August Archives

Most of you may have read the various news reports about
results of the financial stress review recently concluded in the European Union.
The primary aim of the review was to assess the strength (or weakness) of banks
to meet the challenges prevailing currently. Fortunately, the results brought a
fair amount of cheer for all and the sundry. All but 5 of the banks passed
(quite opposite to the recently announced CA final results in which less than 5%
passed). But while the various members of the finance ecosystem were doing an
assessment exercise, members of the mobile ecosystem were doing some
housekeeping themselves. The media was filled with reports of certain emerging
trends, setbacks, projects / ventures being shelved.

Emerging trends :

The word ‘trend’, in general, means the popular taste at a
given time, a general tendency to change, a general line of orientation or a
general direction in which something tends to move and then again it
also means to turn sharply, change direction abruptly. It’s funny
when you stop to think about it, how the same word conveys different messages,
in this case more or less opposite meaning. Trends for some is the most
obvious thing which makes choice easy and then there are others who would say
they never saw it coming. Not convinced ? Look at the state of the US financial
system and the arguments on the current scenario . . . . many say we went hoarse
shouting bloody murder and the Feds says we never saw it coming.

Coming back, here are some fairly interesting developments
(trends) that may interest you:

Broadband service a legal right in Finland :

Apparently, Finland is the first country in the world to make
access to broadband services a legal right for its 53 lakh citizens. Under the
new law, which came into effect earlier this month, telecommunications companies
will be obliged to provide all citizens with broadband lines that can run at a
minimum of 1 Mbps (megabites per second). While making this announcement, the
Finnish Ministry said “Internet was part of everyday life for Finnish people and
it was the government’s priority to provide high speed Internet access to all.
Internet services are no longer just for entertainment, Finland has worked hard
to develop an information society and a couple of years ago we realised not
everyone had access”. It is believed up to 96% of the Finnish population are
already online and that only about 4,000 homes still need connecting to comply
with the law. The government has also promised to connect everyone to a 100 Mbps
connection by 2015.

You may recall, the Indian Government had also made certain
promises (among others) when it unveiled India’s broadband policy in 2004.
Instead, all we’ve got so far is more dug-up roads and the ever-increasing
frequency (not to mention duration) power outages. Suffice to say we have a long
way to go for now.

E-reader Kindle outpaced sales of hardcover books on Amazon :

Earlier this month Amazon.com, one of US’ largest
booksellers, announced that for the past three months, sales of books for its
e-reader, the Kindle, outnumbered sales of hardcover books. In that time, Amazon
is said to have sold 143 Kindle books for every 100 hardcover books (including
hardcovers for which there is no Kindle edition). Amazon.com added that in the
past four weeks sales rose to 180 digital books for every 100 hardcover copies.
Apparently the pace is quickening. It may interest you that Amazon has 630,000
Kindle books, which is a small fraction of the millions of books sold on the
site.

Meanwhile, Penguine launched the first electronic book with a
video tie-in. Penguin Group and Liberty Media’s Starz Media began selling the
first version — for Apple’s iPad — of a novel with accompanying video from a TV
mini-series based on the same tome. News reports suggest that the deal may serve
as a model for other cross-media partnerships. Priced at $ 12.99, above the
$ 9.99 industry norm for e-books (read Kindle books), Penguin’s iPad
version of Ken Follett’s 12th century England epic ‘The Pillars of the Earth’
will let users read the novel and watch scenes from the mini-series.

While book lovers mourning the demise of hardcover books with
their heft and their musty smell, publishers may need a reality check. Here’s
why. A CEO of media company, which advises book publishers on digital change
said that “This was a day that was going to come, a day that had to come”. He
even predicted that within a decade, fewer than 25% of all books sold would be
print versions. Another CEO commented that “the shift at Amazon is
astonishing when you consider that we’ve been selling hardcover books for 15
years, and Kindle books for 33 months”. (there you have it, the obvious
and the oblivious — and they coexist in the same business).

India unveils prototype of $ 35 tablet computer :

It looks like an iPad, only it’s 1/14th the cost : India has
unveiled the prototype of a $ 35 basic touchscreen tablet aimed at students,
which it hopes to bring into production by 2011. “This is our answer to MIT’s
$ 100 computer,” Human Resource Development Minister Kapil Sibal told the media
when he unveiled the device.

In 2005, Nicholas Negroponte — co-founder of the
Massachusetts Institute of Technology’s Media Lab — unveiled a prototype of a
$ 100 laptop for children in the developing world. India rejected that as too
expensive and embarked on a multiyear effort to develop a cheaper option of its
own. Negroponte’s laptop ended up costing about $ 200, but in May his
non-profit association, One Laptop Per Child, said it plans to launch a basic
tablet computer for $ 99.

News reports indicate that the tablet can be used for
functions like Word processing, web-browsing and video-conferencing. The tablet
doesn’t have a hard disk, but instead uses a memory card, much like a mobile
phone. The tablet design cuts hardware costs, and the use of open-source
software also adds to savings. It has a solar power option too, though that
add-on costs extra. Without discounting the cost, it seems like a real blessing
when one considers the ever-increasing frequency, not to mention the duration,
of power blackouts in India. A Ministry spokesperson, said falling hardware
costs and intelligent design make the price tag plausible. Apparently, several
global manufacturers, including at least one from Taiwan, have shown interest in
making the low-cost device, but no manufacturing or distribution deals have been
finalised.

India plans to subsidise the cost of the tablet for its students, bringing the purchase price down to around $?20. Kapil Sibal turned to students and pro-fessors at India’s elite technical universities to develop the $?35 tablet after receiving a ‘lukewarm’ response from private sector players. The stated goal is to get the cost down to $?10 eventually.

If the Government can find a manufacturer, the Linux operating system-based computer would be the latest in a string of “world’s cheapest” innovations to hit the market out of India, which is home to the 100,000 rupee ($?2,127) compact Nano car, the 749 rupees ($?16) water purifier and the $?2,000 open-heart surgery. But given the past, one doesn’t know whether this project will die a quick death within this year, or a painful government-funded one over the next two.

Tax returns on Twitter:

Before you jump to any conclusions, it ain’t happening in India yet. Savvy politicians are no strangers to Twitter and Facebook, using it for their own political ends (Obama, Shashi Tharoor, Lalit Modi to name a few of the celebrated users).

Incidentally, Filipinos are among the most prolific users of social networking and text messaging in Asia. Earlier this month, the Philippines’ new government turned to social networking, using it to meet some serious social and economic ends for the country. When most nations are fretting about their fiscal deficits, Manila thought of an innovative way out to bridge the gap: enlisting Twitter and Facebook to boost tax collections. Honest citizens will be allowed to complain about tax evasion and corruption, by posting an update on Facebook or Twitter, when they smell a tax cheat.

No prizes for guessing if this would work in India. After all, India is not just growing to be the land of enthusiastic tweeters, but also the very land of tax evaders and Swiss bank account holders. The question that begs to be answered is, are Indians morally outraged enough about cheating the government that they start telling on their neighbours or will they continue to remain mute spectators? (Jaago re!!!…….)

(The concluding part of this write-up will be printed in the next issue of the Journal)

BCAJ Admin

Vikram Aur Vetal

Cancerous Corruption

Vikram was fond of moving around in the graveyard in the
horrifying night to catch Vetal after day-long practice as chartered accountant.
For Vikram friendship with Vetal was real education. Vetal being a spirit of
intelligent human being frustrated in its lifetime was still on the earth
posthumously to find answers to innumerable questions lingering in his mind
during his stint as human being. He developed friendship with Vikram. After
playing hide and seek game Vikram used to catch Vetal in the wee hours of
morning. Then he would put Vetal on his shoulders and tread through woods of the
graveyard. Vetal would laugh weirdly in the silence of graveyard and thunder :

“So Vikrambhai, you succeeded to catch me once again, keep
walking, don’t look back, if you speak a word I will vanish. Well, I would tell
you an episode you may find utopian. Gopal was an Assessing Officer in the
Income-tax Department. Occasionally he would take bribes from taxpayers, most of
the times under pressure from the higher ups. Otherwise he was Mr. Clean in the
Income-tax Department. At times he would revere social values. His helping
nature was known to all. But his demeanour was utter nuisance for those
indulging in rampant corruption particularly for Duryodhan, an assessing officer
having his cabin next to Gopal’s. He was always on the lookout to trap Gopal and
demolish him. So he would spy in Gopal’s activities in and off the office.

On that fateful day it was post-lunch session. Gopal was
desperate to ‘settle’ the assessment of Dhanraj. Dhanraj along with his
consultant was sitting in front of Gopal and whispering something as Gopal was
busy on the phone. In the previous hearings Gopal had detected a number of
irregularities in Dhanraj’s assessment. Finally those irregularities resulted in
additional income. Anticipating those additions, Dhanraj being a ‘seasonsed’
tax-dodger had already been hinting Gopal about his willingness to ‘comply’ with
his demand to hush up the case with reasonable additions. It was two days
before that fateful day that Gopal had agreed to settle the case for fifty
thousand, most reasonable amount of bribe for a hardcore tax-dodger like Dhanraj.

As I told you earlier, Gopal was not a hardcore corrupt
bureaucrat. Gopal finished his call and said,

“So Dhanraj, did you bring the amount ?”

“Yes Sir” replied Dhanraj.

Again the phone rang. Gopal was listening intently to the
caller on the other end. He responded,

“I will try my level best to arrange something. Don’t keep on
postponing the surgery of your son, come down to my office”.

As soon as he finished the call his assistant peeped in and
informed.

“Sir there is a call from bada sab“

While getting out of the chair Gopal said,

“Dhanaraj, I will be back in 10 minutes”

Gopal left the cabin. En route he met Duryodhan who was just
returning back to his cabin. They just greeted each other. As usual Duryodhan
addressed him sarcastically “How are you Dharmaraj ?” Gopal did not respond
verbally, he just chuckled nervously. Driven by suspicion and hatred Duryodhan
intruded in Gopal’s cabin. He saw Dhanraj along with his consultant and
overheard their whispering about how reasonable the ‘amount’ was. Dhanraj being
‘old customer’, Duryodhan greeted him with smile.

“What’s up Dhanraj ?” asked Duryodhan.

“My case is selected for scrutiny Sir” responded Dhanraj.

“Any trouble” queried Duryodhan.

“No trouble Sir, the case will be over today only”said
Dhanraj.

” How much ?” Duryodhan.

“Very reasonable” Dhanraj.

Duryodhan got the required ‘ammunition’ to demolish
‘Dharmaraj’ Gopal, he left the cabin hurriedly. Gopal was still with Bada Sab
nearabout half an hour after Duryodhan’s exit. Dhanraj and his consultant were
anxiously waiting for Gopal’s arrival. There was a knock on the door and an aged
person in his sixties entered the cabin.

“Where is Mr. Gopal ?” he asked with bewildered look at
Dhanraj and his consultant.

“Sir has gone to Bada Sab” Dhanraj replied.

The aged person was about to ask the next question, when
Gopal entered in the cabin and hurriedly sank in the chair. He asked the aged
person to take a seat.

“So Dhanraj, you’ve brought the money ?” asked Gopal.

“Yes Sir” Dhanraj replied.

“Hand over that money to Mr. Sudam (the aged person). Let me
tell you in brief. After two hours from now his son aged about 14 will be
operated for heart ailment, the only hope of Sudam and being retired person he
is not in a position to pay for the operation on his own” explained Gopal. The
moment the envelope containing the money was being handed over by Dhanraj to
Sudam, two persons barged into the cabin.

“Don’t move, stay where you are” ordered one of the two.

“We are from Anti-Corruption Bureau” said one. Gopal realised
that he was caught red handed, but he did not lose his cool. Quickly he
recovered from the shock and requested,

“Sir I am guilty of accepting bribe from Dhanraj, but Sir
please let Mr. Sudam go with the money. I am here to face your interrogation.”

Duryodhan, the protagonist of the raid of ACB, could not
control his excitement and joy. He deliberately came out of his cabin to watch
the ‘demolition drama’. Meanwhile the news of the raid spread like wild fire.

So Vikarmbhai, my question, how do you reckon the acts of
Gopal and Duryodhan ?”

“Vetalbhai, legally speaking Gopal is guilty of accepting bribe, he cannot plead social cause behind the bribe since the Goddess of justice is blind. However socially I still hold Duryodhan guilty of manipulating the law to demolish Gopal who by his conduct invoked Duryodhan’s conscience. He manipulated the law for his own convenience.

Apparently one may appreciate Duryodhan for his alertness to unearth corruption. Vetalbhai, you will agree with me that persons like Gopal are always in minority. Further, a manipulator of law is more dangerous than an occasional offender of law in the society.”

“Vikrambhai, you have broken the silence. I am vanishing” again Vetal’s laugh was echoing in the graveyard.

BCAJ Admin

ICAI And Its Members

ICAI & Its Members

I. CPE programme exemption to senior citizens withdrawn :

1. ICAI has introduced the Continuing Professional Education
(CPE) Scheme under which members are required to attend certain CPE programmes
for specified number of hours. Under this Scheme, exemption was given to members
who have attained the age of 60 years. It is surprising that when our Institute
is entering the 60th year and we are celebrating the Diamond Jubilee year, this
exemption has been withdrawn with effect from 15th May, 2008. One may ask
whether this is a gift to our members who are senior citizens. Notification to
this effect has been published in C.A. Journal for July, 2008 on page 200.

2. CPE learning programms are divided into two parts viz.
structured and unstructured learning as under :

(i) Structured Learning :

(a) Attendance at conferences, seminars and symposia
organised by ICAI, its branches, regional councils, study circles and other
institutions or organisations approved by CPE Committee of ICAI.

(b) Presentation of papers, delivering lectures, acting as
faculty at such conferences, seminars, etc.

(d) Undertaking technical research under the aegis of ICAI.

(e) Such other activities as may be prescribed by CPE
Committee of ICAI.

(ii) Unstructured learning :

(a) Web-based learning modules.

(b) Self-learning modules and courses (use of audio-tapes,
video-tapes, correspondence courses, computer-based learning programmes).

(c) Reading and individual home study (Reading and
individual home study may constitute reading articles in the C.A. Journal,
reading technical, professional, financial or business literature).

(d) Group or bilateral discussion on technical issues.

(e) Acting as visiting faculty or guest faculty at various
universities, management institutions or institutions of national importance.

(f) Participation in CPE teleconferencing programmes
without the supervision of the Programme Organising Unit (POU).

(g) Providing solutions to questionnaires, puzzles
available on web or professional journals.

(h) Internal training programme being organised by firms of
Chartered Accountants having seven or more partners.

Details of the above learning programmes can be obtained from
pronouncements on Continuing Professional Education Publication of ICAI as well
as from CPE portal (www.cpeicai.org) and ICAI website (www.icai.org).

3. Members residing in India, who are below 60 years of age
and who hold Certificate of Practice, (unless they are exempted) are required
to :

(i) Complete at least 90 CPE Credit hours in each rolling
3-year period (2008-2010). Out of this 60 CPE credit hours should be of
structured learning.

(ii) For the above purpose such member will have to
complete minimum of 20 CPE Credit hours of structured learning in each year.

From the above it will be noticed that structured learning is
mandatory for such member for 60 CPE Credit hours. He will have the option to
devote balance 30 CPE Credit hours in unstructured learning.

4. Members residing in India, who are below 60 years of age
and who do not hold Certificate of Practice as well as all members residing
abroad (whether holding Certificate of Practice or not), unless exempted, are
required to

(i) Complete at least 45 CPE Credit hours of structured or
unstructured learning in each rolling 3-year period (2008-2010).

(ii) For the above purpose, such member will have to
complete minimum of 10 CPE Credit hours of structured or unstructured learning
in each year.

From the above it will be noted that structured learning is
not mandatory for such members. They can take up unstructured learning for the
entire period of 45 CPE Credit hours.

5. As stated earlier, members who have attained 60 years of
age (Senior citizens) were exempt from complying with this requirement. However,
the Council of ICAI has now withdrawn this exemption w.e.f. 15-5-2008. Since 4½
months have passed in the current year, the total period of CPE Credit hours
required to be completed in the rolling period of 3 years (2008-2010) has been
reduced to (i) 70 in the case of such members residing in India and holding
Certificate of Practice and to (ii) 35 in cases of members residing abroad
(whether holding certificate of practice or not) and other members residing in
India and not holding certificate of practice. It may be noted that all such
Senior Citizens will have an option to undertake structured or unstructured
learning. In other words, structured learning is not mandatory for them and they
can select unstructured learning for the entire period of CPE Credit hours.

6. Notification published on page 200 of CA Journal for July
2008 states that Senior Citizen Members (unless exempted) have to complete CPE
Credit hours of structured or unstructured learning as under :

(i) Senior citizen members residing in India and holding
Certificate of Practice — 70 CPE Credit hours in the rolling 3-year period
(2008-2010). Out of this minimum of 10 CPE hours should be in 2008 and minimum
of 20 CPE hours should be in 2009 and 2010 each, respectively.

(ii) Senior citizen members residing in India and not
holding Certificate of Practice and those residing abroad (whether holding
certificate of practice or not) — 35 CPE Credit hours in the rolling 3-year
period (2008-2010). Out of this, minimum of 5 CPE Credit hours should be in
2008 and minimum of 10 CPE Credit hours should be in 2009 and 2010 each,
respectively.

7. It may be noted that under the CPE Scheme, exemption from
the above requirements is available to the following members :

(i) A member, for the year during which he gets his membership for the first time.

(ii) A member or class of members to whom the CPE Committee or its sub-committee may, in their absolute discretion, grant full/partial exemption either specific/general, on account of facts and circumstances of the case which in their opinion prevent such member from compliance with the requirements of completing CPE credit hours

8. CPE Scheme provides for detailed procedure for keeping records by the Institute about attendance of members who attend structured learning programmes of the Institute and other eligible entities. This enables ICAI to issue certificates for CPE Credit hours completed by the members in every calendar year.

9. As regards unstructured learning, the member who wants to take CPE Credit hours, the requirement is that he should submit a self-declaration Form to the Institute every year. This Form is to submitted to the decentrallsed / sub-decentralised offices of the Institute every year before 31st May. The format of this Form is given on the next page.

10. Considering the above requirements of unstructured learning for members who are senior citizens, it appears that the most convenient mode of learning will be as under:

i) Reading and individual home study i.e., reading articles in the CA. Journal, reading technical, professional, financial or business literature.

ii) Group or bilateral discussion on technical issues –

This will include attendance in group discussions at workshops, study groups, seminars, symposia, conferences, etc. organised by any voluntary body such as a society, association, chamber, group, etc. on technical issues relating to the accounting profession.

iii) Participation at internal training programme organised by firms of Chartered Accountants having seven or more partners.

11. With the above coverage of all senior citizens under the CPE Scheme, it has become mandatory for all members of the Institute (over 1.46 lacs members) to comply with the CPE Scheme. The Institute will have to create a machinery to scrutinise over 1.46 lacs self-declaration forms received from members every year and determine whether all members have complied with the requirements of CPE. In this exercise, the records maintained by the Institute for attendance of members in structured learning programmes will also be required to be considered. ICAI will have to issue comprehensive guidelines about the punishment to be awarded to defaulting members who are holding certificate of practice and those who are not holding certificate of practice.

II. ICAI News

(Note: Page Nos. given below are from c.A. Journal for July, 2008)

1. General amnesty for restoration of names of members and C.P.:

ICAI has introduced an amnesty scheme for restoration of names of members with retrospective effect on payment of certain fees and filing Form No.9. The member can also apply for certificate of practice in Form No.6 prospectively on payment of fees. This scheme will be in force up to 31-12-2008. Details of the scheme are on page 198.

2. Data of members on Board of directors of companies:

ICAI is compiling data about members who are presently working as executive/non-executive/in-dependent directors of public companies (whether listed or not) so that they can share their experience with other aspiring Board members. Such details have to be furnished in the format given on page 201.

3. Chapter at Muscat:

ICAI has decided to set up a chapter in Muscat. Details are given on page 201.

4. Campus placement programme:

As in the past, ICAI has organised campus placement programme for candidates who qualify in May, 2008, Final examination. The schedule is as under;

(i) 2-9-2008 to 5-9-2008 :
Ahmedabad, Baroda, Chandigarh, Coimbatore, Ernakulam, Hyderabad, Indore, Jaipur, Kanpur, Nagpur, Nashik, Pune and Surat.

ii) 17-9-2008 to 25-9-2008 (excluding Sunday) :
Bangalore, Chennai, Kolkata, Mumbai and New Delhi (Details on page 203).

5. Guidance Notes:
The following Guidance Notes issued by Research Committee have been withdrawn by ICAI.

i) Mode of Valuation of Fixed Assets (Revised in 1976)

ii) Guidance Note on Accounting for Changing Prices (Issued in 1982) ./ (Refer page 204)

6. Advertisement by practising CAs:

In July issue of BCA Journal (P. S09) details about this issue are given. ICAI Notification in this respect is published on pages 206 and 208.

7. Approval of Accounting Standard (AS-32) :

The Council of ICAI has approved Accounting Standard (AS) 32, ‘Financial Instruments; Disclosures’. The objective of this Accounting Standard is to require entities to provide disclosures in their financial statements to enable users to evaluate the following;

i) the significance of financial instruments for the entity’s financial position and performance; and

ii) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

In view of the above, the Accounting Standard will bring about greater transparency in the disclosures related to financial instruments, such as derivatives and the exposures to the risks related to such financial instruments, and how the entity manages its risks.

It may be noted that ICAI has already issued the related Accounting Standards, namely, Accounting Standard (AS) 30, ‘Financial Instruments; Recognition and Measurement’ and Accounting Standard (AS) 31, ‘Financial Instruments: Presentation’. Issuance of this standard completes Accounting Stardards on the subject of Financial Instruments. Like AS-30 and AS-31, the Council has made AS-32 recommendatory from 1st April 2009 and mandatory from 1st April 2011.

BCAJ Admin

From The President

Dear Esteemed Readers,

It is indeed a matter of pride and pleasure for me to put
across my thoughts as the newly elected President of this august body. I
visualise your expectations, having been addressed by some of the luminaries in
the profession in the past through this column. Well, it is my privilege to
communicate with you for the next twelve months and I shall strive my utmost to
meet with your expectations.

It is heartening to have received so many compliments from
all over the country upon assumption of office as President of BCAS redounding
to the credit, reputation and popularity that the Society enjoys in the
profession. I sincerely thank one and all for their expression of love,
affection and consideration to me and the BCAS.

Communication is complete when it is well received, so I look
forward to your feedback and suggestions for improvement not only in respect of
my writings but also in respect of any branch of activity of the Society. You
are also at liberty to raise issues concerning the profession as well as social
causes and macro issues concerning citizens at large that you would like to be
addressed by the Society. I believe that intellectuals generally carry greater
responsibility of Nation-Building. Swami Chinmayananda had said : “This Nation
suffers more from the passiveness of good people than aggressiveness of bad
people”. The result is evident in the quality of our national leaders (if at all
they can be called as such). We, therefore, need to become aggressively good. We
must not take injustice lying down. We must take lead in restoring peace and
communal harmony, spreading education amongst the poor and prevent mother earth
from the hazards of global warming by turning it green. We intend to take up
this year many such initiatives which could provide our members opportunities to
participate in nation-building activities along with members of their families.

One area where professionals need to contribute their mite is
in eradication of corruption. Lack of accountability on the part of Government
employees is one of the reasons for this cancerous growth. The Society has
represented to the Government on several occasions to bring about accountability
in the Income-tax Department and has repeated its demand, especially in the
context of the proposed Direct Tax Code. The DTC proposes to introduce General
Anti Avoidance Rules (GAAR) with wide powers to officers. Gandhiji said, “Power
corrupts, and absolute power corrupts absolutely”. Indeed, there is a need for
matching accountability with bestowal of authority. Lack of accountability
coupled with wide powers would worsen the vulnerability of the hapless
taxpayers. The need is to address the issue from the other side of the coin,
i.e., taxpayers must not be lost sight of. To quote Gandhiji again, “There is
enough in the world for man’s need, but not for man’s greed”. According to one
estimate, if only the black money parked abroad by Indians (politicians
included) can be brought back to the country, it can wipe out our external debt.
There can be no two views that tax evasion should be dealt with severely.
However, it should not be at the cost of innocent taxpayers. More often than
not, tax- payers indulge in corruption to buy peace of mind. Given an
opportunity of clean administration and fair assessment, the majority of the
taxpayers would not encourage corruption. In this regard professionals also
carry the responsibility to encourage and support ethical practices. However,
the tug of war is on between the Income-tax Department to extract more from
taxpayers on the one hand, owing to unreasonable targets set for tax collection,
and the inclination of the taxpayers to save more due to greed/provision for the
rainy day on the other. In this context, the approach and transparent
functioning of the Reserve Bank of India is to be appreciated. It is one of the
finest institutions of India. How I wish this culture spreads to every
department of Government.

Computerisation and use of related technology may well be one
of the ways to reduce corruption. Recently a newspaper covered a report about
the wonders wrought by the Government of Chhattisgarh by computerising the
Public Distribution System (PDS). This is how the miracle worked. Chhattisgarh
first created a network of computers across the State, which covered 146
development blocks in 18 districts where details of every beneficiary are put
online. Each beneficiary can also keep track of food stocks through SMS, which
is sent immediately after a PDS shipment is sent from a distribution centre to a
local fair-price shop. SMS informs the beneficiary of everything, including the
date, time, the vehicle number and the stock.

The fair-price shop owners received incentives to stop
pilfering food stocks, and commission for each shop was increased from Rs.8 to
Rs.30 per quintal, with shipments tracked online.

The Public Distribution System is one of the largest leakages
of public money fuelling corruption. It is estimated that there are 23 million
fake ration cards eligible for subsidised food and civil supply. Each fake card
guzzles Rs.8500 of the annual subsidy. With computerisation, regular reviews and
frequent verification, the Government of Chhattisgarh cancelled 1.3 lakhs (below
poverty line) cards during 2002-09. Thus, the reforms in PDS have resulted in a
whopping saving of Rs.100 crore plus, for the State Government so far.

This clearly shows what technology can do or achieve with
political will. Dr. Raman Singh, the Chief Minister of the Chhattisgarh is an
Ayurvedic Doctor and has been re-elected for his good work. The motto of his
Government is aptly reflected on the official website of the State : ‘http://cg.gov.in’ :
“Our focus is on two areas — good governance and good infrastructure. If we can
provide these two, the rest will follow.”

On the ensuing 65th Independence Day, let us all resolve to
contribute our mite to rebuilding India.

Coming back to brass tacks, one of the focal areas this year
would be to bring BCAS to your doorstep by organising various programmes for the
benefit of members in the far-flung suburbs of Mumbai and other important towns
in India. We also intend to organise focussed programmes for members in Industry
and to this end, a Focus Group on ‘Corporate Affairs and Members in Industry’
has been formed. We wish that the benefit of the Society’s activities and the
Journal reach to more and more members, which is why I hereby appeal to our
readers to inform their friends, colleagues and peers about BCAS and its
activities. I am happy to inform you that members from Ahmedabad, Hyderabad,
Indore, Nashik and Surat (who attended the recently concluded Residential Study
Course on Service Tax) have promised to induct new members in order to spread
the activities of the Society. The Study Course was attended by about 80
participants and the level of discussion and bonding amongst members were simply
unparalleled.

I do not wish to deal with other focal areas as the same have
been dealt with in my inaugural address to members published elsewhere in this
Journal.

On the BCAS’s Founding Day Celebrations held on 6th July 2010, the Chief Guest, CA Keki Mistry, Vice-Chairman and the CEO of HDFC Ltd., addressed our members on ‘Lessons from the Global Financial Crisis and the Role of Housing in the Indian Economy’. He shared his optimism for India’s growth in housing sector over the next decade or so, resulting from, inter alia, the demographic advantages and strong banking norms for lending in the housing sector. The lecture was webcast and people around the world watched it live.

The first lecture meeting of the Society for 2010-11 was addressed by the past President of the Society, CA Pinakin Desai on 14th July 2010 on the subject of ‘Recent Developments in Direct Taxation’. It received an overwhelming response, with many members returning home for want of space. I sincerely regret the inconvenience caused to them, but members can simply resort to listening to this lecture from the Society’s website.

By the time you would receive this edition of the Journal, the hectic schedule of July must have been over and the festive August must have made its entry.

It is said, “Coming together is a beginning, keeping together is progress and working together is success”. Let us work together to make BCAS a more powerful force to be reckoned with, comprising proactive, pragmatic and progressive chartered accountants determined to make a positive difference to the profession and the country for a better tomorrow, God willing.

In conclusion, let me wish you all —

A Happy Independence Day, for this memorable day is yonder and it is fitting that we dedicate ourselves — thought, word and deed at the altar of freedom, liberty and independence we all cherish.

So be it.

BCAJ Admin

From The President

From the President

Dear BCAJ Lovers,

It is my proud privilege to
address my first communication to you as the newly elected President of BCAS.
I am daunted by the huge responsibility that is cast upon me and I hope to
complete the year ahead with ease on the back of unstinted support of members
and well wishers of this august body. The large number of congratulatory
messages that I received on my assuming the post of President have left me
speechless. I am thankful to every one of them.

The BCAS year 2009-10 has
begun with a very encouraging event. For the first time in its history, the
BCAS celebrated its Founding Day by combining it with the Budget lecture
meeting. S. E. Dastur, as usual, addressed a packed house of more than 2,000
people in his inimitable style. Apart from these people, a large number of our
members and others also took advantage of the lecture by viewing it online on
a real-time basis. We had arranged a live webcast of the AGM and the lecture
meeting for the benefit of a larger audience. This facility was welcomed by
several members and the response that we received is truly amazing. The web
statistics show that people from USA, UK, Switzerland, Singapore and UAE also
watched the webcast, apart from the large number of our members from all over
the country. This has given us the reassurance that we need and, in future, we
hope to bring more programmes to our members through webcasts.

In the year ahead, we hope to
usher in certain changes at the Society to improve its functioning and also to
reach out to more and more people. We will also strive to encourage younger
members to come forward and take up leadership positions in the Society.

Budget 2009 was preceded by
the usual hype on the part of media. But, it turned out to be much ado about
nothing. Considering the fact that the Finance Minister has promised to table
the new Direct Tax Code very soon, the large number of changes announced in
the Budget could have been held back. The minor tinkering with the threshold
limits will hardly make any difference to the tax payment by individuals.
However, the abolition of surcharge is welcome. The salaried class in the
higher income group will stand to benefit by this change. The abolition of the
infamous FBT will hopefully close a painful chapter in the history of the
Indian tax regime. However, one major grievance that most tax professionals
would have against the Finance Minister would be the manner in which the
Finance Bill is sought to be converted into law. Hardly any time has been set
aside for discussion on the floor of the Parliament. It is obvious that due to
lack of time, the possibility of professionals and trade bodies making
representations to the Government and the chances of the Finance Minister
having the time to read such suggestions are very remote. This is most
unfortunate and does not augur well for a healthy manner of legislation.

The postponement of the new
rules for TDS was expected and was badly required. The unnecessary hurry with
which the CBDT has tried to bring in such sweeping changes without putting in
place the infrastructure to implement the changes could have easily been
avoided. One hopes that in future, the Govt. consults professionals before
taking such decisions. The CBDT must realise that in order to bring about
major changes, it is essential to first win the confidence of the tax-paying
community. In contrast to the attitude of our CBDT, I was amazed to read about
the US Govt.’s proposal to bring in mobile telephone expenses under Fringe
Benefit Tax. There, when the Govt. wanted to bring in one item of expense
under the FBT, the proposal has been placed on the IRS website for public
comment for more than 2 months ! The new rules for remittance of funds out of
India are now in place. The system appears to be working well. However, one
will have to wait and watch how the Income-tax department uses the information
that it will collect. Let us hope that this is not used by them as one more
tool for hounding honest taxpayers and deductors.

The ICAI has recently set up
a Women Steering Group. This group is dedicated to serving women
Chartered Accountants and female students aspiring to be the members of the
ICAI. This is a welcome development. A few years ago, the BCAS had conceived
the idea of creating a special forum for women CAs and it had met with a good
response. Recently, it is observed that the percentage of girl CA students and
lady members has risen considerably. I am sure that with ICAI now taking up
this initiative in a big way, more ladies will stand to benefit.

Finally, as I write this
page, the media has reported that the lone terrorist captured alive during the
Mumbai terror attacks has confessed to his crime. Finally, justice will be
done and the perpetrator of a heinous crime will be suitably punished. This
will not bring back the hundreds of lives which were lost on those fateful
days of November. But at least the world now knows for sure what our
neighbours have been up to.

Ameet Patel

levitra

BCAJ Admin

From The President

Dear Professional Colleagues,

I wish you all a very happy Diamond Jubilee Year. The Bombay
Chartered Accountants’ Society celebrated its 59th founding day and entered the
Diamond Jubilee Year. I am grateful to all of you for having reposed your trust
in me, and bestowing on me the honour of being the president of this august
institution in a landmark year. I am conscious of the responsibility that this
office carries and I will make every effort to discharge it to the best of my
ability.

I have already expressed my thoughts for the ensuing year in
my acceptance address at the Annual General Meeting, which appears elsewhere in
this issue. To recapitulate, the thrust areas would be

A
comprehensive programme for students — our future.

Programmes to reach out to members in industry.

Events/programmes to make the busy professional a complete individual.

To spread awareness of the activities of the Society among the public.

In this year, various committees of the Society and the
Diamond Jubilee Celebration Committee headed by K. C. Narang and Narayan Varma,
will organise number of programmes to celebrate this year. One of them will be
the Diamond Jubilee Conference scheduled on 8th November 2008. I would request
you to mark the date in your diary.

As I write this piece, the Government has just won a trust
vote. The high-voltage drama which commenced three weeks ago has ended.
Newspapers are filled with stories of how events unfolded in the Parliament.
Many citizens feel that the actions of many to whom we have entrusted the
responsibility of governance, are shameful. When such events occur we feel sad,
but that sadness does not translate into action.

We must share a part of the blame. When enlightened citizens
shy away from public duty, the nation suffers. Corruption is one of the greatest
ills that our country suffers from. The short-term remedy is to keep the members
of the public well informed. To meet that objective, the Right to Information
Act is serving as an excellent tool. However, I fear that its overuse may blunt
this weapon and unscrupulous users may reduce its credibility. In the long term,
an educated citizen will act as a great check to the spread of corruption. I am
under no illusion that education will eradicate this evil, being aware that it
exists in most developed countries where the entire public is expected to be
well educated. It will however, act as a strong deterrent.

In this context of education, I must commend the ‘Teach
India’ initiative. Projects like this must receive all the support they deserve.
I appeal to each one of you, your relatives and family members to enrol for the
programme in whatever capacity possible. We at the BCAS must also find ways and
means and explore as to how as an organisation we can contribute to this cause.

This brings me to the aspect of education in our profession.
Over the last year or so, the curriculum has been changed in a manner that
students entering the course are of a far younger age. Like every change, this
change has had its share of criticism. Every change has its own advantages and
problems. While the technical content of the curriculum is at the same level
that it was earlier, there is little provision to take care of the inherently
lower levels of maturity of the students. The young students joining the course
are bright and many of them are focussed on their careers. However, the
significance of the practical training that is imparted during the period of
articleship is not fully appreciated. This results in conflict and a great gap
between the expectations of students and their employers. The need of the hour
is counselling of students, their parents and Chartered Accountants as well.

This year is also the Diamond Jubilee Year of our alma mater,
the Institute of Chartered Accountants of India (ICAI). The ICAI entered its
Diamond Jubilee Year on 1st July 2008. We at the Society are just 6 days
younger. The Society has always believed that it can play a role complementary
to that of the ICAI. The selfless devotion of its founders, its illustrious past
presidents, its enthusiastic core group have made the Society a premier
institution. In this Diamond Jubilee Year, it is this brand image of the BCAS
that we have to protect, promote and enhance.

For the success of the programmes that the Society will
undertake, I will need your support and I am sure I can bank on it. What I need
further is your response and feedback. Please feel free to communicate with me
or my team, about your thoughts, suggestions and yes, your criticism, for I am
sure that you have the interests of the Society at heart.

With warm regards.
Anil Sathe

levitra

BCAJ Admin

ICAI And Its Members

ICAI and Its Members

1. ICAI News :

(Note : Page Nos. given below are from C.A. Journal
for July, 2010)

(i) Invitation to join CFO Guild/Members in Industry
Guild :

The Committee for Members in Industry of ICAI has invited
members of the ICAS to join two guilds.

1. CFOs Guild (Corporate Accountants Guild) :

This guild is for members who are occupying high positions
(CEO/CFO/Treasury Head/Head of Analyst, GM or above) in industry. The primary
objective of setting up such a guild is to develop a platform where highly
intellectual and talented pool of people from various organisations can discuss
various issues concerning the profession in general and Members in Industry in
particular.

2. Members in Industry Guild :

Members in Industry Guild is for Members serving in
Industries. The primary objective of setting up such a guild is to develop and
maintain an industrywise database of the members of our Institute serving in
industries.

They can plan, formulate and strategise policies for
improving the image of Chartered Accountants in the eyes of the industry.
Industry-specific seminars/conferences/round table meetings can also be
organised to discuss the matters pertaining to the industry and make them the
brand ambassadors of the profession. The Members shall also be appraised of the
various happenings of the Institute, from time to time.

(ii) Formation of CPE Study Circles for Members in
Industry of ICAI :

29 CPE Study Circles for Members in Industry have already
been formed so far by the CMII. A separate helpline for forming CPE Study for
Members in Industry has been established at the Headquarters of our Institute
with Email : cmii_events@icai.in.

(iii) Retention of period of audit documentation :

The Council of the Institute of Chartered Accountants of
India had in August 2009, pursuant to the provisions of Rule 12 of the Chartered
Accountants (Procedures of Investigations of Professional and Other Misconduct
and Cases) Rules, 2007 had amended the audit documentation retention period
appearing as ten years in paragraph 83 of Standard on Quality Control 1 to seven
years.

(iv) For the attention of the candidates who aspire to
appear in various Chartered Accountancy (CA) examinations scheduled during
November, 2010 :

In order to reduce the time taken in processing the OMR
application forms and also to ensure accuracy in the data pertaining to name,
registration No., group/centre/medium opted, it has been decided to make the
filing of examination application forms online at the url http://icaiexam.icai.org/
as the only mode of application for various CA examinations with effect from
May, 2011.

(v) Invitation for articles on XBRL :

To create awareness about XBRL by developing a pool of
knowledge and sharing it, ICAI invites articles on XBRL from members and others
with knowledge/experience in XBRL for publishing in the Chartered Accountant
Journal. Articles may pertain to relevant topics such as basics of XBRL; its
benefits and uses to various users, such as chartered accountants, banks,
income-tax department, financial analysts and others; challenges in implementing
XBRL, etc.

(vi) Recognition to profession :

Our member CA Piyush Goel has been elected to Rajya Sabha
from Maharashtra recently, and our Past President Kamlesh Vikamsey has been
appointed as the Member of Audit Advisory Committee of United Nations
Development Programme. Our heartiest congratulations to them.

(vii) Non-submission of Form 112 :

The following course of action be adopted for dealing with
the cases of condonation of Regulation 65 w.e.f. 1st April, 2010.

It is clarified that the cases for condonation of breach of
Regulation 65 and 78 received up to 31st March, 2010 would be dealt with in
terms of the Announcement dated 8th January, 2010 i.e., general amnesty.

In case a breach of regulation 65 is noticed at the time of
enrolment as a member, the decisions are as follows:

(viii) ICAI publications :

The Committee on Public Finance and Government Accounting is
coming out with a publication ‘Issues on Public Finance’.

(see pages 200 to 203)

2. Transfer price for the purpose of segment reporting (EAC
Opinion) :

Facts :

A company is a public sector enterprise under the
administrative control of the Ministry of Mines, Government of India and is
engaged in mining of bauxite, manufacturing of alumina and aluminum, generation
of power at a captive power plant for use in smelter, and selling of alumina and
aluminum both in domestic and international market.

Cost of power constitutes about 30% of cost of production of
aluminum. The captive power plant is set up exclusively to supply uninterrupted
power to smelter. It is also connected to State grid to take care of the supply
of emergency power to smelter in case of any breakdown or failure at the captive
power plant. Any surplus power after meeting the requirement of smelter is
automatically transmitted to State grid and treated as sale, as per agreement
with company ‘G’, which is a State Government undertaking.

As per the querist, even though the cost of generation of
power is higher, transfer price of power of the purpose of segment reporting is
considered only at 110 paise/kwh, which results in segment loss in case of the
captive power plant (even though the unit is functioning efficiently and up to
the satisfaction of the management) and higher revenue for chemical and aluminum
segments.

Segment report for the quarter ended December 31, 2008 was
examined by the statutory auditors at the time of limited review and they were
of the opinion that though the unit is performing well, as a result of
compliance with the provisions of AS-17 for inter-segment transfers, as stated
hereinbefore, the power segment reveals loss, which does not appear to be a
proper disclosure.

As per the querist, in case the company is allowed to sell
power to parties other than company ‘G’, revenue earned will be at least three
to four time more. However, since the company is largely dependent upon company
‘G’ for emergency power and back-up power, it will not be practicable to delink
from company ‘G’.

From the aforesaid facts, according to the querist, it is
revealed that the circumstances have arisen only because of non-remunerative
sale price and will continue to be the same till the rate charged from company
‘G’ is revised.

Query :

The querist has sought the opinion of the Expert Advisory Committee as to whether in the circumstances explained above, the loss disclosed in the segment report can be explained by way of giving a note with reference to the provision of Accounting Standard or whether any other formula for transfer pricing can be adopted, which may necessitate revision of AS-17 ?

The Committee noted that the basic issue raised by the querist relates to pricing of inter-segment transfers for segment reporting under Accounting Standard (AS-17) Segment Reporting.

The Committee observed that inter-segment transfer pricing is an accounting policy which relates specifically to segment reporting and that inter-segment transfers should be measured on the basis of the enterprise actually used to price those transfers. In other words, the price that is actually used in the books of accounts to reflect the transactions between different segments and the price that is used to reflect segment results for the purpose of segment reporting under AS-17, should be the same. The Committee further observed that AS-17 neither requires nor recommends that inter-segment transfers should be priced in any particular manner, such as competitive markets prices charged to unaffiliated customers for similar goods as stated by the querist.

EAC opinion :

On the basis of the above, the Committee is of the opinion that the company is free to choose any appropriate pricing policy for inter-segment transfers. Thus, the question of explanation of the loss with reference to any provision/requirements of AS-17, if the existing policy of transfer pricing is continued to be followed, by way of a note to the segment report, does not arise. However, if the company chooses, the loss may be explained by way of a note to the segment report, the note should not state that AS-17 requires adoption of that particular pricing policy. Further, revision to AS-17 with respect to the issue raised by the querist is not required.

(see pages 183 to 185)

BCAJ Admin

ICAI And Its Members

1. Disciplinary case :

In the case of ICAI v. Shri Basab Kumar Sarkar, (C.A. Journal, July, 2009, P. 99) the Bank of Baroda had filed a complaint against the member alleging that the member had misappropriated the funds of its client. According to the Bank, the member opened an SB A/c. (No. 7831) with one of its branches. After some time, the member added the name of his client in the above account as a joint account holder without his client’s knowledge. His client had a separate account in the same branch of the Bank. When its client gave 14 cheques of Rs.22.11 lacs to the member for depositing these cheques in his A/c., the member deposited these cheques in his A/c. 7831 and withdrew the funds. Similarly, certain FDRs of Rs.5 lacs belonging to its client were also used by the member to take loan from the bank and this money was misappropriated by him.

The Disciplinary Committee found the member guilty of ‘Other Misconduct’. The Council of ICAI accepted this finding and recommended to the High Court to remove the name of the member from the Register for 3 months. The Kolkata High Court, in its order, observed that the member had not co-operated during the course of inquiry. The member did not make any submissions before the High Court. Considering the facts of the case, the High Court has accepted the above finding of the Council and ordered that the name of the member be re-moved from the Register of Members for 3 months.

2. Provision for LTC benefits :

A Government company was accounting expenditure on leave travel concession (LTC) to employees in the year of availment of leave due to uncertainties in accrual.

The Expert Advisory Committee has given an opinion that ‘accrual’ being one of the fundamental accounting assumptions, the cost of providing benefits to employees in return for the services rendered by them in an accounting period should be accounted for in that period. AS-15 (revised) 2005 recognizes that the liability towards employee benefits should be provided as and when the services are rendered. Further, this falls in the category of ‘other long term employee benefits’. As per AS-15, LTC benefits should be measured on actuarial basis using the Projected Unit Credit Method. The actuarial basis of valuation takes into account various uncertainties. Therefore, the method adopted by the company was not in compliance with the existing Accounting Standard and the standard accounting principles. (Please refer Pages 136 to 137 of C.A. Journal of July, 2009]

3. Enhancing Audit Quality :

Financial Reporting Review Board (FRRB) has made certain observations about non-compliance in the published financial statements and Auditor’s Report on P. 138-139 of C.A. Journal, July, 2009. These observations are made on review of the published financial statements with a view that the audit quality is enhanced. These observations are as under :

(i) AS-20 — Earnings per share :

(a) Some enterprises disclose the numerators and denominators used in calculating basic and diluted earnings per share. However, they do not disclose the reconciliation between the two denominators which is not in accordance with AS-20.

(b) In some cases, the enterprises are not considering the weighted average number of equity shares outstanding during the period. This is not in accordance with AS-20.

(c) In some cases, the enterprises determining the weighted average number of equity shares outstanding during the period considering the number of equity shares as at the beginning and at the end of the year without adjusting the same for the effects of all dilutive potential equity shares.

(ii) AAS-28 — The Auditor’s Report on Financial Statements :

In some cases the auditor/partner of Audit Firm does not give his Membership Number. This is in contravention of AAS-28.

(iii) CARO Report :

(a) In some cases the auditors do not report on the second part of para 4(iv) which requires the auditor to state whether there is a continuing failure to correct major weaknesses in internal control system.

(b) In some cases it was noticed that CARO report is addressed to directors whereas it is required to be addressed to the members.

4. Secondment of articled assistants :

It is possible to send an articled assistant to another member entitled to train articled assistants for an aggregate period of one year during the period of articleship. The following Rules for this purpose are given on P. 150 of C.A. Journal, July, 2009.

(i) A principal may, with the consent of the articled assistant, second from time to time the articled assistant to other member or members with a view to provide the articled assistant the opportunity of gaining practical experience in areas where the principal may not be in a position to provide the same.

(ii) The articled assistant shall be seconded only to a member who is entitled to train one or more articled assistants in his own right or to a member in industry who is entitled to train one or more industrial trainees.

(iii) The member to whom the articled assistant is seconded will not be entitled to train more than two such assistants on secondment at a time.

(iv)(a) The maximum period of secondment shall be one year which may be served with a single eligible member.

(b) The Council may permit secondment with more than one such member provided the minimum period of secondment shall be four months and the aggregate period served on secondment with such members shall not exceed one year.

(v) Where an articled assistant is seconded to a member in industry, the total period spent in industry by the articled assistant, including the period of industrial training under the Regulations, shall not exceed one year.

(vi) During the period of secondment, the member with whom the articled assistant is seconded shall pay the stipend as provided under the Regulations.

(vii) The member with whom the articled assistant is seconded shall be responsible for imparting training during secondment. He shall maintain records of practical training undergone by the articled assistant during secondment and forward the same to the principal on completion of period of secondment. The principal shall include required particulars in the report to the Council under Regulation 64.

viii) A statement in the form approved by the Council shall be sent to the Secretary for records within thirty days from the date of commencement of training on secondment.

5. Accounting and Internal Audit Standards:

i) Exposure Draft of AS-16 :

Borrowing Costs (Revised) has been published by ICAI for comments before 10th August. There is no major difference between the revised AS-16 and IAS-23 except in respect of application of the standard to borrowing costs that are directly attributed to the acquisition, construction or production of inventories that are manufactured or otherwise produced in large qualities on a repetitive basis. (Refer P.155 of CA. Journal, July, 2009).

ii) Exposure Draft of Standard Internal Audit (SIA) :

This standard deals with ‘Consideration of Laws and Regulations in an Internal Audit’. This standard deals with Internal Auditor’s responsibility to consider laws and regulations when performing an Internal Audit or such other review exercise with the objective of providing assurance thereon. The draft is published on pages 168-173 of CA. Journal of July, 2009.

6. Accounts and Audit of Limited Liability Partnership (LLP) :

LLP Act and Rules have now come into force from 1-4-2009. The Sections relating to conversion of firms and private and public unlisted Companies into LLP have also come into force from 31-5-2009. The Finance (No. 2) Act, 2009, recently enacted, provides that LLP will have to pay tax under the Income-tax Act in the same manner as a Firm. Therefore, LLP will not be required to pay MAT, Dividend Distribution or Wealth tax. The provisions relating to accounts and audit of LLP are as under:

i) U / s.34 of the LLP Act, an LLP has to maintain the books of accounts as prescribed in Rule 24. Such books may be maintained either on cash basis or accrual basis of accounting.

ii) LLP has to follow accounting year from April to March only. It cannot choose any other accounting year.

iii) Rule 24 provides that the above books of accounts should be preserved for 8 years.

iv) The above accounts have to be audited by Chartered Accountant(s) if the turnover of LLP exceeds Rs.40 lacs or the contribution by the partners exceeds Rs.25 lacs.

v) The designated partners of LLP or the partners shall appoint an auditor or auditors as under:

For first financial year before the end of the year.
For subsequent years, atleast 30 days before the end of the year.
For filling up the casual vacancy in the office of the auditor.
For filling up the vacancy caused by removal of an auditor.

vi) The auditor appointed as above shall hold office for the financial year for which he is appointed. He shall hold such office till any other person is appointed as auditor.

vii) The partners of LLP can remove an auditor from his office at any time by following the procedure in LLP agreement.

viii) An auditor of LLP can resign by giving notice to LLP. If he does not want to be reappointed he shall give atleast 14 days notice.

ix) The remuneration of the auditor may be fixed by the designated partners of LLP or by fol-lowing the procedure laid down by the LLP Agreement.

x) LLP has to get the accounts audited each year on or before 30th September and file Statement of Account and Solvency in Form No. 8 with ROC on or before 31st October with the pre-scribed fee. LLP is also required to file Annual Return in Form No. 11 with ROC with pre-scribed fee within 60 days of the close of the financial year (i.e., before 31st May).

xi) The LLP Act or Rules do not prescribe the form of profit & loss A/c. and balance sheet or the form of audit report which the auditor has to give. Therefore, ICAI will have to recommend these forms for the guidance of our members. Form No. 8 provides for information to be given to ROC about assets, liabilities, income and expenditure. It also states that auditor will have to give a certificate in the following form.

“It is hereby certified that I have verified the particulars in the statement of Account and Solvency including the Statements of Assets and Liabilities as at ……………. and the Income and Expenditure for the period ending …………….. from the accounting records and other books and papers of (LLP) and found than to be true and fair.”

7. New Publications of ICAI :

Technical Guide on Estimation of Future Cash Flows and Discount Rates for the purpose of AS-28 – Impairment of Assets (P. 146 of CA. Journal, July, 2009).
Study on Benefits of Preferential Trade Agreements (P. 153 of CA. Journal July, 2009).
Taxation of Charitable Trusts and Institutions – A Study.
Data Analysis for Auditors (Practical Case Studies on using CAA T’s).
Motor Third Party Claims Management.
Clean Development Mechanism and Carbon Credits – A Primer.
Professional Opportunities for Members – An Appraisal.

BCAJ Admin

Miscellaneous

From Published Accounts

Section B: Miscellaneous

4 Qualification regarding non-provision of disputed statutory
liabilities

Sterlite Technologies Ltd. — (31-3-2010)

From Notes to Accounts :

The Company had in an earlier year received an order of
CESTAT upholding the demand of Rs.188 crores (including penalties and excluding
interest) (Rs.188 crores as at March 31, 2009) in the pending excise/custom
matters on various grounds. The Company’s appeal with the Honourable High Court
of Mumbai was rejected on the grounds of jurisdiction. The Company preferred an
appeal with the Honourable Supreme Court of India against the order of CESTAT,
which has been admitted. The Company has reevaluated the case on admission of
appeal by the Supreme Court. Based on their appraisal of the matter, the legal
advisors/consultants are of the view that under the most likely event, the
provision of Rs.5 crores made by the Company against the above demand is
adequate. The management is confident of a favourable order and hence no further
provision is considered against the said demand.

From Auditors’ Report :

As stated in Note No. 8 of Schedule 21, the Company had in an
earlier year received an order of CESTAT upholding a demand of Rs.188 crores
(including penalties and excluding interest) (Rs.188 crores as at March 31,
2009) in a pending excise/customs matter. The Company’s appeal against this
order with the Supreme Court has been admitted. Based on the current status and
legal advice received, provision for liability as recorded in the accompanying
financial statements is considered adequate by the management. In the event the
decision of the Supreme Court goes against the Company on any of the grounds of
appeal, additional provision against the said demand may be required. Pending
disposal of the matter by the Supreme Court, the amount of excise/customs duty
payable, if any, is currently unascertainable. Our audit report on the financial
statements for the year ended March 31, 2009 was qualified in respect of this
matter.

In our opinion and to the best of our information and
according to the explanations given to us, the said accounts give the
information required by the Companies Act, 1956, in the manner so required and
subject to the effect of the matter referred to in paragraph vi above give a
true and fair view in conformity with the accounting principles generally
accepted in India.

5 Provisions made in earlier year towards loss of inventory,
expected higher sales returns and expected reversal of export benefits partly
reversed during the year

Ranbaxy Laboratories Ltd. — (31-12-2009)

From Notes to Accounts :

On 16 September 2008, the Company received two warning
letters and an Import Alert from the United States of America (USA) FDA,
covering 30 generic drugs being manufactured at its Paonta Sahib and Dewas
manufacturing facilities in India. The issue raised in the warning letters
relate to ‘Current Good Manufacturing Practice’ being followed at the said
plants and does not in any way raise questions on product’s quality, safety or
effectiveness.

In 2008, consequent to Import Alert, the Company was not able
to sell the products covered under Import Alert, and accordingly, it had
recorded a

provision of Rs.2,631.11 million in that year, towards inventory, expected sales
return and related exports benefits.

On 25 February 2009, the Company received a letter from the
US FDA indicating that the Agency had invoked its Application Integrity Policy
(‘AIP’) against the Paonta Sahib facility (the ‘facility’). The management of
the Company believes that there was no falsification of data generated at the
facility and also believes that there is no indication of a pattern and practice
of submitting untrue statements of

material facts and there was no other improper conduct. Accordingly, the
Company, based on opinion from its legal council, believes that there is no

incremental present obligation existing at the balance sheet date on account of
these notices.

The Company continues to fully cooperate with the concerned
authorities for their final clearance, pending which there would be delays for
new

product approvals and sale of existing products in the United States of America.
During the current year, the Company has performed a re-assessment of the amount
of provisions created in 2008 and reversed a provision of Rs.937.81 million
which is included in unclaimed balances/excess provisions written back, which in
view of the Company is no longer required now.

In the year 2008, the Department of Justice (DOJ), USA had
filed certain charges against the Company citing possible issues with the data
submitted by the Company, in support of product filing. The Company continues to
work diligently with the concerned authorities towards resolution of the issue.

From Auditors’ Report :

Without qualifying our opinion, we draw attention to Note 2
on Schedule 23 of the financial statements. Consequent to the Food and Drug
Administration (FDA) of the United States of America import alerts and the FDA
letter dated 25 February 2009 imposing the Application Integrity Policy, the
Company had recorded provision of Rs.2,631.11 million during the year ended 31
December 2008 towards loss of inventory in hand, expected higher sales returns
and, expected reversal of export benefits. The basis and assumptions used by the
management in calculating these provisions were based on significant judgment
and estimates due to involvement of uncertainty, and actual result could have
been different from the management’s estimate.

6 Non-provision of diminution in Consolidated Financial
Statements (CFS) for fall in value of loan given by Joint Venture company to
ESOP Trust

Godrej Consumer Products Ltd. — (31-3-2010)

From Notes to Accounts to CFS :

Stock options have been granted to eligible
employees of the Joint Venture of the Company under an ESOP scheme instituted
by the Joint Venture company. The equity shares of Godrej Industries Ltd. are
the underlying equity shares for the stock option scheme. The ESOP is
administered by an independent ESOP trust created with IL&FS Trust Company
Limited which acquires by subscription/purchase or otherwise, the shares of
Godrej Industries Ltd. equivalent to the number of options proposed to be granted.
The Joint Venture Company has given a loan of Rs.5,940.00 lac to the ESOP trust
to finance the purchase of such equity shares. As at March 31, 2010, the market
value of the equity shares of Godrej Industries Ltd. are lower by Rs.2,239.69
lac as compared to the cost of acquisition of these equity shares. The
repayment of the loan granted to the ESOP trust is dependant on the exercise of
the options by the employees and the market price of the underlying shares of
the unexercised options at the end of the exercise period. The fall in the
value of the underlying equity shares is on account of current market
volatility and the loss, if any, can be determined only at the end of the
exercise period. In view of the aforesaid, provision for diminution of
Rs.2,239.69 lac has not been considered necessary in the accounts of the Joint
Venture. The Group’s 40% share in the above diminution amounts to Rs.1097.45
lac.

From Auditor’s Report on CFS :

We draw attention to Note 15(i), Schedule
15 : Notes to Consolidated Accounts, where it has been stated that a Joint
Venture company has given a loan of Rs.5,940.00 lac to its ESOP trust to
finance the purchase of the equity shares of Godrej Industries Ltd., being the
underlying equity shares for the stock option scheme. As at March 31, 2010, the
market value of the equity shares of Godrej Industries Ltd. are lower by
Rs.2,239.69 lac as compared to the cost of acquisition of these equity shares.
The repayment of the loan granted to the ESOP trust is dependant on the
exercise of the options by the employees and the market price of the underlying
shares of the unexercised options at the end of the exercise period. The fall
in the value of the underlying equity shares is on account of current market
volatility and the loss, if any, can be determined only at the end of the
exercise period. In view of the aforesaid, provision for diminution of
Rs.2,239.60 lac has not been considered necessary in the accounts of the Joint
Venture. The Group’s 49% share in the above diminution amounts to Rs.1,097.45
lac.

BCAJ Admin

Section B : Miscellaneous

BCAJ Admin

ORDERS OF CIC

Right to information

Part A: ORDERS OF CIC

S. 8(1)(e) & (h), S. 11 and S. 22 :

The first time a multi–member Bench of the Central
Information Commission has not given a unanimous decision. It is a split
decision. Two Information Commissioners : Mr. A. N. Tiwari and Mr. Satyananda
Misra delivered one decision and Information Commissioner Mr. Shailesh Gandhi
delivered the counterdecision.

Mr. C. Seetharamaiah (Mr. CS) made an RTI application to the
Commissionerate of Customs and Central Excise (CCCE), in which he requested for
the correspondence, telephone conversations, etc. between the Central Bureau of
Investigation (CBI) and CCCE in connection with the prosecution under the
Prevention of Corruption Act launched
on his son who was working as an Inspector of Central Excise.

The CPIO and the AA denied the information stating that if
furnished, it would impede the process of prosecution, exemption being covered
u/s.8(1)(h).

Further, the AA stated that as the information sought for
includes the third party’s (CBI) investigation report, the matter was referred
to CBI and it had replied that the same may not be revealed as the case is under
trial and parting with these documents would impede the prosecution of
offenders.

Due to the fact that certain important points of law needed
to be decided, the matter was referred to a three-member Bench by Mr. A. N.
Tiwari.

In the proceedings of this matter, all 3 parties viz.,
Mr. CS, CCCE and CBI made extensive submissions: Mr. CS submitted that the very
purpose of the RTI Act would be defeated if such information is not furnished.
“The officers who are being prosecuted for matters pertaining to discharge of
their official duties, if innocent, have to go through the vexatious prosecution
for years together. Revealing of information, as provided under the Right to
Information Act, 2005, may hasten the judicial process and help the innocent. As
already held by the Central Information Commission, there cannot be misuse of
the truth and the information available to a prosecutor should be made available
to the alleged offender also. It would be appreciable for everyone if the pace
of the judicial process is increased with the help of information obtained under
spirit of democracy.”

The CCCE and CBI argued that an accused in an ongoing
prosecution should not be allowed to access any information which may be
evidence in that prosecution. An accused in ongoing prosecution is free to
demand such information from the Trial Court and it is a matter which is
entirely within the jurisdiction and the discretion of the Trial Court.

Two members stated that the word ‘impede’ used in
S. 8(1)(h) holds the key to whether information requested by the appellant
should be allowed to be disclosed.

It was also the two members’ view that information which is
evidence or is related to evidence in an ongoing prosecution comes under the
control of the Trial Court within the meaning of S. 2(j) of the RTI Act, which
states as follows :

‘ “right to information” means the right to information
accessible under this Act which is held by or under the control of any
public authority and includes the right to . . . . . .’

