Good and Service Tax (GST), mandate maintenance and retention of the books of account in a prescribed manner.

As maintenance of books of account has transitioned from physical record-keeping to electronic mode, the bookkeeping laws have evolved. Section 128 (1) of the Companies Act, 2013 stipulates that every company shall prepare and keep its books of account and other relevant books, papers, and financial statements annually. It also mentions that these books can be kept in electronic mode. While Section 128(1) mentions the allowance for maintaining books in electronic mode, the specific requirements for electronic bookkeeping, like format, accessibility, and security, are provided in the rules made under the Act. For example, the Companies (Accounts) Rules, 2014, especially Rule 3, provides detailed requirements for maintaining books of account in electronic form.

Most of the provisions related to physical books apply to books maintained in electronic mode. The common points between manual and digital books are as follows:

– The statutory laws recognise both physical and digital books of account.

– Both manual and digital books must always be accessible in India.

– The physical books and digital books are subject to inspection.

– Both manual and digital books must be accurate and complete.

– The time period for retention of manual and digital books is the same.

Key requirements that are unique to digital books of account as per the provision of the Companies Act, 2013 are as listed below:

Particulars	Requirement
Maintenance	Given the nature of digital books and the maturity of accounting systems, it is mandatory that the data from books maintained outside India should be always accessible in India.
Retention	The books of account and other important books and papers shall be retained in the original format in which they have been generated, sent, or received or in a format that will present the information generated, transmitted, or received accurately. The information must remain complete and unaltered.
Branch Office	The branch can maintain proper books of account to record transactions effected at the branch and periodic summarised returns have to be sent to the registered office. The information received from the branch office shall not be altered and shall be kept in a manner that depicts the information initially received from the branches and the backup shall be kept in servers physically located in India on a daily basis.
Storage	There shall be a proper system for displaying, storing, retrieving, or printing electronic records as the audit committee/board of directors may deem appropriate. Unless expressly allowed by the law, the records shall not be disposed of or rendered unusable for disposal.
Backup	The electronic copies of account books and other relevant documents, even if stored overseas, the backup must be kept on a daily basis on physical servers situated in India.
Service Provider (Outsourced Vendor maintaining accounts)	At the time of filing financials annually, the company must inform the Registrar of Companies: – the name of the service provider – the IP address of the service provider – the location of the service provider (wherever applicable) – if maintained in the cloud, then the address as given by the service provider

Recent amendments in the Companies Act, 2013 and rules made thereunder:

Maintenance:

The books of account and other relevant books and papers maintained in electronic mode shall remain accessible in India, at all times. Before the amendment it was only accessible in India, however now the words at all times have been added.

Backup:

The backup of books of account and other books and papers of the company, which is maintained in electronic mode, even if stored at a place outside India shall be kept in servers physically located in India on a daily basis. Before the amendment, it was on a periodic basis and no specific time was prescribed.

Audit trail in the accounting software:

For the financial year commencing on or after the period 1st April, 2023, every company that uses accounting software to maintain books of account shall use only such accounting software that can record an audit trail of each and every transaction as per MCA notification. This will help create an audit log with the changes made and the date when the changes are made. Also, it must be ensured that the audit trail cannot be disabled at any point of time during the year.

Service provider outside India:

If the service provider is outside India, then the company must inform the Registrar of Companies, of the name and address of the person in control of the books of accounts and books and papers in India.

The above amendments in light of the digital evolution in bookkeeping have given rise to the below-mentioned challenges for the companies:

– When books are maintained outside India, daily data backup poses a challenge for companies where the data backup is centralised outside India and servers are physically located outside India.

– For data from outside India to be accessible in India at all times, there must be seamless integration and real-time transfers. This can be challenging for companies with multiple locations outside India.

– Section 128 (5) of the Companies Act, 2013 requires that the books of account must be maintained for eight financial years immediately preceding the financial year, and accordingly, the backup must also be held for eight years. Hence, the company must have the facility to store the backups safely or upload them to cloud storage.

COMPLIANCE CHECKLIST & AUDIT PROCEDURES

To comply with all the provisions of Rule 3, the company needs a robust system in place, and auditors need to check the system in place to certify total compliance. A compliance checklist and audit procedures as given below will ensure that there are no lapses in audit documentation and provide a basis for appropriate conclusion on the maintenance of books of account as prescribed.

Sr. no.	Requirement	Complied (yes/no)	Remarks
1.	If the books of account and other relevant books and papers are maintained in electronic mode, – whether it is always accessible in India for its subsequent use?
2.	From 1^st April, 2023, whether the accounting software has a feature of: – recording the audit trail of each and every transaction, – creating an edit log of each change made in books of account along with the date when such changes were made, and – ensuring that the audit trail cannot be disabled?
3.	Whether it is ensured that the books of account are – entirely retained in the format in which they were originally generated, sent, or received, or in a format which shall present accurately the information generated, transmitted, or received, and – the information contained in the electronic records remains complete and unaltered.
4.	Is it ensured that the information received from branch offices is not altered and is kept in a manner that depicts what was originally received from the branches?
5.	Is it ensured that the information can be displayed in a legible form?
6.	Is it ensured that there is a proper system for: – storage, – retrieval, – display or – printout of the electronic records
7.	Is there a proper system to ensure that such records are not disposed of or rendered unusable unless permitted by law?
8.	Is it ensured that the backup is taken daily?
9.	Is it ensured that the server on which the backup is maintained is physically located in India?
10.	Has the company intimated the following information to RoC? – the name of the service provider, – the IP address of the service provider, – the location of the service provider (wherever applicable), – where the books of account and other books and papers are maintained on the cloud, such address as provided by the service provider, – where the service provider is located outside India, the name and address of the person in control of the books of account and other books and papers in India?

Suggested audit procedures:

1. Obtain the list of books and other records maintained in electronic mode from the IT team of the company and document the process of access rights, maintenance of servers, backup policy, IT controls, etc.

2. Assess the need for IT experts for IT General Control (ITGC) testing based on the accounting software used, nature and size of the company.

3. Obtain the information w.r.t. the compliance of Rule 3 and provision of Companies Act, 2013 for maintenance of books of account from the company Secretary of the company.

4. Information Provided by Entity (IPE) testing shouldbe performed on the reports generated from the accounting software to verify the completeness of the information.

5. Understand and document the process of storage, backup, and retrieval from the IT team of the company.

6. In respect of audit trail and maintenance of daily backup, obtain the reports from the IT team and perform test checks to validate the compliance requirements.

7. Obtaining a report or management’s representation in respect of the use of audit trail features throughout the year.

8. With respect to the maintenance of books of account, Form AOC-4 and AOC-5 submitted by the company to the ROC can be verified along with the date of submission and the other relevant information.

COMPARISON BETWEEN VARIOUS ACTS

The following table summarises requirements pertaining to the maintenance of books of account per the Companies Act, 2013, Income Tax Act, 1961, and Central Goods and Services Act, 2017.

Sr. No	Particulars	Companies Act, 2013	Income Tax Act, 1961	GST Act, 2017
1	Maintenance	At the registered office. If maintained elsewhere, notice to the Registrar to be given within seven days (Section 128(1))	Where any person carries on business or profession other than specified professions mentioned in Section 44AA(1), then he is required to maintain books of account if income from business or profession exceeds R1,20,000 or total sales/turnover/gross receipts exceed R10 lakh in any of the three years immediately preceding the previous year. However,	At the principal place of business (Rule 56 of CGST Rules 2017)
			in case the Assessee is an individual or HUF, such limits should be read as R2,50,000 and R25 lakhs, respectively. Or where the business or profession is newly set up, the income from the business or profession is likely to exceed the threshold limits.
2	Scope of transactions to be recorded	All transactions of registered and branch offices (Section 128(1))	As may enable computation of total income (Sections 44AA(1), 44AA(2))	Production/manufacture, supply, stock of goods, input tax credit, output tax payable/paid, etc. (CGST 2017)
3	Basis of accounting	Accrual basis and double-entry system (Section 128(1))	Cash or Accrual	Not specifically mentioneds
4	Intimation requirement if maintained outside registered office	File notice within seven days with the Registrar (Section 128(1))	Not specifically mentioned	Not specifically mentioned
5	Mode of maintenance	Can be maintained in electronic mode as prescribed (Section 128(1))	Not specifically mentioned	As per Section 35(1) and Rule 56(7) of CGST Rules, 2017, the registered person may keep and maintain such accounts and other particulars in electronic form.
6	Branch office compliance	Maintain at branch office; summarized returns to registered office to be sent (Section 128(2))	Not specifically mentioned	As per Section 35(1), where more than one place of business is specified in the certificate of registration, the accounts relating to each place of business shall be kept at such places of business.
7	Retention Period	For eight financial years or all preceding years if less than eight (Section 128(5))	For six years from the end of the relevant assessment year i.e., for a total period of eight previous years (prescribed by rules (Section 44AA(4)))	For at least 72 months (6 years) from the due date of annual return (Section 36 CGST Act 2017)
8	Definition of Books and Papers	Includes books of account, deeds, vouchers, writings, documents, minutes, and registers in paper or electronic form (Section 128(12))	Specific books of account to be maintained for Legal, Medical, Engineering, Architectural, Accountancy, Technical Consultancy, Interior Decoration	Not specifically mentioned
9	Other records included	Receipts and payments, purchases and sales, assets and liabilities, and cost items as prescribed (Section 128(13))	Not specifically mentioned	Manufacture of goods, inward and outward supply, stock of goods, input tax credit, output tax payable and paid, etc. (CGST 2017)

CONCLUSION

Digitalisation brings in its wake both solutions and unique challenges. The recent amendments prevent the unique challenges from becoming vulnerabilities and hence, implement stringent measures. Companies and auditors need to adapt to the bookkeeping in the digital age and ensure total compliance with respective applicable laws.

BCAJ Admin

Limited Liability Partnerships — Relevant Auditing and Accounting Considerations

A Limited Liability Partnership (LLP) is a hybrid entity that combines features of a corporation and allows the flexibility of organizing its internal structure as a partnership based on a mutually arrived agreement. The agreement is not required to follow the strict form that applies to a company.

Talking about the key characteristics of an LLP, an entity structured as an LLP will enjoy a separate legal identity, limited liability for the partners, and perpetual succession. An LLP enjoys management and organisational flexibility regarding economic rights, which are freely transferable, and non-economic rights (management participation) which are non-transferable.

The contribution to LLP’s capital can be in cash or in kind. Receipt of consideration in ‘kind’ will entail determining its valuation to be able to determine the proportionate entitlement of the partners.

As stated above, the LLP provides enough flexibility to partners to enter into an LLP agreement, which shall govern the rights and duties of the partners. The LLP Agreement and any changes made therein shall be filed with the Registrar of LLPs. In the absence of agreement as to any matter, the mutual rights and the duties of the partners and the mutual rights and the duties of the LLP and the partners shall be determined by the provisions set out in the First Schedule of the LLP Act.

One may also believe that making changes in the LLP deeds may be comparatively simpler and / or less costly as compared to making changes to the memorandum /articles of association. This may particularly be true where the main deed allows operations-related changes to be carried as part of the Annexure which may be subjected to minimal approvals and is not construed to be leading to a change in the main deed and is accordingly not required to be filed with the Registrar. However, this should strictly be determined in consultation with a legal expert.

LLP as a vehicle has emerged as a great model for Chartered Accountant firms, consulting firms and for structuring joint ventures by corporates.

In this article, we will take a look at the recent regulatory changes that impact these forms of entities with a specific focus on reporting and audit consideration.

FINANCIAL REPORTING CONSIDERATION

Section 34(1) of the LLP Act requires that the LLP shall maintain such proper books of accounts as may be prescribed relating to its affairs for each year of its existence on a cash basis or accrual basis and accordingly, to double entry system of accounting and shall maintain the same at its registered office for eight years. Compared to a company, this flexibility for small businesses comes in handy.

Sub-section (2) of section 34 further prescribes that within a period of six months from the end of each financial year, prepare a Statement of Account and Solvency for the said financial year as of the last day of the said financial year in Form 8 with Registrar, and such statement shall be signed by designated partners of the LLP. Sub-section 4 of section 34 requires that the accounts of limited liability partnerships shall be audited in accordance with sub-rule 8 of rule 24 LLP Rules.

It is observed that timely filing of financial information with the Registrar has been one of the noted areas of non-compliance and thus professionals are expected to keep themselves abreast of key forms and their filing deadlines.

In accordance with section 34A of the LLP Act, the National Financial Reporting Authority (NFRA) would specify the accounting standards and standards on auditing for LLPs as recommended by the Institute of Chartered Accountants of India (ICAI).

In 2023, ICAI issued an exposure draft for the proposed accounting standards on limited liability partnerships (LLPs). As per the said exposure draft Accounting Standards 1 to 5, 7, 9 to 19 and 21 to 29, as notified under Companies (Accounting Standards) Rules, 2021, shall be applicable to the LLPs. AS 20 Earning Per Share shall be exempted from the LLPs.

For applicability of Accounting Standards, ICAI’s exposure draft states that LLPs shall be classified into four categories, viz., Level I, Level II, Level III and Level IV. Level I LLPs will be Large size Limited Liability Partnerships, Level II LLPs will be Medium size Limited Liability Partnerships, Level III LLPs will be Small size Limited Liability Partnerships and Level IV LLPs will be Micro size Limited Liability Partnerships. Level IV, Level III and Level II LLPs shall be referred to as Micro, Small and Medium-sized Limited Liability Partnerships (MSMLLPs).

As clarified in the exposure draft since the LLP Act permits a cash basis of accounting, therefore, if an LLP is following a cash basis of accounting, it shall apply Accounting Standards (read together with the exemptions in II and VIII as may be available) to the extent applicable in the context of a cash basis of accounting.

Considering the present practice and the fact that the exposure draft continues to propose applicability of Companies (Accounting Standards) Rules, 2021 for LLPs, the likelihood of applying Ind-AS remains remote and is contingent upon notification from regulators. Accordingly, there is likely to be a situation where LLP prepares Ind-AS compliant financial statements specifically for the purposes of consolidation as required by the parent company or Joint Venturer who otherwise is required to follow Companies (Indian Accounting Standards) Rules, 2015. Thus, at the time of conversion of financial statements from one GAAP to another GAAP, matters like fair value accounting, deferred tax, business combination etc. require significant consideration.

Guidance Note on Financial Statements of Limited Liability Partnerships: The Accounting Standards Board (ASB) of the ICAI, in June 2022, issued a Technical Guide on Financial Statements of Limited Liability Partnerships to prescribe guidance for the applicability of Accounting Standards to LLPs and to recommend the formats of the financial statements for standardisation of presentation of the financial statements by LLPs.

The ASB has subsequently issued the Guidance Note on Financial Statements of Limited Liability Partnerships. The Guidance Note will enable the LLPs to communicate their financial performance and financial position in standardised formats thereby enhancing their comparability. This Guidance Note is effective for financial statements covering periods beginning on or after 1^st April, 2024. The Technical Guide on Financial Statements of Limited Liability Partnerships stands superseded by this Guidance Note.

The Illustrative formats for Financial Statements included in the Guidance Note on Financial Statements for Limited Liability Partnerships have also been given in the Excel file.

AUDITING CONSIDERATIONS

In the absence of any specific auditing standards that may apply to the audit of an LLP, the existing set of Standards on Auditing issued by the ICAI will continue to be applicable mutatis mutandis (with necessary modifications to the audit procedures in the context of an LLP).

The auditing will continue to envisage planning,execution and reporting as its key steps. As an auditor, professional membersshould carefully read andtake necessary notes about important aspects ofthe LLP deed, specifically those in relation to thenature of the business, Profit sharing Ratio, formand manner of capital contribution, valuation(if any), rights, restrictions and obligations of individual partners.

Although one would assume that doing an audit of smaller entities structured as LLP may be relatively easy, however, the same may not always be true. Vide one of the recent amendments, the government has become more conscious of ensuring transparency and has accordingly mandated LLPs to disclose Significant Beneficial Ownership.

Pursuant to the recent amendment Limited Liability Partnership (Third Amendment) Rules, 2023 which are effective from 27^th October, 2023, LLPs are required to maintain a register of partners at their registered office.

Another important amendment was in the context of the declaration regarding beneficial interests in any contribution. The Amended Rules make it mandatory for people to declare the nominee or registered holder-beneficial owner relationships (including any changes in the beneficial interest).

MCA also notified the Limited Liability Partnership (Significant Beneficial Owner) Rules, 2023 (SBO Rules) with effect from 9th November, 2023. As per the Rules “Significant beneficial owner” means an individual, who acting alone or together or through one or more persons or trust, possesses one or more of the following rights or entitlements in such reporting LLP, namely —

holds indirectly or together with any direct holdings not less than 10 per cent of the contribution;
holds indirectly or together with any direct holdings, not less than 10 per cent of the voting rights in respect of the management or policy decisions in such LLP;
has the right to receive or participate in not less than 10 per cent of the total distributable profits or any other distribution, in a financial year through indirect holdings alone or together with any direct holdings;
has the right to exercise or actually exercises significant influence or control, in any manner other than through direct holdings alone.

In the case of LLPs, the determination of SBO has to be based on the holding of capital contribution, voting rights in respect of management or policy decisions of LLP, and with respect to the right to receive or participate in distributable profits and thus it becomes all the more important for the auditor to assess the same in the context of the LLP deed.

Further, the determination of indirect holding is likely to pose a significant challenge for the auditor since it has to be determined based on the individual’s relationship with the non-individual member of the reporting LLP. For instance, where the member is a Hindu Undivided Family (HUF), the Karta of the HUF shall be considered to be holding indirect right or entitlement in the reporting LLP. Similarly in case where the member is a Trust (through a trustee), an individual’s right or entitlements in a reporting LLP shall be considered to be held indirectly if he is a trustee/settlor/author depending upon the nature of the trust. Auditors are accordingly expected to examine necessary regulatory filings made by LLP / SBOs in this regard.

