August Archives

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.

levitra

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)

levitra

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?”

levitra

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.

levitra

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]

levitra

BCAJ Admin

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)

levitra

BCAJ Admin

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

levitra

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.

levitra

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.

levitra

BCAJ Admin

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

levitra

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,

levitra

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

levitra

BCAJ Admin

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

levitra

BCAJ Admin

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

levitra

BCAJ Admin

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.

levitra

BCAJ Admin

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.

levitra

BCAJ Admin

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.

levitra

BCAJ Admin

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…

levitra

BCAJ Admin

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

levitra

BCAJ Admin

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.

BCAJ Admin

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

levitra

BCAJ Admin

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.

levitra

BCAJ Admin

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.

levitra

BCAJ Admin

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.

BCAJ Admin

Glimpses Of Supreme Court Rulings

16. Business Income – Section 28(iv) of the Act
does not apply to a case where the receipt is in the nature of cash or money –
Section 41(1) of the Act does not apply in case of a waiver of loan as it does
not amount to cessation of trading liability.

The Commissioner
vs. Mahindra and Mahindra Ltd.

(2018) 404
ITR 1 (SC)

The Respondent [assessee],
way back, decided to expand its jeep product line by including FC-150 and
FC-170 models. For this purpose, on 18.06.1964, it entered into an agreement
with Kaiser Jeep Corporation (for short ‘the KJC’) based in America wherein KJC
agreed to sell the dies, welding equipments and die models to the Assessee. The
final price of the tooling and other equipments was agreed at $6,50,000
including cost, insurance and freight (CIF). Meanwhile, the Respondent took all
the requisite approvals from the concerned Government Departments. The said
toolings and other equipments were supplied by the Kaiser Jeep Corporation
through its subsidiary Kaiser Jeep International Corporation (KJIC).

However, for the
procurement of the said toolings and other equipments, the KJC agreed to
provide loan to the Respondent at the rate of 6% interest repayable after 10
years in installments. For this purpose, the Respondent addressed a letter dated
07.06.1965 to the Reserve Bank of India (RBI) for the approval of the said loan
agreement. The RBI and the concerned Ministry approved the said loan agreement.

Later on, it was informed
to the Respondent that the American Motor Corporation (AMC) had taken over the
KJC and also agreed to waive the principal amount of loan advanced by the KJC
to the Respondent and to cancel the promissory notes as and when they got
matured. The same was communicated to the Respondent vide letter dated
17.02.1976.

On 30.06.1976 the
Respondent filed its return for the assessment year 1976-77 and shown Rs.
57,74,064/- as cessation of its liability towards the American Motor
Corporation. After perusal of the return, the Income Tax Officer (ITO)
concluded that with the waiver of the loan amount, the credit represented
income and not a liability. Accordingly, the ITO, vide order dated 03.09.1979,
held that the sum of Rs. 57,74,064/- was taxable u/s. 28 of the Act.

Being dissatisfied, the
Respondent preferred an appeal before the Commissioner of Income Tax (Appeals).
After perusal of the matter, learned CIT (Appeals), vide order dated
23.03.1981, dismissed the appeal and upheld the order of the ITO with certain
modifications.

Being aggrieved, the
Respondent as well as the Revenue preferred appeals before the Tribunal. The
Tribunal, vide order dated 16.08.1982, set aside the order passed by learned
CIT (Appeals) and decided the case in favour of the Respondent.

Being aggrieved, the
Revenue filed a Reference before the High Court at Bombay. In that Reference,
three applications were filed, one by the Assessee and rest two by the Revenue.
Vide impugned common judgment and order dated 29.01.2003, the High Court confirmed
certain findings of the Tribunal in favour of the Respondent.

On
further appeal filed by the Revenue, the Supreme Court observed that the short
point for consideration before it was whether in the present facts and
circumstances of the case the sum of Rs. 57,74,064/- due by the Respondent to
Kaiser Jeep Corporation which later on waived off by the lender constitute
taxable income of the Respondent or not?

According to the Supreme
Court, the term “loan” generally refers to borrowing something,
especially a sum of cash that is to be paid back along with the interest
decided mutually by the parties. In other terms, the debtor is under a
liability to pay back the principal amount along with the agreed rate of
interest within a stipulated time.

The Supreme Court observed
that it is a well-settled principle that creditor or his successor may exercise
their “Right of Waiver” unilaterally to absolve the debtor from his
liability to repay. After such exercise, the debtor is deemed to be absolved from
the liability of repayment of loan subject to the conditions of waiver. The
waiver may be a partly waiver i.e., waiver of part of the principal or interest
payable, or a complete waiver of both the loan as well as interest amounts.
Hence, waiver of loan by the creditor results in the debtor having extra cash
in his hand. It is receipt in the hands of the debtor/Assessee.

According to the Supreme
Court, the short but cogent issue in the instant case was whether waiver of
loan by the creditor is taxable as a perquisite u/s. 28 (iv) of the Act or
taxable as a remission of liability u/s. 41 (1) of the Act.

The Supreme Court held that
on a plain reading of section 28 (iv) of the Act, prima facie, it
appeared that for the applicability of the said provision, the income which
could be taxed should arise from the business or profession. Also, in order to
invoke the provision of section 28 (iv) of the Act, the benefit which is
received has to be in some other form rather than in the shape of money.

In the present case, it was
a matter of record that the amount of Rs. 57,74,064/- was a cash receipt due to
the waiver of loan. Therefore, the very first condition of section 28 (iv) of
the Act, which says any benefit or perquisite arising from the business shall
be in the form of benefit or perquisite other than in the shape of money, was
not satisfied in the present case. Hence, according to the Supreme Court, in no
circumstances, it could be said that the amount of Rs. 57,74,064/- could be
taxed under the provisions of section 28 (iv) of the Act.

The Supreme Court further
held that on a perusal of the provisions of section 41(1) of the Act, it was
evident that it is a sine qua non that there should be an allowance or
deduction claimed by the Assessee in any assessment for any year in respect of
loss, expenditure or trading liability incurred by the Assessee. Then,
subsequently, during any previous year, if the creditor remits or waives any such
liability, then the Assessee is liable to pay tax u/s. 41 of the Act.

The objective behind this
section was simple. It was made to ensure that the Assessee does not get away
with a double benefit once by way of deduction and another by not being taxed
on the benefit received by him in the later year with reference to deduction
allowed earlier in case of remission of such liability.

It was undisputed fact that
the Respondent had been paying interest at 6% per annum to the KJC as per the
contract, but the Assessee never claimed deduction for payment of interest u/s.
(1) (iii) of the Act. In the case at hand, learned CIT (A) relied upon section
41 (1) of the Act and held that the
Respondent had received amortisation benefit. Amortisation is an accounting
term that refers to the process of allocating the cost of an asset over a
period of time, hence, it is nothing else than depreciation.

Depreciation is a reduction
in the value of an asset over time, in particular, to wear and tear. Therefore,
the deduction claimed by the Respondent in previous assessment years was due to
the deprecation of the machine and not on the interest paid by it.

Moreover, the purchase
effected from the Kaiser Jeep Corporation was in respect of plant, machinery
and tooling equipments which were capital assets of the Respondent. The said
purchase amount had not been debited to the trading account or to the profit or
loss account in any of the assessment years.

There is difference between
‘trading liability’ and ‘other liability’. Section 41 (1) of the Act
particularly deals with the remission of trading liability. Whereas in the
instant case, waiver of loan amounted to cessation of liability other than
trading liability. Hence, according to the Supreme Court, there was no force in
the argument of the Revenue that the case of the Respondent would fall u/s. 41 (1)
of the Act.

The Supreme Court dismissed
the appeal of the Revenue.

17. Reassessment – Section 147 of the Act does
not allow the re-assessment of an income merely because of the fact that the
assessing officer has a change of opinion with regard to the interpretation of
law differently on the facts that were well within his knowledge even at the
time of assessment

Income Tax
Officer vs. TechSpan India Private Ltd. and Ors. (2018) 404 ITR 10 (SC).

TechSpan India Private Ltd.
– the Respondent, was engaged in the business of development and export of
computer softwares and human resource services. It was eligible for deduction
u/s. 10A of the Act.

On 25.10.2001, the
Respondent filed its return of income for the assessment year 2001-02 declaring
a loss of Rs. 3,31,301/-. The Respondent, while filing the return for the
aforementioned period, has declared its income from two sources, namely,
software development and human resource development but claimed expenses
commonly for both. It also claimed deduction under Section 10A of the IT Act
for the income from the software development. The said return was accepted and
accordingly intimated to the Respondent.

The return was selected for
regular assessment under Section 143(3) of the Act and a show cause notice
dated 09.03.2004 was issued to the Respondent to show cause as to why the
expenses claimed with regard to the allocation of common expenses between the
two heads, viz., software development and human resource development do not
reveal any basis for such allocation. The issue was duly contested and decided
vide order dated 29.11.2004 and the proceedings ended with a rectification of
the Assessment Order u/s. 154 of the Act while arriving at an income of Rs. 31,63,570/-
which was fully set-off against the loss brought forward and the income was
assessed as ‘Nil’ for the assessment year 2001-2002.

On 10.02.2005, a Notice was
served upon the Respondent by the Revenue for re-opening the assessment u/s.
148 on the ground that the deduction u/s. 10A of the Act has been allowed in
excess and the income escaped assessment worked out to Rs. 57,36,811/- in the
original assessment. The Respondent filed a detailed reply objecting to the
re-assessment. However, by order dated 17.08.2005, the objections were rejected
and reassessment was approved by the Revenue.

Being aggrieved, the
Respondent challenged the above said show cause notice dated 10.02.2005 as well
as the order dated 17.08.2005 before the High Court. Vide judgement and order
dated 24.02.2006, the High Court set aside the show cause notice dated
10.02.2005 as well as the re-assessment order dated 17.08.2005.

Being aggrieved, the
Revenue has filed this appeal before the Supreme Court.

According to the Supreme Court,
the only point for consideration before it was whether the re-opening of the
completed assessment was justified in the present facts and circumstances of
the case?

The Supreme Court held that
the language of section 147 makes it clear that the assessing officer certainly
has the power to re-assess any income which escaped assessment for any
assessment year subject to the provisions of sections 148 to 153. However, the
use of this power is conditional upon the fact that the assessing officer has some
reason to believe that the income has escaped assessment. The use of the words
‘reason to believe’ in section 147 has to be interpreted schematically as the
liberal interpretation of the word would have the consequence of conferring
arbitrary powers on the assessing officer who may even initiate such
re-assessment proceedings merely on his change of opinion on the basis of same
facts and circumstances which has already been considered by him during the
original assessment proceedings. Such could not be the intention of the
legislature. The said provision was incorporated in the scheme of the Act so as
to empower the Assessing Authorities to re-assess any income on the ground
which was not brought on record during the original proceedings and escaped his
knowledge; and the said fact would have material bearing on the outcome of the
relevant assessment order.

According to the Supreme
Court, section 147 of the Act does not allow the re-assessment of an income
merely because of the fact that the assessing officer has a change of opinion
with regard to the interpretation of law differently on the facts that were
well within his knowledge even at the time of assessment. Doing so would have
the effect of giving the assessing officer the power of review and section 147
confers the power to re-assess and not the power to review.

To check whether it is a
case of change of opinion or not one has to see its meaning in literal as well
as legal terms. The word change of opinion implies formulation of opinion and
then a change thereof. In terms of assessment proceedings, it means formulation
of belief by an assessing officer resulting from what he thinks on a particular
question. It is a result of understanding, experience and reflection.

There is a conceptual difference
between power to review and power to re-assess. The Assessing Officer has no
power to review; he has the power to re-assess. But re-assessment has to be
based on fulfillment of certain pre-condition and if the concept of
“change of opinion” is removed, as contended on behalf of the
Department, then, in the garb of re-opening the assessment, review would take
place.

One must treat the concept
of “change of opinion” as an in-built test to check abuse of power by
the Assessing Officer. Hence, after 1^st April, 1989, Assessing
Officer has power to re-open, provided there is “tangible material”
to come to the conclusion that there is escapement of income from assessment.
Reasons must have a live link with the formation of the belief.

Before interfering with the
proposed re-opening of the assessment on the ground that the same is based only
on a change in opinion, the court ought to verify whether the assessment
earlier made has either expressly or by necessary implication expressed an
opinion on a matter which is the basis of the alleged escapement of income that
was taxable. If the assessment order is non-speaking, cryptic or perfunctory in
nature, it may be difficult to attribute to the assessing officer any opinion
on the questions that are raised in the proposed re-assessment proceedings.

Every attempt to bring to
tax, income that has escaped assessment, cannot be absorbed by judicial
intervention on an assumed change of opinion even in cases where the order of
assessment does not address itself to a given aspect sought to be examined in
the re-assessment proceedings.

According to the Supreme
Court, the fact in controversy in this case was with regard to the deduction
u/s. 10A of the IT Act which was allegedly allowed in excess. The show cause
notice dated 10.02.2005 reflected the ground for re-assessment in the present
case, that is, the deduction allowed in excess u/s. 10A and, therefore, the
income had escaped assessment to the tune of Rs. 57,36,811. In the order in
question dated 17.08.2005, the reason purportedly given for rejecting the
objections was that the Assessee was not maintaining any separate books of
accounts for the two categories, i.e., software development and human resource
development, on which it has declared income separately.

However, a bare perusal of
notice dated 09.03.2004 which was issued in the original assessment proceedings u/s. 143 made it clear that
the point on which the re-assessment proceedings were initiated, was well
considered in the original proceedings. In fact, the very basis of issuing the
show cause notice dated 09.03.2004 was that the Assessee was not maintaining
any separate books of account for the said two categories and the details filed
did not reveal proportional allocation of common expenses made to these
categories. Even the said show cause notice suggested how proportional
allocation should be done.

All these things lead to an
unavoidable conclusion that the question as to how and to what extent deduction
should be allowed u/s. 10A of the IT Act was well considered in the original
assessment proceedings itself. Hence, initiation of the re-assessment
proceedings u/s. 147 by issuing a notice u/s. 148 merely because of the fact
that now the Assessing Officer was of the view that the deduction u/s. 10A was
allowed in excess, was based on nothing but a change of opinion on the same
facts and circumstances which were already in his knowledge even during the
original assessment proceedings.

In light of the forgoing
discussion, the Supreme Court held that impugned judgement and order of the
High Court dated 24.02.2006 did not call for any interference. The appeal was
accordingly dismissed with no order as to costs.

BCAJ Admin

From the President

Dear Members,

Thank you for the trust
placed on me by electing me as the President of the Society. I will try my best
to fulfil the expectations of the members. My detailed acceptance speech is
published elsewhere in the Journal and reflects the annual plan focussing on
the prioritisation of BCAS activities to align with the member expectations
from the Society.

The month of July, named
after the Roman General Julius Caesar, is a busy month for most chartered
accountants. Immediately after exchanging festive greetings of the CA Day, the
action begins. The month is flooded with a series of tax and compliance
deadlines. With a mandatory late filing fee for personal income tax returns
introduced for the first time, the intensity of work for tax practitioners had
increased manifold. Considering various representations, the Government did it
well to extend the due date by one month. However, do such ad hoc last minute
extensions help or do they only increase the agony of those who religiously
planned their activities and filed the returns in the stipulated time? It is
obvious that such extensions can result in cluttering of personal income tax
returns with the tax audit returns. In effect, such extensions become a ‘curse
in disguise’.

At BCAS, July was a month
full of activities. The Founding Day Lecture by CA. Nilesh Shah on “India –
2019 & Beyond” was full of empirical data, wit and in-depth analysis. Two
lecture meetings, a curtain raiser event on “Internal Audit – Rising to the
Expectations”, an interactive panel discussion on “permanent establishments”,
numerous study circle and study group meetings – all of them received good attendance
and participation. The month saw release of four publications on diversified
topics. The Society was also active in making various representations under the
direct tax law, GST law, FEMA, etc. A detailed report of various activities
conducted by the Society in July is available in the Society News Feature. The momentum of activities will continue in the month of August as well, the
details whereof are available elsewhere in the Journal.

July was also a month where
we decided for the first time to open up the soft copy of the BCAJ to general
readers without login. This was a part of a onetime outreach program to
increase both the subscriber base and the advertisement opportunities. The
Journal Committee and the Editorial Board undertake substantial efforts, month
after month, every month to provide the readers content which is crisp,
in-depth and extremely qualitative and relevant. It is now for each of us to
make sure that the fruits of these efforts reach a much wider spectrum of users.

July will always be
remembered as the month when the landmark indirect tax reform called GST was
introduced. This being the first anniversary, it was all the more special!
While the reform had its own teething troubles and difficulties, some of which
continue to exist even today, what is important is the positive impact that it
has created for the industry as a whole. Many surveys were conducted last month,
including one by the BCAS. Most of them gave a ‘thumbs up’ to this extremely
controversial reform.

July is also a month which
brings rains in abundance. While rains bring in a respite from the hot sultry
weather and envelop Mother Nature with a lush green cover, the story in
metropolitan cities like Mumbai is very different. The rains invariably bring
to forefront the crumbling infrastructure of the city – be it the potholes on
the roads, the inadequacy of the drainage system resulting in waterlogging, the
falling bridges, miserably inadequate public transport and totally chaotic
situation of traffic, the average Mumbaikar bears it all and emerges as a
winner. While from a citizen’s perspective that is the spirit to emulate, from
the Government’s perspective, a lot of introspection and corrective action may
be required.

July also started with
anxiety on the face of lakhs of students who aspire to be future chartered
accountants. After all, the results for all the levels of examinations were due
this month. Ultimately, when the results were presented, the feelings of
anxiety were replaced with moments of joy or disappointment. My congratulations
to all the students who cleared the examinations. Enjoy your moments of glory
and get set for the next phase of your journey either as an article student or
as a qualified professional. After all, an examination/result is not a
destination, but merely a milestone in an eternal quest for knowledge. The
Society invites all freshly qualified professionals to become its members.
Through its time tested volunteering model, a strong ethical fabric and the
unwavering faith of its existing membership, the Society will leave no stone
unturned in grooming these young professionals into leaders of tomorrow.

As we move closer towards
the Independence Day, it is time perhaps to look at the attribute of
‘independence’ afresh, especially in the context of some of the recent
happenings in our profession. Each profession offers a distinct value
proposition to its stakeholders. Unlike many other professions, in my view, the
unique value proposition of the profession of chartered accountancy is the
assurance offered by the profession about the truth and fairness of the
financial statements. Any compromise on independence, either in form or in
mind, can severely compromise the quality of this assurance and therefore
independence is identified as an inextricable attribute of the audit
profession. It is for each of us to introspect and examine whether we have been
able to not only maintain the highest standards of independence but also
portray the same to all the stakeholders. We may like to defend the few
incidents as aberrations but we cannot make the mistake of disregarding them.
Think we must brainstorm, we must and then execute a proper action plan to
transform the profession. I would be keen to know your inputs on the steps that
we as individuals and the Society as a collective vehicle could take to restore
the pride towards the profession.

The profession also cannot
be oblivious to the rapid strides in technology and the impact that it is
likely to have on the profession. Many professions and products have vanished
since they were unable to keep pace with the changing times and technologies.
Adaptation is the key to survival and I am sure our profession will adapt to
the changes in the landscape. The Society will line up a series of events which
address this need of the profession.

I would be glad to receive
any feedback or suggestions on the functioning of the Society, events and
publications that you would like to witness, or any other matter concerning the profession.
Do write to me at president@bcasonline.org.

Warm
Regards

CA.
Sunil Gabhawalla

President

BCAJ Admin

BOOK REVIEW

“CRASH –
Lessons from the Entry and Exit of CEOs” by R. Gopalakrishnan

Mr. R.
Gopalakrishnan is a well-known corporate leader, management author and adviser
who needs no introduction. However, a few words about him will be useful to the
young reader.

He is the
author of best-selling books such as The Case of the Bonsai Manager, When
the Penny Drops: Learning What’s Not Taught and A Biography of Innovations:
From Birth to Maturity.

Interestingly,
Mr. Gopalakrishnan
studied physics at the University of Kolkata and Engineering at IIT Kharagpur.
He also completed an Advanced Management Programme at Harvard Business School.
Apart from serving as Chairman of Unilever Arabia, M.D. of Brooke Bond Lipton
and Vice-Chairman of Hindustan Lever, he has been Executive Director of Tata
Sons and several Tata group companies. At present he is Corporate Adviser, the
Mindworks, and is actively engaged in both instructional and inspirational
speaking.

While many
people talk about the path to the top of organisations, very few are honest
about how difficult it is to stay at that position. Mr. Gopalakrishnan
analyses the ‘software’ challenges which leaders confront every day and shares
the insights he has gained while developing, managing, investing in and
supervising a variety of companies. He points out that great leaders continue
to excel not just because of their skills and intelligence, but also by
connecting with others using emotional competencies like empathy and
self-awareness.

The book is
divided into two parts. In Part One, which has five chapters, the author
explores some pertinent questions: Is company performance a surrogate for
leadership and CEO performance? If a company falters, is it related purely to
the CEO’s performance? Conversely, if a company does well, does it redound to
the credit of the leader?

Mr.
Gopalakrishnan
observes that to be successful, a CEO requires cognitive intelligence as well
as intuitive emotional intelligence – which means that he or she must possess a
responsive sense of empathy for the views of various stakeholders. In his
experience, once a person gets into a leadership role, there are forces that
cause his or her emotional intelligence or sense of empathy to shrink. This
poses a real and hidden challenge to the leader, a challenge for which he or
she is unprepared. The power of a leader ‘damages’ his / her brain. This damage
cannot be totally avoided, but its pernicious effects can be mitigated.

He then goes on
to examine why power causes this kind of brain damage. He asks: What brings out
the best in a person? Perhaps a need to challenge one’s capability? He opines:
When leaders feel that their intelligence is being tested rather than being merely
incentivised through money, their motivation is triggered. Money helps, but
ambition is aroused by internal drives and challenges. This is what people in
leadership positions experience when they assume a bigger responsibility.

The author
further observes that power causes a significant behavioural change in leaders.
Leaders tend to be self assured; but they need to be so if they have to lead
their people; however, the line that divides self-assuredness and
over-confidence is a thin one. The leader’s confidence can be rooted in logic
and data, or it can be rooted in feelings and emotions. If his / her confidence
is based on the best available data, then the leader comes across as authentic.
This is a positive form of self-confidence. If the leader’s confidence is not
data-based, he / she may seem impetuous or someone who is not rooted in
reality. This is a negative form of self-confidence.

How and why
does power damage the leader’s brain? What happens in cases of behavioural
change? Does the person change because of power, or because of being placed in
a radically different context? Or is it that the people around view him / her
through a separate set of lenses? The author puts it simply, and shorn of
jargon – that leaders loose a bit of their emotional capacities, those very
emotional capacities that were essential to their rise. That holding power
changes the way they process their world. They became impulsive, less
risk-aware and less adept at seeing things from other people’s perspective. In
other words, power blinds the leader to others’ perspectives, power turns the
leader into an abstract thinker, power leads to unrealistic optimism about
goals and power leads to the view of the world in terms of goals already set.

Mr.
Gopalakrishnan concludes
that power intoxicates and it impairs human judgement: in short, the
acquisition of power causes ‘brain damage’. Every leader, whether in politics,
in society or business, is vulnerable to this danger. Several leaders learn to
cope with the inevitable threats and dangers, but many fail. They become
victims of the affliction.

Thus, in Part
One of the book the author examines the above questions and issues on the basis
of his extensive study of the available literature on the subject, and his long
years in business in leadership positions.

Part Two of the
book, divided into 15 chapters, tells similar stories of various well-known
business leaders, such as Carly Fiorina at HP; Jamie Dimon at JPMorgan Chase;
Vikram Pandit at Citigroup; John R. Walter at AT&T; Lee Iacocca and Mark
Fields at Ford Motors; Michael Ovitz at Walt Disney Company; G. Richard Thoman
at Xerox; Jim Donald at Starbucks; Travis Kalanick at Uber; Chris Viehbacher at
Sanofi; Ramesh Sarin at Voltas India; Klaus Kleinfeld at Arconic; Anshu Jain at
Deutsche Bank; and Vishal Sikka at Infosys.

In the
Epilogue, the author quotes Thomas Middelhoff, a top-notch, famous executive in
Germany, CEO of the German media giant Bertelsmann, later found guilty of
misusing corporate funds and sentenced to three years in jail on charges of
embezzlement and related tax frauds. After his release from jail and in an
interview to Financial Times in May, 2018 he said, “I was out of touch
with reality and thought that certain rules did not apply to me.

Ability brings
you to the top, but character keeps you there”. He admitted that a key flaw in
his character was constantly craving public attention and affirmation. Over the
years, he felt that he had been carried away by narcissism and hedonism.

The book is
based on the author’s extensive study and research on the subject, which is
borne out by the copious notes at the end of the book running into about 30
pages wherein he has given references to all his sources.

Filled with
anecdotes and analysis of various situations CEOs may find themselves in, and
unconventional advice to help them, Crash: Lessons from the Entry and Exit
of CEOs is for veteran leaders as well as for those who aspire to start
their own ventures. The book is useful not only to CEOs and other senior
management executives, but also to every person who is running even a small or
medium-sized organisation.

BCAJ Admin

Allied Laws

20.
Appeal pending – Till order of court is varied or modified, it remains
valid and subsisting and has to be complied with [West Bengal Municipal Act,
1993, S.96]

Subrata Sen vs. The Kolkata Municipal
Corporation and Ors. AIR 2019 Calcutta 32

The issue before the court was whether an
appropriate writ in the nature of mandamus could be issued against the order of
the municipal assessment tribunal, when a revision application had been filed
against such order.

It was held by the court that it was a
well-settled law that till an order passed by a competent court or forum is set
aside and / or stayed and / or varied and / or modified, the said order remains
valid and subsisting and is required to be complied with, both in law and in
spirit. If a stand is taken by any person that he / she is unable to comply
with a valid and subsisting order simply because an appeal is pending before a
higher forum, it would render the concept of adherence to due process of law to
a state of absolute farce. This is neither desirable nor acceptable, nor
permissible.

If one has to accept the stand taken on
behalf of the Kolkata Municipal Corporation, it would mean that no order passed
by any competent legal forum will ever be complied with till the person
aggrieved by the said order has exhausted all further remedies even if such
remedies are essentially discretionary in nature. This is certainly not in
conformity with the scheme for rendering effective justice in the matter.

Accordingly, it was decided that the order
of the Municipal Assessment Tribunal would be implemented and the same shall
not cause any prejudice to the rights of the Kolkata Municipal Corporation in
respect of the revision application, which shall be decided on its own merit
without being influenced in any manner by any observation
made herein.

21.
Dishonour of cheque – Prosecution launched against directors quashed by
High Court set aside – Court would have to look into whether directors had any
role in the business activities of the company [Negotiable Instruments Act,
1881, S.138, 141, 482]

A.R. Radha Krishna vs. Dasari Deepthi and
Ors. AIR 2019 Supreme Court 2518

The appellant had entered into an investment
agreement with accused No. 1, i.e., the company on the basis of representations
made by the directors of the company. Later, the company agreed to repay the
amount invested by issue of seven cheques. The cheques were returned
dishonoured as ‘payment stopped by drawer’.

Consequently, proceedings were initiated u/s
138 and 141 of the Negotiable Instruments Act. During the pendency of the
proceedings, the directors filed an application before the High Court for
quashing of the proceedings initiated against them. The High Court allowed the
criminal petitions filed by the directors and quashed the proceedings against
them. Aggrieved by the same, the appellant approached the Supreme Court.

The complaint specifically mentioned that
the directors, who actively participated in the day-to-day affairs, in active
connivance, intentionally issued cheques and later issued instructions to the
bank to stop the payment.

But it was contended on behalf of the
directors that both the respondents / directors were non-executive directors of
the company, neither playing any role in the day-to-day activities of the
business nor in charge of the affairs of
the company.

It was observed that the High Court, in
deciding a quashing petition u/s 482, Code of Criminal Procedure, must consider
whether the averment made in the complaint is sufficient or if some
unimpeachable evidence has been brought on record which leads to the conclusion
that the director could never have been in charge of and responsible for the
conduct of the business of the company at the relevant time. While the role of
a director in a company is ultimately a question of fact, and no definite
formula can be fixed for the same, the High Court must exercise its power u/s
482, Code of Criminal Procedure when it is convinced from the material on
record that allowing the proceedings to continue would be an abuse of process
of the Court.

In the present
case, the appellant had specifically averred in his complaint that the
directors were actively participating in the day-to-day affairs of the company.
The complaint also specified that all the accused, in active connivance,
mischievously and intentionally issued the cheques in favour of the appellant and
later issued instructions to the bank to ‘Stop Payment’. No evidence of
unimpeachable quality had been brought on record by the directors to indicate
that allowing the proceedings to continue would be an abuse of the process of
the Court. In view of the same, the appeals were allowed and the order passed
by the High Court was set aside and that of the trial court restored.

22.
Mahommedan Law – Bequest of property can only be done after taking
consent of all heirs [Mulla’s Principles of Mahommedan Law, S.117]

Ayyub and Ors. vs. Llahi Baksh and Ors. AIR
2019 Chhattisgarh 113

A property was
bequeathed to one heir without consent of the other heirs who were the
respondents / plaintiffs. Accordingly, a suit was filed by the latter for
declaring the Will void.

It was held by
the Court that section 117 of Mulla’s Principles of Mahommedan Law deals with
bequest to an heir and provides that a bequest to an heir is not valid unless
the other heirs consent to the bequest after the death of the testator. Any
single heir may consent so as to bind his own share. Accordingly, the verdict
of the trial court that the Will was void ab initio and illegal was
affirmed.

23.
Service of notice to employee – Employee holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company [Code of Civil Procedure; Order 29, Rule 2]

Frost International Ltd. vs. Five Star
Vanijya Pvt. Ltd. AIR 2019 (NOC) 325 Calcutta

An application
was filed for recalling an ex parte order. It was stated that the reason
for non-appearance before the court by the applicant was that there was no
proper service of notice on the company. It was argued that the applicant’s
office was totally closed. The applicant did not have any employee by the name
of Manab Basu who accepted the service of the writ of summons on behalf of the
defendant. If anything was received on behalf of the defendant, the same could
not reach the defendant and as a result the writ of summons cannot be treated
to have been served upon the applicant company. The applicant further mentioned
that it had an excellent defence on merits.

It was submitted on behalf of the
respondents that the application for recalling the order was barred by
limitation. It was further contended that there was a document which showed
receipt of the writ of summons by one Manab Basu on behalf of the defendant and
the defendant’s official seal was there next to the signature of Manab Basu.

The court observed that the said Manab Basu
while acknowledging receipt of the writ of summons put the defendant company’s
seal next to his signature. An employee of a limited company who has in his
custody the company’s seal must be deemed to be authorised by the company to
accept service of notices, summons etc. Order 29 Rule 2 of the CPC provides
that an employee of a corporation / company holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company.

In view of the above, the court dismissed
the application for recalling the ex parte order.

24. Unpublished public records – The citizens
have a right to demand information even in respect of matters such as security
of the country and matters relating to relations with a foreign state where
proper reasons are established [Right To Information Act, 2005, S.24, 123;
Evidence Act, 1872, S.124; Official Secrets Act, 1923, S.3, 5]

Yashwant Sinha and Ors. vs. CBI and Ors.
2019 (25) G.S.T.L. 161 Supreme Court

Reliance was placed on three additional
documents unauthorisedly removed from the office of the Ministry of Defence,
Government of India, that had been appended to the review petition and relied
upon by the review petitioners. The main contention was whether such documents,
being covered u/s 124 of the Indian Evidence Act, 1872 which states that no
public officer shall be compelled to disclose communications made to him in
official confidence, when he considers that the public interests would suffer
by the disclosure, could be placed in the open.

It was argued that u/s 8(1)(a) of the Right
to Information Act, information, the disclosure of which will prejudicially
affect the sovereignty and integrity of India, the security and strategic
security and strategic scientific or economic interests of the state, relations
with a foreign state or information leading to incitement of an offence, are
ordinarily exempt from the obligation of disclosure.

It was held by the Court that even in
respect of matters relating to state or other prohibited information, Parliament
has advanced the law in a manner which can only be described as dramatic by
giving recognition to the principle that disclosure of information could be
refused only on the foundation of public interest being jeopardised. Section
8(2) recognises that there cannot be absolutism even in the matter of certain
values which were formerly considered to provide unquestionable foundations for
the power to withhold information. The RTI Act through section 8(2) has
conferred upon the citizens a priceless right by clothing them with the right
to demand information even in respect of such matters as security of the
country and matters relating to relations with a foreign state. No doubt,
information cannot be given for the mere asking. The applicant must establish
that withholding of such information produces greater harm than disclosing it.

BCAJ Admin

Representations

Date: 12^th
July 2018

Mr. Upender Gupta,

Commissioner GST,

Department of Revenue, Government of India,

GST Policy Wing, North Block,

New Delhi.

Respected Sir,

Sub:
Recommended Draft Reconciliation Form 9-C for Audit under section 35(5) of CGST
Act.

With reference to the above subject, we take this
opportunity to present to you our recommendations on simplified format of GST
Audit Report. The preliminary draft format of audit report was discussed with
the Commissioner Goods and Service Tax, (Maharashtra State) and some of the
State Department Officers. After incorporating their inputs, on 4^th
July 2018, a detailed discussion was held on the said draft report with your
goodselves, Mr. Siddharth Jain and your two other team members for your inputs.

Based on the above interactions and inputs, we are
enclosing herewith the revised draft after incorporating your suggestions. Our
attempt is to devise a simple yet a complete report which serves the purpose of
all the stakeholders. As discussed, though the main report has been kept
simple, various fields in the said report may be explained to the tax payers
and tax professionals to facilitate the effective and complete reporting
through a detailed instruction/guidance sheet to facilitate the filling of main
form. We are in the process of preparing the same and it will be submitted to
your office based on your feedback on the contents of the form. We reiterate
the philosophy and principles underlying our recommendations as below

We refer to the following provisions of the Goods and
Services Act, 2017

1. Section 35(5) of the CGST Act, 2017 (The Act)
prescribes certain obligations for every registered person whose turnover
during a financial year exceeds the prescribed limit of Rs. 2,00,00,000 (specified registered
persons/auditee). The obligations are to get his accounts audited by a
chartered accountant or a cost accountant (auditor) and to submit a copy of the
audited annual accounts along with the reconciliation statement under section
44(2) of the Act and such other documents in such form and manner as may be
prescribed. Rule 80(3) requires the reconciliation statement to be duly
certified. The said section 44(2)
further provides that the annual return along with a copy of the audited annual
accounts and a reconciliation statement reconciling the value of supplies declared
in the return be furnished for the financial year with the audited annual
financial statement and such other particulars as may be prescribed.

2. On a conjoint reading of the above provisions, it
appears that specified registered persons are required to undertake two
distinct obligations:

a. Get his accounts audited by a chartered accountant
or a cost accountant (auditor) and submit a copy of the audited annual accounts

b. Submit a reconciliation statement reconciling the
value of supplies declared in the return furnished for the financial year with
the audited annual financial statement, and such other particulars as may be
prescribed.

3. In connection with the above, we would like to
highlight that in most of the cases, the accounts of the auditee would be
audited under some other Statute, the most common being Companies Act, 2013 and
Income Tax Act, 1961. It is therefore recommended that the audit under the
relevant statute and the submission of the said audited annual accounts should
be considered as sufficient compliance with the first obligation mentioned
above. Currently also, this is an accepted practice under all the VAT
Legislations and also under the Income Tax Act, 1961. Considering the fact that
the only benchmark for the obligation to get the accounts audited is turnover
above Rs. 2 crores, it appears that in most of the cases, there will be audited
annual accounts under relevant statute available for submission to the GST
Authorities. If the said audited annual
accounts are accepted by the GST Authorities, the additional obligation on the
auditee would be to submit a reconciliation statement in Form 9C duly
certified by the auditor. Till date, the contents of Form 9C are not
prescribed and no draft format is placed in public domain for their comments.

4. In this connection, Bombay Chartered Accountants’
Society being the largest voluntary body of chartered accountants (with a
membership of around 9000 members) in India, we wish to recommend a format of
the reconciliation statement, for your kind perusal. The same is enclosed as Annexure
“A” to this communication. The broad parameters underlying the said format are
explained hereunder.

(i) On a reading of Section 44(2) it is evident that
the primary emphasis of the certification of the reconciliation statement
appears to be the reconciliation between the value of supplies declared in the
return furnished for the financial year with the audited annual financial
statement. We have therefore suggested a detailed reconciliation between the
turnover as reflected in the return with the turnover as reflected in audited
financial statements. The said reconciliation statement will be handy to the
Department authorities in clearly explaining the reasons for any variation in
the turnover and will assist them in identifying consequent leakages if any in
output taxes.

(ii) We believe that the elaborate transaction level
uploads and matching requirements on the GSTN Portal has provided the
Department with more than sufficient details on many of the other parameters
for a correct assessment. Such parameters were not available under the earlier
regimes where the data upload was not at a transaction level. Our
recommendation as regards additional particulars to be provided in Form 9C
therefore considers this aspect and avoids duplication of efforts and any
ambiguity. Simultaneously a conscious attempt is made to keep the format simple
for the auditee to compile and the auditor to certify at the threshold of the
new legislation. Nevertheless,
information necessary for the GST Authorities to identify cases of non-payment
of taxes and wrong claim of credits is included in the additional particulars
in Form 9C.

5.In the backdrop of
the above objectives, the recommended format of reconciliation statement under
Form 9C includes the following:

a. Statement of Reconciliation
between return turnover and turnover in audited financial statements for entity
as a whole

b. Statement of
Calculation of Outward Tax Liability and the manner of discharge of the
said tax liability & Statement of
Liability under Reverse Charge Mechanism for Inward Supplies specified under
Section 9(3) & 9(4) – to be prepared for each GSTIN

c. Reconciliation of Input Tax Credit as per Books and
as per GST Returns along with detailed breakup of blocked and apportioned
credits under Section 17 and reversals and reclaims of credits – to be prepared
for each GSTIN

6. We believe that the above format is simple,
utilitarian and sure to serve the purpose of the revenue to check leakages. In
our view, any reconciliation format which extends beyond 4 to 5 pages can be
surely cumbersome and onerous for the auditee to compile given the challenges
of the implementation of the GST law. It
may also increase the costs of small and medium sized auditees and may result in
undue hardship and avoidable duplication. We therefore strongly recommend that
redundant additional information requiring elaborate certification and
verification of documents (especially on the side of inward supplies) should be
avoided especially in view of the nascent stage of the law, various other
difficulties faced in basic implementation of the law and also the fact that
GST was introduced in the middle of the year and many transition provisions
were not suitably aligned. The above along with a plethora of notifications,
periodic clarifications and systems related issues in the initial months of
implementation may compound the challenges of the auditee. Therefore, the
format recommended by us may be considered with or without modifications as
felt appropriate at this initial stage.

7. We would also like to highlight that it is very
common for any law to start with baby steps and then bring in additional
obligations after the law stabilises and the industry matures and also based on
experiences of the initial years. The mention of a few precedents may not be
out of place:

a. The initial format of the tax audit report under the
Income Tax Act consisted of only a few pages (4-5) and it was only after 10 to
12 years that the format was made more elaborate. Even today, the tax audit
report under the Income Tax Act, 1961 does not require a certification of
computation of income nor a certification/compilation of payment of taxes.

b. Many States have simple VAT Audit Reports running
into 3 to 4 pages.

We therefore believe that it would be more appropriate
for the Government to notify a simple but functional reconciliation certificate
and then gradually build upon the same in subsequent years rather than start
with an ambitious document running into dozens of pages.

We are sure the
above recommendation having practical applicability would be considered while
drafting and notifying Form 9C. We would be more than happy to meet you in
person to explain and discuss the detailed format.

Thanking You

Yours truly,

CA. Sunil Gabhawalla CA.
Deepak Shah

President,
Chairman,

Bombay Chartered
Accountants’ Society Indirect Taxation Committee

Note:
For full representation, visit our website www.bcasonline.org

Representation

Date: 15^th
July 2018

To

Mr.
Upender Gupta,

Commissioner
GST,

Department
of Revenue, Government of India,

GST
Policy Wing, North Block,

New
Delhi.

Respected
Sir,

Sub: Recommendations on the
Proposed Draft Amendments in the GST Act.

We have read with detail the draft of the 46
amendments proposed to be carried out in the GST Act and are happy to note that
many of the said amendments are in the right direction. However, we believe
that a few amendments (notably, those proposed at Sr. 29 & 30 dealing with
the manner of cross-utilisation of credits and at Sr.37 dealing with denial of
transition credit for accumulated balances of cess) could be avoided since they
conflict with the basic philosophy of free flow of credits. We also would like
to highlight that in certain amendments, there are certain further
recommendations from our side, which we have tried to incorporate in a tabular
format.

In addition to the proposed amendments, we
believe that there are certain pressing issues facing the industry which also
require immediate attention and legislative amendment. We shall send you a
separate comprehensive representation on all such issues in due course.

In the meantime, we request you to kindly
consider our representations made above favourably and oblige. If need be, we
would be more than happy to meet you in person to discuss the above
recommendations

Thanking You

Yours truly,

CA. Sunil Gabhawalla                                                   CA.
Deepak Shah

President,
Chairman,

Bombay Chartered Accountants’
Society                      Indirect Taxation Committee

Note:
For full representation, visit our website www.bcasonline.org

Representation

                                                                                                                                           Date: 16^th July, 2018

The Chief General Manager-in-charge,

Reserve Bank of India,

Foreign Exchange Department,

Foreign Investment Division,

Mumbai – 400 001

Subject:
Issues relating to filing of Entity Master File

We appreciate Reserve Bank
of India’s (RBI’s) effort to simplify reporting under Foreign Exchange and
Management Act, 1999 (FEMA). However, in the process of simplifying the
compliance procedures, technical impediments and procedural hitches have
cropped up in filing the Entity Master Form (EMF). The most pressing issues
which need to be addressed immediately by the RBI are as follows:

Key technical impediments:

1. A company is required to
report inflow from the inception of the company. Moreover, the RBI has also
mentioned that if there is no Foreign Direct Investment (FDI) currently, then
FDI has to be reported as NIL. However, the RBI needs to provide clarity on two
aspects:

“Whether foreign investments received under
Foreign Exchange Regulation Act, 1973 (FERA) regime are required to be
reported?”

“If a company has NIL FDI today, whether
previous foreign investments received needs to be reported?”

It is pertinent to note that obtaining such
historic data may be arduous. Also it is not possible to collate data for an
indefinite past.

2. Provide guidance on companies in the
process of liquidation:

“Whether an entity with FDI is required to
file EMF even if it is under liquidation?”

It
is important to recognize that it is difficult to obtain such data as an
official Liquidator.

3.
Provide clarity in the cases of companies undergoing a scheme of amalgamation /
de-merger :

“Whether separate reporting is required for
the merged or demerged entity or the resulting company should prepare a
consolidated report?”

4.
Provide guidance on reporting venture capital from foreign investors:

“How to report investment by Foreign Venture
Capital Investor (FVCI) and whether investment by FVCI needs to be reported
even for those cases where Form FC-GPR has not been filed earlier?”

Key procedural hindrances:

1. The website¹ for filing EMF is
functioning slowly. The website keeps crashing and it takes at-least 30 minutes
before the website starts responding again. The signing up procedure which
requires validation of an entity user by the RBI consumes valuable time. The
sign up procedure can be streamlined by allowing the Directors of the company
to be the entity user for filing of EMF.

2. The EMF website does not provide for “Save
as Draft” option i.e. all the information is required to be submitted at one
go. The only solution is a “Reset” button which is available to reset the wrong
inputs. Additionally, there is no “timer” for letting the entity user know when
the session expires. The EMF was available only a week before and therefore it
is a herculean task for any client to collate the data immediately and submit
all the data in one go. It is recommended that a “Save as Draft” option be
immediately implemented to ensure unencumbered reporting.

In view of the above mentioned hardships, we
request your good selves to extend the deadline to submit the EMF to 31^stAugust, 2018.

We
would be glad to meet in person to explain the above points and some other
relevant issues which will help RBI to implement the new requirement seamlessly.
We request for an appointment at any convenient time to your good selves.

Thanking You,

CA Hinesh
Doshi                                                                  CA
Sunil Gabhawalla

President                                                                               President

For The Chamber of Tax
Consultants                                               For
Bombay Chartered Accountants’ Society

________________________________________________________________________________________________

1   https://firms.rbi.org.in/firms/faces/pages/login.xhtml

Representation

Date: 21^st July, 2018

The Chairman

Central Board of Direct Taxes,

Ministry of Finance,
Government of India,

North Block,

New Delhi-110001.

Respected Sir,

Subject:
Representation and request for relaxation in levy of fee under section 234F of
the Income-tax Act

Vide the Finance Act, 2017, a new section 234F has been
made applicable whereby a fee is mandatorily levied for failure to furnish the
income tax return u/s. 139(1) in respect of income tax returns required to be
filed for A.Y. 2018-19 and onwards.

The above provision for levying of fees is a genuine
hardship and cause of worry and great concern for the non-corporate assessees.
In this respect we have to represent as under:

1. Section 234F has been introduced with a view to
ensure that returns are filed within the due dates specified in section 139(1).
However, fees proposed under section 234F will be leviable on all assessees who
have furnished return beyond the due date specified under section 139(1)
irrespective of the reason for such delay and whether all the taxes have been
paid through TDS or advance tax. The earlier provisions of section 271F
provided for discretionary levy of penalty of Rs. 5,000/- by the Assessing
Officer but the fee u/s. 234F is a compulsory fees to be paid without
considering any reasonable cause of the assessees.

Also, the assessee can not justiy his cause of delay
under any appeal.

2. The time period for filing of ITR has also been
reduced from 2 years to 1 year and the interest u/s. 234-A, 234-B and 234-C
continue to be levied. When the interest for late filing of ITR u/s. 234-A is
already being levied, the fee u/s. 234F is a double whammy and is an injustice
to the assessee.

3. Unfortunately, this new section 234F does not give
you any opportunity to justify the reason for late filing of returns. Whatever
may be the practical difficulties, calamities, medical emergencies, if one is
late in filing the income tax returns, one has to bear the brunt of it.

4. As per the present TDS provisions under the Act ,
the TDS payable as on 31/03/2018 is to be paid by 30/04/2018, the relevant
quarterly e-TDS statement for Q4 is required to be filed by 31/05/2018 and the
TDS certificates are to be issued by 15/06/2018. Once the assessee receives the
TDS certificates by 15/06/2018 he is practically left with only one and a half
months to file his income tax return that becomes due by 31/07/2018. Besides it
is often seen that a TDS deductor either does not file his quarterly e-TDS
statements, or files it late or files a wrong statement, consequently making
the innocent deductee suffer for his TDS credit. This in turn causes forcible
delay in filing his personal returns.

5. For A.Y. 2018-19, The Schema for the online return
filing for ITR 2 and ITR 3 have been updated and changed as late as on 7^th
July, 2018 and for ITR 5 the same have been updated and changed as late as on
13^th July, 2018 making it difficult for the assessees and tax
professionals to file the ITRs within the due date.

6. Further, the due date of filing of ITR u/s. 139(1),
in the present case by 31/07/2018, gives the time for filing of ITR for 4
months i.e. from 1^st April, 2018 to 31^st July, 2018.
However, the new online tax filing utility was not available as on 1st April,
2018 and also considering the various other contradictory provisions such as
the TDS certificate receipt due date of 15^th June, 2018 and the
amendment and updation of Schema till as late as 13^th July, 2018,
for all practical purposes, the ITR filing available time is limited to less
than a month.