I now reproduce 3 paras (part or full) of the decision :

28. It is significant that this S. 2(j) uses two
expressions about the location of given information, i.e., ‘held’ and
‘under the control of’. In our view, expression ‘held’ implies that a public
authority has physical possession of given information. The word ‘under the
control of’ implies that the information, regardless of which public authority
holds it, is under the control of a specific public authority on whose orders
alone it can be produced in a given proceeding. In the present case, the
material sought by the appellant is undoubtedly related to an ongoing Court
proceeding and hence it can be rightly said to be under the control of the
Trial Court, who alone can decide how the information is to be dispensed. Any
action under the RTI Act or any other Act for disclosure of that information
to the very party who is arraigned before the Trial Court or to anyone
representing that party, would have the effect of interfering with the
discretion of the Court, thereby impeding an extant prosecution proceeding.

29. Since the Information requested by the appellant is
under the control of the Trial Court, it is open to the appellant to approach
that Court through an appropriate proceeding under the criminal laws or if he
so wishes, u/s.6(1) of the RTI Act. The Court can then take action u/s.2(f) of
the RTI Act in case it decides that the petitioner should be allowed access to
the information he had requested. The key point is that either of these two
actions has to be before the Trial Court and not the respondent-public
authority (viz. Office of Commissioner of Customs, Central Excise and
Service Tax) or the third party (viz. CBI) as in this case. We agree
with the respondents that the integrity of a criminal proceeding before a
Trial Court in matters of what to allow to be produced as evidence should be
taken by the Court itself and not otherwise. We also note the fact that under
criminal laws, a public authority is authorised not to produce a certain
information or record in the Trial Court unless so directed by the Court
itself. Forcing the public authority to part with any such information — which
it would otherwise not have disclosed before the Trial Court — through an RTI
— proceedings would amount to imposing on the prosecuting public authority,
obligations which it was not obliged to bear.

30. It is, therefore, important that all determinations
about disclosure of any information relating to an ongoing prosecution should
be through the agency of the Trial Court and not otherwise.

The two members further noted :

33. According to the preamble to the RTI Act, one of the
purposes the Act designed to sub-serve was to combat corruption. We look
askance at any effort to convert the RTI Act into a tool to weaken the edifice
of law which seeks to bring to book errant public servants, especially when
such public servants have all the means available to them to present their
case before the Trial Court and seek from it the very information they now
want them to be provided through the RTI Act.

34. The two members also noted that their
decision is also backed by the fact that the whole matter falls within the
ambit of S. 11(1) read with S. 7(7) of the Act since “it relates to or has been
supplied by a third party and has been treated as confidential by that third
party…..”

CBI had argued
that its objection to disclosure of information u/s.11 can be ignored only if
“public interest in disclosure outweighs in importance any possible harm or
injury to the interests of such third-party”.

CBI had argued
that there was no public interest. On the contrary, public interest is
positively harmed when interested parties are given the privilege of
interrogating a prosecuting agency about its actions vis-à-vis that party
through an RTI — proceeding when the prosecution before a Trial Court is
already extant.

Based on the
above, two members took the view: “Neither the provisions of the RTI Act, nor
the canons of justice, or equity commend disclosure of information as requested
by this appellant.”

Dissenting
decision:

IC Shailesh
Gandhi came to the conclusion that the information sought must be disclosed,
since there are no reasons in law to deny the information. IC writes thus:

“The
Commission’s decisions have been unanimous so far, and I am hesitant to break
this tradition. But I believe when there are different views on transparency,
it is worthwhile to voice them. I am inspired by Justice Mathew who had said in
the Supreme Court in State of UP v. Raj Narain (1975), ‘in a government of
responsibility like ours, where all the agents of the public must be
responsible for their conduct, there can be but few secrets. The people of this
country have a right to know every public act, everything that is done in a
public way, by their public functionaries. They are entitled to know the
particulars of every public transaction in all its bearing. The right to know,
which is derived from the concept of freedom of speech, though not absolute, is
a factor which should make one wary, when secrecy is claimed for transactions
which can, at any rate, have no re-percussion on public security. To cover with
veil of secrecy, the common routine business, is not in the interest of the
public. Such secrecy can seldom be legitimately desired. It is generally
desired for the purposes of parties and politics or personal self-interest or
bureaucratic routine. The responsibility of officials to explain and to justify
their acts is the chief safeguard against oppression and corruption.” I
sincerely believe that India could benefit immensely from RTI which is but a
search for the truth as it exists on the records of public authorities. Denial
of information must be an exception, since it is a denial of the fundamental
right of the sovereign citizen of India, and must rigorously meet the
requirements of the exemptions of S. 8(1) of the RTI Act. I cannot agree to
views which I feel do not reflect the law in letter and spirit.

He first dealt
with submissions of CBI that S. 8(1)(e) and S. 8(1)(h) and S.11 are applicable.

He held that for
S. 8(1)(e) to apply, there must be a fiduciary relationship and the holder of
information must hold the information in his fiduciary capacity. All
relationships usually have an element of trust, but all of them cannot be
classified as fiduciary. In these relationships, the lawyer and the doctor act
on behalf and in the interest of their client and patient. But in the present
case the Department would not be considering the report on behalf of CBI or in
the interest of any particular entity or individual. Therefore exemption
u/s.8(1)(e) claimed by the CBI is not tenable under the Right to Information
Act.

Mr. Shailesh
Gandhi then referred the provisions of S. 22.

“S. 22
provides:

The provisions
of this Act shall have effect not-withstanding anything inconsistent therewith
contained in the Official Secrets Act, 1923, and any other law for the time
being in force or in any instrument having effect by virtue of any law other
than this Act.”

He quotes
Justice Sanjeev Khanna of the High Court of Delhi in ‘Union of India v. CIC’:

“S. 22 of the
RTI Act gives supremacy to the said Act and stipulates that the provisions of
the RTI Act will override notwithstanding anything to the contrary contained in
the Official Secrets Act or any other enactment for the time being in force.
This nonobstante clause has to be given full effect to, in compliance with the
legislative intent.”

The two members
had taken the view that S. 8(1)(h) applies. Two reasons were given for it.

One: Disclosing
names of the officials involved in the report would impede the prosecution. Mr.
Gandhi argued?: “The officials may claim exemption u/s.8(1)(g), but this would
again be open to judicial scrutiny by the Commission and would not be
necessarily accepted. Even if this were accepted, the Commission u/s.10 could
direct severance of the names of the officers mentioned in the report.”

Two: According
to Mr. Gandhi, no reasons have been advanced showing how the prosecution would
be impeded by disclosing the information. When denying a right to the citizen,
it has to be established beyond doubt that prosecution or apprehension of an
offender would be impeded. This has not been done. If the Parliament wanted to
exempt all information which was the subject matter of a prosecution, it would
have said this. The Parliament has specifically exempted only the information
which would ‘impede’ the process of investigation or prosecution.

Further, he
writes:

“The argument
that the information can be made available to the appellant’s son in
accordance with the provisions of the Criminal Procedure Code is in itself
self-defeating. This is because it establishes that CBI and the prosecuting
agencies have no objection in the appellant’s son accessing the information per
se. Their objection is to the route adopted and to the fact that the Commission
may order the disclosure of information. The majority decision appears to subscribe
to this. With regard to the Right to Information Act, the Commission is the
final decision-making body. The Trial Court has jurisdiction over matters
coming before it, but not over appeals and complaints under the Right to
Information Act. The Commission cannot abdicate its re-sponsibility and
authority in deciding about disclosure of information under the RTI Act to any
Court. The existence of an alternative route to access information, does not in
itself provide an exemption to disclosure u/s.8(1) of the RTI Act. Unless the
information sought is proven to be exempt u/s.8(1) or 9 of the RTI Act, the
Commission cannot accept any other exemption external to either of these
provisions. The CBI has not advanced any spe-cific argument to show how the prosecution
would be impeded to claim exemption from disclosure u/s.8(1)(h).

Mr. Shailesh
Gandhi contradicts the interpretation of the majority decision on S. 2(j)
referred to in para 28 (supra). He states:

“The word used
in the provision is ‘or’ and not ‘and’. Thus information may be sought either
from the public authority holding the information or the public authority
having control over the information. The Parliament has deliberately drawn this
distinction as in some cases these two public authorities may be two entirely
different entities. Therefore, if a public authority holds the information, it
must provide the same to the RTI applicant in accordance with the provisions of
the RTI Act. It is not at all necessary for that public authority to control
that information as well. In the present case, the Trial Court may have control
over the record, but the CBI is the public authority holding the SP report.
Therefore, the SP report can be sought from the Commissioner of Customs &
Central Excise or from the Trial Court. Since the appellant has sought it from
the Commissionerate, the public authority holding the information must provide
the same.”

As to arguments
advanced for application of S. 11,

Mr. Shailesh
Gandhi writes:

“It is clearly
stated at S. 11(1) that ‘submission of third party shall be kept in view while
taking a decision about disclosure of information’. S. 11 does not give a third
party an unrestrained veto to refuse disclosing information. It only gives the
third party an opportunity to voice its objections to disclosing information.
The PIO will keep this in view and take a decision about disclosure of
information. If the PIO comes to the conclusion that the exemptions of S. 8(1)
apply, he may refuse to disclose the information.”

“S. 11 of the
RTI Act is a procedural provision which requires the PIO to approach a third
party if the information sought relates to such third party. S. 11 is not a
substantive provision and therefore is not an exemption in addition to those
provided in S. 8(1) and S. 9. Once the PIO receives the objections, raised by
the third party, he must keep these in view while deciding whether to disclose
the information or not. This decision has to be in consonance with the other
provisions of the RTI Act and therefore exemptions claimed by the third party
have to be justified by the PIO u/s.8(1) or S. 9. The provision of S. 11(4)
gives the right to the third party to appeal against the decision of the PIO.
This would not have been relevant if the mere denial by the third party of
disclosure of information were to be considered to be final.

Then disagreeing
with the contention raised in para 33 (supra), he writes?:

“I most
respectfully disagree with this contention since it appears to propound a
principle that an accused in a corruption case can be denied his fundamental
right. Right to Information is a fundamental right of the citizens codified by
the RTI Act, 2005. A fundamental right cannot be curtailed arbitrarily and
without the sanction of law. It does not matter if the person accessing the
information or the person in relation to whom information is sought is a
convict or an accused. He cannot be denied his fundamental right. The duty of
the Commission is to ensure that the RTI Act is implemented properly and to ensure
that it does not take into account extraneous considerations while deciding on
appeals and complaints before it.”

Finally, paras
51 and 52 of his decision:

51. To summarise:

(a) The information sought is not exempt
u/s.8(1)(e) or (h) for reasons explained above.

(b) The RTI Act clearly overrides all other
prior Acts in matters of disclosures of information as per S. 22.

(c) Refusal of information can only be based
on the RTI Act, when an application is made under this Act. The Commission is a
creation of the RTI Act and can only agree to denial of information which is
expressly exempted u/s.8(1) or u/s.9 of the RTI Act.

(d) If there are various routes by which a
citizen can access information, it is his prerogative to use one which he finds
convenient.

(e) S. 11 is not a provision which can be
used to justify exempting information from being disclosed, unless it is
covered by S. 8(1).

52. In view of the reasons stated above, I
find the arguments put forward for the denial of information to be untenable.
Hence I cannot agree with the majority decision, and it is my considered
opinion that the information sought by the appellant is not covered by the
exemptions of S. 8(1) of the RTI Act and hence should be disclosed.

Note?: Full
decision shall be posted on website of BCAS and PCGT for anyone interested in
reading these extremely well-reasoned two counter decisions.

[Mr. C.
Seetharamaiah v. Commissionerate of Customs & Central Excise (Third Party?:
Central Bureau of Investigation)?: Appeal No. CIC/ AT/A/2008/01238 dated
19-9-2008 — decision dated 7-6-2010]

PART B: THE
RTI ACT

Payment of
fee under the RTI Act, 2005:

S. 6(1), S. 7(1)
& S. 7(5) provide for fee payable for accessing information being
application fee and fee for information supplied in photocopies, print or in
any electronic format. Proviso to S. 7 states that the fee prescribed by the
rules shall be reasonable. DoPT of Persmin, Government of India vide office
Memorandum (No. 12/09/2009.IR) has issued some clarifications on this subject.
The same are summarised hereunder?:

The Rules or the Act do not give power to the
PIO to charge any fee other than prescribed in the Fee and Cost Rules.
Attention is drawn to the common order of the
CIC in one appeal and one complaint which reads as under:

“Thus, there is provision for
charging of fee only u/s.6(1) which is the application fee: S. 7(1) which is
the fee charged for photo-copying, etc. and S. 7(5) which is for getting
information in printed or electronic format. But there is no provision for any
further fee and if any further fee is being charged by the public authorities
in addition to what is already prescribed u/s. 6(1), u/s.7(1) and u/s.7(5) of
the Act, the same would be in contravention of the Right to Information Act.
The ‘further fee’ mentioned in S. 7(3) only refers to the procedure in availing
of the further fee already prescribed under 7(5) of the RTI Act, which is
‘further’ in terms of the basic fee of Rs.10. S. 7(3), therefore, provides for
procedure for realising the fees so prescribed.”

·
It is hereby clarified that where a Public
Information Officer takes a decision to provide information on payment of fee
in addition to the application fee, he should determine the quantum of such fee
in accordance with the fee prescribed under the Fee and Cost Rules and give the
details of such fee to the applicant together with the calculation made to
arrive at such fee. Since the Act or the Rules do not provide for charging of
fee towards postal expenses or cost involved in deployment of manpower for
supply of information, etc., he should not ask the applicant to pay fee on such
account.

Part 3 :
INFORMATION ON & AROUND

·
Appointments of Information Commissioners

The Government
will be appointing 22 commissioners this year. Of the 22 commissioners who are
retiring, six are with the Central Information Commission, including its chief
Wajahat Habibullah.

In August 2008,
DoPT recommended its Secretary S. N. Mishra, Annapura Dixit, Ashok K.
Mohapatra, R. B. Shreekumar, M. L. Sharma and Shailesh Gandhi for appointment
as information commissioners in the Central Information Commission.

Except Gandhi,
whose name was
proposed by several RTI
activists, names of the others were not recommended by anyone. But their
bio-data got included in the proposal for appointment of information
commissioners.

On the other
hand, three persons — Ravi Shankar Singh, Sudhanshu Ranjan and Dr. Krishna
Kabir Anthony — who applied and were also recommended by politicians did not
find a place in the agenda for the selection committee headed by the Prime
Minister. There were 12 others like them.

Arvind Kejriwal
who got the above info under RTI query says:

“it appears the
DoPT has become the de facto selection committee and the selection committee
provided under the law has been reduced to an endorsement committee.”

·
BMC employees not being transferred:

Months after
Bandra residents managed a landmark victory forcing the transfer of at least
eight engineers who had been tossed around in the H-West ward for 20 years, an
RTI query has revealed that a similar situation exists in Andheri as well. As
many as 50 employees, including peons, engineers and clerical staff, haven’t
been transferred, some since the 80s.

The RTI query
filed by activist Aziz Amreliwala revealed that despite the BMC Rules that make
rotation of officials mandatory every three years, at the K/East ward, 11
engineers, including sub, junior and assistant engineers, have enjoyed the same
post for several years. In fact, some of them have even been promoted. Experts
blame a nexus between officials and politicians that make the transfers of
employees impossible.

·
Maharashtra Chief IC

Dr. Suresh
Joshi, Chief Information Commissioner retires on 12-10-2010 (exactly on the 5th
anniversary of RTI).

Political
activist Chandrashekar Prabhu, additional chief secretaries M. Rameshkumar and
Bhupati Prasad Pandey, retired bureaucrats Leena Mehandale, S. S. Hussain and
state human rights commission member Subhash Lala are prominent among the
150-and-odd persons competing for the post of the State CIC.

Dr. Joshi has
gone on leave and entrusted his task to the junior-most IC, Ramanand Tiwari.
Other Information Commissioners who are senior to Mr. Tiwari have taken
objection to the decision of Dr. Joshi.

Ever since the
appointment of retired IAS officers as info commissioners, a cold war is on
between IAS and non-IAS commissioners. When the process of appointment of
Information Commissioners was in progress, activist Anna Hazare had personally
called on the then CM and President of India, saying that the Government should
not appoint retired babus for such sensitive posts. Currently out of the 7
commissioners, 3 are retired IAS and 4 are non-IAS officers.

Meanwhile, over
42 serving and retired IAS officials and 89 individuals have applied for the
post of info commissioners. The Nashik Information Commissioner’s post is lying
vacant. Aurangabad IC died in July 2010.

·
Panchayati Raj Ministry:

The Panchayati
Raj Ministry, responsible for decentralisation and local governance in states,
but more importantly, empowering the rural poor, has been spending crores every
year as rent on space acquired at a 5-star hotel in south Delhi being 5,500
sq.ft. space on the sixth floor of Samrat Hotel in Chanakyapuri.

This information
came to light in reply to an RTI application filed by a Delhi-based activist.
Rent per month was `190 per sq.ft., for a period of two years commencing from
September 1, 2006, to be extended further with an increase of 8% after expiry
of the tenure. After the period lapsed on August 30, 2008, the present rate of
rent became `210.60 per sq.ft., from September 1, 2008. The total adds up to
more than `5 crore spent as rent so far.

·
Corruption Eradication Committees:

Maharashtra
State Government’s commitment to combating corruption is facing its real test
in Thane, where a citizen activist has put a spotlight on the District
Collectorate for failing to comply with rules concerning the setting up of
Corruption Eradication Committees (CEC) at the taluka and district level.

The watch-dog
committees, comprising 10 citizens, selected after police verification, besides
a team of administrative and police officials, have been armed with the authority
to inquire into complaints of corruption. The anti-graft panels, initiated in
1996 during the Shiv Sena-BJP regime, raised hopes of finally getting justice
among aggrieved citizens as non-official members would ensure redressal of
public issues during monthly meetings.

The Thane
Collectorate, however, seems to be an exception to the rule aimed at equipping
people with the authority to question the corrupt. Of the 15 talukas, none has
a fully constituted CEC. In fact, the district CEC has just three non-official
representatives as against the mandatory ten.

·
Cost of getting the information:

Citizens and RTI
activists have a reason to cheer. Now, they can save thousands of rupees which
they pay fee to get ‘readily available’ information under the RTI Act,
According to the Information Commission, they will get the information for Rs 2
per page, as stipulated in the Act.

Several RTI
applicants had complained that they were made to pay through their nose,
particularly while seeking information from BMC’s property-related departments,
such as assessment. Also officers often did not sign or attest papers while
giving information. When they were asked to sign on the documents, they used to
ask applicants to pay as per the BMC rate card which existed before the RTI Act
came into existence. The practice continued despite the fact that the RTI Act
has a superseding effect on all prior rules.

For example,
certified copies were charged at `230 per property in the assessment
department. If the applicant had to ask property details or building details
for more than one property, they would pay in thousands. Apart from this, the
inspection of voluminous information that is free for the first hour and `5 for
every 15 minutes was being charged `150 per hour.

The order from
Information Commission comes after a sustained battle of over one and a half
year by NGO, Mahiti Adhikar Manch, and some active citizens. The State Chief
Information Commissioner, Dr. Suresh Joshi, who heard the matter in March 2009,
passed order dated July 9, 2010, after a series of meetings with additional
municipal commissioners.

BCAJ Admin

Right to Information

Part A : Decisions of CIC

l S. 2(f) and S. 7 :

Mr. Rakesh Agarwal sought the following information under RTI application to Mr. K. S. Rawat, PIO, Tis Hazari Courts, Delhi :

1. Whether intimations are sent by each traffic court of Delhi presided over by Spl. M.M.S. as required by S. 210 of the Motor Vehicles Act 1988 ?

2. If not, reasons for the same.

3. If yes, copies of all such intimations that pertain to convictions on 9 and 10 January 2008 across all Traffic Courts of Delhi.

The PIO held that information sought for was not held by or under the control of any public authority and therefore did not fall u/s.2(f) of the RTI Act, which defines ‘information’.

Further, the PIO stated that the appellant was representing his newspaper/magazine called ‘Nyay Bhumi’ and had filed 3 RTI applications in 15 days and the appellant was working for promotion of his business rather than serving social interest. Hence, it was a blatant misuse of the RTI Act.

The First Appellate Authority (FAA) directed the PIO to collect the information from the Courts dealing with traffic cases and send it to the appellant within 20 days. The order was passed by FAA beyond 45 days and no hearing was given.

The following two were grounds of appeal before CIC :

The PIO demanded payment for providing information thereby violating S. 7(6)

FAA did not afford a hearing to the appellant and received the FAA’s order on 25-2-2009 thereby exceeding the time limit set in the Act.

It may be noted that the PIO had first held that information sought was not covered u/s.2(f) and only when FAA directed to furnish information, he agreed to provide it but only on payment of prescribed fee (i.e., Rs.2 per page). While the appellant’s contention was that having not validly denied supply of information, the same has to be submitted free as provided u/s.7(6) which reads as under :

S. 7(6) : Notwithstanding anything contained in Ss.(5), the person making request for the information shall be provided the information free of charge where a public authority fails to comply with the time limits specified in Ss.(1).

CIC in the decision stated :

“It is a basic tenet of statutory interpretation that words of a statute should be interpreted keeping in mind the context in which they appear. Information is to be provided free of cost if S. 7(1) is not complied with. Rejection of a request for any of the reasons specified in S. 8 or S. 9 has to be valid rejection in law. If a ground for exemption from disclosure is wrongly relied upon, then it does not amount to ‘rejection of a request’ as started in S. 7(1). It is absurd to contend that the appellant must be made to pay the additional fees when the PIO wrongly denies information. The Commission finds the PIO’s deliberate misconstruction of the law unacceptable. This is an attempt to obstruct the implementation of the RTI Act and to delay the provision of information to the appellant without any reasonable cause.

CIC also observed that the PIO on several occasions, all of which are on record, has made unwarranted and irrelevant observations which give the impression that the PIO is malafidely denying information to the appellant. The Commission strongly advised the PIO to refrain from making such comments in future.

Based on the above, the Commission directed the PIO to provide the information to the appellant free of cost. He was also asked to show cause as to why penalty should not be imposed and disciplinary action be not recommended against him u/s.20(1) of the RTI Act.

[Mr. Rakesh Agarwal v. PIO, Tis Hazari Courts, Delhi, CIC/SG/A/2009/000675/3390, dated 22nd May 2009]

Ration card :

The appellant had applied for a ration card in 2006 and in spite of repeatedly being shunted to various places did not get any ration card. The PIO stated that the Government has subsequently declared as to how many BPL cards will be issued and time was set for applications to be made for BPL cards. The Delhi Government accepted applications for BPL cards in February-March 2009 and decided on a maximum number of cards which are to be given. He stated that the applications were received and sent to a Vigilance Committee headed by MLA of the area. He admited that these cards are supposed to be given in 45 days, but the time at the Vigilance Committee headed by MLAs takes indefinite time.

CIC Shailesh Gandhi in the decision stated :

The appellant has not been given any appropriate reply indicating what is happening to her ration card application. The approximate loss to her per month of free foodgrain and kerosene is about Rs.500 per month. The appellant should have got proper answer to her RTI application by 6-4-2009. The loss of free foodgrain due to her is already for three months by which she has suffered loss of Rs.1500. The Commission also feels that the loss of time and trauma which she suffered on account of not getting her due entitlement and pursuing this application and appeal should be compensated with another Rs.1000. Hence the Commission awarded a total compensation of Rs.2500 to the appellant for loss of entitlement and to compensate for the effort and the trauma suffered in pursuing this matter.

The PIO was directed to give the information to the appellant before 10th July 2009 about the status of her application giving names and designations of the officers who have dealt with the BPL card application and where the application is presently.

[Smt. Nagina Devi, Delhi v. PIO, Food Supplies & Consumer Affairs, GNCT of Delhi, CIC/SG/A/2009/001213+1214/3969, dated 2nd July 2009]

Part B : The RTI Act

Annual Report Maharashtra State Information Commission :

Please refer to RtoI of June, 2009. Under other news, I had reported some statistics as covered in the Annual Report of Maharashtra State Information Commission. Now the report in English is published and Dr. Suresh Joshi, CSIC has kindly sent me a copy.

It is Third Annual Report of the year 2008. Some interesting extracts from it:

1,23,000 applications in 2006, 3)6,000 in 2007 and 4,16,090 in 2008 have been received respectively. In bigger States of our country less than one lakh applications come in one year. In the international arena England receives about 60,000, Mexico about 94,000. Similarly the Central Government receives about two and a half lakh applications. Thus it is seen that the people of Maharashtra have given tremendous response to this Act.

Understanding the important issues touching the lives of the people by using this Act agitating them on proper platform, fighting injustices, checking corruption, increasing the commitment of government employees to work and increasing the overall transparency in government functioning – many such like issues have been addressed due to the use of this Act.

Many young people have thrown themselves in this movement of the Right to Information. Similarly, many people above 60 years have also participated in spreading awareness about right to information. It is heartening to see that associations of officers, employees of the Government of Maharashtra have declared their support for this Act and have appealed to their members to give maximum information to the people through this Act. All these factors have proved useful in obtaining people’s support for this Act.

Maharashtra is the only State in the country where Benches of the Information Commission have been set up at the Division, level. Greater Mumbai, Konkan, Pune, Aurangabad, Nagpur already have Benches. Towards the end of 2008 Amravati Bench was constituted and on 24 December 2008 the Information Commissioner was appointed there. Only Nashik Bench now remains to be established and I am hopeful that it would be done soon.

Due to the formation of Divisional Benches the Commission’s work has reached nearer to the people. Commissioners have not only heard appeals at the divisional headquarters, but have attempted to hear them at the District level. Therefore people realised that ‘the Commission has come to our doors’ and this was perhaps one of the reasons for increasing number of RTI applications.

In 2007 the Commission decided 3611 appeals and complaints. This number is 15026 for the year 2008. The Commission has also started arranging hearings through video conferencing.

Annual Report 2006-07 of Central Information Commission :

(continuing from July 2009)

v) Collection of Charges by Public Authority (Vide: S. 25(3)(e) of RTI Act) : All the Minis-tries/Departments/ Apex-level Offices taken together collected Rs.30,71,167 in the year 2006-07. In the year 2005-06, the amount collected was Rs.5,08,490. There is six times increase in the amount collected in year 2006-07 over the previous year. Top 10 Ministries collected a total of Rs.22, 82,984 (74.33% of the total) in the year 2006-07.

vi) Disposal of appeals (Vide: S. 25(3)(c) of RTI Act) : All the Ministries/Departments/ Apex-level Offices, on an average, disposed 75% of the appeals received during the year 2006-07. Out of 57 Ministries/Departments/ Apex-level Offices, 22 Ministries have disposed 100% appeals during the year and 65 Public Authorities have received more than 50 appeals.

vii) Implementation of the Act (Vide: S. 25(3)(f) of RTI Act) : Efforts taken by Public Authorities to administer and implement the spirit and intention of RTI Act include launching of website to disseminate information with respect to Act and developing Public Grievance Redressal and Monitoring System (PGRMS) by some Ministries. Suggestions were received from Public Authorities about increasing fee for seeking information, for filing first and second appeals, increase in time to respond for older records, and taking up more capacity building programmes.

viii) Recommendations for Reforms, etc. (Vide: S. 25(3)(g) of RTI Act) : The Central Information Commission has made valuable recommendations for reforms and with respect to specific Ministries with a view to make RTI Act more effective. The recommendations include (a) streamlining the procedure of dealing with RTI applications, (b) strengthening of the staff for efficient disposal of RTI applications, (c) implementation of homogeneous fee structure, (d) full conformance with spirit of RTI Act, (e) respect for dignity of citizens. In addition CIC made some observations with similar objectives. These observations are with respect to (a) promotion of employees of Public Authorities, invasion of the privacy, (c) interpretations of rules and Acts, (d) language issues, (e) communication issues, (f) adherence to record retention policies and process of weeding out information, (g) computerisation, (h) training of the staff, and status of governing body and strengthening of staff grievances redressal system.

Part C : Other News

• Unclaimed money in the banks:

Coming down heavily on banks that keep funds in ‘suspense accounts’, the Central Information Commission has asked RBI to disclose details regarding ICICI Bank. CIC also directed RBI to provide information in 10 days if other banks, including govt-run ones, were following this practice. In his order, Information Commissioner Satyananda Mishra asked RBI to give a “comprehensive reply stating categorically if the RBI had ever issued any instruction on the subject and if according to them such practice was being followed in other banks including public sector banks”. The decision could have far-reaching impact in bringing information on unclaimed money into the public demain.

• File notings :

[Further to file notings as appeared in July 2009 issue]

In a Circular issued in the third week of June, DoPT has stated, “It is hereby clarified that file notings can be disclosed except those containing information exempt from disclosure u/s.8 of the Act.” DoPT’s move comes after the CIC had issued notice to two Department officers seeking reason why they should not be prosecuted for disobeying its orders. The Commission had asked the Department to correct its website which said notings couldn’t be disclosed under the Act. DoPT Minister Prithviraj Chavan has said that notings were not part of the proposed amendments to the RTI Act.

• BSE and SEBI :

Yogesh Mehta, a former sharebroker, and whom BCAS foundation RTI clinic on ongoing basis provides assistance has again received an order from CIC in his favour. CIC in a landmark order has directed the SEBI to procure information from the BSE’s Investor Protection Fund (IPF) and provide it to Mr. Mehta whose shares worth lakhs of rupees are lying impounded with IPF since last 13 years.

While BSE did not have any objection in providing information to SEBI, it was of the view that SEBI cannot provide the same to the citizen under the RTI Act. It is learnt that now a big battle awaits between BSE, SEBI and the applicant.

• Mediclaim Policy refund:

The RTI Act has come to the help of thousands of Mediclaim policy holders who have been struggling to get refund for the excess premium they have paid. The Central information Commission (CIC) has directed New India Assurance Company Ltd. to make public the details of the total number of policy holders who are still to get a refund for the excess premium charged. The CIC has asked the company to provide the information on the company’s website and send a copy of information to the Insurance Regulatory Development Authority.

Is vacation an excuse to delay on RTI application?

CIC has ruled that there is no law that allows Courts to give up their obligation under the Right to Information Act even if many staff members are on vacation. CIC’s disapproval came on HC’s failure to furnish an RTI response to an applicant on the ground that staff is lean owing to vacation.

“The Commission finds it difficult to accept that any public authority can claim vacation from RTI for one month which is not provided for in law,” Information Commissioner Shailesh Gandhi noted in a recent decision.

BCAJ Admin

Some Recent Judgments

Service TaxI. HIGH COURT :

1. Whether bottling of liquor amounts to packaging service ?

Maa Sharda Wine Traders v. UOI, 2009 (15) STR 3 (MP)

In this case, the question arose as to whether bottling of liquor amounted to packaging activity, liable for service tax considering that alcohol is not dutiable under the Central Excise Act (although it is liable under the State Excise Laws). The appellant among various others had filed a writ in the High Court primarily to challenge constitutional validity of the definition of packaging activity [S. 65(76b) of the Finance Act, 1994]. However, it was felt that justice would be done even on adopting apposite interpretative process whereby conclusion could be reached as to whether bottling of liquor could be treated as service liable for service tax or treated as ‘manufacture’ u/s.2(f) of the Central Excise Act and therefore, not liable under the service tax law. After doing a detailed analysis of the terms ‘manufacture’ and ‘excisable goods’ and considering the Department’s clarification vide CBEC Circular No. 249/1/2006-CX-4, dated October 27, 2008 in consonance with the statutory provisions as well as the law laid down by the Apex Court in Sir Shadilal Distillery and Chemical Works v. State of Uttar Pradesh, (1998) 8 SCC 428, it was held that bottling of liquor being incidental or ancillary to the completion of a manufactured product was ‘manufacture’ for the purpose of S. 2(f) of the Central Excise Act and since this is excluded from the definition of ‘packaging activity’ under the service tax law, it was held as not liable for service tax. Decision in the case of Vindhyachal Distilleries Pvt. Ltd. 2006 (3) STR 723 (LMP) was accordingly overruled.

Note :

The case has been reported in the July issue of BCAJ under the citation SOM Distilleries Pvt. Ltd. & Ors v. UOI & Ors., 2009 TIOL 292 HC MP ST LB. It may be noted further that to render the decision ineffective prospectively, Budget 2009 has sought to amend the definition of ‘business auxiliary service’ by excluding ‘manufacture of excisable goods’ instead of mere ‘manufacture’ in terms of S. 2(f).

2. Penalty :

CCE Jalandhar v. Darmania Enterprises, 2009 (14) STR 741 (P&H)

The Commissioner in this case enhanced the penalty imposed by the Assistant Commissioner while exercising revisional power u/s.84 of the Act from Rs.1,000 to Rs.31,652. The Commissioner also recorded suppression. However, the Tribunal set aside revision order and restored the original order by observing that leniency considered in view of S. 80 did not suffer any illegality and therefore, could not have been interfered by the revisional authority. The Court observed that since no evidence was produced before the revisional authority to prove fraud, misrepresentation, etc., no jurisdiction was acquired by the authority to impose penalty and dismissed the appeal stating that no question of law arose for determination of the Court.

II. TRIBUNAL :

3. Binding precedent :

S. V. Colour Lab v. CCE, 2009 (15) STR 231 (Tri. Bang.)

The issue of excluding cost of paper, chemicals, etc. being covered by the Tribunal decision in case of Shilpa Colour Lab & Others v. CCE, 2007 (5) STR 423 (Tri.-Bang), the Tribunal held that finding of the Commissioner (Appeals) that the Tribunal decision was distinguishable was wrong and against the judicial discipline and allowed the appeal.

4. Cargo Handling Service :

ITW India Ltd. v. CCE, Hyderabad 2009 (14) STR 826 (Tri.-Bang)

The issue in this case related to whether packaging viz. strapping of steel items, a part of manufacturing process which already suffered excise duty, was chargeable to service tax as cargo handling service. Packaging activity was brought under service tax only from 16-6-2005 and the assessee paid service tax from this date. The decision of the Calcutta Tribunal in the assessee’s own case reported at 2007 (8) STR 490 as well as B. K. Thakkar’s case 2008 (9) STR 542 (Tri.) were distinguished. Relying on the Rajasthan High Court’s decision in the case of S. B. Construction Co. v. UOI, 2006 (4) STR 545 (Raj.), wherein it was held that when goods are packed for transport, it should be followed by transportation of the same in order to be covered by cargo handling service. It was held that later amendment in the definition of cargo handling service also linked service of packaging together with transportation of cargo and therefore, demand of service tax under the category of cargo handling service was not sustainable.

5. CENVAT Credit : Document for availing credit :

(i) CCE Vapi v. Jindal Photo Ltd., 2009 (14) STR 812 (Tri.-Ahd.)

Credit was taken based on invoices not containing registration number of Input Service Distributor (ISD) viz. the head office of the appellant. However, the receipt of services was not in dispute. Considering that the omission took place when relevant rules were being implemented, credit was held as admissible in terms of the proviso to Rule 9(2) and Rule 14 of the CENVAT Credit Rules.

(ii) Rohit Surfactants P. Ltd. v. CCE, 2009 (15) STR 169 (Tri.-Del)

Holding that the words ‘directly and indirectly’ used in relation to ‘manufacture’ in the definition of input service had to be given very wide meaning, and relying on the decision in the case of Keltech Energies Ltd. v. Commissioner, 2008 (107) STR 280 (Tri.), it was held that banking & other financial services, general insurance service and courier agency service are to be treated as input service; stay petition was allowed.

6. Chartered Accountant’s Service — whether explanation had retrospective effect ?

Sridhar & Santhanam v. CCE (ST) Chennai, 2009 (14) STR 756 (Tri.-Chennai)

Exemption under Notification 59/2002-ST was not extended to a C.A.s’ firm by applying explanation in Notification No. 15/2002-ST re-trospectively. The Notification did not indicate retrospective effect in specific terms, so it was held that the amendment had to be held effective from the date of issue of Notification. Observing that the benefit available on plain reading could not be made retrospective by issuing Notification, the appeal was allowed.

7. Penalty: Levied u/s.78, whether reducible?

CCE, Mumbai v. Ria Travels & Tours (I) Pvt. Ltd., 2009 (15) STR 124 (Tri.-Mum.)

In this case, the assessee was registered as a travel agent for its multi-locational business. On investigation by DCCEI authority, short payment of service tax was discovered. After upholding the service tax liability as demanded in the SCN, the Divisional Bench was divided on the view of levying penalty u/s.78. The Member Judicial held that in terms of the decision in the case of CCE&E v. Ashish Vasantrao Patil, 2008 (10) STR 5 (Born), the Tribunal has the power to reduce the penalty imposed u/ s.80. The fact that only in one out of twenty branches, the infraction was brought on record, the penalty of Rs.50 lakh in place of Rs.10 cr. would meet the ends of justice. However, the other Member dissented and per majority decision, it was held that mandatory penalty u/s.78, was not reducible as held by the Supreme Court in the case of UOI v. Dharmendra Textile Processors, 2008 (231) ELT 3 (SC) where the suppression was found deliberate. It was further held that the non-obstante S. 80 provided for NIL penalty in case of bonafide belief. The Member Judicial however did not hold that there was bona fide belief. Citing Dharmendra Textile Processor (supra), it was further observed that the Court could interpret the law and not legislate the same and accordingly, the wordings of the statute in S. 78 had to be given full effect by virtue of which the penalty had to be equal the amount of short payment. As such, the penalty of Rs.10 cr. was held as sustained.

8. Valuation:

Sky Gourmet Pvt. Ltd. v. CST, Bangalore 2009 (14) STR 777 (Tri.-Bang.)

The appellant’s services being those of supply of food, beverages, etc. to airlines, were registered as outdoor catering service provider. Supply of food was claimed as exempt under Notification No. 12/ 2003-ST and on which due VAT was paid. Demand was made to receive service tax on gross receipts and agreeing to grant only abatement under Notifications 20/2004-ST and 1/2006-ST but not benefit under Notification No. 12/2003-ST. Invoices evidencing sale were available on records. Considering both the Notifications as mutually exclusive and relying on BSNL v. UOI, 2006 (27) STR 161 (SC), the appellant’s right to avail option of more beneficial Notification was upheld.

BCAJ Admin

Some Recent Judgments

I. HIGH
COURT :

1. Applicability
of Service Tax :

Whether laying pipes in
wall/roof/floor, etc. or fixing cable trays and digging earth to lay cables,
etc. liable under ‘Erection, Commissioning or Installation service’.

Commissioner of C. Ex., Chandigarh v.
Rajeev Electrical Works, 2010 (18) STR (P&H)

The appellant, engaged in electrical
fittings obtained registration under ‘Erection, Commissioning or Installation
service’ on 30-11-2004. Since the service was taxable from 1-7-2003, a
show-cause notice was issued for recovery of tax with interest and penalty for
the period 1-7-2003 to 30-11-2004.

The appellant contended that they were
engaged in laying pipes in wall/roof/floor for crossing of wires, fixing the
junction box, etc. and were not involved in any services in relation to
installation of plant, commissioning, machinery and equipment for the period
under dispute.

In Department’s appeal, the High Court held
that laying pipes in wall/roof/floor for crossing of wires, fixing the junction
box, etc. would not amount to installation of plant, commissioning, machinery
and equipment, and therefore was not liable to service tax. A reference was
made to Circular No. 62/11/2003, dated 21 -8-2003 where it was clarified that
putting up electric wires and fitting in residential premises would not be
covered in the definition of taxable service and thus not liable to service
tax.

2. Applicability
of Service Tax on Rent-a-cab :

Whether tourist permit is essential for
levying tax on tour operator under Rent-a-cab service.

Commissioner of C. Ex., Chandigarh v.
Kuldeep Singh Gill, 2010 (18) STR 708 (P&H)

The respondent was providing transport
service to Indian Oil Corporation (IOC) for which service tax was demanded
under ‘Rent-a-cab’ category.

The Commissioner (Appeals) upheld the levy
of tax and penalty u/s.76.

However, the Tribunal held that since the
cabs were not leased to IOC for use of the vehicles at its own discretion,
service tax was not leviable.

In Department’s appeal to the High Court,
relying upon the decision in Secretary Federation of Bus Operators v. Union of
India, 2006 (2) STR (Mad.), it was observed that S. 65 of service tax
articulates a tourist vehicle and not holding a permit under the Motor Vehicle
Act as necessity for levy of tax. Just because it is essential to hold a permit
under the Motor Vehicle Act, the same cannot be made squarely applicable to
service tax.

Hence, it was held that the respondent
provided transport service and was liable for service tax under Rent-a-cab service.

3. Order
:

Whether a letter from Commissioner
can be treated as order.

Chief Commissioner, LTU, Bangalore v.
TNT India Pvt. Ltd., 2010 (19) STR 5 (Kar.)

The respondent engaged in door-to-door
international courier service, approached the Additional Commissioner
questioning the applicability of service tax on the service provided by them.
The Additional Commissioner confirmed that the service was not taxable vide
order dated 23-12-2004.

Subsequently the Revenue realised that the
said order was against the Circular No. 341/43/96 TRU dated 31-10-1996 and
hence the order of Commis-sioner was void-ab-initio. A letter dated 9-1- 2006
was issued in this respect. The respondent filed an appeal before the Tribunal
contending that the letter dated 9-1-2006 was an order and the same was
appealable. The order was passed without providing opportunity of being heard
and hence was bad in law. The Tribunal passed the order in favour of the
respondent.

The Revenue then preferred an appeal before
the High Court where the main issues involved were :

(a) Whether
Tribunal was correct in concluding that the letter of Commissioner was an order
appealable u/s.86, even though same was not passed u/s.73, u/s.83A, u/s.84 or
u/s.85 of the Finance Act, 1994 ?

(b) Whether
‘International Flight’ activity was taxable service ?

The Revenue asserted that the letter of
Commissioner was only a clarificatory letter and powers conferred u/s.73,
u/s.83A, u/s.84 or u/s.85 of the Finance Act, 1994 were not exercised and
consequently S. 86 for appeals to the Appellate Tribunal could not be made
applicable. Hence, the order passed by the Tribunal was not maintainable.

The respondent contended that the letter
issued by the Commissioner was a valid order u/s.84 and was passed without
providing opportunity of being heard. Similarly the letter issued to the
respondent was different from the letter issued to the lower authorities. The
letter was incomplete and did not contain footnote, which contained directions
to the lower authorities to issue a show-cause notice for recovery of service
tax and interest thereon.

The High Court examined S. 84 pertaining to
revision of orders by the Commissioner and affirmed that any exercise of power
u/s.84 was an order within the meaning of the Finance Act, 1994. The Court
opined that order of the Additional Commissioner was reviewed by the
Commissioner. Therefore, the Commissioner should have provided opportunity of
being heard.

Hence, the High Court held that the
Tribunal was correct in concluding that the letter of the Commissioner was an
order, it was appealable and directed the competent authority to pass a valid
order on the issue of taxability after providing opportunity of being heard.

4. Powers
of Director General of Service Tax (DGST) :

Whether DGST has power to entertain
appeal against order of lower authorities?

Aircargo Agents Association of India v.
Union of India, 2010 (18) STR 715 (Bom.)

The High Court in its order against writ
petition directed the parties to approach the DGST and the DGST to grant a
hearing before passing an order.

However, the parties contended that the
DGST had no power to entertain appeal against order of the lower authorities
and pass order.

The High Court held that the DGST did not
have power to pass orders.

II. TRIBUNAL
:

5. Applicability
of Service Tax :

Whether secondary services provided
towards export of services are exempt ?

Ruth Shipping Agencies Pvt. Ltd. v.
Commissioner of C. Ex., Thirunelveli, 2010 (19) STR 39 (Tri-Chennai)

The appellant, a CHA received brokerage
from steamer agent for arranging containers on which service tax was demanded
as ‘Business Auxiliary Service’. The appellant contended that the service was
non-taxable and the same was accepted by the Assistant Commissioner. However a review
order was passed by the Commissioner who held that the appellant was liable to
tax.

In an appeal preferred to the Tribunal, the
appellant relying on Circular No. 56/5/2003, dated 25-4-2003 contended that
secondary service of arrang-ing a container were primarily used by exporter of
services and they get consumed/merged with exported services, they were not
liable to tax.

The Tribunal holding that the view of the
appellant was corroborated by Lee & Muirhead Pvt. Ltd. v. Commissioner of
Service Tax, Bangalore, 2009 (14) STR 348, the demand was set aside.

6. Burden
of proof of suppression :

Whether Department owns the burden to
prove suppression of facts by the assessee ?

R. A. C. Steels v. Commissioner of
Central Excise, Salem, 2010 (18) STR 775 (Tri-Chennai)

The Department levied penalty u/s.76,
u/s.77 and u/s.78 of the Finance Act, 1994 invoking extended period of
limitation.

The appellant pleaded to the Tribunal of
their ignorance. However, their prayer that the burden to prove that there was
suppression of facts by the appellant was not discharged by the Department was
accepted and penalties were set aside.

7. CENVAT
Credit :

Whether CENVAT credit on washing
machines used in factory allowable ?

Commissioner of C. Ex. & ST, LTU,
Bangalore v. Micro Labs Ltd., 2010 (18) STR 771 (Tri-Bang.)

The respondent utilised CENVAT credit on
indus-trial washing machines falling under Chapter 84 of CETA and used for
washing uniforms of employees. The Department denied the credit on the machines
contending that the same are not used in manufacture of final products.

The matter was decided in favour of the
respondent by the Deputy Commissioner, LTU as well as the Commissioner
(Appeals).

The appellant relied upon India Cements
Ltd. v. CCE, Trichy 2006 (205) ELT 170 (Tri-Chennai) where it was held that any
capital goods which do not take part in the process of manufacture are not
eligible for CENVAT credit.

According to the assessee, industrial
washing machines fall within the definition of ‘capital goods’ as defined in
Rule 2(a) of the CENVAT Credit Rules, 2004. Further, the Commissioner (Appeals)
found that requirement of clean clothes is mandatory as per Rule 5.4 of the
Drugs & Cosmetics Act, 1945. The assessee also relied upon the case of
Toyota Kirloskar Motor Ltd. v. CCE, Bangalore-III, 2002 (148) ELT 402
(Tri-Bangalore).

The Tribunal held that the industrial
washing machines fall within Rule 2(a) and as they are used in factory of
manufacture, credit was admissible.

8. CENVAT
credit on construction :

Whether CENVAT credit on construction
of staff quarters allowable?

The Laxmi Vilas Bank Ltd. v.
Commissioner of Central Excise, Trichy 2010 (19) STR 40 (Tri-Chennai)

CENVAT credit on construction of staff
quarters was disallowed on the ground that the staff residential quarters
located within the bank premises cannot be construed as office relating to bank
premises.

The Tribunal held that construction
services used in staff residential quarters located within the bank premises
are covered under the definition of input service as per Rule 2(l) of the
CENVAT Credit Rules, 2004. So, the CENVAT credit on construction service was
allowed.

9. Penalty
:

Whether penalty u/s.76 and u/s.78 is
mutually exclusive ?

AR. AS. PV. PV. Motors Erode (P) Ltd. v.
Commissioner of Central Excise, Salem, 2010 (18) STR 722 (Tri-Chennai)

The appellant was ordered to pay penalty
u/s.76 and u/s.78 of the Finance Act, 1994 where service tax and interest were
already paid prior to com-munication of adjudication order.

The appellant contended that the penalty
u/s.76 and u/s.78 was mutually exclusive and since they had paid the penalty
u/s.78 @25%, the penalty imposed u/s.76 was liable to be set aside.

The appellant relied upon S. 78(1) of
service tax and the Tribunal’s decision in the case of M/s. Safe Test
Enterprises v. Commissioner of Central Excise, Salem and argued that since
service tax and interest had been paid prior to communication of the order,
penalty u/s.78 was liable to be reduced.

The High Court agreed with both the
contentions and set aside the penalty u/s.76 and reduced penalty u/s.78 to 25%
of service tax demanded.

10. Refund
:

Whether refund can be denied on the
grounds beyond the scope of show-cause notice ?

Caliber Point Business Solutions Ltd. v.
Commis-sioner of Service Tax, Mumbai, 2010 (18) STR 737 (Tri-Mumbai)

The appellant, a BPO service provider filed
refund claim under Rule 5 of the CENVAT Credit Rules which was rejected on
technical grounds like ab-sence of registration number on input invoices,
non-availability of original invoices and absence of nexus between input and
output services. How-ever, no explanation was provided for absence of nexus.

The appellant filed an appeal wherein
rejection was made on the ground of absence of nexus, non-utilisation of CENVAT
credit and difference between ST-3 and refund claim. The later two grounds were
not a part of the original show-cause notice.

Relying on Reckitt & Colman of India
Ltd. v. CCE, 1996 (88) ELT 641 (SC), it was held that the Tribunal cannot
travel beyond show-cause notice and favour the Revenue and require the
appellant to meet demands which were never required to be met before the
Revenue.

Regarding the absence of nexus in case of
rent-a-cab service, air travel service and BPO service, the appellant relied
upon CST, Delhi v. Conver-gys India Pvt. Ltd., 2009 (16) STR 198 (Tri-Del.)
wherein it was held that without questioning the CENVAT credit, its eligibility
for rebate cannot be questioned.

Further the refund claim was allowed as the
appel-lant proved the nexus between rent-a-cab service, air travel service and
BPO service.

Refund — GTA service :

Whether service tax on transport
service paid by GTA as well as consignor can be refunded to GTA ?

Commissioner of C. Ex., Cochin v. Garuda
Transport, 2010 (18) STR 773 (Tri-Bangalore)

The respondent filed refund claim of
service tax on transport service paid twice. The tax was paid by him and the
consignor also. The refund claim was rejected by the lower authorities on the
ground of inadequacy of records. An appeal to the Commissioner (Appeals) was
filed by the Revenue.

The Commissioner (Appeals) in his findings
record-ed that the respondent had submitted audited final accounts, freight
bills, challans, CA certificate as to absence of unjust enrichment and
certificate from the sole consignor and accepted double payment of service tax
and held refund claim as valid.

The Revenue contended that the Commissioner
(Appeals) did not verify the documents to prove absence of unjust enrichment.
However, the Tribunal held that findings in order of the Commissioner (Appeals)
indicate that he had verified all the relevant documents and hence the refund
claim was accepted.

11. Review order : Scope :

Whether a review order can be passed
after appeal is filed against the original order ?

Avery India Ltd. v. Commissioner of
Service Tax, Delhi, 2010 (18) STR 760 (Tri-Delhi)

A refund claim of the appellant was accepted
by the Department but was credited to Consumer Welfare Fund. The Commissioner
(Appeals) how-ever passed the order that refund be credited to the appellant’s
account.

On receipt of order from the Commissioner
(Appeals), the Commissioner issued a show-cause notice to review the original
order passed by the lower authorities and later passed an order rejecting the
claim of refund.

The appellant contended that the original
order of the lower authority got merged with the order of the Commissioner (Appeals).
They also claimed that an appeal was filed by the Revenue against the order of
the Commissioner (Appeals) before the date of review order by the Commissioner
and hence the review order and order of rejection of refund based on review
order were not established.

The Tribunal observed that revision powers
of the Commissioner u/s.84 of the Finance Act, 1994 are restricted. As per S.
84(4), “no revision order could be passed by the Commissioner if any issue in
the order was pending before the Commissioner (Appeals).” In the instant case,
the order of the Commissioner (Appeals) was also appealed before the Tribunal.
Hence, the review order was set aside.

12. Show-cause
notice :

Whether an order, which is at
variance with show-cause notice, is sustainable in law

Glass Fibres v. Commissioner of Central
Excise, Cochin, 2010 (18) STR 726 (Tri-Bangalore)

The appellant was engaged in the activity
of receipt and stacking operation, loading, packing, repacking, storage, etc.
and was registered as ‘Cargo Handling’ agency. The client of the appellant
refused to pay tax on the activity relating to storage, as it was not covered
as ‘Cargo Handling’ service. The appellant filed a refund claim of
non-reimbursed tax.

The original authority rejected the plea on
the ground that it was covered as ‘Cargo Handling’ services. However, the
Commissioner (Appeals) held that the activities related to storage, stacking
and shifting should be more appropriately classifiable under ‘Storage and
warehousing’ services.

Being aggrieved with the order of
Commissioner (Appeals), the appellant filed an appeal before the Tribunal and
contended as follows :

The Commissioner affirmed the order on the
grounds not mentioned in the show-cause notice. The appellant relied on various
case laws for taking such stand and contended that the order should be seen in
the light of show-cause notice and order-in-original and that the order at
variance of show-cause notice is not sustainable in law.

The Tribunal held that the judicial
authorities amply support the case of the appellant and in facts of the case,
the appeal was allowed and that the appellant was held not liable for service
tax even though the activity was as such taxable for the reason that the demand
was not conformed to the services alleged in the show-cause notice.

BCAJ Admin

Part B — Some recent judgments

New Page 1

1. Supreme Court :

Clearing and forwarding service : Consignment
agent :

Super Polyfabriks Ltd. V. CCE, Punjab, 2008 (10) STR
545 (SC)

The appellant under an agreement with Gas Authority of India
is a ‘consignment stockist’. The period in question was from 1-9-1999 to
31-7-2002. Both the Appellate Authority and the Tribunal dismissed respective
appeals. The short question was, whether in the facts and circumstances of the
case, the petitioner was providing services of clearing and forwarding. The
appellant pleaded that lower authorities proceeded only on the premise that the
agent was clearing and forwarding agent relying on the decision in the case of
Prabhat Zarda Factory P. Ltd. V. CCT, Patna 2002 (145) ELT 222 —
which was subsequently overruled by a Larger Bench in the case of Larsen &
Toubro Ltd. V. Commissioner, 2006 (3) STR 321. The Supreme Court relying on
the decision in the case of V. Lakshmanan v. B. R. Mangalagiri & Others,
(1995 Supp 2 SCC 33) opined that for determination of the liability, the
agreement has to be read as a whole. The purport and object in a contract could
be ascertained only from terms and conditions thereof. Neither nomenclature nor
a particular activity would be decisive. Whether in substance and effect the
person was a clearing and forwarding agent must be ascertained from the terms of
the agreement and conclude whether job of clearing and forwarding agent’s
operation was incidental to the main activity of getting the orders and selling
to clients or otherwise. Matter was remitted back to the assessing authority as
the orders were passed ex-parte because the appellant had not appeared
either before the assessing authority or the Appellate Authority.

2. High Court :

2.1 Construction service : Whether value of material
supplied free of charge includible in the value of taxable service ?

Era Infra Engineering Ltd. V. UOI, 2008 (11) STR 3
(Del.) :

The petitioner, engaged in providing commercial or industrial
construction service, received material free of cost from the owner company, was
issued show cause notice proposing to levy Service Tax on such free supply of
material, based on the explanation in Notification No. 1/2006-ST, which provides
for inclusion of value of goods supplied, provided or used by the provider of
construction service. Relying on the provisions of S. 67(3) and interim order in
the case of Larsen & Toubro v. UOI, 2007 (7) STR 123 (Mad.), the High
Court ruled that until conclusion of adjudication proceedings, material value
supplied free of charge would not be added for determining the taxable value and
that explanation in the Notification would not be applied to the detriment of
the petitioner. [CESTAT Delhi in the case of Millennium Constructions Pvt.
Ltd. V. CST, Delhi, 2008 TIOL 838 CESTAT Del. Waived pre-deposit of interest
and penalty levied when Service Tax demanded on addition of cement and steel
value received from recipient of services was already paid by the appellant.]

2.2 Penalty : Whether reducible below the minimum prescribed limit ?

UOI v. Aakar Advertising, 2008 (11) STR 5 (Raj.)

The Tribunal in the appeals in question :

à
reduced the penalty imposed to 10% of the duty demanded

à
Entertained an appeal on merits when order was passed dismissing the appeal
for non-payment of pre-deposit.

Short questions that arose in the two appeals aggregated
were :

à
Whether the Tribunal could reduce the penalty imposable u/s.76 below the
minimum prescribed limit ?

à
Whether the Tribunal could entertain an appeal on merits when the Commissioner
(appeals) rejected the appeal because of default in making pre-deposit u/s.35F
of the Central Excise Act, 1944 ?

For the question no. 2, it was pleaded that since the
Tribunal already allowed the appeal, the assessee be granted reasonable time to
comply with requirement of pre-deposit even at such stage and set aside the
order of the Commissioner (Appeals) and direct the Commissioner to decide on
merits. The High Court acceded to such request and directed the Commissioner to
decide the appeal on merits on condition of complying with pre-deposit within 4
weeks’ time.

As regards the question no. 1, it was held that if cause of
failure was reasonable, penalty may be set aside. Penalty could be played with
only between minimum and maximum prescribed limits and could not be reduced
below the minimum prescribed limit under the garb of any discretion. Yet it was
not always necessary to impose maximum penalty. The matter was remitted back to
the Commissioner (Appeals) with a direction to decide the penalty afresh
objectively and dispassionately after hearing the parties and in view of the
above observations in the instant order.

3. Tribunal :

3.1 Cargo handling service :

M/s. Jet Airways (India) Ltd. V. CST, Ahmedabad, 2008
TIOL 979 CESTAT Ahm.

The appellant, an airlines that transports passengers and cargo by air, receives booking of cargo to be transported by themselves at the booking office or through lATA agents appointed at various locations all over the country. The Revenue demanded Service Tax considering the appellant as cargo handling agency, although the appellant neither collected cargo from the premises of consignor, nor delivered the same to the consignee. The appellant contende ‘ that the service of transportation of goods by air was ” made taxable w.e.f. 10-9-2004 without disturbing any of the existing entries. Further that, the Board’s Circular F. No. B/11/1/2002, dated 1-8-2002 while detailing cargo handling services cited illustrations of services provided by Airports Authority of India, Inland Container Depot, Container Freight Station, etc. did not refer to any airlines undertaking transportation of goods. Accepting these pleas and relying on the Tribunal decisions inter alia cases of Dr. Lal Nath Lab. (P) Ltd. v. CCE, 2006 (4) STR 527 (Tri. Del.) and Glaxo SmithKline v. CCE, 2005 (188) EL 171 (Tri.-Mum.), it was held that when new entry is introduced without disturbing existing entries, it has to be held that the new entry was not covered by any previous entry.

3.2 CENVAT Credit:

Hindustan Coca Cola Beverages Pvt. Ltd. v. CCE, Meerut, 2008 TIOL 1022 CESTAT Del.

Considering that manpower supply service was not liable for Service Tax prior to 16-6-2005, the credit of Service Tax paid by the contractor of the company was denied. Stay application was allowed on the ground that since the Revenue accepted Service Tax paid by the contractor, applicant had prima facie – strong case.

3.3 Construction Service:

M/s. Greenview Land & Buildcon Ltd. v. CCE Chandigarh, 2008 TIOL 900 CESTAT Del.

The appellant, a developer and a builder, constructed complex himself without engaging a contractor and sold flats. The order of the original authority was based on DGST Circular dated 16-2-2006, which provided that Service Tax was attracted on such construction. The Commissioner (Appeals) rejected the appeal for non-fulfilment of pre-deposit vide – stay order. The plea of the appellant was that CBCE Circular No. 96/7/2007-ST of 23-8-2007 suppressed the DGST Circular and clarified that when builder did not engage contractor for construction, no service provider-service recipient relationship existed to attract provision of Service Tax. This was accepted by the Tribunal and the matter was remanded for de novo consideration in the light of Circular No. 96/ 7/2007 and without insisting on pre-deposit.

3.4 Export of service:

i) Blue Star Ltd. v. CCE, Bangalore, 2008 (11) STR 23 (Tri.-Bang.)

The appellant booked orders of foreign principals and received commission in convertible foreign exchange and accordingly, contented that such business auxiliary services were provided from India and used outside India fulfilled conditions to construe the services as ‘exports’ in terms of Export of Services Rules, 2005. The Department’s contention was that services were provided in India and refund of Service Tax paid on ‘exported’ services was rejected. The Tribunal held that refund be granted as the conditions of Rule 3(2) were satisfied and the appellant’s services were held as exports. The Tribunal allowed the appeal stating that the Commissioner had not considered the clause in the agreement relating to services rendered by the appellant.

ii) M/s. National Eng. Industries Ltd. v. CCE, [aipur, 2008 TIOL 939 CESTAT Del.

The appellant, an agent of General Motors, USA provided services of sourcing them on contract with Indian Railways. The appellant, although ‘exported’ service, paid Service Tax on the commission received from General Motors through Indian Railways. Refund claim was rejected on the ground that the commission from General Motors was received through Indian Railways in Indian rupees in lieu of foreign exchange and therefore, condition of Rule 3(1)(b) of the Export Rules was violated. According to the appellant, the purchase order of the party provided that agency commission of certain amount of US dollars be paid in equivalent non-convertible Indian rupees at prevailing exchange rate on relevant date and based on this, Indian Railways paid to the foreign party net of the said commission amount.