Other areas that are likely to pose similar audit risks are complex related party relationships and transactions with related parties; accounting estimates, assessment of the use of going concern basis in an evolving geopolitical environment, fraud risk assessment, etc.

At the time of reporting, an auditor needs to ensure that necessary changes are made to the audit report format as illustrated in Standards on Auditing 700, Forming an Opinion and Reporting on Financial Statements, to ensure factual accuracy since the report is to be issued for a separate form of entity. The auditor is expected to consider the key areas that need to be imbibed as part of the audit report as a result of the differing legal and regulatory requirements. Some of the required changes to the audit report are listed below:

All references to ‘company’ as stated in the illustrative format of Standards on Auditing 700 Forming an Opinion and Reporting on Financial Statements, need to be amended to ‘limited liability partnership’.
All references to ‘directors’ need to be amendedand the recommended term to use is ‘designated partner’ as that is the term that is used in the LLP Act/LLP Deed. The references to the ‘Companies Act 2013’ need to be amended to the Limited Liability Partnership Act 2008 (as amended) read along with LLP Rules.
The audit report of an LLP is addressed to the ‘Designated Partner’.
The opinion paragraph describes the financial statements, including specifying the titles of the primary statements. However, it is important that the titles of the primary statements precisely match those used by the entity. The opening paragraph of the ‘opinion’ section needs to reflect the financial reporting framework.
The audit opinion needs to be amended as follows:
In our opinion, the financial statements:
give a true and fair view of the state of the limited liability partnership’s affairs as of [date] and of its [profit/loss] for the year then ended.
have been properly prepared in accordance with the accounting standards issued by the Institute of Chartered Accountants of India and other accounting principles generally accepted in India; and
gives information as required by the LLP Act.
The ‘Basis for opinion’ will continue to mention the facts that the audit was done in accordance with the Standards on Auditing (SAs) and other applicable authoritative pronouncements issued by the Institute of Chartered Accountants of India (including those related to ethics and independence). Basis ofopinion will also state that the auditor believes that the audit evidence we have obtained issufficient and appropriate to provide a basis for the opinion.
Other information: The Designated Partner of the LLP is not required to prepare an annual report. Accordingly, the requirement for reporting on such other information does not arise.
In respect of the signature on the audit report the requirements for LLPs are effectively the same as for companies and the audit report is required to be signed by the statutory auditor, for and on behalf of the audit firm along with the other compliances like UDIN.

WHAT’S AWAITED?

Recently IAASB issued the much-awaited International Standard on Auditing for Less Complex Entities (ISA for LCE). The standard is effective for audits beginning on or after 15th December, 2025, for jurisdictions that adopt or permit its use. It recognizes the importance of smaller businesses and their specific audit needs.

It is a standalone standard that is proportionate & tailored to the specific needs of an audit of less complex entities, which makes it easier to navigate for those practitioners who support these types of engagements. It provides the same level of assurance as an audit performed under the ISAs i.e., reasonable assurance. Considering this being of global relevance we may soon have a similar standard for less complex entities in India. However, the same would require regulatory backing from ICAI and NFRA. In November 2023, an exposure draft was issued proposing the applicability of all 35 standards on Auditing for limited liability partnerships (LLPs).

As noted from MCA’s Annual Report (2022–23) as of 31^st October, 2022, the number of LLPs registered in the country was 2,86,377, and out of those 2,57,944 LLPs were active. During the period from 1^st December, 2021, to 30^th October, 2022, a total of 31,349 LLPs were incorporated.

The statistics clearly indicate that with the extension of tax benefits, the ease of FDI norms, LLP form of structure has gained a lot of momentum recently. With LLPs likely to dominate the constitutional form, more and more professional opportunities would emerge ranging from incorporation to auditing.

BCAJ Admin

Immovable Property Transactions: Direct Tax and FEMA Issues for NRIs

INTRODUCTION

This article is the fourth part of a series on “Income Tax and Foreign Exchange Management Act (FEMA) issues related to NRIs”. The first article focused on the provisions of the Income Tax Act, whereas the second one was on the applicability of the treaty on the definition of Residential Status. The third one was focused on the Residential Status under FEMA Regulations and this one deals with the “Immovable property Transactions – Direct Tax and FEMA issues for NRIs.

BACKGROUND

Immovable property refers to any asset, which is attached to the earth and is immobile, and includes land. Typically, the term “immovable property” is used to mean land and/or buildings attached to the land. Owning an immovable property, especially a residential house, in India has often been considered an aspirational goal. The lure of owning a property in India also attracts Non-resident Indians (“NRIs”), who have moved out of India but have an investible surplus available with them. Additionally, many NRIs also inherit ancestral or family properties and continue to hold them and enjoy the passive income therefrom. As these NRIs identify better or alternative opportunities outside India, the properties are sold,and sale proceeds are sought to be repatriated outside India.

This article seeks to touch upon the tax and FEMA aspects of the various transactions surrounding investment in Immovable Property by NRIs ranging from investment and passive income to sale and repatriation of the proceeds.

TAXABILITY OF INCOME FROM IMMOVABLE PROPERTIES

As a thumb rule, rent income or passive income arising from an immovable property is taxable in India. Rent income received by the owner of a property from the letting out of any building or land appurtenant thereto is generally taxable under the head “Income from House Property”, irrespective of whether the property in question is a residential property or a commercial one. In fact, section 22 of the Income-tax Act seeks to tax the Annual Value of such property as “Income from House Property”, which is determined on the basis of the higher of the actual rent received or receivable for a property or the sum for which the property might reasonably be expected to be let. Thus, a property is taxed on the basis of its capacity to earn rent even though it is not actually let out or generating rent income.

Section 23, however, provides for considering the Annual Value as Nil in case of up to two properties, which are occupied by the owner for his own residence or which cannot be so occupied by the owner on account of his employment, business or profession is carried on at any other place and he has to reside at that other place in a building which is not owned by him. Where the NRI owns more than two properties which have not been let out, then, he can opt for the Annual Value of two of the properties to be considered as Nil and the Annual Value of the remaining properties will be computed as if they have been let out. Further, if the property is used or occupied by the owner for the purposes of any business or profession carried out by the owner and the profits of such business or profession are chargeable to income-tax, then, its Annual Value is not taxable.

If, however, that leasing or renting of the property is only one of the elements of a composite contract, under which various services are provided, then, the entire income from such composite services is taxable as business income¹. For instance, leasing of shops by a mall or renting of rooms by a hotel. When the rent income is taxable as Income from House Property, only specific deductions are allowable from the Annual Value in respect of municipal taxes paid, standard deduction of 30 per cent and interest on borrowings. As against this, in case of income taxable as business income, the taxpayer can claim any expense incurred for the purposes of the business, including depreciation on capital expenditure. The tax rate on income from the property for NRI in either case would be the applicable slab rate.

1   Krome Planet Interiors (P.) Ltd. 265 Taxman 308 (Bom HC); Plaza Hotels (P) Ltd. 265 Taxman 90 (Bom HC); City Centre Mall Nashik Pvt. Ltd. 424 ITR 85 (Bom HC)

In the case of jointly owned properties, the income from the property would be taxable in the hands of all the owners in the ratio of their ownership. If the deed does not mention the ratio of ownership of the property between the joint owners, it would be assumed to be an equal share of each joint owner². If, however, the name of any joint owner is added merely for convenience and such joint owner has neither paid for any of the purchase consideration nor has any source of income to do so, then, it would be appropriate to consider the entire income as taxable in the hands of the remaining owners³, following the principle laid down by the Apex Court that in the context of section 22, owner is a person who is entitled to receive income from the property in his own right⁴.

2   Saiyad Abdulla v. Ahmad AIR 1929 All 817
3   Ajit Kumar Roy 252 ITR 468 (Cal. HC)
4   Podar Cement (P.) Ltd. 226 ITR 625 (SC)

If the immovable property in question is simply plot of land, without any building thereon, then the charge under section 22 would not be triggered and the income from the land would instead be taxable as “Income from Other Sources” under section 56. Any expenses incurred to earn the said income can be claimed as a deduction under section 57 from the said income. The income from the land would, however, be exempt under section 10(1) if it is an agricultural income in terms of section 2(1A), which refers to rent or revenue derived from land in India used for agricultural purposes; income derived from the land by agriculture, or by the performance of any process by the cultivator or receiver of rent-in-kind to render the produce fit to be taken to the market, or sale of the produce by the cultivator or receiver of rent-in-kind; as also income derived from a building on or in the immediate vicinity of the land, subject to certain conditions.

TAXABILITY OF CAPITAL GAINS

The gains arising from the sale or transfer of immovable property, i.e., land or building or both, are taxable under section 45 as Capital Gains, classified as short-term or long-term depending on the period for which the property was held. Where the property is held by the owner for a period of more than twenty-four months immediately preceding the date of its sale or transfer, it is considered a long-term asset and the gains are taxable as Long-Term Capital Gains (“LTCG”). Where the period of holding does not exceed twenty-four months, the property is treated as a short-term asset, with the gains taxable as Short-Term Capital Gains (“STCG”). In the case of non-residents, STCG is included in the total income for the period and taxable as per the applicable slab rate, whereas LTCG is taxable under section 112 at a rate of 20 per cent, excluding applicable surcharge and cess.

The term “transfer” includes the transfer of immovable property on account of compulsory acquisition, redevelopment of old property, or even receipt of the insurance claim on account of damage to or destruction of the property, but does not include the transfer of property under a gift, will, irrevocable trust or distribution upon the partition of a Hindu Undivided Family (“HUF”). In the case of a property transferred by way of a gift, will, irrevocable trust or distribution upon the partition of an HUF and similar other situations as enumerated in section 47, the Capital Gains is taxable only in the event of a final sale or transfer and at the point of taxability, the amount of gain is computed with reference to the purchase price for the previous owner.

Further, the period of holding of the previous owner is also included while determining whether the gain on the property is Long Term or Short Term.

Section 48 lays down the computation of the amount of Capital Gain as under —

Sale Consideration

Less: Expenses incurred wholly and exclusively in connection with the transfer

Less: Cost of Acquisition

Less: Cost of Improvement

Taxable Capital Gain

As per the second proviso to section 48, in case the property is a long-term asset, the cost of acquisition and cost of improvement are indexed for the period of holding as per the cost inflation index notified by the Central Government in relation to each year. Thus, LTCG is computed with reference to a stepped-up cost, allowing for rising costs.

The various elements relevant to the computation of gains are discussed hereunder —

Sale Consideration: The transaction price at which the property is sold shall be considered to be the sale consideration, including the value of any consideration in kind. In a situation where a property is sold at a consideration, which is lower than the value adopted or assessed for the purposes of payment of stamp duty, section 50C would come into play, requiring that such value adopted or assessed for stamp duty payment should be assumed to be the full value of sale consideration and the capital gains should accordingly be calculated with reference to such higher value.

Expenses incurred wholly and exclusively in connection with the transfer: In claiming deduction of the expenses from sale consideration, attention should be paid to the requirement that such expenses are “incurred wholly and exclusively in connection with the transfer.” Expenses such as transfer fees paid to society, brokerage expenses, and legal expenses connected to the transfer such as fees for drafting of the agreement, would be allowable expenses. Further, in the case of non-residents, expenses incurred on travel to India as well as stay if incurred specifically for the purposes of executing and registering the sale agreements can also be considered as incurred wholly and exclusively in connection with the transfer.

Cost of Acquisition: As a general rule, the actual purchase price paid for acquiring a property would constitute the cost of acquisition of the property. It would include the expenses incurred at the time of purchase of the property towards stamp duty, registration fee, and brokerage. However, any payment made at the time of purchase towards recurring expenses, which form part of the purchase price, such as advance maintenance for a certain period or outstanding property taxes or electricity charges, etc. would not form part of the cost of acquisition.

The cost inflation index used for indexation of the cost follows FY 2001–02 as the base year with the index for the base year set at 100. Thus, if any property was purchased prior to 1^st April, 2001, its cost cannot be indexed beyond FY 2001–02. To address this issue, in case of properties purchased by the taxpayer or the previous owner (in case of property acquired through gift, will, etc.) prior to 1^st April, 2001, Section 55(2)(b) allows the taxpayer the option to adopt its original purchase price or its fair market value as on 1st April, 2001 as the Cost of Acquisition. This fair market value as of 1st April, 2001, however, cannot exceed the value of the property adopted or assessed for the purpose of payment of stamp duty as of 1st April, 2001. Where the property was purchased prior to 1^st April, 2001, the original purchase cost would usually be lower than the fair market value as of 1st April, 2001. The option provided in Section 55(2)(b) would, therefore, let the taxpayer adopt the higher value as the cost of acquisition (subject to the cap of stamp duty value as on 1^st April, 2001) and index it from FY 2001–02 till the year of sale. Thus, when computing capital gains in respect of an immovable property purchased by the taxpayer or the previous owner prior to 1^st April, 2001, a valuation report determining the fair market value of the property as on 1^st April, 2001 as well as its value for the purposes of stamp duty on the same date shall be required to be obtained.

Often, in case of ancestral properties acquired by way of inheritance, will or such other modes, the details of original purchase cost of the property are not available, making it difficult to compute the capital gains. Section 55(3) provides that in cases where purchase cost of the previous owner cannot be ascertained, the fair market value of the property as on the date on which the previous owner became the owner of the property shall be considered as the Cost of Acquisition of the previous owner.

Cost of Improvement: Any cost that has been incurred by the taxpayer or the previous owner towards making additions or alteration to the property, which is capital in nature is considered as cost of improvement and is allowable as a deduction while computing the amount of capital gains. Examples of cost of improvement include cost incurred towards adding a room or a floor to an existing property, fencing a plot of land to secure its perimeter, installation of lift, incurring expenses to make the property habitable, incurring expenses to clear the legal title of a property, which is under dispute, etc. However, expenses such as routine repairs and renovation expenses, modifications to furniture, aesthetic expenses, etc. would not be considered as Cost of Improvement. Any cost of improvement incurred prior to 1^st April, 2001 is not to be considered in the computation. This restriction is in line with the fact that the taxpayer has an option to adopt the fair market value as on 1^st April, 2001 as the Cost of Acquisition, which would take into account any improvements done to the property prior to 1^st April, 2001 and thus, separate deductions need not be claimed for such cost of improvements. Further, any expenditure that can be claimed as a deduction in computation of income under any other head of income, cannot be claimed as a Cost of Improvement.

In case of the purchase of property, while it was under construction, the determination of the period of holding and the year from which indexation should be allowed can be debatable. The date of allotment of the future property to the taxpayer by the builder, phase-wise payment towards the purchase cost, the date of registration of the sale agreement and the date of possession would fall in different years in such cases, leading to significant differences in the computation of the amount of taxable capital gain depending on when the property is said to be acquired by the taxpayer. Several judicial pronouncements⁵ have held that where the taxpayer has been allotted a specific identified property and such allotment is final, subject only to the payment of the consideration, then, the date of allotment is to be considered as the date of acquisition of the property and the period of holding should be calculated from the date of allotment. Similarly, in the case of allotment of property along with shares in the co-operative society prior to the completion of construction or physical possession of the property, it has been held that the date of allotment should be considered as the date of acquisition of the property⁶. In fact, in the context of whether acquisition of a flat under the self-financing scheme of the Delhi Development Authority shall be considered as construction for the purposes of sections 54 and 54F, the CBDT Circular No. 471 dated 15^th October, 1986 states that “The allottee gets title to the property on the issuance of the allotment letter and the payment of instalments is only a follow-up action and taking the delivery of possession is only a formality.”

Further, payments for an under-construction property are made by taxpayers over several years starting from the date of allotment in a phase-wise manner. It has been held by the Courts that the benefit of indexation in such cases should be allowed on the basis of payment⁷, i.e., payment made in each year should be indexed from that year till the date of sale of the property. In fact, in the case of Charanbir Singh Jolly v. 8th ITO 5 SOT 89 and thereafter, in Smt. Lata G. Rohra v. DCIT 21 SOT 541 the Mumbai Tribunal has held that indexation for the entire purchase cost of the property should be allowed from the year in which the first instalment was paid by the assessee. While the ratio of aforesaid judgements has not been further appealed against and is, thus, valid, indexation of the entire cost from the year of first payment irrespective of date of actual payments may be considered to be an aggressive tax position and open to litigation.

5   Praveen Gupta v. ACIT 137 TTJ 307 (Delhi – Trib.); CIT v. S.R.Jeyashankar 228 Taxman 289 (Mad.); Vinod Kumar Jain v. CIT 195 Taxman 174 (Punjab & Haryana)
6   CIT v. AnilabenUpendra Shah 262 ITR 657 (Guj.); CIT v. JindasPanchand Gandhi 279 ITR 552 (Guj.)
7   Praveen Gupta (supra); ACIT v. Michelle N. Sanghvi 98 taxmann.com 495 (Mumbai-Trib.); Ms. RenuKhurana v. ACIT 149 taxmann.com 160 (Delhi-Trib.)

However, this view is supported by the form of return of income. The form of return of income does not provide mechanism to index cost of acquisition with reference to payments made in various years. Therefore, if an assessee chooses to index cost of acquisition with reference to years in which instalments of purchase price are paid then such instalments will need to be reported in the form of return of income as cost of improvement which is technically not correct.

Where the property in question is an agricultural land, one would need to examine whether the same is a “rural” agricultural land or an “urban” agricultural land, as is referred to in common parlance. The former is excluded from the definition of a capital asset under section 2(14) and thus, gains arising from its sale would not give rise to taxable Capital Gains. An “urban” agricultural land, however, does not enjoy such an exclusion and would be subject to capital gains taxation like any other property. The distinction between “rural” or “urban” agricultural land is drawn on the basis of the location of the land with reference to local limits of municipalities and the population of such municipalities as per the latest census. Accordingly, agricultural land which is situated within any of the following areas shall be considered to be an “urban” agricultural land and thus, included within the definition of capital asset —

i) Within the jurisdiction of a municipality or any such governing body, having a population exceeding 10,000, or

ii) Within 2 km of the local limits of a municipality or any such governing body, having a population exceeding 10,000 but not exceeding 1,00,000, or

iii) Within 6 km of the local limits of a municipality or any such governing body, having a population exceeding 1,00,000 but not exceeding 10,00,000, or

iv) Within 8 km of the local limits of a municipality or any such governing body, having a population exceeding 10,00,000.