7. The small and SME businessmen are also presently
coping up with the GST filing difficulties and hence, may not be able to cope
up with the ITR filings by 31^st July, 2018.

8. Of late there has been heavy rainfall since the
first week of July in most parts of the country and hence it is also becoming
administratively difficult for the assessees to comply with the various
statutory deadlines including the ITR filing deadline by 31^st July,
2018.

Though we respect and acknowledge the Income Tax Laws
and the levying of the fees u/s. 234F, considering all the above difficulties
faced by small assessees, we humbly request to not levy the fees u/s. 234F for
returns filed for A.Y. 2018-19 and give necessary instructions/issue circular
in this regards. If our humble request is accepted, then necessary amendments
should also be made in the CPC’s return processing software so that at the time
of processing of the returns u/s. 143(1) wherever there is a delay in filing
the return, the fee u/s. 234F is not automatically levied.

We humbly request you to kindly take into consideration
all the facts and circumstances mentioned above and accede to our request in
the larger interest of thousands of tax payers of the country.

Thanking you,

Yours sincerely

Sunil Gabhawalla Chintan Doshi Raghavendra
T.N. Gyanesh Verma

President, Bombay Chartered                                                                       President,
Ahmedabad Chartered            President,
Karnataka State                                     President,

Accountants’ Society Accountants’Association Chartered Accountants’ LucknowChartered Accountants’

Association Society

Representation

Date: 24^th July 2018

The
Chairman

Central
Board of Direct Taxes

Task
Force on New Direct Tax Law

Department
of Revenue

Ministry
of Finance, Govt. of India

North
Block,

New Delhi
– 110001

Sir,

Sub: Representation on Important
issues/provisions in the Proposed New Direct Tax Law

We are pleased to submit herewith our
considered suggestions on important issues that may be addressed in the
proposed new Direct Tax Law.

We have made suggestions on following lines:

1) Path breaking suggestions for making the
law more taxpayer friendly by rewarding and encouraging compliances;

2) Suggestions for reducing litigations by
providing clarity;

3) Suggestions for “Ease of Doing Business
in India”.

We hope that these suggestions will find
your favour.

We would be glad to meet you in person and
explain/discuss various points arising from this representation or otherwise,
therefore we request you to grant an opportunity for the same.

Thanking you,

Yours truly,

For Bombay Chartered Accountants’ Society

CA Sunil
Gabhawalla CA
Mayur Nayak CA
Ameet Patel,

President Chairman
Chairman

International
Taxation Committee Taxation
Committee

Note: For the full representation, visit
our website www.bcasonline.org

Representation

Date: 24^th
July, 2018

Mr. Rajiv Jalota

Commissioner SGST,

Government of Maharashtra

Mumbai

Respected Sir,

Sub:
Recommendations for Simplification of GST for Small and Medium Enterprises
(SME).

We have read with detail the recommendations of the 28^th GST
Council Meeting and we are happy to note the efforts taken by the Council to
simplify business processes especially for the Small and Medium Enterprises
(SMEs). In particular, we appreciate the following steps, which we believe are
steps in the right direction:

1. Recommendation of a new
process requiring the filing of a single return.

2. Increase in the Eligibility
Limit for Composition Scheme upto Rs. 1.5 crores and permission to opt for
composition even in cases where there are insignificant value of services
rendered.

3. Eligibility to issue single
debit/credit note against multiple invoices.

4. Reopening of the GST Migration
Window in certain cases.

While the above steps clearly suggest the intent of the Government to
resolve possible issues and usher in a tax-payer friendly regime, there are
certain issues which continue to bother the tax payers, more particularly the
small and medium enterprises (SME).

Accordingly, we
would like to make recommendations, which, if carried out, will significantly
ease the compliance burden at the SME level, bring in certainty and clarity of
provisions and reduce the cost of doing business.

In addition to the recommendations, we
believe that there are certain pressing issues facing the SME Sector in terms
of challenges on the GSTN Portal which also require immediate attention and
process amendment. We shall send you a separate comprehensive representation on
all such issues in due course.

Thanking You

Yours truly,

CA. Sunil Gabhawalla CA.
Deepak Shah

President,
Chairman,

Bombay Chartered
Accountants’ Society Indirect
Taxation Committee

Note: For full
representation, visit our website www.bcasonline.org

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

12. Pr. Commissioner of Income Tax vs. A.A.
Estate Pvt. Ltd. (2019) 413 ITR 438 (SC)

Appeal to the High Court – There is
a distinction between the questions proposed by the appellant for admission of
the appeal and the questions framed by the Court – The questions proposed by
the appellant fall u/s 260-A(2)(c) of the Act, whereas the questions framed by
the High Court fall u/s 260-A(3) of the Act – The appeal is to be heard on
merits only on the questions framed by the High Court under sub-section (3) of
section 260-A of the Act as provided u/s 260-A(4) of the Act – The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act means
the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the one proposed
in section 260-A(2)(c) of the Act by the appellant – The respondent has a right
to argue ‘at the time of hearing’ of the appeal that the questions framed are
not involved in the appeal by taking recourse to sub-section (5) of section
260-A of the Act

In the case of the
respondent-assessee who was engaged in the business of development and building
of properties, the Assessing Officer completed the assessment u/s 143(3) read
with section 153A of the Income Tax Act, 1961 for the assessment year 2008-09
and determined the total income at Rs. 7,77,49,790.

Subsequently, the AO issued a
notice u/s 148 of the Act seeking to reopen the assessment on the basis of
information received from the ADIT (Investigation). By this notice, the AO
proposed to make an addition of Rs. 1,70,94,000 towards unaccounted sale
proceeds alleged to have been made by the assessee on the basis of one
document, which was seized by the Revenue Department in their search operation
carried out on 30^th November, 2007 in the business premises of
another assessee by name M/s Ashok Buildcom Ltd.

The assessee objected to the
issuance of the notice contending inter alia that, first, there was no
factual foundation for issue of notice; second, there was no case for any
‘escaped assessment’; and third, there was no case or ‘reason to believe’.

The AO overruled these objections
and passed a re-assessment order by adding the sum of Rs. 1,70,94,000 in the
total income of the assessee.

Aggrieved at this, the assessee
filed an appeal before the CIT (Appeals). But the appeal was dismissed and the
addition made by the AO was upheld. Still aggrieved, the assessee filed a
second appeal before the ITAT. The Tribunal allowed the appeal and set aside
the order of the CIT (Appeals).

However, the Commissioner of Income
Tax felt aggrieved and filed an appeal before the High Court u/s 260-A of the
Act. By its impugned order, the High Court dismissed the appeal and affirmed
the order of the Tribunal, giving rise to the filing of the special leave to
appeal by the Commissioner of Income Tax in the Supreme Court.

The short question which therefore
arose for consideration before the Supreme Court was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax.

According to the Supreme Court, the
case had to be remanded to the High Court for the following reasons:

First, the High Court did not
formulate any substantial question of law as was required to be framed u/s
260-A of the Act.

Second, in para 2 of the impugned
order, the High Court observed that ‘Revenue urges following questions of law
for our consideration’. However, from a reading of para 2, the two questions
set out in it were not the questions framed by the High Court as were required
to be framed u/s 260-A(3) of the Act for hearing the appeal but were the
questions urged by the appellant.

According to the Supreme Court,
there is a distinction between the questions proposed by the appellant for
admission of the appeal and the questions framed by the Court. The questions
proposed by the appellant fall u/s 260-A(2)(c) of the Act, whereas the
questions framed by the High Court fall u/s 260-A(3) of the Act. The appeal is
to be heard on merits only on the questions framed by the High Court under
sub-section (3) of section 260-A of the Act as provided u/s 260-A(4) of the
Act.

Third, if the High Court was of the
view that the appeal did not involve any substantial question of law, it should
have recorded a categorical finding to that effect saying that the questions
proposed by the appellant either do not arise in the case or / and are not
substantial questions of law so as to attract the rigor of section 260-A of the
Act for its admission and, accordingly, should have dismissed the appeal in
limine.

According to the Supreme Court,
this was not done and instead the High Court without admitting the appeal and
framing any question of law had issued notice of appeal to the assessee, heard
both the parties on the questions urged by the appellant and dismissed it.
According to the Supreme Court, the respondent had a right to argue ‘at the
time of hearing’ of the appeal that the questions framed were not involved in
the appeal and this the respondent could urge by taking recourse to sub-section
(5) of section 260-A of the Act. But this stage in this case did not arise
because the High Court neither admitted the appeal nor framed any question as
required under sub-section (3) of section 260-A of the Act. The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act
means the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the ones proposed
in section 260-A(2)(c) of the Act by the appellant.

The Supreme Court, therefore,
concluded that the High Court had not decided the appeal in conformity with the mandatory procedure prescribed in section 260-A of the Act.

Fourth, the High Court should have
seen that the following substantial questions of law did arise in the appeal
for being answered on their respective merits:

(i) Whether the reasons contained
in notice u/s 148 are relevant and sufficient for issuance of the said notice
dated 22^nd September, 2010?

(ii) Whether any case of escaped
assessment within the meaning of section 147 read with section 148 of the Act
for the assessment year in question is made out by the Commissioner of Income
Tax on the basis of the reasons set out in the notice?

(iii) Whether a case of presumption
as contemplated u/s 132(4A) of the Act could be drawn against the assessee on
the basis of a document (Annexure AB-1) which was seized in a search operation
carried out in the business premises of another assessee, M/s Ashok Buildcom,
by adding a sum of Rs. 1,70,94,000 for determining the total tax liability of
the respondent for the year in question as an escaped assessment so as to
enable the Department to issue notice dated 22^ndSeptember, 2010 u/s
148 of the Act to the respondent?

The Supreme Court thus remanded the
case to the High Court for deciding the appeal afresh to answer the questions
framed above on merits in accordance with the law.

13. Pr. Commissioner of Income Tax vs. Ballarpur
Industries Ltd. (2019) 413 ITR 447 (SC)

Appeal to the Appellate Tribunal –
Tribunal is the final fact-finding authority – Inconsistent findings recorded
by the Tribunal – High Court dismissed the appeal – Appeal to the Supreme Court
— Matter remanded for fresh consideration

In the case of the
respondent-assessee, a limited company, which was engaged in the business of
manufacturing of various kinds of papers, a question arose before the AO in the
assessment for assessment year 1993-94 as to what was the true nature of
payment of Rs. 3.25 crores made by the assessee to one Mr. G.R. Hada pursuant
to the compromise arrived at between the assessee company and Mr. Hada in a
civil suit filed by the latter against the company and others.

According to the assessee, Mr. Hada
and the company were the joint promoters of a company called M/s Andhra Pradesh
Rayons Limited in which Mr. Hada was holding 10.25% shares and the remaining
shares were held by other promoter shareholders in different percentages. Since
the dispute arose amongst the promoter shareholders, Mr. Hada filed a civil
suit against the assessee and other promoter shareholders on the basis of an
agreement, which was entered into amongst the promoter shareholders. In the
abovementioned suit, a compromise was arrived at between the assessee and Mr.
Hada. Pursuant to the said compromise, the assessee paid a sum of Rs. 3.25
crores to Mr. Hada.

The assessee claimed a deduction of
Rs. 3.25 crores in the assessment year in question as revenue expenditure
because, according to them, they had paid the said sum to Mr. Hada for running
their business.

The AO examined the claim in the
context of the terms of the agreement and held that the claim could not be
considered as ‘revenue expenditure’. He therefore rejected the claim.

The assessee
felt aggrieved by this order and filed an appeal to the Commissioner of Income
Tax (Appeals). However, the CIT (Appeals) confirmed the addition made by the
AO.

The assessee filed a second appeal
in the Income Tax Appellate Tribunal. The Tribunal examined the question and
allowed the appeal and directed the AO to allow the deduction of Rs. 3.25
crores as claimed by the assessee.

But now the Commissioner of Income
Tax-Revenue felt aggrieved and filed an appeal in the High Court. The High
Court dismissed the appeal, which gave rise to the filing of an appeal by way
of special leave by the Revenue in the Supreme Court.

According to the Supreme Court, the
short question which arose for its consideration was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax. The
Court held that the order of the High Court as well as the order of the
Tribunal had to be set aside and the case was required to be remanded to the
Tribunal to decide the appeal filed by the assessee afresh on merits in
accordance with law for the following reasons:

In para 26 of the order, the
Tribunal has recorded a finding, which read as under:

‘…The AO did not dispute the fact
that the expenditure related to the business of the Assessee. The CIT (A),
however, reversed the findings of the AO and held that the expenditure cannot
be considered as business expenditure. A perusal of the CIT (A)’s order can
only lead to a conclusion that the CIT (A) was of the view that the expenditure
in question was not a capital expenditure but of a revenue nature…’

The aforesaid observation of the
Tribunal, on what the AO and the CIT (Appeals) held, was not correct and rather
inconsistent with the finding of the AO. The Tribunal, therefore, had not
correctly appreciated what the AO and the CIT (Appeals) had held and what was
their reasoning which led to their respective conclusions.

Having wrongly observed about their
respective reasoning and the finding, the Tribunal proceeded to examine the
case and eventually reversed the order of CIT (Appeals). The High court did not
notice the aforesaid observation of the Tribunal and upheld the order of the
Tribunal.

According to the Supreme Court, in
such a situation like the one arising in the case and keeping in view the
question involved, the matter deserved to be remanded to the Tribunal for
deciding the appeal filed by the assessee afresh on merits, because the
Tribunal being the last Court of appeal on facts its finding on the question of
facts was of significance.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

I am extremely honoured to be elected as the
President of our Society and to lead an organisation that has contributed so
much to my own career and personal growth. I became a member of our Society
about two decades ago and along the way I have been mentored by stalwarts and
have also formed several close friendships. I would like to thank all of you,
in particular the Past Presidents of our Society, for bestowing this honour on
me, showing confidence in my capabilities and considering me worthy of this
position. I am looking forward to an eventful and exciting year ahead along
with all of you.

Today, our Society is considered as a
leading voluntary organisation of Chartered Accountants in India and enjoys a
very high level of credibility amongst its members and in the profession. It is
known for its value systems, ethics and innovativeness. The quality of its
programmes and publications set a bench-mark for others, and its journal is
probably the best in the profession. However, we are today living in a
disruptive and challenging age. The environment around us is changing
constantly and the needs, preferences and profiles of our members are also
changing at a rapid pace. New and emerging areas of practice are gaining in
importance, technology is also changing the way we approach our work. In such a
situation, if our Society has to maintain its prime position then it needs to
constantly innovate and adapt to cater to the changing needs and aspirations of
its members. I realise the importance of this fact and will always strive to
not only fulfil your expectations but also anticipate them. The Annual Plan for
the year 2019-20, including the thrust areas, is reproduced elsewhere in this
Journal.

Over the past seven decades of existence,
our Society has been liaising and collaborating with the various regulators and
government departments by sending representations for rationalisation and
improvement in laws, administration and governance. Recently, on 16^th
July, 2019 we submitted a written representation to the Hon’ble Finance
Minister relating to the hardships caused to the tax payers while filing
returns of income for A.Y. 2019-20 due to delay and constant tinkering of the
ITR forms and other such matters. This representation received a lot of
attention in the social, digital and print media. I hope this initiative will
have a positive impact and corrective action will be taken to provide relief to
the taxpayer as well as the tax practitioner.

The English cricket team might have won the
Trophy at the recently concluded World Cup, but the New Zealand (losing
finalist) team touched so many hearts of fans around the world and won their
love and respect. That Final will remain one of the most exciting,
controversial and perhaps most-talked-about matches for a long time to come.
The New Zealanders were so gracious in their defeat and, despite being at the
wrong end of a bizarre rule, they accepted the final verdict without any
complaint or fuss. They really proved that ‘Cricket is indeed a gentleman’s
game’. The final also gave us many important lessons of life: You will
always have a second chance in life; never give up till the last ball is
bowled; luck and labour go together; and finally, always be graceful in your
defeat.

The month of August will witness the
declaration of the results for the CA Final examinations held in June, 2019.
This was the first examination wherein the question paper pattern of the
theoretical papers had 30% objective questions. This was done by the ICAI to
strengthen conceptual clarity among the students. These results will decide the
fate of thousands of students taking the exams and I wish them all the very
best to be successful and to pass with flying colours. They will be the future
torch-bearers of our profession.

United States President Ronald Reagan had
once said: ‘The greatest leader is not necessarily the one who does the greatest
things. He is the one that gets the people to do the greatest things’.
Similarly, our Society is a collective organisation of volunteers and only one
person gets a chance to lead it for one year, so I cannot do anything alone and
it will only be a team effort throughout the year. I look forward to your love,
support and encouragement throughout the coming year. Please feel free to
connect with me on any matter.

Wish you all a very Happy Independence Day,
a day on which we celebrate the indomitable spirit of those brave hearts who
gave us this gift of freedom.

With Best Regards,

CA Manish
Sampat

President

BCAJ Admin

CORPORATE LAW CORNER

11. Housing Development Finance Corporation Ltd.
vs. RHC Holding (P) Ltd. [2019] 107
taxmann.com 200 (NCLAT – New Delhi) Date of order: 10^th
July, 2019

Sections 3(8), 3(16) and 3(17) read with
section 7 of the Insolvency and Bankruptcy Code, 2016 – A company which is
registered as a non-deposit-taking NBFC with the Reserve Bank of India would
qualify as a financial service provider – Accordingly, it would be outside the
purview of the definition of corporate debtor and hence the provisions of the
Code would not apply to it in such capacity

FACTS

H Co initiated insolvency proceedings
against R Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code) which was rejected by the National Company Law Tribunal
(NCLT) on the grounds that R Co being a non-banking financial institution was
rendering ‘financial services’ and was, therefore, out of the purview of the
Code. Aggrieved by the order, H Co filed the present petition before the
National Company Law Appellate Tribunal (NCLAT).

H Co argued that R Co was a holding company
that invested in the shares, bonds, debentures, debts or loans of group
companies and gave guarantees on behalf of group companies. None of these
activities qualified as rendering of financial services. H Co even elaborated
how the activities carried out by R Co did not fall in any of the limbs of
section 3(16) of the Code which defines financial services.

R Co, on the
other hand, argued that it was a financial institution within the meaning of
the Reserve Bank of India Act, 1934 and therefore a financial service provider.
Accordingly, it would not qualify as a corporate person and provisions of the
Code could not be enforced against it.

HELD

The Tribunal examined the provisions of the
Code and the Reserve Bank of India Act, 1934. It was observed that the
definition of financial services u/s 3(16) of the Code was an inclusive
definition. This would imply that there were other services which would come in
the definition of financial services. The argument of H Co would not hold good
on that count.

It was also observed that R Co being a
non-banking financial institution was carrying on the business of financial
institution and thus, it being a financial service provider, would not come
within the definition of Corporate Debtor. Accordingly, the provisions of the
Code could not be applied to R Co in its capacity as a Corporate Debtor.

The order passed by the NCLT was upheld by
the NCLAT and the appeal was dismissed.

12. Janak Goyal vs. Satyendra Jain [2019] 107
taxmann.com 68 (NCLAT) Company appeal
(AT) (Insolvency) No. 202 of 2019 Date of order: 10^th
June, 2019

Section 7 read with section 12A of the
Insolvency and Bankruptcy Code, 2016 – Once the parties had settled the matter
inter se between them, the application u/s 7 was treated as withdrawn and
therefore dismissed

FACTS

Mr. S filed an
application u/s 7 of the Code against O Co which was admitted by the National
Company Law Tribunal (NCLT). It was argued before the NCLT that the loan given
by O Co is time-barred. However, it was observed that there was a suit filed
against O Co which was decided against it. O Co thereafter moved the Supreme
Court and that appeal was dismissed by the Supreme Court as well. Mr. S also
filed an execution case for the same.

The Committee of Creditors had been formed
and two meetings of the same held. The Resolution Professional was appointed in
one of those meetings. O Co sought time to settle the matter and in the third
meeting of the Committee of Creditors the Resolution Professional was informed
that O CO had settled the matter and Form FA was duly submitted.

It was unanimously agreed in the meeting
that the corporate insolvency resolution process would be withdrawn against O
Co and an application to that effect should be made before the authority.

HELD

The NCLAT observed that the consent of all
the financial creditors to withdraw the application had been obtained by O Co.
Further, the dues of the Resolution Professional were also paid to him.

In view of the
above, NCLAT permitted the withdrawal of the application filed before it u/s 7
of the Code. The order passed by NCLT was set aside and disposed of as
withdrawn. All other orders of moratorium, appointment of Resolution
Professional and advertisements given in the newspapers were also set aside.
NCLT was directed to close the proceedings and O Co was permitted to function
independently through its Board of Directors with immediate effect. The appeal
was thus allowed.

BCAJ Admin

Book Review

Title: Indian Taxation Decoded – An MNC
perspective

Author: Ketan Dalal, Chartered Accountant

Of late, newer business models have been
transforming conventional ones and increasing industry competitiveness, while
digital economy has taken over traditional brick and mortar enterprises. India,
along with the other emerging markets, is at the centre stage of this
disruption.

With the Indian government’s focus on
reforms through schemes such as ‘Ease of Doing Business’ and ‘Make in India’,
and FDI liberalisation (including in retail), the country is becoming an even
more important investment destination for global MNCs.The traditional image of
India is changing from that of a cost saving location (cheap processing and
outsourcing work) to that of a digital technology hub.

The government’s efforts to convert the
informal sector into formal, through regulatory and tax reforms have been noted
and recognised by the international business community and various fora.

In such a scenario, it is important for tax
professionals dealing with MNCs to be well versed with various tax and
regulatory issues in India. A lot of material is available on the said topic,
but it is spread out and not inter-linked. This book, titled “Indian Taxation
Decoded – An MNC perspective” by Ketan Dalal, is a welcome guide on the topic
providing a comprehensive framework of tax and regulatory aspects, laid out
briefly and yet methodically.

The book covers tax and regulatory aspects
for MNCs operating in India under the following chapters:

1. Chapters I to IV – Introduction,
Residential Status, Taxation of foreign companies, India’s Treaty Network &
Key issues

The chapters cover
the basics of taxation (encompassing residential status, various heads of
income, India’s tax landscape, determining the residential status, presumptive
tax regimes, GAAR etc.) which could be a helpful read for an individual with
limited understanding of MNC taxation issues. These chapters contain the key
issues, setting the tone to what follows in the book.

2. Chapters V & VI – Business Connection,
Permanent Establishment, Business income, Royalty and FTS

The key issues for an MNC operating in India
revolve around the aforesaid topics. The chapters discuss the concepts in
detail covering the relevant landmark and recent judgements, the tax
implications, quantum of taxability (i.e. attribution of income) etc. The
impact of changing business models on taxability as Royalty and FTS, has also
been touched upon.

3. Chapter VII – Transfer Pricing – The India
Landscape

While some
parts of Transfer Pricing implications are covered in other chapters, this
portion covers the basics of Transfer Pricing regulations in India, spanning
from adoption of the regulations in India, definition of ‘international
transaction’ and ‘associated enterprises’, the various methods prescribed for a
benchmarking analysis and determination of the most appropriate method. The
chapter goes on to throw light on the concept of Specified Domestic
Transactions, Dispute Resolution Mechanism. The chapter endeavours to also
cover the more recent topic of OECD Base Erosion and Profit Shifting (BEPS)
Action Plan (AP) 13. The chapter also covers some landmark rulings and judicial
precedents, which are good to have in hand for any new reader.

The chapter starts at the very basic and
gradually builds up to give the reader an all-encompassing synopsis of the
Transfer Pricing environment in India.

4. Chapters VIII & IX – Taxation of
Expatriates and Foreign-Held Domestic Entities

With a significant increase in movement of
human capital in and out of India, the topic has greater significance in
today’s times. The chapter provides a detailed commentary on various tax
provisions impacting the inbound and outbound expatriates as well as the
employer.

The chapter on foreign held entities deals
with tax and regulatory issues impacting corporates and LLPs of foreign MNCs in
India. The chapter is broadly divided into (i) Tax regime for domestic entities
(ii) Computation of taxable income (including general and specific deductions
available, thin capitalisation rules, ICDS, etc.) and (iii) Tax rates.

5. Chapter X – Mergers and Acquisitions

With an increase in
M&A activity, this chapter covers the key tax and regulatory provisions
impacting the said activity (encapsulating Mergers, Demergers, Share
acquisitions, Business acquisitions) of MNCs in India. The fact that this
covers cross border MnA as also by the Indian arms of MNCs makes it
particularly useful.

6. Chapter XI – Sectoral Issues

In this chapter,
the author has discussed direct tax aspects involving certain nuances and
peculiarities relevant for sectors such as Shipping, Aviation, Media and
Entertainment, BPOs and KPOs, E-commerce, Infrastructure and Financial
services.

7. Chapters XII & XIII – Procedures and
Compliances, Non-tax Regulations

The chapters
encapsulate the procedures and compliances as laid down in income-tax law and
cover certain relevant non-tax laws (such as Companies Act, LLP Act, SEBI Act,
Stamp duty regulations, FEMA and the Competition Act) which may be relevant for
a preliminary understanding by the personnel of an MNC operating/ looking to
setting up operations in India.

8. Chapter XIV – Tax Management in India

The chapter covers
the practical aspects from a tax and regulatory perspective that an MNC should
take cognisance of, while operating in India. This chapter throws light on
certain softer nuances of business, such as practical issues of facing tax
litigation in India, beefing up an in-house tax team and the considerations to
be paid heed to, while choosing a tax advisor for the MNC.

9. Chapter XV – Goods and Services Tax

The chapter covers
the basic provisions of the newly introduced GST law from the perspective of
MNCs and their India presence, at a broad and conceptual level.

Holistically, the book helps provide an
understanding of all tax and related laws from a bird’s eye view. By
interlinking the various tax and regulatory provisions impacting an MNC in
India, the book offers a fresh perspective of tax and regulatory issues in
India from an MNC standpoint.

The summary provided at the beginning of
each chapter and the key takeaways at the end of each chapter explain the
content of the topic in brief. The Appendices provided by the author are
reader-friendly and helpful for references at any point of time. What makes the
book truly unique from what otherwise is available in the market, is the
summary coverage of pertinent rulings, relevant to the topics covered. However,
certain repetitions of topics / judgements could have been avoided by the
author or covered in a focused manner. Having said this, the book serves as a
one-stop reference guide for anyone, whether with a well-read tax background or
not, who would like to get an understanding of dealing with MNCs’ tax and
regulatory issues in India. The book would serve as a ready reckoner to
students as well.

The author, who has vast and long experience
in this field, has dedicated the book to his father, thanking the latter for
“giving me the wings to fly”. The book probably just does the same, to someone
who wants to understand the complex world of the Indian tax regimen in a
simplified and lucid manner.

BCAJ Admin

Ethics and You

Arjun
(A) — (chanting bhajan) Ram Krishna Hari ! Ram Krishna Hari ! (opens his
eyes and looks around in despair)

A — O
Lord ! Where are you? Please save me ! Please save me ! Ram Krishna Hari !

Shrikrishna
(S) — (appears with a smiling face) Re Arjun, you are chanting my bhajan
today. Anything special?

A — What else can we do?

S — Why? You said, in July you don’t have time even to
think about me. I avoided meeting you in July. You remembered me. So I had to
come.

A —This time there is a penalty for late filing of tax
returns. But clients did not turn up with data. They take it casually.

S — Yes. All of them must have flocked in during last
week of July.

A — Yes. As if each one of them is our only client !

S — But this is your annual ritual to keep crying !
Nothing new about it. I think, you are afraid of something else.

A — You are right ! Truly, you are ‘antargyani’.
You can read our minds. Many of my friends wanted to fall on your feet. They
want to surrender before you !

S — Surrender what? Certificate of practice?

A — May be, you can’t rule it out !

S — How can you run away from your profession? It’s your
mission !

A — But this mission has become ‘bheeshan’ –
horrifying !

S — What happened? Some new draconian law has come?

A — No Lord ! Same law; but new approach. Full of
prejudice and negativity.

Really, don’t understand what to do. ‘To practice or not
to practice’ —— that is the question.

S — Oh ! you are talking like Hamlet. But why this
dilemma after so many years? I remember, you were in a similar dilemma before
Mahabharata War.

A — Absolutely true. The regulation is so much that we
cannot cope up with it.

S — If you are a small practitioner, all this will always
keep on frightening you. Grow Big, Arjun, you must think Big !

A — Bhagwan, I am talking about ‘Big’ CAs only.
Many of the big CA firms have left the audit assignments of big corporates which
they were doing for number of years !

S — Surprising ! What made them do so?

A — Fear ! Every CA is now finding the profession very
risky. Whatever you do, there is some flaw or the other. And now it is becoming
fatal.

S — But why such sudden change?

A — It is change of attitude of Government. Change of
approach of regulators. All these years, we were watchdogs, but now they want
us to be blood-hounds.

S — So, all of you need to be ‘Duryodhana’ and not
‘Yudhishthira’. You need to be always suspicious; smelling some foul.

A — You said it ! We can’t afford to remain as mere
auditors; but need to act as investigators. Businessmen – our clients – are
never hundred percent honest. They cannot survive with honesty. Government
forces them to be dishonest.

S — And they pay you fees to audit their accounts ! And
Government wants you to be ‘independent’ ! Interesting !

A — And real problem is that the businessmen will never
mend their ways. They have to commit irregularities. So all those
irregularities, these auditors have tolerated for years ! Now, it is difficult
to continue the audits knowing the irregularities. At the same time, you cannot
discontinue by stating this reason ! Then you are fully exposed ! Very
difficult situation. Catch 22 !

S — So you need to be more diligent; more organised; more
pro-active; and more bold.

A—But if we start doing the audit in this ‘ideal’
fashion, we will land up completing only one year’s audit over a period of 2 to
3 years ! !

S — I think, we need to discuss it more; but not now. I
am busy in regulating the monsoon, it has started behaving strangely !

A — The ship of our profession is in the troubled waters.
YOU ALONE can steer it through!

NOTE: The above
dialogue is describing the current scenario and the dilemma faced by audit
profession.

BCAJ Admin

Corporate Law Corner

13. Scheme
of amalgamation between Real Image LLP with Qube Cinema Technologies Pvt. Ltd.

TCA/157/CAA/2018

CP/123/CAA/2018

Date of Order: 11^th June, 2018

Section 232 of Companies Act, 2013 –
Amalgamation of Indian LLP with Indian company – Permissible as long as the
scheme was reasonable and not contrary to public policy

FACTS

R LLP proposed to amalgamate with Q Co as a
going concern. R LLP is incorporated under the provisions of Limited Liability
Partnership Act, 2008 (“LLP Act”) whereas Q Co is incorporated under the
provisions of Companies Act, 2013 (“Companies Act”). The intention behind the
proposed amalgamation was to consolidate the business operations and provide
efficient management control and system.

The proposed scheme provided for:

(a) transfer of entire business of the Limited
Liability Partnership (“LLP”) to the company;

(b) protection of interest of employees of LLP; and

The parties to the amalgamation were regular
in filing their returns with statutory authorities and maintained their books
in accordance with provisions of law.

HELD

The issue before the Tribunal was whether an
LLP could be allowed to amalgamate with a private company under a scheme of
amalgamation filed before it. It was pointed out to the Tribunal that both the
LLP Act and Companies Act provide for similar language with respect to
provisions dealing with amalgamation and both the Acts empower the Tribunal to
sanction a scheme of amalgamation.

It was further submitted that u/s. 394(4)(b)
of Companies Act, 1956 there was no bar for a transferor to be a body corporate
which included an LLP. However, there is no such provision u/s. 232 of
Companies Act, 2013. It was further highlighted that section 234 of Companies
Act did provide for amalgamation of foreign LLP with Indian company. Thus,
while foreign LLP could merge with an Indian company, similar benefit has not
been extended to an Indian LLP.

The Tribunal observed that intent of both
the Acts was to facilitate ease of doing business. However, absence of specific
provision under Companies Act resulted in a case of “casus omissus”. It
was observed that if the intention of the Parliament was to merge foreign LLP
with an Indian company, then it was incorrect to presume that the Act prohibits
a merger of Indian LLP with Indian company.

As the scheme was fair and not contrary to
public policy, the Tribunal allowed the Indian LLP to merge with the Indian
company subject to obtaining other necessary approvals and due compliance of
law.

14. Sushant
Aneja vs. J. D. Aneja Edibles (P.) Ltd.

[2018] 94 taxmann.com 443 (NCLT – New Delhi)

Date of Order: 4^th June, 2018

Section 5(8) read with sections 3(12) and 7
of the Insolvency and Bankruptcy Code, 2016 – Corporate debtor claimed that
amounts disclosed in the balance sheet as “unsecured loans” were in fact
“capital contributions” – There being no reason for such a categorisation, the
same was treated as “financial debt”; non-repayment of which led to initiation
of insolvency proceedings

FACTS

SA and NA (HUF) (“Applicants”) advanced
loans to J Co during Financial Years 2004-05 to 2012-13. During the F.Ys.
2013-14 to 2016-17, J Co neither paid the interest nor deposited the TDS,
however, the original loan amounts were reflected in the balance sheet of J Co.
Applicants wrote demand letters dated 16.11.2016 demanding outstanding loans.
They also sent legal notices for remittance of outstanding amounts. This was
followed by two separate notices sent on 15.09.2017, acceptance of which was
denied by J Co. In November 2017, applicants filed the application before
National Company Law Tribunal (“NCLT”).

J Co submitted that the amount in question
was not a “financial debt”. It was further submitted that since the amount was
given as quasi-capital there were no terms and conditions for repayment, and no
date was specified as to when the amount would become due and payable and thus,
there is no default in repayment of the said amount. Applicants contended that
absence of a written agreement prior to extension of credit did not entitle the
J Co to escape liability.

HELD

NCLT observed that advancement of the amount
from the Applicants to J Co is not in dispute. However, the nature of the money
advanced is disputed. The Tribunal further observed that the reflection of the
amounts in the balance sheets under the head of ‘Unsecured Loan’, the payment
of TDS on interest by the J Co on behalf of the Applicants and the fact that
interest was to be paid by J Co to the Applicants point towards the fact that
the money was taken by J Co from the Applicants against the consideration for
the time value of money. J Co failed to explain why the amount claimed to have
been taken as quasi capital contribution was treated as unsecured loan in its
balance sheet.

The Tribunal thus held that there was a
financial debt which was owed by J Co to the Applicants.

In connection with the fact whether there
was a default or not, the Tribunal observed that while Applicants sent legal
notices to J Co; J Co did not reply to the same nor did it produce any proof of
payment before the Tribunal.

The Tribunal considering the facts of the
case held that a default had been committed in terms of section 3(12) of the
Code of financial debt as defined u/s. 5(8) of the Code and that the Applicants
had rightly invoked the provisions of the Code.

Tribunal accordingly proceeded to appoint an
Insolvency Resolution Professional and initiated the corporate insolvency
resolution process laid down u/s. 7 of the Code.

15. Principal
Director General of Income Tax vs. Spartek Ceramics India Ltd.

[2018] 94 taxmann.com 1 (NCLAT)

Date of Order: 28^th May, 2018

Section 61 read with section 242 of the
Insolvency and bankruptcy Code, 2016 – Notification S.O.1683(E), dated
24.05.2017 is inconsistent with maximum period of limitation granted u/s. 61(2)
of the Code – NCLAT has no jurisdiction to entertain an appeal beyond 45 days.

FACTS

S Co had a scheme of demerger sanctioned by
Board for Industrial and Financial Reconstruction (“Board”) u/s. 18 of the Sick Industrial Companies (Special Provisions) Act, 1985
(“SICA Act, 1985”). Income-tax department preferred an appeal against
the said scheme stating that the same was in violation of the principle of
natural justice and provisions of ‘SICA Act, 1985’ which is prejudicial to the
interest of revenue involving huge loss of income tax. The appeal was preferred
for removal of the grievances.

The other Appeal was preferred by the ‘G Co’
u/s. 32 of the I&B Code read with 3^rd proviso to section 4(b) of
the ‘Sick Industrial Companies (Special Provisions) Repeal Act, 2003’
(“SICA Repeal Act, 2003”) as amended by the Eighth Schedule to the
I&B Code and by the Insolvency and Bankruptcy Code (Removal of
Difficulties) Order, 2017. G Co in the appeal, challenged the same very scheme
of demerger sanctioned by Board, for restructuring S Co. An appeal was also
preferred by G Co before the Appellate Authority for Industrial and Financial
Reconstruction (“AAIFR”), which stood abated in view of the SICA
Repeal Act, 2003. The main challenge has been made on the ground that the Board
has not discussed the objections raised by G Co nor has taken into consideration
that G Co is the Creditor of S Co, which was required to take the
responsibility and other liabilities which were not recorded in the books of
Neycer.

The appeals have been filed under the Eighth
Schedule of the I&B Code.

HELD

The issues before NCLAT was whether the
Central Government u/s. 242 of the I&B Code can empower the NCLAT to hear
an appeal against an order passed by the Board; the Eighth Schedule of the
I&B Code, having not been amended by a legislative Act, but by an executive
order? In this connection, it was observed that Notification S.O. 1683(E) dated
24^th May, 2017, was issued in view of difficulties arisen to give
effect to review or monitoring of the schemes sanctioned u/s. 18 of the SICA
Act, 1985, in view of SICA Repeal Act, 2003 and omission of sections 253 to 269
of the Companies Act, 2013. It did not relate to removal of any difficulty
arising in giving effect to the provisions of the I&B Code, which is the
only ground for which Central Government can exercise power conferred u/s. 242.

In absence of any ground shown for removing
any difficulty in giving effect to the provisions of the I&B Code and as
the Central Government cannot exercise powers conferred under section 242 of
the I&B Code for removing the difficulties arisen due to ‘SICA Repeal Act,
2003’ or omission of provisions of the ‘Companies Act, 2013’, NCLAT could not
act pursuant to Notification S.O. 1683(E) dated 24th May, 2017 to entertain the
appeal.

It was
further held that executive instruction issued by the Central Government u/s.
242 was contrary to the provisions of section 4 of the ‘SICA Repeal Act, 2003’.

The second issue before the NCLAT was
whether the provision to prefer the appeal within 90 days before the NCLAT, as
made by the Central Government Notification dated 25^th May, 2017 is
in conflict with section 61(2) of the I&B Code, which provides 30 days
period to prefer an appeal before the NCLAT? It was observed that grounds to
prefer appeal u/s. 61 of the I&B Code against an order of approval of plan
passed by the Adjudicating Authority u/s. 31, should be such as mentioned in
section 61(3). As per section 61(2), the appeal is required to be filed within
30 days before the NCLAT. NCLAT is empowered to condone the delay of another 15
days after the expiry of the period of 30 days in preferring the appeal; that
too for a sufficient cause.

The NCLAT observed that the Central
Government u/s. 242, is competent to make provision to remove the difficulty in
giving effect to the provisions of the I&B Code, but it cannot be in
conflict with nor can change the substantive provisions of the I&B Code.
The period of limitation as prescribed by Notification S.O. 1683(E) dated 24^th
May, 2017 was in conflict with the maximum period of limitation granted u/s.
61(2) of the I&B Code and beyond forty-five days. NCLAT was thus, not
empowered to entertain the appeal.

It was held that appeals filed by both G Co
and Income-tax department were barred by limitation and were otherwise not
maintainable u/s. 61 of the I&B Code. To maintain the judicial decorum,
though NCLAT noticed the conflict in the order passed by the Hon’ble High Court
of Delhi and the Notification S.O. 1683(E) dated 24^th May, 2017, it
refrained from giving any specific declaration about the same.

Further, in view of the facts of the Scheme,
NCLAT held that the same was illegal. However, in in absence of its
jurisdiction to exercise of powers u/s. 61 of the I&B Code, being barred by
limitation, it would not be desirable to set aside the impugned illegal Scheme.

BCAJ Admin

Allied Laws

21.
Demerger – No prior approval taken before demerger to transfer the lease
rights – Transfer fee rightly charged. [Companies Act, 1956]

Sections 391 and 394 – Allenby Garments Pvt. Ltd. and Ors. vs. West Bengal Industrial
Development Corporation Ltd. and Ors. AIR 2018 (NOC) 527 (CALcutta)

The
facts of the case are that with a view to promoting garment trade, the Garment
Corporation undertook a project called Garment Park Module. It invited
applications from interested parties for allotment of commercial space (module)
and car parking space in the project. A company by the name of Eastern Metalik
applied for it.

Physical
possession of the module was given to Eastern Metalik and possession
certificate dated 11 September, 2008 was issued by the Corporation in favour of
Eastern Metalik. Eastern Metalik filed an application for its demerger under
the provisions of the Companies Act, 1956. The scheme of demerger was sanctioned
by the Court by reason whereof the garment division of Eastern Metalik stood
transferred to and vested in Allenby. Thereafter, Allenby wrote a letter to the
Managing Director of the Corporation recording the factum of demerger of
Eastern Metalik and vesting of the garment division of Eastern Metalik in
Allenby and requesting for effecting registration of the said module in favour
of Allenby. However, the Corporation had decided to register the said module
along with car parking space in the name of Allenby subject to payment of Rs.
30.34 lakh as transfer fee to the Corporation.

A Writ
petition was filed stating that the additional amount of transfer fee charged
was illegal and arbitrary.

The
Court observed that the transfer processing fee of 5% of the initial sub-lease
premium would be applicable where the transfer of the sub-lease is made with
prior permission of the Corporation. In the present case, admittedly no prior
consent was taken by Eastern Metalik before going through the process of demerger
and transferring its garment division to Allenby. No prior permission of the
Corporation was asked for or obtained before putting Allenby in physical
possession of the Module in question. The scheme of demerger is not binding on
the Corporation.

Since
Allotment does not give any indefeasible right to have a lease/sub-lease
executed in favour of the allottee, the allotment of the module which was in
favour of Eastern Metalik, Allenby cannot be called as an allottee. Hence,
neither Eastern Metalik nor Allenby can be presently said to be a sub-lessee in
respect of the said module.

It was
held that, although Allenby might have stepped into the shoes of Eastern
Metalik in so far as the garment division of Eastern Metalik is concerned by
reason of demerger, the fact remains that Eastern Metalik and Allenby are two
separate legal entities and it cannot be said that Allenby is an allottee due
to the reason of demerger. Since specific approval was supposed to be taken,
which was not done in the present case, Allenby is rightly charged the transfer
fees.

22.
Gift Deed – Attestation by two witnesses mandatory. [a. Hindu Succession
Act, 1956;

b. Transfer of Property Act, 1882]

a. Section 14, b. Section 123 – Radha Sah vs.
Girja Devi AIR 2018 PATNA 115

The
plaintiffs filed a case against the appellant for declaration that the
registered deed of gift executed by the plaintiff’s husband in favour of the
defendant and registered deed of gift executed by the plaintiff’s husband’s
first wife in favour of the defendants in respect of a property were void. The
plaintiffs alleged that the said transaction i.e. the deeds of gift to transfer
of property does not bind the plaintiffs.

The
main contention of the plaintiffs was that the property in question is a co-parcenary
property and such property was alienated in the form of gifts against the
mandate of law and that the gift deeds were sham and void.

It was
observed by the court that the property acquired by the plaintiff’s husband’s
first wife was a self-acquired property in terms of section 14 of the Hindu
Succession Act, 1956. Hence, she could alienate the property. It was also
observed that there was no bar even on a co-parcener and he/she can make a gift
of his undivided interest in the coparcenary property to another coparcener or
to a stranger with the prior consent of all other coparceners. Such a gift
would be quite legal and valid.

The
court held that property which the plaintiff’s husband’s first wife had gifted
was her self-acquired property. Hence, she was competent to gift the same.
However, the deed of gift executed by Tulni Devi is not according to law or as
required by section 123 of the Transfer of Property Act as it is not attested
by two witnesses. In view of the aforementioned defect, the said deed of gift
stood void and is not executed according to law.

23. Mesne Profits – Tenant did not vacate the
building for 18 years – Was liable to pay damages at the rate of Rs. 5/- per
square feet per month with a 10% escalation. [Transfer of Property Act, 1882]

Section
106 – Badri Vishal vs. The Kshatriya Rajput Sabha Kutbiguda, Hyderabad AIR 2018
(NOC) 516 (UTR.)

In the
present case, the defendant-tenant had not vacated the property for a period of
18 years even after the notice of termination from the lessor.

The
Court observed that a tenancy that was terminated in the year 1999 has still
not resulted in the tenant vacating the building. The tenant is continuing to
enjoy the building by paying rent at old rate after 18 years also. The Hon’ble
Supreme Court of India in various cases talks of the need to award damages etc.,
as per market value and mesne profits to offset the delays. Even while granting
injunction, in one case, the need for imposing a condition to give mesne
profits and market rent while granting injunction has also been stressed by the
highest court of law. The law which admittedly is not static should change and
recognise the need for modification to suit the times. Therefore, to offset
legal delays; to protect an innocent landlord and to discourage a clever tenant
the Court has to award damages for use and occupation at the prevalent/current
market rents. This will deter unscrupulous tenants from clinging onto the
property for years together, taking advantage of the period in which the matter
is pending in the Court. Even if the delay is genuine, there will be a
realistic amount realized by awarding damages at current rates.

The
Court held that the defendant is liable to pay damages for use and occupation
of the premises @ Rs. 5/- per square feet per month for the suit property from
the date of the suit till the date of this order along with escalation of 10%
per annum as is being paid by all other tenants in the building and as noticed
by the lower Court.

24.
Succession of Property – Property in India – Can be inherited by a
foreign national. [Succession Act, 1925]

Section 2 – B. C. Singh
vs. J.M. Utarid AIR 2018 SUPREME COURT 2374

Plaintiff,
an Indian-Christian had purchased a property in India. However, the plaintiff
died leaving no issue. The question arose as to who was entitled to inherit the
property.

The
plaintiff had invited the defendants to stay at the property that he had
purchased. After the death of the plaintiff, the legal representatives of the
deceased contested in the court that the defendants were only licencees and the
license was terminated, and were not the owners or co-owners of such property.
The contention of the defendants was that they were the relatives of the
plaintiff and hence, the property was to devolve upon the defendants.

There
was an alternate contention that even if the defendants were related to the
plaintiff, they could not succeed since the plaintiff had a sister and that she
would be a preferential heir as compared to the defendants.

The
defendants argued that the sister of the plaintiff would not be entitled to the
property since she was a Pakistani National.

The
Court held that the Indian Succession Act, 1925 would be applicable to the
succession of the property left by the plaintiff. This Act does not bar the
succession of property of any Indian Christian by a person who is not an Indian
national. There is no prohibition for succession of the property in India by a
foreign national by inheritance.

25.
Will – Testator blind – No restriction of execution of a Will by a blind
person. [Indian Succession Act, 1925]

Section 59 – Chhotey Lal
and Ors. vs. Ram Naresh Singh and Ors. AIR 2018 (NOC) 621 (ALLahabad)

One of
the issues was that the unregistered Will set up by the respondent was
surrounded with doubt and uncertainty particularly on account of admission that
the testator was blind, illiterate and was of extreme old age and hence the
Will was not a genuine document and was not executed properly.

The
Court observed that where a document is registered, there is a general
presumption that the same has been executed and registered in accordance with
law, unless the presumption is rebutted by placing reliable and cogent evidence
but where the document is unregistered and creates suspicion on the face of it,
the propounder of the Will is required to prove its due execution and in such
cases the duty of the court also increases so as to satisfy itself that the
Will is not surrounded by any suspicious circumstances and has been executed by
the executant out of his or her freewill and also that the executor was in free
mental condition at the time of execution of Will.

The
Court held that section 59 of the Indian Succession Act provides, that every
person of sound mind not being a minor may dispose of his property by way of
Will. It has further been clarified that a married woman may also dispose of by
Will, any property which she could transfer by her own act during her life.