The Tribunal held that the purpose of Rule 3(2) was to extend benefit of exemption of Service Tax to persons earning convertible foreign exchange and since the equivalent amount payable to the appellant was not released to Indian Railways, the appellant complied with the provision of Rule 3(1)(b). The appeal was allowed while stating that machinery of a statute should be interpreted so as to promote the object and purpose of the scheme and the case should be decided in fulfilment with the legislative intention.

3.5 Import of Services: Effective date: Whether 18-4-2006 or 16-8-2002 ?

CCE Raipur v. Jindal Steel Power Limited, 2008 (11) STR 14 (7)

Contention of the Revenue that services provided by foreign-based commission agent were liable for Service Tax prior to 18-4-2006 under the category of business auxiliary service under Rule 2(1)(d)(iv) of the Service Tax Rules was rejected as the issue is considered settled in the case of Foster Wheeler’s [2007 (7) STR 443], wherein it was held that services provided by a service provider not having an office in India is taxable with effect from 18-4-2006 only with the insertion of S. 66A of the Finance Act, 1994.

3.6 Subcontractor’s services:

JAC Air Services Pvt. Ltd. v. CCE, New Delhi, 2008 TIOL 839 CESTAT DEL

The appellant provided cargo handling services in terms of agreement with Airports Authority of India for import of cargo. Relying on the Board’s instructions contained in F. No. 43/5/97-TRU of 2-7-1997 as to sub-consultancy, the plea of the appellant that they were subcontractors to Airports Authority of India was considered and waiver of pre-deposit was granted.

3.7 Refund: Under Rule 5 of the CENVAT Credit Rules, 2004:

Caliber Point Business Solutions Ltd. v. CCE, Belapur, 2008 (11) STR 15 (Tri.-Mum.)

The appellant exported taxable services and availed CENVAT credit on input services. Refund claim filed under Rule 5 of the CENVAT Credit Rules, 2004 was rejected on the premise of non-application of the said rule to service providers prior to 14-3-2006. Relying on the decision in the case of MNS Global Services (P) Ltd. v. CCE, 2008 (10) STR 273 (7), wherein it was held that any claim filed on or after 14-3-2006 even pertaining to the past period satisfying other requirements of the Rule and the Notification cannot be turned down on a ground which was not a condition of the Rule or Notification, it was held that the issue being identical, the ruling was binding on the Bench. The matter was remanded for a limited purpose of verifying other conditions of Notification 5/2006 CE(NT) as earlier rejection was made only on the ground of non-applicability of Rule 5.

BCAJ Admin

Right to Information

New Page 3

Part A : CIC’s decisions

Public Notaries

Mr. Dhiresh Shah, advocate and notary of Ahmedabad made an
application-appeal to the Central Information Commission in connection with the
processing of the applications of Public Notaries for the renewal of their
licences issued by the Department of Legal Affairs.

During the hearing of the appeal, Mr. Shah pointed out that
there were gross and avoidable delays in renewing the licences of Notaries,
which not only frequently resulted in breaks in their service as Public
Notaries, but also caused them financial hardship and mental worry, and in some
cases, even loss of reputation. He pointed out that the main purpose of his
coming before the Commission was to ensure that a transparent and accountable
system was kept in place, so that not only the renewal applications of Public
Notaries were attended to with speed, but also there was certain accountability
about timely renewal of these licences.

CPIO, Implementation Cell, Department of Legal Affairs,
Ministry of Law and Justice, New Delhi submitted that the information as
requested by the appellant was not centrally maintained. As such, it was beyond
their power to collect and collate it in order to supply it to the appellant.

Upon hearing the parties, the impression the Commission got
was that the respondents were aware of the shortcomings in the system of renewal
of licences of Public Notaries, which caused unexplained and avoidable delays in
effecting these renewals. There was no centralised monitoring of receipt of
renewal applications, their processing and issue of renewal certificates.

The Commission felt that this is one system which was crying
out for reform. The Commission recommended to the public authority — the
Department of Legal Affairs — to institute a system of centralised monitoring of
receipt, processing and final approval of all applications received from Public
Notaries for renewal of their licences. This information should be placed on the
website in order to enable those whose interest it touched to keep themselves
informed about the progress of their renewal applications. Since the number of
such applications in a year is not more than 500 to 600, there is no reason why
centralised monitoring for it could not be put in place. The effort on the part
of the public authority should be to renew the licences well before the expiry
of the time for which the licences were initially issued. This system will not
only save Public Notaries a good deal of anxiety and botheration, it will help
bring to the system much needed accountability and transparency.

Based on the above, CIC directed the head of the public
authority, viz. Secretary, Department of Legal Affairs, to apprise the
Commission within two months of the receipt of the order as to the action taken
by it in respect of the above recommendation of the Commission [S. 19(8)(a) of
RTI Act].

In the course of the hearing, Mr. Shah also pointed out that
the public authority was required to publish in an Official Gazette all
notary-related information which included the issue of notary licences and their
renewals. This has not been done for the past several years.

The Commission also directed that a notice be issued to the
head of the public authority as to why a compensation of Rs.15,000 (Rupees
fifteen thousand only) not be awarded to the appellant for the detriment
suffered by him.

However, Mr. Shah pointed out that he was not interested in
either imposition of a fine or penalty on the respondents, nor was he interested
in compensation. What he actually wanted was that the system must be so improved
as to free it from its several shortcomings which affected a broad cross-section
of Public Notaries. The Commission appreciated the appellant’s position.

We also appreciate Mr. Dhiresh Shah’s spirit.

[No. CIC/AT/A/2007/01451 of 22-4-2008 : Shri Dhiresh
Shah v. Department of Legal Affairs, Ministry of Law and Justice, New Delhi]

Travel cost of RTI applicant :

This is the case of complaint by Mr. Yogesh Mehta of Mumbai (BCAS
Foundation assists him in his fights from time to time) requesting for penalty
[S. 20(1)] on SEBI and compensation from SEBI [S. 19(8)(b)].

In one RTI application received by SEBI on 6-2-2006,
information was furnished on 14-7-2006. In the other RTI application received by
SEBI on 13-2-2006, information was furnished on 29-9-2006.

The Order of CIC is as under :

The main contention of the respondents (SEBI) is that delay on their part was not intentional and occurred as the requested information was not readily available with SEBI and has to be obtained from BSE. They have emphasised the fact that, as acknowledged by appellant, all information has been provided to him. The respondents have maintained that the information requested by the appellant/complainant, Mr. Yogesh Mehta pertained to several transactions and agencies, collecting and collating the same naturally took time. They have urged that the delays were not without reasonable cause.

On perusing the records and hearing the submissions of both parties, it is decided that no penalty need by imposed on the respondents, because the delay that has occurred in providing the information to the complainant is attributable to the complex nature of the information request

On perusing the records and hearing the sub-missions of both parties, it is decided that no penalty need by imposed on the respondents, because the delay that has occurred in providing the information to the complainant is attributable to the complex nature of the information requested, which needed time-consuming collection and collation process, which brings it within the ambit of ‘reasonable cause’ u/s.20(1) of the RTI Act.

However, the Commission cannot be oblivious to the fact that the delays in this matter have resulted in detriment to the complainant and has impacted the complainant’s rightful claim to timely information under the RTI Act. He has been compelled to attend CIC hearings on several dates at his own cost for pressing his complaints against the respondents. He has suffered avoidable expenditure in doing so. It is, therefore held that the complainant is entitled to a suitable compensation under Section 19(8)(b) of the RTI Act.

In view of the above, it is directed that the public authority, viz. SEBI shall pay an amount of Rs. 10,000 (Rupees Ten Thousand only) as compensation to the complainant within 2 weeks from the date of receipt of this order and intimate the fact of payment to the Commission within 1 week of effecting it. The compensation amount may be paid from the resources of the public authority, viz. SEBI.

[No. ClC/ AT/ A/2006/00591 & 00592 of 26-6-2008 : Mr. Yogesh Mehta v. SEBI]

Income-tax records of a Charitable Trust:
A very significant issue of the concept of personal information vis-a-vis public charitable trust is involved in this case. Mr. J. K. Sachdeva sought information from Directorate General of Income-tax (Exemptions) of one NGO, the Institute of Business Studies and Research, Belapur, Navi Mumbai.

He sought the following information:

a) Have the trustees filed income-tax returns fo;: years 2004-05 and 2005-06 ?

b) If yes, how much income-tax they have paid for the trust? Copies of the audited statements be provided to me.

c) Has all the expenditure incurred by them been for charitable purpose?

d) How much salaries either in cash or in kind/ movable properties been drawn by the trustees?

e) Have they accounted for all the cash amount received as advanced premium from the students?

f) Have they submitted to the department the purchase agreements of all the properties bought in personal name or in the name of trustees? If yes, copies may be provided to me please.

Information was provided for (a) above, but PIa declined to disclose the rest citing exemption u/ s. 8(1)0) read with S. 11(1) of the RTI Act and on re-lying on number of CIC’s decisions in similar cases.

The Commission, however, noted that this appeal is different from other petitions regarding access to income-tax-return-related information, in the sense that the present appeal is about information regarding a public charitable trust. Given the character of a public charitable trust, it is important to decide whether the income-tax-related information of such trust, when all of its activities are open to public scrutiny, at all be allowed to remain confidential. In other words, whether or not to disclose such information will have to be examined in the context of the Indian Trusts Act, 1882 and whether there could be a public interest in disclosure of such information u/s.8(2) of the RTI Act. Applying S. 8(1)(j), which speaks about personal and private information, to a public charitable trust also needs to be closely examined.

The Commission then felt that these matters should be first seen at the level of the public authority (Appellate Authority) given the public authority’s experience in similar matters. Income Tax Commissioners enjoy the power, u/ s.138(b) of the Income-tax Act, to decide whether confidentially held information, such as certain classes of income-tax returns, be disclosed in public interest. A determination regarding whether to disclose in public interest income-tax returns of public charitable trust, is thus quite in order.

In view of the above, the Commission remitted back the matter to the Appellate Authority (AA), Mr. Laxman Das, Director General of Income Tax (Exemptions), with a direction that he shall give a earing to the parties, including the third-party, and take a decision in this matter within 4 weeks from the date of receipt of this Order.

We shall follow up this case with interest as to what is the final decision in the matter (hopefully shall report in BCAJ next issue).

[No. CIC/ AT/ A/2008/00170 of 30-6-2008: Mr. J. K. Sachdeva v. Directorate of Income-tax (Exemptions)]

Part B : The RTI Act

I am of the opinion that S. 4 of the RTI Act, which provides for ‘Obligations of public authorities’, is the most important Section of the Act to achieve its objectives. To enable the public authorities to comply and carry out these obligations effectively, the Act which received the assent of the President of India on 15-6-2005, vide S. 1(3) read with S. 4(1)(b) provided that every public authority shall publish within one hundred and twenty days (i.e., 12-10-2005) from the enactment of this Act (i.e., 15-6-2005) 17 different items of information.

It is the experience of all that many public authorities even more than 32 months after 12-10-2005 have not complied with these obligations.

Conference was held of all CICs and SICs on 17-10-2007. One of the topics of the discussion was:

“Enforcement of S. 4 of the RTI Act and creation of ‘E-Districts”‘. Some of the major recommendations (9 out of 17) of the conference are hereunder listed:

1. The duty of the Government is to pro-actively make available key information to all. The Public Authorities to ensure that all records that are appropriate to be computerised are, within a reasonable time and subject to availability of resources, computerised and connected through a network all over the country on different systems so that access to such records is facilitated.

2. It is suggested that strict directions be issued by the Central Government, that all the State Governments/Public Authorities should fulfil their obligations laid down u/ sA of the RTIAct, 2005. Failing which, it may lead to penal provisions being invoked against such Public Authority. Secretary of the Department may be held responsible in this regard and be clearly held culpable in case of non-compliance of S. 4(1)(b).

3. The Central and State Governments must necessarily make adequate fiscal allocations for computerisation and connectivity from Information Commission level to Mandal/Taluk level Public Authorities, so as to effectively operationalise the provisions of the RTI Act.

4. Standardisation of procedure is a must for the disclosures mandated u/ sA of the Act.

5. Make all Government services accessible to the common man in his locality, through common service delivery outlets and ensure efficiency, transparency and reliability of such services at affordable costs to realise the basic needs of the common man.

6. Citizen-centric approach to delivery of selected (bulk) services through Common Service Centres (CSC) involving back-office enablement, by way of digitisation of relevant records, process redesign and automation of processes/work-flow.

7. Notification of e-District services u/sA(l) of the Act to enable and legally enforce sharing of information as prescribed, electronically.

8. e-District to act as an enabler for facilitating objectives/services relating to RTI being achieved/ delivered. RTI’s legal framework to be leveraged by e-District to make information sharing/ e-services irreversible.

9. Need/feasibility of notifying CSCs as APIOs under the Act.

Part C : Other News

• Personal Information:

Residential phone number, mobile number and e-mail fall under the category of personal information. This was decided by the Information Commission in response to the RTI application seeking such details for the President of India.

• PIO provides false information:

PIO of the Brihanmumbai Municipal Corporation (BMC) replied in response to an RTI query that BMC has already written to SSC Board when asked as to what BMC is doing to make instructions in Tamil medium possible up to class X, which presently is only up to class VII in select BMC schools. Fact is that such letter was not written and was written a few days after such a query was raised. Interesting point is that when BMC Commissioner Jairaj Phatak was informed on this issue, he said: “There must have been some technical error. What they would have meant is that the letter was in the process of being drafted.”

• Cabinet documents:

Mr. Suresh Joshi, SIC, Maharashtra holds the view that u/s.8(1)(i) of the RTI Act, all the documents brought before the State Cabinet are confidential and there is no access to such documents under the RTI. The senior official in the Secretariat also says “Once decisions are taken, we will issue specific orders. However, applicants are asking for the cabinet note, which contains stringent remarks on all the departments. In our opinion, such documents should not be made public.”

However, it is the view of the Central Information Commission that all file notings are available for access in the RTI. Further, S. 8(1)(i) which provides for exemption also has proviso thereto restricting the exemption. Clause with two provisos is as under:

8(1)(i): Cabinet papers including records of deliberations of the Council of Ministers, Secretaries and other officers:

Provided that the decisions of Council of Ministers, the reasons thereof, and the material on the basis of which the decisions were taken shall be made public after the decision has been taken, and the matter is complete, or over:

Provided further that those matters which come under the exemptions specified in this Section shall not be disclosed.

• Information on FIls under the RTI Act:

Acting on an RTI appeal over SEBI’s denial to divulge details on yearly net investment figures by each FII during 2005, 2006 and 2007, the apex information panel has asked SEBI to consult other stake-holders like the Finance Ministry, the RBI and over 800 FII and decide on the matter afresh. SEBI has to take a call on this matter within two months.

While issuing the order, Information Commissioner, A. N. Tiwari said: “SEBI would examine the matter closely in terms of extant practices/instructions, consult all or a section of stakeholders, examine international practices and obtain views of top functionaries in the field and the Government, before formulating a response.”

Even as the Commission had brought stock exchanges under the RTI last year, the Bombay Stock Exchange and the National Stock Exchange havo challenged it before the Courts. Ironically, in that case the SEBI stood against the Finance Ministry to argue that bourses should be brought under the transparency law.

Air-travel on Air India of high-profile passengers:
Air India has requested the Government to exempt travel information on high-profile passengers -like politicians, businessman and film stars – from being divulged under the Right to Information (RTI) Act as it would hamper its business interests.

In the request made, it is stated: Aviation is a competitive industry and only Air India is covered under the RTI. We will lose out on business interests if we give out details.

Air India is also troubled with a recent query by a TV channel on how Judges were holidaying at public expense, which class the Judge (and his wife) travelled. According to some report, “The Chief Justice of India, K. V. Balkrishnan, made seven tripss abroad in 2007 travelling first class with his wife at Rs.39 lakh (air fare) – something that no other airline would ever divulge.”

BCAJ Admin

OECD — RECENT DEVELOPMENTS — AN UPDATE

International Taxation

In June, 2010 issue of BCAJ, we covered various important
developments at OECD till then. In this issue, we have covered further major
developments after publication of the last Edition of OECD Model Tax Convention
(‘MC’) and developments in the field of Transfer Pricing and work being done at
OECD in various other related fields and have included the same in this update.
We shall endeavor to update the readers on major developments at OECD at regular
intervals. Various news items included here are sourced from various OECD
Newsletters.

A. Amendments to OECD Model Tax Convention :

1. Draft contents of the 2010 update to the Model
Tax Convention — 21st May, 2010 :

The OECD Committee on Fiscal Affairs has just released the
draft contents of the 2010 update to the OECD Model Tax Convention prepared by
Working Party 1 of the Committee. The update will be submitted for approval of
the Committee in June and the OECD Council in July.

The 2010 update will include the changes that were previously
released for comments in the following discussion drafts :

The
granting of treaty benefits with respect to the income of Collective Investment
Vehicles :

The draft report was released on 9th December 2009 (see
http://www.oecd.org/dataoecd/47/3/44211901.pdf). It was based on an earlier
report by the Informal Consultative Group on the Taxation of Collective
Investment Vehicles and Procedures for Tax Relief for Cross-Border Investors,
which itself was released for comments on 12th January 2009 (see http://www.oecd.org/dataoecd/34/26/41974553.pdf).
The changes to the Commentary on Article 1 included in the report were slightly
modified, based on the comments received at the February 2010 meeting of Working
Party 1 (WP1) on Tax Conventions and Related Questions (the CFA subsidiary body
responsible for changes to the OECD Model Tax Convention).

Revised discussion draft of a new Article 7 of the OECD Model Tax Convention :

The draft was released on 24th November, 2009 (see http://www.oecd.org/dataoecd/30/52/44104593.pdf).
That revised draft reflected a number of changes made to the first version of
the new Article released on 7th July, 2008 (see http://www.oecd.org/dataoecd/37/8/40974117.pdf).
A few additional changes were made, based on the comments received on the
revised draft, at the February 2010 meeting of WP1.

Application of tax treaties to State-owned entities, including Sovereign Wealth
Funds :

The draft was released on 25th November 2009 (see http://www.oecd.org/dataoecd/59/63/44080490.pdf).
The changes included in this note reflect a few modifications made at the
February 2010 meeting of WP1 in light of the comments received on the changes
proposed in that draft.

Tax
treaty issues related to common telecommunication transactions :

The draft was released on 25th November, 2009 (see http://www.oecd.org/dataoecd/59/62/44148625.pdf).
The changes included in this note reflect a few modifications made at the
February 2010 meeting of WP1 in light of the comments received on the changes
proposed in that draft.

Revised changes to the Commentary on paragraph 2 of Article 15 :

The first draft of these changes was released in April, 2004
(see http://www.oecd.org/dataoecd/52/61/31413358.pdf). Based on the comments
received and a public consultation meeting with business representatives and
other interested parties held on 30th January, 2006, a number of modifications
were made and revised proposals were released for comments on 12th March, 2007
(see http://www.oecd.org/dataoecd/36/32/38236197.pdf). The final version of the
changes included in this note reflects a number of additional changes made
following the comments received on that second discussion draft.

As all the substantive contents of the 2010 update have
previously been released for comments through these discussion drafts, this
draft is released for information only and not for additional comments. The
introduction to the draft summarises how the main comments received on these
discussion drafts have been dealt with.

The update will also include a number of changes to OECD
countries’ reservations and observations and to non-OECD countries’ positions,
which will be added to the update in the next few weeks. Among these will be the
elimination of all reservations and positions on Article 26 (Exchange of
Information), which the OECD Council has already approved.

The Committee on Fiscal Affairs has been asked to discuss and
approve the draft update at its June, 2010 meeting. A revised version of the
Model Tax Convention that will incorporate the changes made through the update
is expected to be released in September, following the approval by the OECD
Council.

2. OECD Releases Report on Granting of Treaty
Benefits with respect to the Income of
Collective Investment Vehicles — 31st May,
2010 :

The OECD Committee on Fiscal Affairs has released a Report on
‘The Granting of Treaty Benefits with respect to the Income of Collective
Investment Vehicles’ which contains proposed changes to the Commentary on the
OECD Model Tax Convention dealing with the question of the extent to which
either collective investment vehicles (CIVs) or their investors are entitled to
treaty benefits on income received by the CIVs. These changes are expected to be
included in the 2010 update to the Model Tax Convention (the draft contents of
which were released on 21st May, 2010) and the Report would then be included in
volume II of the loose-leaf and electronic versions of the Model.

The Report is a modified version of the Report ‘Granting of Treaty Benefits with respect to the Income of Collective Investment Vehicles’ of the Informal Consultative Group on the Taxation of Collective Investment Vehicles and Procedures for Tax Relief for Cross-Border Investors (‘ICG’) which was released on 12th January 2009. In that original Report, the ICG addressed the legal and policy issues specific to CIVs and formulated a comprehensive set of recommendations addressing the issues presented by CIVs in the cross-border context. The Committee referred the recommendations by the ICG to its Working Party 1 (‘WP1’) on Tax Conventions and Related Questions (the Committee’s subsidiary body responsible for changes to the OECD Model Tax Convention) for further consideration. The WP1 Report was issued as a discussion draft on 9th December 2009 and modified in response to public comments.

The main conclusions and recommendations of the Report are similar to those in the ICG Report, with some modifications that reflect the varied experiences of the tax authorities of the OECD countries. Like the ICG Report, the Report therefore analyses the technical questions of whether a CIV should be considered a ‘person’, a ‘resident of a Contracting State’ and the ‘beneficial owner’ of the income it receives under treaties that, like the OECD Model Tax Convention, do not include a specific provision dealing with CIVs (i.e., the vast majority of existing treaties). Further, the Report includes changes to the Commentary on the Model Tax Convention to reflect the conclusions of the Committee with respect to these issues.

Although these changes to the Commentary will clarify the treatment of CIVs, it is clear that at least some forms of CIVs in some countries will not meet the requirements to claim treaty benefits on their own behalf. Accordingly, the Report also considers the appropriate treatment of such CIVs under both existing treaties and future treaties.

With respect to existing treaties, the Report concludes that, if a CIV is not entitled to claim benefits in its own right, its investors should in principle be able to claim treaty benefits. The Report reflects different views regarding whether such a right should be limited to investors who are residents of the Contracting State in which the CIV is organised, or whether that right should be extended to treaty-eligible residents of third States. In any event, administrative difficulties in many cases effectively prevent individual claims by investors. Accordingly, the Report concludes that countries should adopt procedures to allow a CIV to make the claim on behalf of investors.

With respect to future treaties, the Report endorses the ICG recommendation that the Commentary on Article 1 of the Model Tax Convention should be expanded to include a number of optional provisions for countries to consider in their future treaty negotiations. Inclusion of one or more of these provisions in bilateral treaties would provide certainty to CIVs, investors and intermediaries. The favoured approach for such a provision would treat a CIV as a resident of a Contracting State and the beneficial owner of its income, at least to the extent that its investors would themselves be eligible for benefits from the source country, rather than adopting a full look-through approach. Because different views were expressed on the issue of whether treaty-eligible residents of third countries should be taken into account in determining the extent to which the income of a CIV should be entitled to treaty benefits, the proposed Commentary includes alternative provisions that adopt different approaches with respect to the treatment of treaty-eligible residents of third countries. The proposed Commentary also includes an alternative provision that would adopt a full look-through approach, under which the CIV would make claims on behalf of its investors rather than in its own name. The look-through approach would be appropriate in cases where the investors, such as pension funds, would have been eligible for a lower, or zero, rate of withholding had they invested directly in the underlying securities.

B. Amendments to OECD Transfer Pricing Guidelines:

1. OECD invites comments on the Transfer Pricing Aspects of Intangibles — 2nd July, 2010:

The OECD is considering starting a new project on the Transfer Pricing Aspects of Intangibles and is inviting comments from interested parties on the scoping of such a project. Comments should be sent before 15th September 2010 to Jeffrey Owens, Director, CTPA (jeffrey.owens@oecd.org).

The OECD’s Committee on Fiscal Affairs is now completing its work on two transfer pricing projects which the OECD Council will be asked to approve by the end of July in the form of revisions to the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (TPG)?: its review of Comparability and Profit Methods and its report on the Transfer Pricing Aspects of Business Restructuring.

In these two projects, transfer pricing issues pertaining to intangibles were identified as a key area of concern to governments and taxpayers, due to insufficient international guidance, in particular on the definition, identification and valuation of intangibles for transfer pricing purposes.

OECD guidance on the transfer pricing aspects of intangibles is currently found in the TPG, especially in Chapters VI and VIII. Further and updated guidance will be available in the revised Chapters I-III of the TPG and in the final report on the Transfer Pricing Aspects of Business Restructuring once those are approved by the Council and publicly released. Intangibles are also addressed in the July 2008 Report on the Attribution of Profits to Permanent Establishments and in the Commentary on Article 12 of the Model Tax Convention.

The OECD is now considering starting a new project on the Transfer Pricing Aspects of Intangibles which could result in a revision of Chapters VI and VIII of the TPG. Working Party No. 6 of the Committee on Fiscal Affairs is still at the stage of scoping such a possible new project and would welcome the views of interested parties on?: what they see as the most significant issues encountered in practice in relation to the transfer pricing aspects of intangibles; what shortfalls, if any, they identify in the existing OECD guidance; what the areas are in which they believe the OECD could usefully do further work; and what they believe the format of the final output of the OECD work should be. Comments should be sent before 15th September 2010 in Word format to Jeffrey Owens, Director, CTPA (jeffrey.owens@ oecd.org).

Selected business commentators will be invited to meet with Working Party No. 6 on 9th November 2010 in Paris.

C. Tax Transparency and Exchange of Information Agreements:

1. OECD updates — Brazil, Indonesia ranked as implementing International Information Standard — 3rd June 2010?:

As a result of details provided to the Global Forum on Transparency and Exchange of Information for Tax Purposes, Brazil and Indonesia are now ranked in the category of jurisdictions that have substantially implemented the internationally agreed tax standard.

The OECD said it had updated its progress report, first issued in conjunction with the G20 London summit in April 2009, to take account of communications from Brazil and Indonesia on their legal and regulatory frameworks for exchange of information.

According to the information provided, Brazil has more than 25 bilateral tax treaties that provide for exchange of information in tax matters to the internationally agreed standard while Indonesia has 53 agreements that meet the standard. The two countries joined the Global Forum last September.

A full description of the two countries’ legal and regulatory frameworks will be included in the Global Forum’s 2010 annual assessment to be published later this year. As with all members of the Global Forum, both the countries will undergo peer reviews of their exchange of information laws and practices, Brazil in 2011 and 2012 and Indonesia in 2011 and 2013. Brazil is a member both of the Forum’s Steering Group and of its Peer Review Group.

Since April 2009, more than 500 bilateral tax information exchange agreements have been signed worldwide, with 28 jurisdictions joining those ranked as having substantially implemented the internationally agreed standard.

For more information, visit the following sites:
www.oecd.org/tax
www.oecd.org/tax/transparency
www.oecd.org/tax/evasion

B. Amendments to OECD Transfer Pricing Guidelines:

2. A boost to multilateral tax cooperation: 15 countries sign updated Convention on Mutual Administrative Assistance in Tax Matters — 27th May, 2010:

In April 2009, the G20 called for action “to make it easier for developing countries to secure the benefits of the new cooperative tax environment, including a multilateral approach for the exchange of information.” In response, the OECD and the Council of Europe developed a Protocol amending the multilateral Convention on Mutual Administrative Assistance in Tax Matters to bring it in line with the international standard on exchange of information for tax purposes and to open it up to countries that are neither members of the OECD, nor of the Council of Europe.

On 27th May 2010, the updated Convention was presented to Ministers and Ambassadors attending the annual OECD Ministerial meeting held in Paris and was signed by 11 countries already Parties to the Convention (Denmark, Finland, Iceland, Italy, France, the Netherlands, Norway, Sweden, Ukraine, the United Kingdom and the United States). In addition, Korea, Mexico, Portugal and Slovenia signed both the Convention and the amending Protocol.

The Convention provides for a wide range of tools for cross-border tax co-operation including exchange of information, multilateral simultaneous tax examinations, service of documents, and cross-border assistance in tax collection, while imposing extensive safeguards to protect the confidentiality of the information exchanged (see background brief for more information). Once the Protocol has entered into force, the Convention will become a more powerful tool for multilateral tax cooperation as it will enable a wider group of countries to become parties and will require full exchange of information on request in all tax matters without regard to a domestic tax interest requirement or bank secrecy for tax purposes.

3. Three Caribbean jurisdictions move up on OECD progress report — 19th May, 2010:

Dominica, Grenada and Saint Lucia have been moved into the category of jurisdictions considered to have substantially implemented the standard on transparency and exchange of information, having now all signed at least 12 exchange of information agreements conforming to the standard.

This brings to 28 the number of jurisdictions that have moved into this category since April 2009. The move affecting Dominica, Grenada and Saint Lucia follows the signature of a series of agreements involving these three jurisdictions plus Antigua and Barbuda, which had already reached 12 agreements on 7th December 2009, and the Nordic countries (Denmark, Faroe Islands, Finland, Greenland, Iceland, Norway and Sweden).

Following these signatures, Antigua and Barbuda has now signed a total of 20 agreements meeting the international standard. Dominica and Grenada have now signed 13 agreements each, and Saint Lucia has signed 15 agreements.

As members of the Global Forum on Transparency and Exchange of Information for Tax Purposes, each of these jurisdictions agreed to participate in a peer review of their laws and practices in this area. According to a schedule published by the Global Forum, Antigua and Barbuda, Grenada and Saint Lucia will undergo reviews of their legal and regulatory framework for exchange of information in 2011 and reviews of their information exchange practices in 2013. Dominica’s peer reviews will take place in 2012 and 2014.

For more information, visit: www.oecd.org/tax/transparency/ www.oecd.org/tax and www.oecd.org/tax/evasion.

BCAJ Admin

Limited Liability Partnerships

1. Introduction :

1.1 31st March, 2009, the last day of the financial year 2008-09, saw the Notification of the Limited Liability Partnership Act, 2008 (‘the Act’). The desirability of LLP as a business entity has been expressed by various committees, such as the Bhat Committee (1972); Naik Committee (1992); Expert Committee on Development of Small Sector Enterprises headed by Sh. Abid Hussain in 1997; Study Group on Development of Small Sector Enterprises (SSEs) headed by Dr. S. P. Gupta (2001), Naresh Chandra Committee on Regulation of Private Companies and Partnerships (2003); Dr. J. J. Irani Committee on New Company Law (2005).

In spite of these recommendations, India has been a bit late in recognising this extremely popular form of a business entity, considering that countries such as the USA have enacted a law dealing with Limited Liability Partnerships (‘LLPs’) as far back as in the early 1800s. Internationally, most venture capital funds/private equity funds/hedge funds are structured in the form of LLPs.

Nevertheless as the old adage goes, ‘better late than never’, India has come out with a law on LLPs at a time when the Small and Medium Sector is growing rapidly and entity such as an LLP is the right answer for this sector. The Finance (No. 2) Bill, 2009 has provided for taxation of LLPs.

1.2 LLPs lie somewhere in between the corporate sector which have limited liability but are highly regulated and the unregulated partnership sector which has unlimited liability. LLPs provide a great deal of flexibility and also limited liability. It is important to note that even though the term LLP signifies a partnership, the Act falls within the purview of the Ministry of Corporate Affairs (MCA) and the Registration and all other procedures are carried out by the RoC and not the Registrar of Firms.

1.3 By a series of Articles, let us examine some of the key features of the Act and some possible issues which may arise.

2. Features of an LLP :

2.1 Body corporate :

The most important aspect of an LLP is that it is treated as a body corporate, i.e., it is an independent legal entity with a distinct identity which is separate from its partners. As compared to this a partnership firm does not have an identity separate from its partners. An LLP has the following features of a body corporate :

(a) It has a perpetual succession.

(b) Its existence is not dependent upon its partners and hence, even if there were to be a change in its partners, the LLP’s status would remain unchanged. Death, insolvency, retirement of any partner has no bearing on the LLP.

(c) The property of an LLP is its own property and not the property of its partners. It can own property, whether immovable, movable or tangible, in its own name since it is a separate legal person.

(d) It is capable of suing and being sued in its own name.

(e) It can have a common seal.

2.2 Liability :

The liability of an LLP is to be met out of its property only and the liability does not extend to the partners. Thus, unlike in the case of a partnership firm, the partners are not personally liable for the dues of the LLP. This feature of an LLP is similar to a company where the shareholders and the company are separate legal entities. If the partner, knowingly, does any act which is outside the scope of his authority, then the LLP will not be bound by any such act. If the LLP does or the partners do any act with an intent to defraud, then the LLP and the partners shall have unlimited liability for all the debts of the LLP.

3. Incorporation Document :

3.1 To incorporate an LLP, the following steps must be taken :

(a) Two or more persons must come together to carry on any lawful business with a view to earn profits.

(b) They must subscribe to an ‘Incorporation Document and Statement’ in eForm-2. The Statement is to be digitally signed by a person named in the incorporation document as a designated partner and he must have a DPIN. The Statement must also be digitally countersigned by an advocate/company secretary/chartered accountant/cost accountant in practice who is engaged in the formation of LLP. In case of foreign nationals residing outside India and seeking to register an LLP in India, their signatures and address on the incorporation documents and proof of identity, where required, shall be notarised before the notary of the country of their origin.

(c) The RoC after satisfying himself about compliance with relevant provisions of the LLP Act will register the LLP, within a maximum period of 14 days of the filing of eForm-2 and will issue a certificate of incorporation in Form-16.

3.2 An LLP should have a registered office. Its name should be as per the guidelines laid down in this respect. The last words of the name should be limited liability partnership or LLP, e.g., the name of an LLP could be ‘Apex Venture Fund LLP’.

3.3 The partners of the LLP have to enter into an LLP Agreement.

4. Partners :

4.1 Just as a company has members, an LLP has partners. As per S. 5 of the Act, any individual or any body corporate can be a partner of an LLP. However, in any of the following cases, an individual cannot be a partner in an LLP :

(a) If he is adjudged to be of unsound mind by a Court.

(b) If he is an undischarged insolvent.

Any body corporate can also be a partner of an LLP. The term body corporate has been defined u/s.2 of the Act to mean a company as defined in S. 3 of the Companies Act, 1956, and also includes an LLP registered under the Act, an LLP incorporated abroad, a company incorporated abroad. However, it does not include a corporate sole, a co-operative society and any other body corporate so notified by the Government. Since an LLP is also a body corporate, one LLP can become a partner in another LLP. Two or more companies can also come together to form an LLP. LLPs could be the future for consortium type of arrangements.

4.2 Each LLP must have a minimum number of 2 partners. This feature is at par with a partnership. There is no limit on the maximum number of partners which an LLP can have. A partnership or an AOP cannot have more than 20 partners/members or else it becomes an illegal association. A private limited company cannot have more than 50 members. However, an LLP has no limit on the number of partners. Thus, in this respect it is at par with a public limited company. It is this feature of an LLP which makes it a very attractive structure from a VC/PE perspective since the fund can have as many investors as it likes.

4.3 Designated Partner:

a) The concept of a ‘Designated Partner’ has been introduced by the Act. S. 7 requires an LLP to have at least 2 designated partners, both of whom should be individuals and one of whom should be a resident in India. If there are only 2 partners in an LLP, then both should be treated as designated partners.

b) In case, both the partners are LLPs/companies, then partners of such LLPs or nominees of such companies should become designated partners.

c) The Act incorporates a part of the definition of the term ‘resident in India’ from S. 2 of the Foreign Exchange Management Act, 1999. A resident has been defined to mean a person who resided in India for not less than 182 days during the immediately preceding financial year.

d) The individual must give his prior consent to become a designated partner.

e) To become a designated partner, an individual must obtain a Designated Partner Identification Number (DPIN).

f) A designated partner is one who is responsible for carrying out all the compliance obligations of the LLP imposed by the Act. He is also liable to all the penalties imposed on the LLP for contravention of any of these provisions of the Act. One may loosely equate him with the Managing Director of a company.

g) Any person can be appointed as a designated partner and he may retire also. Any vacancy must be filled within 30 days.

4.4 Relationship of Partners:

a) The mutual rights and duties of the partners of an LLP are governed by the LLP agreement. If there is no such agreement, then S. 23(4) of the Act provides that the mutual rights and duties of the partners shall be as set out in the First Schedule to the Act. Such an agreement and any changes, therein, must be filed with the RoC.

b) For the purposes of the business of the LLP, every partner of an LLP is an agent of the LLP but not of the other partners. This is a fundamental difference between an LLP and a partnership firm, wherein mutual agency is a key condition of the partnership. Each partner is an agent of the firm and of the other partners. S. 4 of the Partnership Act defines a partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

4.5 A person can resign from the LLP by giving a notice to other partners. A person would cease to be a partner on his death or on dissolution of the LLP or if he is declared to be of an unsound mind or if he has been adjudged as an insolvent. When a person ceases to be a partner, the LLP shall file a notice in the prescribed form with the RoC.

5. Contributions:

5.1 A partner of an LLP contributes towards the capital of the LLP. The obligation of a partner to contribute shall be as per the LLP Agreement.

5.2 The contribution can be in the following forms:

a) Tangible, movable, immovable, intangible property or a;ny other benefit to the LLP, e.g., land, goods, IPRs, etc.

b) Money, promissory notes, agreement to contribute cash or property and contract for services to be performed.

The monetary value of the contribution of each partner should be accounted for and disclosed in the accounts.

5.3 If the contribution is in kind, then the same must be valued by a practising CA or an approved valuer. No methodology has been prescribed for the valuation.

6. Tax Treatment:

6.1 The Finance (No. 2) Bill has prescribed the tax treatment for LLPs. The provisions are effective from A.Y. 2010-11. LLPs would now be taxed at par with partnership firms. Thus, the LLP will pay tax on its profits and the partners will receive their share in the LLP tax-free [5. 10(2A)]. The LLP will pay tax @ 30%. The Finance Bill has abolished the surcharge of 10% payable by firms and hence, even LLPs will not have to pay any surcharge. The 3% cess continues and hence, the net rate will be 30.9%.

6.2 LLP will get a deduction for remuneration paid to its working partners. The limits of S. 40(b) have been streamlined and simplified both for firms and LLPs:

a) On the first Rs.3 lakhs of book-profit – A deduction which is the higher of Rs.1.5 lakhs or 90% of the book-profits

b) On the balance book-profits – A deduction @ 60% of book-profits.

Any interest payment by the LLP to a partner in excess of 12% p.a. would be disallowed and any salary, remuneration, commission to non-working partners would be disallowed.

6.3 There will be no incidence of MAT or Divi-dend Distribution Tax or liability to Deemed Dividend on the LLP.

6.4 S. 45(3) would apply to the admission of a partner and S. 45(4) would apply to the dissolution of an LLP or retirement of a partner.

6.5 There is no express provision for the tax treatment of merger or demerger of two LLPs. The provisions contained for amalgamation or demerger in the Income-tax Act, only apply to companies and not to LLPs. It would be beneficial if the Finance Act, 2009 provides for this situation.

BCAJ Admin

Readers View

The Editor,
BCAJ,
Mumbai – 400 020.

17th July, 2013

Dear Sir,

Re: FDI Reforms

Faced with harsh economic environment, both domestic as well as global, the Dollar starved Government has ushered in FDI Reforms. It has increased FDI Limits in 12 sectors (excluding Civil Aviation, Multi Brand Retail and News Media). In several sectors, 49% limit has been changed to Automatic Route from the FIPB Route. The decision was taken by 11 Key Ministers by consensus. Same day it was reported that Posco of South Korea has junked its $5.3 billion Karnataka Steel Project because of inordinate delay in getting iron ore mining rights. Other FDI Projects in Steel Sector proposed in last 10 years by Arcelor Mittal and others have not yet seen fructification due to delays in Land Allotment and getting exclusive Coal and Iron Ore Mining rights.

Besides the Reforms at Policy Level, the FDI Regulations are such a maze of Press Notes, Circulars, Notifications, Clarifications etc. that leave aside a foreigner, even the Regulators and Expert Consultants cannot find their way through . At times, the RBI does not implement the policy level changes made by the Finance Ministry, Commerce Ministry and DIPP.. Therefore, there is an urgent need to cut thru the clutter of such Press Notes, Circulars and Notifications and ensure that all the concerned ministries and their Officials and RBI are on the same page.

Further, the Reform Mindset has to percolate down to the State Government and the Municipal Authorities Today, it is seen that the Local Bureaucrats and Politicians, whether high or low, are not concerned with development of the State or the Country; their only concern is how do they get their pound of the flesh. They look for opportunities to milk the Businessmen and Industrialists, who are, therefore, looking for greener pastures abroad.

The decision to open up some sectors of the economy to greater foreign investment is a step in the right direction, coming as it does at a time when the country needs such investment to plug a yawning current account deficit. But the idea will not work if the government imposes unreasonable restrictions which put off investors.. While ensuring that loopholes are not exploited, the effort must be to make implementation of rules investor-friendly. The rules themselves must be fair and transparent. Only then will the benefits flow. If Governments, both at the Central and at the States, do not take care of the above, the policy relaxations will remain on paper and would not result in inflow of Foreign Exchange as earnestly hoped by the Union Cabinet and such hope will only remain a “Maya” (illusion).

Yours sincerely,

Tarun Singhal

levitra

BCAJ Admin

Representation

July 22 ,2013

To,

Mr. P. Chidambaram
The Hon’ble Finance Minister
Government of IndiaNorth Block,
Secretariat, New Delhi – 110 001.

Hon’ble Sir,

Subject: Applicability of Transfer pricing provisions to Specified Domestic Transactions covered u/s. 40A(2)

The Finance Act, 2012 has extended the applicability of transfer pricing provisions to Specified Domestic Transactions including payments made to related party covered u/s. 40A(2). Since payments covered within the purview of Section 40A(2) are tax neutral having no tax arbitrage and in view of difficulty in availability of comparables in public domain with regard to various expenses such as managerial remuneration, ESOP/ESOS cost etc., it is suggested that provisions relating to Specified Domestic transactions should not apply to payments covered u/s. 40A(2). We request your Honour to kindly peruse the attached representation which highlights the reasoning and difficulties likely to be faced in complying with the provisions which are not likely to result in any significant tax revenue.

Thanking you,

We remain,

Yours truly,

For Bombay Chartered Accountants’ Society

Naushad Panjwani                               Kishor Karia                            Deepak Shah
President                                             Chairman                                  Co-Chariman
                                                                   International Taxation Committe

Representation on applicability of Transfer pricing provisions to Specified Domestic Transactions covered u/s. 40A(2)

Legislative Intent behind introduction of Domestic Transfer Pricing provisions for certain Specified Domestic Transactions:

The introduction of the provisions for domestic transfer pricing was an outcome of the suggestions given by Honourable Supreme Court in CIT vs. Glaxo Smithkline Asia (P) Limited 236 CTR 113.

The Hon’ble Supreme Court while deciding on the issue of section 40A(2) made some of the important observations as under:

• The present Transfer pricing provisions does not apply to domestic transactions

• In domestic transactions, under invoicing and over invoicing will be revenue neutral, except in two circumstances:

i. Where one of the related entities is loss making or

ii. Where one of the related entities is liable to pay tax at a lower rate and the profits are shifted to such entity.

The Explanatory Memorandum to Finance Bill 2012 clarifies that the genesis of these provisions lies in suggestion made by the Supreme Court (SC) in the case of CIT vs. Glaxo Smitkline Asia (P) Ltd. (supra). The relevant points from the explanatory memorandum explaining the intent for introduction of domestic transfer pricing provisions are as follows:

• Presently there is no method prescribed to determine reasonableness of expenditure to re-compute the income in related party transactions

• There is a need to provide objectivity in determination of income and determination of reasonableness of expenditure in domestic related party transactions

• There is a need to create legally enforceable obligation on assessee to maintain proper documentation

Thus based on the observations of the Hon’ble Supreme Court, the Finance Act 2012 has extended the applicability of the transfer pricing provisions for specified domestic related party transactions with an intent:

• To discourage tax abuse where the companies resort to tax arbitrage by shifting of profits by undertakings having huge accumulated losses/ enjoying tax holidays/ differential tax rates.
• To shift from Fair Market Value (FMV)/ ordinary profit to Arms Length Price (ALP).

These SDT are contained in section 92BA of the Income Tax Act, 1961 (‘Act’) which is reproduced hereunder:

Section 92BA – Specified Domestic transaction

“Specified Domestic Transactions” in case of an assessee means any of the following transactions, not being an international transaction, namely –

i. any expenditure in respect of which payment has been made or is to be made to a person referred to in clause (b) of s/s. (2) of section 40A;

ii. any transaction referred to in section 80A;

iii. any transfer of goods or services referred to in s/s. (8) of section 80-IA;

iv. any business transacted between the assessee and other person as referred to in s/s. (10) of section 80-IA;

v. any transaction, referred to in any other section under Chapter VI-A or section 10AA, to which provisions of s/s. (8) or s/s. (10) of section 80-IA are applicable; or

vi. any other transaction as may be prescribed, and where the aggregate of such transactions entered in to by the assessee in the previous year exceeds a sum of Rs. 5 crore.

The major implication in a case where a transaction is classified or covered under SDT, then FMV as contemplated by any of the specified provisions will need to be determined in accordance with ALP as defined in the section.

If section 92BA is applicable,

• ALP as determined by adopting most appropriate method as per section 92C(1) will be considered as measure of FMV for transactions specified u/s. 92BA. This makes it mandatory for the taxpayer to compute ALP as per methods specified u/s. 92C (including sixth method recently notified on 23rd May 2012).

• The taxpayer is also obliged to maintain contemporaneous documents u/s. 92D as also obliged to obtain & furnish auditor’s report u/s. 92E of the Act.

While the objective for introduction of the domestic transfer pricing provisions to discourage tax abuse and curb tax evasion on account of tax arbitrage resorted by the tax payers seems laudable and the application of the said provisions with respect to transactions relating to sections 80A, 80IA, 10AA is reasonable but application of said provisions for transactions covered u/s. 40A(2) does not seem to have any logic and sound reasoning, as it is impossible to get comparable cases from public domain. Business is not conducted, either with third party or with related one, in the real life based on Public database or theory of methodology as prescribed u/s 92C of the Income Tax Act, 1961.

The host of transactions that could be covered under the ambit of domestic transfer pricing regulations u/s. 40A(2) are as follows:

• service, maintenance and administration charges

• construction cost and purchase of material

• corporate guarantee charges

• Interest payments on loans advanced amongst group companies

• payment of royalty

• shared services cost/management cross charges

• payments to directors and/or their relatives

• ESOP and/or ESOS cost borne for directors or their relatives

• ESOP and/or ESOS cost reimbursed

The provisions of section 40A(2) are analysed in detail below to rationalise the assertion that domestic transfer pricing provisions should not be applicable in case of section 40A(2).

Analyzing the provisions with respect to section 40A(2) to evaluate whether the intended objective is achieved:

Attention is invited to departmental Circular No. 6 – P dated 06-07-1968 and Circular No. 4 – P [LXXVI-65] dated 07-06-1968. Relevant extract of the said circular is reproduced below:

“It may be noted that the new provision is applicable to all categories of expenditure incurred in businesses and professions, including expenditure on purchase of raw materials, stores or goods, salaries to employees and also other expenditure on professional services, or by way of brokerage, commission, interest, etc. Where payment for any expenditure is found to have been made to a relative or associate concern falling within the specified categories, it will be necessary for the Income-tax Officer to scrutinise the reasonableness of the expenditure with reference to the criteria mentioned in the section. The Income-tax Officer is expected to exercise his judgment in a reasonable and fair manner. It should be borne in mind that the provision is meant to check evasion of tax through excessive or unreasonable payments to relatives and associate concerns and should not be applied in a manner which will cause hardship in bonafide cases.” (Emphasis provided)

Thus the provisions of section 40A(2) were introduced in order to check whether the Taxpayers carrying on business transactions with related parties made excessive and unreasonable payments/expenditure, provisions of section 40A(2) were introduced in the Act in the year 1968, which empowered the tax authority to disallow payments to ‘related parties’ which are excessive or unreasonable.

Following are the existing provisions under the Act, that provide for transactions between related parties should be valued at market value:

Section 40A(2) – Expenses or payments not deductible in certain circumstances. The existing provisions of clause (a) of s/s. (2) of the aforesaid section 40A provide that:

• where the assessee incurs any expenditure in respect of which payment has been or is to be made to any person referred to in clause (b) of the said section, and

• the Assessing Officer is of the opinion that such expenditure is excessive or unreasonable having regard to fair market value of the goods, services or facilities

• for which the payment is made or the legitimate needs of the business or profession of the assessee or the benefit derived by or accruing to him there from, so much of expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as deduction.

A fair market value is required to be assigned to the transactions between related parties in terms of section 40A(2). However, there was no specific valuation machinery/methodology prescribed in the Act to find out whether the same is at fair market value or not. Thus, though the provisions have existed under the law since 1968, these were rendered subjective in absence of specific method being prescribed to ascertain and demonstrate the FMV. Thus, there has been an ongoing litigation on this subject and the desired objective of working out reasonable expenditure applying FMV has not been achieved in reality.

Having regard to judicial precedent on the subject, and particularly having regard to Circular 6-P of 1968, section 40A(2) can be regarded as anti abuse provision where the onus of proving fulfillment of all the conditions which result in disallowance lie on the AO.

It is respectfully stated that the intent of legislature for extending transfer pricing regulations to domestic transactions and bringing within the ambit of SDT the payments covered u/s. 40A(2) would become superfluous/ redundant where the parties amongst whom the transaction has been undertaken are subject to same rate of tax and there is no tax arbitrage.

It can be observed that the provisions of section 40A(2) were introduced way back in 1968 and were meant to cover cases of tax evasion. These regulations were issued / enforced at a point of time when there were soaring rates of tax and there existed host of incentive provisions under the Act. However, over a period of time the provisions have been rationalised and liberalised whereby most of the incentives have faded out. Currently the scenario is such that all entities are subject to almost the same rate of taxation and in cases not less than Minimum Alternate Taxes (MAT).

Though we agree and strongly believe that specified domestic transactions should be applicable in cases where there is possibility of resorting to tax arbitrage i.e. in case of transaction between a loss making entity and a profit making entity. However even in this case, it can be appreciated that the tax arbitrage available would be only in form of deferring the tax liability to later date since by shifting of income from a profit making company to a loss making company, the group could reduce its tax liability for the current year, though the impact will be reversed in future years given carry forward of losses. Also considering the position of book losses there could arise a situation where the loss making entity would be liable to pay the Minimum Alternate Tax. Accordingly in our view where the parties involved in the transaction are subject to almost same rate of tax there is little scope of resorting to tax arbitrage.

Further the provisions as prescribed currently have aroused various issues such as:

• Whether indirect shareholding is covered?

• Whether shareholding of individual directors can be aggregated for determining substantial interest?

• Benchmarking issues?

Accordingly in our view, bringing the transactions covered u/s. 40A(2) under purview of domestic transfer pricing provisions necessitating the taxpayer to benchmark the transactions to arrive at arm’s length price of such transaction is burdensome, will lead to increase in compliance burden and causes lot of inconvenience for the assessees which may not be desirable.

Relevant issues arising with respect to benchmarking payments covered by section 40A(2):

ALP Concept

• Concept of ALP applicable for determining taxable income arising from international transactions which was introduced in 2001 is now extended to SDT.

• ALP defined to mean a price which is applied or proposed to be applied in a transaction between persons other than Associated Enterprises (AEs), in uncontrolled conditions.

• Comparability and Functions, Assets and Risks (FAR) fundamental to the concept of ALP

• Comparison of conditions in a controlled transaction with conditions in transactions between uncontrolled enterprises

• Compensation usually reflects functions performed (taking into account assets used and risks assumed) (FAR)

ALP concept usually relevant for transactions between “separate enterprises”; may need to be applied by analogy to SDT involving inter-unit transfer of goods/services.

Methods prescribed for computing ALP

ALP is required to be computed using any of the following methods being the most appropriate method

• Comparable uncontrolled price method (CUP)

• Resale price method (RPM)

• Cost plus method (CPM)

• Profit split method (PSM)

• Transactional net margin method (TNMM)

• Such other method as may be prescribed by the Board – method prescribed in May 2012 by inserting Rule 10AB. The rule is reproduced herewith:

“10AB. For the purposes of clause (f) of s/s. (1) of section 92C, the other method for determination of the arm’s length price in relation to an international transaction shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.”

Rules provide guidance on application of the methods and factors to be considered in selecting the most appropriate method.

Deficiency in prescribed methods and absence of introduction of practicable and thoughtful method/ approach

It is important to note that even though the provisions of SDT provide for determining the ALP of the domestic transactions by applying the methods that are prescribed for international transactions, however, it would be difficult to apply the prescribed methods to determine the ALP of domestic transactions. This would lead to enormous litigation for tax authorities and taxpayers.

It would be appreciated that no method has been formulated for the purpose of benchmarking the specified domestic transaction but the methods prescribed by OECD (Organization for Economic Co-operation Development) which is applicable for international transactions has been made applicable even for benchmarking specified domestic transactions. It is big challenge for the taxpayers to collate data of comparable transactions/ comparable companies from the public databases available for benchmarking the specified domestic transactions. In several instances it is impracticable to benchmark the specified domestic transactions.

For instance – Payment of managerial remuneration

It is impractical to benchmark payment of remuneration to the directors/ other payments to directors. Salary of directors is determined by the management based on several factors viz qualifications, experience which are individual traits and varies from company to company. Certain judicial precedents have accepted the view that if the managerial remuneration is within the limits prescribed in the Companies Act, 1956, the same is a reasonable expenditure u/s. 40A(2)(b).

The table below explains the concepts of FMV and ALP. There are lot of contentious issues on this subject as to whether FMV is different from ALP? Is ALP synonymous with Market value?

There is a significant difference between the concepts of FMV and ALP whereas the concept of FMV deals with arriving at a value at which a particular transaction may be executed, the concept of ALP deals with profitability arrived on execution of the transaction under most of the methods prescribed except under the Comparable Uncontrolled price method which deals with price i.e. value of the transaction.

Applicability of regulations resulting in Economic double taxation

Further, application of the domestic transfer pricing provisions to payments covered by section 40A(2) may result in to economic double taxation. Here , one may appreciate that even the Hon’ble Supreme court in its observations have specified that under invoicing or over invoicing would be revenue neutral except under the two circumstances as specified. Thus, where the payment covered under section 40A is made amongst two entities both of which are subject to same rate of tax it is in effect a tax neutral situation. Specified Domestic Transactions are not meant to cover revenue neutral transactions lest it would result in economic double taxation. The transfer pricing adjustments for Specified Domestic Transactions would result in double taxation in revenue neutral cases and hence corresponding adjustments are warranted. The provisions of subsection 4 of section 92C ‘Computation of arm’s length price’ is reproduced below for ready reference:

(4) Where an arm’s length price is determined by the Assessing Officer u.s/s. (3), the Assessing Officer may compute the total income of the assessee having regard to the arm’s length price so determined :

Provided that no deduction u/s. 10A 93[or section 10AA] or section 10B or under Chapter VI-A shall be allowed in respect of the amount of income by which the total income of the assessee is enhanced after computation of income under this sub-section :

Provided further that where the total income of an associated enterprise is computed under this sub-section on determination of the arm’s length price paid to another associated enterprise from which tax has been deducted 94[or was deductible] under the provisions of Chapter XVIIB, the income of the other associated enterprise shall not be recomputed by reason of such determination of arm’s length price in the case of the first mentioned enterprise.

It can be observed from the above provisions that the regulations do not contemplate any correlative adjustments and do not permit recomputation of income of the recipient enterprise if excessive or unreasonable expenses are disallowed in the hands of tax payer at time of the assessment then corresponding adjustment to the income of the recipient will not be allowed in the hands of recipient of income. Hence, it would lead to double taxation in India.

Applicability of regulations resulting in Unreasonable burden of compliance cost on industry and business

It would further be appreciated that the enforceability of the aforesaid provisions would result in unreasonable burden of compliance cost on industry and business. Firstly, it is a big challenge for the taxpayers to collate data of comparable transactions/comparable companies from public databases for benchmarking their transaction, further maintaining documentation and observing the compliance requirements would lead to unreasonable burden and cost for the taxpayers.

To conclude it is respectfully submitted that the introduction of Specified domestic transactions may be useful except in cases of Section 40A(2). In circumstances where there is no base erosion and in instances as described above which result in to tax neutrality, the provisions of domestic transfer pricing should not be extended to payments covered u/s. 40A (2) which cause undue hardship and compliance burden to the taxpayers withoutany significant benefits to the revenue. Accordingly, Section 40A(2) should be excluded from the net of Specified domestic transactions.

BCAJ Admin

ICAI and its members

Message from Ministry of Corporate Affairs :

“Over the years, the ICAI has made a name for itself in the development of accounting discipline. It has been catering to the needs of modern day accountancy requirements by generating qualified CAs to meet the present as well as the future needs of the industry.

The Institute has intensified its focus on global best practices and has raised the bench mark of accountancy profession in India. It has thus come a long way since its establishment”.

EAC Opinion

Accounting for unspent expenditure towards Corporate Social Responsibility

Facts:

A company being a Government of India enterprise, is engaged in the business of transmission of power from the generating units in central sector to various State Electricity Boards.

The company has stated that the Guidelines on Corporate Society Responsibility (CSR) for Central Public Sector Enterprises (CPSEs), issued by the Department of Public Enterprises (DPE) on 9th April, 2010, provides that each CPSE has to mandatorily create CSR budget through a board resolution as a percentage of net profit of the previous financial year. The above guidelines also provide that the amount allocated for CSR activities should be transferred to a CSR fund which will accumulate – as in the case of non-lapsable pool for the North East.

In accordance with the above guidelines, in the financial year (F.Y.) 2011-12, 1% of profit after tax (PAT) of the previous year was earmarked to CSR activities after approval of the Board of Directors.

The company has also stated that upto the F.Y. 2010- 11, actual expenditure incurred on CSR activities was charged to the statement of profit and loss and the difference between 1% of PAT of previous year and actual expenditure (hereinafter called as ‘unspent expenditure’) was appropriated through the statement of profit and loss to CSR reserve.

During the F.Y. 2011-12, it was considered that unspent expenditure is not in the nature of reserve to be created by appropriation of profit but is an obligation to be incurred. As such, it is in the nature of provision rather than reserve fund. Accordingly, provision was made for the unspent expenditure for the year as well as unspent expenditure as at the beginning of the year.

Query:

On the basis of the above, the company has sought the opinion of the Committee on the following issues:

(i) Whether the unspent expenditure should be charged to the profit and loss account and provision be created for the same, or (ii) the unspent expenditure be appropriated through the profit and loss account to CSR reserve, or (iii) to adopt any other accounting treatment.

Opinion:

The Committee noted the definitions of ‘provision’. ‘liability’ ‘obligating event’ ‘present obligation’ and paragraphs 14, 16, 17 and 18 of AS 29, notified under the Companies (Accounting Standards) Rules, 2006 as well as DPE Guidelines and is of the view that as per the DPE Guidelines, there is a mandate for creation of a budget/fund and not to spend on CSR activities as a percentage of profits, which would only form a basis for evaluation of the performance of an enterprise. However, there is no mandate on the amount of expenditure, which has to be necessarily incurred by an enterprise during a period of its operation. Thus, there is a mandate only on the creation of a budget or fund rather than an obligation to incur expenditure during a period. Since as per DPE Guidelines, there is no such obligation on the enterprise, provision should not be recognised. Accordingly, the Committee is of the view that the requirement in the DPE Guidelines for creation of a CSR budget can be met through creation of a reserve as an appropriation of profits rather than creating a provision as per AS 29.

[Pl. Refer Page nos. 139 to141 C. A. Journal – July, 2013]

ICAI News:

(Note: Page Numbers given below are from C.A. Journal of July, 2013)

i) Member as a senior citizen – Age reduced to 60 (P.182)

The Council of the ICAI has decided to reduce the age from 65 years to 60 years for treating a member as senior citizen for the purpose of payment of annual membership fee and certificate of practice fee.

ii) New Branches of ICAI (P. 167 to 168)

The following five branches of ICAI have been established. With this addition, there are 138 Branches of ICAI in India now.

a) Sikar (Rajasthan) – CIRC
b) Sirsa (Rajasthan) – NIRC
c) Rewari (Haryana) – NIRC
d) Nanded (Maharashtra) – WIRC
e) Dhule (Maharashtra) – WIRC

iii) Branches of WIRC Students Association (P. 169)

The following branches have been set up

a) Latur (b) Ahmedabad (c) Sangli and (d) Goa

iv) The following Institutions have recognised Chartered Accountancy Qualification for registration to PhD Programme (P. 169 to 171)

a) Arinahilingam Institute for Home Science and Higher Education for Women, Coimbatore – deemed university

b) Indian Institute of Technology, Madras

c) Dr. D.Y. Patil Vidyapeeth University, Pune

d) Central University of Jharkhand, Ranchi.

v) The following Campus Placement Programme for newly qualified C.As. has been or organised by ICAI during the month of August and September, 2013 (P. 180)

No.