EXEMPTIONS FROM CAPITAL GAINS

The Income-tax Act contains certain beneficial provisions to provide relief from tax on the capital gains upon reinvestment into certain specified assets if the conditions laid down in those provisions are satisfied. A summary of the relevant exemption provisions applicable for capital gain arising on the sale of immovable property is given in the table below —

Section	Nature of Gain	Type of New Asset	Amount to be reinvested for full exemption	Time period for reinvestment	Lock-in period for New Asset	Capital Gain Deposit Account Scheme	Other provisions
54	LTCG on transfer of residential property	One residential property in India	Amount of Capital Gains	Purchase of new property within 1 year before, or 2 years after date of transfer; or Completion of construction of new property within 3 years after date of transfer	3 years from purchase or construction, failing which cost of the new asset shall be reduced by the amount of exemption already claimed	To be deposited before the date of filing / due date of filing the return of income	• Taxability in case of unutilised balance in CG Deposit Account • One time option to small taxpayers having LTCG less than R2 crores • Exemption capped at R10 crores
54D	Gain on compulsory acquisition of land or building or rights therein, forming part of industrial undertaking	Any other land or building or rights therein	Amount of Capital Gains	Purchase or construction within 3 years from date of transfer	3 years from purchase or construction, failing which cost of the new asset shall be reduced by the amount of exemption already claimed	To be deposited before the date of filing / due date of filing the return of income	• Use of asset for 2 years immediately prior to the date of transfer for business of the industrial undertaking • Taxability in case of unutilised balance in CG Deposit Account
54EC	LTCG on transfer of land or building or both	Specified Bonds issued by NHAI, RECL or as maybe notified	Amount of Capital Gains, subject to a maximum of R50 lakhs	Within 6 months after the date of transfer	5 years. Transfer of New Asset or monetisation other than by way of transfer within the lock-in period will result in revocation of exemption in the year of such transfer or monetisation	Not Applicable	• Interest received on Bonds is taxable. • No deduction can be claimed under section 80C in respect of the investment in bonds
54F	LTCG on transfer of any asset other than a residential property	One residential property in India	Full amount of net sale consideration. Proportionate exemption is allowed in case of lower reinvestment	Purchase of new property within 1 year before, or 2 years after date of transfer; or Completion of construction of new property within 3 years after date of transfer	3 years from purchase or construction, failing which the amount of exemption already claimed shall be deemed to be LTCG in the year of transfer of new asset	To be deposited before the date of filing / due date of filing the return of income	• Taxability in case of unutilised balance in CG Deposit Account • Added condition relating to ownership of residential house on the date of transfer of original asset or purchase or construction of one more residential house within 1 year / 3 years after the date of transfer – withdrawal of exemption in case of violation of condition. • Exemption capped atR10 crores

INCOME UNDER SECTION 56(2)(X)

Section 56(2)(x) seeks to bring into the tax net, any transactions of receipt of money or movable or immovable property without consideration or for inadequate consideration. Where any person receives an immovable property having a stamp duty value exceeding ₹50 thousand without consideration, the stamp duty value of such property is deemed to be an income of the recipient. Similarly, where a person purchases an immovable property at a consideration lower than its stamp duty value, where the difference is more than the higher of ₹50 thousand or 10 per cent of actual consideration, then, such difference between the actual consideration and stamp duty value of the property is deemed to be the income of the recipient. In other words, if any person, including a non-resident, is purchasing an immovable property in India for a value lower than its stamp duty value, then, the difference is assumed to be a benefit to the purchaser and sought to be taxed in the hands of the purchaser.

This provision intends to target property transactions that are intentionally undervalued so as to reduce the burden of stamp duty and involve cash payments. However, practically, the price of any transaction varies depending on various factors which may not reflect in the stamp duty value of the property, and it is likely that the actual transaction may genuinely take place at a value lower than the stamp duty value. To address such situations, the provisions allow a safe harbour of higher ₹50 thousand or 10 per cent of the actual consideration. If the difference in the consideration and the stamp duty value is within this safe harbour, then, it will not have any implication for the purchaser. However, if the difference exceeds the safe harbour limit, then, the entire difference will be treated as income of the purchaser.

In practice, parties may agree upon the consideration for property sale when the initial token or advance is given and enter into an agreement or MOU to document the same, but the actual registration of the sale agreement may take place subsequently after a gap, by which time the stamp duty value of the property may have increased. In such a case, the first proviso to section 56(2)(x) allows for stamp duty value as on the date of the initial agreement or MOU to be adopted provided the advance or token is paid on or before that date by account payee cheque or bank draft or electronically. Thus, if for any reason the registration of the final sale deed is delayed, the purchaser will not have to suffer taxation merely due to an increase in the stamp duty value of the property during the period of delay.

TAXABILITY UNDER A TAX TREATY

Article 6 of the OECD Model Convention deals with Income from Immovable Property, while Paragraph 1 of Article 13 deals with Gains from alienation of Immovable Property. Both these articles give the right to tax the income and capital gains relating to immovable property to the Source State where such property is situated. This is considering the fact that there is always a close economic connection between the source of income relating to immovable property and the State of source⁸. Further, the definition of the concept of immovable property as also the manner of taxation and computation is left to the Source State to decide. This helps to remove any ambiguity regarding the classification of an asset as immovable property.

8   Paragraph 1 of Commentary on Article 6

Thus, in the case of NRIs having income or capital gains from immovable property in India, the manner of taxation and computation would be determined as per the domestic tax laws, which have been briefly discussed above. The NRIs can then offer to tax or report these incomes in their Residence State and claim credit for the taxes paid in India as per the provisions of the applicable tax treaty and domestic tax laws of the state of residence.

TAX DEDUCTION AT SOURCE

Section 195 requires any person making payment to a non-resident or a foreign company of any sum chargeable to tax under the Act, to deduct tax at source on such payment and deposit the same with the Government. Unlike the TDS provisions applicable in case of rent payments or property purchases amongst residents, Section 195 does not provide a fixed rate of TDS. Thus, the person making payment in respect of income from property or sale consideration to the non-resident would be required to deduct tax at source as per the applicable rate of tax on the respective transactions. In order to do so, the payer would have to obtain a Tax Deduction Account Number (“TAN”), which is often not required in case of property transactions between residents. Additionally, the payer would also have to file quarterly TDS statements in Form 27Q so as to enable the NRI to get credit of tax deducted.

As discussed earlier, the income from property, computed after claiming deductions, would be taxable for the NRI at the applicable slab rates. However, the tax would be required to be deducted at source by the payer on the entire rental income at the rate of 30 per cent as per the residuary entries for “other income” under Serial No. (1)(b) of Part II of the Finance Act. Further, STCG on transfer of property would also be taxable at the applicable slab rates, while LTCG would be taxable at a rate of 20 per cent plus applicable surcharge and cess. The person making the payment to the NRI in respect of the sale of the property would not be in a position to conclusively determine either the slab rate applicable to the NRI or the computation of taxable capital gains. Consequently, the payer would not be in a position to determine the appropriate rate at which the TDS obligation should be discharged.

In the above scenarios, the payer or the NRI payee can make an application to the Assessing Officer under section 195(2) or section 197 to determine the sum chargeable to tax or the rate at which tax should be deducted at source, respectively. Based on the application made, the Assessing Officer would issue a certificate determining the sum chargeable to tax or the rate at which tax deduction should be done and the payer can deduct tax under section 195 accordingly.

While no time limit has been prescribed in the provisions for the Assessing Officer to deal with such an application and issue the certificates, a 30-day timeline was provided for this process in the Citizen’s Charter 2014, which was further endorsed by the CBDT in its office memorandum of 26^th July 2018. Thus, the overall process of making an application for lower or nil deduction of tax, responding to queries, if any, of the tax offices and obtaining the certificate can take from 5-8 weeks. In a time-sensitive transaction and considering the logistics of transacting with an NRI, the payer or the NRI payee may not be in a position to follow the process of obtaining a lower or nil deduction certificate. In such a scenario, the payer may deduct tax at source at the rate applicable to the transaction (20 per cent plus applicable surcharge and cess in case of LTCG on sale of property and 30 per cent plus applicable surcharge and cess in other cases) on the entire amount payable to the NRI, who would be required to claim a refund of the excess tax deducted by filing a return of income.

REPORTING OF HIGH-VALUE TRANSACTIONS

Section 285BA requires various reporting persons to file a statement of financial transactions (“SFT”) to report certain transactions above the specified thresholds, referred to as high-value transactions, to the Income-tax authorities, which enables the latter to evaluate if the incomes reported by the persons transacting are in line with such high-value transactions and whether there could have been any tax evasion. One of the transactions required to be reported by the Registrar or Sub-Registrar is the purchase or sale of immovable property for an amount of ₹30 lakh or more or valued at ₹30 lakh or more by the stamp valuation authority. It is a common scenario where non-residents may not have filed a return of income in India for several years as they have negligible income less than the maximum amount not chargeable to tax, and consequently, no tax liability. However, if they have entered into a transaction of purchase or sale of immovable property, the same would be reported in the SFT and would reflect against the PAN of both the buyer and the seller. This would lead to the issuance of notice by the assessing officer to investigate the reason for non-filing of return of income even though a high-value transaction was entered into during the year. It is, thus, advisable for a person entering into any of the specified high-value transactions, including the purchase or sale of immovable property, to file a return of income for the year in which such transaction is undertaken, so as to avoid unnecessary proceedings merely on the premise of such a transaction.

INVESTMENT IN IMMOVABLE PROPERTY UNDER FEMA

Acquisition or transfer of immovable property byNon-residents in India is regulated by sub-sections 2(a), (4) and (5) of section 6 of the Foreign Exchange Management Act, 1999 (“FEMA”) read with Foreign Exchange Management (Non-debt Instruments) Rules, 2019 and is subject to applicable tax laws and other duties and levies in India.

NRIs and Overseas Citizens of India (“OCIs”) have general permission to invest in immovable property in India subject to certain conditions and restrictions. They can purchase residential or commercial property, other than agricultural land, plantation property, or farmhouse. NRIs and OCIs can also receive an immovable property other than agricultural land, plantation property, or farmhouse as a gift from a relative as defined in section 2(77) of the Companies Act, 2013. A NRI or OCI can also receive any immovable property as inheritance from a resident or from any person, who had acquired the property in accordance with the laws in force.

Payment for the purchase of immovable property can be made in India through normal banking channels by way of inward remittance. It can also be made out of funds held by the NRI or OCI in their NRE, FCNR(B) or NRO accounts. However, the payment cannot be made through travellers’cheques and foreign currency notes or any other mode.

A non-resident spouse of any NRI or OCI, who is not themselves an NRI or OCI, is permitted to acquire one immovable property in India, other than agricultural land, plantation property, or farmhouse jointly with their spouse, provided the marriage has been registered and has subsisted for a continuous period of at least 2 years immediately prior to acquiring the property. In such a case, the payment for the purchase can be made by the non-resident spouse, who is not a NRI or OCI either by way of inward remittance through normal banking channels or by debit to their non-resident account maintained as per the FEMA Act or rules thereunder.

SALE AND REPATRIATION OF FUNDS

The NRI or OCI can transfer the immovable property, other than agricultural land, plantation property, or farmhouse to a resident or another NRI or OCI. Transfer by way of gift can only be made to a relative as defined in section 2(77) of the Companies Act, 2013. Further, transfer of agricultural land, plantation property, or farmhouse can only be made to a person resident in India.

As a general rule, any person, who had acquired an immovable property when they were a resident in India or inherited from a person resident in India or their successor, requires RBI approval to remit the sales proceeds of the property. However, under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, NRIs and PIOs are permitted to remit up to USD 1 million per financial year, out of the sale proceeds of such assets in India. The limit of USD 1 million shall apply qua a financial year, irrespective of how many such assets may have been sold during the year.

In all other cases, the NRIs, OCIs and PIOs (in case of property acquired under the erstwhile Foreign Exchange Management (Acquisition and transfer of Immovable Property in India) Regulations, 2000, can repatriate the sale proceeds of immovable property outside India provided the following conditions are satisfied —

i) The property was acquired by the NRI / OCI / PIO as per the laws in force at the time of acquisition;

ii) The payment for the purchase of property was made by way of inward remittance through normal banking channels or out of balances in NRE / FCNR(B) account; and

iii) The repatriation of sale proceeds for residential property is restricted to not more than two properties.

In the case of point ii) above, if the NRI / OCI / PIO had acquired the property through housing loans availed in accordance with the applicable FEMA regulations, then the repayment ought to have been made by way of inward remittance through normal banking channels or out of balances in NRE / FCNR(B) account.

PROPERTIES IN INDIA BY CITIZENS OF NEIGHBOURING COUNTRIES

Citizens (including natural persons and legal entities) of certain countries — Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Macau, Hong Kong, and the Democratic People’s Republic of Korea — cannot acquire or transfer immovable property in India, without the prior permission of RBI. They can,however, acquire the property on lease, which does not exceed 5 years. These restrictions do not apply in case of an OCI.

However, the regulations prescribe some relaxations in case of citizens of neighbouring countries Afghanistan, Bangladesh, or Pakistan, who belong to the minority communities in those countries, i.e., Hindus, Sikhs, Jains, Buddhists, Parsis and Christians. If such a person is residing in India and has been granted a Long-Term Visa (“LTV”) by the Central Government, he can purchase only one residential immovable property in India for his own residence and only one immovable property for self-employment, subject to the following conditions —

i) The property should not be located in, and around restricted / protected areas notified by the Central Government and cantonment areas.

ii) A declaration should be submitted to the district Revenue Authority specifying the source of funds and that the person is residing in India on an LTV.

iii) The registration documents of the property should mention the nationality and the fact that such a person is on an LTV.

iv) The property of such a person may be attached/ confiscated in the event of his/ her indulgence in anti-India activities.

v) A copy of the documents of the property shall be submitted to the Deputy Commissioner of Police / Foreigners Registration Office / Foreigners Regional Registration Office concerned and to the Ministry of Home Affairs (Foreigners Division).

vi) Sale of such property is permissible only after the person has acquired Indian citizenship. However, if the property is to be transferred before acquiring Indian citizenship, then, it would require the prior approval of the Deputy Commissioner of Police (DCP) / Foreigners Registration Office (FRO) / Foreigners Regional Registration Office (FRRO) concerned.

CONCLUSION

The acquisition and sale of immovable property in India by non-residents has several nuances under both the tax laws and FEMA. Several aspects discussed in the above article may have different implications depending on the facts of each case. For instance, in order to decide which payments can be included in the Cost of Acquisition or Cost of Improvement would require one to understand the nature of payments as well as their context. Similarly, as discussed in this article, the determination of the period of holding and indexation of cost can have its own complexities in cases of purchase of under-construction property with phase-wise payment and the conclusion can vary on the basis of the facts of the case. The aim of this article is to highlight the various aspects to be considered by individuals involved in property transactions, especially non-residents, and to bring about awareness regarding the applicable provisions and regulations so that the detailed facts of each case can be examined in light of these.

BCAJ Admin

Audits of Future

Dear BCAS Family,

As more and more entities are undergoing digital transformation, it is now becoming increasingly important to include the technology tools as part of our audit procedures. The term coined nowadays for the way audits would be undertaken in future is Continuous Auditing.

Amongst firms, especially small and medium sized firms today, there is a struggle for adequate technology staff / support; there is also a lack of understanding of the technological advancements which can ease their execution and lack of technologically proficient staff. The above challenges for such firms are on account of lack of allocation of adequate financial resources to attract skilled staff and / or conduct upskilling / reskilling initiatives for existing staff. Smaller firms are also concerned about the increasing exposure to cybersecurity risks as audit firms’ increased access to clients’ data which is requested, obtained and stored online.

This month, I attended the 1^st NFRA international conference. Certain key areas which this conference touched upon were Audit fees charged by auditors are too low and need to be addressed, use of technology in Audits is ever increasing, role of independent auditors and directors needs course correction, importance of training and upskilling of audit staff is need of the hour, amongst others.

At our Society this month, the Accounting and Assurance Committee of BCAS has launched a 75-hour-long duration course in the 75th year of the Society. This course covers the accounting standards (Indian GAAP and IndAS), auditing standards, FRRB observations, NFRA observations, Ethics and Governance and many other relevant topics. This is with the aim of equipping accountants, staff of audit firms and other assurance function intermediates with adequate knowledge for preparation of Companies Act-compliant financial statements and also to bring efficiency in assurance function.

I would also like to touch upon the most critical area for attest function, viz, use of technology in audit processes, considering that the information technology used in business processes is always evolving but changes significantly with new breakthroughs. As the high costs of IT infrastructure are shared through using cloud services, the costs of using technology for business processes are reducing. This has made the use of technology available for smaller organizations that would otherwise not have the resources to do so.

We can expect more entities to start implementing emerging technologies such as continuous integration / deployment, Data lakes, Artificial Intelligence and Machine Learning, and integrating these technologies into core business processes. This change will further increase the relevance of the use of technology within the audit processes.

The new innovations in technology, like collaborative portals, are resulting in a situation whereby the audit clients can directly interact with the technology used in the audit or the result can be presented through the automated portal.

As we move towards automation-based audits, there would be a number of challenges to overcome like technological integration and data analytics, cybersecurity and data privacy, non-financial reporting, remote auditing, talent management and skills development, globalization and cross-border auditing. One of the key challenges globally is to bridge the gap between the new way of auditing and the existing auditing standards. One key aspect of the audit process which cannot be automated is the judgement of the auditor. The reality of technological changes is that deviations will occur, either due to evolvement of new disruptive technologies or due to changes in the way the businesses will function. Whether the deviations occur or not, the involvement of human auditors to provide judgement shall continue; however, the increasing gap between technology and auditing standards needs to be bridged. As audit automation takes the driving seat, this will be the most discussed and relevant topic between auditors and accounting oversight boards of various countries.