It is also provided
that the persons who are deaf, dumb or blind are not incapacitated for making a
Will if they are able to know what they do by it. Thus, there is no restriction
on execution of a Will by a blind person, provided, of course, that he is able
to know what he is doing.

BCAJ Admin

From Published Accounts

Accounting and disclosure regarding amalgamations
and mergers (year ended 31^stMarch 2018) as per Ind AS 103 ‘Business
Combinations’/ AS 14 (revised 2016) ‘Accounting for Amalgamations’

Asian Paints Ltd.

From Notes to Financial Statements

Merger of Asian Paints (International) Limited, Mauritius with the
company

During the year, the
National Company Law Tribunal had approved the scheme of amalgamation (‘The
Scheme’) between the Company and Asian Paints (International) Limited (‘APIL’),
Mauritius, a wholly owned subsidiary of the Company. The
Scheme became effective from 15^thJanuary,
2018 on completion of all regulatory formalities. In accordance with Ind AS 103-Business
combination, the financial statements of the Company for the previous financial
year 2016-17 have been restated with effect from 1^stApril, 2016
(being the earliest period presented).

APIL was an investment
holding company which ‘interalia’ held investments in Asian Paints
International Private Limited (‘APIPL’) (formerly known as Berger International
Private Limited), a subsidiary of the Company.
As per the Scheme, all assets, liabilities and reserves of APIL
appearing as at 1^st April, 2016 are recognised in the books of the
Company at their respective carrying values, as detailed below. On account of this merger, APIPL is now
direct subsidiary of the Company (Refer Note 4).

( Rs. in crore)
Cash and Cash Equivalents	1.25
Investments – Non-current (in Asian Paints International Private Limited)	389.95
Other financial assets – Non-current	16.56
Other assets – Current	0.26
Other financial assets – Current	11.43
Borrowings – Current	(15.75)
Other financial liabilities – Current	(2.31)
Total Net Assets Acquired (A)	401.39
Retained earnings acquired (B)	100.77
Investment in APIL appearing in the financial statements of the Company (C)	256.24
Capital Reserve (A-B-C)	44.38

( Rs. in crore)

As at
1^st April, 2016

Cash and Cash Equivalents

1.25

Investments – Non-current (in Asian Paints
International Private Limited)

389.95

Other financial assets – Non-current

16.56

Other assets – Current

0.26

Other financial assets – Current

11.43

Borrowings – Current

(15.75)

Other financial liabilities – Current

(2.31)

Total Net Assets Acquired (A)

401.39

Retained earnings acquired (B)

100.77

Investment in APIL appearing in the financial
statements of the Company (C)

256.24

Capital Reserve (A-B-C)

44.38

The impact of the merger on the Statement of Profit and Loss
of the Company for the current year and previous year is not material.

Sasken Network Engineering
Limited

From Notes to Financial
Statements

Amalgamation

Background

Sasken Network Engineering Limited (‘SNEL’), was a wholly
owned subsidiary of Sasken Technologies Limited (‘STL’) and was engaged in the
business of developing embedded communication software for companies across the
communication value chain.

The business activities of SNEL and STL complimented each
other. Therefore, in order to achieve economies of scale, efficiencies and to
simplify contracting and vendor management, the Board of Directors of each of
these companies approved the Scheme of Amalgamation (‘the Scheme’) for the
transfer of the business and undertaking of SNEL to STL.

The Scheme was approved by the National Company Law Tribunal,
Bengaluru Bench (‘NCLT’) vide its order dated August 31, 2017, the appointed
date of the Scheme being April 1, 2015.

Accounting

The amalgamation qualifies as a ‘common control transaction’
as per Appendix ‘C’ of Ind AS 103, Business Combinations. Consequently, the
amalgamation has been accounted for using the pooling of interest method and
the financial information in respect of prior periods has been restated as if
the amalgamation had occurred from the beginning of the preceding period, i.e.
April 1, 2016. This accounting treatment
is also in compliance with the Scheme approved by the NCLT.

The following table represents the particulars of assets and
liabilities (after elimination of inter-company balances), transferred by SNEL
to STL as a consequence of the amalgamation:

Particulars

Amount in Rs lakhs

Property,
plant and equipment

7.91

Non-current
assets

547.68

Current
assets

200.52

Other
equity

(453.79)

Current
liabilities

2.68

Net
assets transferred

305.00

Purchase
consideration (value of investment
in SNEL)

305.00

The extracts of balance sheets of STL (to the extent there
were amalgamation adjustments) as reported as at April 1, 2016 and March 31,
2017, the impact of the amalgamation and the resultant post amalgamation
balance sheet extracts as at those dates have been presented below:

Particulars	April 1, 2016	March 31, 2017
EQUITY AND LIABILITIES
Equity
Share capital	1,771.98	–	1,771.98	1,711.01	–	1,711.01
Reserves and surplus	48,103.29	453.79	48,557.08	52,457.50	481.36	52,938.86
Current labilities
Trade payables	6,280.13	5,09	6,285.22	2.820.26	4.58	2,824.84
Other current liabilities	1,444.54	(79.69)	1,364.85	1,628.89	(72.75)	1,556.14
Short term provisions	4,604.22	71.92	4,676.14	3,964.23	71.92	4,036.15
		451.11			485.11
ASSETS
Non-current assets
Fixed assets (net)	3,924.32	7.91	3,932.23	3,696.27	1.79	3,698.06
Non-current investments	22,011.22	(305.00)	21,706.22	29,021.23	(305.00)	28,716.23
Deferred tax assets (net)	1,063.57	76.04	1,139.61	789.64	105.52	895.16
Long term loans and advances	6,234.47	471.64	6,706.11	7,195.63	471.64	7,667.27
Current assets
Current Investments	16,650.35	176.44	16,826.79	9,688.70	185.25	9,873.95
Trade receivables	8,003.68	(10.45)	7,993.23	6,948.81	–	6,948.81
Cash and bank balances	1,345.66	14.60	1,360.26	1,225.02	7.79	1,232.81
Short term loans and advances	1,407.35	20.98	1,428.33	2,041.85	20.22	2,062.07
Other current assets	1,897.82	(1.05)	1,896.77	2,599.46	(2.10)	2,597.36
		451.11			485.11

Particulars

April 1, 2016

March 31, 2017

As reported previously

Amalgamation adjustments*

Post amalgamation

As reported previously

Amalgamation adjustments*

Post amalgamation

EQUITY AND LIABILITIES

Equity

Share capital

1,771.98

–

1,771.98

1,711.01

–

1,711.01

Reserves and surplus

48,103.29

453.79

48,557.08

52,457.50

481.36

52,938.86

Current labilities

Trade payables

6,280.13

5,09

6,285.22

2.820.26

4.58

2,824.84

Other current liabilities

1,444.54

(79.69)

1,364.85

1,628.89

(72.75)

1,556.14

Short term provisions

4,604.22

71.92

4,676.14

3,964.23

71.92

4,036.15

451.11

485.11

ASSETS

Non-current assets

Fixed assets (net)

3,924.32

7.91

3,932.23

3,696.27

1.79

3,698.06

Non-current investments

22,011.22

(305.00)

21,706.22

29,021.23

(305.00)

28,716.23

Deferred tax assets (net)

1,063.57

76.04

1,139.61

789.64

105.52

895.16

Long term loans and advances

6,234.47

471.64

6,706.11

7,195.63

471.64

7,667.27

Current assets

Current Investments

16,650.35

176.44

16,826.79

9,688.70

185.25

9,873.95

Trade receivables

8,003.68

(10.45)

7,993.23

6,948.81

–

6,948.81

Cash and bank balances

1,345.66

14.60

1,360.26

1,225.02

7.79

1,232.81

Short term loans and
advances

1,407.35

20.98

1,428.33

2,041.85

20.22

2,062.07

Other current assets

1,897.82

(1.05)

1,896.77

2,599.46

(2.10)

2,597.36

451.11

485.11

*after eliminating inter-company balances.

The Statement of Profit and Loss for the quarter and year
ended March 31, 2017 as reported and ad adjusted to give effect to the
amalgamation are as follows:

Amount in Rs. lakh

Particulars

For the year ended March 31, 2017

As reported previously

Amalgamation adjustments

Post amalgamation

Other
income

2,956.07

7.77

2,963.84

Employee
benefits expense

28,716.65

0.01

28,716.66

Depreciation
and amortisation expense

590.74

6.12

596.86

Other
expenses

7,242.91

3.55

7,246.46

Profit/(loss)
before income tax

7,257.51

(1.91)

7,255.60

Tax
expenses:

Deferred
taxes

273.93

(29.48)

244.45

Profit/(loss)
for the period

6,600.44

27.57

6,628.01

Number
of shares

17,577,828

Basic
EPS

37.55

37.71

Diluted
EPS

37.55

37.71

Hindustan Unilever Limited

From Notes to Financial
Statements

BUSINESS COMBINATION

Acquisition of Indulekha
Brand

On April 07, 2016, the Company completed the acquisition of
the flagship brand ‘Indulekha’ from Mosons Extractions Private Limited [‘MEPL’)
and Mosons Enterprises (collectively referred to as ‘Mosons’ and acquisition of
the specified intangible assets referred to as the ‘Business acquisition’). The
deal envisaged the acquisition of the trademarks ‘Indulekha’ and ‘Vayodha’,
intellectual property, design and knowhow for a total cash consideration of Rs.
330 crore (excluding taxes) and a deferred consideration of 10% of the domestic
turnover of the brands each year, payable annually for a 5-year period
commencing financial year 2018-19.

Basis the projection of the domestic turnover of the brand,
the contingent consideration is subject to revision on a yearly basis. As at 31^stMarch 2017, the fair value of the contingent consideration was Rs. 49 crore which was
classified as other financial liability.

Deferred contingent
consideration

Based    on   the
actual   performance   in financial year 2017-18 and current view of future projections for the brand, the Company has
reviewed and fair valued the deterred
contingent    consideration   so   payable.
As at 31^stMarch 2018, the fair value of the
contingent consideration is Rs. 104
crore which is classified as other financial liability.

The determination of the fair value as at Balance Sheet date
is based on discounted cash flow method.
The key model inputs used in determining the fair value of deferred contingent consideration were domestic
turnover projections of the brand and weighted
average cost of capital.

Mindtree Limited

From Notes to Financial
Statements

The Board of Directors at its meeting held on October 06,
2017, have approved the Scheme of Amalgamation (“the Scheme”) of its wholly
owned subsidiary. Magnet 360, LLC (“Transferor Company”) with Mindtree Limited
(“Transferee Company”) with an appointed date of April 01, 2017. During the
year, the Company has filed an application with the National Company Law
Tribunal (NCLT), Bengaluru Bench. Pending the required approvals, the effect of
the Scheme has not been given in the financial statements.

During the quarter ended September 30, 2017 the Reserve Bank
of India approved the proposal to transfer the business and net assets (“the
Scheme”) of the Company’s wholly owned subsidiary, Bluefin Solutions Limited,
UK (Bluefin’) to the Company against the cancellation and extinguishment of the
Company’s investment in Bluefin. The
Company has given effect to this scheme during the quarter ended September 30,
2017 and has accounted it under the ‘pooling of interests’ method based on the
carrying value of the assets and liabilities of Bluefin as included in the
consolidated Balance Sheet of the Company for the comparative periods.

During the quarter ended June 30, 2017, the National Company
Law Tribunal (NCLT) approved the Composite Scheme of Amalgamation (“the
Scheme”) of Discoverture Solutions LLC. (‘Discoverture’) and Relational
Solutions Inc. wholly owned subsidiaries of the Company (together “the
Transferor Companies”), with the Company with an appointed date of April 1,
2015. The Company has given effect to the Scheme during the quarter ended June
30, 2017 and the merger has been accounted under the ‘pooling of interests’
method based on the carrying value of the assets and liabilities of the
Transferor Companies as included in the consolidated Balance Sheet of the
Company as at the beginning of April 1, 2015.

Since both the above transactions result in a common control
business combination, considering the requirements of Ind AS 103 – Business
Combinations, the accounting for the transactions has been given effect
retrospectively by the Company. Accordingly, the financial statements for the
corresponding periods in 2016-17 and year ended March 31, 2017 have been
restated to give effect to the above Schemes.

Particulars

Bluefin*

Discoverture*

Relational Solutions Inc*

Consideration
for amalgamation (Value of investments held by Mindtree)

4,063

1,045

522

Net
assets acquired

1,911

376

183

Goodwill

2,152

669

339

*The subsidiaries of the Company were in to the business of
Information Technology services.

Ultratech Cement Limited

From Notes to Financial Statements

Acquisition of identified cement units of JAL AND JCCL [Ind
AS 103]:

(A) Pursuant to the Scheme of Arrangement between the
Company, JAL, JCCL and their respective shareholders and creditors (“the
Scheme”), the Company has acquired identified cement units of JAL and JCCL on
June 29, 2017 at an enterprise valuation of Rs. 16,189.00 Crore having total
cement capacity of 21.2 MTPA including 4 MTPA under construction. The
acquisition provides the Company a geographic market expansion with entry into
high growth markets where it needed greater reinforcement and creating
synergies in manufacturing, distribution and logistics which offers many
advantages. This will also create value
for shareholders with the ready to use assets reducing time to markets,
availability of land, mining leases, fly ash and railway infrastructure leading
to overall operating costs advantage.

(B) Fair Value of the Consideration transferred:

Against the total enterprise value of Rs.16,189.00 Crores,
the Company has taken over borrowings of Rs.10,189.00 Crore and negative
working capital of Rs.1,375.00 Crore from JAL and JCCL. After taking these
liabilities into account, effective purchase consideration of Rs. 4,625.00
Crore has been discharged as under:

Rs. in Crore

Particulars

Amount

Issue
of 6.37% Non-Convertible Debentures

3,124.90

Issue
of Redeemable Preference Shares

1,500.10*

Total Consideration transferred for Business Combination

4,625.00

*Redemption is linked with fulfilment of certain
conditions. Out of that, Rs. 500 Crore
have already been redeemed till the reporting date.

As on the date of acquisition, gross contractual amount of
acquired Trade Receivables and Other Financial Assets was Rs.17.07 Crore
against which no provision has been considered since fair value of the acquired
receivables are equal to carrying value as on the date of acquisition.

Rs. in Crores

(D) The Fair Value of identifiable assets acquired and
liabilities assumed as on the acquisition date:

Particulars

Amount

Property,
Plant and Equipment

11,689.69

Capital
Work-In- Progress

218.78

Intangible
assets

2,715.88

Other
Non-Current Assets

1,604.43

Inventories

246.88

Trade
and Other receivables

16.21

Other
Financial Assets

0.86

Other
Current Assets

30.49

Total Assets

16,523.22

Non-Current
Borrowings

10,189.00

Current
Borrowings

497.55

Provisions

28.67

Trade
Payables

806.05

Other
Financial Liabilities

33.19

Other
Current Liabilities

303.97

Total Liabilities

11,858.43

Total Fair Value of the Net Assets

4,664.79

(E) Amount recognised directly in other equity [Capital
Reserve]:

Particulars

Amount

Fair
value of the net assets acquired

4,664.79

Less:
Fair value of consideration transferred

4,625.00

Capital
Reserve

39.79

(F) Acquisition related costs:

Acquisition related costs of Rs. 5.57 Crore (March 31, 2017
Rs.14.33 Crore) have been recognised under Miscellaneous Expenses and Rates and
Taxes in the Statement of Profit and Loss. The stamp duty paid/payable on
transfer of the assets Rs. 226.28 Crore has been charged to the Statement of
Profit and Loss has been shown as an exceptional item.

(G) The Company runs as integrated operation with material
movement across geographies and a common sales organisation responsible for
existing business as well as acquired business. Therefore, separates sales
information for the acquired business is not exactly available and accordingly
disclosures for revenue and profit/loss of the acquired business since
acquisition date have not been made.

Further, it is impracticable to provide revenue and
profit/loss of the combined entity for the current year as though the
acquisition date had been April 01, 2017 since these amounts relating to the
acquired business for the period prior to the acquisition date are not readily
available with the Company.

Indian Hotels Company Limited

From Notes to Financial
Statements

Accounting and Disclosures
for Scheme of Amalgamation

During the year, the National Company Law Tribunal (“NCLT”),
Mumbai bench vide its Order dated March 8, 2018 has approved the Scheme of
Amalgamation of TIFCO Holdings Ltd (“TIFCO”), a wholly owned investment holding
subsidiary, with the Company. The Scheme was approved by the Board of Directors
on May 26, 2017. Consequent to the said Order and filing of the final certified
Orders with the Registrar of the Companies, Maharashtra on April 11, 2018, the
Scheme has become effective upon the completion of the filing with effect from
the Appointed Date of April 1, 2017.

Upon coming into effect of the Scheme, the undertaking of
TIFCO stands transferred to and vested in the Company with effect from the
Appointed Date.

As this is a business combination of entity under common
control, the amalgamation has been accounted using the ‘pooling of interest’
method (in accordance with the approved Scheme). The figures for the previous
periods have been recast as if the amalgamation had occurred from the beginning
of the preceding period to harmonise the accounting for the Scheme with the
requirements of Appendix C of Ind AS 103 on Business Combinations. The
following Assets and Liabilities and Income and Expense are included (after
eliminating the intercompany balances) in the financial statements of the
Company for the periods presented below:

March 31, 2018

Rs crores

March 31, 2017

Rs crores

Assets

163.90

155.17

Liabilities

4.14

3.87

Net Assets

159.76

151.30

Income

5.59

4.17

Expense

1.54

2.93

Other
Comprehensive Income

4.41

(8.01)

All equity shares of TIFCO held by the Company were cancelled
without any further application, act or deed. Accordingly, the investment held
by the Company in TIFCO aggregating to Rs. 81.50 crore has been eliminated and
the reserves and surplus of TIFCO aggregating to Rs. 159.76 crore and Rs.
151.30 crore for years ended March 31, 2018 and March 31, 2017 respectively
were added on line by line basis with the respective reserves of the Company
after considering the impact of the difference of accounting policies. This
amalgamation did not involve any cash outflow (except for the transaction costs
which was expensed out) as TIFCO was a wholly owned subsidiary and the
amalgamation has been accounted using the ‘pooling of interest’ method. Opening
cash balances aggregating to Rs. 0.31 crore were transferred to the Company.

HDFC Ltd.

From Notes to Financial
Statements

Amalgamation of Grandeur Properties Pvt. Ltd., Haddock
Properties Pvt. Ltd., Pentagram Properties Pvt. Ltd., Windermere Properties
Pvt. Ltd., Winchester Properties Pv.t Ltd. with the Corporation

The National Company Law Tribunal, Mumbai Bench approved the
merger of erstwhile Grandeur Properties Pvt. Ltd. (eGPPL), erstwhile Haddock
Properties Pvt. Ltd. (eHPPL), erstwhile Pentagram Properties Pvt. Ltd. (ePPPL),
erstwhile Windermere Properties Pvt. Ltd. (eWPPL), erstwhile Winchester
Properties Pvt. Ltd. (eWtPPL) (Transferor Companies) into and with the
Corporation vide its order dated March 28, 2018, having appointed date as April
1, 2016. The said order was filed with the Registrar of Companies on April 27,
2018. The entire business with all the assets, liabilities, reserves and
surplus of Transferor Companies were transferred to and vested in the
Corporation, on a going concern basis with effect from appointed date of April
1, 2016, while the Scheme has become effective from April 27, 2018. Since the
Scheme received all the requisite approvals after the financial statements for
the years ending March 31, 2017 were adopted by the shareholders, the impact of
amalgamation has been given in the current financial year with effect from the
appointed date.

The Amalgamation has been accounted as per “Pooling of
Interest” method as prescribed by the Accounting Standard 14 “Accounting for
Amalgamations”. Accordingly, the accounting treatment has been given as under:

The assets and liabilities as at April 1, 2017 of eGPPL,
eHPPL, ePPPL, eWPPL and eWtPPL were incorporated in the financial statement of
the Corporation at its book value.

In terms of the Scheme, assets acquired and liabilities
discharged are as under:

Rs. in Crore
Assets
Tangible assets (net of Depreciation)	12.29	17.11	17.81	35.66	12.66	95.53
Cash and bank balance	0.56	14.05	0.28	0.41	0.11	15.41
Net Tax assets	6.31	2.87	5.80	8.37	2.42	25.77
Other current assets	2.79	–	0.57	7.81	0.16	11.33
Total Assets	21.95	34.03	24.46	52.25	15.35	148.04

Liabilities
Loans and advances from related parties	10.60	78.69	69.12	118.99	47.45	324.85
Security deposits	0.81	0.62	4.85	5.07	0.64	11.99
Other current liabilities	0.08	12.15	0.02	0.38	0.41	13.04
Total Liabilities	11.49	91.46	73.99	124.44	48.50	349.88

Net Assets/(Liabilities) taken over	10.46	(57.43)	(49.53)	(72.19)	(33.15)	(201.84)
Profits/(loss) on operations for FY 16-17	(4.14)	(1.38)	(6.02)	(12.30)	(7.24)	(31.08)
(Debit)/Credit to General reserve	6.32	(58.81)	(55.55)	(84.49)	(40.39)	(232.92)
(Debit)/Credit to General reserve on account of cancellation of equity holding	(101.82)
Total (Debit)/Credit to General reserve of the Corporation on account of amalgamation	(334.74)

Rs. in Crore

Particulars

eGPPL

eHPPL

ePPPL

eWPPL

eWtPPL

Total

Assets

Tangible assets (net of
Depreciation)

12.29

17.11

17.81

35.66

12.66

95.53

Cash and bank balance

0.56

14.05

0.28

0.41

0.11

15.41

Net Tax assets

6.31

2.87

5.80

8.37

2.42

25.77

Other current assets

2.79

–

0.57

7.81

0.16

11.33

Total Assets

21.95

34.03

24.46

52.25

15.35

148.04

Liabilities

Loans and advances from
related parties

10.60

78.69

69.12

118.99

47.45

324.85

Security deposits

0.81

0.62

4.85

5.07

0.64

11.99

Other current liabilities

0.08

12.15

0.02

0.38

0.41

13.04

Total Liabilities

11.49

91.46

73.99

124.44

48.50

349.88

Net Assets/(Liabilities)
taken over

10.46

(57.43)

(49.53)

(72.19)

(33.15)

(201.84)

Profits/(loss) on operations
for FY 16-17

(4.14)

(1.38)

(6.02)

(12.30)

(7.24)

(31.08)

(Debit)/Credit to General
reserve

6.32

(58.81)

(55.55)

(84.49)

(40.39)

(232.92)

(Debit)/Credit to General
reserve on account of cancellation of equity holding

(101.82)

Total (Debit)/Credit to
General reserve of the Corporation on account of amalgamation

(334.74)

Operations of eGPPL, eHPPL, ePPPL, eWPPL and eWtPPL from
April 1, 2017 to March 31, 2018 as detailed below, have been accounted for in
the current year’s Statement of Profit and Loss, after the profit for the year
before impact of the scheme of amalgamation.

Rs. in Crore
Income from leases	1.69	4.96	6.86	13.75	1.77	29.03
Other Income	0.03	0.01	0.04	–	0.10	0.18
Total Income	1.72	4.97	6.90	13.75	1.87	29.21
Interest Expenses	1.34	7.00	8.18	11.85	5.56	33.93
Depreciation	0.26	0.29	0.44	0.88	0.27	2.14
Other expenses	0.96	0.36	1.06	3.03	0.95	6.36
Total expenses	2.56	7.65	9.68	15.76	6.78	42.43
Profit Before Tax	(0.84)	(2.68)	(2.78)	(2.01)	(4.91)	(13.22)

Rs. in Crore

Particulars

eGPPL

eHPPL

ePPPL

eWPPL

eWtPPL

Total

Income from leases

1.69

4.96

6.86

13.75

1.77

29.03

Other Income

0.03

0.01

0.04

–

0.10

0.18

Total Income

1.72

4.97

6.90

13.75

1.87

29.21

Interest Expenses

1.34

7.00

8.18

11.85

5.56

33.93

Depreciation

0.26

0.29

0.44

0.88

0.27

2.14

Other expenses

0.96

0.36

1.06

3.03

0.95

6.36

Total expenses

2.56

7.65

9.68

15.76

6.78

42.43

Profit Before Tax

(0.84)

(2.68)

(2.78)

(2.01)

(4.91)

(13.22)

The depreciation of tangible assets includes adjustment on
account of alignment of accounting policy arising from the amalgamation.

Further, pursuant to the merger of Transferor Companies, the
authorised share capital of the Corporation has further increased to Rs. 457.61
crore comprising 228,80,50,000 equity shares of Rs. 2 each.

BCAJ Admin

SERVICE TAX

i High Court

39.
[2018-TIOL-1361-HC-AHM-CX] Commissioner, Central GST and CX vs. Ishan
Copper Pvt. Ltd. Dated 06^th July, 2018

Dealer is entitled to input tax credit on closure of
factory.

Facts

The Assessee is registered under Central Excise and avails
input credit on inputs. Due to a disproportionate rate of inputs and final
product, the credit was accumulated and the assessee applied for refund of such
credit at the time of surrender of registration. The Tribunal allowed the
refund and accordingly the revenue is in appeal.

Held

The Hon’ble High Court relying on the decision of the
Karnataka High Court in the case of Slovak India Trading Co. Pvt. Ltd confirmed
by the Supreme Court reported at 2008 (223) ELT A 170 and the decision of the
Bombay High Court in the case of Commissioner vs. C.Ex. Nasik vs. Jain
Vanguard Polybutlene Ltd. [2010] 256 ELT 523 (Bom) held that it is specifically
observed in all the decisions that the dealer is entitled to the refund of
unutilised input credit on closure of factory.

II. Tribunal

40.
[2018-TIOL-2137-CESTAT-AHM] Kalpataru Power Transmissions Ltd vs.
Commissioner of Central Excise and Service Tax Ahmedabad-III. Dated 11^th
April, 2018

Service of Outdoor Catering availed for the employees
pursuant to the requirement under a law cannot be considered as meant for
personal use and therefore the credit is allowable.

Facts

The Appellants availed CENVAT credit of service tax paid on
Outdoor Catering Service provided to the employees pursuant to the provisions
of the Building and other Construction Workers (Regulation of Employment and
Conditions of Service) Act, 1996. The revenue denied the CENVAT credit.
Accordingly, the present appeal is filed before the Tribunal.

Held

The Tribunal relying on
the decision in the case of Reliance Industries Ltd vs. CCE & ST, LTU,
Mumbai [2016 (45) STR 383 (Tri.-Mum)] noted that the credit is allowable
provided the service is not used for personal use. In the present case, since
the service is provided pursuant to the Building and Other Construction Workers
Act, it is not meant for personal use. Therefore credit is allowed.

41. [2018] 94
taxmann.com 5 (New Delhi – CESTAT) Additional Police Deputy Commissioner vs.
Commissioner of Central Excise, Jaipur. Dated 23^rd April, 2018

Tribunal held that the state police department cannot be
regarded as person engaged in running security business and thus, deployment of
police personnel on payment basis, being statutory function of State
Government, cannot be said to be supply of “security agency services”.

Facts

The issue in present appeal was whether the activities
undertaken by police department such as deployment of police personnel on
payment basis are covered under “security agency services”.

Held

The Hon’ble Tribunal held that the issue is no more res-integra
in view of its Final Order No. ST/A/55321-55348/2016-CU (DB) dated 25.11.2016
wherein it was held that Police Department, being an agency of the State
Government, cannot be considered to be a ‘person’ engaged in the business of
running security services. It was further observed that the charge of
deployment of additional force is also prescribed by the statutory
notification, issued by the State Government. Therefore, in the said decision,
Tribunal held that the deployment of police personnel on payment basis be
considered as part of statutory function of State Government and thus, such
activity would not get covered under scope of “security agency services”.
Consequently, Tribunal dismissed present appeal.

Note: In [2018] 94 taxmann.com 307 (SC) Commissioner of
Central Excise And Service Tax, Jaipur-I vs. Superintendent of Police,
Hanumangarh, Hon’ble Supreme Court has dismissed revenue’s appeal against
decision of Hon’ble New Delhi Tribunal vide Dy. Commissioner of Police vs.
CCE&ST [2018] 93 taxmann.com 236 wherein it was held that the charges
collected by State police department for various activities such as providing
security personnel to various organizations and sending police personnel for
character verification of candidates selected for various jobs would not be
liable to service tax under category of “security agency services”.

42. [2018] 94 taxmann.com 217 (New Delhi-CESTAT) Theme
Exports (P.) Ltd. vs. Commissioner of Service Tax, Delhi dated 09^th
April, 2018

When the exporter
realised sale proceeds through banking channels and foreign bank remitted
proceeds to exporter after deducting certain charges, the exporter cannot be
treated as recipient of banking and other financial services.

Facts

The appellant is engaged in export of garments and realised
the sale proceeds of such exported items, through proper and approved banking
channel. Against the bills issued, the foreign buyer instructed their banker to
remit the amount as indicated in the invoice.

The transaction between foreign bank and the appellant’s bank
is either direct or facilitated by an intermediary bank. For providing such
services, either the intermediary bank located abroad or foreign bank deduct
certain amount and remit the balance amount to the appellant’s bank account.
Such modus operandi of the transactions was interpreted by the
department that the same should fall under the taxable category of service
under “Banking and other Financial Services” and accordingly, department
alleged that being recipient of said services, would be liable to pay service
tax under reverse charge mechanism.

Held

Hon’ble Tribunal set aside the order, relying upon the
decision of this Tribunal in the case of Dileep Industries (P.) Ltd. vs. CCE
[Order No. ST/A/56726/2017-CU[DB], dated 15-9-2017]. In said decision, Hon’ble
Tribunal referring to Greenply Industries Ltd. vs. CCE, Jaipur (Final
Order No. 50149/2014 dated 03-01-2014) held that in absence of documents
establishing that foreign bank has charged any amount from the appellant
directly, the appellant therein cannot be treated as service recipient and no
service tax can be charged u/s. 66A read with Rule 2(1)(2)(iv) of the Service
Tax Rules, 1994.

43. [2018] 94
taxmann.com 306 (New Delhi-CESTAT) Rishi Enterprises vs. Commissioner of
Central Excise, Indore dated 08^th May, 2018

The different contracts between assessee and railways
involving different activities such as collection of bed rolls, napkins,
blankets, washing/dry cleaning of same and ironing and distribution of same to
passengers during their journey in train by deploying assessee’s personnel cannot be taxed as independent
activities and would be chargeable to service tax as composite service under ‘business
auxiliary services’.

Facts

The appellant entered into different contracts with railway
department wherein appellant was required to undertake cleaning of bed rolls,
towels, pillow covers and blankets, pick-up the dirty clothes from the AC
coaches of the nominated trains and carry out the work of cleaning, washing/dry
cleaning, ironing and also distribution of items to passengers on board.
Appellant was also required to provide service of personnel for distribution of
bed rolls to on board passengers of AC coaches. Revenue alleged that appellant
provided “business auxiliary services” to railways and thus, liable to pay
service tax. It was contended that all the three activities could be classified
differently and considering threshold limit and exemption to cleaning linen, no
service tax liability would arise. The first appellate authority upheld
impugned demand. Being aggrieved the present appeal is filed.

Held

Hon’ble Tribunal observed that services rendered comprise of
collection of bed rolls, napkins, blankets, washing/dry cleaning of the same
and ironing and distribution of the same to the passengers during their journey
in the train by deploying their own personnel. Thus, Tribunal held that the
activities carried out are required to be considered as a composite service and
it will not be proper to vivisect the services into the various components even
though the contract specified the different components and separate charges for
the same. Further, Tribunal noted that the services were provided to passengers
who are customers of railways.

Since the responsibility of providing said services is that
of railways and appellant has provided services on behalf of railways, Hon’ble
Tribunal held that the activities undertaken are correctly taxable under
“business auxiliary services” as held by lower adjudicating authorities. Also,
Tribunal relied upon its decision in R.C. Goel vs. CCE, New Delhi – 2017 (5)
G.S.T.L. 324 (CESTAT – New Delhi). Accordingly, demand was sustained.

44. 2018 (12) GSTL 39
(Tri. Del.) Commissioner of Service Tax, Delhi vs. DLF Golf Resorts Ltd. Dated
20^th November, 2017

Services provided by a club to its members not taxable under
Club Association Services.

Facts

Appellant assessee was providing services of Mandap Keeper,
Health Club & Fitness Centre, BAS, Membership of Clubs, Maintenance or
Repair Services, Manpower Recruitment services, Renting of Immovable Property
and Sponsorship services. Department observed that assessee was collecting
charges from members of the club for various services but not paying service
tax on amount collected for these services. SCN was issued and demand was
confirmed with a view that such collected amount would fall within the ambit of
“any other amount” as defined u/s. 65(105)(zzze) read with Section 65(25a) of
the Finance Act, 1994. Appellant challenged the order before Hon’ble
Commissioner (Appeals), wherein demand was dropped. Revenue being aggrieved
filed appeal before Hon’ble Tribunal.

Held

Hon’ble Tribunal observed that the issue is no longer pending
to be examined as having been decided by Hon’ble Jharkhand High Court in Ranchi
Club Ltd. vs. Chief Commr. of C. Ex. & S.T., Ranchi Zone 2012 (26) S.T.R.
401 (Jhar.), Gujarat High Court in Sports Club of Gujarat Ltd. vs. Union
of India 2013 (31) S.T.R. 645 (Guj.) and CESTAT in Federation Of Indian
Chambers Of Commerce & Industry vs. C.S.T., Delhi 2015 (38) S.T.R. 529
(Tribunal). Thus, various services provided by Club to its members not
taxable under aforesaid service. Revenue’s appeal is dismissed.

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

ALLIED LAWS

20. Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, sections 2(c) and 5(c), Banking Regulation Act, 1949,
sections 5(b) and 6(1) – Co-operative banks – Definition of ‘banks’ – SARFAESI
Act – Power of the Central Government to legislate

Pandurang
Ganpati Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited; Civil
Appeal No. 5674 of 2009 (SC); Date of order: 5^thMay, 2020

Bench: Arun
Mishra J., Indira Banerjee J., Vineet Saran J., M.R. Shah J., Aniruddha Bose J.

FACTS

A question
arose with respect to the legislative field covered by Entry 45 of List I, viz.
‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution
of India, consequentially the power of the Parliament to legislate and the
applicability of the SARFAESI Act to co-operative banks.

HELD

The Supreme Court held that the
co-operative banks under the State legislation and multi-state co-operative
banks are ‘banks’ u/s 2(1)(c) of the SARFAESI Act and while state laws might
regulate co-operative societies regarding their incorporation, regulation and
winding up, the Parliament was competent to enact laws to regulate their
banking function.

Further,
recovery is an essential part of banking; as such, the recovery procedure
prescribed u/s 13 of the SARFAESI Act, a legislation relatable to Entry 45 List
I of the Seventh Schedule to the Constitution of India, is applicable.
Parliament has legislative competence under Entry 45 of List I of the Seventh
Schedule of the Constitution of India to provide additional procedures for
recovery u/s 13 of the SARFAESI Act with respect to co-operative banks.

21. Covid-19 –
Period of limitation – Applicable to Arbitration & Conciliation Act, 1996,
and Negotiable Instruments Act, 1881

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 6^th May, 2020

Bench: Chief Justice S.A. Bobde, Deepak
Gupta J., Hrishikesh Roy J.

Counsel: K.K. Venugopal, Tushar Mehta

FACTS

The Hon’ble
Supreme Court had in the same petition vide order dated 23^rd
March, 2020 held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
Special Laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s to be passed by the Court in the present
proceedings. A clarification was sought with respect to the applicability of
the order to the Arbitration and Conciliation Act, 1996 and the Negotiable
Instruments Act, 1881.

HELD

The Supreme
Court has clarified that all periods of limitation prescribed under the
Arbitration and Conciliation Act, 1996 and u/s 138 of the Negotiable
Instruments Act, 1881 shall be extended with effect from 15^th March,
2020 till further orders.

It further held
that in case the limitation has expired after 15^th March, 2020, then
the period from 15^th March, 2020 till the date on which the lockdown
is lifted in the jurisdictional area where the dispute lies or where the cause
of action arises, shall be extended for a period of 15 days after the lifting
of the lockdown.

22. Partnership Act, 1932, sections 37 and 42 – Partnership firm – Only
two partners – Retirement of one partner – Dissolution – Accounts to be settled
accordingly

Guru Nanak Industries vs. Amar Singh
(deceased) through LR

Civil Appeal No. 6659-6660 of 2010 (SC);
Date of order: 26^th May, 2020

Bench: Sanjiv Khanna J., N.V. Ramana J.,
Krishna Murari J.

FACTS

The firm had two partners and one of them
agreed to retire. The dispute arose as to whether the same amounted to ‘dissolution of a partnership firm’ or ‘retirement of a partner’ as
the same would have a direct bearing on the accounting treatment for settling
of the accounts.

HELD

The Supreme Court held that there is a clear
distinction between ‘retirement of a partner’ and ‘dissolution of a partnership
firm’. On retirement of the partner, the reconstituted firm continues and the
retiring partner is to be paid his dues in terms of section 37 of the
Partnership Act. In case of dissolution, the accounts have to be settled and
distributed as per the mode prescribed in section 48 of the Partnership Act. In
the present case, there being only two partners, the partnership firm could not
have continued to carry on business as a firm. A partnership firm must have at
least two partners. When there are only two partners and one has agreed to
retire, the retirement amounts to dissolution of the firm.

23. Indian
Evidence Act 1872, sections 65 and 66 – Wills – Existence of a Will – Secondary
evidence to establish its existence

Jagmail Singh vs. Karamjit Singh; Civil
Appeal No. 1889 of 2020 (SC); Date of order: 13^th May, 2020 Bench: Navin Sinha J., Krishna Murari J.

FACTS

During the pendency of a land dispute, an
application under sections 65 and 66 of the Evidence Act was moved by the
appellants seeking permission to prove a copy of a Will dated 24^th
January, 1989 by way of secondary evidence. The application was made on the
ground that the said original Will was handed over by the appellants to revenue
officials for sanctioning the mutation in their favour. The revenue officials
were issued notice for production of the original Will dated 24^th
January, 1989 but they failed to produce the said Will. The application was
then dismissed.

HELD

The Supreme Court held that a perusal of
section 65 makes it clear that secondary evidence may be given with regard to
the existence, condition or the contents of a document when the original is
shown or appears to be in possession or power against whom the document is
sought to be produced, or of any person out of reach of, or not subject to, the
process of the Court, or of any person legally bound to produce it, and when,
after notice mentioned in section 66 such person does not produce it. It is a
settled position of law that for secondary evidence to be admitted foundational
evidence has to be given being the reasons as to why the original evidence has
not been furnished.

Further, during cross-examination the
(revenue) officials did not unequivocally deny the existence of the Will and
the scribe of the Will and another witness had admitted the existence of such a
Will. Therefore, the appellants would be entitled to lead secondary evidence in
respect of the Will in question. However, such admission of secondary evidence
does not automatically attest to its authenticity, truthfulness or genuineness
which will have to be established during the course of the trial in accordance with
law.

24. Covid-19 –
General law – Service of notices, summons and exchange of pleadings / documents

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 10^th July, 2020

Bench: Chief Justice S.A. Bobde, R. Subhash
Reddy J., A.S. Bopanna J.

Counsel: K. K. Venugopal, Tushar Mehta

FACTS

Service of notices, summons and exchange of
pleadings / documents is a requirement of virtually every legal proceeding.
Services of notices, summons and pleadings etc. have not been possible during
the period of lockdown because this involves visits to post offices, courier
companies or physical delivery of notices, summons and pleadings. The Supreme
Court took cognisance of this fact.

HELD

The Hon’ble Supreme Court held that such
services may be effected by e-mail, FAX, commonly used instant messaging
services, such as WhatsApp, Telegram, Signal, etc. However, if a party intends
to effect service by means of said instant messaging services, the party must
also effect service of the same document / documents by e-mail simultaneously
on the same date.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH
COURT

30. [(2020) 117 TMI 209] Om
Sai Traders vs. State Tax Officer, R/Special Civil Application No. 7395 of
2020; (Gujarat High Court) Date
of order: 15^th June, 2020

Article
226, sections 129 and 130– No interference of High Court warranted to order on
validity of show cause notice and authority to adjudicate the notice in
accordance with law

FACTS

The
applicant was engaged in the business of trading of various goods, especially
tobacco, and had purchased unmanufactured tobacco from the supplier. While
transporting the goods, the original vehicle broke down four to five km. from
the destination. Another vehicle was arranged and the goods were transported to
the destination. However, just before the said vehicle could reach there, it
was intercepted by the authorities and the goods were seized. Thereafter, an
undated show cause notice u/s 130 of the CGST Act, 2017 was also issued.

Aggrieved
by this act, the applicant challenged it by way of a writ petition before the
Gujarat High Court; he claimed that the act of the authorities in detaining the
goods u/s 129 of the CGST Act, 2017 was wrongful and that the issuance of an
undated show cause notice was wholly illegal, erroneous and without authority
of law.

HELD

The Hon’ble High Court held and agreed to not interfere
with the impugned show cause notice issued by the authority u/s 130 on merits
and permitted the authority to adjudicate the said notice in accordance with
the law. Further, the Court directed the authority to release the goods upon
deposit of an amount of Rs. 10,00,000 and furnishing of a bank guarantee of Rs.
7,00,000 by the applicant.

31. [(2020) 117 taxmann.com 195] Amba
Industrial Corporation vs. UOI

CWP No. 8213 of 2020 (O&M); (Punjab &
Haryana) Date
of order: 18^th June, 2020

Section
140 read with Rule 117 – Technical difficulties cannot be restricted only to
difficulties faced by or on the part of the Department but would also include
any such technical difficulty faced by the assessee as well

FACTS

The
petitioner is engaged in the business of S.S. flats. They were to carry forward
the unutilised
CENVAT Credit in terms of section 140 of CGST Act read with Rule 117. However,
they failed to upload TRAN-1 by the last date, i.e. 27^th December,
2017. The respondent extended the date of uploading TRAN-1 till 30^th
June, 2020, but only for those who could not submit the declaration by the due
date on account of technical difficulties, thereby denying the petitioner the
opportunity to file their TRAN-1. The petitioner challenged Rule 117(1A) as
being ultra vires and sought direction to be given to the respondent to
permit the petitioner to upload TRAN-1 form or avail Input Tax Credit (ITC) in
monthly return GSTR3B.

HELD

The
Hon’ble High Court relied upon the decision of Adfert Technologies (P)
Ltd. vs. UOI [2019] 111 taxmann.com 27 and the Delhi High Court in Brand
Equity Treaties vs. Union of India 2020-TIOL-900-HC-Del-GST. The Court
found that the technical difficulties cannot be restricted only to difficulties
faced by or on the part of the respondent but would also include any such
technical difficulty faced by the taxpayer as well. However, the petitioner had
challenged the vires of Rule 117(1A); but the Court did not find it appropriate
to interfere as the petitioner was entitled to carry forward CENVAT Credit
accrued under the Central Excise Act, 1944.

But
the repeated extensions of the last date of filing TRAN-1 vindicated the
petitioner’s claim that denial of credit to those dealers who were unable to
furnish evidence of an attempt to upload TRAN-1 would amount to violation of
Article 14 as well as Article 300A of the Constitution of India. Therefore, the
respondents were directed to permit the petitioner to upload TRAN-1 on or
before 30^th June, 2020 and in case the petitioner failed to do so,
the petitioner was given liberty to avail ITC in GSTR3B of July, 2020.

32. [2020 (5) TMI 602] [(2020)117
taxmann.com 94 (Del.)] SKH
Sheet Metals Components vs. UOI W.P.(C)
No. 13151 of 2019 Date of order: 16^th June, 2020

Article
226, article 14, section 140 read with Rule 117 – On account of a bona fide
or inadvertent mistake, assessee permitted to revise TRAN-1 form and transition
entire Input Tax Credit (ITC)

FACTS

The
petitioner had sought for transition of ITC that had accrued and vested in its
favour under the erstwhile regime by filing the statutory form GST TRAN-I.
However, on submission of the said form, the petitioner realised that CENVAT
credit of Rs. 5,51,33,699 comprising of Central Excise and service tax of Rs.
3,86,54,605 and Rs. 1,64,79,082, respectively, were not displayed in the
electronic credit ledger (ECL). On a suggestion given by the respondents, the
appellant filed a revised declaration in form GST TRAN-1 on 27^th
December, 2017 and it reflected the correct figures. However, the amount was
still not transferred to the ECL and was shown as blocked credit.

Thereafter,
the petitioner made various representations towards availing the benefit of the
Circular which granted relief to taxpayers who had faced IT glitches at the
stage of filing an original or revised return on the GSTN portal to resolve the
issue. But no proper response was received from the respondent’s office. The
petitioner, therefore, filed a writ petition (No. 712/2018) before the Bombay
High Court. The Court disposed of the petition with a direction to the
petitioner to file a representation before the authorities concerned in terms
of the 32^nd Council Meeting.

Accordingly,
the petitioner filed yet another representation before the respondents, but the
case was rejected without assigning any reasons. The petitioners thereafter
requested the respondents to provide them with reasons for denial; again, no
response was received. Thereafter, the petitioner filed an RTI application
requesting to know the reasons for the rejection, but even this request was
turned down.

Thus,
the present petition was filed against this act of the respondents in denying
the petitioner’s vested right of transitional credit without any basis. Writ of
mandamus was sought for issuance of direction to the respondents to allow the
petitioner to avail the short transitioning of ITC amounting to Rs. 5,51,33,699
based on Brand Equities Treaties Ltd. vs. Union of India (2020) 116
taxmann.com 415 (Delhi) and Micromax Informatics Ltd. vs. Union
of India [WP(C) No. 196/2019] thereby also bringing to the attention of
the Hon’ble High Court that form GST TRAN-1 was filed before the specified
date.

The
respondents in their counter affidavit denied the applicability of benefit to
the petitioner as per the case of Brand Equities Treaties Ltd. (Supra)
and stated that the petitioner fell into the category of ‘the taxpayer has
successfully filed TRAN-1, but no technical error has been found’ and that
since the petitioner did not encounter any technical glitch on the portal, his
request to file revised TRAN-1 was not accepted and that the discrepancy in ECL
is because of human error. The benefit of the Circular was not extended to the
petitioner.

HELD

The
Hon’ble High Court discarded the submission made by the respondent that the
benefit of the judgment of Brand Equity (Supra) is no longer
available and held that the said decision is not entirely resting on the fact
that the statute (the CGST Act, 2017) did not prescribe for any time limit for
availing the transition of the ITC and that there are several other grounds and
reasons enumerated in the said decision that continue to apply with full rigour
regardless of the amendment to section 140 of the CGST Act, 2017. Based on the
above, the petitioner was permitted to revise the TRAN-1 form on or before 30^th
June, 2020 and transition the entire ITC; the respondents were directed to file
revised declaration TRAN-1 electronically or to accept the same manually and
thereafter process the claims in accordance with the law.

II. AUTHORITY FOR ADVANCE RULING

33. [2020-TIOL-166-AAR-GST] Apsara
Co-operative Housing Society Limited Date
of order: 17^th March, 2020

Society
is making a supply to its members in terms of the GST law and therefore the
contributions received from the members are leviable to GST

FACTS

The
applicant is a co-operative housing society formed by its members. They raise
funds by collecting contributions from the members. The contributions include
property tax, common electricity charges, water charges, contribution to
repairs and maintenance, etc. The question before the Authority is whether the
said activity of collection of contributions qualifies as a supply u/s 7(1) of
the Central Goods and Services Tax Act, 2017.