Centre

Interview Dates

Ahmedabad, Bhubaneswar,

12th -19th

Chandigarh,
Coimbatore,

August,2013

Ernakulam, Indore,
Jaipur,

Kanpur, Nagpur, Pune

Bengaluru, Chennai, Hyderabad,

6th -13th

Kolkata, Mumbai, New
Delhi

September, 2013

BCAJ Admin

Company Law

82. Modification to the Name Availability Guidelines

The Ministry of Corporate Affairs has vide General Circular No. 12/2013 dated 28th June 2013 modified the Name Availability Guidelines for Registration of electoral Trusts as Companies u/s. 25 of Companies Act 1956 as under:

“If it includes the words indicative of separate type of business constitution or legal person or any connotation thereof, the same shall not be allowed for e.g. Cooperative Society, trust, LLP, Partnership, Society, proprietor, HUF, Firm, INC, PLC, GmBH, SA, PTE, Sdn, AG etc.

Explanation ; i) name including phrase ‘electoral Trust’ may be allowed for registration of Companies to be formed u/s. 25 of the Companies Act 1956 under electoral Trusts Schemes, 2013 as notified by CBDT.

2. The Company to be formed u/s. 25 should be a new Company and should comply with Section 293-A of the Act i.e., which contains the prohibitions and restrictions regarding political contributions. The name application should be alongwith an affidavit to the effect that the name obtained shall only be used for the purpose of registration of Companies under electoral Trust Scheme as notified by the CBDT.”

83. Annual filings time limit

The Annual Filings for the year ended 31.03.2013 including the XBRL filing needs to be done within the time limit specified.

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BCAJ Admin

PART D: good governance

• It is in the supervisory neglect of routine tasks that the seeds of poor governance lie. Any supervisory authority must come together with supervisory responsibility. For example, chief commissioners of income tax should, by this principle, have authority- and therefore the corresponding responsibility- to deploy their subordinate commissioners as they find fit. As things stand, though, it is the central taxes board and the minister concerned who exercise this authority. Yet, if the officers are then discovered to be negligent in their new posts, the board or minister are not held even remotely answerable. On the other hand, since chief commissioners do not decide the commissioners’ deployment, they can claim helplessness.

• Poor governance arises essentially from corrupt practices and negligence or dereliction in official conduct. Both can be tackled, if supervisory responsibility is effective.

(From the article under the title “India’s bureaucracy works in feudal matrix. Little wonder corruption and poor governance flourish in our country”, by Anil Dhar, a freelancer)

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BCAJ Admin

PART C: Information on & Around

• Information on Emergency:

1) Believe it or not, the government has claimed that it does not have any documents pertaining to the Emergency period. Neither the Prime Minister’s office nor the home ministry have given any response to RTI activist Manoranjan Roy who sought Information on the Emergency.

2) Earlier, V Narayanasamy, minister of state in the PMO, had acknowledged that official records on the Emergency are “not available in the PMO”. “A thorough search was made to retrieve and trace records of correspondence between the then PM and the President of India relating to proclamation of emergency. However, no such records were found in the PMO,” Narayanasamy said. The Central Information Commission (CIC) had then sought an investigation into the matter and said the government must “ensure that these records are retrieved or traced, wherever they might be, and should be preserved appropriately for citizens so that they can access them.”

Two years on, the reply to Roy’s query reveals that the documents are still missing. The home ministry has blamed the National Archives of India saying that it is the “repository of non-current records”. But the archives department officials say otherwise. A member of archival advisory board of the National Archives of India, on the condition of anonymity, said, “While the ministries are bound to transfer all records for archival, no records on the emergency were transferred to us for safe-keeping.”

• Mumbai Cricket Association (MCA) ground:

On the recommendation by NCP supremo Sharad Pawar, BMC handed over 39,950 sq.m. plot to the MCA to promote cricket without observing rules connected with such allotment of land. This information was obtained by Anjali Damania of AAP through the RTI route.

Damania alleges that rules did not allow for the plot to be developed. The BMC was supposed to give only operational rights to MCA. So, how could the MCA raise Rs.270 crore by way of membership fees on a BMC plot?”

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BCAJ Admin

PART B: RTI Act, 2005

• This feature in BCAJ is to report on matters connected with RTI. However, in this issue 1 report on “The Rajasthan Right In Hearing Act, 2012” (RRHA) which received the assent of the Governor on 21-05-2012. This is relevant to the RTI Act. Under this Act, duties are cast on the Public Hearing officer (similar to the Public Information officer under the RTI Act). Section 4(5) provides: The Public Hearing Officer on receipt of a complaint u.s/s. (1) shall, within the stipulated time limit, provide an opportunity of hearing to the complainant and after hearing the complainant, decide the complaint either by accepting it or by referring it to an authority competent to grant the benefit or relief sought for or by suggesting an alternative benefit or relief available under any other law, policy, order, programme or scheme or by rejecting it for the reasons to be recorded in writing and shall communicate his decision on the complaint to the complainant within the stipulated time limit. Section 5(3) provides: Every public authority shall be responsible for the development, improvement, modernisation and reform in redressal of grievance system including redressal of grievance through information technology.

Section 7: Penalty provisions read:

(1) Where the second appellate authority is of the opinion that the Public Hearing Officer has failed to provide an opportunity of hearing within the stipulated time limit without sufficient and reasonable cause, it may impose on him a penalty which shall not be less than five hundred rupees but which shall not exceed five thousand rupees:

Provided that before imposing any penalty under this s/s., the person on whom penalty is proposed to be imposed shall be given a reasonable opportunity of being heard.

(2) The penalty imposed by the second appellate authority u.s/s. (1) shall be recoverable from the salary of the Public Hearing Officer.

(3) The second appellate authority, if it is satisfied that the Public Hearing Officer or the first appellate authority has failed to discharge the duties assigned to him under this Act, without assigning sufficient and reasonable cause, may recommend action against him under the service rules applicable to him.

The Rajasthan Right of Hearing Rules are enacted on 09-06-2013 some of the rules are:

Rule 11: No fee shall be payable along with complaint, memo of first appeal or second appeal and revision application per Rule 11.

Rule 20 provides for Establishment of Information & Facilitation Centre: It reads (1) The State Government may establish Information and Facilitation Centre which may include establishment of customer care centers, call centers, help desks and people’s support centers or any other e-mitra, Rajiv Gandhi Seva Kendra or other institutions authorised to act as Information and Facilitation Center.

(2) If the complaint is received by any Information and Facilitation Centre authorised for receiving complaints, the In-charge of the Information and Facilitation Centre shall transfer the same immediately to the Public Hearing Officer concerned and the time taken in such transfer shall not be counted in the stiputed time limit.

(3) The unique registration number given on complaint and action taken on complaint or transfer of complaint may also be made online for efficient and effective hearing of grievance of the people.

(4) A State wide net work may be developed by the State Government to receive, register and monitor the complaints.

This RRHA is very powerful Act, similar to the RTI Act. To note that it is only for complaints against Authorities in the State of Rajasthan. It is hoped that other states legislate similar law.

It may also be noted that the Central Government has introduced the Bill under the title:

THE RIGHT OF CITIZENS FOR TIME BOUND DELIVERY OF GOODS AND SERVICES AND REDRESSAL OF THEIR GRIEVANCES BILL, 2011

Unfortunately it is not enacted yet even though introduced in 2011 as we know that parliament does not function much due to political disputes between parties. Once such an Act is enacted, the great relief will be available to the citizens and it would be a supplement to the RTI Act. I reproduce clauses 3 & 4 of the Bill:

3. Subject to the provisions of this Act, every individual citizen shall have the right to time bound delivery of goods and provision for services and redressal of grievances.

4. (1) Every public authority shall publish, within six months of the commencement of this Act, a Citizens Charter specifying therein all the category of goods supplied and services rendered by it, the time within which such goods shall be supplied or services rendered.

(2) Without prejudice to the generality of the provisions contained in s/s. (1), the Citizens Charter shall provide all or any of the following matters, namely:-

(a) the details of all the goods supplied and services rendered by the public authority and the name of person or agency through which such goods are supplied or services rendered and timings during which such services are supplied or services rendered;

(b) the conditions under which a person becomes entitled for goods or services, and the class of persons who are entitled to receive such goods and avail services;
(c) the quantitative and tangible parameters (including weight, size, frequency) of the goods and services available to the public;

(d) complaint redressal mechanism including the time within which the complaint be disposed of and the officer of the public authority to whom such complaint may be made;

(e) the name and addresses of individuals responsible for the delivery of goods or rendering of services mentioned in (a) above;

(f) any other functions, obligations, responsibility or duty the public authority is required or reasonably expected to provide;

(g) any other information relevant to delivery of goods or provision of services or such other information as may be prescribed.

(3) The appropriate Government may, by notification, make rules in relation to citizens’ charter and grievance redressal.

Let us hope that this bill becomes the Act in the coming session of Parliament starting in August 2013.

• July issue of BCAJ reported the three-member decision of CIC ruling that political parties are covered under the RTI Act. They were given six weeks time to appoint PIO, FAA etc. None of the six political parties have complied with this order.

It is now reported that Government shall overturn CIC’s order. The Bill amending the RTI Act shall be moved in the coming monsoon session. It shall provide in the definition of public authority [section 2(h) of the RTI Act] that it will not include any political party registered under the Representation of the People Act. RTI Activists all over the country has mailed to the President of India that he should not give assent to such bill.

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BCAJ Admin

PART A: Orders of CIC

Section 7 (1) of the RTI Act:

• The appellant sought huge information from the postal Department, Bangalore about:

1. The total number of account holders in postal savings viz. saving bank, MIS, PPF etc. at the respective post offices in Bangalore Urban Area during the financial years 2009–2010 & 2010–2011 respectively.

2. The monthly turnover/collections at the above post offices during the financial years 2009–2010 & 2010–2011.

CPIO replied and stated that the information requested by the appellant is not being compiled at the central level and was scattered in 187 sub-post offices and if they had undertaken this work it would have disproportionately diverted the resources of the public authority – Whether the CPIO should collect and compile the information, which is not available in his office, from other subordinate offices and furnish the same to the applicant? – the Commission held that a CPIO is expected to provide the information available with him and he is not required to collect and compile the information on the demand of a requester nor he is expected to create a fresh one merely because someone has asked for it.

Decision notice
The main issue raised by the appellant is whether the CPIO should collect and compile the information, which is not available in his office, from other subordinate offices and furnish the same to the applicant. On this issue the Commission has already observed, vide Decision No. 216/IC(A)2006. File No. CIC/MA/A2006/00608 dated 31-08-2006, as under:-

“Transparency in functioning of public authorities is expected to be ensured through the exercise of right to know, so that a citizen can scrutinise the fairness and objectivity of every public action. This objective cannot be achieved unless the information that is created and generated by public bodies is disclosed in the form in which it exists with them. Therefore, information is to be provided in the form in which it is sought, u/s. 7(9) of the Act. and, if it does not exist in the form in which it is asked for and provided to the applicant, there is no way that proper scrutiny of public action could be made to determine any deviations from the established practices or accepted policies”.

Thus, a CPIO is expected to provide the information available with him. He is not required to collect and compile the information on the demand of requester nor is he expected to create a fresh one merely because someone has asked for it. Because, such attempts would not allow for scrutiny of public action to detect and determine the nature and extent of deviation from the accepted policies. In view of the forgoing, the CPIO’s representative’s submissions are upheld in so far as they relate to the collecting and compiling of data from 187 sub-post offices.

The Commission, however, agrees with the appellant’s argument regarding non-supply of information by the CPIO requested in query 2 of his RTI application dated 21-10-2011. The CPIO should either have sought the assistance of his counterpart in the office of the Director of Accounts (Postal) Bangalore or transferred this part of the RTI application to him for supply of information. Accordingly, the CPIO is directed to furnish the information (requested in query 2) to the appellant within 15 days from the date of receipt of this order. It is, however, clarified that the information as available on record with the Director of Accounts (Postal) should be provided and there is no need to collect and/or compile any data.

[S.C. Chopra vs. Department of posts, Karnataka Circle, Bangalore: Appeal No. CIC/BS/A/2012/000481/2393 dated 02-05-2013]

• The appellant sought following information from PIO of EPF Appellate Tribunal, New Delhi:

1. Provide details of case history with all relevant case papers, photocopies of all documents submitted, citations referred to by the Appellant and the Respondent in the above referred case/appeal.

2. Details of applicable penalty payable by the Institution concerned for the default as decided and levied by the Appellant Tribunal.

3. Details of exemption in penalty and relief, if granted in the matter.

4. Details as to, can the appellant tribunal in case of double default exempt penalty or grant any relief to the appellant/institution.

5. Whether the attachments enclosed qualify the institution concerned for any relief in penalty amount.

6. Status report of the case/appeal as of now.

The appellant’s contention before CIC was that PIO has not given information sought in the RTI Application. He stated that a fee of Rs. 118 has been wrongly charged from him for provision of information in violation of sections 7(3)(a) & 7(6) of the RTI Act and the documents supplied do not answer his queries. The CPIO’s representatives stated that they (‘Employees Provident Fund Appellant Tribunal’) are a judicial forum and as per their rules they are required to charge a fee of Rs.10 per page for supply of certified copies of decisions, however, they will refund the charges. As regards the appellant’s second contention that the documents supplied do not answer his queries, the CPIO’s representative argued that under the RTI Act the CPIO is required to provide the information/documents as available on record and is not expected to answer queries/provide interpretation(s)/clarification(s); he added that all the documents contained in the relevant file have already been forwarded to the appellant.

Decision notice
The RTI act does not cast on the public authority any obligation to answer queries in which a petitioner attempts to elicit answers to his questions. The Petitioner’s right extends only to seek information as defined in section 2(f) of the RTI Act either by pinpointing the file, document, paper or records etc. or by mentioning the type of information as may be available with the specified public authority. It is noted that in the matter at hand copies of all documents contained in the file have been provided and there is no further information/ document available which can be furnished.

As stated by the CPIO’s representative the fee of Rs. 118 should be refunded to the appellant within 7 days from the date receipt of this order.

[ Rashad Shaikh vs. PIO, EPF Tribunal New Delhi : Appeal No. CIC/BS/A/2012/00512/2409 dated 06.05.2013]

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From published accounts

Section B:

Consolidated Financial Statements: Accounting Policy adopted by respective foreign jurisdictions followed and not aligned to accounting policy followed in standalone financial statements

Tata Global Beverages Ltd. (Year ended 31-03-2013)

From Significant Accounting Policies on CFS

Employee Benefits

iii) With regard to overseas subsidiaries and associates, liabilities for retirement benefits are determined as per the regulations and principles followed in the respective countries. Defined benefit obligation of overseas subsidiaries accounted for in the reserves in its financial statements, in compliance with the local generally accepted accounting principles, are recognised in Group’s Reserve and Surplus (Refer Note 41(d)).

From Notes to Accounts on CFS

Post Retirement Employee Benefits

d) The Group has substantial international operations with approximately 65% of its revenues coming from overseas operations. For the purposes of consolidated financial statements, actuarial gains and losses relating to defined benefit pension scheme of overseas subsidiaries has been accounted for in the Reserves instead of the statements of profit and loss, applying the accounting principles of consolidation under Accounting Standard 21 and the policy followed by the overseas subsidiaries and as recognised by the relevant overseas accounting framework. Adoption of the above policy is required to reflect a consistent framework amenable for better inter-firm comparison and to reflect the underlying performance. Overseas actuarial gains/losses principally relate to a defined benefit retirement scheme of an overseas subsidiary which is closed for future accruals. These gains/losses represent increase in the value of future long-term payment obligations due to changes in interest rates and other actuarial assumptions based on the market position as at the year end. The actuarial assumptions are subject to significant fluctuations especially under volatile market conditions. Had the company followed the policy of accounting overseas actuarial gain/ (loss) in the statement of profit and loss, the profit before tax, profit after tax before shares of results of Associate & Minority interest and profit after tax would have been lower by Rs. 4215.20 lakh (Rs. 10215.00 lakh), Rs. 3245.70 lakh (Rs. 8516.00 lakh) and Rs. 2695.23 lakh (Rs. 7071.71 lakh) respectively.

From Auditor’s Report

Emphasis of Matter

As mentioned in Note 41(d) to the financial statements, the overseas subsidiaries of the group have defined benefit schemes relating to which the actuarial losses or gains are allowed to be recognised in the Reserves as per the local generally accepted accounting practices followed in those respective jurisdictions. For the purpose of consolidated financial statements, the holding company management has adopted the accounting policy in respect of actuarial gains or losses for its overseas defined benefit schemes to reflect the applicable accounting framework of the respective jurisdictions and consequently accounted it in the Reserves instead of in the Statement of Profit and Loss. Had the company followed the practice of recognition of actuarial losses on the aforesaid defined benefit plans in the Statement of Profit and Loss as per Accounting Standard (AS 15) on Employee Benefits, the charge to employee benefits expenses would have been higher by Rs. 4215 lakh, the deferred tax credit would have been higher by Rs. 969 lakh, the consolidated profit before taxes and minority interest would have been lower by Rs. 4215 lakh and the profit after taxes after minority interest would have been lower by Rs. 2695 lakh.

Profit recorded on sale/exchange of shares in entities under common control Mawana Sugars Ltd. (18 months ended 30-09-2012)

From Notes to Accounts
A Memorandum of Understanding (MOU) was signed between the Company and Government of Punjab in 1933 for setting up an Industrial Estate in Punjab. Siel Industrial Estate Limited (Siel – IE) was incorporated in an earlier year as a wholly owned subsidiary of the Company for setting up the Industrial Estate. The clear and unencumbered title and possession of the land for the aforesaid Industrial Estate came to Siel – IE in October, 2011 and now Siel – IE holds approximately 455 acres of land at Rajpura, Punjab.

The Company, Siel – IE and Siel Infrastructure and Estate Developers Private Limited (Siel – IED), which was acquired from Usha International Limited, the holding company, and consequently, became a wholly owned subsidiary for the Company during the period, have entered into a Joint Development Agreement for the development of the Industrial Estate.

During the period, the Company has sold 13,475,000 equity shares of Rs.10/- each of Siel – IE to Siel – IED for a consideration aggregating to Rs. 1350.20 million, as determined though an independent valuation of Siel – IE based on the Net Asset Value method wherein the market value of the aforesaid land of 455 acres has been considered for the valuation. The consideration has been received by the Company in the form of 13,501,950 equity shares of Rs. 100/- each fully paid up of Siel – IED. Accordingly, the Company has recognised a profit of Rs. 1215.45 million in the Statement of Profit and Loss as an exceptional item.

From Auditor’s Report

4(b) Note 49 of the financial statements explains the transactions underlying the recognition of profit on transfer of shares of Siel – IE, a wholly owned subsidiary of the Company, to Siel – IED, another wholly owned subsidiary of the Company.

In our opinion, as the amount recorded as profit on sale of shares of Siel – IE to Siel – IED represents surplus arising out of recognition of the fair value of Siel – IE shares exchanged for the additional shares acquired in Siel – IED and since this exchange of shares in Siel – IE for shares in Siel – IED is an exchange of shares in entities under common control without dilution in the Company’s control over Siel – IE even after the non-monetary transfer of shares to Siel – IED, the Loss after tax for the period is understated by Rs. 1215.45 million.

6. Subject to our comments and the effects of the matters discussed in paragraph 4 above, and further to our comments in paragraph 3 and the Annexure referred to in paragraph 5 above, we report that:

….. (not reproduced)

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Society News

Effective Inter-Action with
Clients & Success Factors of Successful Organisations, 30th June
2013, at Directi Internet Solutions Pvt Ltd, Andheri East.

Participants of Effective Inter-Action with Clients & Success Factors of Successful Organisations

Human
Resources Committee had organised a very helpful full day workshop.
This workshop was intended to enhance the soft skills required in the
corporate business environment. Honourable speakers, in their
motivational speeches, enhanced the knowledge of the audience with their
rich experience sharing. The speakers at the Workshop were Mr. Vivek
Patki and Dr. Anil Naik.

The knowledge shared in the lectures
was well received by the audience. More than 20 participants attended
the program for the enlightenment of above knowledge.

Workshop on Standards on Revised Audit Report & Audit Documentation, 21st June 2013, Jai Hind College, Churchgate.

Mr. Naushad Panjwani (President), Mr. Mukesh Trivedi, Mr. Himanshu Kishnadwala, Mr. Khushroo Panthaky (Speaker), Mr. Suril Shah

Accounting
& Auditing Committee organised an informative workshop on Standards
on Auditing (SAs) 700,705,706. These standards have undergone important
changes recently and are critical for issuance of audit report. The
workshop was meant to enable the auditors to discharge the attest
function in accordance with the requirements and to maintain appropriate
documentation. The speakers were delighted at the undivided attention
from over 120 participants. The session ended with the honourable
speakers’ answering of doubts on the subject of their expertise.

Topics covered by both the Speakers:

Topics

Speakers

Standards on Auditing on Audit conclusions and Reporting:
(SA 700, SA 705, SA 706, SA 710, SA 800, SA 805, SA 810)

CA. Khushroo B. Panthaky

SQC1 & SA 230 (Audit Documentation)

CA. Khurshed Pastakia

Filing of Returns for Assessment Year 2013-14, 3rd July 2013, Rama Watumull Auditorium, Churchgate.

Mr. Ameet Patel (Speaker), Mr. Naushad Panjwani (President) Mr. Deepak Shah and Mr. Saurabh Shah

Mr.
Ameet Patel, Chartered Accountant, spoke on Filling of Returns for
Assessment 2013-2014. In his presentation, Mr. Patel covered the various
guidelines. He deliberated on recent amendments in ITA/ITR and further
went on to describe a stepwise guide to select ITR forms as per
requirements, explained usability of the changes in online filing of
returns, online form submission process, general changes across ITRs and
lastly, the precautions to be taken while preparing the Return of
Income.

The lecture was well appreciated by an audience of over
900 people attended. Even as the lecture ended late on a rainy evening,
the questions from enthusiasts compelled the speaker to continue longer
than the usual end time.

The presentation is made available at
www. bcasonline.org & www.bcasonline.tv respectively, for benefit of
the members and all subscribers.

Domestic Transfer Pricing – Important Issues, 10th July 2013, Rama Watumull Auditorium, Churchgate.

Mr.
Pinakin D. Desai, in his first lecture of the BCAS year 2013-14, spoke
about the new topic. Transfer pricing regulations introduced in India in
2001, till very recently covered only cross border transactions between
associated enterprises. The Finance Act, 2012 has extended
applicability of transfer pricing to ‘Specified Domestic Transactions’.
Focusing on the new provisions, Mr. Desai spoke on their implications.
With his vast experience and in-depth knowledge on International
Taxation, Mr. Desai addressed a full auditorium of more than 580 people.

Mr. Pinakin Desai (Speaker)

The
presentation is made available at www. bcasonline.org &
www.bcasonline.tv respectively, for members’ benefit and all
subscribers.

64th Annual General Meeting, 6th July 2013, Rangaswar Hall, Y. B. Chavan Pratishthan, Nariman Point.

The
64th AGM of BCAS was held on Saturday, 6th July 2013 at Rangaswar Hall,
Y. B. Chavan Pratishthan, Mumbai. The President of the Society Mr.
Deepak Shah took the chair. All items as per the agenda given in the
notice were undertaken including adoption of accounts and appointment of
the auditors amongst other things.

Mr. Raman Jokhakar, Joint
Secretary announced the results of the election of President, Vice
President, 2- Joint Secretaries, Treasurer & 8 – members of the
Managing Committee for the year 2013-14. Also the names of co-opted
members and ex-officio members were announced.

The “Jal Erach Dastur Awards” for best feature and best article appearing in BCAS Journal during 2012-13 was announced. The winners were: Puloma Dalal, Bakul Mody for the feature on ‘Service Tax’, Sriraman Parthasarathy for article on ‘Auditor’s Dilemmas!’.

Three books were released at the AGM:

1. Audit Checklist for Companies – by Raman Jokhakar & Nalin Shah was released by Mr. K. C. Narang.

2. Mandatory Accounting Standards – by Himanshu Kishnadwala, Jayesh Gandhi, Manish Sampat, Vijay Maniar, Ashish Shah & Abhay Mehta; Released by Mr. Arvind Dalal.

3. RTI Book – by Narayan Varma; Released by Mr. Pradeep A. Shah.

Thereafter, the Outgoing and Incoming Presidents Mr. Deepak Shah & Mr. Naushad Panjwani respectively, addressed the members.

Outgoing President Deepak Shah’s Speech

Dear Members,

President elect Naushad Panjwani, Vice President elect Nitin Shingala, Raman Jokhakar, Chetan Shah, Mukesh Trivedi, distinguished past presidents of the Society, President of Chamber of tax Consultants Yatin Desai, Vice President Paras Savla, other office bearers, my Managing Committee colleagues, Core Group members, other Seniors in this profession and friends.

A very good evening to all of you. It’s a honour and privilege to address this distinguished gathering at the AGM, and I am extremely thankful to one and all for being here on such a special occasion. A mixed feeling as I stand before you as the President of BCAS for the last time. I find it hard to believe how quickly this year has gone by.

On this very date last year, I stood before you giving my acceptance speech, feeling excited and nervous, thinking whether I would leave upto the reputation created by other past presidents who have served this society selflessly.

Let me admit that following a glorious tradition of excellence, continuing since more than six decades is not an easy task. It’s always a challenge for any incoming President to maintain the high standards and excellent quality set by predecessors, of the Society which is always ahead of its time. Throughout the year one thing that kept passing through my mind was that I will have to take the initiative, be innovative and will have to go the extra mile.

In a few hours from now, I will lay down the responsibilities of this office. My most enjoyable journey of the recent past from an Office Bearer to President of this august body ‘BCAS’ is ending today. When time flows by, it becomes history. But sometimes history is immortalised in timeless moments and lives on forever. It becomes ageless. And today is that day in history for me.

It is normally said that : Every path has its puddles. But I feel delighted to say, that with the Grace of God, for me it was smooth, beautiful, and I enjoyed each and every moment of my journey thoroughly walking down this path with each one of you.

For me it has been a satisfying year and I am obliged that I was given this opportunity to do my bit for the Society. I have tried to fulfill the trust reposed in me, and do my best for the Society by putting my heart, mind and soul even into the smallest act, and have taken utmost care to maintain and raise the high standards of this august body. It was gratifying to witness the hard work, commitment and conviction of my colleagues unfold before me.

In my endeavour to meet expectations, whatever I could do was by banking upon the goodwill this Society has garnered over the years. I have witnessed this in many interactions with different people from all walks of life. And if I have seen further than others, it is by standing upon the shoulders of giants.

A Chinese proverb states :

Behind an able man there are always other able men.

Ladies sitting here please excuse me for using this statement. At this juncture I am not quoting the age old saying that “Behind every successful man there is a woman” mainly for two counts : Firstly, for me

It’s not the things we get, but the hearts we touch that will determine our success in life.

And the second reason is : That yet the views of my mother–in-law are to be received.

So for now I would talk about those able men only : And I can see many of them in front of me who have inspired me and Motivated me from time to time. Believe me, Motivation makes it possible to accomplish what you should accomplish.

I owe my deepest thanks to the past presidents who gave me this extraordinary opportunity to serve this wonderful organisation. I salute them for the dedication and competence they have brought to the service of BCAS. I for one believe that the respect, success and growth that this Society has achieved over the years has been possible only because of the past President’s connect. Their guidance leads to Goodwill, and their directions shows you the path of Truth. Year after year they are setting a perfect example while creating a pathway for others to follow. And for these reasons we thought that this year we should raise a toast of gratitude for their priceless patronage down the years.

So in this year we made a humble beginning by felicitating 12 of our Senior Past Presidents who are above 75 years of age.

And to me working with them and under their guidance for more than a decade now, has given me a feeling like Small boy becoming a Big man, through the influence of big men who care about small boys.

Come July and all Presidents are posed with common questions like : How was your term ? What was your experience ? Feeling Relieved ? How do you feel about leaving ?

For any President at BCAS : There are two constants: “The time we come and the time we go – Everything in between is in one’s own hands”

But let me admit that leaving this most coveted post is ” sweet sorrow”.

As regards my term : The last year has been nothing short of living a dream, it has been a memorable year with humble experience. There have been good days and tough days, it’s been a roller coaster ride with all the ingredients:

• Fast paced, Action packed,

• Drama,    Emotions,
•    Competition, Gossips
•    Fun , Food
•    and most importantly Friends, friends & friends and lasting Friendships
•    Sorry, How can I forget or ignore the amount of grey hair, the added kilos (thanks to RRC’s), hyper moments, but BCAS has taught me TO BE POSITIVE, so to gain something you have to lose something.

If I have to share my thoughts, my experience and my sentiments with you

It has been the privilege of a lifetime to serve as BCAS president. I have been blessed to represent this society we all love. And I will always be honored to carry a title that means a lot to me.

It has immensely contributed in my self development. It has been a story of how faith, teamwork, and commitment can help and make a difference. It’s been an absolute pleasure to interact with each and every one associated with BCAS in one or the other way.

I would say that this most prestigious post, or I would say from the time I joined the Core group one most important thing which I have learnt is that: Any great relationship is based on two important things :

First to find out the similarities… Second to respect the differences.

The last one year’s worth in my life is incomparable. It has enhanced my perception and has given me :

Courage : To stand for what you believe in, regardless of the odds against you, and pressure that tears at your resistance.

Confidence : To keep continuing with it.

Determination : Of stopping at nothing, and doing what’s in your heart you know is right.

I have also learnt virtues like :

Selflessness : Giving more than you have, and expecting nothing, but nothing in return.

Pride of Service : Doing more than is expected, No matter the time, effort it takes, to the best of my ability.

To me BCAS is like a family away from home. And the memories of all the wonderful experiences, and many anxious moments converted to blissful experiences will be cherished for years to come.

And this precious year of mine, I would like to dedicate to my parents who provided me with the best in life, and yet taught me the importance of compassion, sharing and humility, and above all self belief. And these core virtues have made this day possible for me.

Words cannot convey my gratitude to my dear wife Nita, and a wonderful family back home that have stood by my side and encouraged me throughout this journey, making several sacrifices in order to ensure that I continue on my chosen path with tranquility.

As far as activities are concerned I would say that a lot is done and lot is to be done as every president feels when laying down the office and, I am no exception.

Since we began our journey, we have created, improved and reinvented over many programmes, and taken new initiatives too. All regular activities of the Society continued to receive full attention during the year. There were many things which were planned but could not be put into action or implemented for some or the other reason. A few projects that comes to my mind are Online Journal BCAJ, Revamping BCAS website, Research Publications, Increasing infrastructural facilities for the benefit of members, setting up point of contacts for outstation members. But I have no regrets, as I am confident that the new team will complete the unfinished agenda in the ensuing year.

Overall, it has been another busy year for BCAS, and I would like to acknowledge and thank my colleagues Naushad, Nitin, Raman, and Chetan for their zealous commitment shown towards the working of the Society, and their contribution and cooperation throughout the year, and being hugely supportive in all my endeavours.

Once again a Big Thanks to Past Presidents for always being there when I needed, and letting me go free when I needed freedom.

The members of the Managing Committee have been extremely generous in support and advice provided to me personally in helping me to discharge my own responsibilities.

My sincere gratitude and appreciation to core group members especially the Convenors for the unstinted support and real hard work put in by them throughout the year, and taking the real burden of all the activities.

Truly, BCAS is proud to have such active members. I once again appreciate each and every single effort and sacrifices made with all my heart.

I thank the sister organisations (AIFTP, CTC, STPAM, WIRC) and other co-organisers for making all efforts to hold more and more joint programmes, and complementing one another in imparting education.

I cannot adequately express my appreciation of the untiring and devoted hard work put in by the staff led by Mr. Cassem Rajabali, who have always proved equal to the demands placed on them. My appreciation to all employees for their enormous personal efforts as well as their collective contribution to the Society’s performance over the years and particularly in 2012-2013. I must admit that all of you have exhibited great loyalty and diligence towards your respective obligations.

I am pleased to express my very sincere gratitude to all those friends and well-wishers who extended support to me in all my endeavours and were instrumental in seeing that what I wished is done, and all who have extended their support in my mission.

Last but not the least, I was indeed fortunate to receive continuous and consistent support and cooperation from our members. All regular activities of the Society continued to receive full attention during the year. The attendance at our programmes reaffirms our faith in this continued journey of our mission. It has been their support/guidance that has helped us evolve to serve you better.

Thanks to all Hon’ble guests for their valued and encouraging presence at this AGM.

My final task is a pleasant one indeed ie., handing over the mantle to Mr Naushad Panjwani. I have enjoyed working with him and have witnessed at first hand the many admirable qualities that will stand him in good stead over the coming year. He has lot many plans for the Society, and with able Office Bearers, they will take Society to greater heights. I wish him and his team all the very best.

I would end with an assurance that I am and will always be available to BCAS to repay my debts of gratitude I owe to the Society. And I will keep reminding myself my very own punchline : ME & MY BCAS.

I say a good-bye with a whole lot of positive thoughts of my tenure and in the end I would say :

“To meet and to know is the beauty of life,
To meet and to depart is the way of life”

Incoming President Naushad Panjwani’s speech

President Deepak Shah, my colleagues Nitin, Raman, Chetan, Mukesh, respected Past Presidents,

seniors and friends. I cannot thank you enough for the high and unmerited honour that you have conferred on me this day. I can’t think of many occasions when two men are sitting next to each other having such contrasting emotions as now; one a relieved man and the other a nervous wreck. A few days ago I witnessed 12 of our past presidents being felicitated for the contribution that they have made to the Bombay Chartered Accountants’ Society. And I was daunted. Such illustrious, ingenious and industrious people have been presidents of BCAS! This year, I have the pleasure of working alongside 14 dedicated, selfless and accomplished chairmen of the 9 committees, who have been presidents of BCAS not very long ago. And again I am daunted. I am about to step into the very large and warm shoes that Deepak is vacating. And I’m very daunted! I can only take a leaf out of what William Faulkner has said “Do not be daunted by the accomplishments of your predecessors. Don’t even try to equal or better your predecessors, focus on being better than yourself”. Now that looks like an achievable benchmark. I’m indeed honoured and proud to be elected the 64th president of the Bombay Chartered Accountants’ Society and probably the first president from the industry.

Last year has been an amazing year at BCAS for me. Deepak has so patiently mentored me. I have observed him diligently discharge his responsibilities as the President. I could see him so thoroughly enjoy himself and that was infectious. Deepak is a man of few words but full of action. He has been courageous, patient, polite and a thorough consensus builder. Thank you Deepak for everything. I shall try to remember all that I’ve learnt from you.

I know I should keep this short and come straight to the point and discuss the plan for the year but I request you to bear with me so that I can thank my gurus. Like they say, “Public speaking is the art of diluting a two-minute idea with a two-hour vocabulary”, I promise I will not take two hours. I want to thank my late grandmother from whom I learnt the importance of relationships. I miss her a lot on all my joyous occasions and today is one such day. Dilip Muzumdar because of whom I am a CA. N C Mehta who instilled values in my professional conduct. Anant Gawande from whom I learnt to balance work and family life. Komal Bir Singh who introduced philanthropy to me. Ninad Karpe who introduced me into BCAS.

Pranay Vakil who drew me into the exciting world of real estate. And last but not the least, the man who came into my life around the time I lost my father and since then has been more to me than a father, Mr. Narayan Varma, I love you.

In 10 days from now Afsheen and I shall celebrate the silver jubilee of our marriage. And in the interest of domestic peace I have to mention her. I would like to take this moment to say that Afsheen I have a lot to thank you and Lahra for all that I have achieved.

In the last few years I have been on committees of various trade bodies and associations. And I’m proud to say that BCAS is the most collaborative forum that I have come across. The BCAS culture fosters innovation and offers a platform for all to learn, grow and lead. BCAS is blessed to have such a large army of volunteers constituting the core group; 199 this year. The convenors, who are the future of the Society, give their all to ensure that the flag of BCAS is flying high. The past presidents of the Society are its back bone. I have no hesitation in saying that without their participation, the Society’s programs would not be of this magnitude and character.

I have gained a lot from BCAS. Be it knowledge, leadership skills, friends and lots of pleasant memories. I have never ever been at a loss as all I had to do was make a call to the countless experts within the core group. I continue to make those calls to this day. Actually it was very convenient to have Gautam Nayak as my neighbour in the earlier years of my practice.

There are so many moments, the memory of which brings a smile to my face. In particular I cherish my interactions from my early years of practice with Gautam, Nikhil, Ninad, Hitesh and Himanshu. Shariq’s firm has always had a very high standard for hiring people. I know this because my only application for a job ever was rejected by his firm. Since then he hasn’t missed an opportunity to remind me of what a wise decision he made. All of them were such fun people to be with. Pranaybhai has always been my ‘captain’ and I know I can call upon him for anything anytime.

Not being in practice and having no illusions of possessing knowledge of technical subjects myself, I am not suited to make suggestions on these matters. I am confident that the other 198 core group members will continue to light this torch as in the past. But having reasonable experience and expertise in marketing, I do see some head room for BCAS to spread further. We must and we certainly will continue to address the needs of practicing chartered accountants, who form the majority of our membership. But I also see opportunity and a need for the Society to reach out to members in Industry, members from outstation and the youth.

As has been the practice for some time now, each of the 9 newly constituted committees have met and chalked out their annual plans. I am happy to report that each of these committees have paid heed to my requests and have either included programmes where there were none or scaled up their existing programmes to benefit the new target segment of our membership.

Deepak had formulated a very well thought out annual plan last year. I see no reason to tamper with that and the office bearers would like to take this plan forward in the current year. We would just like to scale it up. You have a copy of the same in your hands. Let me spell out a few specific initiatives:

• Last year we experimented with a program for the Real Estate Industry, which met with great success. This year we will have four industry specific programs. Though it’s very tempting to charter into familiar territory, I will exclude Real Estate. Senior member of the Managing Committee, Himanshu Vasa has taken upon him to help BCAS connect with CAs from the industry. I have very high hopes from him.

• BCAS was very visible at one point of time with our articles featuring in frontline newspapers and magazines. No more. We cannot be shy if we want to reach out to a large audience. We cannot become thought leaders if we are not known. Our well researched and incisive representations need to find a larger audience and that’s the only way the only way that the law makers will listen to us. I am going to attempt making BCAS more visible and our voice a few decibels louder. I am happy that Shariq Contractor and Rajesh Kapadia have consented to guide me and Niña, Sangeeta, Toral, Sonalee and Pinky have agreed to work with me on this.

• Study circles have been the life line of the Society in the past. Unfortunately, membership, attendance and participation are all dwindling. While the various committees have recognised this and are working to revive them, I have requested Shardul Shah to help the office bearers with conceptualising ways and means to turn the tide.

• Mumbai has now spread far and wide and along with it, our membership. It is our responsibility to make it convenient for members from suburbs to enjoy the fruits of our efforts too. The office bearers will endeavour to take as many programs out of South Mumbai as possible.

• Today technology is a way of life. Our membership is becoming tech savvy. The need to commute is on the decline and the ease of communication is unbelievable. In such an environment, technology cannot remain the onus of just one committee. All committees will have to imbibe technology and technology-based programmes in their scheme of things. It is with this intent that I have dropped InfoTech from the scope of 4i committee. The 4i committee should focus on innovation, identify new areas of practice, incubate ideas and at an appropriate time hand them over to the concerned committee as programmes.

• Today 35 % of India’s population is between the ages of 25 and 35. I have no statistics of how many chartered accountants are in this age group but just 15 % of our members are under the age of 35. What is the reason for this? What do we need to do to bring many more into our family? One thing I’m sure of, if we do not have the exuberance of the youth with us, we will soon become irrelevant. With this concern in mind, I have tasked 3 very young and dynamic members, Mandar Telang, Jinal Shah and Mahesh Nayak to reach out to the youth and help the Society connect with them. At one point of time the Society had very youthful members.

• Shri Arvind Dalal and Late Shri Ajay Thakkar were only 35 when they became presidents of the Society.

• Shri Haren Jokhakar and Late Shri Shailesh Kapadia only 32.

• And Late Shri Daulat Vora was only 31.

I dream of BCAS having an even younger president one day.

• BCAS and the BCA foundation have been carrying out activities of CSR nature. But these are far and few and also, not well publicised. I have requested Mayur Nayak to prepare a CSR plan for the Society which will help us conducting them in a more planned manner and on a larger scale. I am sure that the recent calamities that have caused loss of life and livelihood in Uttarakhand are playing heavily on your minds. We, the office bearers and the Trustees of the Foundation are finalising a plan to contribute to the rehabilitation of those affected and urge each and every one of you to contribute generously towards this. The appeal letter has been emailed and a copy of the same is on the desk outside.

The journey of BCAS is like a relay race. The baton is passed from one president to another, year after year. I make one solemn promise to all, I will run fast, I won’t drop the baton and when the time comes, I will pass it on to my successor such that, I hope, you will be proud of me.

65th Foundation Day : Nationhood – the next step, 6th July 2013, Y. B. Chavan Pratishthan, Nariman Point.

The Founding day celebrations was started by Chief Guest Mr. Nasser Munjee, by releasing of ‘Laws & Business – A Compendium’ by CA Anup Shah, published under the auspices of Shailesh Kapadia Memorial Publication Fund. Thereafter Mr. Munjee further took the stage with his presentation, and he went on to speak about the values that he cherished from great thinkers, philosophers, philanthropists and leaders. Through his lecture he delivered thoughts that provoked minds of all present. One of the hindrances to Nationhood deliberated by Mr. Munjee included living with the past; a refusal to change institutions that were built to serve a different objective and resistance to replace them with those of contemporary relevance. The session ended with a rather detailed discussion through questions from the full house of more than 180 people.

BCAJ Admin

FROM THE PRESIDENT

Dear members of BCAS family,

It is a great honour to be elected the 64th President of the Bombay Chartered Accountants’ Society. Amongst the many projects, programmes and activities that I shall be leading, I particularly look forward to the privilege of contributing to BCAJ which is one of the most prestigious professional Journals, subscribed by many and read by many more.

The arrival of monsoons every year brings happiness all across. Unfortunately this year, the monsoons have wreaked havoc in Uttarakhand. It is one of the larger national tragedies in recent times and the largest the Himalayan ranges have ever witnessed. The rescue operation is over and relief has started. Those stranded have been rescued, the missing found and the dead accounted for. The rehabilitation work will start now but the redevelopment will take a long time; maybe years. BCAS Foundation has made an appeal for donations towards redevelopment work and the funds have started trickling in. In the past, the Foundation has conducted some exemplary rehab work in Gujarat for the earthquake and for the tsunami work in Tamil Nadu & Pondicherry. Like in the past,the Foundation will identify a school or two that need rebuilding and take responsibility to help resume education. I have no doubt that all of you will contribute generously in helping the poorest of the poor.

We all saw what happened in Uttarakhand. We witnessed nature’s fury and the devastation that it can cause. Nature is impartial. The most advanced nations witness earthquakes, floods, tsunamis, tornados, cloudbursts, droughts and what not. These are natural phenomena. But what happens thereafter many a times is a shame on humanity. And that demonstrates the true evolution of a nation. I have a few questions in mind:

1. Have we lost our sensitivity? Are we so accustomed to death, devastation and tragedies of this scale that we have stopped feeling for those affected? Have we become immune? Are we moving from one”breaking news” to another at breakneck speed? What about some feelings, sensitivity, compassion and the urge to lend a helping hand? Are we clannish, casteist, communist and think in terms of “our people” and “theirs”? This is the land of Gods where some go to pray and wash away their sins. Alas, the lives and livelihood of the locals have been washed away.

2. In times of calamity, people come together forgetting their differences and join hands to tackle the disaster calmly, collectively, selflessly and effectively. But what I saw and read coming from the political class was a tragedy of equal proportion. Blaming, criticising and wasting time and resources. Shameful! The politicians indulging in this is not surprising. But we citizens getting dragged into this and mouthing our lines and displaying our political leanings rather than our human side is sickening. It is a time to do good. To share a small fraction from our wealth with those who have lost everything. I’m getting to hear about a few citizens who have rushed there to personally take part in rehabilitation. But those of us who cannot go personally must send our contribution. If you believe in the government then contribute to the Prime Minister or Chief Minister’s Funds. If you feel for the selfless services of the armed forces and appreciate the yeoman’s work done by them, even at the risk of their own lives, then contribute to the army welfare funds. Or else, find a good organisation like BCA Foundation and contribute to their efforts. Those of us who have contributed will know what I mean when I say that there is immense satisfaction when we give. Then the need to be part of unnecessary criticism just disappears.

3. Then there is this thing about comparing our redevelopment efforts with those of advanced nations like the USA and Japan. Most of us come from modest to middle class backgrounds. Don’t we know the difference between the haves and the have-nots? Obviously, the wealthy have better options and opportunities. Same is the case with nations. We are a developing nation. We do not even have enough resources to provide for the hungry and malnutritioned in normal times. It was not a long time ago that we were dependent on aid from the developed nations. Let us stop expecting our governments to have endless resources for rehabilitation for such tragedies. It will happen one day, but that day is not today. It may take a little longer if you factor in the corruption, misgovernance and ineffiencies. Let us recognise this and do what we have to do ourselves.

4. It is sadly comical to see the poor management of rescue operations. It is frustrating. It is heartbreaking. It is disgusting. It is the kind of politicians we elect who form these inefficient governments. There are things we are dependent on the government for. But there are so many things for which we ourselves are responsible for. Our businesses, our communities and our families much more. The question is, are we good managers? Have we prepared ourselves against any calamity? Do we have our disaster recovery plans in place? Have we provided for business continuity plans? What will we do if there is a fire in the office? Or a heart attack in the family? No government here. Us. Think about it. It is scary. Time to change our outlook and approach.

Amongst all the mayhem, one great positive visual was that of the youth from all walks of life rising to the occasion and taking a lead in most activities connected to rescue and rehabilitation. It is estimated that in 7 years the median age of India’s population will be 29 years and that we will be a country with the largest youth population. 29 is an age when we are in our prime. Bodies are young, minds are fresh, energies are high and ideals pure. But this brings with it the necessity to provide a conducive environment to flourish and go in the positive direction. Give them the opportunity and guidance and we will see China-like results, give them angst and rob them of the opportunities and you will have the Taliban.

While the median age of India is getting younger, BCAS’s average membership is growing older. New CAs need to become our members. They need to be drawn in to do voluntary work. Their views, ideas and contribution are necessary for BCAS’s growth. Their needs have to be identified and fulfilled. The organisation must reach out. It is only when we extend our hand can we expect a handshake. I am happy to note that there are a few enterprising young members in the thick of action at BCAS and I look upon them to grow their tribe and take BCAS to the next level.

Here’s wishing everyone happiness and love.

With Warm Regards
Naushad A. Panjwani

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BCAJ Admin

Indirect Taxes

SERVICE TAX UPDATE
Reg. Exemption for services provided in SEZ for authorised operations

61. Notification No. 12/2013 – Service Tax dated 01-07-2013

This notification has been issued in supersession of earlier Notification No. 40/2012 dated 20th June, 2012 to provide exemption from whole of the service tax for services provided to SEZ unit or Developer of SEZ and used for authorised operations. This exemption shall be provided either by way of refund of service tax paid on the specified services received by the SEZ Unit for the authorised operations or ab initio exemption to the person liable to pay service tax subject to the conditions and procedures prescribed in detail in the said notification. SEZ Unit has also been given the option not to avail the exemption under this notification and instead take CENVAT credit on the specified services in accordance with the CENVAT Credit Rules, 2004.

MVAT UPDATE

62. Amendments to the Maharashtra Value Added Tax Act, 2002. Trade Circular 4T of 2013 dated 26-06-2013

In this circular, the Commissioner has briefly explained the salient features of the amendments in the MVAT Act, 2002 by Maharashtra Act No. VIII of 2013 dated 20-04-2013.

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BCAJ Admin

ICAI News

(i) Code of Ethics

The Ethical Standards Board of ICAI has released a brochure — ‘CA Ethics Plus’ to promote ethical standards amongst members. This will available on the website of ICAI. (Page 9) (ii) Message from Minister of Corporate Affairs In a recent message given by the Minister of Corporate Affairs, he has stated as under: “The Institute of Chartered Accountants of India, being an excellent regulator, standard setter and educator, has been greatly contributing as a ‘Partner in Nation-building’.

The accountancy profession has been the backbone of fiscal discipline in the country. The nation has great expectations from the Institute and its members. They have a pivotal role to play in good governance by ensuring transparency, compliance with statutory as well ethical requirements, correctness of accounts and business advice for the benefit of all the stakeholders, including the government and society. You have a crucial role to play in India’s growth story. Keep up the good work.”

(iii) CA qualification recognised by University System

The following news item is reported on page 110 of C.A. Journal for July, 2012. The Chartered Accountancy qualification has been recognised in the University System particularly for pursuing Doctorate of Philosophy (Ph.D). The Association of Indian Universities (AIU) has recognised CA Course as equivalent to post-graduate course in Commerce for registration to Ph.D Programme by passing the following resolution — “Resolved that the graduates having passed their final examination of the Institute of Chartered Accountants of India, New Delhi be treated to have completed a post-graduate degree in Commerce or allied discipline for purpose of registration to Ph.D.” With constant follow-up with various Universities and Indian Institute(s) of Management, the Board of Studies has been successful in obtaining recognition from 84 Universities and 6 IIMs for members of the Institute to pursue Ph.D. Recently, ICAI has received letter from University Grants Commission (UGC) stating that the threshold limit of 55% marks in post-graduate examination is not applicable in case of the Chartered Accountants for enrolment to Ph.D Programme.

(iv) Status of intervening holidays during CA Examination

The Council of the Institute recently considered the issue regarding status of intervening holidays during CA Examinations and decided that the break in between examination days, though not holidays, be treated as period actually served under articles. The Council further decided that if an articled assistant appears for one group, all intervening break for any reason, from the day of commencement of CA Examination till the day of last examination of the concerned group and similarly, if an articled assistant appears for both groups, then all 637 (2012) 44-A BCAJ intervening breaks for any reason from the day of commencement of CA Examination and completion of both groups of the examination be treated as part of the training and the articled assistants be deemed to be on duty accordingly. Accordingly, all intervening holidays or breaks due to any reason, falling in between the day of commencement of CA Examination till its completion as above explained will be treated as part of the training i.e., the articled assistants be deemed to be on duty. (Page 212)

(v) Campus Placement Programme

The following Campus Placement programme for newly qualified CAs has been organised by ICAI during the months of August and September, 2012. (Refer page 213)

(vi) Update on strength of members and students of ICAI

The following are some of the figures made available for information of members (page 192). Membership strength of the ICAI stands at 1,96,748 as on 15th June, 2012.

Update for strength of students available on page 194.

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From the President

Dear Members,

Be Jagrat , Be Vigilant !

I thank you all for making this year special, for electing me as your 64th President, and giving me opportunity to serve the Society, and share my views with all fellow alumni of this profession. It is my honour and privilege to accept this position.

In my acceptance address at the AGM held on 6th July, 2012 I have highlighted the focus areas, and the Annual Plan for 2012-2013 was placed before the members. The said speech is reproduced in this issue in the column “Society News”.

The Annual Plan for the Year 2012-2013 which was laid out in AGM had 3 focus areas:- Relationship, Membership and Mentorship. I urge all members to come forward and share your views and expectations, and join the new Team, as we build relationships, increase membership, and expand our mentorship program.

As we enter the year 2012-2013 I would like to thank you for your continued support to BCAS. In fact, it has been your participation and encouragement that has helped us evolve to serve you better. We take immense pride in keeping you at the core of all our activities and innovations.

I had stated in my speech that the times in which we live, one has to be JAGRAT – to be alert or vigilant at all times. Also one has to move forward in the right direction to reach the goal.

There is a group of famous verses in Sanskrit that ends with the call – “Tasmat Jagrat Jagrat”. If due to lack of alertness, you take a false step, one will suffer an irreversible fall. This is true as much in the case of individuals as much as in that of nations.

We would be celebrating 65 years of India’s Independence on 15th August. As one of the oldest surviving civilization, India has experienced every malady that history has thrown up and through her unique , mature wisdom discovered and applied suitable remedies. It is a hard won legacy which has been achieved not just by way of an accident but by a continuous struggle against heavy odds. India has been able to preserve her soul and protect her identity through all the vicissitudes of time. That is why when the American President Barack Obama visited India, and addressed our parliament he said “ My confidence in our shared future is grounded in the respect for India’s treasured past – a civilization that has been shaping the world. Indians unlocked the intricacies of human body and the vastness of our universe. India not only opened our minds, she expanded our moral imagination.”

Our forefathers have created institutions like the judiciary, the independence of which we must zealously protect, and whose decisions we must respect however severe our disagreement with them. The constitution has created a system of checks and balances. We must recognize the wisdom of our ancestors and preserve the system and not dismantle it.

Such an effort at dismantling the system has been recently witnessed in the Finance Act 2012, bringing in most inappropriate policies like GAAR, and also by its action of retrospectively amending the law to supercede the Supreme Court’s verdict. Such policies and measures has its own negative impact, which has been noticed in the form of devaluation of rupee, loss of confidence by foreign investors, creating an environment which is not conducive to growth. So Vigilance-Jagrat becomes critically relevant in this context.

Let us hope that problems plaguing the economy as well as problems on tax front would be addressed, in the backdrop of incumbent in the finance ministry, and Mr Pranab Mukherjee moving to Rashtrapati Bhavan as the 13th President of India.

No matter where the economy is headed, or even when the nature of reforms in laws brings with it the general negative mood, we Chartered Accountants will have to be Jagrat, especially when you are part of the globally acclaimed CA profession. We all will have to keep pace with the change, and to overcome the challenge.

The next couple of years for CA’s are expected to be challenging years as compared to the past. We have witnessed large scale changes in the Finance Act, 2012 and many more are expected in the near future in major areas of practice. As a consequence of this, the demand for professionals is bound to be on the rise, and would offer tremendous scope to increase their level of practice.

The purpose of BCAS is to assist professionals in advancement and success in their careers, and prepare oneself to meet new challenges. I believe that it always pays to invest in one’s own career. It enables you to explore new avenues in practice.

At BCAS, our efforts will be to keep on innovating and explore new ideas while planning and carrying out various activities. We would endeavour to see that knowledge content created in various programs, reaches to the maximum through the medium of WEB TV.

At the society, we would also constantly endeavour to represent at various levels to see that hardship and inconvenience caused on account of administrative apathy is reduced. We will be vigilant and expect that you will respond in the same manner.

Before I sign off, I congratulate all those who have qualified as CAs, and becoming part of this noble Profession. At this juncture, I invite you all to be active with the BCAS family consisting of 8600 and more co-members, to realise a greater level of knowledge sharing on a continuous basis, and to sharpen your skills, and keep adding to the value you wish to create. Come and experience the intrinsic value of your decision to have joined the Society.

With Warm Regards,

Deepak R. Shah

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BCAJ Admin

FROM THE PRESIDENT

Dear readers, This is my first communication to you after having assumed office as the President of the Society. I am conscious that this is an honour and a great responsibility. I am sure that with your good wishes, the support of my predecessors, my team of office bearers and the BCAS staff, I will be able to measure up to the confidence you have reposed in me.

In my address as the incoming President, I had stated that if the Society’s programmes are to be carried out with the same zest and zeal, younger entrants to the profession must join the Society. As I pen this communication, the CA final results have just been declared. My congratulations to all those who have been declared successful. Three young girls have bagged the first three positions in the merit list. At a time when the media is filled with gender bias even among educated sections of the public, this is heartening news. Like in many other fields women are poised to make a mark in our profession. As per the statistics of the Institute of Chartered Accountants of India (ICAI):

? For 50 years since Independence, 8% of CAs were women

? The number of women CAs will increase to 30% in the next decade from the current 16%

? In the decade 2000-2010, 16% of the 1,70,000 CAs in India were women.

It is my earnest desire that these young talented chartered accountants should join the Society. This will make the programmes of the Society even more vibrant.

Mergers and acquisitions among professional firms is the order of the day. In that light the announcement of ICAI to recognise limited liability partnerships (LLP’s) is significant. Notifications in that regard will follow. I believe this is a great opportunity for many medium-sized firms to network, collaborate and eventually merge. The Society is alive to these developments, and a power summit was held a couple of months ago to facilitate interaction between professionals who wish to take steps in this direction. If the number of large firms undergoes an increase, the quality of service will be enhanced.

The progress as regards new tax legislation seems to have slowed down considerably. The report of the Select Committee of the Parliament on the Direct Tax Code bill (DTC) is yet to reach the Parliament. It is unlikely that DTC will be passed before the end of this year. If that happens the DTC may have to be postponed by at least a year. Even on the GST front the efforts to build a consensus do not seem to have made much headway. One only hopes that all political parties give the necessary priority, as the absence of this legislation is increasing both, tax cost and compliance cost.

While new tax legislations are making slow progress, the accounting standards are also causing some concern. We already have IFRS, and Ind AS. On the auditing front internal audit standards have also been prescribed. We have just been informed that CARO 2011 will replace the existing CARO 2003.

While we are on accounting and auditing standards, I believe that our profession needs to seriously introspect on the multiplicity of these standards and their relevance to the users of financial statements. We are rendering a service and the authentication function that we perform should have utility for the users of the financial statements. Undoubtedly the users of our services have different needs and it is virtually impossible to have tailor-made legislation or regulation to meet individual requirements. However while framing accounting standards this aspect of the matter must be considered. The financial statements that we authenticate must be comprehensible to the readers of those financial statements. In this connection, CARO 2011, which will probably prescribe different reporting requirements for different categories of companies, is most welcome. This may be a step in the right direction and different users will get the type of assurance they require and the type of information they desire.

When this issue reaches you, our country will be on the threshold of celebrating its 64th Independence Day. Despite the large number of problems that our country faces, one is absolutely certain that we have come a long way since 1947. There can be a debate on whether we will become an economic superpower or not, but it is certain that India has become relevant to all the nations of the world. For the last two decades, barring a couple of years we have witnessed sustained economic growth. I hope that we will be able to control the inflationary trends, particularly food inflation. As in every developing country, we face problems of disparity in distribution of wealth. The distribution of the fruits of economic growth is unequal.

It is this economic disparity that extremist elements exploit. The continuous terrorist attacks on our country in general and our city in particular are a cause for grave concern. As the commercial capital, the city of Mumbai will always be a target for those who want to create disharmony among us and disrupt our lives. The recent serial bomb blasts on 13th July 2011 are a sad reminder of this fact. We need to force our government to take all the necessary steps to prevent any such recurrence. As individuals we should remain vigilant.

Before I sign off, I appeal to all readers to give their feedback, on all the activities of the Society including this Journal. At the Society we strive for excellence. If we are informed of the areas of improvement it will help us. Remember, this is your Society and by informing us and making suggestions you will be helping yourself and your colleagues.

I take this opportunity to wish all readers a very happy and peaceful Independence Day. Jai Hind !

With warm regards,

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BCAJ Admin

Business etiquette

Introduction Globalisation of economy has brought new opportunities to extend the boundaries of business beyond India. While these opportunities can be very exciting and enriching, they also present the challenges of successfully assimilating with different cultures and navigating business to the desired goal.

These challenges can sometimes become a major roadblock to achieving success when one unconsciously ignores established business etiquette practices.

Etiquette has to do with respect and civility in everyday life. It is about having well-mannered conversations, making others feel welcome and respected, and getting one’s view point accepted without belittling the other’s viewpoint and coming across in a way that makes a great impression.

In a series of articles in the coming months, we shall cover some of the aspects of our daily chores of business, where how we do it can make a BIG difference in our life and business. Some of the areas we would touch upon are enumerated below :

(i) Email etiquette
(ii) Mobile phone etiquette
(iii) Conducting meetings and teleconferences
(iv) Dining etiquette, attire and personal grooming.

Email In spite of its critical importance, email is sometimes treated in such a casual manner that small lapses can become a major hindrance in achieving a desired goal.

Given below are some of the points that may help to make the email communication more effective.

Selection of id Email id for business should be as simple as possible and preferably with name and surname. Selection of id with wild names can backfire. Thus krish. shah@xyz.com will be a far better choice than fantastickrish@xyz.com

Subject line Every email sent must have a subject line. It should not be too general such as ‘Hi’ ‘Bill’, ‘Payment’, ‘Meeting’, etc. as they do not serve any purpose and can be wrongly misinterpreted as spam. Correct way of putting a subject line is to briefly indicate the purpose of the email. Thus, if it is a reminder about payment, then it is better to write the subject line as ‘Payment for bill no.’ Never send email without a subject line as it will pose a great challenge to the recipient to locate your mail later to act on its content and will become an irritant.