The other challenge is that creating tools to automate auditing and the relevant infrastructure requires a significant upfront investment and will likely not yield returns until several years of operation. This challenge can partially be overcome by using low-code development or open source codes, which typically requires less time and investment to create a piece of automation.

The other technical challenges to overcome are related to data completeness and its integrity and also ensuring that the results of the automated procedures produce quality and consistent results. The future audit will, therefore, require an auditor of the future. The current skill set of accounting knowledge needs to be upgraded with knowledge of data analysis and other analytical skills so as to automate our more routine work and be more efficient and effective.

I came across an international Survey done in May 2022, whereby CPA Australia with the support of the Malaysian Audit Oversight Board conducted an online survey of 179 external audit and IT professionals in Malaysia to obtain their perspectives on the use of technology by auditors.

All participants stated that technology is used in external audits in some form. The extent of firms’ usage of technology in external audits largely aligns with the firm’s size and the nature of audit clients. The observations in case of the Big 4 were 65 per cent use technology in audit to a large extent, 34 per cent use it to a moderate extent and 2 per cent with limited use of technology in external audit. In case of other firms that consist of mid-tier and smaller size firms, the results are encouraging although the technology uptake in other firms is slightly lower. Twenty-six per cent use technology in audit to a large extent, 45 per cent use it to a moderate extent and 22 per cent indicated that there is limited use of technology in external audit.

Over 90 per cent of participants embraced the use of four core technologies (cloud technology, digital tools, digital platform and projects, work-flow, or time management system) in managing external audit engagements.

One of the Research papers regarding the audit of the future said to gain a better understanding of processes, and how information flows through the organization, data analytics can be used to follow accounting records through the organization’s business processes. This can be performed as an audit procedure to verify that all information is part of the financial statements.

As markets change and companies evolve, so must the audit function. The use of key technologies such as advanced analytics, artificial intelligence and virtualization, digital twins should be encouraged which in turn help auditors boost their efficiency and deliver a better-quality audit.

Women’s Day Celebrations

This month our Society planned a women empowerment session. The session had two female speakers Ms. NazChougley and Ms. RupalTejani. Concepts like Law of attraction and women as venture were discussed and both of them spoke on the importance and challenges towards empowerment of women in the current scenario. The program was very well received, and I congratulate the Seminar Public Relations and Membership Development committee led by three female convenors for organizing such an impactful and interactive session.

Wishing you a happy summer and a good vacation ahead!

Best Regards,

Chirag Doshi

President

BCAJ Admin

Elections in India: Political Funding or Politics of Funding

Funding for any election, whether for a Municipal Council, State, Nation, or even ICAI is a burning issue.

Recently, the five judge-bench of the Supreme Court of India (SC) struck down the anonymous Electoral Bond Scheme (EBS) as unconstitutional and directed the State Bank of India (SBI) to stop issuing electoral bonds immediately. SC held that electoral bonds violate the right to information under Article 19(1)(a) of the Indian Constitution, which guarantees the freedom of speech and expression. SC held that voters have the right to know who funds political parties and their campaigns under Article 19(1)(a) of the Indian Constitution.¹

1 https://www.newindianexpress.com/explainers/2024/Feb/25/explainer-ctrl-delete-electoral-bonds

So, what was EBS?

Electoral Bonds were like promissory notes. They were interest-free bearer instruments, payable to the bearer on demand. These bonds could be purchased by any citizen of India or entities incorporated or established in India. These bonds could be donated to any political party registered under Section 29A of the Representation of the People Act, 1951 and which secured not less than 1 per cent of votes polled in the last general election to the House of the People or the Legislative Assembly of the State. Only SBI was authorised to issue these bonds. They were issued four times in a year, i.e., January, April, July, and October, for 10 days in a month (open for 30 days in Lok Sabha Election Years) with a validity of 15 days only. The bonds were in the denominations of ₹1,000, ₹10000/-, ₹1 lakh, ₹10 Lakh and ₹1 crore. A buyer could maintain anonymity as his name was not revealed publicly, and he could donate bonds to any political party, which could encash the same with SBI.

Along with the EBS, the SC also struck down amendments to the Representation of the People Act, 1951 (RPA), the Income-tax Act, 1961, and the Companies Act, 2013, which were brought to facilitate corporate donations to political parties.²

2 https://forumias.com/blog/electoral-bonds-scheme-explained-pointwise/#gsc.tab=0

The government introduced EBS with objectives such as transparency in election funding, protection of donors’ anonymity, political accountability, and reduction of black money in politics. The bonds were issued only by SBI to KYC-validated individuals, besides corporates, etc. Earlier, the amount of money that a party could accept in cash from anonymous sources was ₹20,000, which was reduced to ₹2,000 with the introduction of EBS. This was done to reduce the use of black money in elections.

However, the EBS was criticised and challenged on many grounds. It was alleged that EBS compromised the citizen’s ‘Right to Know’, which is part of the right to information under Article 19 (1) of the Constitution.

One of the major concerns was the removal of the clause of the Companies Act 2013, which limited the donations in aggregate in any financial year by a company to the extent of seven and a half per cent of its average annual profits during the three immediately preceding financial years. As a result, a company could donate any amount without adequate profits, raising significant risks of pumping black money into political funding through shell companies. The companies did not require shareholders’ approval for political funding; therefore, Board of Directors could fund any political party of their choice. Donations received by a political party through electoral bonds were not required to be reported under section 29C of the Representation of the People Act 1951. This, too, compromised the transparency of political donations. Thus, EBS was perceived to compromise the free and fair election process, which the SC considers to be a part of the basic structure of the Indian Constitution. Well, with the direction of SC, SBI has made public the full details of the donors and the beneficiary political parties. However, nothing seems to have changed with such disclosures, except allegations and counter allegations. The ban on EBS without an alternative may fuel cash funding of elections, as the Lok Sabha elections require huge funding.

There are many suggestions for the way forward. The Indrajit Gupta Committee on State Funding of Elections has supported partial state funding of recognised political parties³. State funding has proved its effectiveness in a number of countries like Germany, Japan, Canada, Sweden etc.² A National Electoral Fund can be set up to which all donors can contribute. The funds can be allocated to various political parties in the proportion of votes they secure in the election. The Law Commission of India, in its 255th Report, has recommended capping the entire donation received through anonymous sources at ₹20 crores or 20 per cent of the total funding of a political party3. With increased digitization, a complete ban on cash donations can be imposed to curb the menace of anonymous donations. Companies making political funding should obtain shareholders’ approval in general meetings and disclose them prominently in their financial reports. Various recommendations of the Venkatachaliah Committee Report (2002) for strict regulatory frameworks for auditing and disclosure of party income and expenditure may be implemented forthwith.

3 However, the Venkatachaliah Commission rejected the idea of State Funding for elections.

Some global practices may be considered, such as restrictions on the donations that a political party can accept and the mandatory disclosure of the source of the donations by the Publicity Act (USA), Elections and Referendums Act 2000 (UK), and the EU regulations. France banned corporate funding in 1995 and capped individual donations at 6,000 Euros. Brazil and Chile have also banned corporate donations after several corruption scandals related to corporate funding emerged².

Corruption and corrupt practices, such as using illicit money in political campaigning, exercising undue influence, and political rigging, are common in elections of almost every nation, and India is no exception.

In this context, a recent (4th March 2024) seven judge-bench decision of the SC in the case of Sita Soren is worth noting, wherein it was held that “An MP/MLA can’t claim immunity from prosecution on a charge of bribery in connection with the vote or speech in the legislative house.” The SC further stated, “Corruption or bribery by a member of legislature erodes probity in public life,” adding, “Accepting bribes itself constitutes the offence.”⁴

4 https://www.oneindia.com/india/supreme-court-overrules-1998-narsimha-rao-judgment-mps-mlas-lose-immunity-from-prosecution-3765427.html?story=4

Blatant violations of the model code of conduct and good practices propounded by the election commission/authorities are followed more in breach than in compliance in any election. Haven’t we experienced spending beyond the authorised amount in campaigning or the use of unethical practices in the big housing society’s elections, or elections of Municipality, or in some cases of ICAI elections also? We, as enlightened citizens, should vote for clean candidates and clean the political system. The dictionary definition of ‘Politics’ is “a methodology and activities associated with running a government or an organisation.” However, today, it has become a dirty word and a synonym for wrongdoing.

Let us rise to the occasion and be vocal for fair and free elections. Let us begin by exercising our vote judiciously in the upcoming Lok Sabha Election. If the Nation survives, we survive. Therefore, “Nation First” should be our mantra.

Jai Hind!

Dr CA Mayur Nayak

Editor

BCAJ Admin

!! धन्यो गृहस्थाश्रमः !!

This shloka almost comprehensively describes a happy family life. गृहस्थ means who stays at home in family. In English, he may be called a house-holder. It mentions eleven attributes of a contented family. The text of the shloka: –

सानंदं सदनं सुताश्च सुधिय

:कांता न दुर्भाषिणी !

सन्मित्रम्सुधनं स्वयोषितिरतिश्चचापरा: सेवका:

आतिथ्यम्शिवपूजनं प्रतिदिनं मिष्टान्नपानं गृहे !

साधो: संगमुपासते हि सततं धन्यो गृहस्थाश्रमः

A beautiful house, intelligent sons, soft spoken or sweet tongued wife, good friend, abundant wealth, loving wife, obedient servants, hospitality, prayers to God, every day delicious food and company of good people — these make a family life happy and enjoyable.

Even if a single item out of these is missing, that makes life less enjoyable, though not miserable. One’s house should be decent. That is a precondition for a happy family to stay in. If your sons (children) are not intelligent, they will not make progress in life. Intelligent does not necessarily mean good at academics. It means your children should be smart enough to stand on their own. They should get good education and should not remain dependent on parents. Eventually, they should be able to take care of parents.

Wife should not be speaking very harsh and unpleasant language. She should be soft spoken that keeps the house peaceful. If she is quarrelsome, the peace is disturbed. Of course, it equally applies to the head of the family — the man. A good friend is always a great asset. In the normal course, you may not need his help; but in difficulties he should be willing to help and be capable of helping. A friend in need is a friend indeed.

Next attribute is wealth — or money. You may not be very rich or affluent; but should be able to afford a decent life. A loving wife is an enviable thing. In your difficulties, she supports you. In your success, she feels proud. She ignores your limitations and does not expect too much. She keeps smiling and takes care of the family. In another shloka, Kalidasa describes a good housewife as a minister or secretary. (गृहिणीसचिव:)

If your servants are honest, loyal and obedient, your work is smooth. Your worries get reduced. It applies equally in office work when your subordinates are honest, loyal and obedient. Your efficiency gets multiplied.

Next is hospitality. This shows a good culture in the family where a guest is respected and received with affection. The guest’s blessings are very valuable. Therefore, it is said अतिथिदेवोभव! Treat a visitor as God.

After hospitality, it talks of prayers to God. This keeps a holy and cordial atmosphere in the house. Normally, such family members keep themselves away from sins. They become pious and God-fearing.

If one gets good, delicious food every day, why should one not be happy? Of course, good food must be good for health too. Not merely rich or lavish. It should be tasty and nutritious, healthy.

Lastly, company of good people. This is popularly known as सत्संग. A man is known by the company he keeps.

Today, we find there is lot of stress everywhere. There is greed, selfishness. Peace is disturbed. There are frictions among family members. Cases of divorce are increasing. There is a self-centred approach. If one tries to consciously maintain these attributes mentioned in the subhasit, the whole social life can become happier. With the changing times, one may think of a couple of more attributes.

Family life is considered as India’s great boon to the world. The world envies the Indian family system. Many wise people and institutions have taken up the task of strengthening the family system that creates a bond of affection amongst people.

Friends, if we think about these points in a matured way and try to implement them, a lot of stress will be reduced, and there can be happiness everywhere.

This can be a blessing to newlywed couples. Let us try to achieve this

!! धन्यो गृहस्थाश्रमः !!

BCAJ Admin

Society News

Students’ Lecture Meeting on 24th February 2015

Lecture Meeting on Performance evaluation of the Board of Directors including Independent directors, on 25th February 2015

On 25th February 2015, Ms. Smita Anand, Leadership & Talent Consulting, India & Head, Board/CEO Succession, Asia spoke on Governance matters: Performance evaluation of Board of Directors including the independent directors, at the IMC.

The speaker gave an overview of how governance matters at the Board level and how to differentiate between high performance boards and also-ran boards. She took the audience through some of the common issues faced in under-performing boards such as lack of strategic alignment, poor team dynamics, lesser role clarity, poor process driven management and wrong board make up.

She discussed at length as to how a board can move from process-driven approach to behaviour-driven approach. A company can grow from being a foundation board by having basic compliance in place, to a developed board which takes care of future proofing and basic compliance to an advanced board that takes into account high performance, future proofing and basic compliance, and finally, the strategic board that has its strategic assets in terms of world class insights, relentless focus on tomorrow and all the rest of the parameters of an advanced board.

Finally, the discussion was summed up on the 6 pivotal areas which lay the gold standard for good governance in companies.

Students’ Lecture Meeting on How to Succeed in CA Exams – Success Mantra and Practical Tips, on 24th February 2015

This lecture meeting was held at RVG Hostel, Andheri West, Mumbai. CA. Mayur Nayak, Past President, Chairman of Human Resources Committee of the Society conducted his 3rd Program on the topic for the benefit of Students pursuing CA. This session was basically conceived on the technicality of handling the pressure of Exams and various situations they personally come across during this period. His presentation covered the technique of dealing with fear of failure, lessons from the nature & law of Karma. He also gave various demos of exercises for keeping oneself calm during the exams. Students present gained immensely from the knowledge and technique shared by the eminent speaker.

Lecture Meeting on 2nd March 2015 on the Finance Bill (Economic and other aspects)

This lecture meeting was held jointly with Nani Palkhivala Memorial Trust, Forum of Free Enterprise, M.R. Pai Foundation, The A.D. Shroff Memorial Trust, Council of Fair Business Practices at Patkar Hall, New Marine Lines, Mumbai. Mr. H. P. Ranina, Noted Tax Expert & Mr. Yashwant Sinha, Former Union Finance Minister delivered a talk on various aspects of the Union Budget 2015-16 Members present gained immensely from the knowledge shared by the speaker.

Mentoring Seminar on 26th February 2015

The Membership & Public Relations Committee has launched its mentoring program at L. N. Welingkar Institute of Management Development and Research, Mumbai. This unique program endeavours to bring together young chartered accountants (mentees) and some handpicked seniors from the CA profession (mentors). Over a span of 6 months, the mentors will coach, guide and support their mentees in their professional journey so that the mentees are better equipped to achieve their career goals and visions. Participants immensely benefited from the session they attended and the journey continues.

Lecture Meeting on Direct Tax Provisions of Finance Bill, 2015 on 4th March 2015

Mr. S. E. Dastur, Senior Advocate, addressed our members on the Direct tax provisions of the Finance Bill 2015. Mr. Dastur explained the impact of the proposed amendments, highlighting instances of grey areas.

In regard to the proposed amendment in the definition of a resident applicable to foreign companies, he felt that the definition, of place of effective management, as proposed would lead to hardship and litigation.

Regarding the threshold set at 50% for the word ‘substantially’ in the proposed explanation 6 to Section 9(1), with reference to indirect transfers, Mr. Dastur pointed out that though the amendment was in consonance with the recommendations of the Shome committee, the word substantial would ordinarily mean something much more than 50%. Commenting on amendment to the proviso to Section 2(15), he felt that, the limit of 20% of receipts from any activity in the nature of trade, commerce or business, as against an absolute limit of 25 lakhs may actually affect smaller trusts adversely.

The speaker was critical of the amendment to section 263. In his opinion, extending the power to revise an order of an assessing officer, on the ground that it was passed without making inquiries or verification, would lead to extensive litigation, for as to what constituted sufficient inquiry or verification was a very subjective matter.

Mr. Dastur commented on a number of other provisions, in the finance bill. His presentation was of immense value addition to all, those present at the venue, as well as those, who heard him through the live web cast.

Udat Abeel Gulal on 5th March 2015

It was a proud moment for BCAS and BCAS Foundation to organize a music concert “Udat Abeel Gulal”, together with a few other organizations at the Bharatiya Vidya Bhavan on 5th March, 2015 in aid of Vicharata Samudaya Samarthan Manch (VSSM), an NGO dedicated to the cause of nomadic tribes. Attended by a large audience, it started with jugalbandi of Santoor and Saraswati Veena by very senior maestros Shri Snehal Muzoomdar and Shri Narayan Mani. They were accompanied by a team of virtuoso musicians and interspersed with Vedic chants by Ved Pandit Dr. Narasimha Ghanpatigal. Explaining the theme “Bairagi se Basant”, Compere Mihir Sheth vividly created an atmosphere for celebration of spring with quotes from Kalidasa and Rig-Veda. Narrating the ethos of the theme, he said when season of Basant arrives, Abeel and Gulal colour our lives, the fire of Holi protects our lives, give us the prosperity and hence, we all invoke Firegod Agni as narrated in Agnisooktam in Rig-Veda whose hymns are often chanted in raga Bairagi.

The Jugalbandi started with raga Bairagi rendered on Santoor and Saraswati Veena interspersed with chanting of Vedic hymns and then deftly moved on to raga Basant and Kafi, which are the popular ragas of the Basant season. The musicians were accompanied by vocalists Nupur Joshi and Gayatri Narayan. A Fine balance of melodious music with perfect percussion left the audience completely mesmerised.

The second session, “hori rasiya and haveli Sangeet” began with an introduction of the session by compere mihir Sheth, touching hearts of audience with his imaginative description of hori (holi) played by Krishna and Gopis in Brindavan. Creating the atmosphere of ras, raga and sangeet he said that going by the calibre of the artists present, the music of the second session was certain to fill the hearts of all present with bliss appropriate to the festival of holi. the second session began with hori raga and haveli Sangeet devotedly sung by Shri Hemang Mehta evoking great response from the audience. Smt. Sraboni Chawdhari, another accomplished artist delighted the audience with her thumris, followed by Shri mangal mishra who enthralled the audience with his captivating voice singing Bandish and haveli Sangeet. Each artist performed with a unique style creating a sheer magic on audience which was deeply intoxicated with nectar of bliss as promised.