HELD

The
Authority primarily noted that the activities of managing, maintaining and
administering the property of the society, raising funds for achieving the
objects of the society, undertaking and providing any social, cultural or
recreation activities can clearly be considered as rendering of supply of
service provided to the members. Further, it was noted that the definition of
‘person’ provided in section 2(84)(i) specifically includes ‘a co-operative
society’. Therefore, the members and the society are distinct persons and thus
the transaction is a supply leviable to GST.

Note: In this context readers
may refer to the decisions of the Maharashtra AAAR in the case of Rotary
Club of Mumbai Queens Necklace [2020-TIOL-09-AAAR-GST] and
[2019-TIOL-72-AAAR-GST] wherein it is held that membership fees
received cannot be considered as a consideration received in the course or
furtherance of business and therefore is not liable for GST.

34.
[2020-TIOL-172-AAR-GST] High Tech Refrigeration and Air Conditioning Industries

Date
of order: 25^th June, 2020

Goods supplied in the State on behalf of the client
situated outside the State is an interstate supply leviable to IGST

FACTS

The
question before the Authority is whether fixing of air conditioner and VRV
system in Goa on behalf of a client registered outside Goa is an intra-state supply leviable to CGST and
SGST or an interstate supply leviable to IGST.

HELD

Since
the location of the supplier is Goa but goods are supplied on behalf of a
registered person outside Goa to a place in Goa, the place of supply would be
outside Goa as per section 10(1)(b) of the Integrated Goods and Services Tax
Act, 2017. Thus the nature of supply is to be treated as a supply of goods in
the course of interstate trade or commerce and IGST is payable.

35.
[2020-TIOL-144-AAR-GST] M/s Amba Township Pvt. Ltd. Date of order: 19^th May, 2020

Though the Sector is separately under the RERA Act, 2016
as a separate project, the same cannot be considered as a standalone housing
project since it shares common land, common facilities and common entrance

FACTS

The
applicant is engaged in construction of residential and commercial premises on
works contract basis. They are engaged in construction and development of a
township in a phased manner. At present, Sector-4 of the township is being
constructed which is divided into two parts – Part A and Part B. The Sector is
registered under the RERA Act, 2016 as three independent projects / phases.
Part-B of Sector-4 is a separate project in itself and also separately
registered under the RERA Act, 2016 as a ‘Real Estate Project’. ‘Part-B’ is
independent of the other projects within its Phase and Township and has its
separate facilities like parking, foyer, electricity connection, water supply,
etc. The said part is used for affordable housing and thus the question before
the Authority is whether the reduced rate of tax provided in Notification No.
11/2017-Central Tax (Rate) Entry Number 3(v)(da) is applicable.

HELD

The
Authority noted that Part-B of Sector-4 of the township cannot be considered as
a standalone housing project since it shares common land, common facilities and
common entrance with Part-A of Sector-4 of the township and since 50% of
FAR/FSI of the entire housing project of Sector-4 comprising of Part-A and
Part-B has not been used for construction of dwelling units with carpet area of
not more than 60 square metres, the said housing project cannot be considered
as an ‘affordable housing project’. Therefore, the applicant is not eligible
for the benefit of reduced rate as provided under Entry Number 3(v)(da) of the
Notification No. 11/2017-Central Tax (Rate) as amended by Notification No.
01/2018-Central Tax (Rate) dated 25^th January, 2018 available for
houses constructed with a carpet area of 60 square metres per house.

36.
[2020-TIOL-156-AAR-GST] M/s Liberty Translines Date of order: 5^th March, 2020

For a single transaction and same movement of goods,
there cannot be multiple consignment notes. The entire risk of transportation
is with the person who has entered into a contract with the client and
therefore merely providing vehicles does not qualify as Goods Transport Agency
service

FACTS

The
applicant, owner of various goods transport vehicles, is in the business of
road transportation and registered as a Goods Transport Agency. A company named
POSCO has sub-contracted a specific assignment of transportation service to the
applicant. The applicant proposes to issue a consignment note to POSCO who in
turn will issue a second consignment note to the final client for the same
transportation of goods by road for the very consignment by the same vehicle.
The question before the Authority is whether the applicant can issue a
consignment note and charge GST @ 12% under forward charge.

HELD

The
Authority primarily noted that the contract is to undertake transportation of
goods given by the consignee / consignor to POSCO and not to the applicant. The
consignor / consignee may not be aware that the actual transportation is
undertaken by someone else. The role of the applicant is to just provide the
vehicle as and when called for. Thus the transaction is more in the nature of
hiring of vehicles and not that of Goods Transport Operator. Accordingly, it is
held that the applicant is providing the transportation service but not as GTA
but only as a truck owner. For a single transaction and the same movement of
goods, there cannot be multiple consignment notes. Thus, the applicant cannot
charge GST @ 12% since it is not a Goods Transport Agency.

37.
[(2020) 5
TMI 580] M/s Sai Motors KAR ADRG 32/2020; (AAR, Karnataka) Date of order: 20^th May, 2020

Notification No. 01/2017-Central Tax (Rate) dated 28^th
June, 2017 – The retrofitted vehicle merits classification under heading
87112019 and hence attracts GST @ 28% and also eligible for Input Tax Credit if
used for further supply of such vehicles

FACTS

The
applicant is in the business of supplying two-wheelers. It purchases vehicles
from M/s Hero Motocorp Ltd. under HSN 87112019 liable to GST at 28%. The
retro-fitment fittings under HSN 87131090 liable to GST at 5% are fixed to the
vehicles purchased and sold to the disabled persons. Currently, the applicant
charges two rates on such supplies, i.e. at 28% and 5% for the vehicles and the
retro-fitment, respectively. The applicant had sought advance ruling seeking
clarification for the classification of such supply under HSN 87131090 liable
at GST 5% and whether ITC in respect of vehicles purchased from M/s Hero
Motocorp Ltd. will be eligible to him.

HELD

The
AAR relied upon the Notification No. 01/2017-Central Tax (Rate) dated 28^th
June, 2017 and held that the supply of retrofitted vehicles by the applicant
falls under the HSN 87131090 and hence he shall charge 5% GST to his customers.
In respect of eligibility of ITC on purchase of vehicles, the AAR held that ITC
in respect of such purchases shall be eligible to the applicant since the said
purchases are in the furtherance of supply of vehicles as prescribed in the
exceptions to blocked credit stated in 17(5)(a).

38.
[(2020) 5
TMI 604] M/s Dolphine Die Cast (P) Ltd. KAR ADRG 35/2020; (AAR, Karnataka) Date of order: 20^th May, 2020

Sections 2(5), 8, 10 of IGST Act, 2017 – Place of supply
in case of export / import transactions without movement of goods shall be
location of the goods at the time of delivery to the recipient

FACTS

The
applicant is engaged in the business of manufacturing and export of aluminium
and zinc die castings. It first manufactures the die, retains it and uses it
for the manufacture and supply of aluminium and zinc die castings for which it
raises an invoice in the name of the overseas customer in foreign currency,
although it does not physically export it. Similarly, the applicant is involved
in the import of aluminium casting and pressure die casting components wherein
the Thailand supplier raises the tax invoice though the die is not physically
imported by the applicant. Therefore, an advance ruling has been sought by the
applicant in respect of taxability of the transactions and the procedure to be
followed for discharging GST liability.

HELD

After
discussing the provisions of place of supply under the IGST Act, 2017 and of
the time of supply under the CGST Act, 2017 along with the definitions of
import and export, the AAR was of the view that the applicant’s transaction
with its overseas customer shall not be counted as export because it does not
fulfil the conditions prescribed for export as the place of supply is in India
due to non-movement of goods, and hence the applicant shall charge applicable
CGST / SGST on its invoice because the said transaction amounts to intra-state
supply. In respect of the transaction relating to import by the applicant, the
AAR held that until the said goods are not brought to India it shall not be
construed as import and in case the applicant instructs the vendor to scrap it outside
India, then such a transaction is not liable to GST as ‘out and out sales’ are
out of the purview of GST.

BCAJ Admin

VAT

5. Brida Roadlines Pvt. Ltd. vs. Union Territory of
Daman & Diu [(2019)
2 GSTL (STC) 38] (Bombay
High Court)

Whether
the Commissioner of VAT is empowered under the law to hear second appeal

FACTS

The
dealer was assessed under the Daman and Diu VAT law. The A.O. imposed maximum
penalty u/s 10(d) r/w/s 10A of the CST Act, 1956. The assessee filed a first appeal
against the same, which was dismissed. The second appeal was filed with the Commissioner of VAT, Daman
& Diu, which was also dismissed. The power of the Commissioner entertaining
the second appeal was thereafter challenged before the Bombay High Court.

HELD

The
Commissioner of VAT had no power to hear the second appeal. The power was with
the Administrative Tribunal, Daman & Diu. The order passed by the
Commissioner in the second appeal was quashed by the Court.

6. Ricoh India Limited vs. State of Maharashtra [(2019)
GSTL (VAT) 120] (Bombay High Court)

Whether
Multi-Functional Printers and their parts and spares were covered by the Entry
No. C-56 of the MVAT Act, 2002 read with the Notification or the Residuary
Entry No. 102 of the said Act

FACTS

The
appellant was an importer and reseller of Multi-Functional Printers and their
parts and spares. They had applied for determination to the Commissioner of
Sales Tax, Maharashtra State. The Commissioner determined the same as falling
under the residuary entry and hence liable to VAT at 12.5%. The same was
challenged before the Tribunal; however, it confirmed the decision of the
Commissioner. The appellant thereafter approached the High Court at Bombay.

HELD

The
Court agreed that the Multi-Functional Printers were covered by the Automatic
Data Processing Machines and Units thereof falling under Entry No. 84.71 of the
Central Excise Tariff Act. However, the Court observed that even though the
Notification Entry under the VAT Act refers to the Central Excise Tariff, the
Notes stated under the said entry under the MVAT Act are not similar. The Court
further observed that the impugned product was covered by Note Nos. 2 and 4.
The printers were imported and assessed to duty under the ‘Others’ category and
the said category was not covered under Notes in the MVAT Act. The decision of
the Tribunal as regards classification was thus upheld. The classification of
the parts and spares done under the residuary entry by the Tribunal was also
upheld.

7. Bharati Airtel Limited
vs. Mira-Bhayander Municipal Corporation & others [(2019)
1 Gstl (Misc.) 138 (Bom.)]

Is
Local Body Tax (LBT) under clause ‘aaa’ of sub-section 2 of section 127 of the
Maharashtra Municipal Corporations Act, 1949 recoverable on SIM cards, recharge
coupons and e-recharge on their entry into the limits of a municipal
corporation?

FACTS

By
a license agreement dated 28^th September, 2001 entered into between
the Hon’ble President of India through the Department of Telecommunications,
Ministry of Communication, Government of India on one part, and the petitioner
company on the other part, a licence was granted to the petitioner u/s 4 of the
Indian Telegraph Act, 1885 to set up and operate cellular mobile phone services
in Mumbai and Maharashtra Telegraph Circle on the terms and conditions set out
therein. In accordance with the said agreement, the petitioner is providing telecommunication
services including mobile telephony, text messaging, voice messaging, access to
internet, etc., to the members of the public in Global System for Mobile
communication (GSM) format which involves GSM wireless modem which works with
GSM wireless network. The customers of the petitioner avail of the services by
using mobile handsets.

It
was stated that the SIM (Subscriber Identification Module) card is provided by
the petitioner which is a plastic / paper card encrypted with the unique number
which is known as International Mobile Subscriber Identification (IMSI). The
SIM card enables the subscriber access to the telecommunication service
provided by the petitioner. The contention in the petition was that the SIM
card does not have any utility or intrinsic value by itself. The petitioner
provides either pre-paid or post-paid services. In case of pre-paid services,
the subscriber can renew the services through the recharge coupon / card or
e-recharge.

HELD

By
incorporating clause ‘aaa’ in sub-section 2 of section 127 of the said Act by
the Bombay Provincial Municipal Corporation and Bombay Village Panchayat
Amendment Act, 2009 a provision was made for levy of LBT in lieu of cess
or octroi. The State Government by a notification dated 25^th March, 2010
notified the Bombay Provincial Municipal Corporations (Local Body Tax) Rules,
2010 (for short, LBT Rules). The LBT Rules provide a mechanism for the levy and
collection of LBT and the rates of LBT. In exercise of the power under clause ‘aaa’ of sub-section 2 of section
127 of the said Act, the State Government directed various municipal
corporations in the State, including the Corporation, to levy LBT on the entry
of goods into the limits of the city for consumption, use or sale in lieu of
octroi or cess with effect from 1^stApril, 2010.

On
18^th February, 2011 another notification was issued by the State
Government in exercise of the powers u/s 99B read with sections 152B and 152C
of the said Act by which the rates of LBT to be levied by the Corporation on
entry of various categories of goods into the limits of the city for the
financial year 2011 were notified. One of the items included in Schedule A to
the said notification is SIM cards (Tariff Item No. 8542 10 10).

The
case made out in the petition was that the petitioner and its distributors were
compelled to register themselves under the LBT Rules. They did so under
protest. It was alleged that neither the petitioner nor its distributors paid
any LBT on SIM cards or recharge coupons or e-recharge. The case made out in
the petition is that in October, 2010 the officers of the first respondent
visited the premises of various distributors of the petitioner and called upon
them to pay LBT on SIM cards and recharge coupons on the basis of the amount /
value of talk time mentioned. By a communication dated 30^th October,
2010 the petitioner informed the first respondent that the SIM cards, recharge
coupons and e-recharge were not goods which could be subjected to LBT and, in
fact, the petitioners are paying service tax on providing telecommunication services.
On 28^th March, 2013 the State Government issued a notification
fixing a rate of 3.5% on ‘SIM cards, memory cards, activation / renewal slips
whether recharged online or otherwise’.

The
challenge in this petition under article 226 of the Constitution of India was
to the action of the first respondent of assessing, levying and recovering LBT
on SIM cards, recharge coupons and e-recharge brought into the limits of the
first respondent. There is a consequential challenge to the notification dated
28^th March, 2013 issued by the State Government.

The
SIM cards are normally made of plastic or paper. They are capable of being
bought and sold and have utility value. The SIM cards are also capable of being
transferred, stored and possessed. The concept of sales tax and LBT are not the
same. LBT can be levied on the goods brought within the limits of a municipal
corporation even if the same are not sold but are brought either for
consumption or use. Going by what is held by the Apex Court in paragraph 11 referred
to (paragraph 12 in 10GSTR) of its decision in the case of Idea Mobile
Communication Ltd. [2011] 43 VST 1 (SC); [2011] 10GSTR 12 (SC); [2011] 12 SCC
608, SIM cards are capable of being used by putting the same in a
mobile phone handset. A SIM is a portable memory chip used in cellular
telephones. It is a tiny encoded circuit board which is fitted into the cell
phones at the time of signing on as a subscriber.

Even
assuming that by itself a SIM card has no intrinsic sale value, considering the
nature of its use it has a value in terms of money apart from its value as a
portable memory chip. Even recharge vouchers which are made of paper or plastic
are capable of being bought, sold and used. They can be transferred, stored and
possessed. The recharge vouchers or cards made up of paper or plastic may have
little value by themselves, but the same are capable of being used and their
use has value as the holder thereof can get talk time or internet data which
has a value in terms of money. SIM cards and recharge vouchers are tangible
goods which are capable of being brought into the limits of a city. The same
are capable of being used after they are brought into the limits of a city.
Hence, the same will be goods within the meaning of clause 25 of section 2 of
the said Act.

In
the decision of the Apex Court in the case of Idea Mobile Communication
Ltd. (Supra), the Court had come to the conclusion that a SIM card has
no intrinsic sale value and therefore sales tax is not payable. But the Apex
Court has not considered the question whether SIM cards are capable of being
used which is a relevant consideration for charging LBT.

The
Schedule under the rules framed under the said Act provide for levy of LBT on
the following items:

Group
II: ‘133. All types of mobile phones, pager, I-pad, I-pod, tablet and all sorts
of means of communication and their components, spare parts and accessories.
SIM card, memory card, activation / renewal slips / vouchers whether recharged
online or otherwise’ (emphasis added).

As
far as e-recharge is concerned, by no stretch of imagination can it be said
that e-recharge is capable of being brought into the limits of a city. In
clause 133 quoted above, e-recharge is not specifically included. Assuming that
it is included, it is nothing but an electronic download by use of internet.
Hence, e-recharge cannot be subject to levy of LBT. E-recharge is capable of
being used but it cannot be said that by downloading e-recharge through
internet, e-recharge is brought into the limits of a municipal corporation.
Hence, LBT cannot be recovered on e-recharge.

Coming
back to SIM cards and recharge coupons / cards, as held earlier, the same will
be covered by the definition of ‘goods’ under sub-section 25 of section 2 of
the said Act. The charging section for LBT under the said Act is section 152P.
LBT is leviable on the entry of goods into the limits of a city for
consumption, use or sale. Hence, the corporation was well within its powers to
levy LBT on SIM cards and recharge vouchers in physical form. Thus, the
petition partly succeeded.

BCAJ Admin

Service Tax

I. HIGH COURT

23. [2020-TIOL-1128-HC-Del.-ST] Bsa Citi Courier Pvt. Ltd. vs. Commissioner of Central
Goods and Services Tax Date of order: 2^nd July, 2020

An application under Sabka Vishwas (Legacy Dispute Resolution)
Scheme, 2019 cannot be rejected without giving an opportunity of being heard

FACTS

The petitioner challenged the communication
dated 5^th March, 2020 whereby the declaration filed under the Sabka
Vishwas (Legacy Dispute Resolution) Scheme 2019 only for waiver of interest
from April, 2015 to June, 2017 has been rejected without affording any
opportunity of hearing and by stating that – ‘the date of communication
declared is 5^th September, 2019 which is beyond the cut-off date (i.e.,
30^th June, 2019). Therefore, the application cannot be accepted u/s
125(1)(e) of Chapter V of the Finance Act, 2019’. Revenue submits that the
quantification in the present case was done post 30^th June, 2019 and
was communicated to the petitioner for the first time on 5^th
September, 2019. Therefore, they cannot rely on the internal correspondences /
communications between different departments of Revenue to contend that the
quantification took place in March, 2019.

HELD

The High Court noted that the impugned communication dated 5^th
March, 2020 has been issued without giving an opportunity of hearing to the
petitioner and without considering the case as put forward. Consequently, the
present writ petition and pending application are disposed of by setting aside
the order / communication dated 5^thMarch, 2020 and by directing the
respondent to give a hearing to the petitioner.

II. TRIBUNAL

24. [2020-TIOL-1039-CESTAT-Mad.-LB] Commissioner of Service Tax vs. M/s Repco Home Finance
Ltd. Date of order: 8^th June, 2020

Foreclosure charge recovered from customers for premature termination of
loan is in the nature of damages and cannot be considered as a consideration
for a contract leviable to service tax under banking and financial services

FACTS

Divergent views have been expressed by Division Benches of the Tribunal
on the issue of whether foreclosure charges levied by banks and non-banking
financial companies on premature termination of loans are liable to service tax
under the head ‘Banking and other financial services’. The matter has therefore
been placed before the larger Bench.

HELD

The Bench primarily noted that service tax would be leviable only when
an activity is considered to be a service and such service classifies as a
‘taxable service’ defined in section 65(105) of the Finance Act. It is clear
from the definition of ‘consideration’ that only an amount that is payable for
the taxable service will be considered as ‘consideration’. Any amount charged
which has no nexus with the taxable service and is not a consideration for the
service provided does not become part of the value which is taxable u/s 67.
Consideration must flow from the service recipient to the service provider and
should accrue to the benefit of the service provider. There is marked
distinction between ‘conditions to a contract’ and ‘considerations for
the contract’. A service recipient may be required to fulfil certain
conditions contained in the contract but that would not necessarily mean that
this value would form part of the value of taxable services that are provided.

As per section 2(d) of the Indian Contract Act, 1872 consideration
should flow at the desire of the promisor. Thus, if the consideration is not at
the desire of the promisor, it ceases to be a consideration. The banks and
non-banking financial companies are the promisors and the borrowers are the
promisees. The contractual relationship between the banks and non-banking
financial companies and the customers is repayment of the loan amount over an
agreed period. The banks and non-banking financial companies would not desire
premature termination of the loan advanced by them as it is in ‘their interest’
that the loan runs the entire agreed tenure, for the banks thrive on interest earned
from lending activities. As premature termination of a loan results in loss of
future interest income, the banks charge an amount for foreclosure of loan to
compensate for the loss in interest income. It is the customer who has taken
the loan who moves for foreclosure of the loan by making the payment of the
loan amount before the stipulated period, thereby breaching the promise to
service the loan for the agreed period of time.

This results in a
unilateral act of the borrower in repudiating the contract and consequently
breach of one of the essential terms of the loan agreement. A breach of
contract may give rise to a claim for damages. The ‘expectation interest’ is a
popular measure for damages arising out of breach of contract. The foreclosure
charges, therefore, are not a consideration for performance of lending services
but are imposed as a condition of the contract to compensate for the loss of
‘expectations interest’ when the loan agreement is terminated prematurely.
Therefore, foreclosure charges are recovered as compensation for disruption of
a service and not towards ‘lending’ services. The phrase ‘in relation to
lending’ cannot be so stretched as to bring within its ambit even activities
which terminate the activity. Therefore, service tax cannot be levied on the
foreclosure charges levied by the banks and non-banking financial companies on
premature termination of loans under ‘Banking and other financial services’ as
defined u/s 65 (12) of the Finance Act.

BCAJ Admin

SOCIETY NEWS

7^TH YOUTH RESIDENTIAL REFRESHER COURSE

The 7^th YRRC was organised by the Human Resource Development Committee of the Bombay Chartered Accountants’ Society from 29^th to 31^st May, 2020. Considering the unusual circumstances of the nationwide lockdown due to the Covid-19 pandemic, a unique online RRC was conceptualised, wherein a wide variety of topics was organised across five sessions and ten hours over a three-day refresher course – all this from the comfort of the participants’ homes.

‘Seven Chakras of the Professional World’, the theme of the event, was meant to cover seven different aspects of the profession – World, Nation, Business, Network, Me, Mind and Soul. A perfect blend of knowledge, the YRRC provided a great opportunity to all the participants to expand their horizons. It sought to present different online networking activities for interaction amongst the global participants.

A glimpse into the events of the YRRC.

The YRRC covered 14 different topics addressed by a stellar line-up of speakers from across the world as under:

	*Topic*	*Speaker*
1	Leadership	Niranjan Hiranandani, Mumbai
2	Entrepreneurship	David Wittenberg, Mumbai
3	The world has tipped: Are you prepared?	Raj Nair, Mumbai
4	Story of a shy boy from Gujarat to senior position in BCAS	Kanu Doshi, Mumbai
5	World economics	H.E. Zulfiquar Ghadiali, Abu Dhabi
6	Indian economics	Dr. Shubhda Rao, Mumbai
7	The role of development finance institutions and how to access funding for projects in emerging markets	Jeffery Stoddard, Washington D.C.
8	Networking from home	Manoj Gurshahani, Mumbai
9	Is work your identity?	Avatar Lila, Mumbai
10	Image management	Mihika Bhanot, Pune
11	Voice improvement & modulation	Dr. Manisha Soni, Mumbai
12	Sustainability of happiness	Padma Shri T.N. Manoharan, Chennai
13	Building resilience	Shubhika Bilkha, Mumbai
14	Living with the unknown – Anecdotal renderings from a lifetime experience of the unknown	Lt.-Gen. Syed Ata Hasnain, New Delhi

The content and the presentations by the speakers were clearly a class apart. They delivered their points and ideas with great clarity. They got the participants thinking on whether to be an entrepreneur or do a job in an industry or become an ‘intrapreneur’ (a new concept well explained). The participants obtained a better understanding of what skills one must possess to be a leader and how world economies play their role in shaping one’s life. We are all now at least aware of how to be ready for the world that has already tipped. One of the key learnings for the participants was ‘How to Network Digitally’, especially in the times of Covid and in our lives thereafter. They also got a glimpse into the concepts of voice modulation and image management as well as their importance in our personal and professional lives. The participants were given deep insights into and made aware of the importance of being prepared for any unforeseen situation, be it a war-room or a boardroom.

Their sensitivities tickled, the participants came up with interesting questions that were addressed extensively by the speakers, and yet left everyone wanting more. In fact, all the scheduled breaks between speakers were invariably used in extracting even more out of the knowledgeable speakers.

The event had over 150 participants from 26 cities across the world, with technology diminishing the distance between their locations.

Agra	Bhilwara	Jaipur	Mumbai	Porbandar
Ahmedabad	Birganj (Nepal)	Jamnagar	Nagpur	Pune
Aurangabad	Chennai	Nairobi	Nashik	Thane
Bangalore	Coimbatore	Lucknow	Navi Mumbai	Vadodara
Bareilly	Hyderabad	Margao	Navsari	Varanasi

The participants also took active part in the after-hours sessions like the ‘People Tambola’; ‘Lost on the Island’ – a strategy game; and a Relay Video challenge called ‘YRRC’s Got Talent’. Though there was no physical interaction between the people, all these activities ensured optimum networking. At the end of the YRRC, everyone had made some new friends in the profession whose support they could draw upon at any time. For participation in these networking activities, the participants were divided into six teams and points were awarded to the teams for the different activities.

At the closing session, participants were already asking about the next YRRC! They truly appreciated the concept and execution of the event. It was an event that was truly ‘By the Youth, Of the Youth and For the Youth’. The participants bid farewell to one another and promised to stay connected digitally.

The Team – Behind the Scenes

Top L-R: Ankit Gudhka, Prajit Gandhi, Namrata Dedhia, Anand Kothari

Middle L-R: Namrata Shah, Virag Shah, Dhruv Shah, Kinjal Bhuta

Bottom L-R: Sneh Bhuta, Naushad Panjwani

In Circle: Gaurav Save

DEEPAK PAREKH DELIVERS FOUNDING DAY LECTURE

For the first time in the history of the Bombay Chartered Accountants’ Society, the Founding Day lecture was delivered online before a virtual audience. It was the 72^ndFounding Day and the programme lined up for the evening was a mouth-watering one – a talk by the inimitable Mr. Deepak Parekh, Chairman of HDFC and a qualified Chartered Accountant.

Organised with the help of the software called ZOOM, the meeting was held on 6^th July and was witnessed by 135 online viewers – plus another 2,500 enthusiasts who watched it on YouTube.

The subject itself was intriguing, ‘CAs in Uncharted Times’, and the speaker was a stalwart in every sense of the term.

President Manish Sampat performed three functions. He welcomed the speaker, gave the viewers a brief background of the activities of the BCAS and also introduced the speaker.

Mr. Parekh started his talk by complimenting the Society on its leadership in the profession and said that 72 years was indeed a very long time for an institution to sustain its reputation and retain its values. He also lauded BCAS for the illustrious speakers that it had invited for its Founding Day lectures in previous years.

He pointed out that the world was going through unprecedented times with no past model against which to benchmark it. In such times, decision-making was difficult because the future was just not predictable. Therefore, the need of the hour was ‘inclusive leadership’ which could help institutions to sail through. This would be possible only through collaboration and the free flow of information between individuals and institutions rather than by working in silos.

Recalling an oft-repeated dictum, he said that there were decades when nothing happened and then there were weeks when decades happened. Therefore it was imperative to understand that the time had come to reset skills. At the same time, there was a silver lining in the current situation – it was time to accept the reality of staying at home and using that as an opportunity to develop patience and to spend quality time with near and dear ones.

In such unchartered times, CAs, especially auditors, would have to be willing to meet the challenges in respect of internal controls and possibly redefine their work so that scams do not get uncovered later. Several recent experiences of large-scale frauds had pointed to the need for auditors to become more intuitive and ensure that valuations are conservative and the concept of ‘going concern’ in the changed paradigm is not compromised. This would go a long way to help protect the interests of all stakeholders. India, despite its much acclaimed developments on many fronts, had not made much progress on human health economy to tackle crises of such enormity and scale as posed by the coronavirus pandemic.

Mr. Parekh said that India was seeing its fourth recession in recent times. But unlike the previous recessions which were due to agricultural failure, the current recession was of a different dimension. The fiscal deficit was high, corporate performance was subdued and the realty sector was saddled with stock that was difficult to liquidate. However, the positive aspect was that India could see some green shoots thanks to the bumper crop, current account surplus, and maintenance of investment grade status by credit rating agencies, low interest rates and increased FII inflows resulting in a robust foreign exchange reserve balance.

He lamented the fact that rating agencies were being unfair to India in not giving due credence to these facts. Liquidity was returning to NBFCs, global crude rates were at their lowest and GST collections were showing steady signs of returning to normal levels. Under these circumstances, there were sufficient new opportunities such as Environment Social Governance (ESG) and technology-oriented new areas such as Data Analytics, IT Audit, Artificial Intelligence and Big Data for small and medium CA firms and the CAs must make efforts to adopt them. The vast data collected and available will need analysis and none better than CAs would be able to do justice to it. He firmly believed that there was enough room for the SME sector to co-exist with the ‘Big 4’. He, however, agreed that there was need to improve the compensation standards for CAs to ensure better quality work and to justify the responsibilities, risks and liabilities that they undertake.

Overall, Mr. Parekh exuded an aura of positivity, asserting that India and its CAs had a very bright future. A significant difference would be made by the resilience of the Indian people and the strength and ability of domestic consumption to help the economy to bounce back.

The vote of thanks was proposed by Hon Jt. Secretary Mihir Sheth.

VIRTUAL TALK ON ‘INSPIRED LIVING’

Dr. Mayur B. Nayak conducted an inspiring virtual session ‘Inspired Living’ for the Study Circle of the Human Resource Development Committee on 14^th July.

He started by pointing out that the human body is made up of five basic elements of nature, namely, earth, water, fire, air and space known as Panch Mahabhutas in Sanskrit. These exist in different proportions. For example, our body consists 72% of water.

Balancing these five elements is of utmost importance for good health. Such a balance can be attained by the practice of yoga / exercises, mudras, pranayama, through natural sources, diet variations and meditation.

Drawing an analogy, Dr. Mayur pointed out that the five elements could be said to be related to five different aspects of the human personality, namely, (i) Physical, (ii) Mental and Emotional, (iii) Intellectual – Personal and Professional, (iv) Social, and (v) Spiritual.

Earth element was linked to the physical dimension of one’s personality. Hence it was important to remain grounded and physically fit for taking a major leap in life. Emphasis was placed on the three key Pranayamas, viz., Anulom Vilom, Bhastrika (followed by Sheetali) and Kapal Bhati to increase one’s immunity to fight the current corona pandemic. By chanting the ‘Omkar’ mantra properly, one can control the movement of energy in one’s body. Participants were taught the correct way of deep breathing to reduce stress and tension.

The second element water was linked to the mental and emotional dimensions of one’s personality. One must replace fear with faith, hatred with love, and shame with freedom to attain emotional maturity. A unique 3A constitution of ‘Accept, Adjust and Appreciate’ was shared with the participants to help improve the inter-personal relationships. ‘Respond and not react’ was given as the mantra to control anger.

Fire element was linked to the intellectual dimension of one’s personality, leading to personal and professional growth. One must ignite the fire of passion to succeed in life. The first step is to do a SWOT analysis, followed by developing a right attitude in life. Self-belief is the key to success. One must try and explore the hidden potential within, Dr. Mayur said.

Air element was linked to the social dimension of one’s personality. The emphasis was on spreading one’s fragrance through good deeds. Giving is the nature of the Divine. It was revealed that one can give many things apart from money, such as smile, love,
hope, blessings, support, hugs, moral support, education, time, appreciation, happiness and so on. Covid-19
had offered a lot of opportunities to give. And for giving one must develop love and compassion in one’s heart.

Finally, the space element is linked to spiritual growth. The difference between spirituality and science / religion was explained. Eight steps of Astang Yoga to attain nirvana were highlighted. Spirituality as a way of life was explained with a detailed elaboration of the spiritual values of life. Emphasis was placed on meditation as a panacea for balanced growth in all dimensions of the personality to live an inspired life.

The talk comprised of an audio-visual presentation, followed by a Q&A session.

The speaker, Dr. Mayur Nayak, also gave some lessons to be practised at home for ‘Inspired Living’. The Study Circle was well attended by over 70 participants. The presentation is available on the YouTube Channel of the BCAS.

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. CBDT further extends
tax compliance, other due dates under the Taxation and Other Laws
(Relaxation of Certain Provisions) Ordinance, 2020. [Notification No. 35 of 2020
dated 24^th June, 2020.]

2. Income-tax (13th
Amendment) Rules, 2020 – Rule 2BB amended to prescribe exemptions which
can continue to be claimed by an assessee opting for the new taxation regime
prescribed u/s 115BAC of
the Act. [Notification No. 38 of 2020 dated 26^th June, 2020.]

3. Income-tax (16^th
Amendment) Rules, 2020 – Rule 31A amended. It notifies amendments in
TDS statement under Form 26Q with respect to sections 194A, 194J, 194K, 194LBA,
194N, 194-O,
197A and 200. [Notification No. 43 of 2020 dated 3^rd July, 2020.]

4. CBDT further relaxes
the time frame prescribed under second proviso to section 143(1) and
directs that all validly-filed returns up to A.Y. 2017-18 with refund claims,
which could not be processed u/s 143(1) and have become time-barred, subject to
the exceptions, can be processed now with prior administrative approval of Pr.
CCIT/CCIT by 31^st October, 2020.
[F No. 225/98/2020ITA-II dated 10^th July, 2020.]

5. One-time relaxation
granted for verification of returns for A.Ys. 2015-16, 2016-17, 2017-18,
2018-19 and 2019-20, which were uploaded electronically by the taxpayer within
the time allowed u/s 139 of the Act and which have remained incomplete due to
non-submission of ITR-V Form for verification. Such returns can be verified by
sending a duly signed physical copy of ITR-V to CPC, Bengaluru through speed
post or through EVC/OTP modes. Such verification process must be completed by
30^th September, 2020. CBDT further directs that such returns shall
be processed by 31^st December, 2020 and intimation of processing of
such returns shall be sent to the taxpayer. [Circular No. 13/2020 dated 13^th
July, 2020.]

ACCOUNTS AND AUDIT

A. The timeline for
submission of financial results for the quarter / half-year / financial year
ending 31^st March, 2020 by listed entities (Regulation 33 of the
LODR Regulations) has been further extended by a month to 31^st July,
2020 on account of the pandemic. [SEBI Circular No.
SEBI/HO/CFD/CMD1/CIR/P/2020/106 dated 24^thJune, 2020.]

B. Guidance Note on The
Companies (Auditor’s Report) Order, 2020 – The ICAI has issued a Guidance
Note on CARO, 2020 (applicable for audits of F.Y. 2020-21 and onwards) to
enable auditors to comply with its reporting requirements. [ICAI Guidance
Note issued on 1^stJuly, 2020.]

C. Applicability of the
revised edition of Code of Ethics – The following provisions of Volume – I
of Code of Ethics, 2020 is deferred till further notification: (a)
Responding to NOCLAR; (b) Fees – relative size; and (c) Taxation services to
audit clients. [ICAI announcement dated 1^st July, 2020.]

D. Extension of timeline for finalisation of audited accounts by
applicable NBFCs – Applicable
NBFCs shall finalise their balance sheet within a period of three months from
the date to which it pertains, or any date as notified by SEBI for submission
of financial results by listed entities. [RBI Notification No.
RBI/2020-21/11 dated 6^thJuly, 2020.]

E. Guidance on Accounting
for expenditure on CSR Activities – The ICAI has issued a Technical
Guide on Accounting for Expenditure on Corporate Social Responsibility
Activities with the objective of providing guidance on related recognition,
measurement, accounting, presentation and disclosures aspects. [ICAI
Technical Guide issued on 6^th July, 2020.]

F. Extension of the last date of filing Form
NFRA-2 – The time limit for
filing Form NFRA-2 for F.Y. 2018-19 will now be 270 days from the date of
deployment of the form on the NFRA Website. [MCA General Circular No.
26/2020 dated 6^th July, 2020.]

BCAJ Admin

MISCELLANEA

I.
Business News

19. An emoji is worth a thousand words

On the day dedicated to the little pictures that save a
thousand characters on phone and computer keypads – 17^th July –
hopefully, people remembered that thanks to emojis the world is going back to
the days of unfettered, unlettered visual communication. Language has come full
circle from our most ancient ancestors’ parietal art to the graphic novels and
emojis of our times, obviating the need for letters, numbers and punctuation
marks. As emojis make further inroads into our written communication, the only
people who may have reason to grumble are grammarians and pedants, as this mode
disregards all rules and, indeed, language itself.

The purists could conceivably have retained some clout if
emoticons had prevailed as they use letters, numbers and punctuation marks. But
they are now increasingly irrelevant as in the expanding emoji world there is
simply no need to know words such
as hippopotomonstrosesquippedaliophobia or its correct spelling, much less
devise a pictographic equivalent for it.

Esperanto has been trying for 133 years to become the world’s
preferred auxiliary language, but in one-eighth of that time – especially since
2010 – emojis have already found their way into well over 90% of online
communication. With its ability to express emotions as well as an idea, emojis
are clearly the text-best thing to verbal conversation.

(Source: ET Bureau – 18^th
July, 2020)

II.
Business

20. Global real estate
investment plunged by 33% in first half of the year

KEY POINTS

(1) The largest decline was
seen in the Asia Pacific region, down 45%,

(2) By sector, investments
in hotels suffered the steepest drop, down 59% on a global basis,

(3) Industrial properties
showed the most resilience, with investments slipping by only 4%.

Cross-border investments in
global real estate plunged by 33% in the first half of the year compared to the
first half of 2019, according to a report released by Savills, the London-based
global real estate services provider.

The largest declines were
seen in the Asia Pacific region, down 45%, and the Americas, down 36%.

By sector, investments in
hotels suffered the steepest drop, down 59% on a global basis. Investments in
retail properties and office spaces plunged 41% and 40%, respectively.

Industrial properties
showed the most resilience, with investments slipping by only 4%.

Interestingly, investments
in residential properties in Asia Pacific actually surged by 105% – partly
boosted by the purchase of a Japanese apartment portfolio by Blackstone Group
for about $3 billion in February, 2020.

‘Overall, the global 33%
fall in real estate investment activity so far this year is less than the decrease
at the start of the global financial crisis in the first half of 2008, when
real estate investment volumes across the world fell by 49% and continued
falling until mid-2009,’ said Sophie Chick, Director of Savills World Research
team. ‘Unsurprisingly, those asset classes that have been most [affected] by
social distancing measures have been hit hardest, while industrial and
residential, which is a long-term income play, have been impacted least.’

By region, Europe, the
Middle East and Africa, or EMEA, saw only a 19% decline in investments.

‘The huge increase in
entity-level deals in EMEA has helped insulate that market from the biggest
falls as some buyers have used this period for opportunistic M&A or equity
deals,’ Chick explained.

Simon Hope, Savills’s head
of global capital markets, added, ‘Volumes are expected to remain well below
pre-pandemic levels for the rest of 2020 as investors wait for market clarity.
However, certain sectors are expected to outperform as investors focus on
secure assets, namely logistics, residential and life sciences.’

Hope also noted that
looking ahead, ‘there seems to be general consensus across G8 governments
around the world to build their way out of this downturn, turning on a tap of
capital for infrastructure projects. This generally bodes well for the real
estate industry as it potentially creates more assets to invest in as well as
reducing unemployment rates.’

(Source:
International Business Times – By Palash Ghosh, 20^th July, 2020)

III.
Financial accounting news

21. How U.K. audit scandals pushed Big Four toward
split: QuickTake

A spate of scandals has put accounting firms in the U.K. on
the back foot. The collapse of Carillion Plc and subsequently Thomas Cook Group
Plc, have been among cases that raised questions about auditing standards at
the so-called Big Four firms. In response, Deloitte, Ernst & Young, KPMG
and PricewaterhouseCoopers have agreed to separate their auditing and
consulting departments by 2024 to avert possible conflicts of interest, a move
that critics say does not go far enough.

1. How bad have things got?

Bad enough that the U.K. government promised to reform the
audit industry after a Parliamentary report two years ago into the collapse of
Carillion, a major outsourcing company. The report panned Carillion’s
accounting methods, KPMG’s soft audits and weak accounting regulation.
Sidetracked by Brexit, a general election and the coronavirus pandemic, the
government has yet to follow through. In the meantime, the accounting firms
have taken action along with the regulator, the Financial Reporting Council,
partly to pre-empt government moves.

2. What have they agreed to?

The plan, announced on 6^th July, to split
consultants from auditors aims to ensure the Big Four won’t baulk at tough
audits so as not to jeopardise lucrative consulting contracts at the same
companies. In the regulator’s words, the firms need to do a better job of
backing ‘auditors making tough decisions.’ The deal is a significant concession
by the Big Four, which fiercely opposed splitting auditing functions. However,
it doesn’t convincingly address conflicts of interest between supposedly
independent auditors selling consulting work to their clients. Under the deal,
the auditors can still earn close to half of their revenues from consulting,
staff can switch between audit and consulting positions, and auditors are under
the control of the firm’s chief executive officer who also oversees the
consulting divisions.

3. Will it work?

Unlikely. Richard Murphy, an accountant and economics
professor at City University in London, says this is a cosmetic exercise
designed to make the Big Four look more independent but ignores the lack of
independence and competition that have blighted audit quality in the U.K.
Critics say the voluntary agreement lacks regulatory muscle and will not be
enforceable. Some groups have said that it will fail to stimulate competition
from smaller firms or make auditors more independent of their clients.

4. What about the regulator?

The FRC has powers to sanction firms and individual
accountants for deficient auditing, and does so. Without legislation, however,
the agreement isn’t legally enforceable and has been criticised for allowing
the big firms to continue offering consulting services. The move was taken
partially to pre-empt lawmakers from weighing in with their own, likely
tougher, solution.

5. Why the need for reform?

The Carillion collapse in 2018 that shocked lawmakers into
action came after the government refused to bail it out, costing almost 3,000
jobs and leaving 30,000 suppliers and sub-contractors with 2 billion pounds
($2.5 billion) in unpaid bills. Administrators liquidating its assets believe
KPMG’s auditing was negligent in relation to its long-term construction
contracts and goodwill. Thomas Cook collapsed in September, 2019, leading to
9,000 job losses in the U.K. and leaving 150,000 tourists stuck overseas. That
also sparked an investigation by the FRC into auditor Ernst & Young.

6. Have things improved since then?

No. Middle Eastern hospital operator NMC Health Plc, listed
in London, started unravelling this year after unearthing undisclosed debt amid
allegations of fraud, leading to the departure of top executives. The FRC
opened a probe into Ernst & Young’s auditing of NMC’s financial statements.
And in Germany the admission by payments company Wirecard AG in June that 1.9
billion euros ($2.2 billion) it had reported as assets probably never existed
led to the resignation of Chief Executive Officer Markus Braun and his
subsequent arrest, with the company filing for court protection from creditors.
Ernst & Young’s refusal to greenlight Wirecard’s long-delayed 2019
financial report followed reports by the Financial Times raising
questions about Wirecard’s accounting practices. Ernst & Young called it an
‘elaborate’ fraud that even a very rigorous probe may not have discovered.

7. What will the government do?

The U.K. government has promised to replace the FRC with a
new regulator, the Audit, Reporting and Governance Authority, as recommended by
an independent report in 2018. Unlike the FRC, this will be a statutory body
with legal powers granted by Parliament to regulate the big accounting firms
directly. The government still says it will act on the findings of three
reports it commissioned after Carillion’s collapse. Beyond the
accounting-consulting split, the recommendations included requiring large listed
companies on the FTSE 350, such as Aviva Plc and Tesco Plc, to use joint
auditors to help bring other firms into the market and creating a distinct
auditing, as opposed to accounting, profession. All these moves would require
legislation, however, and Parliament may not have the time to pass the
necessary laws.

8. Does this sound familiar?

Yes, it’s reminiscent of regulatory action taken in
Washington almost two decades ago. Since 2002, auditors of publicly-traded
companies in the U.S. operate under strict rules that bar them from providing
most consulting services to their audit clients. The Sarbanes-Oxley Act was
part of Congress’s response to accounting scandals that brought down Arthur
Andersen LLP and its clients Enron Corp. and WorldCom Inc. It also imposed
audit regulations and created the Public Company Accounting Oversight Board,
which enforces standards and annually inspects the largest firms. U.S.
regulators are increasingly concerned about the patchwork of regulations in
force around the world. Securities and Exchange Commission chief Jay Clayton
said in December that he wants more financial reporting and audit uniformity
worldwide.

9. What’s next in the U.K.?

The Big Four have promised to submit plans to the FRC by
October next year, before a split effective in 2024. That gives the government
time to pass legislation and audit reform proposals may be released in the
coming months. Though legislation would supersede the agreement, there is
speculation the government could use this pact as a reason to put audit reform
on the back burner.

(Source: Bloomberg Tax – By Guy
Collins, Hugo Miller, 17^th July, 2020)

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(1) One-time waiver of late
fees – Notification No. 52/2020-Central Tax, dated 24^th June, 2020

Non-filers of GST
returns for the period July, 2017 to January, 2020 who file their returns
before 30^th September, 2020 shall not be required to pay any late
fees. Further, the revised dates for filing GSTR3B for taxpayers with turnover
less than Rs. 5 crores for the months June and July, 2020 have been extended as
follows:

June, 2020 –

Group A States = 23^rdSeptember, 2020

Group B States = 25^th
September, 2020

July, 2020 –

Group A States = 27^th
September, 2020

Group B States = 29^th
September, 2020

(2) Capping of maximum late
fee – Notification No. 57/2020-Central Tax, dated 30^th June, 2020

Notification No.
52/2020-Central Tax is amended and a new proviso is added vide
this Notification to cap the maximum amount of late fee payable by late filers
of GSTR3B for the period starting from February, 2020 and up to July, 2020. The
maximum late fee payable for the above periods shall be Rs. 500 per return, if
the returns are filed after the due date but before 30^th September,
2020.

(3) SMS facility for Nil
returns – Notification No. 58/2020-Central Tax, dated 1^st July, 2020

This Notification has amended the CGST rules to provide for filing of
Nil GSTR1 or GSTR3B using Short Messaging Service (SMS) directly, using OTP
authentication.

CIRCULARS

(i) Clarifications on Covid-19
– Relief measures Circular No. 141/11/2020-GST

By the above Circular, the CBIC has clarified some doubts regarding the
Covid-19 relief measures provided by the Government. It has been clarified that
the interest shall be payable as per the interest applicable across different
time periods. For example, if GSTR3B for the month of April, 2020 is filed on
28^th June, 2020, where the original due date was 20^th
May, the conditional extended filing date was 4^th June, 2020, the
interest will be payable as follows:

No. of days
delay = 39

Interest = Nil for
15 days (up to 4^th June, 2020)

9% for 20 days (up to 24^th June, 2020)

18% for 4 days (up to 28^th June, 2020)

ADVANCE RULINGS

(A) Rate of tax
on mehandi /
henna

Sunil Kumar Gehlot (Sunil Kumar & Co.) (Order No.
RAJ/AAR/2020-21/01, dated 6^th May, 2020)

The issue regarding
rate of tax on henna was before the learned AAR, Rajasthan. The applicant
wishes to start manufacturing mehandi / henna powder.

The applicant
submitted that the classification dispute as regards mehandi / henna
powder was prevalent since the days of the Central Excise Laws and the
confusion continued to persist in the GST era. He further submitted that while
selecting the commodities at the time of filing the registration application,
the HSN Code 14041019 specifically mentions ‘Henna Powder’ and so the applicant
has mentioned the classification of the product under Chapter 14 and,
accordingly, the rate of GST applicable is 5%.