First mail If the email is sent for the first time, then it is better to inform the recipient telephonically about the mail. This is because many times people have set a policy on their email server that they should receive mails in their ‘Inbox’ only from the addresses allowed by them.

Salutation It is preferable to write just the name as salutation unless you know the recipient close enough.

Content
Email should be brief and concise, but not in the SMS language. Any understanding or minutes should be enumerated pointwise giving numbers or bullets. One should never write the mail in ‘Capital’ letters as it is interpreted as if one is shouting. If the situation demands sending long text or working calculations, then it is desirable to send the same by way of an attachment.

Spam
Sometimes the recipient or his organisation’s e-mail policy may not appreciate/permit it since it can put undue pressure on his or organisation’s resources. Hence, it is always a good etiquette to take the general consent of the person in advance if you intend to put him on your mail list for circulation.

Reply
It is always desirable to reply the email of importance within maximum 48 hours. In case the email requires deliberation and/or consultations with others, then it is better to send an interim reply acknowledging the mail and informing the sender how long it will take to give a specific reply. As a sender, if one’s mail has not been replied to, then it will be advisable to write a reminder once on a forward of the previous mail. If even that is not replied to, then it should be ‘cooled off’ until there is a response from the intended recipient. Use discretion while clicking ‘Reply All’ as it has a viral effect increasing stress amongst colleagues.

Forward
One must be very careful while forwarding the email to delete the trail not intended for view by the recipient.

In the next article, we will cover mobile phone etiquette and expected norms for conducting teleconferences and meetings.

It has been my long-standing conviction that India is like a donkey carrying a sack of gold – the donkey does not know what it is carrying but is content to go along with the load on its back. The load of gold is the fantastic treasure – in arts, literature, culture, and some sciences like Ayurvedic medicine – which we have inherited from the days of the splendor that was India.

— Nani Ardeshir Palkhiwala

The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.

— Bill Gates

Look well to this day. Yesterday is but a dream and tomorrow is only a vision. But today well lived makes every yesterday a dream of happiness and every tomorrow a vision of hope. Look well therefore to this day

— Francis Gray

I like thinking big. If you’re going to be thinking anything, you might as well think big

— Donald Trump

”India is an institutionalised democracy of long standing. Democratic changes in govern-ment should be seen as a sign of strength. We expect the reform process to continue although the emphasis may change.”

— Sanjeev Sanyal

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ICAI and its members

Code of ethics

The Ethical Standards Board of ICAI has considered some ethical issues which are published in C.A. Journal for July, 2011, at pages 129-130. Some of these issues are as under:

(i) Issue: Can a Chartered Accountant advertise his professional attainments or services?

After amendment of the C.A. Act in 2006, it is not possible to issue any advertisement soliciting clients under para (6) of the Part I of Schedule I. However, other advertisements about professional attainments or services under para (7) of Part I of Schedule I are permitted. This is subject to the guidelines issued by the Council of ICAI. Detailed guidelines issued by ICAI are given on pages 129-130.

(ii) Issue: Whether a member can arrange business for Insurance companies?

In May, 2011 (page 1653) of C.A. Journal it was stated that this is not possible. It is now clarified that “A member is permitted to render Insurance Financial Advisory Services.” (page 130)

LLP of our members can be statutory Auditors

In the message from our President at P. 9 of C.A. Journal for July, 2011, it is stated that practising Chartered Accountants can now form Limited Liability Partnership (LLP). The Ministry of Corporate Affairs (MCA) has clarified in its Circular No. 30/2011, dated 26-5-2011 that an LLP of Chartered Accountants will not be treated as a Body Corporate u/s.2(7)(c) of the Companies Act. Therefore, such LLP of our practising members can now be appointed as statutory Auditors of a Limited company.

However, there is no clarification on the following issues:

(i) Whether such LLP of our members can be appointed as tax auditors under the Income- tax Act, State VAT Act, Public Trust Act or other similar legislation.

(ii) Whether such LLP can undertake tax representation work, management consultancy work or any other professional work which a Chartered Accountant is permitted under the C.A. Act.

(iii) Whether the name of such LLP as approved by the Registrar of Companies for registration of LLP will be accepted by ICAI and there will be no requirement for obtaining permission for name of C.A. firm under the C.A. Act and regulations.

(iv) Whether ICAI will give a separate Registration No. to such LLP and what will be the procedure for removal of the existing name of C.A. firm from the Register of Firms maintained by ICAI.

(v) Whether changes in constitution of such LLP which are required to be notified to ROC will also be required to be notified to ICAI.

(vi) If an existing C.A. firm is converted into LLP, there will be tax implications since the provisions similar to section 47(xiii) or section 47(xiii b) of the Income-tax Act have not been made when the I.T. Act was amended in 2010.

There will be some other procedural formalities to be followed by our members once this new concept of recognising LLP of our members for C.A. practice is introduced. Let us hope that ICAI will issue guidelines on these issues as early as possible.

Differences between IFRSs and IND AS

ICAI has issued a Note on pages 117 to 126 of C.A. Journal for July, 2011, explaining the changes made by the Ministry of Corporate Affairs (MCA) in Indian Accounting Standards (IND AS) on the recommendations by the National Advisory Committee on Accounting Standards (NACAS) and ICAI. The details of these changes are available on MCA website. It is clarified that IND AS will come into force when the MCA notifies them u/s.211(3)(c) of the Companies Act.

Certificate Courses offered by ICAI

Details about the following certificate courses offered by ICAI are given on pages 127 and 128 of C.A. Journal for July, 2011: Certificate courses on (i) Arbitration, (ii) Derivatives, (iii) Enterprise Risk Management, (iv) Forensic Accounting and Fraud Detection using IT and CAATs, (v) Forex and Treasury Management, (vi) Indirect Taxes, (vii) Internal Audit, (viii) International Taxation, (ix) Master in Business Finance and (x) Valuation.

EAC Opinion

Treatment of loss arising on sale of underperforming assets and associated liabilities to a group company of the supplier of the assets

Facts
A listed company had purchased 20 windmills. These windmills were installed at the site of the company. The supplier was paid in full at Rs.128 lakh per machine amounting to Rs.2560 lakh at debt: equity ratio of 75:25. The debts were funded by two nationalised banks. The machines installed were under operations and maintenance (O & M) for two years free of charge. The supplier had also executed a bond of performance guarantee of power generation of 5 lakh units per machine annually and individually with effect from the date of commissioning, and to compensate the shortfalls in the power generation at the prevailing State Electricity Board’s rate.

The company has stated that right from the inception, there were several problems in the power generation, land title, encroachment thereof and services. The company intimated the supplier regarding poor revenue generation and performance in respect of the 20 windmills. As per the company the supplier admitted and affirmed about the non-performance and low performance of the machines.

After prolong negotiation the company and supplier entered into a Memorandum of Understanding (MOU) dated 10th July, 2008. Now, one of the group companies of the supplier, after getting the sanction of the term loan for takeover of the assets and liabilities, will take over the assets and liabilities of the company in respect of the aforesaid machineries. On the transfer of assets by the company there will be no cash flows, but the accounts, viz. Windmill Generation Receivable Account, Supplier Account, Term Loan Account and Windmill Assets Account (WDV) will be squared off. This process of squaring off will result in the net loss of Rs.444 lakh (excess debit balance) to the company.

Query

On these facts the company had sought the opinion of the EAC as to whether the said loss of Rs.444 lakh arising out of the aforesaid windmill transaction can be amortised over a period of time or whether the said loss should be fully charged off in the year in which windmills are sold by the company.

Opinion

After considering paragraphs 78 and 96 of the Framework for the Preparation and Presentation of Financial Statements issued by the Institute of Chartered Accountants of India, the Committee has taken the view that an expenditure can be recognised as an asset only if it results into a resource controlled by the entity and some future economic benefits are expected to flow to the enterprise as a result of such expenditure. Since neither of the conditions is met in the case of the loss under consideration, it cannot be recognised as an asset and, therefore there is no question of amortisation thereof. Accordingly, such loss should be fully charged off to the profit and loss account when incurred.
(Refer pages 147 to 149 of C.A. Journal — July, 2011)

Achievements of some of the members of the accounting profession are listed on pages 167 of July, 2011 issue of C.A. Journal

(i) Shri K. S. Aiyar — considered as father of Indian Accountancy and the pioneer of commerce education in India. System of three years Articleship for students of our profession introduced by him.

(ii) Shri Sorab E. Engineer — He was the first Articled student of Shri K. S. Aiyar. Later on Shri Engineer was proclaimed as the Guru of our First President Shri G. P. Kapadia.

(iii) Indian Accountancy Board — constituted in 1932 and was the regulator for ‘Registered Accountants’ (RA) till the C.A. Institute was formed on 1-7-1949. Shri G. P. Kapadia was the first member of C.A. Institute with his membership number as ‘one’.

(iv) Institute Logo — suggested by the great nationalist philosopher Shri Arbindo Ghosh.

(v) Shri A. E. Cama — First Indian to become member of C.A. Institute of England and Wales in 1908.

(vi) Journal of C.A. Institute — Journal started with eight-page Bulletin in January, 1950.

(vii) First C. A. Conference — Called by Chartered Accountants from Mumbai in September, 1951, under the presidentship of Shri G. P. Kapadia.

ICAI News
(Note: Page Nos. given below are from C.A. Journal of July, 2011)

(i) Member-in-charge of office of C.A. Firm — It is clarified that only a partner or a C.A. full-time paid assistant can be appointed as a member-in-charge of office of C.A./C.A. Firm.
(page 9)

(ii) Educational Loan Scheme — ICAI has requested banks to give easy loans to C.A. students for joining C.A. course. Bank of Maharashtra, Oriental Bank of Commerce and IDBI Bank have introduced education loans under priority sector lending scheme. Other banks may give such loans to C.A. students. (page 11)

(iii) Entry Requirement for C.A. course — The Council of ICAI has decided to revise entry requirements to C.A. course. According to this decision, in the following cases exemption from CPT examination will be given and student will be allowed to join C.A. Articleship. (a) Commerce graduate with minimum of 55% and non-commerce graduate with minimum of 60% marks, (b) students who have passed Intermediate examination of ICAI/ICSI will be exempted from CPE examination and join Articleship on passing Gr. 1 of IPCC examination, (c) students who wish to join Accounting Technician Course will be exempted from CPT examination. These provisions will be implemented after approval by the Government. (page 10-11)

(iv) Announcements relating to Articled Assistants/Students

(a) Details about working hours of Articled Assistants are published on pages 176-177.

(b) Fees for obtaining duplicate statements of mark sheets for C.A. exams are increased from Rs.10 to Rs.100 per duplicate statement. (page 177)

(v) Campus Placement Programme

ICAI has organised campus placement for qualified members of the Institute at various places as under (page 177):

(a) Banglore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi on 16th to 20th August, 2011.

(b) Bhubaneshwar, Coimbatore and Ernakulam on 1st and 2nd September, 2011.

(d) Ahmedabad and Jaipur on 5th to 7th September, 2011.

(e) Pune 9th, 10th and 12th September, 2011.

(vi) C.A. Final Examination Results
C.A. Final Results for May, 2011 examination have been announced on 19- 7-2011. It is reported that out of 10816 girls 2368 (21.9%) and out of 21603 boys 4277 (19.8%) have qualified as Chartered Accountants. In this examination Ms. Maitrayee Rajput, Arti Jain and Charmy Sheth have secured the first three top positions. This can be considered as a great achievement for the girl students of our Institute.

BCAJ Admin

LECTURE METING

Subject : India@2030
Speaker : Mohandas Pai, CA, former Whole-time Director, Infosys Ltd.
Date : 29th June 2011

Mohandas Pai, a fellow member of the ICAI and ex-Member of the Board of Directors at Infosys, delivered the annual Dilip Dalal Oration Lecture on 29th June 2011. The subject was ‘India @ 2030’. The experienced speaker covered a snapshot of the Indian economy before going into the details of the mega trends which are changing the world and the specific challenges which are faced by India.

Shri Pai commenced his speech with an analysis of the positive factors of the Indian economy with the support of global and domestic statistics. He pointed out how the world is changing with countries like India and China expected to contribute more to the world economy than US, Europe and Japan by 2020 in terms of GDP.

He then elaborated on the three major reasons which are changing the world. According to him, globalisation, though an age-old concept, is accelerating due to factors like reduction in time for travel, communication efficiency, social networking tools, etc. Easy capital flows and reduced trade barriers were the main driving forces behind globalisation. The main impact would be the increase in competition for highly skilled and educated people and resultant brain drain. New regulatory systems would be required to be in place to avoid unfair competition and dumping of goods. However, there was no doubt that globalisation has led to improved living conditions of people. Skilled people of India and China have taken benefit of this globalisation leading to rise of these countries in the world economy. Globalisation is an unstoppable force and should be embraced.

The next big trend which is changing the world according to him is technology. His moot point was that innovation cycles are becoming much shorter. For example, the PC replaced the typewriter and soon the smartphone may well replace the PC! Technology has also led to a much democratised society. Telecommunication and the worldwide web have resulted in breaking barriers. Access to knowledge has empowered the general public. Similarly, ideas can come from any part of the world and can be implemented anywhere. There is free flow of capital, ideas and implementation.

The third mega trend according to Shri Pai is the demographic transition and the aging of population in developed countries. He gave several examples of countries where either the population has declined or there is a rise in number of aged people. In contrast, Asian, African and Islamic countries are witnessing a population growth; and immigrant population in western countries is also rising. By 2030 India will have the youngest population in the world! This represents a tremendous opportunity for India.

All these factors are leading to India’s growth. Shri Pai enumerated several estimates pointing towards a significant growth in the next 20 years. However, there are quite a few issues that India needs to resolve for it to achieve this level of growth. The primary challenges are: Poverty alleviation, healthcare for all, investment in education, and generation of employment opportunities.

For tackling poverty, Shri Pai suggested a major revamping of the subsidy regime. It has not provided the impact it should have, as proved over the last 60 years. The NREGA scheme, while giving more purchasing power to the landless and marginalised, has not given the returns in line with the investments made. Shri Pai has therefore advocated replacement of the current subsidy system by a cash transfer system which would alleviate the present problems.

Healthcare or the lack of it is the second major challenge India faces. Shri Pai suggested a national health insurance scheme for the BPL sector. This would empower the people to choose the best service provider.

While talking about Education, Shri Pai pointed out that the present system cannot decide between quantity and quality. He gave the example of IITs and IIMs where more money is spent in clearing the entrance exams than the fees for the course. He mentioned that large-scale expansion of the education sector is required to give everyone an equal chance for education. While quality in education is essential, it should not become a block. He called for liberalisation with privatisation in the education sector. Mr. Pai felt that there was no harm in having a for-profit sector in education, if access to education was available to all youngsters.

The participants also got a chance to get their queries answered from the learned speaker. The queries covered varied subjects from education problems to corruption. The participants were witness to passionate and well-considered replies from Mr. Pai to their questions.

Subject : Taxation of Cross-Border Transactions — Recent Trend in India
Speaker : Pinakin Desai, CA, Past President, BCAS
Date : 13th July 2011

The meeting began with a warm welcome from the President who introduced the speaker, Pinakin Desai and the topic for the day. The learned speaker covered the various aspects of cross- border transactions in the international tax scenario. Some of the major issues discussed by him are as follows:

Permanent Establishment (PE)

Provisions for creating the following types of PEs were explained:

Service PE: After explaining the requirement for creating a Service PE in India, the following issue related to Service PE was discussed:

ABC Canada provides support services to XYZ India and outsources part of the service function to PQR India, an independent service provider. Contract between ABC Canada and XYZ India and between ABC Canada and PQR India are independent and at a fair price.

Issue involved: Whether period of service rendered by PQR India on behalf of ABC Canada to XYZ India would need to be taken into account for determining threshold of service PE?

Decision of the Delhi ITAT in the case of Lucent Technologies International Inc v. DCIT, (2009 TIOL 161 ITAT-Del.) was referred to and the speaker opined that to aggregate the time spent by personnel of PQR India with the time spent by the personnel of ABC Canada, the personnel of PQR should be under the command and control of ABC Canada, i.e., only the time spent by dependent non-employees of a company can be considered for computing the threshold for constituting Service PE.

Construction PE: The same issue as for Service PE would also arise for a Construction PE.

ICO-1 enters into a contract with FCO for installation of equipment, work being of long duration. FCO sub-contracts part of physical execution to an independent Indian sub-contractor ICO-2. ICO-2 is remunerated by FCO on a fair basis. FCO remains contractually liable to ICO-1, but also has a back to back indemnity from ICO-2.

Issue involved: Whether time spent by ICO-2 needs to be aggregated for determining emergence of Construction PE for FCO?

The speaker opined that same view as Service PE cannot be held in this case as the language in Construction PE article is different from the Service PE article. For a Construction PE, different views are possible, depending on the facts of the case. While there is an AAR Ruling in the case of Pintsch Bamag (318 ITR 190) favouring the view that aggregation is not required when part of the work is outsourced; the commentaries for Skaar, OECD and US appear to suggest that the time of sub-contractor needs to be aggregated.

Agency PE: An Agency PE may get ignited when services are provided by a dependent agent to its principal. An agent is a dependent agent when he has authority and/or habitually exercises authority to conclude contracts on behalf of his principal. A person may be regarded as a dependent agent even if he does not have such authority, but has authority to secure contracts and works almost exclusively for one principal/group.

Issue involved: What kind of work carried on by a person will be said to satisfy ‘securing orders’ criteria and thereby giving rise to a dependent agent?

Reference was made to the US treaty which offered a strict meaning to the term ‘securing an order’ and to Switzerland treaty which gave a very general meaning to the term. The speaker opined that if the matter arose in the case of a neutral treaty which follows neither US nor Swiss Protocol, the courts are more likely to uphold the interpretation of the Swiss Protocol.

The speaker opined an Agency PE from the services of a dependent agent could be avoided if the agent is remunerated at an arm’s-length price.

Section 9(1)(vii) of Income-tax Act, 1961 (Act)

The above section defines the term ‘technical services’. Explanation 2 to the section carves out certain exclusions to what would constitute fees for technical services (FTS). Accordingly, FTS would not include, inter alia, consideration for any construction, assembly, mining or like project undertaken by the recipient. The following observations were made by the speaker:

(a) Pure services/identifiable independent services are not covered by exception of section 9(1)(vii).

(b) When an independent service provider is providing services which require him to engage man, material and equipments within India, he could be said to be carrying on a business in India and hence, would not be covered by section 9(1)(vii).

Source Rule Exception
India-Finland DTAA: Would remote technical services provided by a Finland company to an Indian company be liable to tax in India merely because the fees are payable by an Indian resident on account of the conditions laid down in section 9(1)(vii)?

Article 12(5) of India-Finland DTAA provides that FTS shall be deemed to arise in India, when the payer is a resident of India. Where, however, FTS relate to services performed, within a Contracting State (Finland), then such FTS shall be deemed to arise in the State (Finland) in which the services are performed.

In the present case, FTS arise in Finland as services are performed in Finland and hence, not taxable in India.

India-China DTAA: Would services performed by a Chinese company in China but used for a business in India be taxable in India? Would the same analogy as for the Finland company apply?

Article 12(4) provides that FTS means any payment for provision of services of managerial, technical or consultancy nature by a resident of a Contracting State (China) in the other Contracting State (India).

Article 12(6) provides that FTS shall be deemed to arise in India when the payer is a resident of India.

Mumbai ITAT in the case of Ashapura Minichem has held that in view of the deeming fiction of article 12(6) of the India-China DTAA, it was not necessary to consider the merits of the argument on the scope of Article 12(4).

Technology-driven services
Can the payment made by an Indian telecom company to a foreign telecom company for roaming services be characterised as rent? The decision of the Mumbai ITAT in the case of Vodafone Essar has looked on cellular mobile telephone as service and not rent.

Would the payment made by the Indian service provider to an overseas service provider for roaming/ interconnect services provided to customers require withholding tax? The Delhi HC in the case of Bharti Cellular Ltd. (319 ITR 139) has held that ‘technical service’ would have reference to only technical services rendered by a human. Interconnect services were regarded by the HC as not requiring human intervention and hence, were not technical services and hence, there would be no withholding tax liability.

The SC observations in the case of Bharati Cellular (330 ITR 239) were also discussed. The CBDT Instruction No. 5/2011 issued as a consequence of the above decision was also analysed. The open issues of consideration from this were identified as:

Fate of technology-driven services

Extent and depth of human intervention

HC understanding: reference only to technical service rendered by a human

Likely attitude of tax department in pending telecom cases

Likely attitude of tax department in complex telecom cases

Extension of the attitude in other proceedings

Litigation involving cross examination of experts.

Secondment
If an employee is seconded by a foreign company to an Indian company such that the Indian company is the economic employer while the foreign company is the legal employer, then it was an accepted conclusion that it would not amount to rendering any service by the foreign company other than seconding the employee to the Indian company.

AAR Ruling in the case of Verizon Data Services India Limited (AAR No. 865 of 2010) was discussed in this context. The AAR held contrary view as in that case the foreign company reserved rights over the termination and hiring of seconded employees. The speaker emphasised the need to exercise caution in drafting the secondment agreements to avoid such views.

The observations of the AAR in treating the secondment transaction as Fees for Technical Services were discussed and the speaker opined that the judgment may have curious ramifications if upheld ultimately.

Place of Effective Management (POEM)

The concept of POEM has been introduced by the Direct Tax Code (DTC). After explaining in brief the meaning, application and importance of POEM, the learned speaker shared with the audience his view on the judgment of the Supreme Court in the case of Subbayya Chettaiar v. CIT, (19 ITR 168) which dealt with the concepts of control and management.

Vodafone and related controversy

The facts, issues and the judgment in the case of Vodafone where it was held that when there is transfer of shares of a foreign company by a foreign company to a foreign company, it would still be taxable in India, if the ultimate underlying assets which were being controlled by those shares were located in India. The speaker opined that the facts of the Vodafone case are peculiar in nature and would not necessarily apply to all similar transactions.

Supreme Court axe on black money

The Hassan Ali case relating to black money and the future outlook of India to black money were briefly discussed by the speaker.

The meeting concluded with a hearty vote of thanks and a loud round of applause to the speaker.

BCAJ Admin

Letters

The Editor,

The article ‘Giving Lessons from Life’ in Namaskaar was very inspiring. I will like to add one incident, just to re-emphasise the beautiful message that you wanted to convey.

The piece of land on which our hostel for the tribal girls living in remote forest is now situated, is donated to us by one poor tribal. Before we shifted to this location, we were his neighbours, living in a modest house.

When we started considering setting up of the hostel, we could not find a suitable place. The neighbour guessed the problem and told us: “You can well build the hostel on our land, in the next village”. We visited that land immediately and started construction.

At long last we succeeded in getting the land transferred in the name of Vedchhi Pradesh Seva Samiti. The poor tribal did not take a Paisa, saying — ‘It is for our girls.’

Finally, we went to the Registrar for signing the papers. The old man was in his clumsy dress, without chappals, supported by his grandson. Our co-ordinator managed to take the chappals from that boy, to give it to the old man. He was very uncomfortable and could hardly walk, as that was the first time in his life that he had put on the chappals. After the formalities were over, the first thing the old man did was to take out the chappals and carried them in his hands, till we sat in the jeep.

I reached the hostel, contemplating over this unique donation.

—Bhikhubhai

BCAJ Admin

Lecture Meetings

Tough times never last, but tough people do

Shailesh Sheth, Advocate speaker at the lecture meeting held on 20th June 2012, under the auspices of Dilip N. Dalal Oration Fund, delivered a motivational talk in Gujarati about the attitude of the people who survive and tide over tough times. The speaker lucidly explained the way people react to a situation and come out positively. The lecture was highly appreciated by the participants at the venue. Video recording of the proceedings is available on BCAS Web TV.

Filing of Income-tax returns for A.Y. 2012-13

At this lecture meeting, held on 27th June 2012, the speakers Jinal Shah and Mandar Telang, Chartered Accountants, shared their views on various aspects of filing of Income-tax returns including Budget amendments effecting tax returns and general pointers while filing Income-tax returns. The lecture as always drew large attendance and queries raised by the participants were also addressed. Video recording of the proceedings is available in the free section of the BCAS Web TV.

Recent controversies in Cross-Border Taxation

At this lecture meeting held on 11th July 2012, Pinakin Desai, Chartered Accountant, addressed the audience on the current controversies related to Cross-Border Taxation, giving an overview on GAAR, the draft GAAR guidelines, the indirect transfer of assets in India and other provisions related to the topic. The lecture was highly appreciated by all. Video recording of the proceedings is available on BCAS Web TV.

Other programmes

Seminar on Practical Aspects of Important Articles of DTAAs and Impacts of Recent Amendment to Section 9.

The International Taxation Committee of the Society had organised this Seminar on Saturday 16th June, 2012 at Novotel Hotel, Juhu, Mumbai.

The speakers H. Padamchand Khincha, Himanshu Parekh, P. V. Srinivasan, Chartered Accountants and Nitesh Joshi, Advocate amongst them covered various aspects of the Article 15 & 17, Amendments to section 9 and Non-Discrimination and MFN under tax treaty by the Finance Act, 2012. The seminar received a full-house response from participants from practice and industry, who gained immensely from the wealth of knowledge and experience shared by the learned faculty.

Internal Audit Studies Foundation Course

The Accounting & Auditing Committee of the Society organised this 6-day Internal Audit Studies Foundation Course from 18th June to 23rd June 2012 at Hotel Parle International, Vile Parle, Mumbai. Various speakers Atul Shah, Arun Kumar, Bhargav Vatsaraj, Deepjee Singhal, Himanshu Vasa, Huzefa Unwalla, Jairam Shekhar, Nandita Parekh, Preeti Cherian, Sanket Dawda, Satish Shenoy, Shailin Desai, Sujit Cherian, all Chartered Accountants covered various aspects of the Internal Audit. The 72 participants from varied backgrounds derived tremendous benefit from this course. The participants including members, nonmembers, those in practice and from industry gained immense-ly from the wealth of knowledge and experience shared by the learned faculty.

63rd Annual General Meeting

The 63rd AGM of the BCAS was held on Friday, 6th July 2012 at Rangswar Hall, Y. B. Chavan Pratishthan, Mumbai. Pradip Thanawala, President of the Society was in the chair. The President presented the 63rd Annual Report of the Managing Committee and the audited Accounts.

Chetan Shah, Joint Secretary announced the results of the election of President, Vice-President, two Secretaries, Treasurer and eight members of the Managing Committee for the year 2012-13. He announced the names of the following members as elected unopposed for the year 2012-13. (The list of Office Bearers and the Managing Committee members is reproduced on the next page.)

The President then announced the ‘Jal Erach Dastur Awards’ for best article and best feature appearing in the BCA Journal during the year 2011-12. Mr. Ajit Korde, IRS was awarded the prize for the best article titled ‘What does Settlement Mean?’ which had appeared in the November 2011 issue of the BCA Journal. Govind Goyal and C. B. Thakar, Chartered Accountants received the prize for the best feature titled ‘VAT’.

A publication ‘Gita for Professionals’ was released at the hands of K. C. Narang, Past President. This publication illustrated the concepts of ‘duty and ethics’ by parables and anecdotes which at times seem autobiographical. Author of the book Chetan Dalal, Chartered Accountant expressed his appreciation to the Society and spoke briefly about the contents of the book. Mayur Nayak and K. C. Narang, Past Presidents, also spoke a few words about the book.

Thereafter, the outgoing and incoming Presidents Pradip Thanawala and Deepak Shah, respectively, addressed the members.

In the end several members shared their views, appreciation, suggestions and future vision for the society and also complimented the outgoing President Pradip Thanawala and his team.

64th Founding Day Celebration

The 64th Founding Day of the Society was celebrated on 6th July 2012 at Rangswar Hall, Y. B. Chavan Pratishthan, Mumbai Chief Guest Lt. General Syed Ata Hasnain addressed the members on the topic of ‘Inspirational Leadership – Models from the Armed Forces adaptable in Corporate World’. He shared his personal experiences with the audience and and how the same were applicable in a corporate environment. He spoke about the concept of success and victory and how in the armed forces a second position is not acceptable. The audience greatly benefited from his talk.

On this occasion, a special issue of the BCA Journal was released by K. C. Narang, Past President. The special issue was based on the theme of Profession.

It contained articles by professionals from other fields such as M. L. Bhakta, Advocate & Solicitor, Kaiwan Mehta, Architect & Author, and Anupam Kher, Actor. A new publication ‘Advance Rulings Law And Procedures – A Compilation’ authored by Mr. Rajan Vora, Mr. Hemen Chandariya and Ms. Vikita Shah, Chartered Accountants was released by Lt. General Syed Ata Hasnain. This publication aims to give a broad idea of the law, purpose, and procedure for seeking an advance ruling from this authority, set up by Income Tax administration. It also covers a summary of the cases of last three years. This publication was released under the auspices of Shailesh Kapadia Memorial Publication Fund.

Outgoing President Pradip Thanawala’s Speech

Dignitaries on the dais, off the dais and friends,

Exactly a year ago I assumed office as the President of this great institution. I was conscious of the responsibility entrusted to me. My seniors had reposed their fullest confidence in me, but I knew that I had my own limitations.

The moment I became a President-elect, I decided to do my best so that the impeccable reputation of the Society was maintained if not enhanced.

Today I stand before you having completed my tenure and I leave it to you to judge my performance. When I bowed to my elders for their blessings, they advised me that I should accept with humility all that came my way, respect the viewpoints expressed by others and show my gratitude for the faith my peers had reposed in me. I tried to conduct myself bearing in mind these words of wisdom.

While the annual report contains the entire details of the events as they unfolded, I feel it would be worthwhile to recapitulate a few of the significant ones which took place in the year gone by. For the first time, the Bombay Chartered Accountants Society started accepting corporate members and though it has been a small beginning, I am hopeful that this change will augur well for the Society’s future. The referencer has been a prized publication of the Society, and this year it was celebrating its golden jubilee. The referencer with the theme “Back to the future” is a collector’s item. The International Tax and Financial conference which has gained tremendous popularity over the past decade was held at the Infosys Centre. When we all witnessed the state-of-the-art facilities, it left no doubt in one’s mind of the technical excellence our Corporates have achieved.

All these landmark events were organised by the Society’s committees which are headed very ably by the past Presidents. It is this aspect that has made the Society unique and distinct from many other organisations. While the Society is always quick to embrace change in technology, law and be abreast of all developments in the professional field, it has a respect for tradition. The Society has been built on the sacrifices of many eminent professionals and their association with the Society will always continue. While we are all indebted to our past Presidents, one cannot forget the honorary services of the Society’s auditor Shri P.M.Dharia under whose watchful eye the accounts are finalised from year to year. This year the society felicitated Shri Dharia for his dedicated honorary services rendered for more than four decades.

In every aspect of the Society’s affairs its seniors are pillars of strength. In fact, it is because of the foundation that they have laid and the heights that they have achieved, that the President of the society is well-respected. As an eminent philosopher had remarked “I seem tall, because I stand on the shoulders of my forefathers.” While respecting elders the Society is conscious that students are the future of the profession. The Society holds many programmes for students culminating in the Annual day which is a mega event.

Though the credit for achievements goes to the leader of the team, the entire contribution is that of the team members. I have had excellent support from my office bearers consisting of Deepak Shah, Nitin Shingala, Chetan Shah and Raman Jokhakar. Apart from these office bearers I must thank Nayan Parikh, Rajeev Shah, Bharat Oza and Mukesh Trivedi for their unstinted support. I would also like to thank all the staff members of the Society for their support and co-operation throughout my tenure of two years. I do not know whether they will miss me or not, but I will certainly miss them all. I also acknowledge support of three staff members who left during the year namely Netra, Khorshed, Madhuri. And last but not the least my family who endured my absence and relieved me of domestic responsibilities over the entire last year.

I will be failing in my duty if I do not acknowledge the co-operation and guidance received from my dear friend Anil Sathe for providing necessary inputs for my VP Communication as well as Presidential message. Thank you Anil.

In today’s world, maintaining professional excellence is like running a marathon race. An individual has neither the strength nor the stamina to complete the race on his own steam and therefore it is to be run like a relay race. The skill in a relay is to hand over the baton seamlessly to the successor. The Society is such a mature organisation that this handing over and taking over happens each year very smoothly. Mr Deepak Shah will take over the reins as the President of the society and Naushad Panjwani will be his deputy. Deepak is an able leader and Naushad is brimming with innovative ideas. I wish both of them and their team a successful year ahead. I am now a relieved man and would like to end my speech with Kabir’s doha.

Incoming President Deepak Shah’s Speech

Om Namah Shivay Dear Members,

President Pradip Thanawala, Vice President elect Naushad Panjwani, Nitin Shingala, Raman Jokhakar, Chetan Shah, distinguished past Presidents of the Society, other Seniors in this profession, colleagues from other associations, and fellow members.

I am deeply honoured and humbled to wear this crown of office as I stand before all of you today. It is a responsibility that I pledge to carry with dedication, diligence and dignity in the coming year.

I know it is a significant commitment, and I shall fulfill the Society’s mission to spread knowledge, and support, promote and protect the interests of the profession and the public at large. I would at all times dedicate myself to work assiduously for the overall interest of our Society, and our noble Profession. In my activities, I will be guarded by no other principles than those of the vision of our Society.

I am confident, for I have the blessings of God, and my parents. I am thankful to the fact that I am surrounded by colleagues who are supportive and ready to give their best. Together with me, are my seniors and friends, who are ever willing to stand by me in all my endeavors. Together we form a perfect circle of mutual support & growth. I am also blessed with a wonderful family, who have always encouraged and supported me, and are proud as I am today.

After the completion of my graduation, and after marriage, I joined the firm of Ladhawala & Shah, Chartered Accountants. My intention was not to pursue Chartered Accountancy, but to get working experience in areas such as Income Tax and Sales Tax, which would then help me in my family business. The partners of the firm, my parents and friends encouraged me to sign my articles and pursue CA course. Initially I was hesitant, as to begin pursuing the rigorous CA curriculum after marriage, is an uphill task. I knew that I would have to sacrifice a lot. But, let me share the fact that the real sacrifice was made by my wife Nita during that important phase of our life. She stood steadfast beside me, and during those 3 years, constantly inspired and supported me. Today I am blessed with the presence of Shri I M Ladhawala and Shri M M Mehta, and I am thankful to them for their presence and support.

My association with BCAS started in the year 1997-1998, when a very dear friend Rajeshbhai Muni introduced me to BCAS, and I became a member of Publication Committee. Since then I started taking active interest in one of the most prestigious publications of the Society, the BCAS REFERENCER, and I got the chance to interact with many past presidents, core group members, and other fellow chartered accountants.

In the year 2001-2002 under the tenure of Pradipbhai Kapasi, I was inducted as a Managing Committee member, and during the tenure of Rajeshbhai Kothari in the year 2007-08, I became an Office Bearer.

Since the time I joined the core group I observed everyone working selflessly for the organisation, and at every stage, I felt that there is a lot to learn. My association with BCAS taught me that everything is achievable if our efforts have complete focus and dedication. It has made a meaningful difference to the lives of many and, I am not an exception.

BCAS has, over the past six decades, set a benchmark in all aspects of its services and activities. And with every accolade that has come its way, BCAS has constantly raised the bar on the quality of its practices and services.

The bygone year has been full of momentous activities, and the wisdom of past Presidents, enthusiasm of core group members and support of the BCAS staff has given that impetus to me to provide quality services. I look forward for the same continued and proactive support from all, to carry forward the good work.

Success is always a great motivator. We need to ensure that we do not rest on our past laurels, and we must strive again for excellence in everything we set out to do.

Thomas Jefferson once said –

That the dreams of the future are as powerful Motivators, as successes of the past.

The plan for 2012-2013 circulated to you, highlights the focus areas. Needless to say, that the ongoing knowledge development activities such as Lecture Meetings, Seminars, Workshops, Long duration study courses, RRC’s , Crash Course for Students, Clinics etc. will be regularly conducted by respective committees.

It is my privilege to take you all through the thought process behind the plan presented for the ensuing year.

If I have to describe my plan for the Year in one line
I would put it as :

We have a strategic plan – it’s called doing things.

While I sat to prepare this plan, I asked myself – What is the need of the hour. The answer was – To be JAGRAT – Jagrat, is a powerful word in Sanskrit literature. The nearest equivalent in English for it would be alertness or vigilance. The times in which we live are such that being Jagrat is absolutely decisive. The world is moving fast as never before. The rapidity and quantum of change that we witness are unparalleled in history. To keep pace with the change is a challenge for anyone at any time. It is said “even to be just standing where you are, you need to keep running twice as fast”. In this flux of time, to stand still is to invite a certain setback. So it’s extremely important to move forward and to keep pace with the rapidly changing laws, and for that, one must be alert at all times.

The year 2012-13 will bring about many changes, and will offer immense opportunities for the entire CA community. Direct Tax Code and GST may see the light of day, and age old Companies Act is all set to be replaced by the Companies Bill 2011. The Service Tax regime has changed completely with negative list coming into play.

But the problem with changes is that, the changes we witness end up being lopsided. It leads to large scale dissatisfaction, unrest and unwarranted litigation too.

Here I feel that BCAS has a very significant role to play.

BCAS provides a foundation of knowledge, skills, and professional values which enables CA’s to continue learning and adapting to changes throughout their professional lives.

“Give a man a fish and you feed him for a day. Teach him how to fish and you feed him for a lifetime” – The wisdom of this timeless adage defines BCAS approach towards professionals.

The annual plan is prepared on the basis of these thoughts, and have been deliberated by various committees over the past few days. I have witnessed that in each committee, all core group members were enthusiastic to implement innovative and quality driven programmes. I’d like to specially mention and appreciate all the outstation members who are part of the core group, for participating in committee meetings in person or through the conference call facility.

The words of Vince Lombardi, truly fits here:

Individual Commitment to a group effort- that is what makes a team work, a society work.

I would describe some aspects from each of the focused areas presented in the plan :

1) MEMBERSHIP – I strongly believe that there has to be a fervent exercise of deepening BCAS roots. At the Society, a number of members through selfless and devoted work have created and are creating a large reservoir of knowledge.

I would aim to see that the water from this reservoir is being reached to many. It would be our endeavor to find ways and means to achieve this by reaching prospective members, specially the members from the industry.

And the solution to reach members in Industry is to promote BCAS Corporate Membership.

We have to ensure that corporates avail the benefits of BCAS membership.

For that We need to communicate :

What’s in it for them?

How the Corporate membership be an asset to them?

2) RELATIONSHIP :

a) At this juncture, I look forward to the like-minded professional organisations to work in harmony, because as an organisation, we have a common cause of spreading knowledge, boosting professional development and lifelong learning for our membership.

b) We also intend to closely collaborate with other organisations – Be it professional organisations in other streams or business and industry organisations.

c) I for one, believe that, we need to have aggressive Interaction with Government and regulatory authorities on regular basis, to address and find solution to areas concerning the industry and public at large. The idea is to have more efficient evolvement, and administration of laws.

3) MENTORSHIP :

a) On this front, all efforts will be made, to educate and provide up-to-date information and guidance to members on new laws and areas of practice, and planning Industry-specific programs for our members the in industry. During the year, we will work on means to reach more and more members, in particular the outstation members through the medium of technology, by creating web-based knowledge management.

b) Study Circles : It is the platform which is regularly talked about by seniors and past Presidents even today. Efforts will be made to make them more vibrant, and spreading its wings to boost young talents.

c) Publications: This year we have a separate Publication Committee, which will work towards the requirement, to publish books on regular basis.

d) Research: Research is an area where we can, and must do a lot. I wholeheartedly invite members to participate in this area.

e) Service to Students: We have many student members who dream of being part of BCAS.
We shall inspire, encourage, influence and help them recognise and appreciate the value of their unique talents, so they can fulfill their dreams.

Once dreams are fulfilled, they will see that they owe much of what they’ve accomplished, to their involvement with BCAS. And we all know how word of mouth is the best way to further promote experiences. That will help us in two ways – to harness young talents at BCAS, and to induce new ones.

I believe that as an organisation with clear values and beliefs, – What is good for Profession is good for BCAS, we can strive forward proudly.

God works through people they say. He doesn’t require us to succed, he only requires that You try. I assure you that me and my colleagues – Naushad, Nitin, Raman and Chetan, alongwith the dedicated staff, added by the strength of the experience of the managing committee, will at all times work with you at the Society.

The recognition and respect this Society has garnered over the years would not have been possible without the patronage and support of our valued members. I urge all members to come forward for an active participation in all our efforts and programmes organised by the Society, and share your views and expectations.

As your President, I endeavour to:

Be Committed to the success of BCAS.

Turn ideas into reality.

Lead with a passion for BCAS.

Be True to my name – DEEPAK by spreading the light of knowledge.

I once again thank all of you, for making this day special by giving me this great opportunity to lead, and advance the professional organisation of an immense repute, and take it to a greater height.

BCAJ Admin

Direct Taxes

Wealth tax (1st Amendment) Rules, 2014 – Notification No. 32/2014 dated 23rd June, 2014

Return of Wealth for AY 2014-15 and onwards, is required to be filed in Form BB. No enclosures are required to be filed along with this form. Form BB is to be filed electronically with digital signature. Individuals and HUFs, to whom provisions of section 44AB are not applicable, have an option for AY 2014-15, to file the return in Form BB in paper form. A separate set of Instructions have been issued to guide the assessees file the return of net wealth in the new Form

A Press Release dated 4th July 2014 is issued to provide that all taxpayers are required to update and validate their taxpayer Email ID and Mobile Number on the Income tax website for their e-filing account

Revision of monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Court and Supreme Court – measures for reducing litigation – Instruction No. 5/2014 dated 10th July 2014 available on www. bcasonline.org

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FROM THE PRESIDENT

Dear members,

It is indeed a great honour and aproud privilege to be bestowed with the responsibility to be the 65th President of an outstanding organisation that the Bombay Chartered Accountants’ Society (BCAS) is. The task of walking on the path carved out by the stalwarts who have led this august institution in the past and reach new milestones is formidable. In this journey, one has the unstinted support of seniors, colleagues and other members. Your warm messages of welcome and support enthuse me. The roadmap for the BCAS for the new and coming few years takes into consideration continuity from the past and expectations of various stakeholders. My acceptance address, delivered at the AGM and reproduced in this issue of journal, highlights this…

The new BCAS year began with Shri Dastur presenting his annual budget speech for a record 26th time. A packed audience of more than 2,000 listened to his comprehensive analysis of the direct tax provisions of the Finance (No.2) Bill, 2014 with rapt attention and admiration. The BCAS has started live webcast of the annual budget meeting since 2009. This year’s live webcast was viewed by over 1,500 logins simultaneously. In many offices, the live webcast was projected on a screen and watched by large groups making it difficult to estimate the total number of viewers. The feedback from the viewers is very encouraging. We will continue to adapt to changes in the technology and ensure that the BCAS continues to reach out to a larger number of the members and shrinks the geographical distances.

The Indian economy has been going through challenging times. This has culminated in lower than 5% GDP growth for two consecutive years, 2012-13 and 2013-14. Sub-5% GDP growth for two years in succession was last witnessed a quarter of a century ago in 1986-87 and 1987-88. The manufacturing sector suffered the most with the growth plummeting from 8.5% in 2011-12 to 1.2% in 2012-13 and 0.5% in 2012-13. With hope to see Achche Din, India gave a decisive mandate in favour of Modi Government and the expectations from the new Government are sky high.

In the budget speech, the Finance Minister Mr. Arun Jaitley referred to aspirational Indians and the neomiddle class demanding better living standards. Also described as an aspirational volcano, the rising India is now assertively demanding improvement in quality of governance that includes better infrastructure, more opportunities, greater choices, and enhanced safety and security. In the past, there have been always gaps in promises made by the ruling combine and the deliveries on ground. The Finance Minister has used to the word “growth” 31 times in one of the longest budget speech in history. It is important that the new Government pursues an all-inclusive growth agenda relentlessly and aggressively to channelise energy of young and rising India in the right direction.

The tax proposals in the Finance Bill carry a significant imprint of the bureaucracy. The tax compliance and dispute resolution remain painful and attempts to address these concerns seem to be inadequate. Aware that the budget will be required to be approved in a very short time, the team BCAS worked very diligently to submit its post-budget memorandum on direct tax and indirect tax proposals. Once again, the Parliamentarians have rushed in approving the Finance Bill without critical and detailed examination of various provisions, some of which appear to have not been thought through entirely. Until and unless the legislative process becomes truly participative and collaborative, the confusion created through continuous tinkering of the laws and bureaucratic red tape will remain a challenge and ease of doing business in India, a mirage!

Several finance ministers have stressed on the need for friendly and conducive tax administration. However, in reality this remains a distant goal. The report of the Committee for Reforming the Regulatory Environment for Doing Business in India chaired by Mr. M. Damodaran submitted last year states: “Despite protestations of an improvement in mind-set, the needless adversary relationship between assessing authorities and the taxpayers continues to be a fact of life. This is further compounded by a perverse incentivisation system in which gross tax collections are treated as a major indicator of good performance.”

The following statistics in this year’s budget documents perhaps quantify the scale of this challenge. The statement of Revenue Forgone states that the Incometax Department received 6,18,806 corporate returns electronically up to 31-03-2014 for the financial year 2012-13, i.e., assessment year 2013-14. These companies reported total corporate tax payable of Rs. 2.64 lakh crore inclusive of dividend distribution tax. In comparison, the receipts budget states the collection of corporation tax at Rs. 3.56 lakh crore during FY 2012-13. Does it mean probably Rs. 1 lakh crore of tax, i.e., nearly 28% of gross corporate tax receipts, is excess collected allegedly through coercion which the government is required to refund subsequently with interest? It is pertinent to note that the tax refunds excluding interest have been increasing over last several years. It amounted to Rs. 83,766 crores during financial year 2012-13 as stated in Report No. 10 of 2014 pertaining to direct taxes by the CAG.

The Tax Administration Reforms Commission (TAR C) in its nearly 600 paged First Report has detailed several actions to enhance effectiveness and efficiency of the tax administration including steps required to contain and obviate the disease of corruption. There is no dearth of ideas, suggestions and plans. The current disturbing state of affairs has resulted from lack of commitment, sincerity and determined efforts. There is a greater need to start the cleansing process from higher echelons.

Our Prime Minister Narendra Modi inspired the cadre of his party with the slogan “Congress mukt Bharat” and achieved a historic win. The citizens of India now hope the Modi Government and the elected representatives will push for “Corruption mukt Bharat” with greater vigour that will herald truly happy celebrations of the Independence Day for the country.

Wishing you a very happy Independence Day in advance!

With warm regards,
Nitin Shingala

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Part C Information on & Around

Sushma Swaraj:
Documents procured under the RTI Act revealed
that the Shivraj Singh Chouhan government in Madhya Pradesh appointed
foreign minister Sushma Swaraj’s husband and daughter as government
lawyers.

“The government should make a clear policy for
appointment of counsels. It clearly reflects that the VIPs and their kin
are being benefited,” alleged Ajay Dubey of Transparency International,
which procured the documents.

Chargesheet in Mahatma’s killing:
The
Central Information Commission (CIC) has directed the home ministry to
make public the FIR and chargesheet filed by Delhi police on the
assassination of Mahatma Gandhi on 30th January, 1948.

The order
came after Odisha-based Hemanta Panda sought the information under the
RTI Act. Panda wanted a copy of the FIR and chargesheet among other
pieces of information including whether any autopsy was done as per law.
The ministry had forwarded the application to the National Archives of
India, director of Gandhi Smriti, where Gandhi spent his last days and
was assassinated. Gandhi Smriti and Darshan Samiti told him that “no
post mortem examination was performed as per the wishes of the family”.
Panda was also informed by Gandhi Smriti and Darshan Samiti that they
did not have any information related to the FIR and the subsequent
charge-sheet filed in relation to the assassination.

Lalit Modi Passport:
The
external affairs ministry has refused to answer an RTI application
containing seven questions about scandaltainted former IPL boss Lalit
Modi’s passport.

The first three questions included why External
Affairs Minister Sushma Swaraj did not advise Modi to apply for a
temporary travel document to the Indian High Commission in London; why
the minister did not insist on Modi’s return to India as a condition;
and who decided not to file an appeal in the Supreme Court against Delhi
High Court’s ruling setting aside cancellation of Modi’s passport and
whether the Enforcement Directorate (ED) at whose instance the passport
was cancelled, was consulted. Questions four to seven included a query
on whether the government has lodged any objections to UK for granting
residency permit to Modi; what steps the government has taken since the
issuance of fresh passport to him to enforce the ED summons; and the
government’s response to Modi’s “wild charge that his life will be in
danger if he returned to India.”

The RTI query, filed by one
Rayo from Haryana, was received by the ministry on 19th June when the
opposition was piling up pressure on Swaraj on the Lalitgate row. In its
26th June reply, the MEA said questions one to three do “not seem to
fall under the purview” of the RTI Act. About queries four to seven, the
ministry said that “no information is available with EAM’s office.”

The
External Affairs Ministry (EAM), however, said the application has been
“transferred” to its consular, passport and visa division as well as to
the finance and home ministries.

The EAM’s action drew stinging
criticism from the opposition, with the Congress calling it against the
“spirit” of RTI Act and the CPI (M) alleging the transparency law has
been “sabotaged” by the Modi government. “This is against the spirit of
the RTI ACT,” said senior Congress leader P. C. Chacko.

“In
fact, any private information need not be disclosed but there is a case
which is affecting even the security of the country also and person is
fugitive, who is an absconder, against whom there is an inquiry going
on…and when information is sought on that, it simply cannot be treated
as a private matter,” Chacko added.

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Part B RTI Act, 2005

Appeals against SIC orders:
The State Information Commission’s order has been upheld only in one out of the 84 appeals filed in the last decade by agencies whose documents were sought to be made public.

A query under the Right to Information (RTI ) Act has revealed that of the 84 appeals filed in the Bombay High Court and the Supreme Court between 2006 and so far in 2015, the SIC order was upheld only in one case.

RTI Activist Galgali had made the plea to find out what happens to orders once passed by the information chief for disclosure of documents. “Appeals against replies filed by the SIC have resulted in low success rate for the Commission in the last 10 years,” Galgali told ToI. Most matters went to the HC, while three are pending in the Supreme Court.

The agencies, which approached the Courts against SIC’s orders included the state home department, Mumbai University, Reliance Energy, BMC, and police department, said the activist.

Galgali had filed an RTI query with the Maharashtra State Information Commission seeking information about the cases in which agencies had gone to Court against orders seeking disclosure of documents or information. The SIC refused the information on the grounds that there was no such data available with it. The shocking reply prompted Galgali to file an appeal under RTI. Following his appeal, the SIC informed him that between 2006 and 2015, 84 cases went to Court and the SIC’s order was upheld only in one case. The other 83 either had the SIC order overturned or the matters are still pending.

Galgali said his query also revealed that in many cases, the SIC appeared not to take “much interest” in the court cases. So, the SIC’s orders were not properly defended.

Inspection of documents:
In a progressive move, Municipal Commissioner Ajoy Mehta has issued a circular on the implementation of the Right to Information Act that aims at reducing red tape in the civic body.

The circular points out that citizens applying for information under the RTI Act are often summoned by civic officials to inspect documents, even when they have not asked for an inspection or when the information they have asked for is not voluminous. The circular has discouraged the practice, and has asked public information officers (PIOs) to supply copies of documents after counting the number of pages requested and charging the applicant per page.

“In cases where the applicant has applied for inspection of the documents or the information he has requested is voluminous, an index of all the documents should be prepared before he is called for an inspection. Each page in the file must be numbered. Three dates & timings should be intimated to the applicant before he is called. If these dates are not convenient to the applicant, he should be asked to get in touch with the PIO” says the circular.

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Part A Decision of High Court

Supreme Court on disclosure of medical expenses of Judges
The Supreme Court has dismissed the CIC-verdict allowing disclosure of medical-expenses of individual judges. Significantly, it was specifically mentioned in the referred RTI petition that only consolidated annual amount of total medical expenses of an individual judge was required without any supporting documents like medical-bills which directly or indirectly could reveal the disease of the concerned judge. The Supreme Court verdict will have far-reaching consequence when other public authorities will also cite the Supreme Court verdict for not providing similar information about others.

It is noteworthy that an RTI response had revealed medical allowance claimed by a member of fourth Delhi Legislative Assembly Vipin Sharma till October 2013 was of Rs. 1,31,93,055. There are reports of large-scale misuse of medical-reimbursement by those entitled to claim from public-exchequers. In a country where commoners do not have even basic medical facilities, rules should be amended so that entitled ones may get free medical-facilities only in government hospitals and dispensaries may be at priority level. Another alternative can be government providing free medical facilities to entitled ones if they wish treatment at private institutions. It will prevent frauds in medical claims because insurance companies pass medical claims.

In the meanwhile, it is suggested that Union Government should immediately legislate for compulsorily putting all annual medical-reimbursements of individuals from public-exchequers on website. However, it may be made clear that only medical expenses may be in public domain without giving any right to citizens to ask for supporting documents of any kind. Earlier resistance was there even in disclosing travel-details as ‘personal’ details. But ultimately it had to be done through a circular from the Department of Personnel & Training (DoPT).

Note: The Supreme Court recently underscored the need to bring accountability and transparency in the functioning of political parties. The Supreme Court sought a response from the Centre and Election Commission on why they should not be brought within the ambit of Right to Information Act. A bench of Chief Justice H. L. Dattu and Justices Arun Mishra and Amitava Roy also issued notice to all six national parties – BJP, Congress, BSP, CPI, CPM and NCP – seeking their stand on why they should not be declared public authorities to be amenable to the transparency law. It granted them six weeks to file their replies.

However, when it comes to itself, the Supreme Court ruled that it is outside purview of RTI and exempted from providing information.

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From Published Accounts

Section A: Reporting on Consolidated Financial Statements (CFS) as per Companies Act, 2013

Compilers’ Note:
Section 143 of the Companies Act, 2013 lays down the reporting requirements by the Statutory Auditor. The said reporting requirements (including those for reporting under CARO, 2015) also apply to audit reports on CFS since preparation of CFS (barring a few exemptions for 2014-15) is mandated by the Companies Act, 2013.

The ICAI has vide Announcement dated 1st May 2015 given guidance on preparation of audit reports on CFS and has also inserted illustrative reports on CFS to SA 700 and SA 705.

Inspite of the above guidance, auditors have been faced with several challenges in reporting on CFS since they have to mainly depend on the information available in the reports issued by the Component Auditors. The challenges also increase since there could be subsidiaries and associates outside India whose auditors follow the reporting requirements of the respective jurisdictions.

Given below are some illustrations on different reporting on “Other legal and regulatory requirements’ in the audit report on CFS for the year ended 31st March 2015.

Housing Development Finance Corporation Ltd .
As required by section 143(3) of the Act, we report, to the extent applicable, that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated financial statements;

b) In our opinion, proper books of account as required by law relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and the reports of the other auditors;

d) not reproduced …

Bajaj Auto Ltd .

As required by section 143(3) of the Act, we report to the extent applicable, that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated financial statements;

(b) In our opinion, proper books of account as required by law maintained by the Holding Company, including relevant records relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and records of the Holding Company. The two subsidiaries and one associate of subsidiary company of the Holding Company are incorporated outside India hence requirement of section 143(3) is not applicable to them;

(c) The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss and the Consolidated Cash Flow Statement dealt with by this report are in agreement with the relevant books of account maintained by the Holding Company including relevant records relating to preparation of consolidated financial statements. The 2 subsidiaries and 1 associate of subsidiary company of the Holding Company are incorporated outside India hence requirement of section 143(3) is not applicable to them;

(d) not reproduced …

Tata Global Beverages Ltd .
As required by section 143(3) of the Act, we report, to the extent applicable, that:

b) In our opinion, proper books of account as required by law maintained by the Holding Company, its subsidiaries included in the Group, associate companies and jointly controlled entities incorporated in India including relevant records relating to preparation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books and records of the Holding Company and the reports of the other auditors;

c) The Consolidated Balance Sheet, the Consolidated Statement of Profit and Loss, and the Consolidated Cash Flow Statement dealt with by this Report are in agreement with the relevant books of account maintained by the Holding Company, its subsidiaries included in the Group, associate companies and jointly controlled entities incorporated in India including relevant records relating to the preparation of the consolidated financial statements;

d) Not reproduced …

YES Bank Ltd .
As required by section 143 (3) of the Act, we report that:

(a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit;

(b) In our opinion, the aforesaid consolidated financial statements comply with the Accounting Standards specified u/s. 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014.

ICICI Bank Ltd .
As required by section 143 (3) of the Act, based on our audit and on the consideration of report of the other auditors on separate financial statements as also the other financial information of certain subsidiaries and an associate, consideration of work of the joint auditor of a subsidiary and on consideration of unaudited financial statements of certain associates as furnished by the management as noted in the ‘other matter’ paragraph, we report that:

a) All the information and explanations which to the best of our knowledge and belief were necessary for the purpose of audit have been sought and obtained;

b) In our opinion, proper books of account as required by law have been kept by the various constituents of the Group so far as it appears from the examination of those books;

c) The Consolidated Balance Sheet, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d) Not reproduced…

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Direct Taxes

Cost Inflation Index for Financial year 2015-15 notified as 1081 – Notification No. 60/2015 dated 24th July 2015

Business relationship with auditor clarified under Section 288 of the Act – Notification No. 50 dated 24th June 2015 – Income tax (Ninth Amendment) Rules, 2015

Definition of Accountant is provided in section 288 of the Act,. Rule 51A is inserted , which prescribes the nature of “Business Relationship” for the purposes of sub-clause (viii) of Explanation to section 288(2), which section deals with persons who can act as the Authorised representative of an assessee

i) Sub-clause (viii) provides that a Chartered accountant, holding a valid certificate of practice, may appear as an “authorised representative” before any income tax authority or appellate Tribunal , provided he is not “a person who has business relationship with the assessee of such nature as may be prescribed”.
ii) CBDT now provides that the term “business relationship” shall be construed as any transaction entered into for a commercial purpose.
iii) However, it has excluded commercial transactions in the nature of professional services permitted to be rendered by an auditor, from the ambit of “business relationship”.
iv) Further, it has also excluded commercial transactions entered in the ordinary course of company’s business at arm’s length price, like sale of products or services to the auditor, as customer, by companies engaged in the business of telecommunications, airlines, hospitals and such other similar businesses.

Following Circulars and notifications have been issued in respect of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 and Rules thereunder

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (Removal of Difficulties) Order, 2015- [Notification No. 56 dated 1st July 2015]

Dates for disclosure of Black Money (Undisclosed Foreign Income and Assets)and Imposition of Tax Act, 2015 (22 of 2015) – [Notification No. 57 dated 1st July 2015]

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 [Notification No. 58 dated 2nd July 2015]

Explanatory notes on provisions relating to tax compliance for undisclosed foreign income and assets as provided in chapter vi of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 [Circular No.12 dated 2nd July 2015]

Clarifications on Tax Compliance for Undisclosed Foreign Income and Assets [Circular No.13 dated 6th July 2015]

Eligible Institutions with upper limits for issue of tax free secured redeemable non-convertible bonds during the financial year 2015-16 and conditions prescribed – Notification No. 59/2015 dated 6th July 2015

Due date of filing ITR V for AY 2013-14 and AY 2014-15 for returns filed electronically extended till 31st October 2015 or 120 days from filing the return whichever is later.

Procedure laid down for generating and using the Electronic Verification Code for returns to be E-filed verifying the assessee filing the return of income- Notification no. 2/2015 dated 13th July 2015

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Cancerous Corruption

“BJP defending communalism with nationalism.
Congress defending corruption with secularism. India living with
corruption as nationalism.”
– Ranvir Shorey.
Actor

Anti-Corruption Bureau of Maharashtra:
•
The Anti-Corruption Bureau (ACB) plans to set up regional and zonal
offices across the city and state, following its success in trapping
many bribe-seeking government officials recently. Its office is in a
remote place at Pochkhanawala Road in Worli, and is not easily
accessible. The registration of complaints online has not helped much.
The ACB sources said the home department is likely to approve the plan
soon. If all goes according to plan, the ACB, like the Mumbai police
commissionerate, in the initial stages will be able to set up at least
four regional offices in the South, Central, North-West and North-East
Mumbai.

• The Anti-Corruption Bureau (ACB) on 17th July launched
four mobile vans that will transverse the city and encourage citizens to
register corruption cases on the spot. Home minister R. R. Patil
flagged off these vehicles at the ACB’s Worli office.

The vans,
each manned by four cops, will be deployed in four regions of the city.
The south region van carrying banners with anti-corruption slogans shall
move in the areas of Mantralaya, the Bombay High Court, the old custom
house, sessions and other metropolitan courts, Public Works Department,
BMC, state and city police headquarters etc.