The jugalbandi started with Raga Bairagi rendered on Santoor and Saraswati Veena interspersed with chanting of Vedic hymns and then deftly moved on to raga Basant and Kafi, which are the popular ragas of the Basant season. The musicians were accompanied by vocalists Nupur Joshi and Gayatri Narayan. A fine balance of melodious music with perfect percussion left the audience completely mesmerised.

This event also provided opportunity to the audience to see the presentation of the great work being done by Ms. mittal patel of Vicharata Samudaya Samarthan manch (VSSM) who spoke of the challenges that the wandering, nomadic tribes live with. She made emotional appeal to the audience to be sympathetic to their cause saying that they are denied even a right of existence. audience was most receptive and with the result VSSm could collect donations of approx. rs. 6,50,000/ for a worthy cause.

Budget meeting on indirect Tax provisions of the Finance bill, 2015 on 11th March 2015

The lecture meeting was held at Walchand hirachand hall, IMC. Mr. Vikram nankani, Senior advocate addressed the audience on various aspects of indirect tax provisions of the finance Bill, 2015. Mr. Nankani discussed about the increase in service tax rates and detailed provisions on revising penalty rates for Customs, excise and Service tax. He explained the amendment to various sections such as section 78(B), section 67 and the significant change in terms of a service rendered by a Government or local authority through a business entity he also covered the significant changes made to section 73(1)(b) –recovery of

Service tax amount in self -assessment where a liability is arrived at, and in his view it violates all the canons of natural justice. He also welcomed the change with reference reverse charge mechanism (including partial reverse charge),

Mr. nankani also discussed the changes with reference to fema provisions.

Workshop on power of Visual Communication on 14th March 2015

Membership & public relations Committee had organised this Workshop at BCA Society Office, Mumbai for Women CAS & CA Students. Ms. himani Shah, trainer in her session covered the topics such as first impression, power dressing, defining authority with visual communication & grooming. the purpose of the workshop was to empower the women participants with the tips to project a powerful image at their workplace. 30 participants attended and benefited from the expert deliberation of the faculty.

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Workshop on Mastering E Filing Compliances under Taxation & Corporate Laws, 28th January 2014 to 28th February 2014

L to R: Mr. Mandar Telang, Mr. Govind Goyal (Speaker), Mr. Ameet Patel and Mr. Suhas Paranjpe

This 15 Sessions workshop was jointly organised by the Indirect Taxes & Allied Laws Committee of the BCAS and HR College of Commerce and Economics. The objective of the programme was to enable users to gain comprehensive working knowledge on practical issues related to E-Compliances under various statutes like obtaining registration, payment of taxes or fees, submission of various forms or returns etc. are now required to be carried out electronically, using IT-oriented methods.

31 participants attended the course.

Seminar on Software Industry, 7th March 2014

L to R: Mr. Hasnain Shroff (Speaker), Mr. Naushad Panjwani (President), Mr. Kishor Karia, Mr. Gaurang Gandhi

A full day seminar on the topic “Software Industry” was jointly organised by the International Taxation & Taxation Committee of BCAS. The objective of the seminar was to understand the various nuances of direct tax, transfer pricing, indirect tax and accounting issues related to software Industry. The recent judicial pronouncements and the undercurrent of various contentious issues faced by the software industry, were also discussed.

105 participants attended the seminar.

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CHARTERED ACCOUNTANTS’ PROGRAM IN MANAGEMENT, BUSINESS & ACCOUNTING ORGANIZED BY MPR & HDTI COMMITTEES OF BCAS AT ISME CAMPUS

To hone the Management, Leadership and Technical skills of Chartered Accountants to achieve growth, whether in practice or in industry, Membership & Public Relations Committee (MPR Committee) and Human Development and Technology Initiatives Committee (HDTI Committee) jointly organized Chartered Accountants’ Program in Management, Business and Accounting (CAMBA) at the ISME Campus, Lower Parel, which is equipped with the latest facilities for a conducive learning environment. The CAMBA Course was designed by BCAS along with the Management Institute of ISME. The 1st batch of the course started in May, 2017 and concluded in December, 2017.

With an eligibility criteria of minimum 2 years of post-qualification experience, the first batch saw participation from 16 CAs in practice as well as those working with Big 4s or in the industry. The participants shared their experiences and ideas, problems faced in their respective work environments and best practices employed.

The course, designed to conduct 120 hours of classroom training of which 102 hours were dedicated to various emerging aspects of Entrepreneurship, Management, Human Resources, Strategy, Soft Skills and Marketing was conducted by highly experienced faculty from ISME. The subjects were taken up with a variety of interactive pedagogical techniques including discussing case studies, role playing, movies, model building and team work by learned and experienced faculties like Prof. David Wittenberg, Dr. Amarpreet Singh Ghura, Dr. A. Doris Greenwood, Prof. Anjana Vinod, Dr. Ramkishen Y, Prof. Omkar Pandharkame, Ms. Anubhuti Gupta, Mr. Moksh Juneja and CA. Nikhil Srinivas.

The remaining 18 hours of the course included sessions designed by the BCAS team on subjects relevant to the professionals. The speakers and the topics discussed during these well-conceived sessions in the 1st batch are enumerated hereunder:

The participants thoroughly enjoyed their journey of this long course, experiencing a transformation in their perspective towards their profession.

It was indeed a very enlightening experience for the participants who benefitted a lot from the sessions.

“Motivational Talk for Young Chartered Accountants & Felicitation of CA’s cleared in Nov. 2017” held on 19th February, 2018 at BCAS Conference Hall.

The Membership & Public Relations Committee organized a motivational talk for Young Chartered Accountants on the topic of “How to become an Extraordinary Professional?”. The talk was addressed by CA. Mudit Yadav, a TEDx Speaker and Success Coach.

The session began with the opening remarks by CA. Chetan Shah, Chairman, MPR Committee who briefed the audience about BCAS and its initiatives. He also encouraged new CAs to become members of BCAS. Few rank holders of Nov’ 2017 were felicitated and they shared their views on success in CA exams.

The Speaker CA. Mudit took up the following major issues faced by young professionals:

 How to choose the ideal career path for oneself?

 Difference between an average and a star professional.

 Habits of the most extraordinary professionals.

 How to develop the mind-set of a true professional?

 How to develop a sharper executive presence?

 How can you be a pioneer of the future of CA profession?

CA. Mudit Yadav also shared his experiences and the challenges he faced while carving out his career as a motivational speaker, in unconventional and non-traditional field.

The talk was attended by more than 150 young Chartered Accountants and the participants benefited from the experience shared by the Speaker.

“8th Residential Study Course on IndAS” held from 22nd February to 24th February, 2018

Accounting & Auditing Committee organized its 8th IndAS Residential Study Course (RSC) from 22nd to 24th February, 2018 at Hotel Gateway, Pune. The Course was conducted to address the Ind AS implementation challenges being faced as well as to impart knowledge of its execution to the professionals. This would enable a smooth transition for the corporate sector and also appraise them of impending changes which are applicable in future. The Course was attended by 110 participants from all across India.

This year’s RSC was structured with three sessions based on Case Studies which involved group discussions. The RSC also had four more papers for presentation by eminent faculties.

RSC started with group discussion on First case study paper by CA. Jayesh Gandhi on “Case Studies on Business Combinations and Consolidated Financial Statements”. The case studies highlighted the complexities involved in carrying out accounting for business combinations and consolidation as well as the evaluation of the relevant consolidation standard in specific circumstances.

The session commenced with the inaugural address by CA. Narayan Pasari, President, BCAS. He urged non-members enrolled for this course to become members of BCAS and enumerated various activities/initiations being undertaken by BCAS for the benefits of profession and industry. The Chairman of the Committee CA. Himanshu Kishnadwala gave introductory remarks on the design and structure of the course and the purpose of selection of the topics for group discussion and presentation.

Inaugural session was followed by presentation paper on Revised Audit Report Requirements by CA. Vijay Maniar which covered SA 701 on Key Audit Matters to be applicable from FY 2018-19. CA. Jayesh Gandhi analysed and replied to the issues raised on the Case Studies during the group discussion.

The 2nd day started with group discussion on the paper by CA. Arvind Daga on “Case Studies on PPE and Financial Instruments” that highlighted the intricate issues on measurement, recognition and impairment under relevant standards. He also made a presentation on his paper explaining finer points of the standards as well as dealing with the issues which came up for deliberation. CA. Raghu Iyer presented the paper on “Derivative and Hedge Accounting” and explained what is ‘derivative’, types of hedges, its purpose and importance in the commercial world.

There was another group discussion on the paper by CA. Archana Bhutani on “Case Studies on Revenue Recognition IndAS 115”. The case studies dealt with typical situations in various sectors including real estate, bundled services, FMCG and retail distribution and also some other related issues. She further made the presentation on her paper explaining finer points and concepts and principles of revised IndAS 115 which is likely to be applicable from 1st April 2018.

The last day began with the presentation on “IndAS 116 – Leases” by CA. Srinath Rajanna who came all the way from Dubai to address the participants. It is for the first time that an international faculty has addressed an IndAS RSC. He explained the major differences in the revised standard as compared to IAS 17 as also the thought process for the same at IASB. Thereafter, CA. Himanshu Kishnadwala gave presentation on “Global Developments in IFRS” and made the participants aware about the projects in pipeline at IFRS for the next five years and the way it will impact industry as well as the profession. He also explained the process of development of standards at IFRS as also how as a stakeholder everybody can participate in the said process.

The concluding session was presided over by the Chairman CA. Himanshu Kishnadwala who acknowledged the contribution of the faculty, group leaders and other participants for the success of the RSC.

Participants were satisfied with the level of discussion and the value imparted through the RSC.

Workshop on “Transfer Pricing – CBCR and Master File” held on 27th February 2018 at BCAS Conference Hall

“The Workshop on Transfer Pricing – CBCR and Master File was conducted on 27th February 2018 at BCAS Conference Hall which was attended by over 110 participants from profession and industry.

The speakers CA. Hasnain Shroff and CA. Anjul Mota provided a comprehensive insight on the conceptual understanding and interpretation of legal provisions and other key issues surrounding the CBCR and Master File. This was followed by case studies touching upon intricacies in filing the CBCR and Master File. The speakers also outlined some practical suggestions in dealing with inherent issues.

The Workshop was well received by the participants who benefitted a lot from the sessions.

Interactive Fire Side Chat on “Strengthening the Profession” held on 28th February, 2018 at IMC, Churchgate

The CA profession is passing through tectonic shifts which have posed various challenges for the professionals. To address the issues of profession and challenges faced by the CA firms, review the regulatory impediments, learn the possible changes in this regard for strengthening and developing the capacity of Indian CA firms, enhance the competence and improve the visibility amongst the business community, BCAS organised a Fire Side Chat with the experts from the profession and industry.

The Panelists for the discussion were:

1. Mr. M. Damodaran, Former Chairman, SEBI

2. CA. Mukund Chitale, Former President, ICAI

3. CA. T. N. Manoharan, Former President, ICAI

The Fire Side Chat was moderated by CA. Himanshu Kishnadwala, Past President, BCAS.

President CA. Narayan Pasari in his opening remarks stated that presently the Chartered Accountancy profession is in a constant state of flux on account of profound changes in the sphere of economy, regulation, technology & society that throw many challenges resulting in higher complexity.

CA. Himanshu Kishnadwala while opening the chat referred to the Prime Minister’s address to the CA community on the CA foundation day on 1st July, 2017 and threw light on the various statistics about the members and the firms. He also mentioned as to what can be done to improve the profession and counter the challenges of the bigger multinationals. CA. Himanshu also talked about the SEBI Order in Satyam Case, RECO Scam, PNB Scam and Supreme Court Order on multinational firms etc.

The Fire Side Chat commenced with the expert opinions of the panelists:

CA. Mukund Chitale started with a comment of Nani Palkhivala “The time has come to see as to who will shave the barber”, which was citing Institute’s motto given by Yogi Anand “Ya esa suptesu jagarti”. He expressed that strengthening the profession doesn’t come automatically and for that there has to be an introspection as to what to do with failures individually & in a communicative manner because any profession which is rendering service exists as long as society expects it to exist. Quality of our work should match the Society’s expectations at the highest level.

Mr. M. Damodaran was of the view that professionalism is not derived just from academic qualification. Professionalism is to contribute to the informed discussion and debate where professionals should set the agenda and plan in the direction of strengthening the profession. He emphasized that Chartered Accountancy Course is enhancing the quantity but must also ensure that quality shall not be compromised.

CA. T. N. Manoharan’s remarks were amply supported with hardcore statistics of the CA profession. He stated that CA firms lack playing the role of knowledge partner. Each CA firm should ensure that any new article who comes to the office be given an open idea that they are welcome to the firm and can grow to the level of employee, manager, director or even can become partner of the firm. Every firm should have partners in different age groups that is how succession happens and the seniors will have smooth exit after handholding and guiding. The focus should not be only on tangibles like top line, bottom line, physical infrastructure etc. but also on the quality & integrity aspects. One of the issues of Indian firms is reluctance to invest in Infrastructure and growth projects. He said that we can follow principles having eternal utility for humanity and we can adopt values which will hold good forever.

Later on CA. Himanshu Kishnadwala posed some pertinent issues faced by the profession, for the response of the panelists, which were deliberated in great depth. Participants were provided fair insights as to the current state of affairs in the profession, how the society perceives the profession and what should be the measures initiated to shore up the image of the profession.

The participants got extremely enlightened with the invaluable insights from discussion by the expert panelists.

ITF STUDY CIRCLE

Meeting on “Proposed Amendments to International Taxation Provisions in Budget, 2018” held on 15th March 2018 at BCAS Conference Hall

The International Taxation Committee organized a panel discussion on 15th March, 2018 at BCAS Conference Hall, to analyze the impact of the amendments to International Taxation provisions, proposed in the Union Budget, 2018.

The meeting was kicked-off with a discussion on the proposed amendment in the Explanation 2 (a) to section 9 (1) (i) where if a non-resident appoints a person who will negotiate but not conclude contracts on his behalf, it may still constitute a Business Connection in India. It was discussed how the OECD had reviewed the definition of a Permanent Establishment in Action Plan 7 to prevent avoidance of tax by fragmentation of business and to align with the modified definition of MLI. The discussion was then turned to the newly introduced Explanation 2A in section 9 (1) (i) which clarifies meaning of a significant economic presence. It was also discussed that there was a need for proposing this amendment as a result of digital economy, whether physical presence of a person in a country is no longer the only measure of an economic connection, challenges in implementing such an amendment, impacts of such amendments on taxation, etc.

The session was very interactive and the participants benefitted a lot from the panel discussion.

INDIRECT TAX STUDY CIRCLE

Meeting on “GST E-Way Bill Provisions – Analysis and Demo of Online Preparation” held on 17th March, 2018

The Suburban Study Circle organized a meeting on GST E-way Bill Provisions on 17th March, 2018 which was addressed by CA. Manish Gadia & CA. Jignesh Kansara.

Speaker CA. Manish Gadia discussed the revised provisions and rules regarding the E-Way Bills Under GST and its applicability wef 1st April, 2018. He made detailed presentation on the following issues:

a) Procedure for generation of e-way bill, b) Multiple Consignments, c) Exemptions, d) Cancellation, e) Validity, f) Acceptance or Rejection, g) Verification of documents, h) Case Studies etc.

Speaker CA. Jignesh Kansara made a step-by-step online demonstration of the process regarding various aspects of E-Way bill through the GSTN portal. He covered the following activities in relation to the e-way bills:

a) Registration as dealer and transporter, b) Creation of masters for clients, products and godowns, c) Generation of Part A and Part B of E Way Bills, d) Generation of Consolidated E-way bill, e) Cancellation / Modifications in E-way Bills generated earlier, f) MIS reports.

He also threw light on the various technical and statutory glitches faced by the dealers and gave suggestions for corrective actions.

The participants benefited from the sessions and experience shared by the learned speakers.

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6th RSC ON IFRS held on 18th, 19th & 20th February 2016

The revised roadmap for implementation of Indian Accounting Standards (IndAS), the converged accounting standards in phases to International Financial Reporting Standards (IFRS) has already been released by the Ministry of Corporate Affairs. This has instilled realisation amongst the industry and professionals alike to gear up for the impending implementation of the IndAS. BCAS as a front runner in imparting knowledge had organised the 6th Residential Study Course from 18th to 20th February, 2016 at Hotel Rhythm, Lonavala. The RSC was structured in a manner where sessions were based on case studies prepared by eminent professionals covering different aspects of IndAS implementation. These three case studies based papers involved group discussions through groups formed amongst the participants, led by knowledgeable group leaders. There were two more papers for presentation by eminent faculty which provided the impact of IndAS on the topics allotted to them.

Immediately after the reporting of the delegates on the first morning, there was a session of group discussion on the first paper by Mr. Ramesh Lakshman on “Case Studies on Fair Value in IndAS & its Applications”. The case studies were highlighting the complexities involved in valuing financial assets and liabilities.

Later on, post lunch, there was the inaugural session. The session commenced with the inaugural address by the President of BCAS, Mr. Raman Jokhakar. He expressed satisfaction to the response received to the course from all over India and was particularly happy to have a strong participation from industry. Subsequently, the Chairman of the Accounting and Auditing Committee, Mr. Harish Motiwalla, gave his introductory remarks on the design and structure of the course and the purpose of selection of the topics for group discussion as well as for presentation.

After the inaugural session was the presentation on the first paper by Mr. Ramesh Lakshman, who aptly dealt with the case studies and also covered the issues raised during the group discussion in a very immaculate manner. After his presentation on the first paper on fair valuation, Mr. Ramesh Lakshman dealt with the Presentation paper on “Foreign Exchange Accounting under IndAS”, where he dealt with the salient aspects of the standard on Forex Accounting and also brought out minor differences from the existing accounting standard.