The applicant
stated that the rate on henna powder was decided at 5% since the inception of
GST. He produced the agenda list of the fitment committee for the consideration
of the GST Council. In that, it could be seen from Agenda Item No. 10 that the
rate was decided to be kept at 5%. He produced the relevant extracts and
supporting documents for the consideration of the AAR.

The AAR considered
the above arguments and heard the jurisdictional officers for their views. They
had relied on Wikipedia for the meaning / definition of the word ‘henna / mehandi’
and observed that henna and mehandi are the same product with different
names and are obtained from the mehandi tree by grinding its leaves.

They further
observed that tariff items 14041011 to 14041090 have been omitted from the
Customs Tariff Act, 1975 and hence no such tariff item is available in the said
Act. In view of the above, the question of classification of products under
discussion under 14041011 does not arise.

The learned AAR
observed that it is a well-known fact that henna / mehandi powder has a
natural property of dyeing / tanning and is generally used as hair dye.
Therefore, the product is rightly classified under Chapter Heading 3305 as
preparations for use on hair and covered under amended Notification No.
41/2017-CT(R) dated 14^thNovember, 2017 and shall attract GST @ 18%.

(B) Sale of land
plot with basic amenities

Shri Dipesh Anilkumar Naik (Order No. GUJ/GAAR/R/11/2020, dated 19^th
May, 2020)

The applicant has
submitted that he has a vacant land outside the municipal area of the town on
which he has some proposed business activity and has all the necessary
approvals for the project from the Plan Passing Authority (i.e., zilla
panchayat). The applicant has further submitted that as per the said
Authority, the seller of land is required to develop the primary amenities like
sewerage and drainage line, water line, electricity line, land levelling for
road, pipeline facilities for drinking water, street lights, telephone line,
etc. The applicant also submitted that they will sell the individual plots to
different buyers without any construction on the same but by providing the
primary amenities as mentioned above, which are the mandatory requirements of
the Plan Passing Authority.

The applicant
wished to know the applicability of GST on the proposed sale of plots with the
amenities as mandated by the Authority.

The AAR referred to
Schedule III to the GST Act. This Schedule sets out the activities or
transactions which are treated as neither a supply of goods nor as supply of
services. Therein, Entry 5 covers sale of land which is excluded from GST levy.
On the basis of this entry, the AAR observed that where the nature of activity
is that of only sale of immoveable property of a plot, it is excluded from GST
levy.

Further, the AAR
found that the plotted development is a scheme which involves forming land into
a layout after obtaining necessary plan approval from the Development
Authority, get all other permissions required to take up, commence and complete
what would be the layout, comprising of individual sites. In the activity of
plot development, the following are done – levelling the land, construction of
boundary wall, construction of roads, laying of underground cables and water
pipelines, laying of underground sewerage lines with sewage treatment plants,
development of landscaped gardens, drainage system, water harvesting system,
demarcation of individual plots, construction of overhead tanks and other
infrastructure works.

In addition, common
amenities like garden, community hall, etc. are also offered in some schemes.
The sale of such sites is done to the end customers who may construct houses /
villas on the plots.

The AAR noted that
sellers charge the rates on super built-up basis and not the actual measurement
of the plots. The super built-up area includes the area used for common amenities,
roads, water tank and other infrastructure on a proportionate basis. Thus, in
effect, the seller is collecting charges towards the land as well as the common
amenities, roads, water tank and other infrastructure on a proportionate basis.
In other words, such common amenities, roads, water tank and other
infrastructure are an intrinsic part of the plot allotted to the buyer.

The AAR held that
the above indicates that the sale of a developed plot is not equivalent to the
sale of land but is a different transaction. Sale of such plotted development
was tantamount to rendering of service. This view has also been taken by the
Supreme Court in the case of M/s Narne Construction P. Ltd. reported at
2013 (29) STR 3 (SC).

He further held
that the activity of the sale of developed plots would be covered under the
clause ‘construction of a complex intended for sale to a buyer’ as contained in
Schedule II to the CGST Act. Thus, the AAR ruled that the said activity is
covered under ‘construction services’ and GST is payable on the sale of
developed plots in terms of the CGST Act / Rules and relevant Notifications
issued from time to time.

Jay Jalaram Enterprises (Order No. GUJ/GAAR/R/03/2020, dated 11^thMarch, 2020)

The applicant was involved in the manufacture and supply of the above
item. The popcorn is sold in a sealed plastic bag bearing a registered brand
name ‘[J.J.’s] Popcorn’, under the Trade Marks Act, 1999.

The applicant submitted that their product is manufactured by using corn
/ maize grains. The raw grain is heated in an electric machine / oven @ 180/200
degrees temperature and due to the heat so given to the grains, they turn into
puffed corns / popcorns which are known in Gujarati as ‘dhani’ and are similar
to puffed rice which is known as ‘murmura’. They are then sieved so as to
remove the grains that remained unpuffed. During the process, salt, edible oil
and turmeric powder are mixed in required quantities. Thereafter, the product
is packed in plastic pouches in quantities of 15 grams.

The applicant contended that its product, which is popularly known as
popcorn, is nothing but corn / maize, which is a cereal, falling under Chapter
10. They placed reliance on a judgment delivered by the Apex Court in M/s
Alladi Venkateshwaralu and others vs. Government of A.P. (1978) 41 STC 394 (SC),
wherein it was held that the term ‘atukulu’ (parched rice) and ‘muramaralu’
(puffed rice) are ‘rice’. Applying the same ratio, the applicant further
submitted that the term used in the above entry as maize (corn) also includes
puffed maize / popcorn as being a cereal within its meaning and therefore
[J.J.’s] Popcorn is covered in Entry No. 50 in the above tariff item 1005 of
Schedule I and is taxable accordingly. The applicant also submitted that though
this judgment is under the provisions of the Central Sales Tax Act, 1956, it is
still relevant as it used to be in earlier times for determining the
classification of commodities. The principle laid down therein is that a cereal
grain, even after applying the process of heating, does not lose its basic
characteristics and thus it remains the same grain and this principle is also
applicable squarely to maize as popcorn.

The AAR relied on the classification notes to Notification No.
1/2017-CT(R) which provides as follows:

‘Explanation – For the purposes of this
notification, –

(i) ……………

(ii) ………….…

(iii) “Tariff item”, “sub-heading”, “heading” and
“Chapter” shall mean, respectively, a tariff item, sub-heading, heading and
chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51
of 1975).

(iv) The rules for the interpretation of the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section
and Chapter Notes and the General Explanatory Notes of the First Schedule
shall, so far as may be, apply to the interpretation of this notification.’

The AAR further relied on the decision of the Hon’ble Supreme Court in
the case of L.M.L. Ltd. vs. Commissioner of Customs [Civil Appeal No.
3764 of 2003, decided on 21^stSeptember, 2010 reported at 2010 (258)
ELT 321 (S.C.)]. It held as follows:

‘12. In Collector of Central Excise, Shillong vs.
Woodcrafts Products Ltd. reported in (1995) 3 SCC 454, it was held by this Court that as expressly
stated in the statements of objects and reasons of the Central Excise Tariff
Act, 1985, the Central Excise Tariffs are based on the Harmonious System of
Nomenclature (HSN) and the internationally accepted nomenclature was taken into
account to reduce disputes on account of tariff classification. Accordingly,
for resolving any dispute relating to tariff classification, a safe guide is
the internationally accepted nomenclature emerging from the Harmonious System
of Nomenclature (HSN). Although the decision in the case of Woodcraft Products
(Supra) dealt with the interpretation of the provisions of the Central
Excise Tariff, there can be no doubt that the HSN Explanatory Notes are a
dependable guide even while interpreting the Customs Tariff.’

Relying on the above interpretation rules, the AAR observed that the
goods in question is ready-to-eat prepared food and fits the description as
‘Prepared foods obtained by the roasting of cereal’. This description attracts
classification under Chapter Sub-Heading 1904 10 of the First Schedule to the
Customs Tariff Act, 1975.

The AAR mentioned that there is no specific entry for the product
‘popcorn’ in Notification No. 1/2017-Central Tax (Rate) dated 28^th
June, 2017. But there is an entry most akin to the product and process (Chapter
heading 1904) at Sr. No. 15 of Schedule III of Notification No. 1/2017-CT(R)
dated 28^th June, 2017 and attracts 9% CGST and 9% SGST, or 18% IGST.

As against the applicant’s contention that the product be classified as
maize, the AAR held that Note 1(A) to Chapter 10 clearly mentions that ‘the
products specified in the headings of this Chapter are to be classified in
those headings only if grains are present, whether or not in the ear or on the
stalk’. The applicant’s product loses the presence of grain in it, so it does
not deserve to be classified in that heading.

The applicant had also clarified that to make the
heated maize more palatable, salt, turmeric and some oil was added to it; this
makes it clear that the product is not grain but processed food.

BCAJ Admin

FROM THE PRESIDENT

My Dear Members,

This is my first
communication to you through this column and I must tell you that I feel
honoured and humbled on being elected President of our Society for the
year 2020-21. I assure you with a deep sense of commitment that with such an
enthusiastic team of Office-Bearers and Managing Committee members, I will do
my best to continue the good work done year after year by Team BCAS in
the best interests of our members. I also convey my deep and sincere thanks to
all past presidents and seniors for reposing their trust and faith in me and
considering me fit to take up this prestigious and responsible position. Some
of my thoughts for the year are elaborately expressed in the Annual Plan
published elsewhere in this Journal.

I consider myself and my
team to be extremely fortunate that our term started with the 72^nd
Founding Day lecture delivered by the incomparable Mr. Deepak Parekh, CA
and Chairman of HDFC Limited. He showered accolades on us by stating that

72 years is a very long
period for a voluntary organisation, not just to exist, but to thrive

You have all stayed
true to your vision of BCAS. I was surprised to see how apt is your
vision statement of being a principle-centred and learning-oriented organisation
which is proactive to change, and

It is this vision
that has held this group together over the years.

So motivating and
encouraging! His statement that he is not the owner of HDFC but just an
employee till recently was so humbling. It is such simplicity, ethical
entrepreneurship and vision that can create large and globally-respected
organisations and brands.

Since mid-March, 2020, we
have conducted almost the entire range of events from lecture meetings and
panel discussions to workshops, and even virtual Residential Refresher / study
courses (including group discussions), in this manner. It is observed that
digital makes the contents and the participants much more systematic,
structured and disciplined. The faculties are at ease with knowledge-sharing
from their own location without hectic travelling and logistics issues. The
personal touch and warmth, fellowship and recreation is surely missed in case
of RRCs and other residential programmes, however, the commitment, dedication
and hard work of the volunteers remain the same with the change of platform
from physical to digital.

In retrospect, how true
are the words of the wise who said: Reinvention is never easy. One must devise
an entirely new way of working, without the reassurance that comes with
replicating already existing best practices. This isn’t just about finding new
applications for the technology; India needs to anticipate its impact as well.
Yet, this is precisely how every previous transformation has played out
and it is this attitude of flexibility, courage and judicious risk-taking that
will let India be in the forefront of the Fourth Industrial Revolution.*

The CA exams for May, 2020
were postponed and finally cancelled, to be merged with the November exams.
This raises the issue of preparedness for the future possibilities of
conducting CA exams online. I am sure the regulators have moved into action
mode to convert this challenge into an opportunity.

August is full of
festivities like Janmashtami, Ganeshotsav and Independence Day. It would be
advisable to restrict ourselves and celebrate within the family. Today, the
health, safety and well-being of one’s self as well as of others are of utmost
importance. We can pray to Lord Ganesha to free us from this unprecedented
situation so that next year we would celebrate in a normal manner. For
Independence Day we can seek our independence – physical and psychological –
from the lockdown situation so that normalcy returns to our lives.

Friends, please feel free
to write to me at president@bcasonline.org.

Bridgital Nation –
Solving Technology’s People Problem, by N. Chandrasekaran and Roopa Purushothaman

With Best Regards,

CA
Suhas Paranjpe

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES RELATED TO EXCEPTIONAL
ITEMS

Compiler’s Note

DISCLOSURES RELATED TO EXCEPTIONAL
ITEMS

COMPILER’S NOTE

For the year ended 31^st
March, 2020 many companies have considered losses related to Covid-19 and other
losses / gains as ‘Exceptional’ and made corresponding disclosures. Given below
are ‘Exceptional Disclosures’ by a few companies.

RELIANCE INDUSTRIES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEM

Covid-19 has significant impact on business operations of the
Company. Further, there is substantial drop in oil prices accompanied with
unprecedented demand destruction. The Company based on its assessment has
determined the impact of such exceptional circumstances on its financial
statements and the same has been disclosed separately as ‘Exceptional Item’ of
Rs. 4,245 crores, net of taxes of Rs. 99 crores, in the Statement of Profit and
Loss for the year ended 31^st March, 2020 [also read with Note C(J)
of Critical Accounting Judgements and Key Sources of Estimation Uncertainty
above].
In addition to the above, the Group has also recognised Rs. 53 crores against
erstwhile subsidiary GAPCO liability and Rs. 146 crores (net of tax Rs. 49
crores) for Adjusted Gross Revenue (AGR) dues of Reliance Jio Infocomm Limited,
as part of exceptional item.

HINDUSTAN UNILEVER LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS (NET)

(Rs.
in crores)ear ended

31^st March, 2020	Year ended 31^st March, 2019
i) Profit on disposal of surplus properties	46	–
ii) Fair valuation of contingent consideration payable (refer Note 42) (not reproduced)	26	–
Total exceptional income (A)	72	–
i) Fair valuation of contingent consideration payable (refer Note 42) (not reproduced)	–	(57)
ii) Acquisition and disposal related cost	(132)	(30)
iii) Restructuring and other costs	(140)	(141)
Total exceptional expenditure (B)	(272)	(228)
Exceptional items (net) (A+B)	(200)	(228)

31^st
March, 2020

Year ended

31^st March,
2019

i) Profit on disposal of surplus properties

–

ii) Fair valuation of contingent consideration payable (refer
Note 42) (not reproduced)

–

Total exceptional income (A)

–

i) Fair valuation of contingent consideration payable (refer
Note 42) (not reproduced)

–

(57)

ii) Acquisition and disposal related cost

(132)

(30)

iii) Restructuring and other costs

(140)

(141)

Total exceptional expenditure (B)

(272)

(228)

Exceptional items (net) (A+B)

(200)

(228)

ADANI ENTERPRISES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

36. EXCEPTIONAL ITEMS

(Rs.
in crores)

Particulars

For the year ended 31^st
March, 2020

For the year ended 31^st
March, 2019

Write-off of unsuccessful exploration project
[Note (a)]

(129.73)

–

Price escalation claim and interest thereon [Note (b)]

328.48

–

Net gain on sale of investments in subsidiaries / associates
/ jointly controlled entities [Note (c)]

–

537.82

Impairment of non-current assets [Note (d)]

–

(670.80)

Stamp duty expense (e)

–

(25.00)

198.75

(157.98)

(a) During the
current year ended 31^st March, 2020 one of the subsidiaries which is
engaged in oil and natural gas exploration business had written off one of its
blocks due to commercial unviability of the project.

(b) During the
current year ended 31^st March, 2020 the Company has received a
favourable order from the Hon’ble Supreme Court with respect to its claim of
price escalation in mining business. Pursuant to the favourable order, the
Company recognised cumulative revenue and interest thereon since the financial
year 2013-14.

(c) As decided in the
Board meeting dated 23^rd February, 2019 and as subsequently approved
by shareholders, the Company has divested its investment in agri-logistics and
thermal energy entities in order to consolidate operations within single
business segment of Adani Group and bring in more focus of efficient
operations. Accordingly, the Company has completed sale of its investment in
these entities on 28^th March, 2019 and has recognised net gain of
Rs. 510.26 crores. The gain is recognised after adjusting impairment of
non-current assets of Rs. 464.63 crores in energy business entities as per
independent valuation reports. During the previous year, the Company also
recognised gain of Rs. 27.56 crores on sale of investment in other subsidiaries
/ associates / jointly controlled entities.

(d) During the
previous year, two subsidiaries in Australia have recognised impairment of
non-current assets of Rs. 670.80 crores due to continuous delay in regulatory
approval process and various legal challenges.

(e) During the previous year, stamp duty of Rs. 25 crores
was paid on account of Composite Scheme of Arrangement for the demerger of the
renewable power undertaking from the Company.

BRITANNIA INDUSTRIES LTD. (STANDALONE)

From Notes to Financial
Statements

NOTE 34 EXCEPTIONAL ITEMS
[(INCOME) / EXPENSE]

(Rs. in crores)

Particulars	31^st March, 2020	31^st March, 2019
Reversal of provision for diminution in value of investments in subsidiaries [Refer note below]	(35.00)	–
Provision for diminution in value of investments in subsidiaries [Refer note below]	16.00	–
	(19.00)	–

Particulars

31^st
March, 2020

31^st
March, 2019

Reversal of provision for diminution in value of investments
in subsidiaries [Refer note below]

(35.00)

–

Provision for diminution in value of investments in
subsidiaries [Refer note below]

16.00

–

(19.00)

–

Note: During the year, in accordance with Ind AS 36 – Impairment
of Assets, the Company has, based on its assessment of the business
performance of Britannia and Associates (Mauritius) Private Limited and its
step-down subsidiaries in the Middle East, reversed Rs. 35 crores provision for
diminution in the value of investments in equity shares. Further, the Company
has provided Rs. 16 crores for diminution in the value of investments in equity
shares of Ganges Valley Foods Private Limited which has shut down its factory
operations and announced a Voluntary Retirement Scheme (VRS) for its employees.

BRITANNIA INDUSTRIES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS pertain to voluntary retirement cost
incurred in one of the subsidiaries of the Company.

GLAXO SMITHKLINE PHARMACEUTICALS LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS (NET)

(Rs.
in lakhs)

Particulars

Year ended
31^st March, 2020

Year ended
31^st March, 2019

Profit on sale of property

546,30.28

43,39.13

Impairment of assets
[Refer note 3(b)]

(637,42.85)

–

Associated cost to impairment [Refer note 3(b)]

(40,33.00)

–

Provision for product recall [Refer note (a) below]

(108,08.80)

–

Redundancy costs
[Refer note (b) below]

(76,14.63)

(20,07.75)

Impairment of capital
work-in-progress

(26,31.00)

–

Sale of brands

50.69

5,38.53

(341,49.31)

28,69.91

Notes:

(a) The Ultimate Holding Company has been contacted by
regulatory authorities regarding the detection of geno-toxic nitrosamine NDMA
in ranitidine products. Based on the information received and correspondence
with regulatory authorities, the Ultimate Holding Company made the decision to
suspend the release, distribution and supply of all dose forms of ranitidine
hydrochloride products to all markets, including India, as a precautionary
action. The Group manufactures Ranitidine Hydrochloride IP Tablets 150 mg. and
300 mg. (Zinetac) for supply to the Indian market. Further, as a precautionary
action, the Group made the decision to initiate a voluntary pharmacy / retail
level recall of the Zinetac products from the Indian market.

Consequently, the Group recognised provisions of Rs.
108,08.80 lakhs relating to estimates of loss on account of sales returns,
stocks withdrawn and inventories held including incidental costs thereto and
other related costs.

(b) Rs. 59,14.63 lakhs (previous year Rs. 20,07.75 lakhs) is
on account of restructuring of manufacturing and commercial organisation and
Rs. 17,00.00 lakhs is a charge on account of outstanding litigation matter.

TATA CHEMICALS LTD.
(STANDALONE)

Discontinued Operations

(I) Disposal of consumer products business

The National Company Law
Tribunal (‘NCLT’), Mumbai and NCLT, Kolkata on 10^th January, 2020
and 8^th January, 2020, respectively, sanctioned the Scheme of
Arrangement amongst Tata Consumer Products Limited (formerly Tata Global
Beverages Limited) (‘TCPL’) and the Company and their respective shareholders
and creditors (‘the Scheme’) for the demerger of the Consumer Products Business
Unit (‘CPB’) of the Company to TCPL. The Scheme became effective on 7^th
February, 2020 upon filing of the certified copies of the NCLT Orders
sanctioning the Scheme with the respective jurisdictional Registrar of
Companies. Pursuant to the Scheme becoming effective, the CPB is demerged from
the Company and transferred to and vested in TCPL with effect from 1^st
April, 2019, i.e., the Appointed Date.

As per the clarification
issued by Ministry of Corporate Affairs vide Circular No. 09/2019 dated
21^st August, 2019 (MCA Circular), the Company has recognised the
effect of the demerger on 1^st April, 2019 and debited the fair value
as at 1^st April, 2019 of demerged undertaking, i.e. fair value of
net assets of CPB to be distributed to the shareholders of the Company,
amounting to Rs. 6,307.97 crores to the retained earnings in the Statement of
Changes in Equity as dividend distribution. The difference in the fair value
and the carrying amount of net assets of CPB as at 1^stApril, 2019
is recognised as gain on demerger of CPB in the Statement of Profit and Loss as
an exceptional item, amounting to Rs. 6,220.15 crores (net of transaction cost)
during the year ended 31^st March, 2020. Accordingly, the operations
of CPB have been reclassified as discontinued operations for the year ended 31^st
March, 2020. Accordingly, the operations of CPB have been reclassified as
discontinued operations for the year ended 31^stMarch, 2019 and
comparative information in the Statement of Profit and Loss account has been
restated in accordance with Ind AS 105.

TATA CONSUMER PRODUCTS LTD.

Exceptional Items (Net)

(Rs.
crores)

Particulars

2020

2019

Expenditure

Expenses in connection with acquisition of businesses (Refer
note 40)

51.81

–

51.81

–

IIFL FINANCE LTD. (STANDALONE)

Exceptional Items

(i) During the year
ended 31^st March, 2020 the Company has transferred its mortgage loan
business undertaking with its respective assets and liabilities as a going
concern on a slump sale basis to IIFL Home Finance Limited (formerly known as
‘India Infoline Housing Finance Limited’), a wholly-owned subsidiary of the
Company, w.e.f. 30^th June, 2019. The profit on sale aggregating to
Rs. 15.04 million has been disclosed as exceptional item.

(ii) During the year
ended 31^st March, 2020 the Company has transferred its microfinance
business undertaking with its respective assets and liabilities as a going
concern on a slump sale basis to Samasta Microfinance Limited as a subsidiary
Company w.e.f. 31^st October, 2019. The profit on sale aggregating to
Rs. 31.02 million has been disclosed as exceptional item.

(iii) During the previous year ended March, 2019
the Company executed definitive agreement for the sale of its ‘vehicle
financing business’ as a going concern on a slump sale basis to IndoStar
Capital Finance Limited (‘Indostar’). The profit on sale aggregating to Rs.
1,153.30 million has been disclosed as an exceptional item. In terms of the
business transfer agreement, the Company will be receiving the outstanding
purchase consideration of Rs. 20,177.78 million from Indostar in 12 (twelve) equal
monthly instalments from the closing date 31^st March, 2019 with
interest.

BCAJ Admin

ETHICS AND U

Arjun: Hey Bhagwan, you have a habit of staying too close to your Bhaktas
(devotees). But I request you to please keep yourself a little away from me.

Shrikrishna (smiling): Why? Anything wrong with me? Or with you?

Arjun: No. But better to maintain social distancing in this corona pandemic.

Shrikrishna: Arrey Arjun, this pandemic has occurred only because you people
have kept ME at a distance. Come close to ME and you will be free from all
worries.

Arjun: Really? But you keep on causing headaches to us by talking about this Code
of Ethics. You were telling me about the New Code of Ethics. Good that the New
Code has come now.

Shrikrishna: Oh, surprising! You were always cursing the Code of Ethics and how is it
that even without knowing about the New Code, you say it is good?

Arjun: Yes. As it is we never studied the old code seriously. Whatever we learnt
at the time of the exam, we have forgotten. Now we can directly go for the New
Code.

Shrikrishna (smiling): No, Arjun. The New Code is not replacing the old code. It is in
addition to the existing code, with some changes.

Arjun: Oh my God! Actually, I am fed up with these virtual meetings of study
circles. Every alternate day they are boring us with this New Code.

Shrikrishna: Last time I had started telling you about the New Code, and you wanted to
know more.

Arjun: Yes. Instead of listening to those lectures, it is better that you tell me
about it. I register there just to
get CPE.

Shrikrishna: That is unethical, Paarth. You are not truthful to yourself!

Arjun: Anyway, tell me, the New Code has become effective from 1^stof
July, right?

Shrikrishna: Yes. But the good news for you is that some of the aspects have been
deferred.

Arjun: Arrey
waah! Very good. So no need to know about them!
What are those topics?

Shrikrishna:
Last time I told you about NOCLAR.

Arjun: Yes, non-compliance of Laws and Regulations.

Shrikrishna: Yes. Basically it was applicable only to the listed companies. But it has
been deferred.

Arjun: What next?

Shrikrishna: The one of your interest is about the taxation services to audit clients.

Arjun: Good. And what was that 15% fees point?

Shrikrishna: If out of your total
fees, more than 15% is received from one single audit client for two
successive years, then you need to communicate it to that client.

Arjun: And what will the client do? Will he remove us? What is the logic?

Shrikrishna: See, you should not be independent but appear to be
independent. If you are heavily depending on one single client, you are likely
to compromise on the quality of audit. It is a self-interest threat.

Arjun: True. You need to broad-base your practice.

Shrikrishna: So, for example, your major fee, say 60 to 70%, is from one audit client,
you are supposed to tell this to that client and demonstrate that you are truly
independent.

Arjun: What else is postponed?

Shrikrishna: The non-audit services like management consultancy services to the audit
client. Similarly, under Indian circumstances, auditors are commonly rendering
taxation services. So that is also deferred.

Arjun: Any more postponement so that we don’t need to bother about it?

Shrikrishna: The independence standards which were adapted from the International
Ethical Standards have also been deferred.

Arjun: Good. Now next time please tell me what is immediately implemented. We
will keep that in mind while doing this year’s audit.

Shrikrishna: Yes, dear. Surely, I will.

Om Shanti!

Note: This
dialogue is based on implementation of the New Code of Ethics w.e.f. 1^st
July, 2020.

One who is bent on courting his death will not take kindly to
sage counsel given by his well-wishers
— (Valmiki Raamaayan 3.53.17)

BCAJ Admin

CORPORATE LAW CORNER

8. Foseco India Limited vs. Om Boseco Rail Products Limited C.P. (IB) No. 1735/KB/ 2019 Date of order: 20^th May, 2020

Section 9 read with Notification dated 24^th
March, 2020 – The Notification raises the pecuniary limit of the Tribunal for
initiating CIRP from Rs. 1 lakh to Rs. 1 crore – The said Notification is
prospective in nature and does not apply to applications which have been filed
but are yet to be admitted

FACTS

F Co (the ‘Operational Creditor’) was a
company engaged in the business of manufacturing and supply of chemical and
allied products related to foundry and steel industries. OB Co (the ‘Corporate
Debtor’) regularly purchased foundry and other chemicals from F Co on credit
basis wherein the credit period was 30 days and which was relaxed for a further
15 days beyond the usual credit period mentioned in the invoices.

The corporate debtor failed to make payments
of several invoices raised by the operational creditor from 3^rd December, 2018 to 11^th July, 2019 for supply of
materials. The total outstanding debt receivable from the corporate debtor was
Rs. 90,00,919.10 (principal amount of Rs. 78,52,663 + interest Rs.
11,48,256.10) on the basis of which a demand notice was issued on 1^st
August, 2019. But the corporate debtor did not reply to the said notice. The
operational creditor therefore filed an application for initiating Corporate
Insolvency Resolution Process (CIRP) against the corporate debtor.

On two consecutive events (17^th
January, 2020 and 3^rdFebruary, 2020), the corporate debtor chose
not to file a reply without assigning any valid reason. The matter was then
posted for hearing on 13^th March, 2020. The corporate debtor then
requested for a period of seven days for settlement of the matter with the
operating creditor. The time was granted and the order was reserved. But owing
to the onset of the coronavirus pandemic, there was a delay in pronouncement of
an order.

The corporate debtor, citing the
Notification dated 24^th March, 2020 which introduced the proviso
to section 4 of the Insolvency and Bankruptcy Code, 2016, filed a submission
before the NCLT on 13^th May, 2020. The proviso enhanced the
minimum amount of default from Rs. 1 lakh to Rs. 1 crore for initiating CIRP
against corporate debtors from small and medium-scale industries. The issue
before the National Company Law Tribunal (NCLT) was whether the Notification
u/s 4 of the Code would apply to applications pending for admission.

HELD

NCLT heard both the parties. It observed
that the corporate debtor had always accepted and agreed to make payment of
outstanding debt without raising any dispute. The Tribunal observed that it was
a well-settled law that a statute is presumed to be prospective unless it is
held to be retrospective either expressly or by necessary implication. Further,
the Notification did not mention that its application would be retrospective.
The amendment was, therefore, held to be prospective.

It was submitted that the invoices did not
mention any terms stipulating the payment of interest. Accordingly, NCLT held
that since there was no objection raised by the corporate debtor, a sum for
supply of materials less any interest was due. The claim of the operational
creditor was found due and sustainable in law. The Tribunal passed an order
admitting the application and laid down necessary directions, including
declaration of moratorium and appointment of a resolution professional.

9. DLF Ltd. vs. Satya Bhushan Kaura [2020] 113 taxmann.com 363 (NCLAT) Date of order: 13^th January, 2020

It was found that company in their
correspondence with legal heirs had accepted to issue shares to them as per
their entitlement on production of court orders, affidavit and indemnity bond
and on payment of Rs. 1.20 lakhs being consideration amount of 60,000 shares –
Where Letter of Administration for succession was submitted by legal heirs,
insisting on affidavit and indemnity bond again and again was harassing poor
investors and therefore, penalty was imposed on company and they were directed
to register transfer of 60,000 shares to legal heirs which were due to them on
rights basis by appellant company

FACTS

The Late DNK, a deceased shareholder of ‘D
Ltd’, held 150 equity shares of Rs. 10 each of the company. The said 150 equity
shares of Rs. 10 each were subsequently converted into 6,000 equity shares of
Rs. 2 each after giving effect to split and bonus issues. DNK had expired on 27^th
August, 1987.

On 29^th December, 2005, D Ltd
came out with a Rights issue which remained open till 18^th January,
2006. The offer was available to all the existing shareholders as on 18^th
November, 2005.

The legal heirs of DNK did not approach D
Ltd for transmission / transfer of the original 150 shares (being 6,000 shares
of Rs. 2 each) held by DNK in their favour; neither did they claim to be his
legal heirs nor did they inform D Ltd about his demise for about 20 years. On
25^th May, 2007, for the first time the legal heirs informed that DNK
had expired on 27^th August, 1987. Thereafter, by their letter dated
1^st June, 2007, the legal heirs requested for transfer of 66,000
equity shares. In response to the said letter, D Ltd requested the legal heirs
to submit the requisite documents, including the succession certificate and
demand draft of Rs. 1.20 lakhs on or before 26^th September, 2007 in
order to be eligible for allotment of shares on Rights basis.

The legal heirs after the cut-off date (26^th
September, 2007) for the first time vide their letter dated 16^th
October, 2007 applied for Letter of Administration in respect of the will of
DNK and after the lapse of five years, vide their letter dated 1^st
June, 2012, enclosed the Letter of Administration granted by the District Court
(North) in respect of the Will of DNK.

On appeal, the NCLT vide its order
directed D Ltd to register the transfer and the legal heirs were directed to make payment for 60,000 shares at Rs. 2 per share to the promoters.
The legal heirs were also directed that on transfer of 60,000 shares in their name, they will execute the
transfer deed to the extent of entitlement of the legal heirs in accordance
with the terms of the Letter of Administration issued by the District judge.

The matter went in appeal before the
Appellate Tribunal.

HELD

D Ltd in its
correspondence with the legal heirs has already accepted to issue shares to the
legal heirs as per their entitlement on production of court orders, affidavit
and indemnity bond and on payment of Rs. 1.20 lakhs being the consideration
amount of 60,000 shares. During the course of arguments, D Ltd was asked why,
when the Letter of Administration had been submitted by the legal heirs, did it
insist on affidavit and indemnity bond? When the Letter of Administration has
been issued, it means that the legal heirs are discharged from their liability.
On this, D Ltd offered its apologies.

It is to be
noted that D Ltd is a listed company in real estate and is well aware of legal
formalities. By insisting on affidavit and indemnity bond again and again in
spite of the Letter of Administration, it was clear that D Ltd is harassing the
poor investors. The act of D Ltd deserves some penal action. It is also noted
that the legal heirs are entitled to 60,000 shares as per entitlement on
payment of consideration.

In view of the
foregoing discussions and observations, the following directions were issued:

The legal
heirs will make payment of consideration to D Ltd within 15 days from the date
of receipt of the order and they will be entitled to the benefit of the
membership from the date of payment.

D Ltd will
transfer / arrange for transfer of 60,000 shares to the legal heirs within 30
days from the date of receipt of payment.

A sum of Rs.
5 lakhs as costs is imposed on D Ltd to be deposited with the National Defence
Fund within 15 days from the date of the order. Proof of depositing the same
will be submitted to the Registrar of the Appellate Tribunal within a week
thereafter.

BCAJ Admin

MISCELLANEA

I. World News

19 ‘Nobody should trust Wikipedia’, warns its co-founder; says the site is taken over by Leftists

Larry Sanger, the co-founder of Wikipedia, has said that nobody should trust the crowd-sourced online encyclopaedia as it is run by Left-leaning volunteers. The site is no longer trustworthy as it does not allow content that does not fit the agenda of Leftists, and therefore people can’t get a complete view on topics.

Sanger, who had co-founded Wikipedia along with Jimmy Wales in 2001, said that the platform has betrayed its original mission by only reflecting the views of the ‘establishment.’ In an interview with Lockdown TV, he said that he agrees with the view that there are teams of Democratic Party-leaning editors who remove content that they don’t like.

In fact, he noted, Wikipedia had lost its neutral nature way back in 2009, before which editors from all ideologies would debate equally before deciding what should be published on the platform. Articles on most recent issues, from Covid to Biden, had become partisan, particularly supporting the Biden administration on such issues and blacking out information that does not show the Democrats in positive light.

The Wikipedia co-founder gave examples of articles on Joe Biden and his son Hunter Biden in which important details about them were completely missing. The article on the US President does not mention most of the criticisms against him and it has completely whitewashed the Ukraine scandal. The paragraph on the Ukraine imbroglio ‘reads like a defence counsel’s brief’. The section concerned on the page says ‘no evidence was produced of any wrongdoing by the Bidens’ and that ‘Trump and his allies falsely accused Biden’ of involvement in Ukraine to protect Hunter Biden.

In fact, the Wikipedia page on Hunter Biden is even more shocking as it does not mention anything about the content found on his laptop. The article does say that no evidence of wrongdoing was found ‘after the seizure of a laptop purportedly belonging to Biden’, but does not mention other explosive content found in the laptop which was left by Hunter at a computer repair shop and which he forgot to pick up later.

In October last year, The New York Post had published emails retrieved from the laptop relating to Hunter’s business dealings in Ukraine and the links to his father. Twitter and Facebook, run by the same Left-leaning propagandists, had blocked The News York Post article, preventing people from sharing it. Similarly, Wikipedia is also completely blocking out any information about the contents of the laptop.

Larry Sanger said that Wikipedia’s coverage of Covid-19 is also very biased as it just reproduces the views of the World Economic Council or the World Economic Forum, the World Health Organization, the CDC and various other establishment mouthpieces like Anthony Fauci.

He also gave the example of Wikipedia articles on eastern medicine which are biased as they basically call the ancient medicine systems quackery in dismissive, quite judgmental language.

Showing how biased Wikipedia has become, Larry said that major media houses like Daily Mail and Fox News are blacklisted by it. This means that if something is covered by these published publications but not by the Leftist media houses, then that can’t be published on Wikipedia.

Wikipedia has become just like any other Left-leaning media house. ‘There are a lot of people who would be highly motivated to go in and make the article more politically neutral, but they’re not allowed to.’ Sanger added, ‘If only one version of the facts is allowed, then that gives a huge incentive to wealthy and powerful people to seize control of things like Wikipedia in order to shore up their power. And they do that.’

There are now big companies like Wiki PR that employ people to write on Wikipedia, but such writers and editors don’t reveal that they are associated with such companies. People are spending money to make changes to Wikipedia articles ‘because there’s a very big, nasty, complex game being played behind the scenes to make the article say what somebody wants them to say’.

Larry Sanger had left Wikipedia over differences with co-founder Jimmy Wales over how to run the website and has since become a staunch critic of it for its Left-leaning bias. Earlier, he had said that Wikipedia has become a huge moral hazard, saying that it has turned into a ‘monocultural establishment organ of propaganda’.

(Source: OpIndia – https://www.opindia.com/2021/07/nobody-should-trust-wikipedia-warns-its-co-founder-larry-sanger/-16th July, 2021)

II. Business

20 How can you become a space tourist?

Thrill-seekers might soon be able to get their adrenaline kicks – and envy-inducing Instagram snaps – from the final frontier, as space tourism finally lifts off. All you’ll need is a bit of patience. And a lot of money.

Here’s a rundown of where things stand.

Two companies are offering short ‘suborbital’ hops of a few minutes: Jeff Bezos’s Blue Origin and Virgin Galactic, founded by Richard Branson.

Blue Origin’s New Shepard rocket takes off vertically and the crew capsule detaches and crosses the Karman line (62 miles, or 100 kilometres, in altitude), before falling back to earth with three parachutes.

Virgin Galactic uses a massive carrier plane which takes off from a horizontal runway then drops a rocket-powered spaceplane. This, in turn, soars to over 50 miles altitude before gliding back.

In both cases, up to six passengers are able to unbuckle from their seats to experience a few minutes of weightlessness and take in the view of earth from space.

Virgin Galactic has said that regular commercial flights will begin from 2022, following two more test flights. Their waiting list is already long, with 600 tickets so far sold.

But the company predicts it will eventually run up to 400 flights per year. Two seats on one of the first flights are up for grabs in a prize draw: registrations are open until 1st September.

As for Blue Origin, no detailed calendar has been announced. ‘We’re planning for two more flights this year, then targeting many more in 2022,’ a spokesperson told AFP.

Another way to get to space is via reality television. Space Hero, an upcoming show, says it plans to send the winner of a competition to the International Space Station (ISS) in 2023.

The first tickets sold by Virgin Galactic went for between $200,000 and $250,000 each, but the company has warned that the cost for future sales will go up.

Blue Origin hasn’t announced prices. The anonymous winner of a public auction for a seat on the first crewed flight paid $28 million, but decided to defer the trip.

It’s not known what amount was bid for the seat secured by Dutch teen Oliver Daemen, who will fly in the auction winner’s place.

The more ‘budget-conscious’ might consider spending $125,000 for a seat on Space Neptune, a capsule that offers 360-degree windows and is lifted to the upper atmosphere by a balloon the size of a football stadium.

Despite the promise of spectacular views, the balloon ascends only 19 miles – far from the boundary of space and weightlessness. The 300 seats for 2024 have all been sold, but reservations are open for 2025.

No – you’re only expected to be in reasonable shape. Virgin Galactic’s training lasts just five days. And Blue Origin promises to teach you everything you need to know ‘the day before you launch,’ and its first crewed flight includes pioneering aviator Wally Funk, who at 82 will become the oldest astronaut.

The company’s requirements include being able to climb seven flights of stairs in under 90 seconds (the height of the launch tower) and being between 5’0” and 110 pounds (152 centimetres and 50 kilogrammes) and 6’4” and 223 pounds (193 cm. and 100 kg.).

Elon Musk’s company is also getting into the space tourism game, but its plans involve journeys that are far longer. The costs are also predicted to be astronomical – tens of millions of dollars.

In September, American billionaire Jared Isaacman has chartered a mission called Inspiration4 to take him and three other passengers into orbit around the earth on a SpaceX Crew Dragon, launched into space by a Falcon 9 rocket.

Then in January, 2022, three businessmen will travel to the ISS with an experienced astronaut. The mission, named Ax-1, is being organised by the company Axiom Space, which has signed up for three other future flights with SpaceX.

Elon Musk’s company is also planning a trip to orbit for four people, organised by intermediary Space Adventures – the same company in charge of the flight of the Japanese billionaire Yusaku Maezawa to the ISS in December, aboard a Russian Soyuz rocket.

Maezawa is also supposed to take a trip around the Moon in 2023, this time aboard a rocket that is still under development by SpaceX, called Starship.

He invited eight members of the public to join him – but applications are now closed.

(Source: International Business Times, 17th July, 2021 – By Lucie Aubourg)

III. Technology

21 How Web3 is overturning the Internet status quo

Today, it’s almost taken for granted that the Internet is controlled by a handful of tech behemoths that seem to amass more and more power every day. It’s easy to forget that when these titans first arrived on the scene, each one of them was considered a disrupter, a revolutionary, an upstart. Now, they are the establishment.

Since its birth in 1983, the Internet has evolved from an obscure and clunky tool used by a select few into a vast network integral to every facet of our lives. This destiny first became apparent during the dot-com boom of the 1990s. And although many naysayers were quick to self-congratulate during the ensuing bust, the downturn proved no more than a healthy pruning that readied the Internet for a new era of growth.

This next phase of Internet evolution, dubbed Web 2.0 in 2005 by Internet guru Tim O’Reilly, produced the trends that now dominate our lives: mobile-centric e-commerce, social media, user-generated content and video streaming. It also set the stage for the reign of the FAANGs: Facebook, Apple, Amazon, Netflix and Google.

Together, these giants offer us forms of connection, entertainment and instant gratification we could only have imagined a decade ago. But because their business models are based on the large-scale monetisation of data and centralised control of networks, our reliance on these services has also handed them enormous power: over our time, our wallets and our personal information.

That stranglehold may seem unbreakable at this point. But behind the scenes, away from debates about monopolies, privacy and free speech, a new incarnation of the Internet is emerging. Forces are quietly mustering for a new revolution – one whose very structure is designed to prevent such concentrations of profit and control from shaping the future.

The key to this new iteration is decentralisation. Its foundation is blockchain technology.

A quiet revolution

While the concept of blocks of information shackled together in a tamper-resistant way dates back to 1991, it wasn’t until 2009 that Satoshi Nakamoto, the pseudonym for the developer (or developers) of Bitcoin, set up the first blockchain to allow trading in the new currency. Now there are hundreds. On each blockchain, peers can exchange economic value – work, content, assets – without intermediaries.

This opens up the potential for a new kind of Internet – Web 3.0. Since blockchain transactions are anonymous and processed by a distributed network of many computers known as nodes, users no longer need to cede control of their data to a central authority. Meanwhile, the links between blocks produce a record that is resistant to hacking and manipulation.

Protocols powered by the many

There are a multitude of new ideas for how to use the power of decentralisation to offer tools and services that eschew centralised authority and are thus more affordable and accessible. And since protocols built on the distributed Internet are powered by hundreds or even thousands of computers, they are subject to neither single points of failure nor single points of control. This makes them both more stable and more secure.

As part of the Web3 community’s commitment to democratisation, many of these projects are led by Decentralised Autonomous Organisations (DAOs) – decentralised corporations governed by egalitarian communities rather than boards and executive hierarchies. Built on principles of self-sustaining growth and community governance, they are already having major real-world impacts.

Mirror, a community-run publishing protocol, puts power in writers’ hands. Since it is built on the Ethereum blockchain, the authorship and provenance of each piece of content is indelibly recorded. Writers can also collaborate on projects, turn their work into non-fungible tokens (NFTs) for auction, or even bankroll efforts by issuing their own tokens.

The user-generated music platform Playdj.tv uses decentralised infrastructure to cater to a different kind of creator at rates that enable it to be competitive with YouTube. Its platform enables DJs to set up their own live streams for their sets, which they can use to earn money and interact with fans all over the globe – a boon during the pandemic, when clubs and private party venues were forced to shut their doors.

The team behind Arweave has built a distributed hard drive that offers a permanent repository for all kinds of information and data. Then there’s The Graph, which helps make sense of all this by allowing fast, private and secure queries of its vast store of data about the Web3 universe.

New breeds of distributed financial systems are on the rise as well, including decentralised finance (DeFi) platforms where people can earn rewards by ‘staking’ assets and performing key tasks on a network. The number of decentralised cryptoasset exchanges (DEXs in industry parlance) has ballooned in the past two years, capturing some market share from their centralised counterparts (CEXs) with their promise of greater anonymity, safety and security.

Total trading volume on these platforms surged to a record $172 billion in May, more than twice the $80.2 billion record set just three months before. Protocols such as Uniswap have been at the forefront of this growth.

There are scores and scores more out there or percolating in the imaginations of developers, many of which will become the building blocks for a new Internet and a new economy. Some projects will inevitably fall by the wayside as Web3 grows to maturity, but many will survive and become foundational tools for the industries and customer bases they serve.

The difference this time is that these tools are governed and powered by their own user communities, rather than by the leaders of a small circle of massive corporations.

(Source: Opinion: International Business Times, 7th June, 2021 – By Doug Petkanis)

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. CBDT prescribes procedure for compliance check on sections 206AB and 206CCA – These two sections, effective from 1st July, 2021, provide for deduction or collection of tax at a higher rate in the case of non-filers of return of income. The CBDT has issued a new functionality, ‘Compliance Check for Sections 206AB & 206CCA’. This functionality is made available through the reporting portal of the Income-tax Department. It provides for compliance checks for single PAN or bulk verification. [Circular regarding use of functionality under sections 206AB and 206CCA. Circular 11 of 2021 dated 21st June, 2021; Notification No. 1 of 2021 dated 22nd June, 2021.]

2. Extension of time limits of certain compliances like filing of TDS returns for the last quarter of F.Y. 2020-21, issue of Form 16, filing of return of Equalisation Levy, etc., to provide relief to taxpayers in view of the pandemic. [Circular 12 of 2021 dated 25th June, 2021.]

3. CBDT issues guidelines to clarify provisions related to TDS u/s 194Q on purchase of goods – As per section 194Q, the buyer is responsible for deduction of tax from any sum paid to a resident seller for purchase of any goods, subject to certain threshold. CBDT has issued guidelines to remove the difficulties in implementation of section 194Q and in overlapping situations while implementing 194O and 206C(1H). [Circular 13 of 2021 dated 30th June, 2021.]

4. Guidelines for application of newly-inserted section 9B and amended section 45(4). [Circular 14 of 2021 dated 2nd July, 2021.]

5. Extension of various Income tax due dates including for imposition of penalty under Chapter XXI, linking of Aadhaar with PAN, for assessment or reassessment under the Income-tax Act and the time limit for completion of such action u/s 153 or u/s 153B, etc. [Notification No. 74 of 2021 dated 25th June, 2021.]

6. Last date of payment of amount under Vivad se Vishwas (without additional amount) which was earlier extended to 30th June, 2021 is further extended to 31st August, 2021. The last date of payment of amount under Vivad se Vishwas (with additional amount) has been notified as 31st October, 2021. [Notification No. 75 of 2021 dated 25th June 2021.]

7. Amendment to Rule 8AA and insertion of Rule 8AB – Income-tax (18th Amendment) Rules, 2021 – The Finance Act, 2021 inserted a new section, 9B, to provide that whenever a partner or member (specified person) receives any capital asset or stock-in-trade or both from a firm / AOP / BOI (specified entity), during the previous year in connection with the dissolution or reconstitution of such specified entity, it shall be deemed to be a transfer made by the specified entity to the specified person. Consequently, section 45(4) was amended. Section 48 was also amended to provide that the amount chargeable to income-tax as income of such specified entity u/s 45(4), which is attributable to the capital asset being transferred by the specified entity, shall be reduced from the full value of consideration while computing capital gains. CBDT notifies Rule 8AB for computation of sum attributable to capital asset u/s 48(iii). [Notification No. 76 of 2021 dated 2nd July, 2021.]