Director-General of
Police (ACB) Praveen Dixit said, “Our motto is to reach out to more
people who are compelled to pay bribes. Generally, people avoid
approaching us, but if we are at their doorstep we feel it would make a
lot of difference.” Additional CP, Vishwas Nangre-Patil said that on the
first day there was a good response from the public.

• A deputy
collector, a public works executive engineer, a senior police
inspector, and a principal of a leading college were among the 508
public servants trapped by the Anti-Corruption Bureau (ACB) in 375 graft
cases in the first four months of 2014. Significantly, in the entire
last year; the ACB had arrested 281 erring officials in 216 cases.
According to ACB records, the highest number of erring officials caught
this year was from the State Home Department (87), followed by Revenue
Department (79), Municipal Corporations (25), State Electricity
Distribution Company (16) and land records (11). More shocking was the
fact that a few senior police inspectors were caught taking bribes in
the police station itself. Admitting that the data was worrying, Mumbai
Police Commissioner, Rakesh Maria said he was determined to end the
menace. “I had a meeting with all deputy, additional and joint police
commissioners, and have drafted a comprehensive action plan to take on
the erring officials. The results will be visible in a time-bound
period,” he said. “We have prepared a list of the erring officers. We
will counsel them and take action against them. But if there is no
improvement, we ourselves will submit the list to the ACB for further
action.”

• In the above connection, it is interesting to note
what Mr. Julio Rebeiro, Chairman of Public Concern for Governance Trust
wrote in July to Mr. Pravin Dixit. Same is reproduced hereunder:

•
Graft Busters: Anti-Corruption Bureau (ACB) directorgeneral Pravin
Dixit has analysed every case registered by them under the Prevention of
Corruption Act. Significantly, his report on department-wise analysis
and the bribe details has been uploaded on the ACB’s website. Dixit
analysed the data of 36 departments and found that even for a minor
task, a bribe of Rs. 3 lakh is sought. In the civic body, one does not
get an NOC without paying off clerical staff, even for an early hearing
before the minister of state for revenue one has to shell out a bribe.
There was scope for graft in deletion or addition of names in the ration
card. The bribe amount was small, but alterations were not made without
greasing the staffer’s palm. From Dixit’s investigation, it has been
established beyond doubt that without coughing up money, even routine
work was not possible for a common man. According to the graft
investigator, in the departments of home, revenue, public health, public
works, law and judiciary, finance, urban development, energy, transport
or education, kickbacks were the norm. Dixit has done his job, if
bureaucrats study the report and amend the existing procedure for
obtaining routine certificates, it will be a huge relief for the aam
aadmi.

“Our intern, Rafael Pereira has helped to devise a
complaint in a Whatsapp format to facilitate anybody with a mobile
internet connection to make a complaint to the ACB whenever one comes
across an instance of corruption. The web based application may also
prove to be an attraction for the youth who are mostly electronic-savvy
and make them involved in the anti-corruption campaign.

We, at
the Public Concern for Governance Trust (PCGT), are ready to bear the
cost of the server and in collaboration with The Bombay Coding Company,
will be able to produce the application free of cost to ACB, in public
interest.

Hope we can start work on this application right away with your final nod.”

Transparency International
Corruption Perceptions Index 2013: Corruption remains a global threat:

• The Corruption Perceptions Index, 2013 serves as a reminder that the abuse of power, secret dealings and bribery continue to ravage societies around the world.

The
Index scores 177 countries and territories on a scale from 0 (highly
corrupt) to 100 (very clean). No country has a perfect score, and
two-thirds of countries score below 50. This indicates a serious,
worldwide corruption problem.

The world urgently needs a renewed
effort to crack down on money laundering, clean up political finance,
pursue the return of stolen assets and build more transparent public
institutions.

“It is time to stop those who get away with acts of
corruption. The legal loopholes and lack of political will in
government facilitate both domestic and cross-border corruption, and
call for our intensified efforts to combat the impunity of the corrupt.”

– Huguette Labelle, Chair, Transparency International

• Hereunder 10 countries with highest score:

Corruption and Media:
Research has shown that free and vibrant media is associated with lower corruption and a better response from governments.

Rudiger
Ahrend of the London School of Economics investigated connections
between corruption, human capital and press freedom in 30 countries. He
convincingly shows that lower level of press freedom is associated with
higher level of corruption throughout the world. The interesting part of
the finding was that mere increase in educational levels does not lead
to reduction in corruption. Corruption falls only in cases where higher
levels of education among the electorate are accompanied by increase in
freedom of press. In fact, a standalone increase in education sometimes
leads to increased corruption as the educated elite collude with
nefarious elements in society.

The above conclusions are not based on mere existence of negative correlations between freedom of press and corruption. Careful academic studies control for the influence of other factors that can influence both variables under study. For example, it is possible that some countries are less corrupt because of cultural reasons. It is possible that such countries also have a free press. Thus the driving force behind lesser corruption may be the dominant culture.

To control for such influences researchers use country fixed effects, which take care of all time invariant factors that are common to a country. it is possible that corruption gets reduced only during a year or so due to some event, such as the Anna Hazare movement. Such influences are taken care of by using time invariant effects. researchers also control for the impact of time varying factors such as economic growth, openness to trade, etc. After controlling for the influence of all these factors, they robustly estimate that increased press freedom is associated with lower levels of corruption.

Corruption Charge Against The Judge of The Bombay high court:
In a first of its kind courtroom drama, a defendant leveled allegations of corruption against a Bombay high Court judge, and asked her to recuse herself from the matter. The incident occurred during the hearing of the case between the Kuwaiti Royal family and film producer Sanjay Punamiya, pertaining to ownership of a Marine Drive flat. Punamiya’s advocate told the court that he was allegedly promised a favorable order if he coughed up rs. 25 lakh, and that he has filed a complaint against the judge with Chief justice of HC, CBI, among others and hence she should not hear the case.

Justice Roshan Dalvi, who was hearing the case, however, refused to relent and said that she will continue hearing the case. she asked for a copy of the complaint that Punamiya’s lawyers OD Kakade and Nilesh Ojha had filed against her. She then went through the nine-page complaint, while counsels representing faisal essa, former Kuwaiti consul- general and caretaker of the property waited.

The complaint alleged that Punamiya met justice dalvi’s husband shamim dalvi in march through another lawyer, and alleged that he was promised a favorable order in the case to be heard by justice dalvi if paid the amount. the meeting allegedly took place on 19th april in shamim dal- vi’s office at Yusuf Building in Fort. “Shamim Dalvi told the applicant (Punamiya) that he will have to pay an amount to get a favourable order.”

It is now reported:
Film producer sanjay Punamiya, who is facing contempt proceedings after he accused the Bombay high Court justice roshan dalvi of corruption, has once again tendered an unconditional apology to the judge, and has also submitted an assurance that he will not make such allegations against the high Court judges.

Placing the contempt proceedings before Chief justice mohit shah, justice dalvi noted that apologies tendered by Punamiya and his lawyers were “unacceptable,” that the affidavit filed by them shows “aggravated contempt.” She also noted that Punamiya and his lawyer had made “false unsubstantiated, scandalous and contemptuous allegations about the court’s integrity.”

Punamiya, now represented by senior counsel Pradeep sancheti, told a high Court division bench of Chief justice Mohit Shah and justice M. S. Sonak that he wanted to submit an affidavit withdrawing the allegations.

The bench drew the attention of sancheti to the provisions of section 13(b) of the Contempt of Courts act, 1971, which provides that in any contempt proceeding, truth would be a valid defence if the court is satisfied that the allegations were true and in public interest.

Chief justice shah and justice sonak noted: “the appellant (Punamiya) wants to unconditionally withdrew the allegations set out in his letter/representation dated 5th may, 2014 and that he wishes to tender unconditional apology to this court with an assurance that he would not indulge in making such allegations against this court or any of the judges of this court.”

[All the above stories and information have been excerpt- ed from various press reports.]

BCAJ Admin

ICAI and its members

1. Some Ethical Issues
The Ethical Standards Board of ICAI has given answers to some Ethical Issues on pages Page 37 – 38 of C. A. Journal for July, 2014. Some of these issues are as under:

(i) Issue:
Whether a firm can obtain an assurance engagement at a significantly lower fee level than that charged by the predecessor firm or quoted by other firms?

When a firm obtains an assurance engagement at a significantly lower fee level than that charged by the predecessor firm, or quoted by other firms, the threat created will not be reduced to an acceptable level unless;

(a) The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task; and
(b) A ll applicable assurance standards, guidelines and quality control procedures are being complied with.

(ii) Issue:
When does the situation for Potential Conflict arise?

When the responsibilities to an employing organisation and the professional obligations to comply with the fundamental principles are in conflict, the situation of potential conflict arises for the Professional Accountant in service.

(iii) Issue:
What is the distinction between the two schedules to the Chartered Accountants Act, 1949?

The two schedules are distinguished on the basis of gravity of misconduct and quantum of punishment for the misconduct, the second schedule pertains to a comparably graver misconduct and higher punishment.

(iv) Issue:
Can a member in practice render Management Consultancy and other services?

Yes, however, the areas covered under the Management Consultancy and other services have been summarised by the Council, appearing in the Code of Ethics, 2009 Edition.

(v) Issue:
Whether a member in practice is permitted to undertake the management of NRI funds?

No, a member is not permitted to undertake such assignment because the same is not covered under “Management Consultancy and Other Services” permitted to be rendered by the practicing members of the Institute.

(vi) Issue
Can a Chartered Accountant provide “Portfolio Management Services’ (PMS) as part of CA practice?

No, the Explanation to Clause (xix) of the definition of ‘Management Consultancy and other Services’ expressly bars the activities of broking, underwriting and Portfolio Management.

2. EAC Opinion
Accounting Treatment of Dividend Declared by Mutual Fund in Debt Fund Scheme under Dividend Re-Investment Plan.

Facts
A company (hereinafter referred to as ‘the company’) is a Maharatna Central PSU engaged in mining of coal having touched a production of 452 million tones during the 2012- 13 fiscal year. The company is a direct holding company of nine subsidiaries out of which eight are registered in India and the ninth one is registered in Mozambique.Two of its direct subsidiaries have further three and two sub-subsidiaries, respectively. Further, there are few joint ventures and associate companies which also form part of group accounts. The consolidated turnover of the company for the year 2012-13 was Rs. 88,281 crore with profit before tax of Rs. 24,979 crore. The main object of the company is to produce or otherwise engage generally in the production, sale and disposal of coal and its by products.

The company has stated that the company and its subsidiaries have surplus funds which are invested in bank Fixed Deposits (F.Ds) as well as in mutual funds (debt fund scheme). While the bank Fixed Deposits are shown under the Note ‘cash & bank balances,’ the investment in mutual fund is shown under the Note ‘current investments’ in the balance sheet. The term of the mutual fund is dividend re-investment plan which signifies that the dividend accruing on daily basis of Net Assets Value (NAV) of the scheme as on the date of declaration of dividend, results into increase in the number of total units held by the company.

Query:
In the above background, the company has sought the opinion of the EAC as to whether the dividend declared on a daily basis and credited in the form of additional units in the mutual fund account under debt fund dividend reinvestment plan should be recognised as revenue income as on the date of balance sheet in the final accounts of the company even if the same has not been redeemed/ encashed. If yes, the value at which such recognition is to be made? Or the present conservative practice of the company of not recognising the dividend declared and re-invested in the mutual fund–dividend re–investment plan on the balance sheet date due to non-encashment of such additional units be continued?

Opinion:
In view of the requirements of paragraph 13 of AS 9, the Committee notes that dividend income should be recognised at the time when the unit holder’s right to receive the payment thereof is established. The Committee is of the view that the right to receive is established when dividend is declared. In the extant case, the Committee notes from the Facts of the Case that dividend is declared on a daily basis and credited to the account of the company, which is represented by units determined on the basis of NAV per unit under initial investment of the units. This is reflected in the mutual fund account statement of the company. The Committee also notes from the Dividend Policy under one of the Schemes in the Key Information Memorandum, which is provided by the querist for the perusal of the Committee, that such reinvestment option was available in respect of a liquid fund wherein payout option on a periodic basis was also available. Thus, dividend was realisable both in cash or in kind, i.e., in the form of units of the fund as per the option exercised by the investor. The Committee is further of the view that nature of dividend would not change due to opting for reinvestment of dividend. Change in the value of reinvested units as a function of market price is a separate risk from the risk of investor’s right to receive the dividend. Accordingly, the Committee is of the view that the present practice of the company to defer the dividend declared and re-invested in the mutual fund scheme till the actual redemption of units and realisation of cash is not correct, rather it should be recognized as and when right to receive the dividend is established.

As regards the value at which dividend and investment should be recognised, the Committee is of the view that revenue from dividend should be recognised at the value of dividend received. Similarly, investments should be recognised at the issue price on the date of acquisition of each unit of mutual fund. With regard to any decline in the value of investments occurring subsequently due to market risks involved in mutual fund, viz., fluctuations in the NAV vis-à-vis interest rates etc., the Committee is also of the view that since current investments are carried at lower of cost and fair value, such decline/impairment in value of investment would be recognised while valuing the investments at the reporting date.

(Pl. Refer page nos. 65 to 67 of the C. A. Journal – July,2014)

3. I CAI News i) The following Campus Placement Programme for newly qualified C.As. has been organised by the ICAI during the months of August and September, 2014 (P. 119)

ii) Instructions to Members (P. 124) (a) A ppointment of Auditor of Government/Deemed Government Company:

As per relevant provisions of section 139 of the Companies act, 2013, the auditors of a government/ deemed government Company are to be appointed by the Comptroller and auditor general of india, therefore it is instructed that members should not take up the statutory audit of any government/deemed government Company without getting the appointment letter issued by the O/o C & AG.

(b) The hon’ble President of india addressed the iCai international Conference held in Kolkata in november, 2013. the gist of his address: (P.117)

In present times, we live in a world which offers a vista of opportunities for those who can handle the accompanying serious challenges. The subprime crisis and Eurozone crisis had adversely impacted the global economy including the BRICS nations. The same have reinforced of role of accounting professionals in discharging their responsibility to create public trust. Ethical standards would result in fruitful communication to stakeholders. a highly robust framework was required in the accounting/auditing/financial reporting, Psu accounting and accounting innovation. The ICAI has a big role to play in furthering india’s economic growth by providing inputs to the government in various fields as well as effective implementation of schemes such as mgrega.

BCAJ Admin

Company Law

Full version of the Circular/Notification can be accessed at http://www.mca.gov.in

1. Clarification on Rules relating to Appointment and Qualification of Independent Directors.

The Ministry of Corporate Affairs vide General Circular No 14/2014 dated 9th June, 2014 has issued Clarifications regarding –
a)
Pecuniary relationship of Independent Directors – in view of the
provisions of section 188 of Companies Act, 2013 (“the Act”),
transactions in the ordinary course of business at arm’s length price
are not to be considered under pecuniary relationship.
b) R eceipt
of remuneration by Independent Director – clarified after consultation
with SEBI that ‘pecuniary relationship’ u/s. 149(6)(c ) of the Act, does
not include receipt of remuneration from one or more companies, by way
of fee provided u/s. 197 (5) of the Act for reimbursement of expenses
for participation in the Board and other meetings and profit related
commission approved by the members.
c) It is clarified that any
tenure of an Independent Directors on the date of commencement of the
Act shall not be counted for his appointment/holding of office of
Director under the Act. In view of the transitional period of one year
it is necessary that if it is intended to appoint Independent Directors
under the new Act, it must expressly be made u/s. 149(10)/(11) read with
Schedule IV of the Act, within one year from 01-04-2014.
d) A
ppointment of Independent Director for less than five years: The
appointment of an Independent Director is for a term ‘upto five years’
and hence for shorter periods is permissible. However, terms of lesser
periods would be treated as ‘term’ and an independent Director cannot be
appointed for more than ‘two consecutive terms.’
e) A ppointments of Existing Independent Directors would also need to be formalised by a letter of appointment.

2. Clarification regarding Register of Loans/Guarantee/ Security/making acquisition in the new format u/s. 186(9).

With
regard to the Register of Loans/Guarantee/Security/ making acquisition
to be maintained u/s. 186(9), read with Rule 12 of the Companies
(Meeting of Board and its Powers), the Ministry of Corporate Affairs
vide General Circular No. 15/2014 dated 9th June, 2014 has clarified
that the register maintained u/s. 372A of the Companies Act, 1956 would
remain and the new format would be applicable w.e.f 01-04-2014.

3. Clarification regarding PAN of Foreign Nationals.

The
Ministry of Corporate Affairs vide General Circular dated 10th June,
2014 No 16/2014, has further to the Circular No. 12/2014, clarified that
the circular for the Pan No. of Foreign Nationals was applicable to
subscriber/ promoter at the time of incorporation of the Company. In
absence of PAN, he shall furnish an undertakingin the prescribed format
attached to the circular, as an attachment to Form INC7.

4. Clarification regarding Filing of Form MGT-10.

The
Ministry of Corporate Affairs has vide General Circular No. 17/2014
dated 11th June, 2014 has informed stakeholders to fill Form MGT 10
physically, signed/certified by a professional and file it alongwith
required attachments in GNL-2 as a temporary arrangement till the Form
MGT-10 is made available.

5. Clarification for Filing of Form
INC-27 – for Conversion of Company from public to Private under the
provisions of Companies Act, 2013.

The Ministry of Corporate
Affairs vide General Circular No. 18/2014 dated 11th June, 2014, has
clarified that since section 14 (1) and 14(2) of Companies Act, 2013
have not been notified, the relevant section 31(2A) shall remain in
force and the delegated powers shall continue to remain with the ROC’s.
Thus applications have to be filed and disposed as per the earlier
provisions.

6. Clarification regarding matters relating to Share capital and debentures under Companies Act, 2013.

The Ministry of Corporate Affairs vide General Circular No. 19/2014 dated 12th June, 2014 has clarified that:

a)
S hare transfer forms executed before 01-04-2014 – Form SH-4 is now to
be used as the new share Transfer Form w.e.f 01-04-2014 in place of
earlier 7B. It is clarified that where Form 7B is submitted to the
company within the period prescribed, it has to accept the registration
of transfers. In case of delay, the Company can decide to not accept the
transfer form and convey reasons for the nonacceptance as per
provisions of section 56(4) of the Act.
b) D elegation of powers by
Board under Rule 6(2)(a) – The Ministry has clarified that as per
section 179 and 180 and Regulation 71 of Table F of Schedule 1, for the
issue of duplicate share certificates can be delegated to a Committee of
Directors subject to regulations imposed by the Board.

7. Clarification with regard to voting through electronic means.

The
Ministry of Corporate Affairs vide General Circular No. 20/2014 dated
17th June, 2014 has decided not to treat the relevant provisions of
section 108 of Companies Act, 2013 read with Rule 20 of Companies
(Management and Administration) Rules 2014 dealing with the exercise of
vote by members by electronic means as not mandatory till 31st December,
20I4 as compliance with procedural requirements, engagement of
Depository Agencies and the need for clarity on matter like demand for
poll/ postal ballot etc., will take some more time. The e-voting
procedure, clarifications on issues by stakeholders are provided in the
Annexure to the Circular.

8. Clarifications with regard to provisions of Corporate Social Responsibility u/s. 135 of the Companies Act, 2013.

The
Ministry of Corporate Affairs, vide Circular No. 21/2014, dated 18th
June. 2014, issued clarifications with regard to provisions of Corporate
Social Responsibility u/s. 135 of the Companies Act, 2013. The
following is clarified for CSR:

i. T he statutory provision and
provisions of CSR Rules, 2014, is to ensure that while activities
undertaken in pursuance of the CSR policy must be relatable to Schedule
VII of the Companies Act 2013, the entries in the said Schedule VII must
be interpreted liberally so as to capture the essence of the subjects
enumerated in the said Schedule. The items enlisted in the amended
Schedule VII of the Act, are broad-based and are intended to cover a
wide range of activities as illustratively mentioned in the Annexure.

ii.
It is further clarified that CSR activities should be undertaken by the
companies in project/programme mode [as referred in Rule 4 (1) of
Companies CSR Rules, 2014]. One-off events such as
marathons/awards/charitable contribution/advertisement/ sponsorships of
TV programmes etc., would not be qualified as part of CSR expenditure.

iii.
Expenses incurred by companies for the fulfillment of any Act/Statute
of regulations (such as Labour Laws, Land Acquisition Act etc.) would
not count as CSR expenditure under the Companies Act.

iv. S
alaries paid by the companies to regular CSR staff as well as to
volunteers of thecompanies (in proportion to company’s time/hours spent
specifically on CSR) can be factored into CSR project cost as part of
the CSR expenditure.

v. “Any financial year” referred under s/s.
(1) of section 135 of the Act read with Rule 3(2) of Companies CSR
Rule, 2014, implies ‘any of the three preceding financial years.’

vi.
E xpenditure incurred by Foreign Holding Company for CSR activities in
India will qualify as CSR spend of the Indian subsidiary if, the CSR
expenditures are routed through Indian subsidiaries and if the Indian
subsidiary is required to do so as per section 135 of the Act.

viii. Contribution to Corpus of a trust/society/section 8 companies etc., will qualify as Csr expenditure as long as (a) the trust/ society/section 8 companies etc., is created exclusively for undertaking Csr activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in schedule Vii of the act.

9. Notification for Companies (Acceptance of deposits) Amendment Rules, 2014.

The ministry of Corporate affairs has on 6th june, 2014 has amended the Companies (acceptance of deposits) rules 2014, by insertion of proviso to rule 5(5) namely “Provided that the Companies may accept deposits without deposit insurance contract till 31st march, 2015.”

10. Notification of section 74(3) and 74(2) relating to repayment of deposits etc., accepted before commencement of the Act

The ministry of Corporate affairs has vide Notification dated 6th June, 2014 notified that the provisions relating to s/s. 2 and 3 of section 74 of Companies act, 2013 are in force from 6th june, 2014.

11. Amendment to Companies (Meetings and Powers of board) Rules, 2014.

The ministry of Corporate affairs has vide Notification dated 12th june. 2014 amended the Companies (meetings and Powers of Board) rules, 2014, by inserting rule 6 after explanation as follows:

“Provided that public companies covered under this rule which were not required to constitute audit Committee u/s. 292a of the Companies act, 1956 (1 of 1956) shall constitute their audit Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier:

Provided further that, public companies covered under this rule shall constitute, their nomination and remuneration Committee within one year from the commencement of these rules or appointment of independent directors by them, whichever is earlier.”

12. Amendment to Companies (declaration and Payment of dividend) Rules, 2014.

The ministry of Corporate affairs has vide Notification dated 12th june, 2014 amended the Companies (declaration and Payment of dividend) rules, 2014 to substitute rule 3(5) as follows:

“3(5) no Company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the Company of the current year.”

13. Clarification with regard to format of annual return applicable for Financial year 2013-14 and fees to be charged by companies for allowing inspection of records.

As per the provisions of section 92 of the act, 2013 it is required for very company to submit the annual return in format as given in form MGT-7 containing the particulars as they stood on the close of the financial year where- as as per section 159 of the Companies act, 1956, the annual return gave the position from the date of last annual general meeting till the date of current annual general meeting.

To clear the confusion, the Ministry has now clarified that the format of annual return under act, 2013 (form – MGT-7) shall not be applicable to the Companies whose financial year ended on or before 1st April, 2014, i.e., the Companies are to file the Annual Return as per the old format (schedule V) as per act, 1956 within 60 days from the date of agm in form 20B. Fees for inspection of records and other documents.

Companies have also sought clarity on fees for allowing free of cost inspection of records under rule 14(2) and rule 16 of the Companies (management and administration) Rules, 2014. The ministry has clarified that until the requisite fee is specified by companies, inspections could be allowed without levy of fee.

14. Clarification relating to incorporation of a Com- pany, i.e., Company incorporated outside india.

The ministry of Corporate affairs has vide Circular dated 25th june, 2014 informed that as per sections 2(68), 2(71) and 2(87) of the Companies act, 2013 there is no bar in the new act for a company incorporated outside india to incorporate a subsidiary either as a public company or a private company. an existing company, being a subsidiary of a company incorporated outside india, registered under the Companies act, 1956, either as private company or a public company by virtue of section 4(7) of that act, will continue as a private company or public company, as the case may be, without any change in the incorporation status of such company.

15. Clarification with regard to holding shares in a fiduciary capacity by associate Company u/s. 2(6) of Companies Act, 2013.

The ministry of Corporate affairs has vide Circular dated 25-06-2013, in continuation of the general Circular no. 20/2013 dated 27-12-2013 clarified that the shares held by a company in another company in ‘fiduciary capacity’ shall not be counted for the purpose of determining the relationship of ‘associate company’ u/s. 2(6) of the Companies act, 2013. u/s. 2(6) “associate company,” in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. Explanation — For the purposes of this clause, “significant influence” means control of at least 20% of total share capital, or of business decisions under an agreement.

16. Clarification on applicability of residency requirements for resident director.

As per section 149(3) of the Companies act, 2013 every company must have at least one director who has stayed in india for a total period of not less than 182 days in the previous calendar year. The Ministry has clarified vide Circular dated 26th june, 2014 that the ‘residency requirement’ would be reckoned from the date of commencement of section 149 of the act, i.e., 1st april, 2014. The first ‘previous calendar year’ for compliance with these provisions would, therefore, be calendar year 2014. The period to be taken into account for compliance with these provisions will be the remaining period of calendar year 2014 (i.e., 1st april to 31st december). Therefore, on a proportionate basis, the number of days for which the director(s) would need to be resident in india, during calendar year 2014, shall exceed 136 days.

Regarding newly incorporated companies it is clarified that companies incorporated between 01-04-2014 to 30-09-2014 should have a resident director either at the incorporation stage itself or within six months of their incorporation. Companies incorporated after 30-09-2014 needs to have the resident director from the date of incorporation itself.

17. Clarification with regard to use of the words’ Commodity Exchange” in the Company registration.

The ministry of Corporate affairs vide Circular dated 27th June, 2014, has clarified that the words Commodity Exchange’ in the name of the Company can only be allowed when a “No Objection Certificate” from the Forward Markets Commission (fmC) is furnished by the applicant. Also clarified that the NOC would also be required in cases of Companies registered with the words ‘Commodity exchange’ before the issue of this circular.

18. Extension for filing of Form DPT 4 under Companies Act, 2013.

The ministry of Corporate affairs has granted extension of time for the period of two months, i.e., upto 31-08-2014 for filing of the Statement regarding deposits existing on the date of commencement of the Companies act, 2013 in form dPt 4 as per provisions 74(1) (a) under the act and Companies (acceptance of deposits) rules, 2014.

19. Clarification on Form MGT 14 through STP mode.

The ministry of Corporate affairs vide Circular dated 9th july, 2014 has tried to simplify procedures for timely disposal of e-forms by taking the form MGT-14 on record using the straight through Process mode in all cases except in cases of change of name, objects clause, resolution for further issue of capital and conversion of companies.

20. Registration of Names of Companies must be in Consonance with the Provisions of the Emblems and Names (Prevention of improper Use) Act, 1950.

The ministry of Corporate affairs vide circular dated 11th july, 2014, has directed ROC’s that when allotting names to Companies/LLP’s they must ensure that names of Companies must be in consonance with the Provisions of the emblems and names (Prevention of improper use) act 1950.

21. Clarification on matters relating to related party.

The ministry of Corporate affairs has vide Circular dated 17th July, 2014 clarified the following in relation to related parties:

i. For the second proviso of section 188(1), related party that cannot vote refers to the related party with reference only to the contract or arrangement for which the special resolution is being passed.

ii. U/s. 188 – it is clarified that the requirements of section 188 will not be attracted for transactions arising out of Compromises, arrangements and amalgamations, dealt with under specific provisions of Companies act, 1956 or 2013.

iii. Contracts already entered into by the Company u/s. 297 of Companies act, 1956 before the commencement of section 188 of the Companies act, 2013, i.e., before 01-04-2014 will not require fresh approvals till the expiry of the original term unless any modification thereto is made.

22. Extension of Validity of reserved Names.

The ministry of Corporate affairs has vide Circular no. 31/2014 dated 19-07-2014 intimated with respect to extension of time for the validity of reserved names made in form inC-1 under the Companies act, 2013 for which the service provider of mCa-21 has brought to the notice of ministry that there are numerous cases in this respect which allows the applicants to use the name approved within 60 days but that is at variance with the implementation at MCA thereby causing inconvenience to the stakeholders. Out of these cases, 1930 cases were those whose time limit expired on or before 19-07-2014, therefore it has been decided to extend the timeline upto 18th august, 2014. Further, those cases in which the names have been reserved but they are yet to be issued, the time period as indicated in the letters of intimation is allowed.

23. Clarification on transitional period resolution passed under Companies Act, 1956.

The ministry has vide general Circular no. 32/2014 dated 23rd July, 2014 clarified that resolutions approved or passed by companies under relevant applicable provisions of the old act during the period from 1st september, 2013 to 31st march, 2014, can be implemented, in accordance with provisions of the old act, notwithstanding the repeal of the relevant provision subject to the conditions (a) that the implementation of the resolution actually commenced before 1st april, 2014 and (b) that this transitional arrangement will be available upto expiry of one year from the passing of the resolution or six months from the commencement of the corresponding provision in New Act whichever is later. It is also clarified that any amendment of the resolution must be in accordance with the relevant provision of the new act.

24.    Applicability of Second Proviso to section 203(1).

The Central government vide Notification dated 25th July, 2014, has notified that for the purposes of applicability of second proviso to section 203 (1) of Companies act 2013 pertaining to individuals not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing directoror Chief Executive Officer of the company at the same time.
The following Class of companies:
•    Public companies with paid up capital of Rs. 100 core or more; and
•    With annual turnover of Rs. 1,000 crore or more (both as per the latest audited Balance Sheet); and
•    engaged in multiple businesses; and
•    have appointed Chief Executive Officer for each business shall be exempt.

25. Cost Records and Cost Audit.

The ministry of Corporate affairs has on 2nd july issued notification relating to the Companies (Cost Records and Audit) rules, 2014 u/s. 148 of the Companies act, 2013. the new rules specify four classes of companies, i.e.:
i. Companies engaged in the production of specified goods in strategic sectors,

ii. Companies engaged in an industry regulated by a sectoral regulator or a ministry or department of Central government,

iii. Companies operating in areas involving public interest,

iv. Companies (including foreign companies other than those having only liaison offices) engaged in the production, import and supply or trading of fol- lowing medical devices….

Which shall be required to maintain cost records and who will be subject to cost audit. relevant e-forms would be made available on the MCA portal shortly.

26. Amendment to the Companies (Prospectus and Allotment of Securities) Rules, 2014.

the ministry of Corporate affairs has vide Notification dat- ed 30th june, 2014 amended the Companies (Prospec- tus and allotment of securities) rules, 2014 whereby in rule 14, in sub-rule (2), in Clause (a), after the second proviso, the following proviso shall be inserted, namely:—

“Provided also that in case of an offer or invitation for non-con- vertible debentures referred to in the second proviso, made within a period of six months from the date of commencement of these rules, the special resolution referred to in the second proviso may be passed within the said period of six months from the date of commencement of these rules.”

27. Amendment to the Companies (Miscellaneous) Rules, 2014.

The ministry of Corporate affairs vide Notification dated 17th july, 2014, has amended the Companies (miscellaneous) rules, 2014, by inserting

“11. applications or forms pending before Central gov- ernment, regional director or registrar of companies.- Any application or form filed with the Central Government or regional director or registrar (hereinafter referred to as `the authority’) prior to the commencement of these rules but not disposed of by such authority for want of any information or document shall, on its submission, to the satisfaction of the authority, be disposed of in accordance with the rules made under the Companies act, 1956 (1 of 1956).”

28. Companies (Specification of definitions details) Amendment Rules 2014.

the ministry of Corporate affairs has vide Notification dated 17th July, 2014 specified that in Rule 3 to the Companies (Specification of Definitions Detail) Rules, 2014 after the words ‘a director’ the words ‘other than an independent director’ shall be inserted.

30. Amendment to the Companies (Management and Administration) Rules, 2014

the ministry of Corporate affairs has vide Notification dated 24th july, 2014 has amended the Companies (management and administration) rules, 2014. in rule 9, after sub-rule (3), the following proviso shall be inserted, namely:-
“Provided that nothing contained in this rule shall ap- ply in relation to a trust which is created, to set up a mutual fund or Venture Capital fund or such other fund as may be approved by the securities and exchange Board of india.”

In rule 13,- (a) the words “either value or volume of the shares” shall be omitted;
(b) The explanation shall be omitted.

In rule 23, in sub-rule (1), for the words “not less than five lakh rupees,” the words “not more than five lakh ru- pees” shall be substituted;

In rule 27, in sub-rule (1) and in the explanation, for the word “shall,” the word “may” shall be substituted.

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Ethics and u

Shrikrishna (S) — Arey Arjun, we are meeting after a gap of four months. Where were you?

Arjun (A) — I was on a vacation. Now the war of audit and tax returns has started. So I resumed.

S — T hat may not be the only reason. You are looking quite disturbed.

A — Y es, very much. I am very unhappy with you.

S — O h! Why? What have I done?

A — A fter Mahabharata, you said you are introducing Kaliyug. That is the era of evil.

S — Y es. That was the plan of Brahma – the Creator. I am also bound by that.

A — But it is rather too much! Things are unbearable.

S — I t was bound to happen. It was predicted thousands of years ago.

A — Y es. But my friend is having such a nightmarish experience! I have lost my sleep. Henceforth, I will not trust anyone and will not help anyone! Not even close relatives.

S — But we had discussed the hazards of ‘good faith’ many times in the past. As a professional, one should have some skepticism.

A — T rue. But one of my CA friends had earlier helped his cousin out of the way. The cousin was like a vagabond, never settled in life.

S — Quite normal. Then?

A — O nce this cousin came to my friend and said he would start some big venture. He said some financier was willing to finance 90% of cost if he showed that he had 10% of his own.

S — T his is also normal. What next?

A — S o he requested my friend to give him a cheque of about 40 lakhs so that he could show it to the financer.

S — A nd your friend in good faith must have obliged him!

A — Y es! And now he is in deep trouble!

S — I can guess!

A — He wandered for four to five months from one financer to the other. And after five months, before the validity expired, he simply put it into his bank.

S — S o, your friend lost 40 lakh.

A — N o! What has happened is even worse than that!

S — O h! The cheque bounced?

A — Yes. And the cousin filed a suit under section 138 of Negotiable Instruments Act.

S — But he has to prove why the cheque was given.

A — H e fabricated a story that my friend had agreed to employ him on a salary of Rupees two lakh – per month; and he never paid for about two years! Now he paid it and the cheque bounced!

S — But, he has to prove it.

A — I n fact, my friend told the court that he was a low profile practitioner and would never even dream of employing any person on such a high salary! He had a CA working for him at about 40000 rupees whereas his cousin was not even qualified!

S — T hen wasn’t the Magistrate convinced?

A — That is the Kaliyug! It is difficult to prove a truth! S — I agree. It is difficult. But ultimately, truth alone will triumph.

A — That is alright. But for that, one has to sacrifice one’s life. He is convicted with six months’ imprisonment!

S — H as he not contested it?

A — H e has. But God alone knows when he will get justice. And on top of it, our Institute has initiated disciplinary proceedings against him!

S — Oh! Adding fuel to the fire! Poor fellow.

A — N ow we don’t know what view the Institute will take. While issuing the cheque, obviously there was no balance in my friend’s account.

S — I t is a big lesson for all of us. One needs to be ultracautious!

A — But, I want to ask you, if you are God, then this is your ‘Leela’ only. Why do you do such things? What pleasure you get out of it?

S — M aybe, in his earlier birth, your friend might have ditched someone. I need to see the records!

A — But now, you are also my cousin!!

S — H a! Ha!! Ha!!!

Note: The above dialogue between Sri Krishna and Arjuna describes one of those instances where a simple act, done by Members in good faith, can prove fatal. This act, though done out of innocence, may be regarded as a misconduct under Clause(2) Part IV Schedule I by the Institute, i.e., bringing disrepute to the profession. Hence, one needs to be very cautious and see to it that nothing is done in ‘good faith’ without proper documentation/safeguards

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PART C: Information on & Around

Pending RTI Appeals & Complaints at Information Commission:

It is reported by Commonwealth Human Rights Initiative (CHRI) that huge pendency continues in various Commissions. The top two being:

Maharashtra – 34,158 as on 30-05-2014
Central – 21,946 as on 30-05-2014

Former Delhi CM Sheila Dikshit:
CM once had said: “If you cannot afford the electricity bill, then cut down your consumption.” Yet when it came to her electricity consumption, it was beyond imagination: She was using:
31 Air Conditioners
15 Desert Coolers
16 Air Purifiers
25 Heaters
12 Geysers

The above information was obtained by RTI query filed by RTI activist Mr. S.C. Agrawal. In reply the Central Public Works Department said that an expense of Rs. 16.81 lakh was incurred on the electrical renovation of the bungalow to customise it according to the needs of the then chief minister.

Sophisticated and Normal Weapons For Mumbai Police:
RTI activist, Chetan Kothari, procured following details in response to RTI query.

Sophisticated weapons acquired by state government for city cops, post 26/11:

40mm under barrel grenade launcher 391
Corner shot weapon system 15
Projector grenade 73
Rocket launcher 14
Automatic grenade launcher 50
Sniper rifle 8
51mm mortar 44
Cord detonating explosives (Meters) 475

Normal Arms and Ammunition procured after 26/11:
7.62 SLR Rifle 29,373
Glock pistols 1,277
AK-47 Rifle 3,975
9mm pistols 1,000
Stun Gun (N / E) 2,000
Tear Gas Gun 94
5.56 Insas Rifle 3,916
Machine gun (MP5, A3/%, SD6, KN) 2,061
9mm automatic pistols 1,029
Bullet Proof Jackets 4,500
5.56 Insas LMG 532

Reply also stated: These sophisticated weapons have been mainly procured from the US and Germany.

Mumbai police spokesperson DCP Mahesh Patil said the department has been using sophisticated weapons post 26/11. “These weapons provide the force with an added edge to combat any terror like situation. Experts from companies that deliver these weapons train the force in using them.

Deaths In 3 Civic Hospitals:
Right to Information query into the deaths in Mumbai’s civic – run hospitals threw up disturbing statistics – over the past 13 years one lakh patients died in Sion hospital, Ghatkopar’s Rajawadi Hospital and Mumbai Central’s BYL Nair Hospital.

RTI activists Anand Pargaonkar’s query was directed to all public hospitals in the city, but authorities of only three hospitals provided him with statistics of their mortality rate. Between 2001 to 2013, at Rajawadi hospital, 16,014 out of the 55 lakh patients (including out patients) died. At Nair hospital 29,650 out of 33 lakh admitted patients passed away. Most shockingly, 63,313 out of 1.94 crore patients admitted at Sion hospital died in this period. On an average, eight patients died in these hospitals every day.

Unit Trust of India:
In response to my RTI application, UTI provided me the information sought but also wrote:

In this connection, we wish to inform you that Hon’ble Bombay High Court has granted stay on the order dated 6th August 2008 passed by the Central Information Commission on applicability of the Right to Information Act, 2005 (RTI Act, 2005), on UTI Mutual Fund, UTI Asset Management Company Ltd and UTI Trustee Company Ltd. pursuant to a Writ Petition filed by these entities. As such the matter is sub-judice and the RTI Act, 2005 is not applicable on all the above entities.

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PART B: RTI Act, 2005

Note: out of 21 items of Western India RTI Convention 2014 Declaration, 1 to 9 were reported in July ’14 issue of BCAJ. 10 to 21 are reported here under:

As
citizens and activists committed to building a transparent and
accountable democracy we have gathered together from more than 15 States
and Union Territories across the country in the city of Mumbai to
celebrate our victories, and to discuss and strategies to squarely face
current challenges. In this Western India RTI Convention, we pledge our
commitment to protect our constitutionally guaranteed fundamental rights
and particularly emphasising the freedom of speech and expression which
is the bedrock of a free and democratic society in the absence of which
our right to information would lose much of its meaning and value. On
this day the 8th of June, 2014, we express our solidarity with all RTI
users, activists and their families who have suffered attacks on them
and resolve to defend our right to access information and express our
opinions without fear and pledge in particular to struggle to achieve
our collective vision as follows-

10. S everal serious problems
are plaguing the functioning of Information Commissions across the
country which must be urgently addressed by the appropriate authorities.
The Supreme Court’s direction in the Namit Sharma case which requires a
fair and transparent process for the appointment of information
commissioners from diverse fields of experience and expertise, must be
immediately implemented and shortlisted candidates be subject to
credible public scrutiny about their track record of supporting the
regime of transparency. The minutes of the selection committees must be
disclosed proactively. The number of Information Commissioners must be
determined through an assessment of the workload in each Information
Commission as the pendency is reaching alarming levels denying people
their fundamental right to information.

11. A ll Information
Commissions must set up a mechanism to monitor compliance with its
decisions and in particular with its orders imposing penalty on Public
Information Officers and recommendations for taking disciplinary action
against those who are violating the provisions of the Act persistently.
We express our deep concern over some pronouncements of High Courts
denying the appellant or complainant the opportunity to participate in
penalty proceedings before the Information Commissions. Appellants and
complainants must have the opportunity of participating and presenting
their views in all penalty proceedings which they have caused to be
launched and copies of all replies of the PIOs and deemed PIOs must be
shared with them in person as well displayed on the websites of
Information Commissions and the concerned public authorities.

12.
We are deeply concerned about several judgements of the Supreme Court
that are resulting in the curtailment of the scope of people’s right to
information and the express and implied powers of Information
Commissions. RTI users and activists in particular and the people in
general, must discuss and debate the implications of these judgements to
form a strong public opinion in favour of defending and expanding the
mechanism and processes of transparency established by the RTI Act.

13.
A s the exemptions u/s. 8 of the RTI Act are adequate for protecting
important public interests, all security and intelligence organisations
notified by the Central and State Governments u/s. 24 must be reviewed
immediately and such notifications should be withdrawn.

14. We
demand that all laws enacted by Parliament and the State Legislatures
conform to the regime of transparency established by the RTI Act. We
demand the immediate withdrawal of provisions that curtail the scope of
the people’s right to information in other laws and Rules such as the
Collection of Statistics Act, 2008, The National Investigation Agency
Act, 2008, The Foreign Contribution Regulation Act, 2010, and the
Information Technology Rules, 2009. All authorities must ensure that no
Bill, Act, rule, regulation, or executive order curtails people’s
fundamental right to information as guaranteed by the Constitution.

15.
We appreciate the Central Government’s recently instituted policy on
pre-legislative consultation and demand that all Governments immediately
adopt a legally mandated process for formulating any law or policy
through widespread consultation with and effective participation of the
people. All draft MOUs and leases that the governments propose to sign
must be proactively disclosed to the people to enable them to give their
suggestions for change. 16. We demand that appropriate constitutional
mechanisms be put in place requiring the Central Government to place all
international treaties it signs before ratification before Parliament.
After signing treaties, they should be put out in the public domain,
subject to the exemptions provided under section 8 of the RTI Act.

17.
We demand that information about the finances, expenditure and working
of all societies, trusts, trade unions, cooperative societies, religious
and charitable institutions be made accessible to people under the RTI
Act.

18. We believe that WE THE PEOPLE, are the rightful owners
of our country’s natural resources. We demand equity and people’s
participation in decision making combined with complete transparency,
accountability in the management and use of all natural resources.

19.
We demand transparency in the ownership and the source and manner of
funding of all mass media agencies. Methods of enforcing accountability
of the media sector to the people must be explored, while protecting the
right to freedom of expression and the freedom of the press guaranteed
by the Constitution.

20. We are deeply concerned about the
attacks on the attempts to curb people’s right to free speech and
expression, especially those who voice political dissent or raise issues
of public concern in a democratic and constitutional manner. We are
also anguished by recent targeted attacks on academics for publishing
their research. We protest against all attempts at criminalising the
legitimate expression of dissent under Section 66A of the Information
Technology Act and demand withdrawal of all actions launched against
persons with the motive of punishing them for exercising their right to
free speech and expression.

21. We affirm all resolutions passed
at the workshops (annexed to this Declaration) held at the Western
India RTI Convention 2014.

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PART A: Decision Of CIC

Section 8 (1) (i) of the RTI Act:
Facts:
Vide
RTI application dated 14-05-2013, the appellant sought copies of
documents including a copy of the cabinet decision in respect of certain
recommendation relating to pension of ex-servicemen and civilians.

CPIO/under secretary (pension policy) declined to provide the copies of documents sought as the same were graded as ‘secret’.

Before
the Commission, CPIO submitted that the Cabinet Secretary has made
certain recommendations dated 17-08-2012 relating to pension of ex –
servicemen and civilians, which was graded as ‘secret’. Orders accepting
these recommendations were issued on 17-01-13. However, as the document
was graded ‘Secret’ and the process of downgrading is pending, the
information sought was denied. Appellant submitted that there is no
secrecy involved and he should have been provided the information
sought.

Decision:
“Section 8 (1) (i) of the RTI Act
states that notwithstanding anything contained in this Act, there shall
be no obligation to give any citizen, Cabinet papers including records
of deliberations of the Council of Ministers, Secretaries and other
officers, provided that the discussions of Council of Ministers, the
reasons thereof and the material on the basis of which the discussions
were taken, shall be made public after the decisions have been taken and
the matter is complete.”

“In the instant case, the
recommendations of the Committee have been accepted and formal orders
issued on17-01- 13. As such, the matter is complete as per the
provisions of section 8 (1) (i) and denial of information not tenable.”

The
Commission directed the CPIO to provide the information sought to the
appellant within two weeks from date of receipt of the order.

[P.K.
Bhargavan Pillai vs. Ministry of Defence, (Dept. of Ex Servicemen
Welfare (Pension Policy), New Delhi, File No. CIC/SS/A/2013/002508/RM,
Decided on: 24.04.2014, Citation: RTIR II (2014) 242(CIC)].

Substantially Financed
Vide
Clause 5 of the Finance (No. 2) Bill, 2014 certain amendment in section
10 of the Income- tax Act has been made which shall be effective from
the first day of April 2015. Relevant item therein is Clause (23 C) of
section 10.

Said Clause 5 (a) reads as under:
(a) In Clause (23C), –
(i) after sub-Clause (iiiac), the following Explanation shall be inserted, namely –

“Explanation,
– For the purposes of sub Clauses (iiiab) and (iiiac), any university
or other educational institution, hospital or other institution referred
therein, shall be considered as being substantially financed* by the
Government for any previous year, if the Government grant to such
university or other educational institution, hospital or other
institution exceeds such percentage of the total receipts including any
voluntary contributions, as may be prescribed, of such university or
other educational institution, hospital or other institution, as the
case maybe, during the relevant previous year”.

Section 2(h) of the RTI Act, defines the term “public authority”. Relevant provisions read as under:
(h) “public authority” means any authority or body or institution of self – government established or constituted-
(a)……..
(b)……..
(c)……..
(d) By notification issued or order made by the appropriate Government, and includes any –
(i) body owned, controlled or substantially financed*;
(ii) non – Government organisation substantially financed*,
directly or indirectly by funds provided by the appropriate Government;

Recently,
CIC in the case of Madan Mohan Priva vs. Jan Kalyan Shiksha
Samiti/Samkalp has opined on sub Clause (d) of section 2 (h). I
reproduce some relevant paragraphs from the order:

“As per the
above definition before an NGO can be held to be Public Authority u/s.
2(h) (d) (ii), it has to satisfy the condition that it is “Substantially Financed.”

The Hon’ble Delhi High Court in Indian Olympic Association vs. Veeresh Malik and Ors (2010) IL R 4 Delhi 1] with regard to substantial financing has observed that the term “substantially financed” has not been defined.

*Highlighted by the author
According to the Legal Glossary – 1992 (published by the Govt. of India) the term means: finance:

1. the pecuniary resources of a government or a company.

2.
to provide with necessary funds. Oxford’s Shorter English Dictionary
defines the term “substantial” as follows: S ubstantial…. An adjective…

3. Of ample or considerable amount or size; sizeable, fairly large.

4. Having solid worth or value, of real significance; solid, weighty; important, worthwhile…

The
term “substantial” denotes something of consequence, and contrary to
something that is insignificant or trivial. It implies a matter of some
degree of seriousness. The question is whether the term itself suggests,
in the context of “substantial financing” a predominant or overwhelming
financing. In other words, does “substantial” read with “financing”
mean that the major funding should from the relevant source, i.e., state
or governmental source”.

The Hon’ble Supreme Court in
Thalappalam Ser. Coop Bank Ltd & Ors. vs. State of Kerala [2013 (12)
SCALE 527] as to what is “substantial financing” has observed that:

“36.
The words “substantially financed” have been used in sections
2(h)(d)(i) and (ii), while defining the expression public authority as
well as section 2(a) of the Act, while defining the expression
“appropriate Government”. A body can be substantially financed, directly
or indirectly by funds provided by the appropriate Government. The
expression “substantially financed”, as such, has not been defined under
the Act. “Substantial” means “in a substantial manner so as to be
substantial”. In Palser vs. Grimling (1948) 1 All ER 1, 1 (HL), while
interpreting the provisions of Section 10(1) of the Rent and Mortgage
Interest Restriction Act, 1923, the House of Lords held that
“substantial” is not the same as “not substantial” i.e. just enough to
avoid the de minimis principle. The word “substantial” literally means
solid, massive etc. Legislature has used the expression “substantially
financed” in sections 2(h)(d)(i) and (ii) indicating that the degree of
financing must be actual, existing, positive and real to a substantial
extent, not moderate, ordinary, tolerable etc.

38. Merely
providing subsidiaries, grants, exemptions, privileges etc., as such,
cannot be said to be providing funding to a substantial extent, unless
the record shows that the funding is so substantial to the body which
practically runs by such funding and but for such funding, it would
struggle to exist. The state may also float many schemes generally
for the betterment and welfare of the co operative sector like deposit
guarantee scheme, scheme of assistance from NABARD etc., but those
facilities or assistance cannot be termed as “substantially financed” by
the State Government to bring the body within the fold of “public
authority” under section 2(h)(d)(i) of the Act. But, there are
instances, where private educational institutions getting 95% grant – in
– aid from the appropriate government, may answer the definition of
public authority under section 2(h)(d)(i).”

[Madan Mohan Priva
vs. Jan Kalyan Shiksha Samiti/Samkalp, File No.: CIC/AD/A/2013/000269 –
SA, Decided on: 30-05-2014, citation RTIR II (2014) 262 (CIC), Order
delivered by M. Sridhar Acharyulu, Central Information Commissioner].

[Ch. Rama Krishna Rao vs. Naval Ship Yard, Port Blair, (third Party: shri r. ajit Kumar) decided by the full bench on 05-05-2014. file no. CiC/Ls/a/2012/002430/rm.]

BCAJ Admin

From published accounts

Section B:
• Provisions made pursuant to consent decree filed by FDA, USA prohibiting the company from manufacturing and distributing from one facility in to the US market and consequent comments in Audit Report (including CARO)
• Change in accounting policy for ESOPs pursuant to opinion of EAC of ICAI
• Write-down of inventory due to intentional incorrect inventory management systems followed

Ranbaxy Laboratories Limited: (15 months ended 31-03-2014)

From Significant Accounting Policies
Employee stock option based compensation
The Company follows SEBI guidelines for accounting of employee stock options. The cost is calculated based on the intrinsic value method, i.e., the excess of market price of underlying equity shares, as of the date of the grant of options over the exercise price of such options, is regarded as employee compensation and in respect of the number of options that are expected to ultimately vest, such cost is recognised on a straight line basis over the period over which the employees would become unconditionally entitled to apply for the shares. The cost recognised at any date at least equals the intrinsic value of the vested portion of the option at that date. Adjustment, if any, for difference in the initial estimate for number of options that are expected to ultimately vest and related actual experience is recognised in the Statement of Profit and Loss of that period. In respect of vested options that expire unexercised, the cost is reversed in the Statement of Profit and Loss of that period.

During the current period, the Company has changed its policy with respect to treatment of shares issued to Ranbaxy ESOP trust (‘ESOP trust’). As per a recent opinion of the Expert Advisory Committee (‘EAC’) of The Institute of Chartered Accountants of India, as on the reporting date, the shares issued to an ESOP trust but yet to be allotted to employees be shown as a deduction from the Share Capital with a corresponding adjustment to the loan receivable from ESOP Trust. Accordingly, the Company has shown shares held by the ESOP Trust on the reporting date as a deduction from the share capital.

Compilers’ Note: The EAC opinion referred above is reproduced in March 2014 issue of ‘Chartered Accountant’ of ICAI.

From Notes to Accounts
41 b) (i) The US FDA conducted an inspection at the Company’s manufacturing facility located in Toansa in January 2014. Consequent to the findings of the inspection, on 23rd January, 2014, the US FDA invoked the Consent Decree prohibiting the Company from manufacturing and distributing APIs from its Toansa manufacturing facility and finished drug products containing APIs, manufactured at this facility, into the US regulated market. The Company has since progressed in investigating the findings of the US FDA (as contained in Form 483) and has submitted its response to the US FDA.

(ii) Subsequent to the imposition of the Consent Decree at the Toansa manufacturing facility as mentioned above, regulators in some jurisdictions including those of European Union (‘EU’) countries have sought clarifications/took actions in respect of shipments from Toansa manufacturing facility. The Company is in dialogue with these regulatory agencies and is addressing their concerns. The Company expects to resume API bulk shipments to the EU countries from Toansa manufacturing facility upon receipt of clearances from relevant regulatory authorities.

(iii) The Department of Justice of the USA (‘US DOJ’), United States Attorney’s Office for the District of New Jersey has issued an administrative subpoena, dated 13th March, 2014, to the Company seeking information primarily related to the Company’s API Toansa manufacturing facility in India for which a Form 483 was issued by US FDA in January, 2014 (as explained in (i) above). The Company is fully cooperating with this information request and is in dialogue with the US DOJ for submission of the requisite information.

(iv) During the quarter ended 31st March, 2014, the Company has temporarily put on hold its operations from the API manufacturing facilities at Toansa to examine the manufacturing and quality processes and controls, voluntarily as a precautionary measure. The same is expected to be resumed shortly.

(v) The management is taking all necessary steps to resolve the above matters to the satisfaction of the concerned authorities. However, considering the above matters relating to the Toansa manufacturing facility, provisions (primarily relating to inventories, trade commitments, sales return etc.), amounting to Rs. 2,862.78 have been recognised in these financial statements. In calculating these provisions, the management has used the best information and estimates, presently available. Since the matter involves significant judgement and in view of the inherent uncertainty of the present situation, the actual amounts may differ eventually.

41(c) During the quarter ended 31st March, 2014, the Company has temporarily put on hold its operations from API manufacturing facility at Dewas to examine the manufacturing and quality processes and controls, consequent to receipt of certain internal information. Consequent to the findings of the above exercise, the carrying amount of inventory has been written down by Rs. 424. The attribution of this amount to any particular period/ year is not possible. The Company expects to resume the operations shortly.

From Auditors’ Report
Emphasis of Matter
Without qualifying our opinion, we draw attention to note 41 b) of the financial statements which explains in detail the prohibition imposed by the Food and Drug Administration of the United States of America on the Toansa manufacturing unit of the Company, and the communications received from/ actions taken by other regulators including the Department of Justice of the United States of America and regulators in European Union countries. Consequently, the Company has made provisions, to the extent of Rs. 2,862.78 million, on the basis of best information and estimates presently available with the Company. The basis and assumptions used by the management in calculating these provisions involve significant judgment and estimates (including those relating to inventories, sales return, trade commitments, realisability of tax assets, etc.). There are inherent uncertainties regarding the future actions of the regulators, the impact of which is not ascertainable at this stage and therefore, the actual amounts may eventually differ.

FROM CARO Report
Clause 10
The accumulated losses of the Company at the end of the current period are not less than 50% of its net worth (without adjusting accumulated losses). As explained to us, these are primarily due to provision created (net of reversal) for settlement with the Department of Justice (DOJ) of the United States of America for resolution of civil and criminal allegations by the DOJ (refer to note 8 of the financial statements) in the earlier years. The Company has incurred cash losses in the current period, though it had not incurred cash losses in the immediately preceding financial year.

Clause 17
According to the information and explanations given to us and on an overall examination of the Balance Sheet of the Company as at 31st March, 2014, we are of the opinion that short term funds of Rs. 35,175.73 million have been used for long-term purposes primarily on account of accumulated losses including those related to settlement with the DOJ of the United States of America for resolution of civil and criminal allegations by the DOJ (refer to note 8 of the financial statements).

Clause 21
As explained in note 41 c) of the financial statements; during the current period, the Company has written-down carrying amount of inventory by rs. 424 million, consequent to the findings of an exercise carried out by the management in response to certain internal information received by it. The findings primarily concluded intentional incorrect inventory management of certain intermediate products by certain manufacturing unit level staff resulting in yield mismanagement and consequent incorrect higher quantity of inventories. Being a pharmaceutical quality related technical matter, we have relied on the management’s assessment of the said adjustment. as informed to us, appropriate actions have been taken by the Company including strengthening of internal controls. subject to these comments, according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the course of our audit.

From Directors’ Report
With regard to the comments contained in the auditors’ report, explanations are given below:-
(i) The accumulated losses of the Company at the end of the current period are more than 50% of its net worth (Computed without adjusting accumulated losses) and the Company incurred cash losses in the current period (Clause x of the annexure to the auditors’ report).

The accumulated losses are primarily due to provision created (net of reversal) for settlement with the department of justice (DOJ) of the united states of america for resolution of civil and criminal allegations by the DOJ (refer to note 8 of the financial statements) in earlier years. The Company has incurred cash losses during the current period primarily due to US FDA related remediation costs and certain exceptional items including loss on foreign exchange option derivatives and inventory provision/write- off and other costs at toansa and mohali plants.

(ii) Short-term funds used for long-term purposes (Clause xvii of the annexure to the auditors’ report). the Company had created a provision for settlement (net of reversal during the current period) with the doj during the year ended 31st December, 2011, which is currently reflected as payable of rs.29,238.60 million to a subsidiary (refer to note 8 of the financial statements). This has resulted in long-term funds being lower by rs. 35,175.73 million compared to long-term assets as at 31st march 2014. accordingly, short-term funds of rs. 35,175.73 million have been used for long-term purposes. the Company expects to overcome the situation in the near future.

(iii) Procedures of physical verification of inventories and maintaining proper records of inventories and fraud reported on the Company (Clause (ii)(b), (c) and Clause (xxi) of the annexure to the auditors’ report) during the current period, the Company has written-down carrying amount of inventory by rs. 424 million, consequent to the findings of an exercise carried out by the management in response to certain internal information received by it. The findings primarily concluded intentional incorrect inventory management of certain intermediate products by certain manufacturing unit level staff resulting in yield mismanagement and consequent incorrect higher quantity of inventories. appropriate actions have been taken by the Company including strengthening of internal controls.

BCAJ Admin

From the President

Dear Fellow Members,

As I write this first ‘From the President’, I am filled with a sense of humility and honor. It is a singular honor for a third generation member of the Society to write these pages as its 67th president. As my team considers the road that will unfold before us, I am well aware of the diversity of the BCAS membership and our credo to serve members with the best possible learning events and tools.

At the Society, we have based our theme on three words – Learn, Share and Grow. The next 12 months are bound to be professionally stimulating ones, with Ind ASs, GST, Income Computation and Disclosure Standards, the Black Money Act and Internal Financial Controls amongst other topics taking shape. BCA Journal, as always, will cover those topics through articles and features.

When you receive this Journal it will be August, a month when we celebrate our 69th Independence Day. For some of us who grew up without any sacrifice to win independence, do not know and cannot feel enough of what it is to live in a nation that is Independent of foreign rule. It is never enough to look back and understand what foreign occupation does to a civilization.

When the British arrived in India, our share of the world Economy was about 20%, and when they left it was less than 4%. India was governed for the benefit of a few million British or even few hundred Englishmen. In fact, Britain’s rise was financed by India. That was not it though! The entire fabric of India’s strength was attacked in 150 years of colonisation. The weavers, the artisans and the tradesmen, whose products were sought after across the globe, became beggars. From being an exporter of goods, India became the world’s biggest purchaser of British goods. Indian taxes were used to pay British civil servants and running the government machinery that oppressed the Indians and benefited the British private enterprises.

The impact on collective social capital was even bigger. This invasion was of a higher order, an invasion on our mindset and fundamental values. For example, the colonial rule brought an education system that was perhaps diametrically opposed to India’s own temperament. It projected Europe as democratic and progressive, and on the other hand, they pursued a systematic condemnation of Indian culture, traditions, crafts, cottage industries, and social institutions. Anand Coomaraswamy, the famous art critique writes:

It is hard to realize how completely the continuity of Indian life has been severed. A single generation of English education suffices to break the threads of tradition and to create a nondescript and superficial being deprived of all roots—a sort of intellectual pariah who does not belong to the East or the West, the past or the future. The greatest danger for India is the loss of her spiritual integrity. Of all Indian problems the educational is the most difficult and most tragic.