The Second day started with group discussion on paper by Mr. Zubin Billimoria on “Case Studies on Consolidation (Incl. Foreign Subsidiaries)”. The case studies highlighted the intricacies in determining control, which is of utmost importance to consider entities which should form part of consolidation process. Later, Mr. Billimoria made a presentation on his paper and shared his vast experience, which was of immense value to the participants. Mr. Rajesh Muni ably chaired the session.

In the evening, there was a presentation on the topic of “Impact Analysis of Conversion to IndAS on Energy & Commodities Industry (Incl. Disclosure Standards)” by Mr. Sanjay Chauhan. He shared his rich experience in energy and commodity sector by co-relating to the impact on financials on adoption of IndAS. The session was ably chaired by Mr. Kanu Chokshi.

The last day commenced with group discussion on paper by Mr. Rakesh Agarwal on the topic “Case Study on ensuring completeness in identifying GAAP differences between Indian GAAP and IndAS, with Comprehensive Listing of such differences”. Mr. Rakesh Agarwal had circulated major GAAP differences between the existing accounting standards and IndAS. These differences were the base to analyse eight companies’ financials which he had circulated to be discussed in the groups.

Immediately after group discussion, there was a special session which was to felicitate Mr. Nilesh Vikamsey on his election as Vice President of the Institute of Chartered Accountants of India. Mr. Nilesh Vikamsey was felicitated by BCAS President Mr. Raman Jokhakar, along with Co-Chairman of Accounting & Auditing Committee, Mr. Rajesh Muni, Past President Mr. Himanshu Kishnadwala and BCAS Vice President Mr. Chetan Shah. Mr. Nilesh Vikamsey shared his views on the roadmap of the Institute regarding IndAS as well as other important areas of interest for the CA fraternity.

Later, the penultimate session was addressed by Mr. Rakesh Agarwal along with a presentation on the topic and also dealt with the queries raised by the participants during group discussion. The session was chaired by the Past President Mr. Nitin Shingala.

The concluding session was presided over by Mr. Rajesh Muni and he acknowledged contribution of the faculty as well as active participants for the success of the RSC. Some of the participants gave their views on the course and conveyed their satisfaction to the format and structure of the course.

Public Lecture Meeting on “Direct Tax Provisions of the Finance Bill 2016” held on 4th March 2016

Every year, the most awaited event is the budget. What the Finance Minister unfolded on 29th February 2016 with respect to the direct tax provisions was covered in the Public Lecture Meeting held on 4th March 2016 by Senior Advocate Mr. S. E. Dastur. This was the 51st Budget Lecture Meeting of the Society and 28th year of address by Mr. S. E. Dastur. This year the Society has captured pre budget expectations and post budget inteviews from the stalwarts and the youth. Just before the lecture began, a series of views of various people on the budget were taken by Mr. Ameet Patel. All these videos are available on our website as well as Youtube channel and also on social media.

The lecture meeting was witnessed live by 3,000 plus audience at the venue and around 4,000 viewers online over live streaming of the event. President Raman Jokhakar welcomed the speaker Mr. S. E. Dastur. Mr Dastur started his speech by detailing the sections and chapters of the Income-tax Act. As he decoded the fine print and his interpretation on the various amendments, he brought to light the various challenges that were in store for the assessees while implementing these amendments. The various changes made by the Finance Minister were touched upon. This included section 12AA of charitable trust where an organisation ceases to be a charitable organisation and the changes with regards to the same, the changes with regards to lowered rate of tax for newly established manufacturing companies and articulated in detail the impact of the conditions attached to this section. He also addressed the changes with regards to presumptive tax and tax on foreign companies. The provisions with regards to pension funds & dividend distribution tax and the changes there in were also detailed. He further touched upon the various changes in the field of assessment procedures and its impact on the assessee vis-à-vis rights and duties of the assessing officers. Mr. Dastur added that while the government looks to moving to a technological efficient system, it may leave the assessee with no communication left with the department officials. Finally, he concluded the session by giving a title to the bill as a rationalisation bill as it gives rationalisation to pension funds, provident fund and national pension scheme. It speaks about rationalisation of the time limit for assessment and recomputation, rationalisation for time limit in search cases, rationalisation of provisions relating to ITAT , rationalisation of TDS provisions and rationalisation with respect to section 50C. The event ended with a vote of thanks by Jt. Secretary Mr. Sunil Gabhawalla and the enthralled audience left, having witnessed a mesmerising speech on the Budget Direct Tax Proposals.

Lecture Meeting on “Indirect Tax Provisions of the Finance Bill 2016” held on 10th March 2016

President Raman Jokhakar welcomed the speaker, Senior Advocate Mr. Vikram Nankani, an eminent speaker on the subject to throw light on the amendments of the changes by the Finance bill 2016.The lecture meeting commenced with the launch of the new publication of the Society “Partnership Firms – Registration Procedure and Frequently Faced Issues with Registrar of Firms” by Mr. Uday Sathaye, Past President of the Society. The book was launched by the speaker Mr. Nankani.

Advocate Vikram Nankani talked about the positive changes in various sections of indirect tax including Excise, Sales Tax, VAT and Service Tax.He detailed how the changes would impact various industries and sectorial growth. He mentioned the various changes in import and excise and how it would affect imports. He mentioned about how the levy of service tax on senior advocates will impact the availability of senior advocates for arbitration proceedings. This will affect the litigation procedures to a greater extent in the field of indirect tax. The speaker spoke about the various non CENVATA BLE cess and how the entire indirect tax regime is moving towards it. Finally, he concluded that though the changes brought about were impacting sectors and industries at large, how it would place its position in the GST regime was still to be explored. According to the speaker, the budget did not mention anything on the GST changes or implementations which needs greater ground for building a robust indirect tax structure.

The meeting concluded with a vote of thanks by the Treasurer Mr. Manish Sampat who informed the audience about the forthcoming programs of the Society and appreciated the well-articulated talk by the speaker. The meeting concluded with a huge round of applause.

Publication on “Partnership Firms” launched on 10th March 2016

Professionals like CA’s, Advocates, Businessmen are finding it difficult to Register Partnership Firms with Registrar of Firms in Maharashtra due to various issues. This process of registration involves submission of documents and the careful adherence to a procedure which has been laid down.

The publication titled “PARTNER SHIP FIRMS Registration Procedure and Frequently Faced Issues with Registrar of Firms” will help resolving these issues. This publication has been authored by Mr. Udaya Sathaye, Past President of the Society.

Advance FEMA Conference held on 18th March 2016

The Society held its Annual Advanced FEMA Conference jointly with the Chamber of Tax Consultants on 18th March at IMC. This Conference was unique as senior RBI officials attended the morning session and provided their views on several queries prepared jointly by the respective International Taxation Committees of the two organisations. The organisations received overwhelming response to the Conference.

Past President of the Society, Mr. Dilip Thakkar provided his opening remarks and also chaired the interactive session. RBI was represented by a team of senior officials led by RBI Executive Director, Mr. B. P. Kanungo. Mr. Kanungo gave the keynote address dealing with a number of concerns of industry and practitioners. He also provided an insight into the RBI and Government thinking behind the present regulations. He gave an outlook of liberalisations by way of revised notifications which are in the pipeline.

His address was followed by the interactive session wherein the panel of RBI officers provided views on the written queries provided to them in advance. The queries covered all important areas of FEMA including those dealing with ODI, FDI, LRS, ECB and Trade transactions. The Officers answered the queries and also dealt with several questions from the audience.

The post lunch technical sessions was on “Trade Transactions” by Mr. Shabbir Motorwala who succinctly covered the vast subject in the time available with him. The last session was on “ECBs” wherein Mr. Kumar Saurabh Singh covered the recent amendments in the ECB policy and also dealt with the other financing routes available to borrowers. Both the speakers answered queries from the audience and covered the subjects in significant detail. The Conference was received well by all present.

Udat Abeel Gulal held on 19th March 2016

It was once again a proud moment for BCAS and BCAS Foundation to organise a music concert “Udat Abeel Gulal”, together with a few other organisations at Bharatiya Vidya Bhavan on 19th March, 2016 in aid of Dilasa Sanstha, an NGO engaged in relief work for drought affected farmers of Maharashtra. Attended by a large audience, it started with jugalbandi of Santoor and Saraswati Veena by Shri Snehal Muzoomdar, Maithili Muzoomdar on Santoor and Shri Narayan Mani on Saraswati Veena respectively, accompanied by a team of virtuoso musicians and interspersed with Vedic chants by Ved Pandit Dr. Narasimha Ghanpatigal. Explaining the theme “Bairagi se Basant”, Compere Mihir Sheth vividly created background atmosphere for celebration of spring with quotes from Kalidasa and Rig-Veda. Narrating the ethos of the theme and quoting medieval poet Maagh, he said when season of Basant arrives, its enchanting beauty feels us with a sense of bliss, Abeel and Gulal colour our lives, the fire of Holi protects our lives, give us the prosperity and hence, we all invoke Firegod Agni as narrated in Agnisooktam in Rig-Veda whose hymns are often chanted in raga Bairagi.

The Jugalbandi started with raga Bairagi rendered on Santoor and Saraswati Veena interspersed with chanting of Vedic hymns and then deftly moved on to raga Basant and Kafi, which are the popular ragas of the Basant season, accompanied by vocalists Shraddha Shridharni in Hindustani style and Nupur Joshi in Carnatic style. Both the vocalists recreated magic with their rendition of poet Nanhalal’s poems so ably composed by Snehal Muzoomdar. Fine balance of melodious music with perfect percussion and dramatic entry of vocalists on the stage left the audience completely mesmerised when it reached the crescendo in the end.

The second session “Hori Rasiya and Haveli Sangeet” began with an introduction of the session by compere Mihir Sheth, touching the hearts of the audience with his imaginative description of Hori (Holi) as a festival and narration of how it was played by Krishna and Gopis in Brindavan. Creating the atmosphere of ras, rang and sangeet, he said that going by the calibre of the artists present, the music of the second session was certain to fill the hearts of all present with unexplainable bliss appropriate to the festival of Holi. It indeed turned out to be ecstatic. The second session began with Hori and Rasya and Haveli Sangeet devotedly sung by Smt. Sraboni Chowdhury and Shri Saurabh Chaturvedi evoking great response from the audience. Each artist performed with a unique style, creating a sheer magic on audience which was deeply intoxicated with nectar of bliss as promised.

This event also provided opportunity to the audience to see the presentation of the great work being done by Dilasa Sanstha. Mr Ramesh Kacholia on behalf of Dilasa Sanstha explained the situation of drought in Maharashtra and the plight of the farmers. He explained the work being done and made an emotional appeal to the audience to be sympathetic to their cause.

EYE Camp 2016 at Vansda – Dharampur on 20th March 2016

The Human Development & Technology Initiative Committee continued with the annual CSR activity of supporting Eye Camp for the tribals and the needy people from the rural area surrounding Vansda, Dist. Navsari.

The Eye Camp was held from 18th March to 21st March 2016 at Sant Ranchhoddas Bapu Eye Hospital, Vansda, Dist. Navsari. This unique hospital dedicated to the poor and the needy was founded under the aegis of Dhanvantari Trust by respected Dr. Kanubhai Vaidya. Dr. Vaidya gave up a thriving medical practice in Mumbai and dedicated himself entirely to the socio-economic development of rural areas.

The Committee had set a target of one Eye Camp with a Budget of Rs.51,000/- for cataract surgery of 51 patients. However, with divine grace and kind support of all donor friends, it was able to collect Rs.2,17,200, which can take care of 217 patients i.e. little over four Eye Camps.

A team of nine volunteers from the BCAS visited the Eye Camp and the Hospital on 20th March 2016 to commend the excellent work being done by Dr. Kanubhai and team. Dr. Kanubhai narrated several other rural upliftment projects being undertaken by his NGOs. The team of volunteers and the Committee were inspired and will be exploring avenues for extending support for such worthy causes. Interested members are requested to contact CA. Meena Shah at cameenashah@gmail.com for further details.

BCAJ Admin

Society News

Seminar on Advanced Excel held on 25th & 26th November 2016 at BCAS Hall, Jolly Bhavan, Churchgate

Advanced Excel Workshop held on 25th and 26th November, 2016 was aimed at giving the participants a hands-on at sharpening their MS Excel skills. The faculty was CA. Nachiket Pendharkar, who is a microsoft certified trainer and Excel expert.

The faculty covered topics like Pivot Tables, What-if Analysis, Array Formulas, Fuzzy Lookup etc. which were well received by the participants. The participants were given study material for future reference.

The workshop received a very good response. There were in all 34 participants from various locations like Ahmedabad, Bharuch, Goa and Pune.

17th Certificate Course on DTAA-2016-17 held from 3rd December 2016 to 28th January 2017 at BCAS Hall, Jolly Bhavan, Churchgate

The 17th batch of Certificate Course on DTAA, the flagship program of the Society was successfully conducted at the BCAS Hall from 3rd December, 2016 to 28th January, 2017. The course was held over 7 Saturdays with 4 sessions each. The course was aimed at imparting middle-level knowledge on conceptual aspects and interpretation of Tax Treaties. All the Articles of UN Model Convention were explained to the participants along with presentations, practical examples and case studies. Additionally, relevant and contemporary subjects such as BEPS and provisions of Section 195 relating to TDS on income of Non-residents were also covered.

A total of 73 participants enrolled for the Course. Out of this, 56 participants were from Mumbai and the remaining participants were from Ahmedabad, Ajmer, Goa, Hyderabad, Kolkata, Navi Mumbai, Pune, Thane and Ulhasnagar. The course received an over whelming response from 25 BCAS members and 48 non-members. BCAS had 25 Eminent Faculties who delivered lectures at the Course. The faculty members were renowned Chartered Accountants/Advocates in their chosen field of expertise for past many years and generously shared their knowledge and experience with the participants. The Course was very well received and appreciated by the participants on the academic as well as organizational counts.

At the end of the Course, for the first time, Multiple Choice Questions Test was held at the end of the course and the successful candidates have been awarded the Certificate of Passing. The Faculties along with 3 top scoring participants were felicitated by the International Taxation Committee meeting held on 15th March, 2017.

Panel Discussion on Finance Bill, 2017 for students of N. M. College held on 1st February 2017 at N. M. College

After demonetisation, the next significant event was the Union Budget 2017 preponed this year to February 1, 2017 and for the very first time the Railway Budget was merged with the Union Budget. This year, the Finance Bill 2017 came with more focus on international taxation and transfer pricing norms. The Modi Government seems to make a budget in a view of “Rob Peter to pay Paul”. The bill proposed changes in tax structures for the low-income categories, boost to affordable housing and higher surcharge for the higher income sectors.

A session on the amendments by the Finance bill, 2017 was scheduled for the students of N. M. College. The session began with the students of Finance & Investment Cell of N. M. college introducing the speakers with the details of the discussion. The Session was inaugurated by Vice President, BCAS CA. Narayan Pasari. The students gave a warm welcome to the speakers CA. Ameet Patel and CA. Sushil Lakhani.

CA. Ameet Patel articulated with examples the details and intricacies of direct tax. He enthralled the students with his lucid style, talking about demonetisation and how digital economy is coming to the forefront today. The changes made in TDS regulations and changes in areas of capital gains were widely covered. The benefits that would be extended to business in a digital economy was also well articulated.

Thereafter, there was a presentation by CA Sushil Lakhani who gave the students an insight into the area of international taxation. He detailed the areas of changes in BEPS, Equalization Levy with case studies of Apple and Google. He covered various areas of different treaties entered into and the way and reasons why countries enter into such treaties. He also touched upon the various changes made in the Finance Bill, 2017 in simple and explanatory format for the students to relate to international taxation.

The floor was then open for Q&A and students raised questions on various aspects of both direct and international taxation. The session ended with a vote of thanks to the speakers.

Lecture Meeting on Indirect Tax Provisions proposed by Finance Bill, 2017 including Constitutional Aspects of GST held on 9th February 2017 at BCAS Hall, Jolly Bhavan Churchgate

The Lecture meeting on indirect tax provisions proposed by Finance Bill, 2017 along with certain Constitutional Aspects of GST was held on 9th February 2017. Mr. Vikram Nankani, Senior Advocate analysed not only the Budget proposals but also a few of the recent amendments in service tax like taxation of prepaid import freight, B2C online information and database access services, etc. Thereafter, the speaker expressed his views on the proposed GST Regime and touched upon some issues likely to arise in view of the Constitution Amendment Act, taxation on intangibles, inclusions and exclusions of certain items in the new GST. He discussed about the interpretation of the Article 366(29A) pertaining to deemed sales in the context of GST. He elaborated on the tax treatment of works contracts under GST. Advocate Vikram Nankani also addressed participants’ queries with respect to GST and the implementation. The eager participants had many queries on the practical applicability of GST on various products and services. The speaker responded to each in detail.

Adv. Vikram Nankani

The Q&A session was well received and various issues related to GST were discussed. The session ended with a vote of thanks.

Lecture Meeting addressed by CA. T. P. Ostwal on Budget 2017 and Recent Announcements on Provisions Relating to International Taxation held on 13th February, 2017 at IMC jointly with International Fiscal Association – India Branch and Chambers of Tax Consultants.

The Lecture meeting was addressed by CA. T. P. Ostwal, who gave a presentation discussing the various amendments with regards to International Taxation. This included the insertion of new section 92CE bringing in the concept of secondary adjustments to Indian Transfer Pricing regime. He further discussed on the insertion of new section 94B to introduce Thin capitalisation regime in Indian Taxation context. The meeting also covered a brief overview of various other amendments such as clarification on Indirect Transfer Provisions, changes in Taxation of “Masala Bonds”, and clarifications introduced with respect to interpretation of terms used in Tax Treaties.
The Lecture was very well received by the participants.