8. Insertion of Rule 8AC – Income-tax (19th Amendment) Rules, 2021 – CBDT has introduced Rule 8C to provide for computation of short-term capital gains and written down value of block of assets, where goodwill is a part of such block and depreciation has been obtained. [Notification No. 77 of 2021 dated 7th July, 2021.]

COMPANY LAW

I. COMPANIES ACT, 2013

(I) MCA clarifies that companies can conduct their EGMs via E-mode up to 31st December, 2021 – MCA has issued a clarification to allow companies to conduct their EGMs through VC / OVCM or transact items through postal ballot up to 31st December, 2021 in accordance with the framework provided in the various Circulars and subject to the conditions prescribed therein. [MCA General Circular No. 10/2021 dated 23rd June, 2021.]

(II) Companies (Accounting Standards) Rules, 2021 – The MCA notified the Companies (Accounting Standards) Rules, 2021. It applies to companies other than those preparing their financial statements using Ind AS framework. The Notification, effective 1st April, 2021, redefines a Small and Medium-Sized Company (SMC). The quantitative threshold limits to qualify as an SMC stand amended as follows: (a) turnover does not exceed Rs. 250 crores in the immediately preceding accounting year, and (b) borrowings, at any time during the immediately preceding year, do not exceed Rs. 50 crores. [MCA Notification dated 23rd June, 2021.]

(III) ICSI Guidance Note on CSR – The Institute of Company Secretaries of India has issued Guidance Note on Corporate Social Responsibilities. In this Guidance Note, provisions related to Business Responsibility Reports by Listed Companies, CSR in Insurance Companies, CSR in Banking Companies, CSR and Sustainable Development Goals, CSR and Corporate Governance, etc., have been elaborated in detail. [Published in June, 2021.]

(IV) MCA further extends due date for filing certain forms under the Companies Act and the LLP Act to 31st August, 2021 – Extension granted to companies / LLPs to file forms (other than a CHG-1 Form, CHG-4 Form and CHG-9 Form) which were / are due for filing from 1st April to 31st July, 2021 without any additional fees. [MCA General Circular No. 11/2021 dated 30th June, 2021.]

(V) MCA now allows companies to file charge-related forms without paying an additional fee up to 1st August, 2021 – In view of the Covid-19 pandemic, the MCA has decided to relax the timelines for filing of forms related to the creation / modification of charges. As a result, companies can file charge-related forms without paying an additional fee up to 1st August, 2021. [MCA General Circular No. 12/2021 dated 30th June, 2021.]

II. SEBI

(VI) SEBI introduces cross margin facility on commodity futures – In order to improve the efficiency of the use of the margin capital by market participants, SEBI has decided to introduce cross margin benefit between Commodity Index futures and futures of its underlying constituents or its variants. This shall reduce the cost of trading and may lead to enhanced liquidity in both the Commodity Index futures and its underlying constituent futures or its variants. [Circular No. SEBI/HO/CDMRD/CDMRD_DRM/P/CIR/2021/586, dated 29th June, 2021.]

(VII) SEBI issues SOP for company getting delisted through scheme of arrangement – SEBI has issued the Standard Operating Procedure (SOP) for listed subsidiary company desirous of getting delisted through a Scheme of Arrangement wherein the listed parent holding company and the listed subsidiary are in the same line of business. [Circular No. SEBI/HO/CFD/DIL1/CIR/P/2021/0585, dated 06th July, 2021.]

(VIII) Mutual Funds to provide justification to stakeholders if put option favourable to scheme is not exercised – Based on the recommendation of the Mutual Fund Advisory Committee, the SEBI has decided that, with effect from 1st October, 2021, if put option is not exercised by a Mutual Fund, and if exercising the put option would have been in favour of the scheme, then a justification for not exercising the put option shall be provided by the Mutual Fund to the Valuation Agencies (VA), Board of AMC and Trustees on or before the last date of notice period. [Circular No. SEBI/HO/IMD/DF4/P/CIR/2021/593, dated 09th July, 2021.]

(IX) SEBI reduces advance intimation timeline for modifications in commodity derivative contract – In order to bring in uniformity while giving effect to the contract modifications (so that they have the desired impact) and the modified contract represents a healthy replica of the physical market, SEBI has decided, in consultation with the stock exchanges, to reduce the number of days of advance intimation for all the three categories, i.e., non-material, material and material modifications which can be made only after approval from SEBI, to ten days. [Circular No. SEBI/HO/CDMRD_DOP/P/CIR/2021/592, dated 08th July, 2021.]

FEMA
(i) RBI has decided to collect information about LRS transactions in XBRL format instead of the Online Return Filing System (ORFS). Accordingly, AD Category – I banks shall upload the requisite information on the XBRL system on or before the fifth of the succeeding month from 1st July, 2021 onwards. [A.P. (DIR SERIES 2021-22) Circular No. 7, dated 17th June, 2021.]

(ii) Indian residents are permitted under LRS to make remittances to units set up in IFSCs in India for investment purposes since February 2021. For this purpose, Resident Individuals could also open a non-interest-bearing Foreign Currency Account (FCA) in IFSCs. The International Financial Services Centres Authority (IFSCA) has now amended regulations applicable to Banking Units in such IFSCs. Among other amendments, such Banking Units can now open accounts in a freely convertible foreign currency for individuals and corporate or institutional entities, resident in India or outside India, subject to such conditions as may be specified by the Authority. [Notification No. IFSCA/2021-22/GN/REG013, dated 5th July 2021.]

(iii) The Government had announced a hike in foreign investment limit for the Insurance Sector from 49% to 74% during the Budget on 1st February, 2021 and an appropriate Amendment Bill was passed into law (covered in the April, 2021 issue of this Journal) followed by formally notifying these amendments on 19th May, 2021 with Clarifications on the final rules for increasing the foreign direct investment limit to 74%. The FDI Policy for the same was also amended by the issuance of Press Note 2 of 2021 (covered in the July, 2021 issue of this Journal). The IRDAI has now amended regulations mandating requirement of Resident Indian Citizens at various management posts of Indian Insurance Companies having foreign investment. Further, there are disclosure and compliance requirements stated in respect of these new regulations. Full details are provided in the Notification. It should be noted that a corresponding amendment in the Non-Debt Instrument Rules, 2019 (NDI Rules) is pending after which the FDI amendments will take effect. [Notification No. F. No. IRDAI/REG/6/178/2021, dated 7th July, 2021.]

ICAI ANNOUNCEMENTS

A) Audit Quality Maturity Model – Version 1.0 (AQMM v1.0) – The ICAI has released AQMM v1.0, an evaluation matrix, as part of its capacity-building measure. The Evaluation Matrix is for sole proprietors and audit firms to help them self-evaluate their current level of audit maturity. The same would be recommendatory initially. Firms auditing the following entities are covered in AQMM v1.0: (i) a listed entity; or (ii) banks other than co-operative banks (except multi-state co-operative banks); or (iii) Insurance Companies. Firms doing only branch audits are not covered. [3rd July, 2021.]

ICAI MATERIAL
Accountancy and Audit
• Guidance Note on Accounting for Derivative Contracts (Revised, 2021) [6th July, 2021.]

Corporate Laws

Technical Guide on Incorporation of Foreign Companies in India [3rd July, 2021.]

Handbooks:

Resolution Plan under the Insolvency and Bankruptcy Code, 2016 [10th July, 2021.]

Personal Guarantors to Corporate Debtors under the Insolvency and Bankruptcy Code, 2016 [10th July, 2021.]

Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 [10th July, 2021.]

Moratorium under the Insolvency and Bankruptcy Code, 2016 [10th July, 2021.]

Valuation
Booklets:
•    Disclaimers, Limitations in a Valuation Report – Are they even Real? [3rd July, 2021.]
•    Is DCF the most Popular Method for Valuation under Companies Act? [3rd July, 2021.]
•    Is DCF the only Method for Valuation of Shares under Income-tax Act? [3rd July, 2021.]
•    Minority Holding Valuation: Often Unsatisfactory? [3rd July, 2021.]
•    Valuation Reports – Do’s and Don’ts – To what extent are they Followed? [3rd July, 2021.]
•    Valuation date, Valuation reports date and events between these dates [9th July, 2021.]
•    Valuation: Professional’s Insights (Series-6) [10th July, 2021.]

BCAJ Admin

CORPORATE LAW CORNER

9 Registrar of Companies, West Bengal vs. Goouksheer Farm Fresh (P) Ltd. and Another Company Appeal (AT) No. 127 of 2020 National Company Law Appellate Tribunal [(2021) 160 CLA 317 (NCLAT)] Date of order: 19th November, 2020

There is no provision under the Companies Act, 2013 that permits the Registrar of Companies to take on record the documents sought to be registered / filed without payment of requisite filing fee and / or payment of additional fees even if company is in ‘Corporate Insolvency Resolution Process’

FACTS

The Registrar of Companies, West Bengal (ROC), had struck off the name of the company, M/s G Private Limited, after complying with all the requirements of section 248 of the Companies Act, 2013 and the Companies (Removal of Names of Companies from Register of Companies) Rules, 2016.

The ‘Financial Creditor’ (M/s P Pvt. Ltd.) had filed an application u/s 7 of the Insolvency and Bankruptcy Code, 2016 against the Corporate Debtor, M/s G Pvt. Ltd. The application to initiate Corporate Insolvency Resolution Process against the Corporate Debtor was admitted on 13th December, 2019.

The NCLT, Kolkata Bench, through its order dated 22nd January, 2020, allowed restoration of the company with a direction to the ROC not to levy any fee / penalty on the company because of the fact that the company was in Corporate Insolvency Resolution Process.

The ROC preferred an instant appeal against the NCLT order contending that pursuant to section 403 (1) of the Companies Act, 2013, any document required to be filed under the Act shall be filed within the time prescribed in the relevant provisions on payment of such fee as may be prescribed. Further, it was contended that in view of the first proviso to section 403(1) of the Act, if any document, fact or information required to be submitted, filed, registered or recorded under sections 92 or 137 is not submitted, filed, registered or recorded within the period provided in those sections, without prejudice to any other legal action or liability under this Act, it may be submitted, filed, registered or recorded after the expiry of the period so provided in those sections on payment of such additional fee as may be prescribed, which shall not be less than Rs. 100 per day and different amounts may be prescribed for different classes of companies.

HELD

The NCLAT stated in its order that the Tribunal was empowered by Rule 11 of the National Company Law Tribunal Rules, 2016 to make such orders as may be necessary for meeting the ends of justice. However, it was to be pointed out that the same cannot be pressed into service when section 403(1) of the Companies Act, 2013 deals expressly with the fee for filing, etc., coupled with Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014. These provisions were regarded as in-built, self-contained and exhaustive ones, and viewed in that perspective, the invocation of Rule 11 of the NCLT Rules, 2016 was not needed.

Further, NCLAT observed that the direction issued by the NCLT to the ROC ‘not to levy any fee / penalty’ to the company because it was in Corporate Insolvency Resolution Process was legally untenable, especially in the absence of any express provisions under the Companies Act, 2013 and the relevant Rules for waiver of fees / penalty in respect of filing of documents required to be registered / filed under the Companies Act. Hence, the said direction was set aside to secure the ends of substantial justice.

10 Sandeep Agarwal and Another vs. Union of India and Another W.P. (C) 5490/2020 Source: Delhi High Court Official Website Date of order: 2nd September, 2020

The purpose and intent of the Companies Fresh Start Scheme, 2020 is to allow a fresh start for companies which have defaulted. For the Scheme to be effective, directors of these defaulting companies must be given an opportunity to avail the Scheme

FACTS

The petition was filed by Sandeep Agarwal and Muskoka Agarwal (collectively referred to as P), both of whom were directors in two companies, namely M/s KP Private Limited and M/s KPP Private Limited. The name of M/s KPP Private Limited was struck off from the Register of Companies on 30th June, 2017 due to non-filing of financial statements and annual returns. P, being directors of M/s KPP Private Limited, were also disqualified with effect from 1st November, 2016 for a period of five years till 31st October, 2021 u/s 164(2)(a) of the Companies Act, 2013. In view of their disqualification, their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) were also cancelled. Consequently, they were unable to carry on the business and file returns, etc., in the active company, M/s KP Private Limited.

Through the present petition, the disqualification was challenged and quashing was sought of the order disqualifying the directors.

HELD

The Delhi High Court observed that the Scheme provides an opportunity to put their affairs in order for active companies that may have defaulted in filing of documents. It thus provides directors of such companies a fresh cause of action to challenge their disqualification qua the active companies. In the present case, the relief was sought by the directors of two companies, one whose name was struck off and one which was still active. In such a situation, the disqualification and cancellation of DINs was a severe impediment for them in availing remedies under the Scheme in respect of the active company. The purpose and intent of the Scheme was to allow a fresh start for companies which have defaulted. The Scheme can be effective if its directors are given an opportunity to avail of it.

It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail their DINs and DSCs could render the Scheme itself nugatory as its launch constitutes a fresh and continuing cause of action.

Thus, in order to enable P to continue the business of the active company, M/s KP Private Limited, the Court directed MCA to set aside the disqualification of P as directors. The DINs and DSCs of P were also directed to be re-activated within a period of three working days from the date of the order.

11 Medeor Hospitals Ltd. vs. Registrar of Companies, Delhi Company Appeal No. 394 of 2018 National Company Law Appellate Tribunal [(2020) 156 CLA 129 (NCLAT)]
Date of order: 29th January, 2020

Where application for conversion of public limited company into a private limited company has complied with the requisite conditions for conversion, the application has to be approved

FACTS

M/s M Limited was incorporated on 4th August, 2004 under the Companies Act, 1956 as a public limited company and was a wholly-owned subsidiary of M/s V Private Limited, having eight equity shareholders. While the holding company M/s. V Private Limited was holding almost 100 % of the issued share capital, seven other shareholders were holding one share each on behalf of M/s V Private Limited.

A petition was filed before the NCLT for conversion of the company into a private limited company. The Delhi Bench of the NCLT by its order of 28th August, 2018, observed that the petition was filed three months after the date of passing of the Special Resolution. In the notice for the EGM, no reasons had been assigned for giving a shorter notice. It was further observed by the NCLT that on 17th October, 2016, the statutory auditor had resigned and on the same day, a new auditor M/s DY & Co. was appointed. It was noticed that the new auditor signed the balance sheet on the same day. This raised a doubt as to how the new auditor could have conducted the audit in one day. Further, two independent directors resigned after the passing of the resolution for conversion and this fact was not mentioned in the petition. It was also found that the claims of two objectors, namely, Mr. PS and Mr. RS and E&Y LLP were pending before the Arbitral Tribunal. During such pendency it would not be appropriate to permit conversion of the company from public to private limited. In view of these shortcomings, the NCLT rejected the petition. M/s M Limited, being aggrieved with this order of the NCLT, filed the present appeal.

HELD

* NCLAT considered the issue of limitation referring to Rule 68(1) of the NCLT Rules, 2016 which provide that a petition u/s 14(1) of the Companies Act, 2013 for conversion of a public company into a private company shall, not less than three months from the date of the passing of the special resolution, be filed with the Tribunal in Form No. NCLT-1. This means that such petition shall be filed after three months from the date of passing of the special resolution. Thus, the petition was well within the limitation.

* The board resolution of the holding company dated 17th June, 2017 mentioned that written consent of shareholders was obtained for shorter notice for the resolution dated 14th August, 2017. No illegality or irregularity in passing the resolution dated 14th August, 2017 was found by the NCLAT.

* M/s M Limited, vide its appointment letter dated 2nd September, 2016, appointed M/s DY & Co. tax auditor and, after the appointment, M/s DY & Co had reviewed and signed the financial statements for the F.Y. 2015-16. In such circumstances the explanation given by M/s M Limited was satisfactory as to how M/s DY & Co. had signed the financial statements for the year
2015-16.

* NCLAT further considered the submission of M/s M Limited that it was a wholly-owned subsidiary and unlisted public company. Therefore, in view of sub-rule (1) of Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, appointment of at least two independent directors was not applicable. Hence, non-disclosure of the resignation of two independent directors would not affect the merit of the petition in any manner.

* M/s M Limited also placed on record the ‘No dues certificates’ obtained from all creditors (except the dispute between E&Y and M/s M Limited as it was pending before the Arbitral Tribunal), hence, the conversion of M/s M Limited shall not affect the responsibility and liabilities of M/s M Limited.

The NCLAT thus noted that M/s M Limited had fulfilled all the conditions for conversion and the shortcomings pointed out by the NCLT were inconsequential. Therefore, the NCLAT set aside the order and approved the special resolution dated 14th August, 2017 for conversion of M/s M Limited from public to private company.

12 R. Narayanasamy vs. The Registrar of Companies, Tamil Nadu Company Appeal (AT) No. 171 of 2020 Source: NCLAT Official Website Date of order: 19th January, 2021

Divergent views on disposal of the appeal pertaining to striking off of the name of company after following necessary procedure u/s 248 of the Companies Act, 2013

FACTS

This appeal was filed against the order dated 5th May, 2020 passed by the NCLT, Chennai dismissing the appeal u/s 252(3) of the Companies Act, 2013 for restoration of the name of the company ‘M/s Shri L S Pvt. Ltd.’ which was struck off by the ROC after following the necessary procedure u/s 248 of the Companies Act, 2013. R N, who was the Managing Director of the company, claimed that non-filing of annual returns and filing statements was due to absence of expert professional guidance. Further, the striking off was prejudicial to the interest of the company and that returns were not filed out of ignorance and inadvertence.

HELD

The members of the NCLAT Bench delivered divergent judgments on analysing the law as it was existing, on the basis of what is ‘just’ u/s 252(3) of the Companies Act. Thereafter, it was placed before a third member. This third member of the NCLAT observed that section 252 provides for relief to aggrieved parties when the Registrar notifies a company as dissolved u/s 248 of the Companies Act, 2013.

The name of the company was required to be restored if the NCLT
* was satisfied that the company, at the time of its name being struck off, carried out any business or operation,
OR
* otherwise it was ‘just’ that the name of the company be restored to the register of companies.

In the present matter, the admitted fact was that when the name of the company was struck off, it was not functional and was not carrying on business or operations for more than two years immediately preceding the financial year and thus attracted section 248(1)(c) of the Companies Act, 2013. When the question of law has neither been framed nor referred, and it appeared from the judgments that the two Hon’ble Members had divergent views, on the basis of facts the appeal should be dismissed by not interfering with the dismissal order passed by the NCLT.

13 The Canning Industries Cochin Ltd. vs. Securities and Exchange Board of India (SEBI) Company Appeal (AT) No. 115 of 2019 Source: The Securities Appellate Tribunal Official Website Date of order: 28th January, 2020

Whether the issue of unsecured fully convertible debentures (‘FCDs’) by an unlisted public company is rights offer or public offer, or an offer that violates the provisions of private placement of securities under the Companies Act, 2013

FACTS

M/s CIC Ltd., an unlisted public company, passed a special resolution under sections 62(3) and 71 of the Companies Act, 2013 to issue 1,92,900 unsecured fully convertible debentures (FCDs) to its 1,929 shareholders, with a condition that there would exist no right to renounce the offer to any other person. However, only 335 shareholders subscribed to the offering. Consequently, one disgruntled shareholder filed a complaint before SEBI and the NCLT alleging that the company had made a public issue of securities without complying with the applicable provisions of the Companies Act, 2013.

On 18th March, 2019, SEBI passed an order which held that the offer of FCDs made by the company was a ‘deemed public issue’ u/s 42(4) of the Companies Act, 2013 read with Rule 14(2) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, as the offer was made to more than 200 shareholders and, hence, directed the company to comply with the prescribed provisions of ‘public issue’ in the Act.

Aggrieved by the order, M/s CIC Ltd. appealed before the Securities Appellate Tribunal (SAT) and contended that the issuance of FCDs was neither a rights issue (as the issue was not made on a proportionate basis), nor was it a private placement and that the issue falls u/s 62(3) of the Companies Act, 2013 which had not been considered by SEBI.

HELD

SAT held that a rights issue of FCDs was not a ‘private placement’ of securities as the offer of shares to the company’s shareholders cannot be termed as an offer to a ‘select group of persons’. The expression ‘select group of persons’ means ‘an offer made privately such as to friends and relatives or a selected set of customers distinguished from approaching the general public or to a section of the public by advertisement, circular or prospectus addressed to the public’. Hence, the restriction of subscription of shares to 200 persons or more in the case of private placement of securities envisaged u/s 42 of the Companies Act, 2013 was not applicable in the instant case.

Further, section 62(3) was fully applicable as M/s CIC Ltd. had duly complied with it by passing the special resolution; thus, issuance of FCDs by M/s CIC Ltd. cannot be termed as a public issue or a private placement. Hence, a company issuing FCDs is not mandated to comply with any additional requirement of public issue or private placement specified under sections 23 and 42 of the Companies Act, 2013, respectively.

In light of the aforesaid, the order passed by the whole-time Member cannot be sustained. The interim order as well as the order and the directions so issued were all quashed and thus the appeal was allowed.

14 Hytone Merchants Pvt. Ltd. vs. Satabadi Investment Consultants Pvt. Ltd. Company Appeal (AT) (Insolvency) No. 258 of 2021

CASE NOTE
1. NCLAT confirmed rejection of the insolvency application even when the same was complete in all respects on the ground of collusion between the applicant creditor and the respondent corporate debtor.
2. Quantum of default was very meagre in comparison to the net worth of the corporate debtor.
3. The corporate debtor had made substantial investments in companies which were under insolvency and also extended corporate guarantee.

The brief facts of the case are as follows:

(a) Corporate debtor (‘company’) had accepted loan of Rs. 3 lakhs from the financial creditor @ 15% pa.
b) The company accepted the loan default and also acknowledged the debt.
c) The company was also the guarantor for two other companies which were under insolvency and liquidation.
The application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the financial creditor. NCLT rejected the application even after concluding that the application was complete in all respects and the default and debt existed.

The creditor argued that the NCLT has no jurisdiction to go beyond the completeness of the application. It only has to see the completeness of the application along with the existence of debt and default.

NCLAT, after going through the submissions, confirmed the NCLT order. It observed that NCLT has rightly rejected the application and is correct in lifting the corporate veil.

The corporate debtor had stood as corporate guarantor for two companies which were under insolvency and one had even gone under liquidation. The value of the corporate guarantee given by the corporate debtor amounted to Rs. 482 crores while the net worth of the company was Rs. 15 crores. It appeared to the Tribunal that the acknowledgement of debt and acceptance of default was collusive. The defaulted debt of Rs. 3 lakhs was a meagre amount in comparison to the net worth of the company.

The Tribunal also observed that the Court has to see the persons behind the company to come to a conclusion whether the insolvency is proposed to be initiated in a collusive manner. It relied on the Supreme Court judgment in Swiss Ribbons vs. Union of India wherein the Court had held that the insolvency application can be rejected and also cost can be imposed u/s 65 of the IBC. This is a safeguard against fraudulent or malicious initiation of insolvency proceedings.

This judgment has clarified that the insolvency proceedings are not mere compliance proceedings. The Tribunal has seen the real intent of the parties and the IB Code. The object of the Code is to resolve the insolvent companies and in the interest of all stakeholders.

BCAJ Admin

ALLIED LAWS

18 Arun Kedia (HUF) vs. Runwal Homes (P) Ltd. Consumer Case No. 1115 of 2017 (NCDRC)(Del) Date of order: 24th June, 2021 Bench: Ram Surat Ram Maurya J. and Mr. C. Vishwanath

Consumer Protection – Builder cancels sale agreement – Without consent – Not handing over timely possession – Interest levied [Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963, S. 8]

FACTS

A registered agreement for sale was executed between the complainant and the builders on 5th June, 2013. Clause 17 of the agreement provided that the builder would give possession of the premises to the purchasers by March, 2016.

The complainants received a demand letter dated 12th September, 2016 on 13th September, 2016 but as no date of delivery of possession was mentioned, they did not deposit the amount demanded in it, rather, they requested for handing over of possession of the flat allotted to them. They were not allowed to go to the site to verify the progress under construction, although 85% of the sale consideration was paid. The directors and officers of the builder assured that they need not worry and that the possession would be given to them within a short time.

When the builder neglected to give possession of the flat allotted to them, they served a registered notice on the builders on 15th March, 2017 for handing over the possession of the flat. The builders, through a letter dated 15th March, 2017 (served on 20th March, 2017) unilaterally cancelled the agreement dated 5th June, 2013, mentioning therein that in spite of the demand letter dated 12th September, 2016, they had not deposited the instalment as stated in the agreement. The complainants gave registered notices dated 23rd March, 2017 and 4th April, 2017 to the builders, asking them to withdraw their letter dated 15th March, 2017 cancelling the agreement dated 5th June, 2013, and to hand over possession of the flat allotted to them. Since the notices have not been complied with, the present complaint was filed on 18th April, 2017 by the complainants.

HELD

It is admitted by the builders and also mentioned in the agreement that the Maharashtra Ownership of Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 is applicable. According to section 8 of the said Act, if the builder is not able to hand over the possession of the building / flat within the time specified in the agreement, then the builder is liable to pay interest for the period for which the possession has not been handed over. The builders had failed to complete the construction and hand over possession of the flat in March, 2016 as agreed. Due to the latches on the part of the builders, the complainants are suffering loss. The agreement for sale has been cancelled illegally and the complainants are forced to opt for litigation. The Builders shall pay simple interest at 6% p.a. to the complainants on the amount deposited by them from the due date of possession to the offer of possession after obtaining the occupancy certificate.

19 Compack Enterprises India (P) Ltd. vs. Beant Singh (2021) 3 SCC 702 (SC) Date of order: 17th February, 2021 Bench: Mohan M. Shantanagoudar J. and Vineet Saran J.

Consent decree – No estoppel – Compromise arrived by fraud, misrepresentation or mistake [Code of Civil Procedure, 1908, Or. XII, R. 6]

FACTS
On a dispute arising on account of mesne profits, the Court had passed a consent decree directing that the petitioner shall pay to the respondent (owner of the property), by way of mesne profits, an enhanced sum of Rs.1,00,000 p.m., with a 10% increase every 12 months, i.e., from 1st October, 2009, 1st October, 2011 and so on, till the date the petitioner hands over actual possession of the suit property measuring 5,472 sq. ft. to the respondent.

The petitioner filed a review petition against the consent terms, contending that the High Court had erred in recording the terms of the consent decree agreed to by the petitioner. It contended that the judgment records that the mesne profits be increased by 10% every 12 months, instead of recording a 10% increase every 24 months and that the petitioner was in possession of only 2,200 sq. ft. The review petition was rejected.

HELD
The Court, inter alia, relied on the decision in the case of Byram Pestonji Gariwala vs. Union Bank of India & Ors., (1992) 1 SCC 31, wherein it was held that a consent decree would not serve as an estoppel where the compromise was vitiated by fraud, misrepresentation or mistake. In the exercise of its inherent powers, the Court may also unilaterally rectify a consent decree suffering from clerical or arithmetical errors, so as to make it conform to the terms of the compromise.

The Court observed that the learned Judge of the High Court, in noting that the figure of mesne profits of Rs. 1 lakh will be increased by 10% after every 12 months, i.e., from 1st October, 2009, 1st October, 2011 and so on, (emphasis supplied), has confused not only himself but also the parties to the litigation. Referring to the final decree by the Trial Court awarding a 10% increase only every alternate year and the original terms of the license agreement between the parties, the period of 12 months in the consent decree was rectified to 24 months by the Court. The plea of the petitioner that he was in possession of only 2,200 sq. ft. and not 5,472 sq. ft. was rejected.

20 Trustees of H.C. Dhanda Trust vs. State of M.P. (2020) 9 SCC 510 (SC) Date of order: 17th September, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy J. and M.R. Shah J.

Stamp Act – Imposition of penalty – Ten times of duty deficit – Exercise of discretion – Cannot be imposed normally [Indian Stamp Act, 1899, Ss. 33, 35, 38, 39 and 40]

FACTS
A resolution was passed by the executors / trustees under the will of Late Shri Harish Chand Dhanda to transfer and vest the area to the beneficiaries. On 21st April, 2005, a Deed of Assent was executed between M/s H.C. Dhanda Trust, a private trust, as one part and Jogesh Dhanda and others as the other part. By this Deed of Assent, the trustees / executors gave assent to complete the title of the legatees and vest two properties absolutely and forever in their favour.

A notice was issued by the Collector of Stamps, District Indore, stating that proper stamp duty has not been paid on the Deed of Assent dated 21st April, 2005. The notice further stated that there was a deficit stamp duty on the said document and asked why ten times penalty should not be imposed. The Trust appeared before the Collector of Stamps and filed its objection. The Collector holding the Deed of Assent as a gift deed held that the deficit duty was Rs. 1,28,09,700. He imposed penalty ten times the deficit duty. The Trustees challenged the order of the Collector imposing the penalty.

HELD
The legislative intent is clear from a reading of sections 33, 35, 38 and 39 of the Indian Stamp Act, 1899. It indicates that with respect to the instrument not duly stamped, ten times penalty is not always retained and the power can be exercised u/s 39 to reduce penalty and in regard to that there is a statutory discretion with the Collector to refund the penalty.

The purpose of penalty generally is a deterrence and not retribution. When a discretion is given to a public authority, such public authority should exercise such discretion reasonably and not in an oppressive manner. The responsibility to exercise the discretion in a reasonable manner lies more in cases where discretion vested by the statute is unfettered. Imposition of the extreme penalty, i.e., ten times the duty or deficient portion thereof, cannot be based on the mere factum of evasion of duty. Reasons such as fraud or deceit in order to deprive the Revenue or undue enrichment are relevant factors to arrive at a decision as to what should be the extent of penalty u/s 40(1)(b). The penalty was reduced to five times the duty deficit.

21 Daulat Singh (D) Thr. LRS. vs. The State of Rajasthan (2021) 3 SCC 459 (SC) Date of order: 21st May, 2021 Bench: N.V. Ramana J., S. Abdul Nazeer J. and Surya Kant J.

Gift – Immovable property – Acceptance criterion [Transfer of Property Act, 1882, Ss. 122 and 123]

FACTS

The appellant was the owner of 254.2 bighas of land. On 19th December, 1963, he gifted away 127.1 bighas to his son. After the said transfer, the appellant was left with 17.25 standard acres of land, which was below the prescribed limit under the Ceiling Act.

Although proceedings were initiated under the Ceiling Act, the same were dropped on 15th April, 1972 by the Court of the Deputy Sub-Divisional Officer, Pali, Rajasthan. However, by a notice dated 15th March, 1982, the Revenue Ceiling Department reopened the case of the appellant.

The Court of the Additional District Collector, Pali vide order dated 28th October, 1988, declared that the mutation of the land done in favour of the son of the appellant was invalid as there was no acceptance of the gift. It was declared therein that the appellant was holding 11 standard acres of extra land over and above the ceiling limit. The Collector, therefore, directed the appellant to hand over vacant possession of the aforesaid 11 standard acres of extra land to the Tahsildar, Pali.

HELD

The Court, inter alia, on the issue of validity of the gift deed held that section 122 of the Transfer of Property Act, 1882 (TOPA) neither defines acceptance, nor does it prescribe any particular mode for accepting the gift. The word acceptance is defined as ‘is the receipt of a thing offered by another with an intention to retain it, as acceptance of a gift.’ The only requirement stipulated under TOPA is that the acceptance of the gift must be effected during the lifetime of the donor.

Gifts do not contemplate payment of any consideration or compensation. It is, however, beyond any doubt or dispute that in order to constitute a valid gift, acceptance thereof is essential. The document may be handed over to a donee, which in a given situation may also amount to a valid acceptance. The Court held that the fact that possession had been given to the donee also raises a presumption of acceptance. The Court referred to the statement made by the son – the donee – before the Court of the Additional District Magistrate stating that the land transferred to him by virtue of the gift deed was under his possession and he was cultivating the same. The gift was held to be a valid gift.

22 UOI & Ors. vs. Vishnu Aroma Pouching Pvt. Ltd. & Anr. SLP (C) Diary No. 1434 of 2021 (SC) Date of order: 29th June, 2021 Bench: Sanjay Kishan Kaul J. and Krishna Murari J.

Delay in filing appeal – Not justified – Cost imposed – SLP dismissed

FACTS

The Department filed an application for condonation of delay. It was stated in the application that the judgment was pronounced on 14th November, 2019. But the proposal for filing the Special Leave Petition was sent after almost six months, on 20th May, 2020, and it took another three months to decide whether or not to file the Special Leave Petition.

HELD

Such lethargy on the part of the Revenue Department with so much computerisation having been achieved is no longer acceptable. The application shows the casual manner in which the petitioner has approached this Court without any cogent or plausible ground for condonation of delay. In fact, other than the lethargy and incompetence of the petitioner, there is nothing which has been put on record. The leeway which was given to the Government / public authorities on account of innate inefficiencies was the result of certain orders of this Court that came at a time when technology had not advanced and, thus, greater indulgence was shown.

Cases of this kind were ‘certificate cases’ filed only with the objective to obtain a quietus from the Supreme Court on the ground that nothing could be done because the highest Court had dismissed the appeal. The objective was to complete a mere formality and save the skin of the officers who may be in default in following the due process, or may have done it deliberately. Looking to the period of delay and the casual manner in which the application had been worded, the Court considered it appropriate to impose costs on the petitioner(s) of Rs. 25,000 for wastage of judicial time which has its own value. The Special Leave Petition was dismissed as time-barred. A copy of the order was ordered to be placed before the Secretary, Ministry of Finance, Department of Revenue.

BCAJ Admin

Service Tax

I. TRIBUNAL

23 Commissioner of Service Tax vs. Intas Pharmaceuticals [2021-TIOL-367-CESTAT-Mum] Date of order: 25th June, 2021

Notice pay received from the employee being in the nature of compensation for premature termination of service not liable to service tax

FACTS

The contractual agreement between the company and its employees is that the employee should not leave the employment before the prescribed period. In case of breach of this condition, he would be required to pay one month’s salary which is penal in nature. A show cause notice is issued demanding service tax on the amounts received by the company from its employees alleging toleration of act of breach of contract taxable as a declared service u/s 66E(e) of the Finance Act, 1994.

HELD

The Tribunal relied on the decision of the Madras High Court in the case of GE T&D India Pvt. Ltd. [2020] (35) GSTL 89 (Mad) where the Court categorically holds that the definition in clause (e) of section 66E is not attracted as the employer has not ‘tolerated’ any act of the employee but has permitted a sudden exit upon being compensated by the employee in this regard. Notice pay, in lieu of sudden termination, does not give rise to the rendition of service either by the employer or the employee. Accordingly, the demand was set aside.

24 M/s PVR Ltd. vs. Commissioner of Service Tax [2021-TIOL-368-CESTAT-Del] Date of order: 5th July, 2021

Booking of online tickets and charge of convenience fees is in the nature of E-commerce transaction not taxable under OIDAR services

FACTS

The issue involved in these two appeals relates to taxability of ‘convenience fee’ charged by the appellant to its customers for online booking of movie tickets under the category of ‘online information and database access retrieval system (OIDAR)’ defined u/s 65(75) of the Finance Act and taxable u/s 65(105)(zh) of the Finance Act.

HELD

The Tribunal noted that any person who visits the website of the appellant to seek information about the show timings or other information does not have to make any payment and it is only when a ticket is booked online that convenience fee is required to be paid by the user. The substance of the transaction is, therefore, to book a ticket online and thereby engage in E-commerce. Therefore, it cannot be said that convenience fee is charged for any access / retrieval of information or database as contemplated under OIDAR service. It is also noted that the Board Circular dated 9th July, 2001 also clarifies that E-commerce transactions do not fall within the ambit of OIDAR service. Thus, service tax under the category of OIDAR cannot be levied upon a user merely because he receives a code for getting a printout of the ticket from the cinema hall.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

18 M/s F1 Auto Components Pvt. Ltd. vs. The State Tax Officer [2021-TIOL-1509-HC-Mad-GST] Date of order: 9th July, 2021

Interest is payable only on the net cash liability and provisions of section 42 are attracted only in a case of mismatch in input tax credit and not in a case where a wrong credit is availed

FACTS

The challenge is to the order dated 27th January, 2021 levying interest u/s 50 of the CGST Act, 2017 relating to both interest on cash remittances as well as remittances by way of adjustment of electronic credit register.

HELD

The Tribunal noted that with respect to the second limb of the transaction, it is covered by the decision in the case of Maansarovar Motors Private Limited 2020-TIOL-1846-HC-Mad-GST wherein it is clearly held that interest can be levied only on the net cash liability. The Tribunal further held that the provisions of section 42 can only be invoked in a situation where the mismatch is on account of an error in the database of the Revenue or a mistake that has been occasioned at the end of the Revenue. In a case where the claim of input tax credit (ITC) is erroneous, then the question of applying section 42 does not arise at all, since it is not a case of mismatch but one of wrongful claim of credit. The levy of interest on belated cash remittance is compensatory and mandatory and the levy is upheld to this extent.

19 Greenwood Owners Association vs. The Union of India [2021-TIOL-1505-HC-Mad-GST] Date of order: 1st July, 2021

Maintenance charges collected from members of the Association will be taxable only to the extent contribution exceeds Rs. 7,500

FACTS

The applicants sought a ruling from the Advance Ruling Authority as to whether they are liable to pay GST only on the amount in excess of Rs. 7,500 collected as monthly maintenance charges from the members of the Association or on the entire amount. The Authority held that in the event the charges or share of contribution goes above Rs. 7,500 per month, such service will not be exempt. Since the share of contribution by members is above Rs. 7,500 per month, the exemption is not available and GST at appropriate rates is to be charged on the full amount of share of contribution.

Aggrieved by the said order, a writ petition was filed before the Madras High Court. The Bench noted that the term ‘up to’ employed in the Notification is heavily relied upon by the petitioners to contend that only the amount in excess of Rs. 7,500 is liable for the tax and not the whole amount collected. The CBIC e-flyer explaining that GST would be applicable only on the amount in excess of Rs. 5,000 (as the exemption then stood till 24th January, 2018) is relied upon. The petitioners challenge Circular No. 109/28/2019-GST dated 22nd July, 2019 wherein it was clarified that in case the maintenance charges exceeded Rs. 7,500 per month per member, the GST is payable on the entire amount and is not limited to the excess amount only.

HELD

The Court noted that Entry No. 77 of Notification 12/2017-Central Tax (Rate) uses the term ‘up to’ an amount of Rs. 7,500 which can only be interpreted to state that any contribution in excess of the same would be liable to tax. The term ‘up to’ hardly needs to be defined and connotes an upper limit. The intendment of the exemption entry in question is simply to exempt contributions till a certain specified limit. The clarification by the GST Department even as early as in 2017 has taken the correct view. Thus, the conclusion of the AAR as well as Circular No. 109/28/2019-GST dated 22nd July, 2019 to the effect that any contribution above Rs. 7,500 would disentitle the exemption, is contrary to the express language of the Entry in question and both stand quashed. Only the contribution above Rs. 7,500 will be taxable.

20 D.Y. Beathel Enterprises vs. State Tax Officer [(2021) 127 taxmann.com 80 (Mad)] Date of order: 24th February, 2021

Where assessee purchased goods through registered dealers and substantial portion of sale consideration was paid through banking channels, Revenue could not reverse ITC availed by assessee for failure of seller to deposit tax on such supply without examining seller and initiating recovery proceeding against seller

FACTS
The petitioners are traders and they had purchased goods from a supplier. A substantial portion of the sale consideration was paid only through banking channels. The payments made to the said supplier included the tax component. Based on the returns filed by the sellers, the petitioners availed ITC. Later, during inspection it came to light that the supplier did not pay any tax to the Government. The respondent issued show cause notices to the petitioners. They submitted their replies specifically taking the stand that all the amounts payable by them had been paid to the said suppliers. Unfortunately, without involving the defaulting suppliers, the impugned orders came to be passed levying the entire liability on the petitioners herein. The said orders are under challenge in these writ petitions.

HELD
The Court noted that no inquiry has been initiated against the defaulting supplier. When it has come out that the supplier has collected tax from the petitioner, the omission on the part of the supplier to remit the tax in question should have been viewed very seriously and strict action ought to have been initiated against him. Further, when there are allegations that the credit is availed without receipt of goods then it is necessary that such suppliers be confronted. Thus, the Court held that the impugned orders suffer from certain fundamental flaws and have to be quashed for more reasons than one. The Court also gave specific instructions that the supplier be examined and recovery action in parallel be initiated against the supplier as well.

21 ARS Steels & Alloy International (P) Ltd. vs. State Tax Officer [(2021) 127 taxmann.com 787 (Mad)] Date of order: 24th June, 2021

A loss that is occasioned by consumption in the process of manufacture is not covered u/s 17(5)(h) of the CGST Act warranting reversal of ITC

FACTS

The petitioners are engaged in the manufacture of MS billets and ingots. MS scrap is an input in the manufacture of MS billets and the latter, in turn, constitute an input for manufacture of TMT / CTD bars. There is a loss of a small portion of the inputs, inherent to the manufacturing process. The Department sought to reverse a portion of the credit claimed by the petitioners, proportionate to the loss of the input, referring to the provisions of section 17(5)(h) of the GST Act.

HELD

The Court held that section 17(5)(h) deals with goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Hence, the loss that is occasioned by the process of manufacture cannot be equated to any of the instances set out in clause (h). It further held that the situations as set out in clause (h) indicate loss of inputs that are quantifiable and involve external factors or compulsions.

A loss that is occasioned by consumption in the process of manufacture is one which is inherent to the process of manufacture itself. The Court also relied upon the decision in the case of Rupa & Co. Ltd. vs. CESTAT, Chennai [2015 (324) ELT 295] in support of its conclusion.

22 Bangalore Turf Club Ltd. vs. State of Karnataka [(2021) 127 taxmann.com 619 (Karn)] Date of order: 2nd June, 2021

Rule 31A(3) of the CGST Rules, insofar as it declares that the value of actionable claim in the form of chance to win in a horse race of a race club to be 100% of the face value of the bet, is beyond the scope of the Act as the totalisator does not indulge in betting, i.e., (the) business of a race club for the purposes of the Act but only earns commission, and also for the reason that activity of the petitioners being a game of skill and not a game of chance

FACTS

The petitioners challenged the legislative intent of making the petitioners liable to pay GST on the entire bet amount received by the totalisator and declare the amendments dated 25th January, 2018 which inserted Rule 31A(3) to the CGST Rules as being ultra vires the CGST Act.

HELD

Referring to the decisions of the Supreme Court in the cases of Govinda Saran vs. Commissioner of Sales Tax (1985 Supp. SCC 205), Mathuram Aggarwal vs. State of Madhya Pradesh [(1998) 8 SCC 667] and State of Rajasthan vs. Rajasthan Chemists Association [(2006) 6 SCC 773], the Court reiterated the principle that the measure to which the rate of tax is to be applied to a taxable person must have a nexus to the taxable event and not de hors it. The Court thereafter noted that the activity of the petitioners is required to be noticed to consider whether the petitioners are liable to pay tax on 100% of the face value of the bet or only on the commission that they receive out of the amount received in the totalisator. The word ‘totalisator’ ordinarily means a system of betting on horse races in which the aggregate stake, less an administration charge and tax, is paid out to winners in proportion to their stakes.

Further, referring to the decisions of English courts and the Supreme Court, the Court held that ‘totalisator’ has been interpreted to mean a fixed commission which is earned irrespective of the outcome of the race and cannot be seen to be indulging in a betting activity. Accordingly, the Court held that a totalisator does not indulge in betting, i.e., the business of a race club for the purposes of the Act. It holds the amount received in the totalisator for a brief period in its fiduciary capacity. Rule 31A(3) completely wipes out the distinction between the bookmakers and a totalisator by making the petitioners liable to pay tax on 100% of the bet value. It is the bookmakers who indulge in betting and receiving consideration depending on the outcome of the race, irrespective of the result. In contrast, the race club provides totalisator service and receives commission for providing such service. Therefore, there is no supply of goods / bets by the petitioners as defined under the Act. The Court therefore observed that the impugned Rule makes the petitioners a ‘supplier’ of bets which the petitioners do not do and are not the supplier of bets and, therefore, cannot be held liable to pay tax under the Act because the service or supply that the petitioners do is only a totalisator component.

Relying upon the decision of the Apex Court in Dr. K.R. Lakshmanan vs. State of T.N. and Another [(1996) 2 SCC 226], the Court held that activities of horse racing are not gambling but are gaming and a game of skill. Adverting to the definition of ‘consideration’ u/s 2(31) of the CGST Act, the Court further held that the consideration that the petitioners receive for supply of service of the totalisator is only the commission. Therefore, the consideration component of supply is also not specified by the impugned Rule which directs payment of tax on the whole bet amount. The Court accordingly held that sub-rule (3) declares the value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be at 100% face value of the bet, or the amount paid into the totalisator. Therefore, the act which deals with supply of goods, consideration, business would not apply to the function of the totalisator.

Making the entire bet amount that is received by the totalisator liable for payment of GST would take away the principle that a tax can be only based on consideration even under the CGST. The consideration that the petitioners receive is by way of commission for planting a totalisator. This can’t be different from that of a stockbroker or a travel agent, both of whom are liable to pay GST only on the income – commission that they earn and not on all the monies that pass through them. Therefore, Rule 31A(3) insofar as it declares that the value of actionable claim in the form of chance to win in a horse race of a race club to be 100% of the face value of the bet, is beyond the scope of the Act.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

Waiver of penalty – Notification No. 28/2021-Central Tax dated 30th June, 2021

The Government has introduced the system of QR code vide Notification No. 14/2020-Central Tax dated 21st March, 2020. For non-compliance, penalty u/s 125 can be attracted. Vide the above Notification, waiver of penalty is provided if such non-compliance is in the period from 1st December, 2020 to 30th September, 2021.

CIRCULARS
Clarification in respect of applicability of Dynamic Quick Response (QR) Code on B2C invoices and compliances of Notification No. 14/2020-Central Tax dated 21st March, 2020 – Circular No. 156/12/2021-GST dated 21st June, 2021

The CBIC has issued the above Circular clarifying various aspects relating to QR code requirements. The issues clarified are about the requirement of QR code on invoices issued to a UIN holder, inclusion of bank details in QR code, QR code in respect of services provided to parties located outside India but place of supply is considered in India, QR code for sales over the counter, QR code in respect of payments received by voucher, etc.

Clarification regarding extension of limitation under GST law in terms of Supreme Court’s order dated 27th April, 2021 – Circular No. 157/13/2021-GST dated 20th July, 2021

This Circular clarifies certain issues regarding cognizance for extension of limitation in terms of the Supreme Court order dated 27th April, 2021 in Miscellaneous Application No. 665/2021 in SMW(C) No. 3/2020 under the GST law. In its detailed Circular, the CBIC has divided various actions / compliances under GST into three broad categories and stated that the extension of timelines granted by the Supreme Court is applicable in respect of any appeal which is required to be filed before the Joint / Additional Commissioner (Appeals), Commissioner (Appeals), Appellate Authority for Advance Ruling, Tribunal and various courts against any quasi-judicial order or where proceedings for revision or rectification of any order are required to be undertaken, and is not applicable to any other proceedings under GST Laws.

ADVANCE RULINGS
1. Classification – ‘Track Assembly’ for ‘Automotive Seating System’
M/s Daebu Automotive Seat India Ltd. (GST ARA-01, Application No. 5/2021/ARA dated 1st March, 2021 (TN AAR)

The issue involved in this Advance Ruling application (AR) was about classification of Track Assembly. The applicant is engaged in the business of manufacture of seat components / accessories which are used in the manufacture of four-wheelers.