A form of that colonisation still continues in our present rote learning based education system and socialistic pattern. Consider, delegitimizing business class in a pseudo socialistic pattern adopted post 1947. However, nearly 50% of GDP comes from unincorporated or informal sector and about 15% from corporate sector, (listed companies being only 5%). Most of these smaller, independent enterprises are really the cornerstone people’s dignity and self-sufficiency. But the media remains focused on this small segment of listed entities, flashing them in news and giving an impression that they are the barometer of our progress.

In the last 68 years, we have not overcome all our problems, we have even created some. As a nation we perpetuate racial, ethnic, religious, narrow minded whims and bad governance. Yet, we have come a long way – we developed indigenous missile technology, our scientists sent a spacecraft to Mars at a cost lower than that of a Hollywood movie, our communities uplift their fellowmen out of deprivation, family values still hold good, we are a surplus food grains country, our banking system opened millions of bank accounts in just a few months, Indians living abroad sent more than $70 billion in 2013-14 which is more than the total FDI inflows.

On 15th August, we celebrate this socio culturally unique phenomena called INDIA. It can neither be run as a market economy nor through a socialistic policy. We have poverty, but we are not poor, we are tolerant, but aren’t weak. Workers may not have a degree, but have skills. Whether you are a Chartered Accountant sitting on the 16th floor office or living in a village cooking from a bio gas stove, slowly but firmly colonisation of our mind is ending. We are BELIEVING that TOGETHER we can be a developed nation. Paradoxes don’t stop us from marching on in our common journey with greater youthful confidence.

Gurudev Tagore, in his immortal prayer, portrayed a dream of a new and awakened India in the most exquisite and heartfelt way. Reading it even for the 100th time, still gives me goose bumps. I leave you with it:

Where the mind is without fear and the head is held high
Where knowledge is free
Where the world has not been broken up into fragments
By narrow domestic walls
Where words come out from the depth of truth
Where tireless striving stretches its arms towards perfection
Where the clear stream of reason has not lost its way
Into the dreary desert sand of dead habit
Where the mind is led forward by thee
Into ever-widening thought and action
Into that heaven of freedom, my Father,
let my country awake.

Jai Hind!!!

PS: The 11th President of India Dr. A. P. J. Abdul Kalam, the missile man, suddenly took off and crossed the mortal orbit. He lived and passed away on the wings of fire. He set so many young Indian hearts on fire. He said, “If you want to shine like a sun, first burn like a sun” A true son of the soil, a people’s president, Dr. Kalam ko Salam.

levitra

BCAJ Admin

Direct Taxes

88 Clarifications on Income Declaration Scheme 2016 –

Circular no. 24/2016 dated 27.6.16, Circular no. 25/2016 dated 30.6.16 and Circular no 27 dated 14 July 2016

89 Procedure for determination of fair market value of assets in prescribed cases as per Section 9(1) of the Act – Income tax (19th Amendment) Rules 2016 –

Notification no 55 dated 28.6.16

CBDT has notified detailed methods under different scenarios for determining the fair market value of the assets and income attributable to assets situated in India in case of indirect transfers referred to in Section 9(1) of the Act. The rate at which foreign currency needs to be converted, various definitions, information and documentation to be maintained as well as submitted under Section 285A of the Act and two new forms Form No. 3CT being the report to be given by the Accountant for income attributable to assets located in India and Form 49D – being information and documentation under Section 285A have been prescribed.

90 CBDT has issued a Press Release dated 6 July 2016 stating the applicability of Income Computation and Disclosure Standards from 1 April 2016.i.e. AY 2017-18 onwards.

The Ministry of Finance has issued an order dated 6 July 2016(reproduced hereunder)

S. O. 2322(E).— In exercise of the powers conferred by sub-section (2) of section 138 of the Income-tax Act, 1961 (43 of 1961), the Central Government having regard to all the relevant factors, hereby directs that no public servant shall produce before any person or authority any such document or record or any information or computerised data or part thereof as comes into his possession during the discharge of official duties in respect of a valid declaration made under ‘the Income Declaration Scheme, 2016’, contained in Chapter IX of the Finance Act, 2016 (28 of 2016.

91 [Notification No. 56/2016, F. No. 142/8/2016-TPL]

92 Scrutiny notices under Section 143(2) modified to have separate formats for Limited Scrutiny Complete Scrutiny and Manual Scrutiny – CBDT Directive dated 11 July 2016

93 CBDT Instruction for compulsory manual selection of cases for scrutiny during FY 2016- 2017 – Instruction No. 4/2016 dated 13th July 2016 (full text available on www.bcasonline.org)

94 CBDT Instructions for converting limited scrutiny to complete scrutiny case – Instruction No. 5/2016 dated 14th July 2016 (full text available on www. bcasonline.org)

95 Press Release amending the payment schedule of taxes under Income Declaration Scheme 2016 dated 14 July 2016

CBDT has revised the schedule for payment of taxes, interest and penalty as under:

(i) a minimum amount of 25% of the tax, surcharge and penalty to be paid by 30.11.2016; (ii) a further amount of 25% of the tax, surcharge and penalty to be paid by 31.3.2017; and (iii) the balance amount to be paid on or before 30.9.2017.

BCAJ Admin

Part C Iinformation On & Around

Cabinet decisions come under RTI Act , sa ys Kerala CIC

In a significant development that may make government business more transparent, the Kerala Information Commission has ordered that all decisions by the state government, once finalized in the cabinet, come under the ambit of the RTI Act.The Commission also suggested that the government publish the cabinet decisions on its official website.“The details of all cabinet decisions should be given once the procedures regarding those decisions are completed. It also should be considered seriously to upload the cabinet decisions on the government website,” the Commission observed.

Gujarat High Court Stays CIC Order On PM Modi’s Degree

The Gujarat High Court issued a stay on an order of the Central Information Commission (CIC) asking the Gujarat University to provide details of the MA degree of Prime Minister Narendra Modi to Delhi Chief Minister Arvind Kejriwal, who had alleged that it was fake. A division bench of Chief Justice R Subhash Reddy and Justice VM Pancholi also issued notices to Central Information Commissioner M Sridhar Acharyulu and Kejriwal. The university had earlier approached a single bench of Justice SH Vora on June 20 seeking a stay on the CIC order, but it later approached the division bench after it failed to get relief from the court. In its application, the Gujarat University has stated that it “is not a party to any of the proceeding before the Information Commission. Hence, the order of the CIC is adverse to the interest of the University”.

Former CIC writes to Rajasthan CM on removal of Chapter on RTI from school books
The chapter was removed during a restructuring of school syllabus in the State. Former Chief Information Commissioner Wajahat Habibullah has written to the Chief Minister Vasundhara Raje expressing displeasure at the removal of a chapter on the Right to Information (RTI ) Act from school text books in Rajasthan.The chapter on the law that was passed in 2005 to improve transparency in government was removed as part of the Rajasthan government’s revised school syllabus for the year 2016. The syllabus has also removed a page highlighting the Right to Information (RTI ) Act. According to reports, a prominent section on page 105, which was part of chapter 12 of the previous Social Science textbook for Class VIII in State schools, has now been removed in the “restructured” book.

Right to Information: A new journey begins
On June 24, 2016, Parliament of Sri Lanka unanimously adopted the Right to Information (RTI ) law.This marks the culmination of over two decades of advocacy by civil society groups and journalists. It also fulfills a key promise of the yahapalana government.Passing the law was no easy task, as it went through a year of drafting, judicial review by the Supreme Court, and considerable political scrutiny. The government and other political parties in Parliament – who rarely agree on anything – came together to pass the law without a vote.

BCAJ Admin

Part B RTI Act, 2005

If you thought that RTI queries are only about serious issues, the Prime Minister’s Office (PMO) just proved you wrong. And how!

The PMO website released a list of queries about Prime Minister Narendra Modi that were raised by people under the Right to Information (RTI ) Act.

Here are some of the excerpts from the list of queries released by the PMO website:

Request: What is the speed of internet of Wi-Fi in the PMO?

Information: The speed of internet access in PMO is 34 mbps.

Request: How many and which type of cylinder had been used in kitchen in month of October, 2014. Provide Xerox copies of bills of cylinders and how many and which type of cylinder had been used in month of May, 2015. Please provide the copies of bills of cylinders in respective months.

Information: It is stated that the kitchen expenses of the Prime Minister is personal in nature and not incurred on government account.

Request: Has the Principal Secretary to PM, Shri Nripendra Misra, ever taken his subordinates, in the Prime Minister’s office, on a picnic?

Information: No picnic/excursion was organized by PMO/Principal Secretary to PM Shri Nripendra Misra. Hence, the question of providing other details sought by the application does not arise.

Request: Please tell me PMO Office issue (sic) mobile number for their staff yes or no if yes please provide all staff number in written

Information: PMO provides mobile numbers to officers/ staff based on entitlements and functional requirements. However, disclosure of the mobile numbers would cause unwarranted invasion of privacy of the individual; as such the same is exempted from disclosure under Section 8(1) (j) of the RTI Act.

Request: Is there any information (sic) how many sick or casual leave or health leave is availed by Prime Minister of India in the last 10 years?

Information: It may be noted that no leave has been availed by the present Prime Minister i.e. Shri Narendra Modi since taking over office.

Request: Enclose all the proper records and documents which show that the present Prime Minister of India, Shri Narendra Modi is The Prime Servant of India and not the Prime Minister.

Information: There is no proposal to change the official designation of PM. Hence, the information sought does not form part of records held by this office.

Request: Has the Prime Minister read the Indian constitution? Is the Prime Minister supposed to read the Indian constitution? Is the Prime Minister assumed to have read Indian constitution? Has anyone in the PMO till date told the Prime Minister what his duties are towards India?

Information: Information sought does not fall under the definition of information. Request: Who helps the Prime Minister in sending tweets in regional and foreign languages? Names of individual(s) for each regional language. Information: Information sought is not maintained on record. (Another reply says that the Prime Minister himself is managing his personal social media accounts.)

Request: Number of sick or casual or health leave availed by the Prime Minister in the last 10 years.

Information: No leave has been availed by the present Prime Minister since taking over the office. (Replying to a related query on whether Prime Minister Modi was on leave during the Bihar election campaign last year, the PMO responded: Tours on election campaign are not official.)

Request: Percentage of marks Modi secured while graduating in 1977 from Delhi University.

Information: Does not form part of records.

BCAJ Admin

Part A Decision of CIC

CIC – pro-disclosure order on Land Acquisition Ordinance

Central Information Commission has given a prodisclosure order and directed the rural development ministry to divulge Cabinet note, file notings and all government communication on the controversial Land Acquisition Ordinance under the Right to Information (RTI ) Act In separate applications,

RTI activist Venkatesh Nayak and journalist Chitrangada Choudhury had sought copies of Cabinet note, file notings and all communication within the government leading up to the promulgation of the controversial Ordinance, which has now lapsed. Though the department of land resources under rural development ministry was the nodal agency for the move, it had denied information saying it held no such records.

Hearing the plea of the applicants last week, Information Commissioner Sudhir Bhargava directed the government to provide the information.

“The Commission after hearing the submissions of the complainant and perusing the records, notes that the information sought has not been provided by the respondent to the complainant. Further, as per the Legislative Department, the records relating to the promulgation of the said Ordinance would be available with the Department of Land Resources. In view of this, the Commission directs the respondent to provide information sought to the complainant within four weeks, from the date of receipt of a copy of this decision under intimation to the commission.” Mr. Bhargava said in his order

BCAJ Admin

From Published Accounts

Section A: Disclosure regarding title deeds of imm ovable properties as per CARO 2016

Compilers’ Note
CARO 2016 has introduced a new clause 1(c) wherein auditors have to comment on ‘whether the title deeds of immovable properties are held in the name of the company; lf not, provide the details thereof’;

Given below are some disclosures by companies for the year ended 31st March 2016 for the same.

Tata Consultancy Services Ltd .
According to the information and explanations given to us and the records examined by us and based on the examination of the conveyance deed provided to us, we report that, the title deeds, comprising all the immovable properties of land and buildings which are freehold, are held in the name of the Company as at the balance sheet date, except a building with carrying value of Rs. 0.27 lakhs which is under dispute.

Tata Communications Ltd
According to the information and explanations given to us and the records examined by us and based on the examination of the registered sale deed, conveyance deed and transfer deed of the Government of India vide its letter no. G-25015/6/860C dated 23 October, 2001 provided to us, we report that, the title deeds, comprising all the immovable properties of land and buildings which are freehold, are held in the name of the Company, except the following:

In respect of immovable properties of land and buildings that have been taken on lease and disclosed as fixed asset in the financial statements, the lease agreements are in the name of the Company, where the Company is the lessee in the agreement.

Tata Motors Ltd
According to the information and explanations given to us, the records examined by us and based on the examination of the registered sale deed / transfer deed / conveyance deed / confirmation from custodians / court orders approving schemes of arrangements / amalgamations provided to us, we report that, the title deeds, comprising all the immovable properties of land and buildings which are freehold, are held in the name of the Company as at the balance sheet date. In respect of immovable properties of land and buildings that have been taken on lease and disclosed as fixed asset in the financial statements, the lease agreements are in the name of the Company, where the Company is the lessee in the agreement.

Dr Reddy’s Laboratories Ltd
According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties as disclosed in Note 2.7 to these standalone financial statements, are held in the name of the Company.

Vedanta Ltd
According to the information and explanations give to us and the records examined by us and based on the examination of the registered sale deed / transfer deed / conveyance deed and other relevant records evidencing title provided to us, we report that, the title deeds, comprising all the immovable properties of land and buildings which are freehold, are held in the name of the Company as at the balance sheet date, except as stated in the table below:

Immovable properties of land and buildings whose title deeds have been pledged as security for loans, guarantees, etc., are held in the name of the Company based on the confirmations directly received by us from lenders / parties.

United Spirits Ltd
According to the information and explanations given to us and based on our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company except for 22 cases of freehold and having aggregate gross block of Rs.1,175 million, 3 cases of leasehold land having aggregate gross block of Rs.41 million; and various buildings having aggregate gross block of Rs.1,869 million, where the Company is in process of collating and identifying title deeds.

Britannia Industries Ltd
In our opinion and according to the information and explanations given to us and on the basis of our examination of the records of the company, the title deeds of immovable properties are held in the name of the company.

BCAJ Admin

From The President

Dear Members,

At the outset, I express my heartfelt gratitude to all of you for bestowing upon me the honour to be the 68th President of the Bombay Chartered Accountants’ Society. It is indeed a great privilege since BCAS has evolved over the years as an organization committed to the development of the profession and society at large. Along with the honour of being the President of this august institution, I am also aware of responsibility and challenges. I look forward to diligently performing my duties and striving to achieve the vision of the Society. I am sure of support and encouragement from the managing committee, respected past presidents and members. It will indeed be a privilege of interacting with you through BCAJ which is one of the most prestigious and widely read professional Journal.

25 years of Economic Reforms
Mr. Manmohan Singh, a true visionary, concluded his budget speech in 1991 with the words “India is now wide awake. We shall prevail. We shall overcome.” Yes, we did overcome and time has come when India speaks, the world listens. We are living in exciting times. A buoyant economy and a robust growth rate have made India the toast of the entire world. Foreign direct investment is pouring in steadily and many multinationals that ignored India are now scrambling to either set up manufacturing facilities or tap its burgeoning market. There are opportunities aplenty for everyone! This happy situation was not always so – it has been in the making over the last twenty-five years when liberalization of the Indian economy first began.

The unshackling of the Indian markets and the freeing of enterprise from a plethora of controls has facilitated accelerated growth. India has leapfrogged from being dependent on foreign aid to one that stands tall, shoulder to shoulder with the developed countries of the world. Per capita income and GDP have spiraled up steadily, and India is today the third largest economy in the world in PPP. One of the finest reflections of India’s growth story is the fact that many Indian companies are today multinationals acquiring global assets and operations. India’s image of a cheap labour market has been replaced by that of a knowledge hub.

Indian rockets are now ferrying satellites into space and Indian software specialists are coding success stories across the world. But there are still many initiatives and programmes that need to be undertaken to improve the life of the common man. In underlining India’s stratospheric success, I am only reminding all of us of the huge opportunity India is, and of the vast potential that lies ahead. In fact, India’s economic success will complete only if it is more inclusive – extending to citizens in big cities and small villages alike. I am sure that most of you share my feeling of living in dual India – India on one side and Bharat on another. While many citizens enjoy the growth story, nearly 300 million people are reeling under endemic poverty. Our country is home to one-third of the world’s poor. The gap between haves and have-nots continues to widen, malnutrition still consumes 100 children every hour while 30% of grains do not reach the intended beneficiaries. To summarize, prosperity has begun to spread across India, but has yet to reach the last man, woman and child at the bottom of the pyramid.

Abuse of power had become an acceptable routine in the world’s largest democracy, and the entire political class had been hand in glove till the last elections to prevent game-changing reforms. However, since the current government has taken up reins, there are green shoots of major reforms initiated or in the offing. India is on the cusp of achieving in the next decade much more than what has been achieved in past twenty-five years.

The Lokpal and Lokayukta Act
Let us take a look at an Act that has been in the news for the wrong reasons. The Lokpal and Lokayukta Act has been equipped with teeth to check allegations of corruption against public functionaries. In its enthusiasm to regulate and restrict corruption, NGOs, and charitable institutions have been brought under the purview of this act. As a result, trustees and its officers – who are volunteers, have now become public servants and are expected to declare their assets in the public domain. This action is responsible for many genuine people who have volunteered to serve the public to step down and relinquish office. The uproar has reached the ears of FM and a decision seems to have been taken to refer the matter back to the Standing Committee for review. We look forward to playing a role in resolving the issue and ensuring that there is no mass exodus of good people from NGOs and charitable organizations.

Member Deliverables
My resolve for the year is to offer members an enriched service experience from BCAS. I am aware of certain grievances of members remaining unattended. To resolve these and to compress timelines for attending to them, we have set up a dedicated task force at BCAS, which I am sure would improve upon service to the members in a timely and efficient manner.

It is our resolve to bring BCAS to your doorstep be it through website, through live streaming or online payment for all services. By the time you read this page, online payment facility for all transactions with BCAS would have become a reality. May I request you to use this facility to the fullest and save your staff time of sending cheques to BCAS. From buying a book to renewing your membership to paying for an event, www.bcasonline.org will be your window to ease of doing business with BCAS.

As I sign off, I would like to draw your attention to a unique opportunity. You can now open the doors of learning by gifting BCAS membership to freshly qualified CAs. Be it your article student or an acquaintance who passed out from the May 2016 batch, you can make a gift that will take their new prefix to a new height. The icing on the cake is a complimentary e-kit that is being offered to such qualified CAs. The Society, as a mark of recognizing the rank holders will be giving them free membership. I request all the members to make this endeavour a grand success.

BCAJ Admin

Glimpses of Supreme Court Rulings

10 Search and seizure – The Supreme Court declined to interfere
in the order of the High Court after finding that the Assessing Officer had
examined some of the borrowers mentioned in the pronotes and they had
categorically stated that the amount advanced was 50 per cent, or less which
explanation had been accepted by the first appellate authority and confirmed by
the Tribunal and held that when all of them were carrying on same business from
the same premises, it is but natural that if any concealed income have been
found at the time of search and survey, it has to be distributed among all the
family members who were carrying on business.

CIT vs. Rekha Bai (2017) 393 ITR 22 (SC)

The assessee, an individual, was carrying on the business of
financier by giving her husband a power of attorney. On August 9, 1989, a
search was conducted under section 132 of the Income-tax Act in the premises of
the assessee and several incriminating documents were seized. The pronotes to
the value of Rs. 28,16,900, the note books containing entries of amounts
advanced and repayments received back, the details of amounts advanced to
various parties and the details of date wise interest receipts were seized.

While making the assessment, the Assessing Officer made an
addition of Rs.15,21,120, Rs.6,05,163 and Rs.10,22,082 for the three assessment
years i.e. 1988-89 to 1990-91 under the head “Income from other sources”.

The Commissioner of Income-tax (Appeals) allowed the appeals
by a common order holding that the concealed income should not be entirely
assessed in the hands of the assessee and should be divided among the assessee,
her husband, her husband’s Hindu undivided family and her son. He further held
that the face value of the pronotes cannot be taken as the amounts actually lent
and fixed the concealed income at a much lower figure.

The Tribunal held that the order of the Commissioner of
Income-tax (Appeals) was reasonable in all respects and confirmed the same.

The High Court held that there was a clear finding given by
the Tribunal that the amount reflected in the seized pronotes were inflated and
actual amount of advance made by the assessee-respondent were less than the
amounts shown in the respective pronotes. The Tribunal noted that the Revenue
had not produced any further evidence or material to show that what was stated
in the pronote was the actual amount advanced. The High Court also did not find
any error in the order of the Tribunal and their finding was that the income
computed in these cases was to be attributed to the assessee-respondent, her
husband, Hindu undivided family and her son. The High Court further held that
the authorities below rightly pointed out that it was not so probable that the
entire income was earned by the assessee-respondent at a particular assessment
year or assessment years. A reasonable conclusion was made that the income had
been earned over a period of time.

Before the Supreme Court the Learned Counsel appearing for
the Appellant Revenue submitted that the full value of the pronotes seized at
the time of survey should have been taken into account.

From the order of the first appellate authority, the Supreme
Court noted that the Assessing Officer had examined some of the borrowers
mentioned in the pro-notes and they had categorically stated that the amount
advanced was 50 per cent, or less which explanation had been accepted by the
first appellate authority and confirmed by the Tribunal.

The Supreme Court held that the Department had failed to
bring on record any material to the contrary except the seized documents which,
according to the Supreme Court, could not absolve the Department or give any
right to negate the view taken by the first appellate authority and the
Tribunal. So far as the income divided among the family members of the
Respondent-Assessee was concerned the Supreme Court noted that all of them were
carrying on same business from the same premises. Therefore, it was but natural
that if any concealed income had been found at the time of search and survey,
it had to be distributed among all the family members who were carrying on
business.

The Supreme Court accordingly dismissed the appeal of the
Revenue.

11 Search and seizure – Block Assessment – As the issue of
invalidity of the search warrant was not raised at any point of time prior to
the notice u/s. 158BD and having participated in the proceedings of assessment
initiated under Section 158BC, the information discovered in the course of the
search, if capable of generating the satisfaction for issuing a notice u/s.
158BD could not altogether become irrelevant for further action u/s. 158BD

Gunjan Girishbhai Mehta vs. Director of Investigation
(2017) 393 ITR 310 (SC)

Notice u/s. 132 of the
Income-tax Act, 1961 (the Act) was issued in the name of a dead person. The
said notice was duly received by the Petitioner as the legal heir of the dead
person. Notice of assessment u/s. 158BC of the Act was issued and in the
assessment proceedings, where the income was declared to be “nil”,
the Petitioner as the legal heir had participated. Thereafter, notice u/s.
158BD of the Act was issued to the Petitioner on the basis of information
coming to light in the course of search. Aggrieved, the Petitioner moved the
High Court and on dismissal of the writ petition, filed the special leave
petition.

The point urged before the
Supreme Court was that if the original search warrant is invalid, the
consequential action u/s. 158BD would also be invalid. The Supreme Court did
not agree with the Petitioner. The Supreme Court held that the issue of
invalidity of the search warrant was not raised at any point of time prior to
the notice u/s.158BD. In fact, the Petitioner had participated in the
proceedings of assessment initiated u/s.158BC of the Act. The information
discovered in the course of the search, if capable of generating the
satisfaction for issuing a notice u/s.158BD, could not altogether become
irrelevant for further action u/s. 158BD of the Act.

The Supreme Court further
held that the reliance placed on the decision of the High Court of Punjab and
Haryana in CIT vs. Rakesh Kumar [2009] 313 ITR 305 (P & H) against
which special leave petition [SLP(C) No. CC 3623/2009] was dismissed by it and
its decision in Asst. CIT vs. A.R. Enterprises [2013] 350 ITR 489 (SC)
was on entirely different facts.

The Supreme Court observed
that in Rakesh Kumar (supra) the challenge was to the proceedings of
assessment u/s. 158BC of the Act on the basis of a search warrant issued in the
name of a dead person. The issue in A.R. Enterprises (supra) had no
similarity to the issue in hand, namely, the validity of the proceedings u/s.
158BD of the Act. For the aforesaid reasons, according to the Supreme Court
there was no merit in the special leave petition and thus the same was
dismissed.

12 Business Expenditure – Amortisation of preliminary expenses –
The “premium amount” collected by the Company on its subscribed
issued share capital was not and could not be said to be the part of
“capital employed in the business of the Company” for the purpose of
section 35D(3)(b) of the Act and hence is not entitled to claim any deduction
in relation to the amount received towards premium from its various shareholders
on the issued shares of the Company.

Berger Paints India Ltd vs. CIT (2017) 393 ITR 113 (SC)

The Appellant, a Limited Company, was engaged in the business
of manufacture and sale of various kinds of paints. For the Assessment Year
1996-97, the Appellant (Assessee) filed their income tax return and declared
the total income at Rs. 3,64,64,527/-, which was revised to Rs. 3,58,92,771/-
and then again revised to Rs. 3,57,26,644/-.

A notice was issued by the A.O.
to the Appellant (Assessee) u/s. 143(2) of the Act which called upon the
Appellant to explain as to, on what basis the Appellant had claimed in the
return a deduction under the head “preliminary expenses” amounting to
Rs. 7,03,306/- being 2.5% of the “capital employed in the business of the
company” u/s. 35D of the Act.

In reply, the Appellant (Assessee) contended therein that it
had issued shares on a premium which, according to them, was a part of the
capital employed in their business. The Appellant, therefore, contended that it
was on this basis, it claimed the said deduction and was, therefore, entitled
to claim the same u/s. 35D of the Act.

The A.O. did not agree with
the explanation given by the Appellant. He was of the view that the expression
“capital employed in the business of the company” did not include the
“premium amount” received by the Appellant on share capital. The A.O.
accordingly calculated the allowable deduction u/s. 35D of the Act at Rs.
1,95,049/- and disallowed the remaining one by adding back to the total income
of the Appellant for taxation purpose.

The Appellant, felt
aggrieved, and filed an appeal before the Commissioner of Income Tax (Appeals).
The Commissioner was of the view that since the “capital employed”
consisted of subscribed capital, debentures and long term borrowings, any
“premium” collected by the Appellant-Company on the shares issued by
it should also be included in the said expression and be treated as the capital
contributed by the shareholders. The Commissioner also was of the view that the
share premium account, which was shown as reserve in the balance sheet of the
Company, was in the nature of the capital base of the Company and hence
deduction u/s. 35D of the Act was admissible with reference to the said amount
also. Accordingly, the Commissioner allowed the appeals, set aside the order of
A.O. and disallowance of Rs. 5,08,257/- made by the A.O. and, therefore,
deleted the said sum.

The Revenue felt aggrieved
and filed an appeal before the Tribunal. The Tribunal allowed the appeal and
reversed the view taken by the Commissioner of Income Tax (Appeals). The
Tribunal held that the premium collected by the Appellant-Company on the share capital
did not tantamount to “capital employed in the business of the
Company” within the meaning of section 35D(3) of the Act.

The Company-Assessee felt aggrieved and filed appeal u/s.
260A of the Act before the High Court. The High Court dismissed the appeal and
affirmed the order of the Tribunal.

Feeling aggrieved, the Assessee-Company filed an appeal
before the Supreme Court.

According to the Supreme Court, the short question that fell
for consideration was whether “premium” collected by the Appellant-Company
on its subscribed share capital is “capital employed in the business of
the Company” within the meaning of section 35D of the Act so as to enable
the Company to claim deduction of the said amounts as prescribed u/s. 35D of
the Act?

The Supreme Court agreed
with the view of the High Court that the capital employed in the business of
the Company is restricted to the issued share capital, debentures and long term
borrowings, and that there was no room for holding that the premium, if any,
collected by the Company on the issue of its share capital would also constitute a part of the capital employed in the business of the Company
for purposes of deduction u/s. 35D.

According to the Supreme Court also, the “premium
amount” collected by the Company on its subscribed share capital was not
and could not be said to be the part of “capital employed in the business
of the Company” for the purpose of section 35D(3)(b) of the Act and hence
the Appellant-Company was rightly held not entitled to claim any deduction in
relation to the amount received towards premium from its various shareholders
on the issued shares of the Company.

According to the Supreme Court, there was more than one
reason to hold so. First, if the intention of the Legislature were to treat the
amount of “premium” collected by the Company from its shareholders
while issuing the shares to be the part of “capital employed in the
business of the company”, then it would have been specifically said so in
the Explanation (b) of sub-section (3) of section 35D of the Act. It was,
however, not said. Second, on the other hand, non-mentioning of the words does
indicate the legislative intent that the Legislature did not intend to extend
the benefit of section 35D to such sum. Third, these two reasons were in
conformity with the view taken by it in the case of Commissioner of Income
Tax, West Bengal vs. Allahabad Bank Ltd. (1969) 2 SCC 143, wherein the
question arose as to whether an amount of Rs. 45,50,000/- received by the
Assessee (Bank) in cash as “premium” from its various shareholders on
issuing share on premium was liable to be included in their paid up capital for
the purpose of allowing the Assessee to claim rebate under Paragraph D of Part
II of the first Schedule to the Indian Finance Act 1956. The Supreme Court
after examining the issue in the context of Para D read with its Explanation
held that “share premium account” was liable to be included in the
paid up capital for the purposes of computing rebate. One of the reasons to
allow such inclusion with the paid up capital was that such inclusion was
permitted by the specific words in the Explanation. Such was, however, not the
case here.

Its conclusion was further supported by the fact that the
Companies Act provides in its Schedule V-Part II (Section 159) a Form of Annual
Return, which is required to be furnished by the Company having share capital
every year. Column III of this Form, which deals with capital structure of the
company, provides the breakup of “issued shares capital breakup”.
This column does not include in it the “premium amount collected by the
company from its shareholders on its issued share capital”. This was
indicative of the fact that such amount was not considered a part of the
capital unless it was specifically provided in the relevant section.

Further, section 78 of the Companies Act which deals with the
“issue of shares at premium and discount” requires a Company to
transfer the amount so collected as premium from the shareholders and keep the
same in a separate account called “securities premium account”. It
does not anywhere say that such amount be treated as part of capital of the
company employed in the business for one or other purpose, as the case may be,
even under the Companies Act.

The appeal was accordingly dismissed.

13 Capital Gains – Amount paid by the subsidiary to its parent
company, in a scheme of settlement between two groups of shareholders whereby
ownership of the holding company remained with the majority shareholders and
the subsidiary was transferred to the minority shareholders, could not be
charged to capital gains tax in the hands of the holding company.

CIT vs. Annamalaiar Mills (2017) 393 ITR 293 (SC)

M/s. Annamalaiar Mills (P.) Ltd., Respondent herein was a
holding company of M/s. Annamalaiar Textiles (P.) Ltd. Hundred percent shares
of M/s. Annamalaiar Textiles (P.) Ltd. were held by the Respondent-company. In
the Respondent-company, there were two groups of shareholders; the majority
shareholder called Group A was having 61.26 % shares whereas the minority
shareholders called Group B were holding 38.74 %, shares.

An agreement was entered
into between the two groups on June 24, 1985 by which Group A came to hold all
the shares in the holding company, i.e., the Respondent herein and Group B was
given 100 % shares in the subsidiary company, i.e., M/s. Annamalaiar Textiles
(P.) Ltd. However, M/s. Annamalaiar Textiles (P.) Ltd. also paid a sum of Rs.
42.45 lakh to the Respondent-company.

Proceedings under the Gift-tax Act were initiated in respect
of payment of Rs. 42.45 lakh received by the Respondent-company.

The Assessing Officer treated the amount of Rs. 42.45
lakhspaid by the M/s. Annamalaiar Textiles (P.) Ltd. to the Respondent-company
as capital gains on the footing that since both the companies were now 100
% owned by Group A or Group B, as the
case may be, payment of Rs. 42.45 lakh was to offset valuation of the shares of
M/s. Annamalaiar Textiles (P.) Ltd.

The order of the Assessing Officer was upheld in the appeal
before the Commissioner of Income-tax (Appeals). However, the Income-tax
Appellate Tribunal, Madras, in appeal preferred by the Respondent herein
accepted the pleas put forth by the Respondent herein, set aside the assessment
and restored the matter to the Income-tax Officer so that the assessee may
approach the Central Board of Direct Taxes. The Income-tax Officer was further
directed to finalise the assessment in accordance with the directions that may
be given by the Central Board of Direct Taxes.

The matter was taken up before the High Court of Madras and
the order of the Tribunal was upheld by the Madras High Court.

The sole question which arose for
our consideration before the Supreme Court was therefore as to whether the sum
of Rs. 42.45 lakh paid by M/s. Annamalaiar Textiles (P.) Ltd. to the
Respondent-company was liable to any capital gains or not.

The Supreme Court noted that it was not in dispute that M/s.
Annamalaiar Textiles (P.) Ltd. did not pay any amount to the shareholders who
ultimately got the shares transferred in their names. The Respondent was
holding 100 percent shares of M/s. Annamalaiar Textiles (P.) Ltd., before it
was transferred to Group B. No payment was made to the shareholders belonging to
Group B and, therefore, the question of there being any capital gains at the
hands of the Respondent herein does not arise.

The
Supreme Court also noted that the transaction of payment of Rs. 42.45 lakh had
been subjected under the Gift-tax Act and the Department could not claim both
under the Gift-tax Act and also levy tax under the Income-tax Act.

In view of the above, the Supreme Court did not
find any merit in the Civil Appeal and the same was dismissed.

BCAJ Admin

From The President

Priyanka Chopra, the
internationally acclaimed actress recounted how an American Indian once
remarked to her “Thank you for making us relevant”. I take this opportunity to
extend my deep gratitude to all members for electing and accepting me as the 69^th
President of the BCAS…but more importantly I want you all to assist me in being
relevant and useful in my role as President. I count on all of your support and
suggestions to make the Society more visible and an opinion leader that’s more
audible and respected in financial, economic and political circles.

For the benefit of the many
thousands of members who could not make it to the Society’s AGM, I would like
to share some thoughts from my incoming speech (printed elsewhere in this
journal). The theme was on “Building Bridges”, as a way to go ahead
successfully. We need, as members of BCAS, to constantly keep building
bridges…not only internally with different members and committees, but also
externally with other associations, bodies, organizations and the government at
all levels.

A bridge is a structure built over
an obstacle to provide connectivity and accessibility. Bridges unite us and
bring us together on the same page; enabling us to understand each other’s
challenges. With bridges, come two way exchange of ideas and thoughts…a
dialogue to help us to figure out how we can collaborate with each other and
grow mutually.

Having worked extensively within
the society at different levels over the last two decades, I suggest that we
concentrate our efforts in building four key bridges. I believe as we
transform, we grow! So TRANSFORMATION is high on my list of priorities.
I want to focus on increasing the resources of BCAS and one way is by expanding
the membership of our Society. Let’s target to reach the10000 mark in this
year, then to add greater momentum to our transformation and growth, we need to
have more youth in the BCAS. I think YUVA SHAKTI will be the key to
invigorating the Society. We must encourage young talent to participate and
take up larger responsibility in the functioning of the Society.

DIGITIZATION has been happening across the world, in India and
even in the BCAS. We need to step up the pace of digitization so that we are
better empowered to manage our resources and conduct our business. In addition
to being able to disseminate knowledge faster, we would be able to translate
information into action more effectively. In today’s highly competitive
business environment, NETWORKING
is the oxygen for success! Networking is an avenue that I feel we should use
more often; be it the government, corporate or fraternity level, we need to
step up our efforts.

These are just some of the ideas
that I have put together to get started. I appeal to all members to freely
offer your suggestions, so that collectively we can transform BCAS for renewed
growth.

The
68^th Annual General Meeting of
BCAS was made special by the Guest Speaker, Shri Piyush Goyal, Union
Minister of State for Power, Coal, New & Renewable Energy and Mines. In his
talk titled “Energising India – Changing Paradigm for Professionals”, he
invited Chartered Accountants to participate actively in the successful
implementation of the Goods & Services Tax (GST) by ensuring that their
clients do not engage in profiteering.

In his talk, liberally punctuated
with anecdotes and humour, he referred to GST as the “biggest transformation
that our nation has seen in our 70 years of independence”. He added that it was
redeeming for the CA community that it was introduced on July 1, which is also
celebrated as ‘CA Day’.

Shri
Goyal, a top ranked Chartered Accountant gently warned his fellow professionals
against tax evasion. “I request you not to evade taxes yourself and not to help
your clients evade tax. Every time you do that, remember you are depriving the
poor and needy of that resource,” the minister cautioned the CAs.

I believe there is considerable
merit in what our Prime Minister Shri Narendra Modi said at the Foundation Day
of the ICAI on July 1, after launching a new course. After defining the scenario
in India with figures, he appealed to the conscience of CAs, earnestly
requesting them not to support the menace of black money. He urged them to give
the right advice to their clients so that black money and corruption are kept
in check. Shri Modi went on to tell CAs that their signature is more powerful
than the PM’s; and that the government believes in the accounts signed by them.
“Your signature” he added, “carries immense faith, please do not break that
trust that is placed in you.”

The Prime Minister lamented the
fact that among the Big Four accounting firms in the world there is no Indian
firm. He urged the CAs to think big; saying that he hoped by 2022, there will
be a Big Eight, where four of the firms will be Indian. As a follow-up to his
address, Prime Minister Modi also sent out personalized emails to over two lakh
chartered accountants exhorting them “to pull their weight in combating
corruption and black money.” The networking platform which BCAS provides to its
members has earlier enabled many a professionals and firms to come together.
This year “Networking” is one of the agenda which we have set to exactly
promote this idea of enabling collaboration amongst the various professionals
which can ultimately help us realise the dream of some large Indian Firms.
Earlier also at BCAS we have experimented with this idea of networking
conclaves and time is now ripe to carry out such activities with more vigour.

Shri Ram Nath Kovind has emerged
victorious to become the 14th President of India. The NDA candidate, Shri
Kovind had the support of forty political parties winning 65% of the votes. The
71-year old President is the second Dalit to get a five year term at
Rashtrapati Bhavan, the country’s highest office. Hailing from Paraunkh village
in Bihar, a farmer’s son, President Kovind’s journey to Raisina Hill has been
quiet and unexpected.

Unassuming Shri Kovind is a law
graduate and has even cleared the civil services exam but did not join. He
practiced as a lawyer in the High Court and later in the Supreme Court and has
been the government’s standing counsel for over a decade. He is well equipped
to be President having vast experience of the inner workings of the Indian
democracy as a two-term Rajya Sabha MP and Governor of Bihar. He has a
spotlessly clean record and is known for his impeccable integrity.

He has devoted his life to public
service, working for the poor and marginalized. In his first speech after being
elected President, Kovind recalled his impoverished childhood and pledged to
represent all those struggling to make a living. On behalf of the BCAS, I
congratulate President Ram Nath Kovind and assure him of all our support in the
years ahead.

In
yet another well-thought out strategy to ensure tax compliance, the IT
Department declared u/s. 139AA of the IT Act that linking the PAN and Aadhaar
is mandatory for filing tax returns. The Supreme Court threw its weight behind
this move, upholding this section. This linkage aims at de-duplication, as many
unscrupulous people have multiple PAN cards. Predictably, there was an outcry
with many protests citing privacy issues. As a result the Supreme Court has set
up a nine judge bench to examine whether the right to privacy is a fundamental
right under the Indian Constitution. Let us wait for the decision.

Resenting the measure to link
numbers, a large section of the public has remained defiant and has not done
so. Only 25% of citizens have linked their PAN and Aadhaar…out of 32.41 crore
PAN Cards only 8.19 crore have been linked. Some have dug in their heels and
have decided to wait it out till the court delivers its judgement. Others have
declared they will snail mail their returns to the Central Processing Unit
instead of filing it online.

The good news is that the tax base
has widened to 62.6 million at the end of the last financial year from almost
40 million. This is the result of demonetisation and the numerous measures and
schemes offered by the government to come clean and avoid sleepless nights.
Speaking at the Income Tax Day celebrations in New Delhi, Finance Minister
Jaitley said that a deterrent had to be used to prevent anonymous people from
hiding ill-gotten wealth; and that the PAN-Aadhaar linkage was one such an
anti-evasion measure. He also added that tax rates need to become more
reasonable, but for that to happen the tax base needs to be expanded.

Before I sign off, I would like to
thank you all once again and look forward to your suggestions and support. Feel
free to write to me on president@bcasonline.org

Wishing you and your near and dear
ones a Happy 71^stIndependence Day !!

With kind regards

CA
Narayan Pasari

President

BCAJ Admin

Allied Laws

15 Arbitral Tribunal –
Arbitration clause can be read separately from the Agreement – Agreement should
at least be stamped. [Arbitration and Concilliation Act, (26 of 1996); Section
16(1)(a)]

Baleshwar Sharma vs. Nageshwar Pandey AIR 2017 DELHI 84

The issue involved in the matter was whether an arbitrator
can be appointed as per the clause mentioned in the MOU involving a property
situated in Goa. However, the validity of the MOU along with the legality
w.r.t. the MOU being non-registered was challenged by the Respondent.

The Delhi High Court held that the issue to be considered by
the Court was whether the MOU dated 24^th May, 2014, is required to
be duly stamped and registered for the Court to further proceed in the matter.
If the document is not required to be compulsorily registered, then the Court
can proceed to appoint an Arbitrator and leave all the questions regarding the
validity of the MOU to be decided in the arbitral proceedings. If, on the other
hand, the Court is of the view that the document is required to be compulsorily
registered, then clearly the Court will have to insist with the requirement of
the law being complied with.

First, there has to be a determination as to the stamp duty
payable on the MoU in question. Thereafter, the question of registration of
that document would arise.

It was held that having regard to
section 16(1)(a) of the Arbitration and Conciliation Act, the Court can delink
the arbitration agreement from the main document as an agreement independent of
the other terms of the document. The only exception would be if the Respondent
in the application demonstrates the agreement itself is void and unenforceable.
It is at that stage that the Court will consider the objection before
proceeding to appoint an Arbitrator. In the facts of the present case, it was
held that the MOU be sent to the Collector of Stamps of Goa for a proper
determination of the stamp duty payable thereon. Once the stamp duty and
penalty so determined is paid by the Petitioner to the concerned authority in
Goa in the manner as prescribed, the Court will take up further issues
including whether the said document is forged or fabricated as contended by the
Respondent, and further whether, if the answer to the said question is in the
negative, the said document requires compulsory registration. The petitions
were accordingly adjourned sine die.

16
Ex-Parte decision – Factual Position not considered – Original Authority
has decided ex-parte cannot operate as estoppel and the
Department cannot refuse to consider the factual position. [Constitution of
India, Art. 226]

Raagam Exports vs. Assistant
Commissioner of Customs, Tirupur 2017 (347) E.L.T. 249 (Mad.)

The issue faced by the
Hon’ble Madras Court was whether the dismissal of the petitioner’s appeal as
not maintainable by the Commissioner (Appeals) would disentitle the petitioner
to the relief sought for. Secondly, whether the Department could refuse to consider
the petitioner’s case when admittedly the Original Authority did not examine as
to whether the Bank Realization Certificate (BRC) was submitted within the time
permitted.

Even though the show cause
notices were received, the petitioner did not respond to the show cause
notices, resulting in an order of recovery of drawback in Order-in-Original.

Challenging the said order, the
petitioner preferred an appeal before the Commissioner (Appeals) and in the
memorandum of grounds of appeal, the petitioner specifically contended that
they had submitted all the original BRC to the Deputy Comm. and therefore the
entire demand is not sustainable.

However, it was contended that the appeal preferred was
time-barred and hence not maintainable. The net result being the order of the Original Authority having been confirmed, the
petitioner is not entitled to the relief sought for.

It was held commenting upon the non-submission/belated
submission of the BRC, that it should be held to be without jurisdiction, since
the Commissioner (Appeals) could not have rendered the findings on merits when
the appeal itself is held to be not maintainable.

Secondly, since the Original Authority proceeded ex parte and
concluded that the petitioner has not produced the BRC, it is clear that at no
point of time, the petitioner’s case was adjudicated by the authority to
ascertain as to whether the BRC was produced by the petitioner. Therefore,
merely because the Original Authority has decided ex-parte cannot
operate as estoppel and the Department cannot refuse to consider the
factual position, especially when the petitioner has prima facie
established before this Court that they have produced the BRC before the
concerned authority. Hence, the High Court held that the finding rendered by
the Commissioner(Appeals) as well as the respondent, the petitioner’s request
for considering their drawback claim should be independently adjudicated by the
authority.

17 Gift Deed – Transfer
without prior partition through valid documents – Invalid and void [Hindu Law,
Registration Act 1908; Section 17].

Sabitri Devi and Ors. vs. Lakhan and Ors AIR 2017 PATNA 85

The only issue that arose was whether a Joint family property
can be transferred via a gift deed, when there is partition done through
an unregistered document.

The plaintiff filed the simple suit for partition claiming
half share in the suit property. The defendant’s case is that there had been
partition between the parties earlier during the lifetime of Laldas (Defendant).

It was held by the Patna High Court that so far as genealogy
is concerned, there is no dispute. According to Hindu law, the family will be
presumed to be joint unless it is proved that there was partition. Since the
presumption is in favour of the plaintiff, it is for the defendants to adduce
reliable evidence in support of their case that there had been partition
between the parties by metes and bounds. Both the parties have adduced their
respective evidences in support of their cases.

Considering the documentary evidences i.e. the Dajbandi,
it is recited that the parties by the following Dajbandi i.e., separate takhta
came in possession and they are entitled to get their names mutated. Therefore,
the Dajbandi clearly speaks that partition was effected by separating
the lands by Dajbandi and the parties came in possession and this
document is evidencing this Dajbandi i.e. partition. The parties got
their separate possession and are entitled to mutate their names, it cannot in
any way be termed as memorandum of partition. Rather, it is a partition deed
and by this deed i.e. Dajbandi, the partition was effected by metes and
bounds. It is a settled principle of law that a document by which partition is
effected is compulsorily registrable and if it is not registered, then it is
inadmissible in evidence.

Now, if the Dajbandi i.e. documentary evidence adduced
by the defendants goes i.e. inadmissible and, therefore, cannot be looked into
nor can be considered, there is no other evidence to prove that there had been
previous partition. Moreover, as stated above, no other mode of partition has
been pleaded by the defendant.

So far as the gift deed is concerned, it was held by the
Hon’ble Court that, since there had been no partition between the parties and
there is unity of title and possession, so, the coparcener cannot transfer by
way of gift his share without the consent of the other coparcener. Since there
was unity of title and possession between the parties and there had been no
partition, the so-called gift deed, even if executed by Laldas, is a
void document and no valid title, interest and possession will pass on the
defendants.

18 Tribunal – Manner of
Disposal – Not to be in a manner to have more disposal but to have better
adjudication. [Central Excise Act, 1944; Section 35B, Section 35C]

Madhusudan Industries Ltd.
vs. Union of India 2017 (347) E.L.T. 249 (Mad.)

The only issue was whether the
Tribunal could dismiss the appeal on the ground that the annexures accompanying
the Memorandum of Appeal were not legible.

It was pointed out by the Petitioner that in the facts of the
present case, at the relevant point of time, the petitioner had submitted all
the relevant documents on which it proposes to rely upon. However, due to lapse
of time the documents have faded. It was submitted that fading up of the
documents on account of lapse of time would not be tantamount to the petitioner
not having produced the documents on which it places reliance.

It was submitted that in any case, on account of
non-production of the documents, at best, the Tribunal can draw an adverse
inference but the appeal cannot be dismissed on the ground of
non-maintainability.

The Hon’ble Court, while
holding that the interim relief granted by the Customs, Excise and Service Tax
Appellate Tribunal shall continue, the Hon’ble Court also stated that it is
hoped that the Tribunal shall keep in mind the fact that the Courts and the
Tribunals are respected for the matters which they adjudicate and not the
matters which they dispose of. While the Tribunal is required to endeavour to
decide as many cases as possible, disposal of appeals in such a cavalier
fashion would only give rise to more litigation and would not bring an end to
the same.

Video Conference – Permissibility – Request for video conference
by witness or party. [Code of Civil Procedure, 1908 – Rule 3, Rule 4]

International Planned Parenthood Federation (IPPF) vs.
Madhu Bala Nath AIR 2016 DELHI 71

In the present case, an application was filed under Order
XVIII Rules 3 & 4 of the Code of Civil Procedure for permitting the
recording of the statement of a witness through video conferencing.

This application was
rejected by the learned Single Judge on the reason that a witness who is a
resident of U.K simply feels that witness need not come to India in judicial
proceedings for recording of evidence. This is an unacceptable practice, more
so when admittedly the witness as per the statement made today before this
Court on behalf of counsel for the defendant is travelling over the world to many
countries/locations.

It was argued by the opposing counsel that video-
conferencing could not be allowed as the rights of an accused, under Article 21
of the Constitution of India, cannot be subjected to a procedure involving
“virtual reality”. Such an argument displays ignorance of the concept
of virtual reality and also of video-conferencing. Virtual reality is a state
where one is made to feel, hear or imagine what does not really exist.
Video-conferencing has nothing to do with virtual reality.

It was held by the Hon’ble
Court that the learned Single Judge, in the impugned order, has taken a very
narrow view of the matter. Merely because a witness is travelling over the
world and/or may have the financial resources to travel to India does not necessarily
imply that the Court must insist upon the witness personally coming to the
Court for the purpose of deposing before the Court and/or her
cross-examination.

The term
“personally”, if given a strict and restrictive interpretation would
mean that the accused had to be physically present in court. In fact, the
minority judgement in this case so holds. It has, however, been held by the
majority that the section had to be considered in the light of the
revolutionary changes in technology of communication and transmission and the
marked improvement in facilities for legal aid in the country. It was held, by
the majority, that it was not necessary that in all cases the accused must
answer by personally remaining present in court.

There may be circumstances or situations where physical presence of a
witness may be necessary and required by the Court. In such situations, it
would be obligatory on the witness to be present in Court. Where a witness or a
party requests that the evidence of a witness may be recorded through video
conferencing, the Court should be liberal in granting such a prayer. There may
be situations where a witness even though within the city may still want the
evidence to be recorded through video conferencing in order to save time or avoid
inconvenience, and the Court should take a pragmatic view.

In the present case, the request was felt to be
reasonable and the the view that the learned Single Judge erred in dismissing
the application.

BCAJ Admin

ETHICS AND U

Arjun: O hell with this profession!
Lord Krishna, please save me!

Shrikrishna: Arey Arjun, you are now
in practice over three decades. Well settled now. Then, why this frustration?

Arjun: I am really fed up with this
tax representation work. Nothing moves without corruption! So much wastage of
time and energy! And on the top of it, so much botheration and harassment. Life
has become miserable.

Shrikrishna: Relax, Parth. I have
explained to you the theory of Karma. You get the fruit of what you do.

Arjun: What do you
mean? Are we also corrupt?

Shrikrishna: What do you mean by
corruption?

Arjun: See, even for petty things, they take so much
of bribe! Right from locating your file – to passing of the order. Not only
that, even for delivering the order, you have to pay. They don’t do their duty
honestly.

Shrikrishna: I agree. But do you mean
bribery is the only form of corruption?

Arjun: Then what else is
corruption?

Shrikrishna: It could be corrupt
thinking, corrupt behaviour; any deviation from duty, especially knowingly, is
also corruption.

Arjun: I didn’t
follow what you want to say. Tell me, where we have not performed our duty.

Shrikrishna: See, Arjun. Your profession
is like that of the police. When you do audit, you are a financial police.

Arjun: I see your
point.

Shrikrishna: You curse
the police department for corruption. Do you sign all financial statements only
after
proper verification?

Arjun: Well, we
try our utmost to get all information and explanations. But as you know, we
cannot see everything.

Shrikrishna: And whatever discrepancies
you notice, how do you deal with them.

Arjun: Wherever
possible, we get it corrected. But sometimes, clients don’t accept the
correction. They insist on the presentation that suits them.

Shrikrishna: So they want it that way
only. That means some deliberate mistakes.

Arjun: Yes. After
all, it is to suit the banks, financial institutions and revenue authorities…
rather, all authorities under
all laws!

Shrikrishna: In short, adjustments!
Right?

Arjun: (smiles):
Yes, Lord. There is no financial statement without any ‘adjustment’.

Shrikrishna: And knowingly you sign them!

Arjun: There is no
alternative.

Shrikrishna: And still you say it is
‘True and Fair’. And also take full fees. Is it not corruption?

Arjun: There is a
point in what you are saying.

Shrikrishna: Further, you not only certify erroneous accounts, you help in
filing an erroneous return and then try to justify it as correct in the
tax-proceedings.

Arjun: In recent
years many such matters were exposed as scams or frauds. This has spoilt the
image of the profession. But what is the way out?

Shrikrishna: You need to act objectively, without fear or favour. You need to
be impartial.

Arjun: All this is
easy to say. But where is independence? If we do our duty strictly, we will
lose the assignment.

Shrikrishna: Then the entire profession needs
introspection. Where do we stand? Are we united? Have we lost our spine? Are we
compromising on principles?

Arjun: You have
opened my eyes. Still, unless we get united and act collectively, our voice
will never be heard. That is why people are running away from our core function
of audit.

Shrikrishna: True.
Then this is a serious ethical issue.

Arjun: Even the government does not listen to us.
There is no respect for the profession. We are being taken for granted. And see
the ever-increasing regulation! We can’t cope with it.

Shrikrishna: Government treats you like its own extended
arm. Your very survival depends on the laws and regulations. How can you raise
your voice?

Arjun: Then what is the solution?

Shrikrishna: Prove that you are indispensable. Be
assertive. You may lose a few clients; but eventually you will command respect.
Increase your credibility. That requires systematic working. And of course,
there is some sacrifice necessary.

Arjun: Unfortunately, the profession does not have
good and strong leaders. We lack courage and boldness to assert ourselves.

Shrikrishna: That is the reason… every time you have
to compromise on ethics. There is no point in blaming others. Stand up and
learn to say ‘No’ to ‘adjustments’. Update your knowledge, upgrade your skills
and maintain documents and discipline. Then you have nothing to worry. Good
rewards will flow. That is the theory of Karma.

Arjun: Yes, Bhagwan.

Om Shanti

(This dialogue is based on
the present unenviable situation of the CA profession and a few reasons for the
same.)

BCAJ Admin

FEMA FOCUS

ANALYSIS OF RECENT COMPOUNDING ORDERS

An analysis of some interesting compounding orders
passed by the Reserve Bank of India in the period March to June, 2019 and
uploaded on the website¹ is given below. This article refers to
regulatory provisions as existing at the time of offence. Changes in regulatory
provisions are noted in the comments section.

FOREIGN DIRECT INVESTMENT (FDI)

A. M/s. Shri Naveen Trehan

Date of order: 1^st March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

1. Purchase
of equity shares of an Indian company by an NRI through a resident savings bank
account.

FACTS

The NRI acquired equity shares of an Indian
company from an individual resident in India.

On 28^th January, 2016 the NRI
buyer issued a cheque drawn on HDFC Bank in favour of Indian resident
individuals towards payment of the sale consideration.

The said amounts were paid through the
resident savings bank account of the NRI maintained with HDFC Bank.

However, the NRI got converted his ordinary
resident savings account into an NRO account; the Foreign Investment Division
(FID) of FED advised the AD Bank to let the NRI know that his investment is
being treated as non-repatriable.

Regulatory Provisions

Paragraph 3 of schedule 4 of Notification No.
FEMA 20/2000-RB states that the amount of consideration for purchase of shares
or convertible debentures of an Indian company on non-repatriation basis shall
be paid by way of inward remittance through normal banking channels from abroad
or out of funds held in NRE/FCNR/NRO/NRSR/NRNR account maintained with an
authorised dealer or as the case may be with an authorised bank in India.

Regulation 5(3) (ii) of Notification No. FEMA
20/2000-RB states that a non-resident Indian or an overseas corporate body may
purchase shares or convertible debentures of an Indian company on
non-repatriation basis other than under Portfolio Investment Scheme, subject to
the terms and conditions specified in schedule 4.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Para 3 of schedule 4 read with regulation 5(3) (ii) of this
regulation

Purchase of equity shares of an Indian company by an
individual pursuant to becoming a Non-Resident Indian (NRI) through a
resident savings bank account

Rs. 39,00,000

15^th April, 2015 to 26^th April, 2018

Compounding penalty

A compounding penalty of Rs.75,350 was levied.

Comments

Under provisions of FEMA, once an Indian resident
becomes non-resident, his Indian savings bank account will be designated as NRO
bank account. However, the balance lying in this NRO bank account cannot be
utilised for buying shares of an Indian company either on repatriation or
non-repatriation basis.

The said funds can be utilised for undertaking
permissible transactions in the nature of local payments, transfers to another
NRO account, remittance of current income outside India net of applicable
taxes, etc., as permitted by the Foreign Exchange Management (Deposit)
Regulations, 2016.

B. M/s. Celon Laboratories Private Limited

Date of order: 15^th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

1. Received
consideration amount from third party for the allotment of shares to NRI on
non-repatriation basis.

2. Transfer
of repatriable shares issued to non-resident to another non-resident on
non-repatriation basis.

FACTS

The applicant, an NRI, was allotted equity
shares on non-repatriation basis, whereas the consideration of those shares was
received from DNA Biotec Limited, a resident Indian company on behalf of the
NRIs.

Further, NRIs were also allotted equity
shares of an Indian company on repatriation basis. These shares were
subsequently transferred to another NRI without any consideration and on
non-repatriation basis.

Regulatory Provisions

Regulation 4 of Notification No. FEMA
20/2000-RB which states that remittance has to be received from the same person
to whom shares are to be allotted.

Once shares are issued on repatriation basis,
the same cannot be converted into non-repatriation basis.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Issue 1: Receiving
consideration amount from third party for the allotment of shares to resident
outside India on non-repatriation basis

Issue 2: Transfer of
shares to non-resident under non-repatriation, which were originally held on
repatriation

Issue 1:
Rs. 1,07,25,000

Issue 2:
Rs. 71,68,340

Issue 1: 10 years, 3
months, 7 days

approximately

Issue 2: 8 years, 6
months, 1 day approximately

Compounding penalty

A compounding penalty of Rs. 2,15,470 was levied.

Comments

Under provisions of FEMA, extreme care needs to be
taken that entity / person to whom shares are issued is the same as the one who
has paid consideration and shares cannot be issued on behalf of anyone. Care
also needs to be taken for ensuring that once shares are issued on repatriation basis, the same cannot be transferred on non-repatriation basis.

C. M/s. Ibiz Consultancy Services India Pvt. Ltd.

Date of order: 13^th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Taking on record the transfer of shares in the
books of the company without certified FC-TRS.

FACTS

The company has taken the transfer of 40,000
shares on record without certified Form FC-TRS.

Form FC-TRS was submitted for certification
to the AD Bank on 14^th August, 2015, whereas the company has taken
the transfer of shares on record 18 days prior to filing of Form FCTRS with AD
Bank

Regulatory Provisions

Regulation 4 of Notification No. FEMA 20/
2000-RB which states that Indian company will record share transfer only upon
receipt of Form FC-TRS acknowledged by AD Bank

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Taking on record the transfer of shares in the books of the
company without certified FC-TRS

Rs. 4,00,000

18 days approximately

Compounding penalty

Compounding penalty of Rs. 10,080 was levied.

Comments

Any Indian company having non-resident
shareholders should ensure that any share transfer between resident and
non-resident is not taken on record without receiving Form FC-TRS duly
acknowledged by AD Bank.

D. Vijay P Uttarwar

Date of order: 12^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Transfer of shares of Indian company by way of
gift by a resident to non-resident without RBI approval.

FACTS

An Indian resident individual transferred
2,50,000 equity shares of Re. 1 each of an Indian company as gift to a
non-resident on 31^stMarch, 2016 without obtaining prior RBI
approval.

Post-facto approval was granted by RBI
on 12^th March, 2018.

Regulatory Provisions

Regulation 10A(a) of Notification No.
FEMA20/2000-RB which provides that transfer of shares by way of gift from
resident to non-resident is subject to prior RBI approval.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 10A(a)

Transfer of shares by way of gift by a resident to
non-resident without RBI approval

Rs. 2,50,000

2 years approx.

Compounding penalty

Compounding penalty of Rs. 51,375 was levied.

Comments

Transfer of shares by an Indian resident to
non-resident by way of gift requires prior RBI approval both under earlier FEMA
20 regulation as well as revised FEMA 20(R), dated 7^th November,
2017.