Human Development Study Circle Meeting to watch the DVD – Video Talk on “Thought Leadership” held on 14th February, 2017 at BCAS Conference Hall

The discussion was led by CA. Vinod Jain. He gave a small introduction before the DVD was screened. The talk was so absorbing that it was an undisturbed screening of 120 minutes.

The Lessons learnt from this video talk are discussed hereunder:

Good people have to learn to come together and work together, may be from the bad people since bad people are more organised, motivated and have better team spirits.

Though we are not born great, greatness can be achieved. One has to achieve first, self-leadership than external leadership. If you cannot lift yourself, you cannot lift others.

Speed of the train mainly depends upon the speed of the engine. Hence, business cannot grow, if the businessmen at the helm of the business do not continue to grow. In many cases, we ourselves become a bottleneck in our own organisation. Without getting ourselves right, we cannot achieve anything.

The Demand of Our Roles is growing faster than demand of us as an individual. As such one needs to continue to develop ourselves, in this fast changing world. Even method of parenting between two children need to be changed, since the way first child is successfully brought up, same method of parenting would not help in bringing up the second child.

We should be careful about our thinking. “What you think you become” said Buddha. “Mind in itself can make a heaven of hell or a hell of heaven.” said poet John Milton. “If you think you can or think you can’t, either way you’re right.” – Henry Ford – “Whatever the mind can conceive and believe; the mind can achieve” Napoleon Hill – “God never gives us an idea, without power to achieve it”.

We should be careful about our words and should replace word “Problem” with “Challenge”. We should drop filthy words from our vocabulary.

We should become an opportunist in thinking. Acid destroys the vessel that contains it. We should not keep bad thoughts about people in our mind. Never hold any blemish close to our eyes.

We should choose to see, what we want to see. We should focus on the magnificence of beautiful things.

Our mind is divided in 1/8th as conscious and 7/8th as subconscious mind. Subconscious mind does not understand positive emotions and negative emotions. It understands deep emotions and shallow emotions. Anything positive in your life, speak 5 sentences. Anything negative in your life, speak just in one sentence. Do not miss celebration of positive happening in life. The participants were interested in more such movie screenings for Study Circle Meetings.

Panel Discussion on the Finance Act, 2017 held on 20th February, 2017 at BCAS Hall, Jolly Bhavan, Churchgate

Panel Discussion on Finance Act, 2017 was held by the Taxation Committee of the BCAS at BCAS Gulmohar Hall. The event saw attendance by over 100 participants and more than 300 members viewed it live on BCAS YouTube Channel. President CA.Chetan Shah gave the opening remarks followed by introductory words from the Chairman of the Taxation Committee, CA. Ameet Patel. The distinguished panel consisted of CA. Pinakin Desai, CA. Hitesh Gajaria, CA. Deven Choksey and was moderated by CA. Ameet Patel.

L to R – CA. Pinakin Desai, CA. Hitesh Gajaria, CA. Deven Choksey and CA.
Ameet Patel

Various questions were posed to all the three panelists by CA. Ameet Patel.

–    CA. Pinakin Desai gave his views with an in-depth analysis on questions related to amendments proposed to Joint Development Agreements, Charitable Institutions, Measures to discourage cash transactions, Long term Capital Gain on non – STT paid shares and many others.
–    CA. Hitesh Gajaria gave his views with statistics on various questions related to change in rates of Income Tax, Thin Capitalisation, Secondary Adjustments and other provisions.
–    CA. Deven Choksey gave his views on the overall impact and reactions of capital markets on the budget. He also talked on the various amendments with respect to penny stocks and FII/FPIs.

Overall, the Panel Discussion was well received and the participants benefited immensely with the expert analysis of the panel on the proposed amendments in the Finance Bill, 2017.

Budget & Economic Survey 2017 held on 22nd February, 2017 at BCAS Hall, Jolly Bhavan, Churchgate

CA. Harshad Shah and CA. Kapil Sanghvi (Jamnagar) presented finer economic aspects of Budget & Economic Survey 2017 to members at the International Economics Study Group meeting held on 22nd February, 2017.

The refreshing feature was specific commitments by government in terms of values and dates.
The Budget proposals were divided in 10 distinct themes under the overarching agenda of “Transform, Energise and Clean India” (TEC India).

Farmers: To double the income in 5 years; Credit fixed at record level of Rs. 10 lakh Cr.; Model law on contract farming, Agriculture sector is estimated to grow at 4.1% in 2016-17 as opposed to 1.2% in 2015-16; Govt. to set up mini-labs for Soil Health. Rural Population: providing employment and basic infrastructure; Mission Antyodaya to bring Rs. 1 Cr. households out of poverty by 2019, MGNREGA: Rs. 48,000 Cr., Prime Minister Gram Sadak Yojana: Rs. 19,000 Cr. (Rs.27, 000 Cr incl. State Share), PM AwasYojana: Rs. 23,000 Cr, 100% village electrification by May 2018, Rs. 1, 87,223 Cr. allocated for rural programmes (24% Higher). Youth: energising them through education, skills and jobs. Poor and the Underprivileged: strengthening the systems of social security, health care and affordable housing. Infrastructure: for efficiency, productivity and quality of life; Total allocation for infrastructure: Rs. 3.96 lakh Cr. Financial Sector: Growth and stability through stronger institutions. Digital Economy: for speed, accountability and transparency. Public Service: effective governance and efficient service delivery through people’s participation. Prudent Fiscal Management: to ensure optimal deployment of resources and preserve fiscal stability. Tax Administration: Direct tax collection not commensurate with income/expenditure pattern of India, We are largely a tax non-compliant society.

Economic Survey 2016-2017
This year’s Survey comes in the wake of a set of tumultuous international developments – Brexit, political changes in advanced economies (Germany, France, and Netherland, Italy) – and two radical domestic policy actions: the GST and Demonetisation. Demonetisation has hit India’s growth by 0.25-0.5% of GDP. GDP growth is estimated at 6.75-7.5% next year, well below the “sweet spot” of over 8%, the rupee has strengthened by 8.3-10.4% in the last two years. India’s growth rate is set to accelerate to 8-10% in 2-5 years.Risks to Indian Economy-Oil Prices, Rising Dollar Value, Volatile Commodity Prices.

The Economic Survey brought out 8 Interesting Facts about India

(A) India on the Move and Churning: About 9 million people, almost double what the 2011 Census suggests are migrating.

(B) Biases in Perception: China’s credit rating was upgraded from A+ to AA- in December 2010 while India’s has remained unchanged at BBB.

(D) Convergence Puzzles: India does well on life expectancy, not-so-well on infant mortality rate, and strikingly well on fertility rate and India’s low level of expenditures on health (and education) have been the subject of criticism Infrastructure and Connectivity, Redirecting flows to households. Political Democracy but Fiscal Democracy? – India has 7 taxpayers for every 100 voters ranking us 13th amongst 18 of our democratic G-20 peers. Demographic India’s Soon-to-Recede Demographic Dividend. Working age to non-working age population will peak later and at a lower level than that for other countries but last longer. Demography provides potential and is not destiny. India Trades More Than China and a Lot Within Itself. One Economic India (GST) – Why Does India Trade so Much? Divergence within India, Big Time.

(E) The ‘Other India’: Two Analytical Narratives (Redistributive and Natural Resources) on States’ Development. (Unconditional Convergence in GDP per capita), Economic Vision for Precocious, Cleavaged India. Absenteeism, corruption, clientism and red tape dominate our system. One consequence is inefficient redistribution to the poor. Hundreds of welfare schemes fail to reach the masses.

(F) Clothes and Shoes: Can India Reclaim Low Skill Manufacturing. Meeting the challenge of jobs may require paying attention to labour-intensive sectors such as Leather & Textiles.

(G) Tax Potential Unexploited: Evidence from satellite data indicates that Bengaluru and Jaipur collect only between 5% to 20% of their potential property taxes.

(H) Demonetisation: To Deify or Demonise? Demonetisation has been a radical, unprecedented step with short term costs and long term benefits and could have particularly profound impact on the real estate sector.

CA. Kapil presented Twin Balance Sheet Problems of Corporate & Banking Sectors, Fiscal Frame work and Universal Basic Income.

Panel Discussion on the Finance Bill, 2017 held on 22nd February, 2017 at HR College, Churchgate.

Discussion on Finance Bill, 2017 was held by BCAS as invited by HR College to talk to their students. The event saw attendance by over 50 students. Chairman of the Taxation Committee, CA. Ameet Patel gave the opening remarks followed by introductory words highlighting the first combined budget presented on 1st February 2017 after the merger of Railway Budget with the Union Budget. A prominence of Union Budget was in the memory of “demonetisation” efforts of the government which provides for growth in a very difficult environment.

The speakers consisted of CA. Ameet Patel, CA. Samir Kapadia (on GST & Other Indirect Taxes) and CA. Siddharth Banwat.

Proposed amendments in Union Budget – Direct taxes and Indirect taxes were covered with most of practical live examples faced by the industry. The following features and key steps initiated by the government which plugged to abuse tax provisions were discussed:

1.    Proposed amendment – Direct Taxes, broader aspects covered
–    Tax rates
–    Capital gains
–    Restrictions on cash transactions
–    Threshold limit under section 44AA – maintenance of books of account
–    Rebate under section 87A of the Act
2.    Indirect taxes – Rationalisation under GST provisions
3.    Abolition of Black money
4.    Prohibition of Benami Transactions
5.    Income disclosure scheme of 2016
6.    Demonetisation of high-value currency notes
7.    Electoral reforms
8.    High level discussion on Investment strategies and tax saving benefits
9.    Digital India
10.    Cashless economy

Various questions were posed to all the three speakers by some students.

– CA. Ameet Patel gave his views with in-depth analysis on questions related to investment strategies and tax saving benefits.

– CA. Samir Kapadia gave his views (on GST & Other Indirect Taxes) with statistics and practical examples or issued faced by various industries on classification of products and applicable rates of tax prior to GST. Further, benefits under GST were highlighted.

– CA. Siddharth Banwat gave his views on the overall impact and reactions on the budget.

Overall, the Budget Discussion was well received and the students benefited immensely with the expert analysis on the proposed amendments in the Finance Bill, 2017.

Leadership Workshop on Chanakya Business Sutra held on 24th & 25th February 2017 at BCAS Hall, Jolly Bhavan, Churchgate
Human Development and Technology Innitiatives Committee organised the 15th Leadership Workshop. In contrast to the residential camps organised in earlier years this year it was a non-residential camp held at BCAS Conference Hall of the Society on Friday & Saturday, 24th and 25th February 2017. About 54 Participants registered for the leadership workshop titled ‘Chanakya Business Sutra’. Mr. Mahendra Garodiya, an avid reader of scriptures including Srimad Bhagavatam, Mahabharat, Ramayan, Bhagavad Geeta and Chanakya’s various commentaries including ArthaShashtra was the trainer. He had also inspiration influence from the life of Mahatma Gandhi, and writings of Stephen Covey, Napolean Hill, Jim Collings and Robert Kiyosaki.

President CA. Chetan Shah welcomed the participants. He described Chanakya as a great strategist,, kingmaker, and author on the variety of subjects like Economics, Politics, Leadership, Governance, Warfare, military tactics, accounting systems etc. and appreciated his vision for Akhand Bharat, United India.

Past President and also Past Chairman CA. Pradeep Shah complimented all participants. He motivated them to leave all worries. He also shared the information about leadership camps held in the past. He posed pertinent questions and motivated them to introspect as to what one would do if this was the last year of one’s life.

Past President and Chairman of HDTI Committee CA. Nitin Shingala shared a beautiful definition of a complete professional as the one who implements whatever he/she learns.

CA. Mihir Sheth introduced the speaker and CA. Mukesh Trivedi proposed vote of thanks.

Few of the important points discussed during the workshop were:

– Entire workshop was based on T.I.M.E. i.e. Thinking, Inking, Mapping and Executing.

– WHY: Ask as to why you are doing what you are doing. Is it for dharma, artha, Kama, Moksha?
For the Growth, Life of Contribution or money or Life of Significance.

– How do we earn money? By Employment 80%,Self Employment 10%, Business 10%. How to earn passively from Investment of your established assets like goodwill, reputation.

– RAS: Reticular Access syndrome: Clear Cut emotional Goal in Mind.

– Essential are skill, People, system.

– Live the life of contribution by generating employment, opportunities etc. constantly introspect as to when you are doing something is it for contribution to the mankind, or nation, or for significance i.e. recognition ? or for personal luxuries or comforts?

– Know your capability before you start the work.

– Anything begins with thought or story in mind, followed by words, state, emotion, action and Result.

– OQP: Only quality people. Always Select quality people for the right job. The mentors should have promise, thought and action (MVK – Manah, Vachanam, and Karma ) well aligned.
– Manage the time: Important, urgent, not important and not urgent.

– Learn what to measure?

– Seven important aspects of Business: Production, finance, Relationship, Star, Reference Generation and Sales.

– Use effective communication: OFNR .e. Observation, Feelings, Needs and Request.

– IDP: Incorporate Individual Development plans, always maintain humility. Reward the deserving, reprimand underperformer.

All these and many other concepts were discussed interactively with many inspirational videos.

Seminar on GST held on 25th and 26th February 2017 at the Navinbhai Thakkar Auditorium, Vile Parle (E), Mumbai

Looking at the pace of the developments in the road map to the GST roll out by 1st July, 2017 it was imperative for all to understand the intricacies of the proposed law and its implications on trade and industries. The Indirect Taxation Committee of BCAS designed a comprehensive program spread over two days (25th and 26th February, 2017) at the Navinbhai Thakkar Auditorium.

CA. Sushil Solanki

CA. Sunil Gabhawalla

CA. Parind Mehta

CA. Amitabh
Khemka

CA. Rajiv Lithia

CA. Govind Goyal

CA. Udayan
Choksi

CA. Jayraj Sheth

The program witnessed excellent participation from members, trade and industry. Over 350 people attended the program. Various eminent faculties delivered their expert views on important statutory provisions contained in the model GST law including CA. Sushil Solanki, CA. Sunil Gabhawalla, CA. Parind Mehta, CA. Amitabh Khemka, CA. Rajiv Luthia, CA. Govind Goyal, CA. Udayan Choksi and CA. Jayraj Sheth.

As we draw close to the appointed day, it would be the society’s objective to disseminate maximum knowledge on this reform. In this way, we would surely contribute towards smooth transition of the proposed law which intends to create a single national market.

Lecture Meeting on “The Road Less Travelled” under auspices of Amita memorial Trust held on 1st March 2017

The annual talk held under the auspices of Amita Memorial Trust jointly with Bombay Chartered Accountants’ Society and Chamber of Tax Consultants was held on 1st March 2017 at Walchand Hirachand Hall, IMC, Churchgate.

Smt. Mittal Patel

The Speaker of the evening, Smt. Mittal Patel is a young social worker working for the rights of the Nomadic tribes. She has chosen to take a difficult path in her life which is rarely taken by the others. She took us on a journey along this path and gave a talk which held the audience spellbound and touched the hearts of all the listeners. She is working for the human rights of the Nomadic tribes, who in Gujarat alone number more than 45 lakh.

Her work is not only difficult but dangerous too, as there are forces which want to continue to exploit these wandering tribes. Smt. Mittal explained that even today these tribes are being treated worse than untouchables, and have no identity, no voting rights, no ration cards, no permanent houses, and no address. She is fighting to get these basic rights for these downtrodden people. The talk aroused compassion in the hearts of the listeners and a desire to join and help in this struggle to get the basic rights for the nomadic tribes.

The inspired talk ended with remembering CA. Amita (Shah) Momaya, a young member of the BCAS family, who also spread the message of Universal Love during her short but inspiring life. She left this world on January 31, 1987 but continues to spread messages of peace and purpose after 30 years of her departure.

The meeting was very useful and inspiring for the participants.

Human Development Study Circle Meeting on “Man Woman Relationships” held on 7th March, 2017 at BCAS Conference Hall

The Study Circle Meeting discussion was led by CA. Deepak Bagla on “Man and Woman relationship and their development”.

CA. Deepak Bagla has studied various scriptures like Ramayan, Mahabharat, Srimad Bhagavatam and Bhagavad Gita. He also practices Meditation for the last two decades. He likes to share his learning as a counsel. He has specialised in mentoring to cope up with challenges on relationship, parenting, employer employee relationship etc.

The story of ‘Ardhanarishvara’ as a symbol of Shiva and Shakti, Purusha and Prakriti is very inspiring, to feel two dimensions of life. Perhaps, the world would not have either been created or nurtured without Man and Woman. Physically, emotionally and genetically, both are different. Their needs, strength and weakness are different. Men & Women complement each other and together they can create synergy.

This interactive meeting was held to discover and explore the differences between man and woman and their relationship. The topics discussed were as follows:

1)    Understand the major reasons leading to problems in man woman relationship
2)    Understand and appreciate different facets of relationship
3)    Importance of healthy relationship and its impact on children in digital age

There are differences between Man and Women in the way of thinking, in beliefs, in style of behaviour, etc. and one should appreciate that. One must accept the differences and use each one’s talents for the benefit of the Family Health, peace, progress.

He spoke on a five point development for man and woman:
– Purpose – in life, we need not prove ourselves and compete with each other with motive to defeat each other. Instead find each one’s purpose and support each other and give each other space.

– Relationships – within the family, neighbours, relatives, friends, superiors is important. Value Relationships.

– Interdependance – we are all connected within and outside the family – this needs to be understood. Men or women are not meant to be alone.
– Dependable – We have to be dependable and responsible.

– Empathy and exercise are very important. We need to understand others in order that others understand us. Also exercise is important for health.

The participants were very happy to be present and learn simple but unique aspects about Man-Woman relationships.

Indirect Tax Study Circle Meeting held on 8th March 2017 at BCAS Conference Hall

GST is soon to become a reality. Information technology (‘IT’) would be a one of the determining factor for making this reform a success. In view of the relevance of IT in the GST regime a brief demonstration was held by NSDL executives. Members were explained the role of GSP’s and ASP’s in the entire compliance process. The same as appreciated by the members present.

In the second half of the meeting few amendments proposed by the Finance Bill, 2017 relating to Indirect Tax was taken up for discussion.