The applicant has given particulars of the product, i.e., track assembly, with their views regarding classification. The same are reproduced in the AR as under:

‘3.3 On the write-up of the functions of the product, they have stated that:
(i) This track assembly is fitted on to the floor of the car. Essentially, it enables the movement forward and backward of the seat. When seats are fixed on this track assembly, they can slide back and forth with the operation of a lever for varying the positions of the seats, which is basically intended to improve the comfort and efficiency of the persons sitting thereon. This mechanism enables the passengers and drivers of the automobile to adjust seat positions for their comfort and convenience. Thus, the track assembly manufactured and supplied by them is an adjunct to the car seat.
(ii) They do not qualify to become parts of the seats as enunciated in the decision cited, viz., AAR Ruling GUJ/GAARJR/42/2020 dated 30th July, 2020 – 2021-VIL-15-AAR and the decision of the Supreme Court in the case of Commissioner C. Ex., Delhi vs. Insulation Electrical (P) Ltd. reported in 2008 (224) ELT 0512 (SC).
(iii) Car seats would be complete themselves without these mechanisms. Hence, track assembly mechanisms independently could not be called as parts of seats falling under HSN 94019000, whereas, they could at best be identified as accessories to the seats and hence would appropriately be classifiable under the heading 87089900.’

In light of the above facts, the applicant placed the following two questions for determination by AAR:
(a) What is the correct classification of goods manufactured by the applicant, viz., ‘Automotive Seating System’?
(b) Will the goods manufactured fall under CH 87089900 attracting GST @ 28% or under CH 940199990 attracting GST @ 18%?

The CGST authority have contended that HSN 94019900 covers parts of seats, i.e., those constituting specified parts such as backs, bottoms, armrests, etc., and cannot cover items like that of the applicant which is basically tied under a seat on the floor of the vehicle.

Noting the function of the track assembly, the AAR noted that when the seat is fixed on the track assembly, it can slide back and forth with the operation of a lever for varying the position of the seats. This is basically intended to improve the comfort and efficiency of the person sitting thereon. It is convenient for drivers / passengers to adjust the seat for comfort and convenience. It is a product adjacent to the car seat. The seat can be complete without such assembly.

There were two competing headings to be seen in this case, viz., 9401 and 8708. The AAR also referred to the section notes under HSN 8708 and sub-classification under 8708. Similarly, detailed reference was made to HSN 9401. He then concluded that HSN 9401 covers parts of seats of motor vehicles, whereas HSN 8708 covers parts and accessories of motor vehicles.

The meanings of ‘parts’ and ‘accessories’ in the Oxford English Lexicon were also reproduced as under:
‘8.6 CTH 8708 covers “Parts and accessories of Motor Vehicles” and CTH 9401 covers “Parts of seats of Motor vehicles”. Now it is essential to find out the definitions of “parts” and “accessories”. As per the Oxford English Lexicon, parts and accessories would be defined as under:
Parts: An amount or section which, when combined with others, makes up the whole of something.
Accessories: A thing which can be added to something else in order to make it more useful, versatile or attractive.

From the above definitions, “parts” are an amount or section which when combined with others makes up the whole of something. Hence, part is an essential component of the whole without which the whole cannot be complete or cannot function. It is an integral component of the whole. As defined above, accessories are not an essential component without which the whole cannot be complete or function, but it is a component which when added improves the utility, efficiency or appearance of the whole thing.

Based on the above, the AAR held that ‘part’ is one which is an essential component of a whole, without which the whole cannot be complete or cannot function. In contrast, accessories are not an essential component to complete the whole or to make it function but something to improve the utility, efficiency or appearance of the whole thing.

The seat is complete before fitting it on the track assembly which is useful for forward / backward movement of the seat. Hence, seats and track assembly are two independent products fixed together for comfort.

Therefore, the Learned AAR held that the track assembly is an accessory to the motor vehicle covered by heading 8708 and cannot be covered by heading 9401.

Accordingly, he held that GST rate of 28% will apply and not the lower rate.

2. EPC Contract vis-à-vis sub-contractor and Government entity
M/s URC Construction Pvt. Ltd. (Order No. 07/Odisha-AAR/2020-21/dated 9th March, 2021)
The Steel Authority of India Ltd. (SAIL) intended to get Ispat Post-Graduate Medical Institute and Super Specialty Hospital (referred to as ‘Hospital’) constructed at Rourkela Steel Plant on design, Engineering, Procurement and Construction (EPC) basis. It appointed NBCC India Ltd. (‘NBCC’), an executive agency, for getting the above work done. An MOU was entered into between SAIL and NBCC. NBCC awarded a contract to the applicant, M/s URC Construction Pvt. Ltd. (‘URC’) who is a national-level contractor.

The basic question in the AR was whether the contract to be executed by URC will be covered by Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as amended by Notifications 24/2017, 31/2017 dated 13th October, 2017, 46/2017 dated 14th November, 2017 and 17/2018 dated 26th July. 2018. The relevant part of the Notification is reproduced in the AR as under:

*Services*	*CGST Rate*
‘(iv) Composition Supply of Works Contract as defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, provided to the Central Government, State Government, Union Territory, a Local authority, a Government Authority or a Government Entity by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of –
(a)	a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession;	6
(b)	a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or
(viii) Construction Services other than (i), (ii), (iii), (iv), (v) and (vi) above	9
(x) “Government Entity” means an authority or a board or any other body including a society, trust, corporation, (i) Set up by an Act of Parliament or State Legislature; or (ii) Established by any Government, with 90% or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a Local authority’

Services

CGST Rate

‘(iv) Composition Supply of Works Contract
as defined in clause (119) of section 2 of the Central Goods and Services Tax
Act, 2017, provided to the Central Government, State Government, Union
Territory, a Local authority, a Government Authority or a Government Entity
by way of construction, erection, commissioning, installation, completion,
fitting out, repair, maintenance, renovation, or alteration of –

(a)

a civil structure or any other original works meant
predominantly for use other than for commerce, industry, or any other
business or profession;

(b)

a structure meant predominantly for use as (i) an educational,
(ii) a clinical, or (iii) an art or cultural establishment; or

(viii) Construction Services other than (i), (ii), (iii), (iv), (v)
and (vi) above

(x) “Government Entity” means an authority or a board or any
other body including a society, trust, corporation,

(i) Set up by an Act of Parliament or State Legislature; or

(ii) Established by any Government, with 90% or more participation
by way of equity or control, to carry out a function entrusted by the Central
Government, State Government, Union Territory or a Local authority’

If it is so covered then the rate will be 12%, else there will be a higher rate. The submission was that the work is executed for SAIL, a Government entity, and that the work is predominantly for clinical establishment. It is also work covered within the definition of Works Contract as defined u/s 2(119) of the CGST Act.

It was further submitted that though services are provided to NBCC, for the purpose of exemption the constitution of the ultimate service recipient (SAIL) is required to be seen and not NBCC, which is merely an executive agency. For the above purpose, reliance was placed on Shapoorji Pallonji & Co. Pvt. Ltd. vs. C.C.C. Excise & S.T., Patna [2016 (42) STR 681 (Pat)].

It was stated that SAIL is a Government entity as defined in paragraph 4 of Notification No. 11/2017-Central Tax dated 28th June, 2017. The said definition of Government entity referred to in paragraph 3.8 is as under:

‘3.8 M/s SAIL would fall within the ambit of “Government Entity”. The term “Government Entity” is defined in Explanation (x) in paragraph 4 of the Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as “an authority or a board or any other body including a society, trust, corporation, (i) set up by an Act of Parliament or a State Legislature; or (ii) established by any Government with 90% or more participation by way of equity or control, to carry out a function entrusted by the Central Government, State Government, Union Territory or a Local authority.’

SAIL is established by way of an Act passed by Parliament, viz., Public Sector Iron and Steel Companies (Restructuring) and Miscellaneous Provision Act, 1978.

Reliance was also placed on the AAR, Uttarakhand in the case of NHPC Ltd. [(2018)(19) GSTR 34 (AAR-GST)] in which it observed that in a number of Government entities, though initially the holding by Government is 90% or more, after establishment it is diluted for various reasons whereby it may go below 90%.

Based on the above it was submitted that there is no requirement of continuous holding of 90% and once 90% was already held, it would continue to be a Government entity.

And based on this submission, the applicant, URC, canvassed to hold its contract as covered by the above Notification attracting tax @ 12%.

The AAR referred to the history of the establishment of SAIL and observed that it had been established with the approval of Parliament. Hence it was held as a Government entity. The contract awarded is a composite contract involving pre-engineered building structure and RCC frame structure for a specialty hospital. It is works contract as per section 2(119) of the CGST Act.

It was further observed that the EPC contract gets classified in sub-entry (b) as Construction of structure predominantly meant for use as a clinical establishment. For meaning of ‘Clinical establishment’ reference was made to the meaning of the said term under Service Tax and found that since the given work contract fulfils the meaning of clinical establishment, it duly qualifies under the above entry.

Regarding the status of NBCC, the AAR observed that it is a separate limited company and not a Government company. Therefore, the AAR did not agree with the applicant that the supply to NBCC amounts to supply to ultimate recipient SAIL, which is a Government entity. However, the AAR held that the applicant is a sub-contractor and the benefit of lower rate applicable as per entry at Sl. No. 3(ix) of Notification No. 11/2017 as amended by 1/2018 can apply to it.

The contract is given by SAIL which is a Government entity. Therefore, NBCC is the main contractor and as a sub-contractor, the applicant is entitled to a concessional rate.

It was also observed by the AAR that the construction is at the initiative of the Central Government as supported by budget proposal and other documents.

In view of the above, the Learned AAR held that the rate of tax on the above contract of the applicant will be 12%.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Independent Report for Sustainability Disclosures

Compilers’ Note: SEBI has mandated the top listed companies to make disclosures related to Sustainability (or ESG as popularly called). Several companies have, in their annual report (called Integrated Report) for the financial year 2020-21, included such disclosures. These disclosures are quite detailed and contain a lot of information in graphs, charts, diagrams for ease of readability and understanding. A few such companies also feel the need to have an independent verification of these disclosures and have appointed external agencies for the same. Given below is an illustration of one such independent report for sustainability disclosures.

RELIANCE INDUSTRIES LTD. (31ST MARCH, 2021)
From Integrated Report

Independent Assurance Statement to Reliance Industries Limited on their Sustainability Disclosures in the Integrated Annual Report for Financial Year 2020-21

To the Management of
Reliance Industries Limited, 3rd Floor,
Maker Chambers IV, 222, Nariman Point,
Mumbai 400021, Maharashtra, India.

Introduction
We, _____, have been engaged for the purpose of providing assurance on the selected sustainability disclosures presented in the Integrated Annual Report (‘the Report’) of Reliance Industries Limited (‘RIL’ or ‘the Company’) for FY 2020-21. Our responsibility was to provide assurance on the selected aspects of the Report as described in the boundary, scope and limitations as mentioned below.

Reporting Criteria
RIL has developed its report based on the applicable accounting standards and has incorporated the principles of the International Integrated Reporting Framework (<IR>) published by the International Integrated Reporting Council (IIRC) into the Management’s Discussion and Analysis section of the Report.

Its sustainability performance reporting criteria have been derived from the GRI Standards of the Global Reporting Initiative, United Nations’ Sustainable Development Goals (UN SDGs), American Petroleum Institute / The International Petroleum Industry Environmental Conservation Association (API / IPIECA) Sustainability Reporting Guidelines and Business Responsibility Reporting Framework based on the principles of National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVG – SEE).

RIL has also referred to new and emerging frameworks such as Task Force on Climate-related Financial Disclosures (TCFD) recommendations and World Economic Forum’s WEF-IBC metrics.

Assurance Standards
We conducted the assurance in accordance with:

The requirements of the International Federation of Accountants’ (IFAC) International Standard on Assurance Engagement (ISAE) 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical Financial Information.

– Under this standard, we have reviewed the information presented in the Report against the characteristics of relevance, completeness, reliability, neutrality and understandability.
– Limited assurance consists primarily of inquiries and analytical procedures. The procedures performed in a limited assurance engagement vary in nature and timing and are less in extent than for a reasonable assurance engagement.
– Reasonable assurance is a high level of assurance, but it is not a guarantee that it will always detect a material misstatement when it exists.

Boundary, Scope and Limitations

The boundary of our assurance covers the sustainability performance of RIL’s manufacturing divisions, refineries, exploration and production in India; business divisions such as chemicals; fibre intermediates; petroleum; polyester; polymers; Recron and RP Chemicals units in Malaysia; petro-retail division facilities under Reliance BP Mobility Limited (RBML), terminal operations and LPG; Reliance Jio Infocomm Limited1; Reliance Retail Ventures Limited1 and corporate office at Reliance Corporate Park, for the period 1st April, 2020 to 31st March, 2021.

(1 Limited to total number of employees, new employee hires and employee turnover, parental leave, total man-hours of training and diversity of governance bodies and employees)

The sustainability disclosures covered as part of the scope of reasonable assurance process were reduction in energy consumption, renewable energy consumption, water withdrawal, water discharge, water recycled, total number of employees at Reliance, employee turnover, diversity of governance bodies and employees, parental leave and total man-hours of training. Additionally, the disclosures subject to limited assurance process included direct (scope 1) GHG emissions, energy indirect (scope 2) GHG emissions, emissions of particulate matter, oxides of nitrogen, oxides of sulphur, markets served, scale of the organisation, mechanisms for advice and concerns about ethics, governance structure, chair of the highest governance body, requirements for product and service information and labelling and new employee hires.

The assurance scope excludes:

Aspects of the report other than those mentioned above;

Data and information outside the defined reporting period;

The Company’s statements that describe expression of opinion, belief, aspiration, expectation, aim or future intention and assertions related to Intellectual Property Rights and other competitive issues.

Assurance Procedures
Our assurance process involved performing procedures to obtain evidence about the reliability of specified disclosures. The nature, timing and extent of procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the selected sustainability disclosures whether due to fraud or error. In making those risk assessments we have considered internal controls relevant to the preparation of the Report in order to design assurance procedures that are appropriate in the circumstances. Our assurance procedures also included:

Assessment of RIL’s reporting procedures regarding their consistency with the application of GRI Standards.

Evaluating the appropriateness of the quantification methods used to arrive at the sustainability disclosures presented in the Report.

Verification of systems and procedures used for quantification, collation, and analysis of sustainability disclosures included in the Report.

Understanding the appropriateness of various assumptions, estimations and materiality thresholds used by RIL for data analysis.

Discussions with the personnel responsible for the evaluation of competence required to ensure reliability of data and information presented in the Report.

Discussion on sustainability aspects with senior executives at the different plant locations and at the corporate office to understand the risks and opportunities from the sustainability context and the strategy RIL is following.

Assessment of data reliability and accuracy.

For verifying the data and information related to RIL’s financial performance we have relied on its audited financial statements for the FY 2020-21.

Review of the Company’s Business Responsibility Report section to check alignment to the nine principles of the NVG-SEE.

Verification of disclosures through virtual conference meetings with manufacturing units at Barabanki, Dahej, Hazira, Hoshiarpur, Jamnagar DTA, Jamnagar SEZ, Jamnagar C2 complex, Jamnagar Pet Coke Gasification unit, Nagothane, Naroda, Patalganga, Silvassa, Vadodara; Recron (Malaysia) facilities at Nilai and Meleka; RP Chemicals Malaysia; Petro-retail division facilities under RBML, Terminal Operations and LPG; On-shore and off-shore exploration and production facilities at Gadimoga and Shahdol; Reliance Jio Infocomm Limited; Reliance Retail Ventures Limited; and Corporate office at Reliance Corporate Park, Navi Mumbai.

Appropriate documentary evidences were obtained to support our conclusions on the information and data verified. Where such documentary evidences could not be collected due to sensitive nature of the information, our team verified the same using screen-sharing tools.

Independence
The assurance was conducted by a multi-disciplinary team including professionals with suitable skills and experience in auditing environmental, social and economic information in line with the requirements of ISAE 3000 (Revised) standard. Our work was performed in compliance with the requirements of the IFAC Code of Ethics for Professional Accountants, which requires, among other requirements, that the members of the assurance team (practitioners) be independent of the assurance client, in relation to the scope of this assurance engagement, including not being involved in writing the Report. The Code also includes detailed requirements for practitioners regarding integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. ____ has systems and processes in place to monitor compliance with the Code and to prevent conflicts regarding independence. The firm applies ISQC 1 and the practitioner complies with the applicable independence and other ethical requirements of the IESBA code.

Responsibilities
RIL is responsible for developing the Report contents. RIL is also responsible for identification of material sustainability topics, establishing and maintaining appropriate performance management and internal control systems and derivation of performance data reported. This statement is made solely to the Management of RIL in accordance with the terms of our engagement and as per scope of assurance.

Our work has been undertaken so that we might state to RIL those matters for which we have been engaged to state in this statement and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than RIL for our work, for this report, or for the conclusions expressed in this independent assurance statement. The assurance engagement is based on the assumption that the data and information provided to us is complete and true. We expressly disclaim any liability or co-responsibility for any decision a person or entity would make based on this assurance statement. By reading this assurance statement, stakeholders acknowledge and agree to the limitations and disclaimers mentioned above.

Conclusions
Based on our assurance procedures and in line with the boundary, scope and limitations, we conclude that, for selected disclosures subjected to limited assurance procedures as defined under the scope of assurance, nothing has come to our attention that causes us not to believe that these are appropriately stated in all material respects, in line with the reporting principles of GRI Standards. Non-financial disclosures that have been subject to reasonable assurance procedures as defined under scope of assurance, are fairly stated, in all material respects and are in alignment with the GRI standards.

It is health that is the real wealth and not pieces of gold and silver

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

7 Commissioner of Income Tax vs. Reliance Energy Ltd. AIR 2021 SC 2151 Civil Appeal No. 1328 of 2021 Date of order: 28th April, 2021

Deduction – Chapter VIA – Section 80-IA r/w/s 80AB – There is no limitation on deduction admissible u/s 80-IA to income under the head ‘business’ only – Section 80AB could not be read to be curtailing the width of section 80-IA – The scope of sub-section (5) of section 80-IA is limited to determination of quantum of deduction under sub-section (1) of section 80-IA by treating ‘eligible business’ as the ‘only source of income’ – Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’

The assessee was in the business of generation of power and also dealt with purchase and distribution of power. Its power generation unit is located at Dahanu.

For the assessment year 2002-03, the assessee filed its income-tax return on 31st October, 2002 declaring total income as ‘Nil’. The return was subsequently revised on 6th December, 2002 and thereafter on 30th March, 2004.

In respect of deduction u/s 80-IA, the assessee was asked to explain why the deduction should not be restricted to business income as had been the stand of the Revenue for A.Y. 2000-01. The assessee had revised its claim u/s 80-IA to Rs. 546,26,01,224, having admitted that there was an error in calculation of income tax depreciation.

The A.O. considered the revised claim of the assessee u/s 80-IA and determined the amount eligible for deduction under it at Rs. 492,78,60,973 against the assessee’s claim of Rs. 546,26,01,224. However, the A.O. stated in the assessment order that the actual deduction allowable shall be to the extent of ‘income from business’ as per the provisions of section 80AB. The ‘business income’ of the assessee was computed at Rs. 355,74,73,451 and the ‘gross total income’ at Rs. 397,37,70,178. Inclusion of ‘income from other sources’ of Rs. 41,62,96,727 in the ‘gross total income’ and deduction claimed under Chapter VI-A against such ‘gross total income’ was not accepted by the A.O. The A.O. also rejected the claim of the assessee for allowing deduction u/s 80-IA, along with other deductions available to the assessee, to the extent of ‘gross total income’, and restricted the deduction allowed u/s 80-IA at Rs. 354,00,75,084 by limiting the aggregate of deductions under sections 80-IA and 80-IB to the ‘business income’ of the assessee.

The A.O. further rejected the contention of the assessee that section 80AB was not applicable. It was held that section 80AB makes it clear that for the purposes of deduction in respect of certain incomes, deduction had to be given on the income of the nature specified in the relevant section and allowed against income of that nature alone. Therefore, the deduction computed u/s 80-IA could not be allowed against any source other than business.

The Appellate Authority partly allowed the appeal filed by the assessee by an order dated 23rd March, 2006 and reversed the finding of the A.O. on the issue of deduction u/s 80-IA. The Appellate Authority held that section 80AB places a ceiling on the quantum of deductions in respect of incomes contained in Part C of Chapter VI-A. Such deductions are to be computed on the net eligible income, which will be deemed to be included in the gross total income. The Appellate Authority observed that section 80AB is limited to determining the quantum of deductible income included in the gross total income. It directed the A.O. not to restrict the deduction admissible u/s 80-IA to income under the head ‘business’. The A.O. was further directed to aggregate the deduction u/s 80-IA with the other deductions available to the assessee and then to allow deductions of such aggregate amount to the extent of ‘gross total income’. The order of the Appellate Authority was affirmed by the Tribunal and also the High Court. Aggrieved, the Revenue filed an appeal before the Supreme Court.

The Supreme Court observed that the controversy in this case pertained to the deduction u/s 80-IA being allowed to the extent of ‘business income’ only.

It noted that section 80AB was inserted in the year 1981 to get over a judgment of this Court in Cloth Traders (P) Ltd. vs. Additional Commissioner of Income Tax (1986) 1 SCC 43. The CBDT Circular dated 22nd September, 1980 made it clear that the reason for introduction of section 80AB was for the deductions under Part C of Chapter VI-A to be made on the net income of the eligible business and not on the total profits from the eligible business. A plain reading of section 80AB showed that the provision pertained to determination of the quantum of deductible income in the ‘gross total income’. According to the Supreme Court, section 80AB could not be read to be curtailing the width of section 80-IA. The Court noted that section 80A(1) stipulates that in the computation of the ‘total income’ of an assessee, deductions specified in section 80C to section 80U shall be allowed from his ‘gross total income’. Sub-section (2) of section 80A provides that the aggregate amount of the deductions under Chapter VI-A shall not exceed the ‘gross total income’ of the assessee.

The Supreme Court, therefore, agreed with the Appellate Authority that section 80AB which deals with determination of deductions under Part C of Chapter VI-A is with respect only to computation of deduction on the basis of ‘net income’.

After noting the provisions of sub-sections (5) and (1) of section 80-IA, the Supreme Court observed that the import of section 80-IA is that the ‘total income’ of an assessee is computed by taking into account the allowable deduction of the profits and gains derived from the ‘eligible business’. With respect to the facts of this appeal, there was no dispute that the deduction quantified u/s 80-IA was Rs. 492,78,60,973. The said amount represented the net profit made by the assessee from the ‘eligible business’ covered under sub-section (4), i.e., from its business unit involved in the generation of power. The claim of the assessee was that in computing its ‘total income’, deductions available to it have to be set-off against the ‘gross total income’, while the Revenue contended that it was only the ‘business income’ which had to be taken into account for the purpose of setting-off the deductions under sections 80-IA and 80-IB. The ‘gross total income’ of the assessee for A.Y. 2002-03 was less than the quantum of deduction determined u/s 80-IA. The assessee contended that income from all other heads including ‘income from other sources’, in addition to ‘business income’, have to be taken into account for the purpose of allowing the deductions available to it, subject to the ceiling of ‘gross total income’. The Supreme Court agreed with the view taken by the Appellate Authority that there was no limitation on deduction admissible u/s 80-IA to income under the head ‘business’ only.

The Supreme Court further observed that the other contention of the Revenue was that sub-section (5) of section 80-IA referred to computation of quantum of deduction being limited from ‘eligible business’ by taking it as the only source of income. It was contended that the language of sub-section (5) makes it clear that deduction contemplated in sub-section (1) is only with respect to the income from ‘eligible business’ which indicates that there is a cap in sub-section (1) that the deduction cannot exceed the ‘business income’. On the other hand, the Court noted, it was the case of the assessee that sub-section (5) pertains only to determination of the quantum of deduction under sub-section (1) by treating the ‘eligible business’ as the only source of income.

The Court noted that the amount of deduction from the ‘eligible business’ computed u/s 80-IA for A.Y. 2002-03 was Rs. 492,78,60,973. There was no dispute that the said amount represented income from the ‘eligible business’ u/s 80-IA and was the only source of income for the purposes of computing deduction u/s 80-IA. The question that arose further was with reference to allowing the deduction so computed to arrive at the ‘total income’ of the assessee and that could not be determined by resorting to interpretation of sub-section (5).

The Supreme Court observed that Synco Industries Ltd. vs. Assessing Officer, Income Tax, Mumbai and Anr. (2008) 4 SCC 22 was concerned with section 80-I. Section 80-I(6), which is in pari materia to section 80-IA(5) and wherein it was held that for the purpose of calculating the deduction u/s 80-I loss sustained in other divisions or units cannot be taken into account as sub-section (6) contemplates that only profits from the industrial undertaking shall be taken into account as it was the only source of income. Further, the Court concluded that section 80-I(6) dealt with actual computation of deduction, whereas section 80-I(1) dealt with the treatment to be given to such deductions in order to arrive at the total income of the assessee.

The Court further observed that in Canara Workshops (P) Ltd., Kodialball, Mangalore (1979) 3 SCC 538, the question that arose for consideration related to computation of the profits for the purpose of deduction u/s 80-E, as it then existed, after setting off the loss incurred by the assessee in the manufacture of alloy steels. Section 80-E, as it then existed, permitted deductions in respect of profits and gains attributable to the business of generation or distribution of electricity or any other form of power or of construction, manufacture or production of any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the Revenue that the profits from the automobile ancillaries industry of the assessee must be reduced by the loss suffered by the assessee in the manufacture of alloy steels. The Supreme Court was not in agreement with the submissions made by the Revenue. It was held that the profits and gains by an industry entitled to benefit u/s 80-E cannot be reduced by the loss suffered by any other industry or industries owned by the assessee.

The Supreme Court noted that in the present case there was no discussion about section 80-IA(5) by the Appellate Authority, nor by the Tribunal or the High Court. However, considering the submissions on behalf of the Revenue, and as it has a bearing on the interpretation of sub-section (1) of section 80-IA, it held that the scope of sub-section (5) of section 80-IA is limited to determination of the quantum of deduction under sub-section (1) of section 80-IA by treating ‘eligible business’ as the ‘only source of income’. Sub-section (5) cannot be pressed into service for reading a limitation of the deduction under sub-section (1) only to ‘business income’.

The Supreme Court further observed that an attempt was made by the Revenue to rely on the phrase ‘derived… from’ in section 80-IA(1) in respect of his submission that the intention of the Legislature was to give the narrowest possible construction to deduction admissible under this sub-section. According to the Supreme Court, it was not necessary to deal with this submission in view of the findings recorded above.

The Court dismissed the appeal for the aforementioned reasons qua the issue of the extent of deduction u/s 80-IA.

BCAJ Admin

FROM THE PRESIDENT

Dear BCAS Family,

I commence my journey to communicate with you all as President with this maiden message. I first offer my salutations at the holy feet of Lord ‘Shreeji Bawa’ for bestowing on me the choicest of blessings and making me worthy to be chosen as President of the august professional body BCAS. I take this opportunity to thank all my seniors at BCAS for honing my skills and making me worthy of leading one of the oldest voluntary associations of CAs which is in its 73rd year. If I may consider this role of President as a success, I am conscious of the fact that success should feed one’s sense of responsibility. I commence my journey for the year with a thought in mind which is conveyed to me by my GURU Mahatria Ra:

‘In the journey of success, every finishing line is the new starting line.
In your career, year after year, you have to prove once again.
You have got to challenge yourself once again.
After every accomplishment, the heartbeat of success remains,
“What next? What else? What more? How else?”’

I have accordingly drawn an elaborate plan for the year to be of relevance by addressing the above questions to move forward and make the year a memorable one for BCAS.

The Theme for the year has been devised on the acronym ESG – EMPOWERING, SCALING, GLOBALISING.

Along with the Theme, in consultation with my team of Office-Bearers, we have devised an internal goal-setting exercise for BCAS by the name LEAP:

Leadership for BCAS

Excellence at BCAS

Accountability to BCAS members

Professionalism in BCAS

I am not elaborating on the above, as the same has been dealt with in detail in my incoming speech delivered during the AGM of BCAS, which is also published in this Journal.

I would now like to delve on the professional opportunities, challenges and the coming of age of the Indian economy.

There are exciting times ahead for CA firms, as the government has permitted audit firms to transform themselves into multidisciplinary partnerships (MDPs) by notifying the regulations issued by the ICAI. The CA firms would be able to forge tie-ups with company secretaries, actuaries, cost accountants, advocates, architects and engineers, thereby enabling them in scaling up their portfolio of services. The regulations have come at an apt time when the RBI, too, has come out with common guidelines for the appointment of statutory auditors encompassing all major financial lenders. These two moves are in the direction of empowering Small and Medium-size Partnerships (SMPs) to scale up and offer a variety of services under one roof.

The Finance Ministry launched its new income tax e-filing portal in June, 2021. However, over the last 45 days there has been a deluge of emails received by the Income-tax Department, totalling more than 700, regarding complaints about issues faced on the portal. The taxpayers and professionals are facing various challenges in using the portal and there are issues which remain unaddressed. There have been representations by various stakeholders and professional associations. The Finance Ministry has informed that all the issues would be resolved and the portal would be fully functional by the first week of August. I hope that the hardships of professionals and taxpayers are mitigated and there is ease of using the portal and hopefully the new portal offers many user-friendly features to justify the upgradation.

Another landmark event has taken place in India. The listing of Zomato, the first unicorn tech company to get listed on the exchanges. With its first mover advantage as a tech Startup being listed, it has opened the doors for other tech Startups which are in the pipeline to get listed. This demonstrates that India is on the path towards matured capital markets, which are ready to lap up opportunities in unique business models. I am of the opinion that the valuation metrics will evolve on the lines of such Startups in the US and China. This will also be a great opening for professionals to critically evaluate such business models and advise their clients and become valued business advisers.

We celebrate Guru Purnima every year on Shukla Paksha Ashadha Purnima. The day is celebrated by worshipping GURU, who is an enlightened soul imparting wisdom in both spiritual and academic fields. I dedicate Guru Purnima to all who have influenced my journey as a human being by enlightening me with their knowledge and recite the following shloka:

The six Gurus to remember are the one who inspires, one who informs, one who recites, one who guides, one who teaches and the one who awakens.

We shall be entering the 74th year of Independence on 15th August, 2021. India will be launching a year-long celebration on this day to commemorate 75 years of Independence. As responsible citizens, I would narrate just a simple way to display our patriotism as narrated by my GURU Mahatria Ra:

‘A sensible display of patriotism will be….
To be the BEST in whatever you do, and thus make your country proud.’

I conclude by wishing each one of you a HAPPY INDEPENDENCE DAY.

Best Regards,

Abhay Mehta
President

BCAJ Admin

BOOK REVIEW

THINK LIKE A MONK
(Published: September, 2020)

Author Jay Shetty

Reviewed by Jini Jain, Chartered Accountant

Jay Shetty is an award-winning host, motivational speaker and author who has been featured in ‘Forbes 30 under 30’1. During his teenage years, he found himself in wrong company but when offered an opportunity, he redeemed himself by grabbing it. At school one day, he happened to hear a monk deliver a talk that made him realise that he wanted to grow as a person and explore a new way of living. And he started living with monks and to like monks!

He later returned to ‘normal’ life on the advice of his mentor Gauranga Das so that he could share his experience and wisdom with the world. This book delineates the experiences that he underwent in the three years that he lived a monk’s life.

Think like a Monk is in many ways a self-help guide but more than reflecting on positivity, it makes you ponder on many other aspects that are essential to lead a happy and peaceful life in the urban set-up. Many people tend to be averse to the idea of a self-help book being a guide on how to live and feel that if they have read one, then why choose to read other such books? I would simply put it like this – while the premise of self-help books is somewhat similar, it is the art of narration and engaging the reader that makes the difference.

This book compels the reader to contemplate on certain introspective questions – Do we really know who we truly are? What do we want to become? What are we seeking? What is it that we truly value? The problem most of us face is that we do not intentionally decide on our values. In other words, we don’t pick what we deem as important. Usually, we simply accept and inherit what our society and the environment have sown and reinforced. When we live our lives trying to impress others based on values that we did not consciously choose, the result more often than not is fatigue and stress. A striking metaphor which his mentor Gauranga Das uses to illustrate what is self-identity is – ‘Your identity is a mirror covered with dust. When you first look into the mirror, the truth of who you are and what you value is obscured. Clearing it may not be pleasant but only when that dust is gone can you see your true reflection.’

The next question that comes up is why should we think like monks? Whenever we attempt a new sport or a new profession, we always look up to the masters in that field to know and adopt their thinking, habits, philosophy, etc. Similarly, monks are the experts when it is about training our minds and living a life with purpose. Jay Shetty makes a profound statement: ‘If you want to train your mind to find peace, calm and purpose, monks are the experts. Monks aren’t born monks. They are people from all sorts of backgrounds who have chosen to transform themselves. Becoming a monk is a mindset that anyone can adopt.’

Jay posits that humans have two mindsets: a monkey mind and a monk mind. These two mindsets are interchangeable. He brings out the stark contrast between the two. A monkey mind is one that overthinks and procrastinates, is distracted easily, seeks short-term gratifications, demands and feels entitled, is self-centred and is angry, worried and fearful. On the other hand, the monk mind looks for meaning and genuine solutions, controls and engages energy wisely, is enthusiastic, determined, patient, compassionate and collaborative. Controlling the monkey mind is not easy but it is possible; the author describes how to inculcate the monk mind throughout the book. The book is an effort to free you from the hypnosis of social conditioning and urge you to become the architect of your own life.

The book is divided into three sections – Letting Go, Growing and Giving – three seemingly simple fundamentals forgotten by most of us. We have to first let go of all the unwanted baggage that we probably are not even aware of hauling. Letting go creates the space to grow ourselves by training our minds. Finally, with our growth, we are better equipped to serve those around us. It would be correct to say that many concepts he touches upon are not new for us but he reminds us beautifully why we need to practice them continuously. Jay manages to move beyond abstract terms to practical wisdom with the fascinating stories from his time as a monk and the learnings that he imbibed from each episode. His book is full of anecdotes of his experiences during his years as a monk and how the principles can be applied in our modern, fast-paced society through the concepts and techniques that he has elaborated. Jay is not merely driving us into any fictional world of all things nice. He makes it relatable for the reader to identify himself in similar situations and overcome his mental roadblocks. No, the book does not promise overnight miracles. What it does promise is a sense of calm and how a change of attitude is all that it takes to have better clarity about who we are. Combining ancient wisdom with the practicalities of today, it provides essential guidance for travelling a balanced path to success and building relationships.

My favourite part of the book is when Jay talks about detachment. It is human nature to get attached to people and to material possessions. He states, ‘Detachment is not that you own nothing, but that nothing should own you. The greatest detachment is being close to everything and not letting it consume and own you. That’s real strength!’ Another great part is where he explains humility with the concept of salt. Radhanath Swami in a temple talk in London said that ‘We should be like salt – salt is so humble that when something goes wrong it takes the blame and when everything goes right, it doesn’t take credit. Nobody says that the meal had the perfect amount of salt’. An instant response to that would be ‘It’s easier said than done’. Indeed true! We all read and then try to implement, but we lack consistent efforts. In the words of James D. Wilson, a renowned author, ‘Knowledge is not power, knowledge plus action equals to power.’ Only our constant and conscious attempts can bring about a change in the way we perceive the outer events.

To conclude, Think like a Monk is a book that offers both conventional as well as unconventional wisdom in an attempt to make our lives more peaceful and purposeful which in turn can lead to more productivity. Some parts of the book seemed a little dull to me due to repetitive narration. However, considering the other great offerings of the book, it is certainly recommended to readers. Anxiety, negativity, disappointment, stress, deteriorating quality of relationships, media clutter, device overdose and inadequate sleep are ailments that bother most of us. In that sense, this book can help improve the quality of life of the twenty first century individual. Choose this book if you have not read this genre in a while, or if you need a change in your perspective of looking at the current events in your life. I leave a quote from the book by the famous poet Kalidasa as food for thought:

‘Yesterday is but a dream. Tomorrow is only a vision. But a today well lived makes every yesterday a dream of happiness and every tomorrow a vision of hope.’

BCAJ Admin

MISCELLANEA

I. SCIENCE

13 How Composting Can Solve our Methane and Plastic Problem

Back in 1996, one of California’s oldest waste collection companies, Recology, began collecting food scraps from San Francisco’s central market to compost. Now, the company’s green composting bins are ubiquitous on the streets of the city, which has composted more than 2 million tons of food and other waste.

Recology and the city of San Francisco stand out for accepting one of the largest varieties of items for compost, including compostable packaging and almost all types of food scraps. With about one-third of all food in the United States going to waste, composting could and should play a bigger role in municipal waste systems across the country. Recology and the city of San Francisco stand out for accepting one of the largest varieties of items for compost, including compostable packaging and almost all types of food scraps.

Food is the most common component of landfill garbage, making up 24% of all landfill material, according to the U.S. Environmental Protection Agency. In addition to the obvious social-economic concerns about food security, the massive amount of food and other organic waste in landfills is the third-largest source of human-produced methane emissions in the United States — after the fossil fuel and animal agriculture sectors — making up 14.5% of total methane emissions.

Cutting methane emissions, which the United States and the EU promised to reduce by 30% by 2030 at last year’s COP26 climate summit in Glasgow, has emerged as a key factor in slowing down the warming of the planet.

Composting, in which food and other organic waste are combined with wood chips and other natural fibers to decompose in an oxygen-rich environment that does not produce the methane that develops in the anaerobic conditions of landfills, is critical to this mission.

In addition, the end product of composting, soil rich in nutrients, can help solve the ongoing challenge of agricultural soil erosion, which degrades soil quality and reduces crop yields. The nation is on track to lose the equivalent of 300 years of soil by 2100 if nothing is done. That is eight times the amount of topsoil lost during the devastating Dust Bowl of the 1930s.

But most of the nation’s compost facilities are still focused solely on yard waste, like raked leaves, cut grass and garden clippings. Only 10% take food, and a smaller number take packaging. This can, and must, change — but the real question is how.

Such a change can happen through a combination of factors. Composting must become an integral part of municipal waste management systems, similar to recycling. This requires cooperation between the public-private sector, which we have seen for the past three decades in San Francisco.

Bringing Compost into the Waste Management System

Only 4% of households in the U.S. are served by composting services that pick up the waste. This number needs to grow — substantially in order to reduce methane emissions — and so do the categories of items that are acceptable for composting.

While home-composting and private services no doubt play an important role, it is only by being part of the standard waste-management and waste pickup systems that composting will reach its full potential. After all, part of the reason recycling became more mainstream was because it became part of municipal waste management systems over the years. Today, more than 59% of U.S. households have curbside recycling pickup alongside regular garbage pickup. The same needs to happen with composting.

But we cannot rely on composters alone to make the changes necessary in order to serve more consumers. Accepting food often requires composters to have certain permits and specialized equipment. And many composters say they don’t have the resources for the extra sorting that comes along with accepting food, as food scraps often arrive mixed with pieces of packaging and plastic that must be separated out and discarded because they can’t be composted.

City governments, which usually oversee garbage collection and waste management, can help create the sort of composting facilities that can accept these items. An example of this beneficial cooperation can be seen in Seattle, which for years has been working with composting company Cedar Grove to collect food from city residents. Not only does food get composted, reducing methane emissions, but the business has grown and flourished since partnering with the city.

Such cooperation is critical for moving composting forward in other places. For example, even though California’s law banning food waste in garbage disposal has come into effect this year, some large cities like San Diego and Los Angeles still lack the pickup services and facilities to handle the growing demand for compost. These facilities and waste management companies are relying on an influx of government money to make the needed upgrades.

At the same time, while their initial rollout is challenging, policies banning the disposal of food waste are an important tool for integrating compost into waste management. In both California and Vermont, which introduced similar laws in 2020, compost beyond yard waste is growing both as a business and a public service. After all, the reason why most composters are still so focused on yard trimmings is due to bans on those in landfills decades ago.

The Role of Labeling

One of the main reasons that Recology and some other California-based composters accept not just food but also items like compostable plastic bags and packaging is due to laws and regulations about labeling.

Labeling laws also need to be specific and correlated to science to avoid greenwashing and prevent non-compostable products from contaminating the composting process and final product. Such laws are most developed in California but are gaining popularity in other places, including Oregon, where there is currently a proposal for a “Truth in Labeling” law that will help clearly designate what kinds of packaging can be put into the compost.

Clear labeling also paves the way in the public education process about what is compostable and what is not, a key factor in bringing composting into mainstream waste management.

Labeling not only makes things easier for consumers and composters but ensures continued demand for the end product in the agricultural sector. With the right facilities, regulations and municipal cooperation, food and compostable packaging are benefits, rather than a challenge, for composters.

Adding more food and packaging to the composting mix will not only reduce methane and other greenhouse gasses but will also result in higher volumes of nutrient-rich end products that farmers can purchase and use in their fields. Making this happen should be a high priority for cities.

If left alone, the immense amount of food in landfills will continue to produce increasing amounts of greenhouse gasses, and compostable plastics, if simply thrown out, will not actually break down properly, adding to the microplastic problem in our soil and oceans.

Developing the composting infrastructure to handle things like food and compostable packaging would immediately reduce greenhouse gasses and could, potentially, also be a turning point for the plastics industry, encouraging more innovation and use of compostable materials to turn one of the world’s most challenging types of waste into one of the most viable — and valuable.

[Source: Opinion – International Business Times – By Michael Waas – 15th June, 2022.]

II. TECHNOLOGY

14 Using the Internet without a VPN is like leaving your House without locking the front door

We’ve heard time and again how critical the threat of hacking is. Still, most of us either think we’ll avoid it or have nothing to hide for hackers to expose anyway – so why worry? This is akin to thinking that we don’t need to bother locking the door because we don’t have an illegal store of drugs stashed away in our houses. Every person with an online presence benefits from using a VPN. It’s not about not having anything to hide. It’s about not having your information stolen or shared.

This is not necessarily a matter of theft. This is, first and foremost, a matter of privacy. Every 39 seconds, somebody is hacked, and there’s a 1 in 4 chance that it will be you on the receiving end. Hacking is not a far-away, dystopian threat; it is immediate and gaining urgency each year. Therefore, we must increase awareness of the severity of cyber-attacks and encourage more people to use VPN networks to protect themselves.

The pandemic-fuelled shift to remote working led to a significant spike in hack-attacks. For example, the volume of ransomware doubled in 2021, surpassing the 600 million mark. This form of hacking involves hackers encrypting your data and demanding large sums in return for giving your data back. The average cost was an incredible $ 4.44 million.

These kinds of attacks present a lose-lose situation for users – either they are forced to pay exorbitant sums to these cyber-criminals, or, as is often the case, they cannot afford the ransom, and their personal data is leaked. This is not merely a case of losing your favorite holiday photos. This can involve losing your PIN codes and passwords. In 2021, Americans lost a record $ 3.5 billion to cybercrime. In 2020, 37 billion data records were leaked, which was a staggering 140% increase from the previous year.

The most frustrating aspect of these figures is that cyber-attacks are relatively easy to defend against. Firstly, people aren’t aware of just how severe and extensive the cyber-security threat has become. Secondly, a substantial number of those who feel vulnerable do not know how to protect themselves.

The answer is easy: use a VPN network every time you surf the internet. VPNs – Virtual Private Networks – mask the user’s traffic patterns and block access to their IP address, which would otherwise reveal specific information about the computer being used.

Around a third of the global population of internet users have a VPN installed, leaving the vast majority susceptible to cyber-attacks. This figure is even lower for the US, with only a quarter of North America using a VPN when they browse online. By contrast, almost three-quarters of Americans are fearful of their personal or financial information being stolen.

VPNs are widely available and low-cost, yet most of those online do not have this protective software installed. The issue, then, is one of awareness. To tackle this, we can look to what can arguably be called the cyber-security capital of the world: Estonia.

In 2007, Estonia suffered a series of hack-attacks in what was largely considered to be the world’s first cyber-war. The swathe of cyber-criminality was spawned by the controversial moving of a soldier’s statue, which served as a harrowing reminder of the years of Soviet oppression faced by Estonians. Since this incident, Estonia has established itself as a cyber-security hub; the keystone to this success has been boosting cyber-awareness across its population.

Some of the measures included in Estonia’s Cyber Security Strategy included offering cyber-training to preschoolers and older children and introducing various Media Literacy courses in secondary schools. In 2013, the government also instigated a state-private partnership project, which was designed to improve the security awareness of smart-device users, developers, and distributors. Furthermore, a Masters Degree in Cyber Security was launched in 2009, and the Police and Border Guard Board even appointed a ‘web constable,’ whose primary role was to boost public understanding about cyber-security and to help protect young people online. There are a multitude of VPN’s out there that offer huge protections at a low cost, such as Private internet access, Safernet VPN, Express VPN, tunnel Bear and Proton VPN among others.

The proof is in the Kohuke: Estonia is now the most cyber-secure country in the EU. The US government has reason to be reluctant about enforcing wider VPN usage, given that it regularly benefits from the gathering of voter data. However, it must act to improve awareness of core cyber-security issues at the very least. As is evident from the Estonia blueprint, education is essential for this; we must introduce more purpose-built Cyber-Security degrees, along with training programs for children and young people. The benefits far outweigh any negatives of using a VPN for the global community.

[Source: Opinion – International Business Times – By Brad Hawkins – 15th June, 2022.]

III. SPORTS

15 National Football Day: Interesting Facts, Quotes about the Popular Sport

National Football Day is celebrated on July 19 to honor one of the most popular sports played in the country.

The game which is known by the name football in the U.S. and Canada is popularly called “gridiron” or “American football” in other parts of the world.

Football has become an integral part of the American culture and Super Bowl is considered to be the country’s most important holiday that brings together friends and families.

Here are some fun facts about the game:

1. The original football game was 70 minutes long. Its duration was later reduced by 10 minutes.

2. The longest field goal in football history was 64 yards.

3. The shape of a football is “prolate spheroid” which means “long sphere.”

4. Although the football game is divided into four quarters with each lasting 15 minutes, the actual game is played for only 11 minutes out of that.

To mark the occasion, let’s take a look at some interesting quotes showcasing the spirit and love people have for football. (Courtesy: Brainy Quotes)

1. “Football is like life – it requires perseverance, self-denial, hard work, sacrifice, dedication and respect for authority.”- Vince Lombardi

2. “Some people think football is a matter of life and death. I assure you, it’s much more serious than that.”- Bill Shankly

3. “Football is about joy. It’s about dribbling. I favor every idea that makes the game beautiful. Every good idea has to last.”- Ronaldinho

4. “In football, even when you do your best on the pitch, you can win or lose. That is the nature of the game.” – Gianfranco Zola

5. “Football is a game of mistakes. Whoever makes the fewest mistakes wins.”- Johan Cruyff

6. “In football, the worst things are excuses. Excuses mean you cannot grow or move forward.”- Pep Guardiola

7. “Football fans share a universal language that cuts across many cultures and many personality types. A serious football fan is never alone. We are legion, and football is often the only thing we have in common.”- Hunter S. Thompson

8. “The football field was a place where I could express myself and just be me. Play the game as well as you can and that’s what you’re judged on. Not the color of your skin, or your beliefs, or the conversation you have around racism.”- Adam Goodes

9. “It’s like everything in football – and life. You need to look, you need to think, you need to move, you need to find space, you need to help others. It’s very simple in the end.”- Johan Cruyff

10. “To become a great player, you’ve got to show real dedication and commitment to football, and you’ve got to be very humble and hard-working. And, above all, you’ve got to fight to make your dreams come true.”- Sergio Ramos

[Source: International Business Times – By Suneeta Sunny – 19th July, 2022.]