E. Ramasubramanian Balasubramanian

Date of order: 12^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Transfer of shares by way of gift by a resident to
a non-resident without RBI approval.

FACTS

The applicant is an NRI and is also a
promoter / director of an Indian company, viz., IBIZ Consulting Services India
Pvt. Ltd.

The applicant transferred 40,000 shares held
by him in the Indian company to IBIZCS Group Pte. Ltd, Singapore (a
non-resident entity) for a consideration of Rs. 4,00,000 on 9^th
July, 2015.

Transfer of shares by an NRI to an NR was not
a permitted transaction under automatic route during the said period.

Regulatory Provisions

Regulation 9(2)(ii) of Notification No. FEMA
20/2000 states that an NRI can transfer shares of an Indian company by way of
gift or sale only to another NRI.

Hence, NRI cannot transfer shares of an
Indian company to another person resident outside India.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 9(2)(ii) read with Regulation 3 of FEMA 20.

Transfer of shares by way of gift by an NRI to non-resident
without RBI approval

Rs. 4,00,000

2 years and 4 months

Compounding penalty

Compounding penalty of Rs. 52,400 was
levied.

Comments

It is interesting to note that earlier
Notification No. FEMA 20 provided that NRI could transfer shares only to
another NRI and not to any other person resident outside India without prior
RBI approval. The revised Notification No. FEMA 20(R) permits an NRI to
transfer shares to any other person resident outside India, including an NRI.

OVERSEAS DIRECT INVESTMENT
(ODI)

F. Aricent Technologies (Holdings) Limited

Date of order: 15^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2004

ISSUE

Making Overseas Direct Investment (ODI) in an
entity with an already existing Foreign Direct Investment (FDI) structure.

FACTS

The applicant, an Indian company, acquired
the shares of a Mauritian company, Aricent Mauritius Engineering Services PCC
(Aricent Mauritius), from its existing shareholders.

The total amount remitted by the applicant to
the existing shareholders for acquiring equity participation of 50.28%,
amounted to USD 9,00,00,000 (Rs. 572,58,60,000).

However, Aricent Mauritius was already
holding investment in an existing Indian company, Aricent Technologies Private
Limited, India (Aricent India) when ODI was made by the applicant Indian
company.

The resultant structure amounted to making
ODI in an entity with pre-existing FDI, which is not permitted without the
prior approval of RBI.

The entire structure, i.e., FDI and ODI, was
unwound before compounding application was filed.

Regulatory Provisions

Regulation 5(1) read with Regulation 13 of
Notification No. FEMA 120/2004-RB (‘FEMA 120’).

Contravention

Relevant para of FEMA 120 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 5(1)

Making Overseas Direct Investment (ODI) in a company with an
already existing Foreign Direct Investment (FDI) structure

Rs. 572,58,60,000

Three years, one month

Compounding penalty

Compounding penalty of Rs. 3,72,68,090 was levied.

Comments

It is interesting to note that existing Regulation
FEMA 120 governing outbound investment does not specifically mention that ODI
is not allowed in an entity which has FDI structure. Further, in the instant
case, RBI has specifically mentioned in the compounding order that the entire
structure, i.e., both FDI and ODI, was wound up before compounding application
was considered indicates that if both FDI and ODI are existing in one
structure, RBI may not compound the same unless it is unwound. Besides, in the
revised FAQs on ODI published by RBI in May, 2019, a specific answer has been
provided that FDI and ODI in one structure is not permissible under existing
ODI regulations.

Hence, care needs to be taken to ensure that even
in cases where an Indian entity is buying stake from existing investors of a
foreign company, the foreign company should not have any FDI in India to avoid
FDI and ODI in one structure.

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY

G. Mr. Sha Mathew

Date of order: 8^thMarch, 2019

Regulation: FEMA 21/2000-RB Foreign Exchange
Management (Acquisition and Transfer of Immovable property in India)
Regulations, 2000

ISSUE

Acquisition of immovable property in India by an
NRI without RBI permission.

FACTS

The applicant, Mr. Sha Mathew, an NRI,
acquired two agricultural properties in Kerala in the year 2012 without
obtaining prior permission from the Reserve Bank of India.

The immovable properties were acquired for a
total consideration of Rs. 16,38,700.

Regulatory Provisions

Regulation 8 of Notification No.
FEMA-21/2000-RB dated 3^rd May, 2000 provides that an NRI is not
eligible to purchase any agricultural property in India. Accordingly, the NRI
was advised to transfer the property to any resident person within six months
and not to repatriate the sale proceeds outside India without prior permission
of the RBI.

Contravention

Relevant para of FEMA 21/2000 Regulation

Nature of default

Amount involved (in rupees)

Approx. Time period of default

Regulation 8

Purchase of immovable property, being agricultural land, by
an NRI without RBI permission

Rs. 16,38,700

05 years, 10 months, 04 days, i.e., from 13^th
July, 2012 to 17^th May, 2018

Compounding penalty

Compounding penalty of Rs. 24,53,590
was levied.

Comments

In the instant case, based upon the
RBI’s letter to transfer the immovable property to a resident in India, the
applicant transferred the property in favour of his son, who was resident in
India. However, RBI determined the value of land at Rs. 40,30,000 based on a
valuation report as on the date of filing the compounding application.
Accordingly, undue gain was computed at Rs. 23,91,300 (difference between value
as per valuation report, i.e., Rs. 40,30,000 minus Rs. 16,38,700, being cost of
land). Hence, the compounding penalty of Rs. 24,53,590 was levied through which
the entire undue gain derived by the NRI on purchasing agricultural land was
neutralised. The quantum of penalty reflects the stringent view taken by RBI on
purchase of immovable property by citizens from select countries. The said
restriction is not applicable if such nationals are OCI card-holders²
.

OPENING AND MAINTAINING
ORDINARY SAVINGS ACCOUNT

H. Mr. Thakorbhai Dahyabhai Patel

Date of order: 18^thMarch, 2019

Regulation: FEMA5/2000-RB Foreign Exchange
Management (Deposit) Regulations, 2000

ISSUE

Transfer of funds from NRE account to
ordinary savings account.

FACTS

The applicant, Mr. Thakorbhai Dahyabhai
Patel, was an OCI and a person non-resident in India in terms of section 2(w)
of FEMA.

The applicant had opened and maintained an
ordinary savings bank account with ICICI Bank and Prime Co-operative Bank
Limited.

Being a non-resident, he was not eligible to
open and maintain an ordinary savings account as per extant FEMA guidelines.

The applicant had granted a loan of Rs.
1,39,01,100 to his friend, Mr. Narendra V. Solanki, a person resident in India,
in five tranches starting from 1^stApril, 2013 to 4^th
September, 2013, from his ordinary savings account maintained with ICICI Bank.

He had also charged interest at the rate of
6% per annum on the above loan.

The amount given as loan represented either
transfer of funds from his NRE Account maintained with HDFC Bank or amount
received from LIC on his father’s death.

For this purpose, the applicant has
transferred Rs. 85,01,100 from his NRE Account maintained with HDFC Bank to his
ordinary savings account maintained with ICICI Bank.

The loan was subsequently repaid in FY
2017-18.

Regulatory Provisions

Regulation 4(C) of schedule 1 to Notification
No. FEMA.5/2000-RB states that permissible debit of NRE account is transfer to
NRE / FCNR (B) accounts of the account holder or any other person eligible to
maintain such an account.

Regulation 4(i) and (ii) of Notification No.
FEMA.4/2000-RB regulates borrowing and lending in rupees between a person
resident in India and a person resident outside India.

Contravention

The amount of contravention is Rs. 85,01,100 and
the period of contravention is five years, seven months and six days from 4^th
January 2013 to 10^th August, 2018.

Compounding penalty

A compounding penalty of Rs. 1,13,758 was levied
in the case.

Comments

This case reflects a common violation wherein
persons resident outside India, specifically NRIs and OCI card-holders, open
savings bank accounts even when they are not resident in India. Once a person
becomes non-resident, he / she cannot open savings bank accounts and can
transact only through NRE / NRO Account in the manner which is permissible.
Further, if an Indian resident individual becomes non-resident, all his
existing savings accounts would be converted into NRO accounts and hence he
cannot operate his old savings account without changing its status to NRO
account.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLAIMER OF OPINION FOR REPORT
ISSUED ON FINANCIAL RESULTS IN TERMS OF SEBI LODR

RELIANCE INFRASTRUCTURE LTD. (31^ST MARCH, 2019)

From Auditor’s Report on standalone annual financial
results

1. We
were engaged to audit the standalone annual financial results of Reliance
Infrastructure Limited (the Company) for the year ended 31^st March,
2019, attached herewith, being submitted by the company pursuant to the
requirement of regulation 33 and regulation 52 of the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015 (Listing Regulations). Attention is drawn to the fact that the figures for
the last quarter ended 31^st March, 2019 and the corresponding
quarter ended in the previous year as reported in these standalone annual
financial results are the balancing figures between figures in respect of the
full financial year and the published year to date figures up to the end of the
third quarter of the relevant financial year. Also, the figures up to the end
of the third quarter had only been reviewed and not subjected to audit.

2. These
standalone annual financial results have been prepared on the basis of the
standalone annual financial statements and reviewed quarterly financial results
which are the responsibility of the company’s management. Our responsibility is
to conduct an audit of these standalone annual financial results based on our
audit of the standalone annual financial statements which have been prepared in
accordance with the recognition and measurement principles laid down in the
Companies (Indian Accounting Standards) Rules, 2015 as per section 133 of the
Companies Act, 2013 and other accounting principles generally accepted in India
and in compliance with regulation 33 and regulation 52 of the listing
regulations.

3. Our
responsibility is to conduct an audit of the standalone annual financial
results in accordance with the standards on auditing and to issue an auditor’s
report. However, because of the matter described in the paragraph below, we
were not able to obtain sufficient appropriate audit evidence to provide a
basis for an audit opinion on these standalone annual financial results.

4. We
refer to Note 10 to the standalone annual financial results which describes
that the company has investments in and has various amounts recoverable from a
party aggregating Rs. 7,082.96 crores (net of provision of Rs. 3,972.17 crores)
[Rs. 10,936.62 crores as at 31^stMarch, 2018 net of provision of Rs.
2,697.17 crores] comprising inter-corporate deposits including accrued interest
/ investments / receivables and advances. In addition, the company has provided
corporate guarantees during the year aggregating to Rs. 1,775 crores (net of
corporate guarantees aggregating to Rs. 5,010.31 crores cancelled subsequent to
the balance sheet date) in favour of the aforesaid party towards borrowings of
the aforesaid party from various companies, including certain related parties
of the company.

According to the management of the
company, these amounts have been mainly given for general corporate purposes
and towards funding of working capital requirements of the party which has been
engaged in providing engineering, procurement and construction (EPC) services
primarily to the company and its subsidiaries and its associates. We were
unable to obtain sufficient appropriate audit evidence about the relationship
of the aforementioned party with the company, the underlying commercial
rationale / purpose for such transactions relative to the size and scale of the
business activities with such party and the recoverability of these amounts.
Accordingly, we are unable to determine the consequential implications arising
therefrom and whether any adjustments, restatement, disclosures or compliances
are necessary in respect of these transactions, investments and recoverable
amounts in the standalone annual financial results of the company.

5. On
account of the substantive nature and significance of the matter described
above, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion as to whether these standalone annual
financial results:

(i) are
presented in accordance with the requirements of regulation 33 and regulation
52 of the listing
regulations; and

(ii) give
a true and fair view of the net loss and other comprehensive income and other
financial information for the year ended 31^st March, 2019.

6. (a)
We draw attention to Note 3 to the
standalone annual financial results regarding the scheme of amalgamation (the
scheme) between Reliance Infraprojects Limited (a wholly-owned subsidiary of
the company) and the company sanctioned by the Honourable High Court of
Judicature at Bombay vide its order dated 30^th March, 2011 wherein
the company, as determined by the Board of Directors, is permitted to adjust
foreign exchange gain credited to the standalone statement of profit and loss
by a corresponding credit to general reserve which overrides the relevant
provisions of Indian Accounting Standard 1 Presentation of financial
statements. Pursuant to the scheme, foreign exchange gain of Rs. 192.24
crores for the year ended 31^st March, 2019 has been credited to
standalone statement of profit and loss and an equivalent amount has been
transferred to general reserve.

(b) We
draw attention to Note 4 to the standalone annual financial results wherein,
pursuant to the scheme of amalgamation of Reliance Cement Works Private Limited
with Western Region Transmission (Maharashtra) Private Limited (WRTM),
wholly-owned subsidiary of the company, which was subsequently amalgamated with
the company with effect from 1^st April, 2013, WRTM or its
successor(s) is permitted to offset any extraordinary / exceptional items, as
determined by the Board of Directors, debited to the statement of profit and
loss by a corresponding withdrawal from general reserve, which override the
relevant provision of Indian Accounting Standard 1 Presentation of financial
statements. The Board of Directors of the company in terms of the aforesaid
scheme, determined an amount of Rs. 6,616.02 crores for the year ended 31^st
March, 2019 as exceptional item comprising various financial assets amounting
to Rs. 5,354.88 crores and loss on sale of shares of Reliance Power Limited
(RPower), an associate company pursuant to invocation of pledge of Rs. 1,261.14
crores. The aforesaid amount of Rs. 6,616.02 crores for the year ended 31^st
March, 2019 has to be debited to the standalone statement of profit and loss
and an equivalent amount has been withdrawn from general reserve.

Had the accounting treatment
specified in paragraphs 6(a) and 6(b) above not been followed, loss before tax
for the year ended 31^stMarch, 2019 would have been higher by Rs.
6,423.78 crores and general reserve would have been higher by an equivalent
amount.

7. We draw attention to Note 8 of the
standalone annual financial results. The factors, more fully described in the
aforesaid Note, relating to losses incurred during the year and certain loans
for which the company is guarantor, indicate that a material uncertainty exists
that may cast significant doubt on the company’s ability to continue as a going
concern.

8. We
draw attention to Note 9 to the standalone annual financial results which
describes the impairment assessment performed by the company in respect of its
investment of Rs. 5,231.18 crores and amounts recoverable aggregating to Rs.
1,219.63 crores in RPower as at 31^stMarch, 2019 in accordance with
Indian Accounting Standard 36 Impairment of assets / Indian Accounting
Standard 109 Financial Instruments. This assessment involves significant
management judgement and estimates on the valuation methodology and various
assumptions used in determination of value in use / fair value by independent
valuation experts / management as more fully described in the aforesaid note.
Based on management’s assessment and the independent valuation reports, no
impairment is considered necessary on the investment and the recoverable
amounts.

…..

Notes below financial results of
Reliance Infrastructure Ltd. (extracts of relevant notes)

3.
Pursuant to the scheme of
amalgamation of Reliance Infraprojects Limited with the company, sanctioned by
the Hon’ble High Court of Judicature at Bombay on 30^thMarch, 2011,
net foreign exchange gain of Rs. 98.98 crores and Rs. 192.24 crores for the
quarter and year ended 31^st March, 2019, respectively, has been
credited to the statement of Profit and Loss and an equivalent amount has been
transferred to General Reserve. Had such transfer not been done, the loss
before tax for the quarter and year ended 31^st March, 2019 would
have been lower by Rs. 98.98 crores and Rs. 192.24 crores, respectively, and
General Reserve would have been lower by Rs. 192.24 crores. The treatment
prescribed under the scheme overrides the relevant provisions of Ind AS 1 Presentation
of Financial Statements. This matter has been referred to by the auditors
in their report as an emphasis of matter.

4. Pursuant
to the scheme of amalgamation of Reliance Cement Works Private Limited with
Western Region Transmission (Maharashtra) Private Limited (WRTM), wholly-owned
subsidiary of the company, which was subsequently amalgamated with the company
w.e.f. 1^st April, 2013, during the quarter and year ended 31^st
March, 2019 an amount of Rs. 6,616.02 crores has been withdrawn from General
Reserve and credited to the statement of Profit and Loss against the
exceptional items of Rs. 8,597.36 crores and Rs. 12,797.36 crores for the
quarter and year ended 31^stMarch, 2019 representing a loss on sale
/ w/off of / provision for diminution in the value of certain financial assets
including Rs. 1,261.14 crores being loss on sale of investments pursuant to
invocation of pledge. Had such withdrawal not been done, the loss before tax
for the quarter and year ended 31^st March, 2019 would have been
higher by Rs. 6,616.02 crores and General Reserve would have been higher by an
equivalent amount. The treatment prescribed under the scheme overrides the
relevant provisions of Ind AS 1 Presentation of Financial Statements.
This matter has been referred to by the auditors in their report as an emphasis
of matter.

…..

8.
The company has incurred net
losses (after impairment of assets) of Rs. 913.39 crores during the year ended
31^st March, 2019. Further, in respect of certain loan arrangements
of certain subsidiaries / associates, certain amounts have fallen due and / or
have been reclassified as current liabilities by the respective subsidiary /
associate companies. The company is guarantor in respect of some of the loans /
corporate guarantee arrangements and consequently, the company’s ability to
meet its obligations is significantly dependent on material uncertain events
including restructuring of loans, achievement of debt resolution and
restructuring plans, time-bound monetisation of assets as well as favourable
and timely outcome of various claims. The company is confident that such cash
flows would enable it to service its debt, realise its assets and discharge its
liabilities, including devolvement of any guarantees / support to the
subsidiaries and associates in the normal course of its business. Accordingly,
the standalone annual financial results of the company have been prepared on a
going concern basis.

9.
The company has an investment of
Rs. 5,231.18 crores as at 31^st March, 2019 which represents 33.10%
shareholding in Reliance Power Limited (RPower), an associate company. Further,
the company also has net recoverable amounts aggregating to Rs. 1,219.63 crores
from RPower as at 31^st March, 2019. RPower has incurred a net loss
(after impairment of certain assets) of Rs. 2,951.82 crores for the year ended
31st March, 2019 and its current liabilities exceeded its current assets by Rs.
12,249.17 crores as at that date. Management has performed an impairment
assessment of its investment in RPower as required by Indian Accounting
Standard 36 Impairment of assets, Indian Accounting Standard 109 Financial
Instruments, by considering inter alia the valuations of the
underlying subsidiaries of RPower which are based on their value in use
(considering discounted cash flows) and valuations of other assets of RPower /
its subsidiaries based on their fair values, which have been determined by
external valuation experts and / or management’s internal evaluation. The
determination of the value in use / fair value involves significant management
judgement and estimates on the various assumptions including relating to growth
rates, discount rates, terminal value, time that may be required to identify
buyers, negotiation discounts, etc. Further, management believes that the above
assessment based on value in use / fair value appropriately reflects the
recoverable amount of the investment as the current market price / valuation of
RPower does not reflect the fundamentals of the business and is an aberration.
Based on management’s assessment and the independent valuation reports, no
impairment is considered necessary on this investment and recoverable amounts.

10.
The Reliance Group of companies, of which
the company is a part, supported an independent company in which the company
holds less than 2% of equity shares (EPC Company) to inter alia
undertake contracts and assignments for the large number of varied projects in
the fields of power (thermal, hydro and nuclear), roads, cement, telecom, metro
rail, etc. which were proposed and / or under development by the Group. To this
end, along with other companies of the Group, the company funded EPC Company by
way of EPC advances, subscription to Debentures and Preference Shares and
inter-corporate deposits. The aggregate funding provided by the company as on
31^st March, 2019 was Rs. 7,082.96 crores (previous year Rs.
10,936.62 crores) net of provision on Rs. 3,972.17 crores, Rs. 2,697.17
crores). In addition, the company has provided corporate guarantees during the
year aggregating (net of subsequent cancellation) to Rs. 1,775 crores.

The activities of EPC Company have
been impacted by the reduced project activities of the companies of the Group.
In the absence of the financial statements of the EPC Company for the year
ending 31^st March, 2019 which are under compilation, it has not been
possible to complete the evaluation of the nature of relationship, if any,
between the independent EPC Company and the company. At present, based on the
analysis carried out in earlier years, the EPC Company has not been treated as
related party.

Similarly, in the absence of full visibility on
the assets and liabilities of the EPC Company, and after considering the
reduced ability of the holding company of the Reliance Group of Companies to
support the EPC Company, the company has provided / written-off further Rs.
2,042.16 crores during the year in respect of the outstanding amount advanced
to the EPC Company. Given the huge opportunity in the EPC field, particularly
considering the Government of India’s thrust on infrastructure sector coupled
with increasing project and EPC activities of the Reliance Group, the EPC
Company with its experience will be able to achieve substantial project
activity in excess of its current levels, thus enabling the EPC Company to meet
its obligations. The company is reasonably confident that the provision will be
adequate to deal with any contingency relating to recovery from the EPC
Company.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I.
High Court

34. [2019] 105 taxmann.com 324 (Orissa HC) Safari
Retreats (P.) Ltd. vs. CC-CGST

Date
of order: 17^th April, 2019

High Court held that input tax
credit in respect of input and input services used for construction of
immovable property can be utilised for payment of GST on rent charged for
letting out such property and restrictions imposed u/s 17(5)(d) of Finance Act,
1994 would not be applicable in such cases

FACTS

The petitioner constructed a
shopping mall for the purpose of letting out the same to numerous tenants and
lessees. He paid GST on various inputs and input services consumed in the
course of construction of the mall. But the petitioner is liable to charge GST
on the rents charged for supply of services of letting out the units in the
mall. The petitioner approached the Revenue authorities as to whether he can
utilise the input tax credit of GST paid on inputs and input services used for
construction of the shopping mall towards payment of GST charged on rent
received from tenants of the mall. However, he was advised to deposit GST
liability without taking input tax credit, in view of restrictions placed as per
section 17(5)(d) of the CGST Act, 2017 and was warned of penal consequences if
he did not do so. Accordingly, the petitioner filed the present writ petition.

HELD

The Hon’ble High Court opined that
while considering the provisions of section 17(5)(d), the narrow construction
of interpretation put forward by the Department is frustrating the very
objective of the Act, inasmuch as the petitioner has to pay huge amount without
any basis. In the present case, the petitioner is retaining the property and is
not using it for his own purpose; he is letting out the property on which he is
covered under the GST, but still has to pay huge amount of GST for which he is
not liable. The Court noted that in light of the decision of the Supreme Court
in Eicher Motors Ltd. vs. Union of India 1999 taxmann.com 1769 (SC),
the very purpose of the credit is to give benefit to the assessee. Therefore,
it was held that when the assessee is required to pay GST on the rental income
arising out of the investment on which he has paid GST, the assessee would be
entitled to take ITC which is otherwise considered as blocked credit in terms
of section 17(5)(d) of the GST law.

35. [2019] TIOL-1443 (HC-Ahm.-GST) M/s Amit
Cotton Industries vs. Principal Commissioner of Customs

Date of order: 27^th
June, 2019

Circular 37/2018-Customs stating
that refund of IGST cannot be granted if the drawback is claimed at a higher
rate is contrary to the statutory rules and therefore has no legal force

FACTS

The applicant exported goods in
July, 2017 and availed drawback at 1% higher; he also availed refund of the
IGST paid in regard to the ‘Zero Rated Supply’, i.e., the goods exported out of
India. It is submitted that the refund ought to have been sanctioned
immediately irrespective of the fact whether the drawback was claimed at the
rate of 1% (higher rate) or at the rate of 0.15% (lower rate). Further, it is
not in dispute that the differential drawback is paid back. The Revenue argued
that the return of the drawback amount is a unilateral act not recognised in
law. Further, reliance was placed on Circular No. 37/2018-Customs dated 9^th
October, 2018 which categorically provides that it is not justified allowing
exporters to avail IGST refund after initially claiming the benefit of higher
drawback.

HELD

The Court noted that the contention
of the Revenue that there is no option available in the system to consider the
drawback to be paid back and therefore the applicant is not entitled to refund
of the IGST, is not acceptable. Further, the circular upon which reliance has
been placed cannot be said to have any legal force. The circular cannot run
contrary to the statutory rules, more particularly, Rule 96 referred. Rule 96
is relevant for two purposes. The shipping bill that the exporter may file is
deemed to be an application for refund of the integrated tax paid on the goods
exported out of India and the claim for refund can be withheld only if a
request is received from the Jurisdictional Commissioner, or if the export is
done in violation of the provisions of the Customs Act, 1962. Accordingly, the
respondents were directed to immediately sanction the refund of the IGST paid.

II.
AUTHORITY FOR ADVANCE RULING (AAR)

36. [2019] TIOL-173 (AAR-GST) Kansai Nerolac
Paints Ltd.

Date
of order: 19^th March, 2019

In case of supplies made between
distinct entities, Rule 28 of the Central Goods and Services Tax Rules, 2017
can be applied and the value will not be questioned, if the recipient is
eligible to avail full input tax credit

FACTS

The applicant is engaged in the
manufacture and sale of decorative and industrial paints to its customers
across the states from its factories and depots located all over India. They
seek a ruling as to whether value of supply of goods by one distinct entity
(factory / depot) to another distinct entity can be determined on the basis of
cost of production as the same depends mainly on cost of inputs and input
services, and which fluctuates, inasmuch as the company is contemplating
determining the value of supply of goods as per the second proviso to Rule 28
of the CGST Rules and replacing the existing method of valuation of goods,
viz., 110% of the manufacturing cost prescribed under Rule 30 of the Rules.

HELD

The Authority noted that Rule 28
has been specified to determine the value of transactions between related
persons – moreover, Rule 30 will come into operation in a situation where the
value of a supply of goods or services or both is not determinable by any of
the rules preceding Rule 30 of Chapter IV of the CGST Rules (thus Rule 28 is
the specified rule); also, as per the second proviso to Rule 28 if the
recipient is eligible for full ITC, the invoice value will be deemed to be the
open market value. Therefore, the Authority finds no breach by the applicant in
changing the method of determination of value of supply by the application of
Rule 28 instead of Rule 30.

37. [2019] TIOL-188 (AAR-GST) Time Tech Waste
Solutions Pvt. Ltd.

Date
of order: 27^th June, 2019

The provisions of section 51 of the
GST law dealing with tax deducted at source are not applicable to exempt
supplies

FACTS

The applicant is providing
conservancy / solid waste management service to Bally Municipal Corporation
(BMC) merged with Howrah Municipal Corporation (HMC). The BMC is deducting TDS
while paying consideration for the supply in terms of Notification
50/2018-Central Tax (Rate) and insists that the applicant take registration.
However, since their services are exempted in terms of serial No. 3 of
Notification 12/2017-Central Tax (Rate), they are not required to pay tax and
consequently not liable for registration.

HELD

The Authority noted that the
recipient is a municipal corporation, which is a local authority as defined in
section 2(69) of the Act. Article 243W refers to the functions listed under the
12^th Schedule and serial No. 6 of the Schedule refers to public
health, sanitation, conservancy and solid waste management. Therefore, the
applicant’s supply to BMC / HMC is a function mentioned under the 12^th
Schedule and their service is exempt. Since they are making an exempt supply,
the provisions of section 51 of the Act dealing with tax deducted at source do
not apply. Further, since supply of unbranded organic manure, unless packed in
containers, is classifiable under HSN 3101 and Municipal Waste is classifiable
under HSN 3825, supplies of both of these are exempt under serial Nos. 108 and
110 of the exemption notifications (goods) [2/2017-Central Tax (Rate)], and
therefore if the applicant’s turnover consists entirely of exempt supplies he
is not liable to registration u/s 23 of the Act.

38. [2019] 105 taxmann.com 143 (AAR-W. Beng.)
Senco Gold Ltd., In re

Date
of order: 8^th May, 2019

AAR held that the applicant can
discharge consideration for inward supplies to recipient by way of ‘book
adjustment’ and in such case, ITC will not be required to be reversed in light
of section 16(2) of CGST Act, 2017 prescribing condition of payment of value of
supply along with tax to the recipient within 180 days from the date of
invoices

FACTS

The applicant,
a manufacturer and retailer of jewellery and other articles made of gold,
silver, platinum, diamonds and other precious stones, also maintains a network
of franchisee-operated stores. The applicant raises tax invoices on the
franchisees for the supply of jewellery and other articles and also for
franchise support services in terms of the agreement periodically. On its part,
the franchisee also raises tax invoices on the applicant for the supply of old gold,
silver, etc. received from the customers. The applicant intends to settle the
mutual debts through book adjustments. The applicant sought the present advance
ruling on whether the input tax credit is admissible when he settles through
book adjustment the debt created on inward supplies from the franchisee, as in
light of section 16(2) of CGST Act, 2017 if the recipient fails to make payment
of value of supply along with tax to the supplier within 180 days from date of
issue of invoice, the recipient is liable to reverse ITC in respect of such
invoice.

HELD

The Authority noted that the
‘consideration’, as defined u/s 2(31), provides the scope and ambit for modes
of payment and it includes in relation to the supply of goods or services, any
payment made or to be made, whether in money or otherwise, and also the
monetary value of any act or forbearance. AAR held that if the payee owes the
payer a debt, and accepts a reduction in such a debt liability as a valid form
of payment, i.e., reduction in book debt (an asset in the payer’s books of
accounts) should also be regarded as a valid ‘consideration’ for a supply.
Therefore, AAR held that unless the law specifically restricts the recipient
from claiming the input tax credit when consideration is paid through book
adjustment, credit of input tax cannot be denied.

39. [2019] 105 taxmann.com 91 (AAR-Mah.) Puranik
Construction (P.) Ltd., In re

Date
of order: 20^th March, 2019

Once the construction project
qualifies to be an affordable housing project, the benefit of concessional GST
rate of 12% is available, irrespective of whether the project is undertaken by
a developer or a contractor appointed
by a developer

FACTS

The applicant engaged in the
business of civil construction of residential premises as a contractor has
proposed to enter into civil construction contracts with a developer for
construction of a residential project comprising of 135 buildings, wherein 98.5%
sq. mtrs. of FSI will be consumed for flats having residential units with a
carpet area of up to or less than 60 sq. mtrs., i.e., an ‘Affordable Housing
Project’ (AHP). The applicant sought a ruling on whether the construction
services proposed to be provided will qualify for the reduced GST rate of 12%,
as provided in Sr. No. 3, item (v)(c) of Notification No. 11/2017 Central Tax
(Rate) dated 28^thJune, 2017, as amended by Notification No. 1/2018
Central Tax (Rate), dated 25^th January, 2018.

HELD

AAR held that the issue was similar
to that raised in Prajapati Developers, In re [2018] 97 taxmann.com 21/69
GST 851 (AAR-Mah.) with a slight variation, i.e., in said application
it was the developer who had raised the question and in the present case it is
the contractor providing composite supply to the developer who is raising the
question. AAR held that the entry (v)(da) of Notification 01/2018 mentioned
above nowhere restricts the benefit to a ‘Developer’ only.

The Notification entry is qua
the supply of service and not qua the person and therefore once a
project qualifies as an AHP, the benefit of concessional rate of tax would be
available in respect of works contract services pertaining to low cost houses,
irrespective of it being supplied by the developer or the contractor. Since the
project proposed to be undertaken by the applicant qualified to be an AHP, AAR
held that the benefit of concessional rate of tax would be available to the
applicant.

BCAJ Admin

SERVICE TAX

I.
HIGH COURT

30. [2019] (25) GSTL 207 (Del.) Commr. of Central
Tax, GST, Delhi East vs. Team HR Services Ltd.

Date
of order: 24^th August, 2018

Invocation of extended period was
set aside as mere omission to fulfil one’s tax liability cannot automatically
lead the authorities to conclude that the assessee had practiced fraud or
misrepresentation

FACTS

The respondent was engaged in providing
services like marketing of car loans and other retail finance products which,
as per the department’s view, fell under the definition of ‘business auxiliary
service’. However, the respondent disclosed these services under the head
‘business support services’ when introduced with effect from 1^st
April, 2006 and filed its return.

Show cause notice was issued on 23^rd
July, 2008 proposing assessment of service tax for the period 1^stJuly,
2003 to 9^th September, 2004 and demanding tax under the head
‘business auxiliary services’ which was resisted by the respondent including
the invocation of extended period. Denying the contention of the respondent,
the demand was confirmed by the Commissioner.

Aggrieved, the respondent
approached the CESTAT against the imposition of tax liability along with
interest levied from 1^st July, 2003 onwards. CESTAT partially
confirmed the Commissioner’s order to the extent of levy of demand to the
extent of details filed by the respondent in its service tax return under the
head ‘business support services’ but set aside the extended period of
limitation invoked by the Department holding it to be unwarranted. Revenue
preferred an appeal before the Hon’ble High Court against the CESTAT order.

HELD

The Hon’ble High Court, relying on
decisions of the Hon’ble Supreme Court [2012 (9) SCC 753 and 2013 (288) E.L.T
161 (S.C)] dismissed the appeal filed by the Revenue holding that mere omission
to fulfil one’s tax liability cannot automatically lead the authorities to
conclude that the assessee had practiced fraud or misrepresentation and found
no reasons to interfere with the order passed by the CESTAT.

II.
TRIBUNAL

31. [2019] (25) GSTL 257 (Tri. – Mum.) Commr. of
C. Ex. & S.T. (LTU), Mumbai vs. IDBI Bank Ltd.

Date
of order: 15^th March, 2019

Inadmissible Cenvat credit not
available to the assessee for any purpose, not even for payment of pre-deposit
under section 35F

FACTS

The respondent
was issued the impugned order on 30^th June, 2016 by the Commissioner
disallowing the Cenvat credit and raising the service tax demand of Rs.
61,49,57,000. The respondent preferred an appeal before the Tribunal which,
under Rule 6(3B) of Cenvat Credit Rules, 2004 reversed the 50% Cenvat credit
amounting to Rs. 30,74,78,500 (equivalent to 50% of demand raised). However, no
pre-deposit amount equivalent to 7.5% of the disputed adjudged demand was made
u/s 35F of the Central Excise Act, 1944.

Revenue filed a miscellaneous
application challenging the maintainability of the appeal filed by the
respondent on the ground that the respondent had failed to meet the
prerequisites to file an appeal.

HELD

The Hon’ble
Tribunal affirmed the Revenue’s view, allowed the miscellaneous application
filed by the Revenue and directed the respondent to comply with the
requirements of section 35F read with section 83 of the Finance Act, 1994
within a period of 30 days from the date of receipt of order.

32. [2019] (25) G.S.T.L. 230 (Tri. – Hyd.) Bayer
Bio Science Pvt. Ltd. vs. Commr. of Cus., C. Ex. & S.T., Hyderabad-II

Date
of order: 26^th February, 2019

Providing guidance does not amount
to rendering of scientific and technical consultancy services since it amounts
to merely transferring of knowhow

FACTS

The appellant,
who was engaged in the activity of developing seeds of new varieties and
hybrids, had an agreement with its client in Germany to provide the services
under the guidance of its client. The appellant had a plant-breeding team which
looked for specific traits from the germplasm and then cross-pollinated such
plants with existing parental lines. Such varieties were tested for seven to
nine years across various climatic zones in the country to check their
performance. Reports were sent to its client who thereafter filed a patent
application and obtained Intellectual Property Rights (IPR) for the hybrid
seeds so produced. As per another set of agreements, the appellant provided
guidance to farmers for a fee to multiply the hybrid seeds which they provided
to farmers for multiplication and to purchase the seeds so produced for a
price; it sold the seeds for profit. The above appeal was filed contesting the
demand of service tax on the above services as ‘Scientific and Technical Consultancy’
services.

HELD

The Hon’ble CESTAT, after a
detailed perusal of the facts of the appellant, held that the services rendered
by it to its client in Germany were in the nature of Scientific and Technical
Consultancy services and were exempt from the levy for the period 1^stApril,
2004 to 14^th March, 2005 and were held as Export of Services under
Rule 3(1) of the Export of Services Rules for the period thereafter.

So far as the second element of the
demand was concerned, it was held that guidance provided by the appellant is
known as extension-education which involved merely transferring the knowhow to
farmers and no involvement of scientific or technical research. Therefore, the
said appeal was allowed setting aside demands, interest as well as the
penalties arising out of the impugned order.

33. [2019] (25)
G.S.T.L. 263 (Tri. – Chenn.) Ambika Cotton Mills Ltd. vs. Commissioner of GST
and C. Ex., Madurai

Date of order: 7^th March, 2019

Demand cannot
be raised invoking the extended period of limitation by issuing fresh show
cause notice abating the previous notice after the retrospective introduction
of the liability in the statute

FACTS

The appellants, engaged in
manufacturing of cotton yarn, had availed services of transporters during the
period 16^th November, 1997 to 1^st June, 1998. Show cause
notice was issued on 30^th August, 2001 alleging suppression of facts
and invoking the extended period of limitation. Later, the Finance Act, 2000
brought the retrospective amendments to validate the recovery of the service
tax. Till then it was settled that the recipient of the service could not be
made liable to pay service tax vide the Supreme Court judgement in the case of Laghu
Udyog Bharti vs. Union of India 1999 (112) ELT 365 (SC).

Subsequent to
the said amendment, a second show cause notice was issued on 27^thApril,
2004 to the appellants for demand of service tax for the period 16^th
November, 1997 to 1^st June, 1998, wherein it was stated that the
said notice arose out of the show cause notice issued earlier. However, in the
operative portion of the notice, contradicting its own statement, it specified
that the earlier notice issued on 30^thAugust, 2001 abates and
stands withdrawn.

HELD

The Hon’ble CESTAT held that when
there is no liability on the appellants, the expectation from it to file
returns and pay tax is unwarranted. The ingredients for invocation of extended
period were absent and therefore the demand was held unsustainable. Allowing the
appeal, the impugned order was set aside.

34. [2019] (25) G.S.T.L. 110 (Tri. – Del.)
Executive Engineer E., C/o BSNL vs. Commissioner of Central Excise and Service
Tax, Jaipur

Appellant, a telecommunication
service provider, provided service to its associate company and thus service
provided to one’s own self does not result in a taxable event

FACTS

The appellant is a holder of
service tax registration under the category of ‘Telecommunication Service’ and
provided such services to its telecommunication operators and its associate
company for which the appellant has collected monthly charges and discharged
tax on the same. It was evident that its associate company had booked the
amount as income in the books of accounts. However, the appellant had not
considered the said amount as taxable; as a result, a show cause notice dated
20^th October, 2014 was served on the appellant raising the demand
along with the appropriate interest and penalty which was confirmed by the
order under challenge.

HELD

The Hon’ble Tribunal held that for
the provision of service there had to be a service provider as well as a
service recipient. The appellant was a service provider and an associate
company was the service recipient; both had different service tax registrations
but under the same PAN as both had the same incorporation. The law mandatorily
required existence of two different entities which was missing in the instant
case and hence the transaction was not termed as provision of service. It was
certain that service provided to one’s own self is not a taxable event.
Therefore, the Department was not entitled to invoke the extended period of
limitation, thus the show cause notice was held time-barred. The order under
challenge was set aside and the appeal was allowed.

35. [2019] 105 taxmann.com 344 (Chandi. – CESTAT)
DLF Commercial Projects Corporation vs. CST

Date
of order: 22^nd May, 2019

When the appellant obtained land /
development rights from land-owning companies on behalf of another entity and
the land-owning companies had not transferred the development rights to the
appellant, the Tribunal held that such activity being only acquisition of land,
the same would be outside the definition of ‘service’ u/s 65B(44) of the
Finance Act, 1994

FACTS

M/s. DLF Ltd. (DLF) is engaged in
the business of construction and development of integrated townships. As per
its business module, it appointed the appellant to purchase the land /
development rights on its behalf from various land-owning companies (LOCs),
obtain necessary permissions / approvals from various Government authorities
for carrying out development of land and to hand over the land to DLF for
further development, and thereafter to transfer the same to the appellant for
construction and sale of flats / properties developed by DLF to prospective
buyers. DLF would pay advances to the appellant which in turn would remit the
same to various LOCs and which in turn would purchase the lands.

At the time of transferring the
constructed property to prospective buyers, there is a tri-pirate agreement
between the land-owning company, DLF and the prospective buyers and documents
of transfer of title are executed at that time. Revenue alleged that the
appellant has transferred development rights to DLF and therefore was liable to
pay service tax on amounts received by it from DLF as business advances from
which the appellant had paid the LOCs. The impugned demand was confirmed along
with interest and penalty was imposed. Being aggrieved, the appellant filed the
present appeal.

HELD

The Hon’ble
Tribunal noted that the agreement between the appellant and the LOCs provided
that on acquisition of land the appellant was required to transfer the
development rights to DLF. Further, it observed that the ownership of land /
development rights was never transferred by the LOCs to the appellant and the
LOCs remained the owner of the land. The Tribunal therefore held that when the
appellant never remained the owner of the land at the time of receiving the
advance from DLF against purchase of land, they cannot transfer the land
development rights to DLF. Thus this is mere transaction of the sale and
purchase of land, or purchase of land by the appellant for DLF for further
development. As the appellant did not get any ownership of the land, in the
circumstances transfer of development right does not arise.

Further, the
Tribunal observed that when the LOCs transfer land development rights to the
developers, the developers get the right to not only develop their project on
such land but also the right to sell such developed property along with
undivided interest in the land underneath and to receive payments for such
transfers from the buyers. Once the land-owning companies transfer the land
development rights to the developer for a consideration, they are obligated to
transfer the undivided interest in the land in favour of developer’s buyers for
which no separate consideration is paid. In other words, such transfer of
undivided interest in the land by the land-owning company is in return for the
initial consideration paid by the developer to it for transfer of land
development rights only.

Thus,
it is the ownership of the land, which stands transferred effectively by the
land-owning company in return for consideration payable by the developers. The
moment it is either land or ‘benefits arise out of land’, it goes outside the
purview of ‘service’ as defined in section 65B(44) of the Finance Act, 1994.
The Tribunal also noted that under similar factual circumstances, in Premium
Real Estate Developers vs. CST [2018] 100 taxmann.com 471 (New Delhi – CESTAT),
the impugned service tax demand on amounts received by the appellant therein
for acquisition of land was set aside.

BCAJ Admin

SOCIETY NEWS

TECHNOLOGY INITIATIVE STUDY CIRCLE

‘Tricks and Tips of GST compliances in Tally
ERP9’ held on 4^thand 8^th June, 2019 at BCAS Conference
Hall

The Study Circle meeting on this
important subject was led by CA Punit Mehta, a practicing fellow Chartered
Accountant and a Director of Aimtech Business Solutions Pvt. Ltd. Punit is a
regular speaker at various seminars and conferences. He has also conducted
several training and workshops on Tally software implementation at study
circles and branches of the WIRC of the Institute of Chartered Accountants of
India and of the BCAS.

In the course of the programme, CA
Punit covered the importance of the ‘Alt + N’ function, the key role of
Hierarchy for incorporating the GST number, the issue of invoice of different
locations with the same Tally company, issue of invoice to the customer for
various locations with the same ledger along with many more different tricks
for ease of compliance along with practical demonstrations. He shared his
in-depth knowledge with the participants and answered all the questions raised.

FEMA STUDY CIRCLE

Meeting on ‘Overseas Direct Investment – Procedure &
Documentation’ held on 8^th June, 2019 at BCAS Conference Hall

CA Kaumudi Joshi led the discussion
on the subject ‘Overseas Direct Investment – Procedure & Documentation’. A
banker by profession, she shared her vast knowledge about the procedure to be
followed and documentation to be submitted to the authorised dealer in relation
to overseas direct investments. She shared her insights on common errors
committed while submitting the form for ODI. The members appreciated her
presentation.

HRD STUDY CIRCLE

Meeting on ‘Breath the Healer’ (Breath heals life! Breath is
life!) held on 11^th June, 2019 at BCAS Conference Hall

Between birth and death, we live
life. How happy and peaceful our life depends a lot on our health. Proper
breathing is essential not just for healthy lungs but also for good health.

The presentation emphasized the
techniques of breathing and pointed out how we neglect giving time to
ourselves. By consciously training ourselves to breathe correctly, we can live
a long and healthy life.

Wrong breathing can be harmful. It
can cause blockages and prevent proper blood circulation. We forget that breath
is free and proper breathing is in our hands. We must learn to breathe
correctly, training ourselves consciously so that proper breathing is an automatic
occurrence.

The participants found the
learnings from Mr. Pravin Mankar very useful and requested more such meetings.

INTERNAL AUDIT CONCLAVE

‘Joining Hands to Raise the Bar – Taking
Internal Audit to New Heights’ held on 20^th and 21^st
June, 2019

The two-day foundation course was
conducted at Hotel Orchid and attracted a full house of more than 75
participants, with a healthy mix of practicing members as well as members in
the industry, including a few who came from outside the city.

The programme
provided the participants the opportunity to learn, unlearn, debate, discuss
and network. The eminent speakers, a careful mix of Chief Internal Auditors,
Audit Committee Chairs and Internal Audit Partners, shared their knowledge with
the participants, liberally interspersing their talks with their own
experiences in handling audits, from either side of the table.

CA Mario Nazareth, the
Keynote speaker, set the tone by urging participants to shake off their
complacency and be aware and responsive to the changing environment.

CA Satish Shenoy highlighted
the importance of being agile and thoughtful, acquiring new skill sets and
harnessing technology.

CA Ashutosh Pednekar spoke on
the audit of related party transactions from the viewpoint of the Internal
Auditor. His suggestions included comparing terms and conditions agreed with
related parties to those agreed with third parties and checking to see whether
related parties are rated and evaluated just like third parties.

CA Nandita Parekh brought out
the essence of the audit exercise by identifying the key Internal Audit
matters. She candidly shared the need to decide upon three things right at the
start of every engagement – the rules of the game, the stakes and the quitting
time.

The speakers on the second day took
the momentum forward and provided a lot of food for thought to the
participants.

CA Shailin Desai dwelt on
the differences between an Internal Audit and an investigation, highlighting
the use of technology to identify data patterns. He gave many practical
suggestions such as approaching industry forums to understand the specific
industry-related frauds and accessing the reporting done to the whistle-blowing
mechanism and their resolution.

CA Nawshir Mirza spoke about
the responsibility of those charged with governance in setting the tone at the
top for an empowered Internal Audit function. He emphasised the need to build a
strong relationship with the Audit Committee and insist on regular meetings.

CA Jyotin Mehta shed light on
auditing the Compliance Function which gives comfort to the Boards. He spoke of
the merit in auditing the benefits that accrue to the organisation.

CA Naren Aneja touched the
very nerve of every organisation – auditing the organisation culture. After all,
the cover-page of a recent Harvard Business Review reads, The main challenge
isn’t technology, it’s culture.

The thoughtfully-curated two-day
conclave left the participants wanting more. A unique feature of the programme
was that the participants took it upon themselves to introduce the speaker
before the session and propose a well-deserved vote of thanks at the end.

With a balanced and vibrant faculty
keen on sharing their practical insights into the changing role and
expectations from the Internal Auditor, the foundation has been well laid for
many more interesting programmes in the future.

HUMAN RESOURCE DEVELOPMENT COMMITTEE

HRD Study Circle – ‘International YOGA Day Celebration’ held on 21^st
June, 2019 at BCAS Conference Hall

From 7.30 to 8.30 a.m. on Friday,
21^st June, the Committee organised a ‘Yoga’ session jointly with the
ISH foundation. This was to mark the International Yoga Day which falls on 21^st
June every year.

Pradeep Thakkar, a professional
Yoga teacher and also an active member of the ISH Foundation, guided the
participants who attended the programme.

He demonstrated and guided
participants to perform different Asanas with ease and comfort for a
healthy body and mental relaxation. He also taught some ‘powerful’ Asanas
to improve memory and also for different types of discomfort such as sciatica,
maintaining mental fitness, to keep the body flexible and tone the muscles.

TARANG 2K19 – CA STUDENTS’ ANNUAL DAY held on 29^th June,
2019 at K C College Auditorium

Four months ago, when the students’
team met with the members of the Human Resource Development Committee, the
success and grandeur of the past eleven glorious years began to reverberate in
everyone’s mind.

It was decided then that the 12^th
edition of the Jal Erach Dastur CA Students’ Annual Day under the brand of
‘Tarang’ had to be bigger and better. With this in mind, the students’ team
embarked upon the journey with enthusiasm and dedication for ‘Tarang 2k19’
led by the student coordinators – Mr. Rohit Dhanesha and Ms. Devyani Choksi.

This year ‘Tarang’ altered its
eleven-year-old essay-writing competition and turned it into a story-writing
competition to create a fun-filled and thrilling experience for the students.
This year’s edition also witnessed the reintroduction of the debate competition
which was last witnessed in Tarang 2k17.

There was a huge enrolment of 450
students in spite of the delay in CA exams and the various due dates on the 30^th
of June, 2019. There were as many as 260 participants in the contests, with the
highest number of participants in the talent show and the photography
competitions.

The event was organised by the BCAS
Students’ Forum under the auspices of the Human Resource Development Committee
of the BCAS for the CA students. It was sponsored by Mr. Sohrab Dastur and
supported by the Late Mr. Pradeep Shah and Family. The Students’ Forum
comprised of a team of 37 dedicated and enthusiastic students. The event was
truly an event ‘OF CA students, FOR CA students and BY CA students’. It
completely changed the perception regarding CA students as they excelled in
their roles as event managers, anchors, dancers, and photographers.

The ‘Tarang 2K19’ event
was held at K.C College Auditorium on 29^th June, 2019 from 4.00 pm
onwards.

It commenced with the lighting of
the traditional lamp by the HRD Committee and the student coordinators – with
the Ganesh Vandana and the Saraswati Vandana playing in the background,
invoking the blessings of Lord Ganesh, the god of Wisdom and Maa Saraswati, the
Goddess of Knowledge.

The three finalist teams of the
‘Antakshari’ competition, named as ‘Deewane’, ‘Parwane’ and ‘Mastane’, were the
first to take the stage. It had fun-filled and innovative rounds to test the
quick thinking of the participants while tickling their lighter side. Everyone
was astonished to witness the accuracy of CA students, even in the arena of
Bollywood songs and trivia. The event was hosted by the dashing CA Vijay Bhatt
who was accompanied by CA Tej Bhatt. Overall, it provided a great start to the
event and the audience actively participated throughout the show.

The next event was the debate which
had eight finalists who were declared on the spot. The moderator was our very
own Mr. Ryan Fernandes, who left the audience amazed with his moderation
skills. The topic for debate was given on the spot by Mr. Ryan – ‘Should there
be a Dress Code in Colleges?’ The judges and the audience were astonished with
the debating skills of the students. The audience was equally involved. To add
to the excitement, the moderator switched the ‘for’ and ‘against’ sides in the
last round to assess the spontaneous thinking of the students and that was a
fun-filled experience.

Mr Sohrab Dastur, Sr Advocate the
brother of late Jal Dastur, in whose name the event is conducted, was present
for the debate.

After the debate, one of the
student coordinators, Ms. Devyani Choksi, came on stage to talk about the other
events of the BCAS for all CA students throughout the year. CA Rajesh Muni, the
chairman of the HRD Committee, then felicitated all the students who were
actively involved in the students’ activities throughout the year under the
auspices of CA Raj Khona and CA Jigar Shah.

The next event was ‘Talk Hawk’
(sponsored by Smt. Chandanben Maganlal Bhatt Elocution Fund) wherein the three
finalists had to give a four-minute Ted Talk on any topic. This enabled a level
playing field for all participants who came up with impressive performances. It
was indeed a close contest, even for the judges to decide the winner. One could
only gasp at the ability of CA students to give motivational talks with such
wit and vigour.

This was followed by a 15-minute
break.

Then the time was ripe for the most
awaited event of the evening – ‘CA’s got Talent’. The singers had assembled,
the guitars, flutes, and violins were in place, dancers were on their feet and
actors began polishing their lines before they could thrill the audience with
their mesmerising performances. To give a spirited kick-start to this most
awaited event, the students’ team presented a three-minute flash mob which was
choreographed by CA Rishikesh Joshi.

The audience could sense that the
amazing flash mob was just a trailer of what they were going to witness in the
talent show. And rightly so, the 13 performances in music (which included
singing, instrumental and beatboxing), dancing and other performing arts,
enthralled the audience. The judges were fascinated, rather bewitched, by the
talent of the young CA students. They indeed had a Himalayan task of choosing
the winner.

After the talent show, the winning
film of the short film-making competition – ‘The Screenmasters’ was played. All
the films were so precisely shot that one could easily imagine chartered
accountants as the next big-league film directors.

Next, the best photographs from the
photography competition ‘Khinch Le’ were displayed. For the public choice
award, photographs were put up by the participants on the BCAS Tarang Page and
the photograph with the maximum likes was declared the winner. Participants
were given themes on which they had to click creative photographs and post
these on the Facebook Page with an innovative tagline based on the theme
selected. This competition saw a record participation of 51 entries and kept
the Facebook Page thundering. With such mind-boggling photographs, the judges
indeed had a herculean task of selecting the best.

With the clock ticking away, the
participants began crossing their fingers as the ice was about to be broken.

The winners of the competition
representing their firms were finally announced. The list goes as follows:

Story Writing Competition – ‘Ink It!’

Prize

Name of Student

Name of Firm

1^st Prize Winner

Isha Samant

Dhruv A. & Co.

2^ndPrize Winner

Prachi Gosalia

CNK & Associates LLP

3^rd Prize Winner

Janvi Kuruwa

GBCA & Associates LLP

The Rotating Trophy went to
Dhruv A. & Co.

Talk Hawk – ‘Aspire to
Inspire’

Winner

Tanvi Parekh

Talent Show – ‘CA’s Got
Talent’

1^st Prize
(Music-Singing Category)

Vanishree Srinivasan

1^st Prize
(Music-Others Category)

Prakhar Gupta

DK Surana & Associates

1^st Prize
(Dancing Category)

Tanvi Parekh

1^st Prize (Other
Performing Arts Category)

Nilay Gokhale

V.K. Bhate & Co.
Chartered Accountants

Antakshari Competition –
‘Suro ke Sartaaj’

Winning Team

Jagat Dave

Dipen Mehta & Co.

Akash Gupta

Amit Bhatt & Associates

Nikhil Taksande

ASBS & Co.

Best Individual Performer

Jagat Dave

Dipen Mehta & Co.

Drawing Competition – ‘The
Artpreneur’

1^stPrize Winner

Darshan Mamania

GBCA & Associates LLP

2^nd Prize Winner

Romil Goyal

3^rdPrize Winner

Amravati Saroj

S.K. Patodia &
Associates

Photography Competition –
‘Khinch Le’

Judges’ Choice Prize

Sophia Pereira

J.H. Gandhi & Co.

Public Choice Prize

Nilay Gokhale

V.K. Bhate & Co.,
Chartered Accountants

Short Film-Making
Competition – ‘The Screenmasters’

1^st Prize Winner

Pratik Hingu, Hardik Dedhia,
Hetana Shah, Ankit Shah and Viral Shah

Debate Competition – ‘War of
Words’

Winning Team

Gauri Kakrania

Phaphat and Rathi

Anirudh Parthasarathy

Tanvi Parekh

Best Debater

Gauri Kakrania

Phaphat and Rathi

Hearty Congratulations to
all the winners and their firms!

Judges for the various
competitions were as follows:

Competition

Elimination Round

Final Round

Story Writing

CA Narayan Pasari, CA
Namrata Dedhia and CA Sangeeta Pandit

Talk Hawk

CA Ashish Fafadia

CA Mukesh Trivedi

CA Aliasgar Kherodawala

CA Zubin Billimoria

CA Tushar Doctor

Talent Show

CA Suresh Subramanium

CA Hrudyesh Pankhania

Mr. Salil Jamdar

CA S. Padmanabhan

Mrs. Pallavi Choksi

CA Rishikesh Joshi

Antakshari Competition

Mr. Satyaprakash Dubey

CA Devansh Doshi

CA Ryan Fernandes

CA Kartik Srinivasan

Drawing Competition

CA Gunja Thakrar and Mrs.
Dipti Shah

Photography Competition

CA Divyesh Muni and Dr.
Candida Saldanha

Short Film-Making
Competition

CA Raman Jokhakar and CA
Charmi Shroff

Master Of Ceremony Contest

CA Nitin Shingala, CA Mihir
Sheth and CA Rajesh Muni

The entire evening was superbly
anchored by Mr. Monil Mehta, Mr. Akash Narayanan, Ms Raseeka Gokhale, and Ms.
Hemanshi Gandhi with their sheer display of energy and with mind-blowing
performances. The anchors were also supported by Mr. Nilay Gokhale, Mr. Kedar
Pandey, and Ms. Gauri Kakrania in hosting the show. Together, they ensured that
the audience had no reason to blink their eyes during the entire show.

Ms. Drishti Bajaj proposed the
well-deserved vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the
annual day in the fond memory of his brother, the late Jal Erach Dastur, the
family of Smt. Chandanben Maganlal Bhatt for sponsoring the Elocution
Competition, the members of the Managing Committee and HRD Committee, the
coordinators of the Annual Day, the photographer of the event, the BCAS Staff,
parents and principals of students, sound technicians, the vibrant team of
student volunteers and all the students for participating in big numbers.

A scrumptious
dinner was arranged after the event for all those who marked their presence at
the Annual Day. The underlying purpose of the event was to not only develop and
encourage skills and extracurricular participation but to bring together the
entire fraternity, which was well achieved this time again, leaving some
unforgettable memories. With this 12^th edition scaling new
heights and raising the bar, all eyes are now set on what the next edition has
to offer.

BEPS & INTERNATIONAL ECONOMICS STUDY
GROUP

Meeting on ‘How Tax Havens Damage Global Economy’ held on 1^st
July, 2019 at BCAS Conference Hall

BEPS and the International
Economics Study Groups held their joint meeting on 1^st July, 2019 to
discuss ‘How Tax Havens Damage Global Economy’. CA Rashmin Sanghvi and CA Kapil
Sanghvi (Jamnagar) led the discussions and presented their thoughts on the
subject.

CA Kapil
presented the basics of tax havens, which are those havens, how do MNCs manage
to avoid paying fair and legitimate taxes in the jurisdictions they operate in.
CA Rashmin Sanghvi, on the other hand, presented the mechanics of how ‘Tax War’
is being fought through the use of several means like treaty shopping,
resulting in substantial loss to India. He brought out how MNCs and the world’s
leading developed economies are facilitating erosion of tax revenue to the
detriment of developing countries like India.

CA Abhay Bhagat shared his thoughts
on the book – ‘The Big Nine – How the Tech Titans and Their Thinking
Machines Could Warp Humanity’ by Amy Webb wherein it is explained how
Artificial Intelligence will, by design, begin to behave unpredictably,
thinking and acting in ways which defy human logic. The big nine corporations
(six American, viz., Amazon, Google, Apple, IBM, Microsoft and Facebook, and
three Chinese, Baidu, Alibaba, and Tencent) may be inadvertently building and
enabling vast arrays of intelligent systems that don’t share our motivations,
desires, or hopes for the future
of humanity.

INTERNATIONAL ECONOMICS STUDY GROUP

Meeting on ‘Budget 2019 & Economic Survey 2018-19 @ Modi 2.0’
held on 11^th July, 2019 at BCAS Conference Hall

CA Rashmin Sanghvi and CA Kapil
Sanghvi (Jamnagar) led the discussions and presented their thoughts on
the subject.

CA Kapil spoke
on ‘Economic Survey & Budget 2019 # Economy @ $5 trillion’. He presented
the strategic blueprint of the government through the investment-driven
virtuous cycle, nourishing dwarf to become giant, use of behavioural economics
in policy-making and data-driven government.

CA Rashmin explained in detail the
examples of ‘Virtuous cycle’ of rupee appreciation and ‘Internal vicious cycle”
of rupee depreciation. He also presented his thoughts on some of the key
proposals of the budget such as Zero Budget Organic and natural farming, water
issues, targeted schemes, DBTs, rural infrastructure, and so on.

CA Rashmin also presented the
mechanics of how ‘Tax War’ is being fought through the use of several means
like treaty shopping, resulting in substantial loss to India.

He brought out how MNCs and the
world’s leading developed economies are facilitating erosion of tax revenue to
the detriment of developing countries like India.

CA Abhay Bhagat shared his thoughts
on the Book, ‘The Big Nine…’ by Amy Webb which describes how
Artificial Intelligence will, by design, begin to behave unpredictably,
thinking and acting in ways that defy human logic.

The big nine corporations (six
American and three Chinese) may be inadvertently building and enabling vast
arrays of intelligent systems that don’t share our motivations, desires, or
hopes for the future of humanity.

FEMA STUDY CIRCLE

Held on 12^thJuly, 2019 at BCAS Conference Hall

It was a remarkable beginning of
the new year of the study circle, which was graced by the presence of more than
50 FEMA enthusiasts. The room brimming with the energy of young members and the
icing on the cake was the presence of learned group leader CA Manoj Shah,
Chairman Mayur Nayak and our newly-elected BCAS President CA Manish Sampat.

CA Manoj Shah led the discussion on
Foreign Direct Investment in India. The group leader discussed each regulation
of FEMA 20(R) along with the relevant FAQ published by the RBI which enabled
360-degree coverage of the topic. A lot of emphasis was placed on the practical
aspects of FDI during the discussion.

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