Felicitation of President and Vice President of ICAI on 9th March 2017.

On 9th March 2017, it was a privilege of the BCAS to welcome and felicitate the ICAI President, Mr. Nilesh Vikamsey, also a Core Group member of BCAS. The Society also congratulates ICAI Vice-President Mr. Naveen N. D. Gupta, who could not make it for the felicitation. The President was also accompanied by Central Council Members Mr. Prafulla Chhajed and Mr. Nihar Jambusaria.

L to R – CA. Sunil Gabhawalla, CA. Narayan Pasari, CA. Nilesh Vikamsey
(Honorable President of ICAI), CA. Chetan Shah (President) & CA.Manish Sampat

The discussion was an informal and an interactive one. It focused on the various matters that can be taken up by one or both the organisations, some of which can be outlined as follows:

GST, the President mentioned, is a God-sent opportunity for the profession and we all should look forward as a potential area of practice.

The developments in the area of GST was discussed and suggested for some joint publication on the topic shortly.

The ICAI President stated that the government appreciated and welcomed the support extended by our professionals for the support extended in the Income Disclosure Scheme. However, post that, there has been not much visibility for the profession.

Thus, we all should collectively highlight the positive aspects of the profession to the government and the Society at large in whatever way possible.

The ICAI President shared the steps taken for drafting the new syllabus for CA students and the way the entry to the CA course will be made slightly difficult. The course now will be made available post completion of HSC (Std XII). The CA Syllabus is revisited every 8 to 10 years.

The ICAI President suggested that Insolvency law is the upcoming new area which professionals can look as a new area of practice.

The Railways accounting, he said under the leadership of a member of our profession Mr. Suresh Prabhu is seeking to change the method of accounting from cash to accrual which was another potential area of practice.

The ICAI President felt that as professionals we should partner with the government in educating the people in the country thereby increasing the tax base.

The Past Presidents of BCAS and other members present welcomed all the suggestions and extended support towards the activities of ICAI.

Central Council members present assured those present that the BCAS members could write to them and seek support or any co-ordination for the benefit of the profession. The Session ended with a warm vote of thanks by CA. Manish Sampat.

The 4th Youth Residential Refresher Course held on 10th March to 12th March 2017 at Fountainhead Leadership Centre, Alibaug

The 4th YRRC was jointly organised by Bombay Chartered Accountants’ Society under the Membership and Public Relations Committee and The Institute of Chartered Accountants of India under the Youth Members Empowerment Group of CCBMP from 10th to 12th March 2017 at Fountainhead Leadership Centre, Alibaug.

“Nostalgia”, the theme of the event was to reconnect the memories from childhood and school days and the participants forged long term bonds and made more memories than they recollected at the event. The participants were grouped in four houses; Zeus, Morpheus, Electra and Poseidon, and a competition for earning points for their house and the Best House trophy began.

As every school has a uniform, this year at the YRRC all the participants turned up in their suits and ties, adding the perfect professional touch at the excellent venue and facility.

A perfect blend of learning through technical, non-technical sessions and educative extracurricular activities, the YRRC provided a great opportunity to all the participants to polish their personality and knowledge.

The “New Youth Times”, the daily news quotient, kept the participants abreast with the happenings of the YRRC at all times.

Covering a wide range, the YRRC covered topics ranging from Ind-AS, International Tax, Direct Tax to Entrepreneurship, Leadership and even a Mock Stock Market. The speakers shared their professional journey and personal experiences with the participants. The group discussions were very productive and knowledgeable providing insights into various controversies and issues faced today. Not to forget, the chance to earn points did turn the discussions a bit intense and animated to an extent that at some places it flared up to heated arguments.
The content covered and presentations made by all the Speakers were a class apart, delivering their points and ideas with great clarity. None of the speakers returned home without a standing ovation from the enthusiastic crowd.

The participants learned about overcoming challenges individually and as a group from the extra-curricular activities like the Activity Marathon and Open MicEvents.
A true theatrical experience was created while watching the enriching movie “Chale Chalo”, a national award winning inspirational film starring Aamir Khan directed by a lawyer Satyajit Bhatkal.

Today’s youth cannot be defined without some “NachGana”, the youth showcased their talent on the DJ night and also broke the myth that CAs are only studious and boring, during a Flash Mob in middle of a session wherein the surprised speaker couldn’t help but shake a leg along with them.

House Zeus was able to lift the trophy of the best house outperforming in the group discussions, mock stock trading session and activity marathon amid the tough competition put up by the other houses.

The return journey with the ferry dancing on high waves under a full moon turned into a Pre-Holi Bash where spontaneous participants burst into a Karaoke session. An event which was truly “By the Youth, Of the Youth and For the Youth” concluded with the now enriched and happy participants bidding farewell until the next YRRC.

The event wouldn’t have been successful but for CA. Nilesh Vikamsey, President – ICAI, CA. Chetan Shah, President – BCAS, and CA. Mukesh Singh Khuswah, Chairman – CCBMP ICAI. Post the event, the advance enquiries for the next YRRC and the joyous feedback received from the speakers and their sheer experience of the wonderful novelty and energy of the event marked a beautiful end to the 4th YRRC.

Human Development Study Circle Meeting held on 14th March, 2017 at BCAS Conference Hall

The Study Circle Meeting discussion was led by Mrs. Reyna Rupani.

Reyna K. Rupani has a dream – Living a Life with no Medications. This desire got her in touch with SHARAN (Sanctuary for Health & Reconnection to Animals & Nature). She had thought she knew everything about Health until she heard Dr. Nandita Shah speak. Since it all appealed to reason and logic, she decided to give the whole plant-based diet a chance, and there has been no turning back since.

Her severe acidity issues disappeared within 3 days. She lost 17 kilos in eight months, and it has been over two years and she has only put on two kilos! She feels energetic, looks much younger and most of all she has sensed clarity in her thinking.

The whole plant-based diet is the ONLY solution to our Health problems and for the environment too. This truth is exactly what keeps her going. Avoid processed and packaged foods. Keep away from oil and milk.

Deodarants, pesticides, insecticide sprays used in the surroundings can harm our health as it makes us breathe chemicals.

The participants were very happy to be present and learn some frightening realisations on pollution of environment and how health can be improved by taking care of what you consume. We are what we eat.

Participants were glad to be aware of useful tips to improve health.

Workshop on Audit in IT Empowered held on 16th March 2017 at BCAS Hall, Jolly Bhavan, Churchgate

CA. Manoj Jain

CA. Madhav Kulkarni

CA. Kartik Radia

A crisp Thursday morning 16th March, 2017 saw over 40 participants seated before time, waiting for the workshop on “Audit in an IT Empowered World – Techniques for Effectiveness and Efficiencies” to begin. Aligned with the culture to start right on time, President CA. Chetan Shah introduced the participants to the objective of the workshop and encouraged them to freely interact with the faculties during the course of the workshop.

The participants had an enriching experience as the learned faculties CA. Manoj Jain, CA. Madhav Kulkarni and CA. Kartik Radia who shared their insights and experiences on the allotted topics viz. ‘Audit Planning & COSO framework’, ‘ITGC and Application controls’ and ‘IFC Evaluation & COBIT framework” based on the case study approach.

A dedicated Q&A session after every presentation gave further opportunities to participants to seek replies to their practical challenges in planning and executing assurance engagements in IT environment.

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Social Networking: boon or bane

Computer Interface

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.

BCAJ Admin

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

levitra

BCAJ Admin

ICAI And Its Members

1. Disciplinary case :

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.

BCAJ Admin

ICAI And Its Members

ICAI & 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.

BCAJ Admin

ICAI And Its Members

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.

(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)

BCAJ Admin

From The President

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!

BCAJ Admin

Exploration and development costs

New Page 1GAIL (INDIA) LTD. — (31-3-2007)

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.

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BCAJ Admin

Exploration and Development Costs

New Page 1Hindustan Oil Exploration Company Ltd. — (31-3-2007)

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.

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BCAJ Admin

Some Recent Judgments

Service Tax

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.

BCAJ Admin

Right to Information

Part A : Decisions of CIC

S. 27 and S. 28 r.w. S. 2(e) of the RTI Act :

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.

Part C : Other News I

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 :

Losses of State transport vehicles due to riots:

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.

BCAJ Admin

Right To Information

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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.

BCAJ Admin

CENVAT Credit

New Page 1

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.)]

BCAJ Admin

ORDERS OF THE COURT

Right to Information

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.

BCAJ Admin

PART D: Good Governance

Pavan Varma, an author and a former diplomat and corruption adviser to the Bihar Chief Minister wrote in the Times of India on Sunday 18th March 2013, under the title, “A Republic in Crisis” Excerpts thereof: There is an uncomfortable fact which we are unwilling to confront. And that is that our young republic is facing a systemic crisis.

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.

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BCAJ Admin

PART C: Information on & Around

BMC & RTI:

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.

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BCAJ Admin

PART B: RTI Act, 2005

Excerpts from Mrs. Aruna Roy’s letter to RTI Users: The importance of a National Compaign for people’s Right to Information (NCPRI):

“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.”

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BCAJ Admin

Representation

22nd March 2013

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

Suggestions on Legislative amendments proposed in Indirect Taxes:

Service Tax

1. Section 78A – Introduction of personal penalty – to be dispensed with

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

(b) Giving a declaration of discharge under section 97(7).

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.

Hence it is hereby suggested that in section 86(4), before the words, figures and brackets “subsection (3)” the words “sub-section (1) or” maybe inserted.

5. Service Tax on air-conditioned restaurants – certain exclusions to be provided.

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.

BCAJ Admin

ICAI And Its Members

1. Code of Ethics:

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%)

BCAJ Admin

From the President

Dear Members,

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

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BCAJ Admin

Lecture Meeting

Inquiry by ROC u/s 234 of Companies Act, 27th February 2013, at the Indian Merchants’ Chamber

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 & Control Overview	SAP Environment & Audit Challenges SAP Control & Risks	Mr. Babu Jayendran, IIT, CA, CISA
User Management, Authorisations	SAP Authorisation Concept & Challenges Roles,Authorisation Objects, Authorisation Values Segregation of Duties Access Control	Girish B S, Post Graduate Diploma in Advance Systems Management from NIIT
Security	Overview BASIS Audit (sample audit checklist)
Business Process Audit & Challenges	Finance: Audit & Control Purchase to Pay Cycle: Audit & Control Order to Cash Cycle: Audit & Control Inventory: Audit & Control Retail Business Process, GRC 10 Concepts	Mr. Babu Jayendran, IIT, CA, CISA & Mr. Ravi Kumar, B.E. ( Computer Science)

The workshop received enthusiastic response from 49 participants, including members from the Industry as well as the Profession, who appreciated the wealth of knowledge and experience shared by the Learned Faculties.

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. Chandrashekhar N. Vaze, CA	Drafting of Partnership Deeds
Mr. Uday V. Sathaye, CA	Procedural Aspects
Mr. Manish Shah, cA	Taxation of Firm

The participants appreciated the immense knowledge and experience shared by the Learned Faculties.

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.

BCAJ Admin

Letters

Sir,

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.

—R Dilip Kumar Chartered Accountant

Sir,

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.

—Dr. Vishnu Kanhere
Chartered Accountant

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BCAJ Admin

Light Elements

The other day my friend Herambha Shastri was in introspective mood. I felt he certainly came of age. It means now he is not a just an aged colleague but a matured one. He must have done a lot of thinking over (in his full-time thinking and part-time practice) what the role of a chartered accountant is.

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?

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BCAJ Admin

FROM THE PRESIDENT

Dear Members,

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!

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BCAJ Admin

FROM THE PRESIDENT

Dear Valued Reader,

“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.

Regards,
Mayur Nayak

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BCAJ Admin

Laws and Business

Introduction

In the commercial and legal world, one often comes across a transaction being executed through a power-ofattorney. It is a means by which a person who is unable to be physically present to carry out a task or a transaction, does so through another person. While most of us may be conversant with the concept of a power-of-attorney, it would be interesting to note that there is a separate Act, i.e., the Powersof- Attorney Act, 1882 (Act), which governs the law relating to powers-of-attorney. In addition, certain other statutes also regulate the law in relation to powers-of-attorney. Let us have a brief overview of the law in this respect.

Meaning

The Act defines a power-of-attorney to include any instrument empowering a specified person to act for and in the name of the person executing it. Thus, there is an inclusive definition of the term. The following are the key features emanating from the definition:

(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

Under section 2 of the Act, if the donee (holder of power-of-attorney), based on his discretion:

(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 power-of-attorney can be terminated or cancelled by the principal by revoking his authority or by the power-of-attorney holder renouncing his authority. A power-of-attorney is revoked by implication in the following circumstances:

(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

Any power-of-attorney which has been verified by an affidavit, statutory declaration, notarisation, etc., and which has been deposited with a High Court or District Court shall be treated as sufficient evidence of the contents of the instrument.

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 donee of a power-of-attorney cannot give evidence in Court on behalf of the donor — Rajiv Gadkari v. Smt. Nilangi Gadkari, AIR 2010 (NOC) 538 (Bom.) 2010. The Patna High Court in the case of Rajmuni Devi v. Shyama Devi, (2007) 9 RC 309 (SC) has held that a power-of-attorney holder cannot depose on behalf of the donor, but can appear as a witness on behalf of the principal.

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.

(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.”

BCAJ Admin

ICAI and its members

1. Code of ethics:

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

Non-standing Committees — Chairman

(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.)

Merit

1250

Granted to students whose names appear at
Sl. No. 1-10

of Merit lists of CPT/IPCC/PCC of Nov./Dec.
2010 Exam

Merit-cum-need

1250

Available to rank-holders of CPT/IPCC
Nov./Dec. 2010

Exam, provided their parent/guardians total
annual in

come does not exceed Rs.1,50,0000

Need Based and

1000

Available to students of PCC/IPCC/Final,
provided their

parent/Weaker Sections guardians’ total
annual income

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)

BCAJ Admin

From The President

Dear Professional Colleagues,

Financial Year 2008-09 has gone by. To most of us the year has been one which will be remembered for a long time to come, particularly on account of events that occurred on the business and economic fronts. The first quarter of the financial year had the hangover of the heady growth that had been witnessed in the earlier years. In the second quarter, the bad news had started arriving. The crisis deepened in the third quarter and by the fourth, all businessmen, economists, professionals were convinced that we were in for difficult times. The debate now centres on how long the turnaround will take.

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,

BCAJ Admin

ICAI and its members

1. Finances of ICAI

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.

(i) Standing Committees

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:

4. New office bearers of WIRC

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).

BCAJ Admin

Part A : ORDERS OF the COURTS

? Section 2(h): Public Authority Thirteen educational institutions had filed writ petitions in the Uttarakhand High Court. A common question of law was involved in all these petitions. All the petitioners before the Court were societies or schools run by societies. Each claimed that the school was entirely privately funded and since they are not ‘public authority’ as defined u/s.2(h) of the Right to Information Act, 2005 (the Act), cognizance cannot be taken against them by the State Information Commission, under the Act.

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}]

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PART A : Decision of the H.C.

Section 24 of the RTI Act

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]

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From the President

Dear members,

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

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BCAJ Admin

From Published Accounts

Restatement of published results in terms of SEBI circular and directions for restatement to give effect to audit qualifications:

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.

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Direct Taxes

TDS under section 195 of the Act relating to payments to non-residents – Instruction no. 2/2014 dated 26 .02.2014 (available on bcasonline.org)

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

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ICAI and its members

1. Disciplinary Cases:

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.

Further, the company has to prepare a separate
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

Query:

On the basis of above facts, the company has sought
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?

EAC Opinion:

The Committee is of the view that, in case of listed
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?

Though the ESOPT itself may prepare its own financial
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.

As per the facts of the case, the Committee notes, that
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.

Lastly, the Committee is of the view that, for the
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.

4. New Committees of Council for 2014-15:

(i) Our New President and Vice-President

Shri K. Raghu (Bangalore) has been elected as our
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

4 New Standing Committees and 36 other Committees
of the Council of ICAI have been constituted as per
details on Pages 1404-1407 of the March, 2014 C. A.
Journal.

5. ICAI News:

(Note: Page Nos. given below are from the C. A. Journal for March,
2014)

(i) Suggested Amendment in Auditors’ Report u/s
227(3) of Companies Act, 1956.

Reference is invited for Announcement on Page 1414-
1416. On Pages 1415-1416 the following amendment is
suggested.

“Report on Other Legal and Regulatory Requirements
As required by Section 227(3) of the Act, we
report that:

(a) ………………………………………..

(b) …………………………………………

(d) In our opinion, the Balance Sheet, the Statement
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:

Reference is invited to the following Announcement
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.”

(iii) Applicability of Guidelines on Sexual
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:

Reference is invited to Announcement on Page
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.

(v) New Branches of ICAI:

The following New Branches of ICAI have been opened
on 10-02-2014 (P. 1419-20)

(a) Bharatpur (CIRC) (b) Kurnool (SIRC)(c)
Ranigunj (EIRC)

(vi) New Publications of ICAI:

(a) Educational Material on Indian Accounting
Standard (Ind AS 7) Statement of Cash Flows
(P.1425)

(b) Technical Guide on Internal Audit of
Petrochemical Industry (P. 1425)

(d) Guidance Note on Audit of Banks (P. 1429)
(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)

(a) Listed Companies Rs. 75,000/-

(b) Any Enterprise having
Annual Turnover exceeding Rs. 75,000/-
Rs. 50 Cr.

(viii)
Limit on Tax Audit Assignments:

Council of ICAI has
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.

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Company Law

The Central Government has on 27th February, 2014 notified the Companies (Corporate Social Responsibility Policy) Rules 2014 which shall come into force on 1st April, 2014. Corporate Social Responsibility Clause is applicable to every company having net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more or a net profit of Rs. 5 crore or more.

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.

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PART C: Information on & Around

Professional Information seekers:

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.

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PART B: RTI Act , 2005

RTI & CPA:

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

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From published accounts

Section B:

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.

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