BCAJ Admin

REGULATORY REFERENCER

1. Income-tax (19th Amendment) Rules, 2022: CBDT amended existing Rules 30, 31 & 31A, annexure to Form no. 26Q, and Form Nos. 26QB, 26QC & 26QD. It has also inserted new Form nos. 26QE and 16E. Tax deducted on VDA is to be deposited in challan-cum-statement in Form 26QE. The certificate of tax deducted at source on VDA must be issued in Form 16E. Separate reporting of tax payments is required to be made in accordance with provisos to Sections 194B, 194R and 194S. [Notification No. 67/ 2022, dated 21st June, 2022.]

2. Format, procedure and guidelines prescribed for submission of Form Nos. 1, 2 and 2A for Securities Transaction Tax. [Notification No. 2 of 2022, dated 24th June, 2022.]

3. Guidelines for removal of difficulties under sub-section (6) of section 194S: The Finance Act, 2022, inserted a new section 194S w.e.f 1st July, 2022. The said section requires a person responsible for paying to any resident any consideration for the transfer of a virtual digital asset (VDA), to deduct tax at 1%. CBDT has issued guidelines to remove difficulties in the implementation of this section. [Circular No. 13/2022 dated 22nd June, 2022 and Circular No. 14/2022, dated 28th June, 2022.]

4. Safe Harbour for Arm’s Length Price: The notification provides for a tolerance range of 1% for wholesale trading and 3% in all other cases for A.Y. 2022-2023. It is also certified that no assessee will be adversely affected by the retrospective effect being given to the notification. [Notification No. 70/ 2022, dated 28th June, 2022.]

5. Income-tax (20th Amendment) Rules, 2022: CBDT has amended Rule 31A of the Income-tax Rules, 1962, notifying Form 26QF for filing of TDS statement in respect of tax deducted u/s 194S by ‘Exchanges’. [Notification No. 73/ 2022, dated 30th June, 2022.]

6. Exclusion from definition of Virtual Digital asset: The following virtual digital assets shall be excluded from the definition of virtual digital asset:

(i) Gift card or vouchers, that may be used to obtain goods or services or a discount on goods or services;

(ii) Mileage points, reward points or loyalty card, given without direct monetary consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional program that may be used or redeemed only to obtain goods or services or a discount on goods or services;

(iii) Subscription to websites or platforms or application. [Notification No. 74/ 2022, dated 30th June, 2022.]

7. A token which qualifies to be a virtual digital asset as non-fungible token shall not include a non-fungible token whose transfer results in a transfer of ownership of the underlying tangible asset, and the transfer of ownership of such underlying tangible asset is legally enforceable. [Notification No. 75/ 2022, dated 30th June, 2022.]

COMPANY LAW

SEBI

1. ICICI bank designated for foreign inward remittance of various payments of SEBI fees in USD: SEBI has modified the operational guidelines for Foreign Portfolio Investors (FPIs), Designated Depository Participants (DDPs) and Eligible Foreign Investors about bank account details. Now, SEBI has specified ICICI bank account details for foreign inward remittance of various payments of various SEBI fees in USD. Earlier, the Bank of India was specified for making remittances of various payments. The Circular shall be effective from 24th June, 2022. [Circular No. SEBI/HO/IMD/FPI&C/CIR/P/2022/84, dated, 21st June, 2022.]

2. Timeline for listing of units of privately placed InvIT reduced to 6 working days: SEBI, in order to streamline the process of allotment and listing of units, has reduced the time taken for the listing of units of privately placed Infrastructure Investment Trust (InvIT) to 6 working days from the date of closure of the issue. Earlier, the timeline for such a listing was 30 working days. [Circular No. SEBI/HO/DDHS/DDHS_DIV3/P/CIR/2022/087, dated 24th June,2022 ]

3. Facility to block funds via UPI in public issues of units of REITs/InvITs: Earlier, SEBI has specified the process for payment for applications in the public issue of units of Real Estate Investment Trust (REITs) & Infrastructure Investment Trusts (InvITs) through the facility of ASBA. Now, SEBI has allowed individual investors to block funds via the Unified Payments Interface (UPI) mechanism for application values up to Rs. 5 Lakhs in public issues of REIT units. It shall apply to the public issue of units of REIT/InvITs, which opens on or after 1st August, 2022. [Circular No. SEBI/HO/DDHS/DDHS_DIV3/P/CIR/2022/085 and 086, dated 24th June, 2022.]

4.   Framework for adjustment in derivative contracts for dividend announcements reviewed: SEBI had laid down a framework for adjustment in derivative contracts (single stock options and futures) post dividend announcements. Now, SEBI has reviewed the framework for adjustment in derivative contracts for dividend announcements. SEBI has clarified that the adjustment in derivative contracts shall be carried out in cases where dividends declared are at or above 2% of the market value of the underlying stock. The circular shall be effective from 29th June, 2022. [Circular No. SEBI/HO/MRD2/MRD2_DCAP/P/CIR/2022/90, dated 28th June, 2022.]

5.   LODR norms w.r.t disclosure of holding of specified securities amended: SEBI has amended regulation 31 of LODR, which deals with disclosure of holding of specified securities in dematerialized form. Hence, in the disclosure of public shareholding, names of the shareholders holding 1%, or more than 1% of shares of the listed entity is to be disclosed. Names of the shareholders who are persons acting in concert, if available, shall be disclosed separately. The circular shall come into force from the quarter ending 30th September, 2022. [Circular No. SEBI/HO/CFD/POD-1/P/CIR/2022/92, dated 30th June, 2022.]

6.   Investors/Public cautioned against fraudulent calls/ e-mails/ messages about refunds: SEBI noticed that unscrupulous individuals are trying to cheat the public by holding out as officials of the Recovery and Refund Department of SEBI and falsely informing them about a refund. Considering this, SEBI has cautioned the public against such false claims of refund and cautions them against parting with any documents/money on such calls/emails/messages etc. SEBI does not seek processing fees or money in any form in cases where money is to be refunded as per court order etc. [Press Release No. 22/2022, dated 07th July, 2022.]

7. Pending QIP issue, its pricing and probable impact on the share capital of the company are UPSI: Shri Arvind Bajpai, CS of Deepak Nitrite Limited (DNL), sought an interpretative letter under the SEBI (Informal Guidance) Scheme, 2003, on the issue that whether pending QIP issue, its pricing and probable impact on the share capital of the company, which is not yet known and shall be determined as per ICD regulations, be considered as Unpublished Price Sensitive Information (UPSI). SEBI clarified that pending QIP issue, its pricing and probable impact on the share capital of the company, is UPSI. [SEBI Informal Guidelines ISD/OW/2022/16109/1, dated 13th April, 2022.]

FEMA

1. Prohibition on investment in Bullion Depository Receipts on IIBX through LRS: RBI had allowed resident individuals to make remittances under LRS to IFSCs in India in 2016 but only for making investments in securities other than those issued by entities/companies resident in India outside the IFSC. IFSC has now clarified that resident individuals are not permitted to transact/invest in Bullion Spot Delivery Contract and Bullion Depository Receipt (BDR) on India International Bullion Exchange (IFSC) Limited (IIBX) through the LRS route. This is without prejudice to the participation of Qualified Jewellers as allowed by RBI and notified by the IFSCA for the purchase of BDRs for the sole purpose of import of gold through IIBX (reported in BCAJ, July 2022). [Circular No. 329/IFSCA/DPM/TS/2022-23/1, dated 17th June, 2022.]

2. Liberalisation of Forex flows: RBI has introduced several measures to liberalise forex flows in view of the global recessionary outlook and flight of capital from India in demand for safe haven in USD:

a. Exemption from Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) on Incremental FCNR(B) and NRE Term Deposits: Incremental FCNR(B) and NRE deposits with a reference base date of 1st July, 2022 will be exempt from the maintenance of CRR and SLR. This relaxation will be available for deposits mobilised up to 4th November, 2022. Transfers from Non-Resident (Ordinary) (NRO) accounts to NRE accounts shall not qualify for the relaxation.

b. Ceilings removed on Interest Rates on FCNR(B) and NRE Deposits: It has been decided to temporarily permit banks to raise fresh FCNR(B) and NRE deposits without reference to the extant regulations on interest rates, w.e.f. 7th July, 2022. This relaxation will be available for the period up to 31st October, 2022.

c. FPI Investment in debt: To encourage FPI investment in debt, the following changes to the regulatory regime are being put in place:

– A wider range of central government securities are now available for FPIs to invest in as “specified securities”.

– At present, for FPI investment in government and corporate debt, not more than 30 per cent of investments each in government securities and corporate bonds can have a residual maturity of less than one year. It has been decided that such investments made till 31st October, 2022 will be exempted from this short-term limit till the maturity or sale of such investments.

– FPIs can presently invest only in corporate debt instruments with a residual maturity of at least one year. It has been decided that till 31st October, 2022, FPIs can invest in commercial paper and non-convertible debentures with an original maturity of up to one year.

d. Foreign currency lending by AD Cat-I Banks: It has now been decided that AD Cat-I banks can utilise overseas foreign currency borrowing for lending in foreign currency to entities for a wider set of end-use purposes, subject to the negative list set out for external commercial borrowings (ECBs). This dispensation for raising such borrowings is available till 31st October, 2022.

e. External Commercial Borrowings (ECBs) limits and ceilings: It has been decided to temporarily increase the limit for ECBs under the automatic route from US $ 750 million per financial year to US $ 1.5 billion. The all-in cost ceiling under the ECB framework is also being raised by 100 basis points. These dispensations are available up to 31st December, 2022.

All the above measures have been supplemented with respective Circulars which can be referred to for full details. [Press Release: 2022-2023/481 dated 6th July, 2022; A.P. (DIR Series) Circulars No. 07 and No. 08 both dated 7th July, 2022; FMRD.FMID.No. 04/14.01.006/2022-23 dated 7th July, 2022; DOR.RET.REC.54/12.01.001/2022-23 dated 6th July, 2022 and DOR.SOG (SPE).REC.No 53/13.03.000/2022-23 dated 6th July, 2022.]

3. Trade with Sri Lanka now outside ACU mechanism: Sri Lanka and India are both part of the Asian Clearing Union (ACU) which mandates that trade between both countries should be done under the ACU mechanism. However, due to the situation in Sri Lanka, RBI has decided that all eligible current account transactions, including trade transactions with Sri Lanka, may be settled in any permitted currency outside the ACU mechanism until further notice. [A.P. (DIR Series 2022-23) Circular No. 9, dated 8th July, 2022.]

4. RBI allows international trade settlement in Indian Rupees: In an important development, RBI has decided to put in place an additional arrangement for invoicing, payment, and settlement of exports/imports in INR. Indian importers undertaking imports through this mechanism shall make payment in INR which shall be credited into the Special Vostro account of the correspondent bank of the partner country, against the invoices for the supply of goods or services from the overseas seller. Indian exporters, undertaking exports of goods and services through this mechanism, shall be paid the export proceeds in INR from the balances in the designated Special Vostro account of the correspondent bank of the partner country.

The Rupee surplus balance held may be used for permissible capital and current account transactions in accordance with mutual agreement. The balance in Special Vostro Accounts can be used for (a) Payments for projects and investments; (b) Export/Import advance flow management; and (c) Investment in Government Treasury Bills, Government securities, etc. in terms of extant guidelines and prescribed limits, subject to FEMA and similar statutory provisions. Before putting in place this mechanism, AD banks shall require prior approval from RBI. Further details are provided in the Circular. [A.P. (DIR Series) Circular No. 10, dated 11th July, 2022.]

ICAI MATERIAL

Accounts and Audit

1. Technical Guide on Financial Statements of Limited Liability Partnerships. [27th June, 2022.]

2. Educational Material on Ind AS 34, Interim Financial Reporting. [4th July, 2022.]

3. The Emerging Role of Auditors and CFOs in Addressing Risk Management: A New Perspective. [5th July, 2022.]

4. Guidance Note on the Companies (Auditor’s Report) Order, 2020 (Revised 2022 Edition). [14th July, 2022.]

NFRA REPORTS

1. Audit Quality Review (AQR) Report in respect of Statutory Audit done by SRBC & Co LLP of Infrastructure Leasing & Financial Services Limited (IL&FS) for F.Y. 2017-18 [22nd June, 2022.]

2. Financial Reporting Quality Review Report (FRQRR) of ISGEC Heavy Engineering Limited for F.Y. 2019-20 [20th July, 2022.]

BCAJ Admin

ALLIED LAWS

21 Papiya Mukherjee vs. Aruna Banerjea and another
AIR 2022 Calcutta 201
Date of order: 30th March, 2022
Bench: Prakash Shrivastava, J.

Partnership Deed – Arbitration clause – Valid after the partner’s death – Enforceable against the legal heirs of the deceased partner. [S. 11, Arbitration and Conciliation Act of 1996; S. 46, Partnership Act, 1932]

FACTS
Application under Section 11 of the Arbitration and Conciliation Act, 1996 was filed by the applicant for the appointment of an arbitrator to resolve dispute between the parties. One Dr. Dhrubajyoti Banerjea and the applicant had entered into a partnership deed for running the laboratory business. Dr. Dhrubajyoti Banerjea being of old age, had executed a power of attorney in favour of his wife, respondent No.1 herein. Dr. Dhrubajyoti Banerjea passed away on 9th April, 2015. The respondent denied the arbitration by taking the stand that there was no valid arbitration agreement between the parties.

HELD
It was held that respondents are the legal heirs/successors of Dr. Dhrubajyoti Banerjea. Section 40 of the Arbitration Act clearly provides that an arbitration agreement will not be discharged by the death of a party thereto and will be enforceable by or against the legal representatives of the deceased. Section 42 of the Partnership Act, 1932 provides for the dissolution of partnership firms by the death of a partner. In terms of Section 46 of the Partnership Act, on the dissolution of the firm every partner or his legal representative is entitled to, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm and to have the surplus distributed amongst the partners or their representatives according to their rights.

The application was allowed.

22 Jayasudha vs. Karpagam and others
AIR 2022 (NOC) 373 (MAD.)
Date of order: 4th March, 2021
Bench: T. Ravindran, J.

Hindu Undivided Family – Family Manager – Alienation of property – No immoral purpose – Binding on the family [S. 6, Hindu Succession Act, 1956; S. 92, Indian Evidence Act, 1872]

FACTS
The plaint was filed by the daughters of the family manager as the ancestral properties of the family had been sold by the family manager to his son and daughter-in-law. The plaintiffs claimed a share in the suit property on account of the amendment in the Hindu Succession Act. Further, the plaintiffs submitted that their signatures had been taken as attestors on the sale deed without disclosing the contents of the sale deed.

HELD
As the plaintiffs have admitted to signing the deed, their defence is found to be not in consonance with the provisions of Section 92 of the Indian Evidence Act. Further, the father of the Hindu Joint Family is entitled to alienate the joint family property, and the transfer made by the father need not be for legal necessity, and the same is binding on all the members of the family. When the sale deed executed by the father is not tainted with illegality or immorality, the daughters being the coparceners as per the amended Hindu Succession Act, would be bound by the sale deed executed by their father. Accordingly, the suit filed by the daughter claiming share in the alienated property was dismissed, and the appeal was allowed.

23 Dilip Hariramani vs. Bank of Baroda
AIR 2022 SUPREME COURT 2258
Date of order: 9th May, 2022
Bench: Ajay Rastogi, Sanjiv Khanna, JJ.

Dishonour of Cheque – Proceedings against Partner of Firm – No proceedings against the Firm – Firm not made accused or summoned – Conviction set aside. [Ss. 138, 141, Negotiable Instruments Act, 1881; Partnership Act, 1932]

FACTS
The appellant is challenging his conviction for the dishonour of cheques. The respondent had granted term loans and a cash credit facility to a partnership firm – Global Packaging. It is alleged that in part repayment of the loan, the firm, through its authorised signatory, had issued three cheques. However, the cheques were dishonoured on presentation due to insufficient funds. The bank, through its branch manager, issued a demand notice to the appellant u/s 138 of the Negotiable Instrument Act, 1881 (Act). The respondent bank, through its branch manager, filed a complaint before the Court of Judicial Magistrate, and subsequently, the appellant was convicted.

HELD
It is an admitted case of the respondent bank that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise than as a partner. The provisions of Section 141 impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offense as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable. Section 141 of the Act extends the vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 of the Act has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished. However, such vicarious liability arises only when the company or firm commits the offence as the primary offender.

Conviction set aside. The appeal was allowed.

24 Namdeo Babuji Bangde vs. State of Maharashtra & Ors.
AIR 2022 MAHARASHTRA 151
Date of order: 4th April, 2022
Bench: Rohit B. Deo, J.

Maintenance of senior citizen – harassed by son & daughter-in-law – Eviction of son & daughter-in-law by Tribunal – Proper [Ss. 4, 7, 23, 32, Maintenance and Welfare of Parents and Senior Citizens Act (56 of 2007)]

FACTS
The petitioners are the son and daughter-in-law respectively of respondents 2 and 3, and are assailing the order dated 21st January, 2020 rendered by the Tribunal constituted u/s 7 of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (Act) whereby the petitioners were directed to vacate the self-acquired residential house of the respondents 2 and 3. Respondent 2, who was then aged 78 years and respondent 3, who was then aged 67 years, preferred an application dated 21st August, 2018 contending that respondent 2 has constructed the residential house from self-earning in Nagpur, and that the petitioner 1 has illegally and forcibly taken possession of part of the said house and is conducting himself in a manner as would pose a serious threat to the safety and security of the respondents 2 and 3.

The Tribunal found from the material on record that there is a real possibility of the safety and security of the aged petitioners being jeopardised, and therefore, directed eviction by the order impugned. The petitioners have challenged the said order.

HELD
The petitioners claimed that the aged parents have lost their mental balance and are therefore, levelling false allegations. In the conservative Indian society, a son is not expected to brand his aged father a ‘swindler’ or then allege that the aged parents have lost mental balance. The Courts have repeatedly acknowledged the right of senior citizens or parents to live peacefully and with dignity. Therefore, an order of eviction is absolutely necessary in order to ensure the physical and emotional health and safety of the parents.

25 Indian Overseas Bank vs. RCM Infrastructure Limited & Another
2022 LiveLaw (SC) 496
Date of order: 18th May, 2022
Bench: L. Nageswara Rao & B.R. Gavai, JJ.

Recovery of Dues – After appointment of CIRP – All actions to foreclose – Insolvency and Bankruptcy Code, 2016 – Complete Code – Overrides any anything contained in other law. [Ss. 13, 14, 238, Insolvency and Bankruptcy Code, 2016; R. 8, 9, Security Interest (Enforcement Rules, 2002)]

FACTS
The appellant bank had extended certain credit facilities to the Corporate Debtor. However, the Corporate Debtor failed to repay the dues, and the loan account of the Corporate Debtor became irregular and came to be classified as a ‘NonPerforming Asset’ (NPA).

The appellant bank issued a demand notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESIA), calling upon the Corporate Debtor and its guarantors to repay the outstanding amount due to the appellant bank. Since the Corporate Debtor failed to comply with the demand notice and repay the outstanding dues, the appellant bank took symbolic possession of the two secured assets mortgaged exclusively with it. The same was done by the appellant bank in exercise of the powers conferred on it u/s 13(4) of the SARFAESIA read with Rule 8 of the Security Interest (Enforcement) Rules, 2002 (Rules). One of the said properties stood in the name of Corporate Debtor and the other in the name of Corporate Guarantor. An E-auction notice came to be issued by the appellant bank to recover the public money availed by the Corporate Debtor. In the meantime, the Corporate Debtor filed a petition u/s 10 of the Code before the learned NCLT.

HELD
After the CIRP is initiated, there is a moratorium for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the SARFAESIA. It is clear that once the CIRP is commenced, there is complete prohibition for any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property. It could thus be seen that the provisions of the IBC shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. This Court has consistently held that the IBC is a complete Code in itself and in view of the provisions of Section 238 of the Code, the provisions of the Code would prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force.

BCAJ Admin

GOODS AND SERVICES TAX

I SUPREME COURT

23 Union Of India vs. Willowood Chemicals Pvt. Ltd.
2022 (60) GSTL 3 (SC)
Date of order: 19th April, 2022

Interest at 9% on delayed refund can be granted only where refund arises on account of an order of adjudicating/appellate/Tribunal/Court

FACTS
Respondent was engaged in the export of goods without payment of duty and claimed the refund application of unutilized ITC of inputs and input services. There was no dispute concerning the eligibility for a refund. However, there was a delay of 94 to 290 days on the part of the department in disbursing the refund. Respondent filed a writ petition before the Hon’ble High Court asking for interest at 9% for such inordinate delay. Subsequently, the High Court decided the matter in favour of the respondent and granted interest at 9%. Being aggrieved by such, the appellant filed this special leave petition before the Apex Court.

HELD
The Supreme Court held that since delay in granting of refund ranged from 94 to 290 days was not excessive or unreasonable; interest should be granted solely as per the GST Law. It was further held that interest at the rate of 9% is applicable only when there is a delay in granting a refund pursuant to an order passed by Adjudicating Authority or Appellate Authority or Tribunal, or Court. Thus, the Hon’ble Supreme Court held that the High Court had erred in granting interest at 9% on delayed refund, and the respondent is entitled to interest at the rate of 6% per annum only.

II HIGH COURT

24 Vodafone Idea Ltd vs. UOI
[2022] 140 taxmann.com 327 (Bombay)
Date of order: 4th July, 2022

The consideration received by Indian telecom operator from foreign telecom operator (FTO) for providing connectivity and roaming services in respect of subscribers of FTO is not performance-based services falling u/s 13(3)(b) of the IGST Act as subscribers are neither the customers of the Indian telecom operator nor can they be said to be acting on behalf of FTO. As per the agreement, FTO pays the consideration for such services and hence is the recipient

FACTS
The assessee provides telecommunication services in the nature of International Inbound Roaming Services (IIR) and International Long Distance (ILD) Services to Foreign Telecom Operators (FTOs). It is by virtue of the said IIR and ILD services that a subscriber availing services from a home telecom operator (HO) in one country can avail uninterrupted connectivity when he is travelling outside his usual place of residence by using the same phone number which he uses in his country of residence. In other words, the services rendered are in the nature of telecom services by way of allowing to make international long-distance calls and roaming telecommunication services. To cater to such needs, almost all telecom service providers have similar agreements with telecom service providers in different countries/circles to provide telecom services to their customers while travelling outside their country and vice versa. The assessee enters into a contractual agreement with FTO agreeing to provide such services in respect of FTOs’ subscribers traveling to India. The consideration is payable to the assessee by the FTOs depending upon the usage of the subscriber and the arrangement between HO and FTO, the assessee would issue invoices on FTO, and the consideration is payable in convertible foreign exchange.

The assessee’s refund application, treating the said services as a zero-rated supply of services u/s 16(3) of the IGST Act, was rejected on the ground that the place of supply of services provided by the assessee was the State of Maharashtra by virtue of section 13(3)(b) of the IGST Act, and cannot be considered as an export of services.

The Joint Commissioner (Appeals) disposed of two appeals directing refund for the period May, 2019 to September, 2019. The assessee filed a writ to issue direction for immediate implementation of the said order, whereas the Revenue filed a writ petition for quashing of the said order on the ground that the orders upon which reliance has been placed by the Joint Commissioner (Appeals) while allowing the appeal is challenged before the Hon’ble Bombay High Court and Hon’ble Supreme Court of India, and therefore the questions of law on the said issue are still open. There was, however, no stay granted in any of these matters.

HELD
The Hon’ble Court noted that as per section 2(93)(a) of the CGST Act, where the consideration is payable for the supply of goods or service, ‘recipient’ means the person who is liable to pay the consideration. In this case, consideration is payable by the FTO for the services rendered to it, and hence, the said FTO will become the recipient. The Court further observed that in this case, revenue has not disputed that the assessee enters into an agreement only with the FTO and not with the subscribers of the FTO, and that the consideration is also paid by the FTO. The Court, therefore, held that the subscriber of the FTO cannot be considered as a recipient of service as held by Adjudicating Authority. FTO is undoubtedly the recipient of service.

As regards the applicability of section 13(3)(b), the Hon’ble Court held that the provision of section 13(3)(b) applies in the case where services are supplied to an individual as the section starts with the words “service supplied to an individual”. As in the present case, the services are not supplied to the individual, but to the FTO, and the assessee has no idea of the subscribers of the FTO, the question of supplying service to an individual (subscribers) does not arise.

Applying the concept of ‘customer’s customer cannot be your customer’, the Court held that in this case, the customer of the assessee is the FTO and the subscribers of FTO are the customers of FTO. The Court also confirmed the decisions of Mumbai CESTAT in the case of Vodafone Essar Cellular Ltd. vs. CCE(2013) (31)STR 738(Tri-Mum) and CST vs. Bayer Material Science (2015) 38 STR 1206 (Tri-Mumbai), ABS India Ltd. vs. CST(2009) 13 STR 65 (Tri Bang), it was held that as the service in question does not fall within the services specified in sub-sections (3) to (13) of section 13, the place of service or supply of service is the location of the recipient of the service, i.e. location of the FTO, which is outside India.

25 Atlas Pvc Pipes Ltd vs. State of Odisha
[2022] 140 taxmann.com 162 (Orissa)
Date of order: 29th June, 2022

Filing of a certified copy of the order within 7 days of the filing of an appeal is provided merely as a procedural requirement and non-compliance thereto being a technical default does not warrant dismissal of the appeal without hearing the same on merit

FACTS
The Joint Commissioner of CT&GST rejected the appeal filed on 21st April, 2021 assailing the order dated 20th January, passed by the CT&GST Officer on the ground that the appellant has not submitted the certified copies within seven days of the filing of the appeal. The petitioner submitted that in addition to the filing of the appeal by electronic mode, self-attested hard copies of the documents, including a copy of the impugned order as made available to it in the GST web portal, were furnished to the Appellate Authority. Nonetheless, the petitioner received a notice dated 13th May, 2022 on 20th May, 2022 directing him to file a certified copy on or before 21st May, 2022. The petitioner applied for and obtained a certified copy of the required document on 21st May, 2022. Since the office of the Opposite Party No. 2 was closed on 22nd May, 2022, being Sunday, the step could only be taken on 23rd May, 2022 to comply with the terms of notice dated 13th May, 2022. However, the department refused to accept the same, stating that he had already passed the order of rejection of appeal and uploaded the same in the GST portal on 23rd May, 2022.

HELD
The Court referred to the decision of Shree Jagannath Traders vs. Commissioner of State Tax, Odisha, Cuttack, (W.P.(C) No.15061 of 2021) and Shree Udyog vs. Commissioner of State Tax, (W.P.(C) No.14887 of 2021), wherein in identical circumstances the Court had held that mere delay in enclosing a certified copy of the order appealed against along with the appeal should not come in the way of the petitioner’s appeal for being considered on merits by the Appellate Authority. The Court further referred to the order of Hon’ble Supreme Court in the case of In Re: Cognizance For Extension of Limitation being Miscellaneous Application No. 21 of 2022 and observed that even after rectifying the defect pointed out by the department, the same fell within 90 days period granted by the Hon’ble Supreme Court in the order dated 10th January, 2022. The Court held that the appeal was rejected without giving any further notice of proceedings to the petitioner, thereby causing a violation of natural justice. The Court further held that Rule 108(3) has not prescribed for condonation of delay in the event where the petitioner would fail to submit a certified copy of the order impugned in the appeal, nor is there any provision restricting the application of section 5 of the Limitation Act, 1963, in the context of the supply of certified copy within seven days and that the requirement to furnish a certified copy of the impugned order within seven days of the filing of an appeal is provided as a procedural requirement.

The Court, therefore, held that since the petitioner has enclosed the copy of the impugned order as made available to it in the GST portal while filing the Memo of Appeal, non-submission of a certified copy is to be treated as a mere technical defect and on the altar of default in compliance of such a procedural requirement, the merit of the matter in appeal should not have been sacrificed, and set aside the said impugned order restoring back the appeal to be decided on the merit.

26 Progressive Stone Work vs.
Joint Commissioner (ST)
[2022] 139 taxmann.com 531 (Madras)
Date of order: 16th June, 2022

The Court refused to entertain the writ petition challenging the assessment order resulting in demand consequent upon a mismatch of ITC as per GSTR-3B and GSTR-2A stating that such disputes can be best resolved by adopting the statutory mechanism of appeal prescribed in the law

FACTS
The petitioner challenged assessment orders for 2017-18 and 2018-19. There is a difference in the ITC claimed by the petitioner in its GSTR-2B and the information captured in the GSTR-2A as compared to the GSTR-1 of the supplier for the respective assessment years. The petitioner relied upon Circular No. 125/44/2019-GST (para 2.3), Circular dated 18th November, 2019 bearing Circular No. 125/44/2019-GST (Para 36), various other circulars and press releases dated 4th March, 2018 and 18th October, 2018 to submit that credit availed on the strength of invoices issued by the supplier under the provisions of the GST Act, 2017 cannot be denied as input tax credit was availed on the strength of the invoices on which tax charged by the supplier of the petitioner and the mistake committed by the supplier in not properly uploading the information in their GSTR-1 would not come in the legitimate ITC availment of the recipient petitioner. It was also contended that section 42 of the CGST has not been fully implemented, and therefore the impugned orders are not sustainable.

HELD
The Hon’ble High Court noted the entire scheme of GST law as regards the filing of returns by the supplier and claiming of input tax credit by the recipient and held that these matters are best left to be resolved before the hierarchy of the Appellate Authority prescribed under the Act. It further held that the Courts had recognised few exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoking the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, such cases may be considered in the writ jurisdiction. However, none of the said exceptions is attracted in the facts of this case. Therefore, the writ was dismissed by allowing the petitioner to prefer an appeal against the said order in accordance with the provisions of section 107 of the CGST Act.

27 Sri Sri Engineering Works vs.
Deputy Commissioner (CT), Hyderabad
[2022] 140 taxmann.com 303 (Telangana)
Date of order: 5th July, 2022

Telangana Value Added Tax (Second Amendment) Act, 2017 made on 2nd December, 2017 though given retrospective effect from 17th June, 2017 extending the time limit for completion of assessments, re-assessments, revision etc. under certain provisions of the Telangana Value Added Tax Act up to six years, cannot be sustained as the same is devoid of legislative competence

FACTS
The petitioner challenged the Telangana Value Added Tax (Second Amendment) Act, 2017, which received the assent of the Governor on 29th November, 2017 and was first published in the Telangana Gazette on 2nd December, 2017, and came into force from 17th June, 2017 which extended the time limit for completion of assessments, re-assessments, revision etc. under certain provisions of the Telangana VAT Act up to six years on the ground that the State of Telangana was denuded of legislative competence to enact the Second Amendment Act after the Constitution (101st Amendment) Act, 2016, and after enactment of the CGST Act and TGST Act.

HELD
The decisions in the case of M/s. Pankaj Advertising vs. State of U.P (2020) 73 GSTR 235 (All), Jain Distillery Private Limited vs. State of U.P 2021 (10) TMI 583 (All) and Reliance Industries Limited 2020 (82) GSTR 32 (Guj.) were relied upon to hold that not only the Second Amendment Act cannot be traced to Article 246 of the Constitution read with Entry 54 of List II of the VII Schedule, the same cannot also be sustained as stand-alone legislation of the State under Article 246A of the Constitution in the absence of simultaneous legislation by the Parliament.

Referring to section 19 of the Constitutional Amendment Act, the Court held that all that section 19 does is to provide a period to eliminate or remove all laws inconsistent with the GST regime within an outer limit of one year period. Section 19 only allows the operation and levy of tax under the VAT Act, which is inconsistent with the GST regime for a period of one year or until the VAT Act is repealed or amended, whichever is earlier. This would mean that the State could continue to levy tax under the VAT Act for the window period of one year or till the VAT Act was amended or repealed to align it with the GST regime, whichever was earlier. Section 19 does not and cannot be construed to eclipse the amendments carried out in Entry 54 of List II to the VII Schedule or confer legislative competence upon the State Legislatures for making amendments to the VAT Act in respect of goods other than the five petroleum products and alcohol for human consumption covered by the amended (substituted) Entry 54 of List II. Accordingly, the Court held that section 19 of the Constitution Amendment Act could not be construed as a source of legislative power to enact the second amendment Act. Referring to Sheen Golden Jewels (India) Pvt. Limited vs. State Tax Officer 2019 SCC OnLine Ker 973, the Court held that it is merely a transitionary provision and not a saving provision in respect of suspending legislative competence to amend the VAT Act.

The Court held that legislative competence could not flow from earlier legislation, be it an ordinance or an enactment. It further held that the ostensible objective of the ordinance is to save any investigation, assessment, recovery of dues, legal proceedings, etc., pending on the date of coming into force of the Constitution Amendment Act. However, limitations across the board could not be extended by way of amendment to initiate fresh proceedings as fresh revision proceedings, which otherwise had become time-barred. Hence, although there was no challenge to the said ordinance, it was held that the provisions introduced by the said ordinance extending limitation to enable initiation of fresh proceedings are inconsistent with the scheme of the Constitution Amendment Act.

28 Pragati Engineers vs. Union of India
2022 (60) GSTL 45 (Del.)
Date of order: 15th November, 2021

Casual taxable persons are compulsorily required to take separate GST registration in every state from which they make taxable supplies

FACTS
The petitioner was registered under the GST law in Delhi. He successfully bid for a tender to supply goods and services in Hyderabad. The petitioner was of the view that, since it was already registered in Delhi and did not have any place of business in Hyderabad, it was not required to take registration in Hyderabad. However, the department contended that separate registration is required by the petitioner in every state it intends to conduct its business. To challenge the above stand, the petitioner preferred this writ petition before the Hon’ble High Court.

HELD
It was held that a plain reading of section 24 of the CGST Act clearly mandates a casual taxable person to take registration in every state from which it makes taxable supplies. Thus, the petitioner was directed to follow appropriate steps to take separate GST registration and meet the requirements of the tender.

29 Dantara Jewellers vs. State of Kerala
2022 (60) GSTL 46 (Ker.)
Date of order: 7th October, 2021

Refund cannot be denied on the ground of technical glitches in system

FACTS
The petitioner had paid tax and penalty as per the order issued u/s 129(3) of the CGST Act and SGST Act. Thereafter, the petitioner challenged such order before the Appellate Authority, and the petitioner was found not liable for any payment. Therefore, the petitioner claimed a refund u/s 54 of the CGST Act. However, the refund was rejected by the department stating that the amount paid at the first instance was made through a temporary account, and since the temporary account was no longer available, the refund could not be granted. Being aggrieved by such rejection, the petitioner preferred the writ petition.

HELD
It was held that the conduct of the respondent was not appreciable. Technical glitches occurring mainly due to the transition phase shall not stand in the way of providing an ultimate refund to protect the sanctity of the GST Law. Thus, the Hon’ble Court directed the respondent to grant a refund within 30 days from receipt of the judgement, and accordingly, the writ was allowed.

30 Senior Intelligence Officer, DGGI vs.
Shri Nandhi Dhall Mills India Pvt. Ltd.
2022 (60) G.S.T.L. 227 (Mad.)
Date of order: 23rd February, 2022

No amount towards tax liability can be recovered at the time of search even when taxpayer voluntarily pays the same

FACTS
The respondent was engaged in the supply of pulses, dal and flour. A search was conducted on the respondent’s business premises based on information that the respondent was involved in tax evasion. On the date of search, the managing director voluntarily paid a sum of Rs. 1 crore and agreed to pay the balance amount in instalments. The respondent paid the first instalment of Rs. 1 crore a week after the search. Later, the respondent applied for a refund of Rs. 2 crores and filed a writ petition stating that the amount was paid forcefully under threat and coercion.

HELD
The Hon’ble High Court directed the department to issue a show-cause notice to the respondent and asked the respondent to reply. The department was required to afford an opportunity of being heard, and the respondent to appear for personal hearing and make his submissions. After a hearing, the department would have to pass appropriate orders on merits determining the amount of tax. Meanwhile, the respondent was entitled to refund of the amount already paid.

31 Femina Shopping Mall Pvt. Ltd. vs. Assistant Commissioner of GST and Central Excise, Division-I, Tiruchirappalli
2022 (60) GSTL 38 (Mad.)
Date of order: 27th October, 2021

Inspecting officer was not the proper officer for issue of Show-cause Notice pursuant to Tamil Nadu State GST Circular No. 23/2021 dated 4th October, 2021

FACTS
A show-cause notice (SCN) was issued to the petitioner on 12th October, 2021 directly by the inspecting officer without sending the report to the jurisdictional officer. The petitioner contented that the inspecting officer did not have the jurisdiction to issue an SCN. Accordingly, the petitioner challenged the issue of SCN by way of a writ petition before this Hon’ble High Court.

HELD
It was held that on perusal of Paras 5.2 and 5.3 of the Tamil Nadu State Department Circular No. 23/2021 dated 4th October, 2021, after inspection conducted by the inspecting officer, he should have forwarded the report to the jurisdictional officer for further action. Accordingly, it was concluded that the inspecting officer was not the proper officer for the issue of SCN, and an interim stay order as desired by the petitioner was granted.

III AUTHORITY FOR ADVANCE RULING

32 Emcure Pharmaceuticals Ltd.
2022 (60) GSTL 231 (AAR Mah.)
Date of order: 4th January, 2022

Subsidised amount recovered for canteen and bus transportation facilities as well as amount recovered from employee by employer for not serving the notice period as a part of contractual agreement are not taxable under GST Law

FACTS
The applicant is a pharmaceutical company engaged in developing, manufacturing and marketing pharmaceutical products. The employment agreement included providing canteen facilities and bus transportation facilities to employees. Also, there was a condition for the recovery from employees if the notice period was not served. For providing canteen and bus transportation facilities, the applicant has engaged a third party. The applicant put forth three questions to the Advance Ruling Authority. First, whether subsidised amount recovered from employees for canteen facilities by the applicant is liable for GST. Second, whether subsidised amount recovered from employees for bus transportation facilities by the applicant is liable for GST. Third, whether notice pay recovered from employee for not serving or partly serving notice period is liable for GST.

HELD
The AAR held that the canteen and bus transportation facilities provided by the applicant as part of welfare and security measure to employees do not tantamount to the supply of services in the course or furtherance of its pharmaceutical business and thus does not qualify as a supply under GST Law. The AAR also held that the notice pay recovery, as part of the employment agreement, does not fall within the ambit of Schedule II of the CGST Act. Therefore, notice pay recovered from the employee for not serving or partly serving the notice period by the applicant is not liable for GST.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

I. NOTIFICATIONS

The GST Council at its 47th Meeting on 28th June, 2022 took various policy decisions. For the sake of brevity, they are not mentioned in this feature. However, consequent to said decisions, relevant notifications are issued by authorities. The short gist of notifications is given below:

1. Notification No. 9/2022-Central Tax, dated 5th July, 2022

Section 49 and 50(3)
Provision of Clause (c) of Sections 110 and 111 of Finance Act, 2022 are made effective from 5th July, 2022. By section 110(c), section 49 is amended.

Balance available in E-cash ledger can be transferred from one tax type ledger to another tax type ledger like from IGST to CGST/SGST or vice versa.

The balance available in Electronic Cash Ledger of CGST/IGST can be transferred to a distinct person with a different GSTIN but having same PAN. This is a good facility made available to taxpayers.

By section 111 of Finance Act, section 50(3) is substituted from 1st July, 2017. As per the amendment, interest at the prescribed rate applies only upon utilization of the wrong ITC.

2. Notification No. 10/2022-Central Tax, dated 5th July, 2022

Section 44
Annual return for 2021-22 not required to be filed by a tax payer whose total turnover in F.Y. 2021-22 is up to
Rs. 2 crores.

3. Notification No. 11/2022-Central Tax, dated 5th July, 2022

Amendment to Notification No. 21/2019-Central Tax, dated, 23rd April, 2019
The due date of filing CMP-08 for Composition tax persons for April to June, 2022 quarter is extended from 18th July, 2022 to 31st July, 2022.

4. Notification No.12/2022-Central Tax, dated 5th July, 2022

Amendment to Notification No. 73/2017-Central Tax, dated. 29th December, 2017
Waiver of late fees up to the period 28th July, 2022 for GSTR-4 of F.Y. 2021-22.

5. Notification No.13/2022-Central Tax, dated 5th July, 2022

Modification of Notification 35/2020-Central Tax dated, 3rd July, 2020 read with similar notifications under IGST/Union Territory Act
Time for passing orders in various events like tax not paid/ short paid or ITC wrongly availed / utilized, erroneous refunds etc. for 2017-18, is extended by 6 months i.e., till September, 2023. The period from 1st March, 2020 to 28th February, 2022 is excluded for calculating limitation for filing refund applications u/s 54/55.

6. Notification No. 14/2022-Central Tax, dated 5th July, 2022

Amendment to various Rules effective from 5th July, 2022
(i) Deeming Clause added as 5th Proviso in Rule 21A(4), whereby it is provided that suspension of Registration Certificate due to non-filing of returns should be deemed to be revoked on furnishing of all pending returns.

(ii) Rule 43 provides for the manner of determination of ITC in respect of capital goods and reversal thereof. There is an explanation providing that aggregate value of exempt supplies should exclude certain items. Now, by insertion of clause (d) in the said Explanation, the value of Duty Credit Scripts specified in Notification no.15/2017-Central Tax (Rate) dated 13th October, 2017 is also excluded from the exempt category.

(iii) Amendment in Rule 46. Clause (3) is inserted. It is to give specific declaration on invoice where the taxpayer is otherwise liable to issue E-invoice, but not issuing in case of specific invoice. This can apply when exclusion clause in respect of issue of E-invoice is applicable.

(iv) Amendment in Rule 86. Rule 86(4B) is newly inserted. It is provided that where the amount of erroneous refund granted u/s 54(3) or u/r 96(3) is paid back by debit to E-cash ledger, then the amount of erroneous refund should be re-credited to E-Credit ledger by order in GST-PMT-03A.

(v) Rule 87(3) is amended wherein clauses (ia) and (ib) are inserted to provide facility of GST payment by UPI or IMPS.

(vi) By amendment in rule 87(5), in addition to RTGS, IPS is also included for generating challan.

(vii) Rule 87(14) is inserted pursuant to change in section 49. The facility to transfer balance in E-Cash Ledger to distinct person is permitted by GST-PMT-09 subject to condition that there is no unpaid liability in case of transferor.

(viii) Rule 88B is inserted for calculation of interest. By Rule 88B(1) it is provided that if supplies are declared in return and said return is filed belatedly, (except in proceeding u/s 73/74) the interest will be on cash portion paid towards such return. As per section 88B(2), in cases other than above, interest will be on tax remaining unpaid. As per section 88B(3), in case of wrong availment of ITC, the interest will be payable from date of utilization till date of reversal or date of payment of tax towards such wrong utilization. By Explanation, the extent of utilization and time points of utilization are clarified. This rule is applicable from 1st July, 2017.

(ix) In rule 89(1), procedural changes about reference to specified officer is made.

(x) As per section 89(2)(b), statement containing given particulars is required to be submitted along with RFD-01. However, electricity is excluded from such requirement.

(xi) By inserting Rule 89(2)(ba), a separate requirement of furnishing information is prescribed for claiming a refund in relation to the export of electricity.

(xii) Rule 89(4) provides formula for working out refund amount in case of zero-rated supplies under Bond or LUT. In the said rule, an explanation is inserted to provide that for said formula, the value of goods exported shall be taken as the FOB value or the invoice value, whichever is less.

(xiii) Rule 89(5) provides formula for working out refund on account of inverted duty structure. The formula is amended to consider utilization of ITC on account of inputs and input services in the same ratio, in which ITC had been availed during the said period.

(xiv) Rule 95A which provides for refund to retail outlets situated in international airports is omitted from inception i.e. from 1st July, 2019.

(xv) Clause (b) in Rule 96(1) is substituted from 1st July, 2017. Now, it is provided that if the applicant has furnished a valid return in GSTR-3B, and if there is any mismatch between the shipping bill and the statement of outward supplies in GSTR-1, then in such case, the date of filing will be the date when such mismatch is rectified.

(xvi) By amendment in Rule 96(4), clause (c) is inserted. The withholding power is extended where the verification of credentials of exporter is felt necessary.

(xvii) Rule 96(5) about intimation of withholding is omitted. New sub-rules (5A), (5B) and (5C) are inserted in Rule 96. The procedure for re-initiation of withheld refund in different situations is given in the above new sub-rules. Rules 96(6)/96(7) are omitted.

(xviii) There are various changes in various forms prescribed under Rules. However, for sake of brevity they are not discussed here.

7. Notification No. 15/2022-Central Tax, dated 13th July, 2022

Amendment in entry (4) in Notification No.10/2019-Central Tax dated 7th March, 2019
The original entry (4) read as under:

“Fly ash bricks or fly ash aggregate with 90 per cent. or more fly ash content; Fly ash blocks”. Now it is substituted as under:

“Fly ash bricks; Fly ash aggregates; Fly ash blocks”.

8. Notification No. 16/2022-Central Tax, dated 13th July, 2022

Amendment in entry (4) in Notification No.14/2019-Central Tax dated 7th March, 2019
Substitution made above by notification no.15/2022 is also made in this entry (4). The substituted entry (4) reads as under:

“Fly ash bricks; Fly ash aggregates; Fly ash blocks”

9. Notifications for changes in Rates

The Government of India has issued Notifications bearing no.3/2022-Central Tax (Rate) to Notification bearing no.11/2022-Central Tax (Rate), all dated 13th July, 2022. By these notifications, various changes are made in the rate of tax on the supply of goods or services as well as RCM and exemptions, as per decisions in the 47th Council Meeting. For sake of brevity the same are not discussed here in detail.

10. Notification No. 1/2022-Compensation Cess, dated 24th June, 2022

Cess Act
Notification is issued u/s 12(2) r.w.s. 8 of the GST (Compensation to States) Act, 2017. By the said notification, the operation of Cess Act is extended till 31st March, 2026.

II. CIRCULARS

a) Information to be supplied in form GSTR-3B – Circular No. 170/02/2022-GST, dated 6th July, 2022.
Clarifications about mandatory furnishing of correct and proper information of inter-state supplies and the amount of ineligible / blocked ITC and reversal thereof are given.

b) Fake Invoices – Clarifications – Circular No.171/03/2022-GST, dated 6th July, 2022
Various issues pertaining to fake invoices like assessment, ITC, action on issuer / receiver, are clarified.

c) Clarifications of certain issues – Circular No. 172/04/2022-GST, dated 6th July, 2022
Various issues pertaining to the following are clarified.

i. refund claimed by the recipients of supplies regarded as deemed export,

ii. interpretation of section 17(5) of the CGST Act,

iii. perquisites provided by employer to the employees as per contractual agreement, and

iv. utilisation of the amounts available in the electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities.

d) Clarifications about refund under Inverted Duty Structure – Circular No. 173/05/2022-GST dated 6th July, 2022
The contents in earlier circular 135/05/2022-GST dated 31st March, 2020 regarding eligibility to refund in peculiar facts of the case under inverted duty structure are modified. It is stated that even if the output tax rate is lower due to any concessional notification, the refund will be eligible subject to other conditions stated therein.

e) Re-credit in E-Credit ledger – Circular No. 174/06/2022-GST, dated 6th July, 2022
The procedure to re-credit refund amounts where the erroneously granted refund is paid back in cash by DRC-03 is explained. The re-credit will be done through PMT-03A by jurisdictional officer on getting written request.

f) Refund upon export of electricity – Circular No. 175/07/2022-GST, dated 6th July, 2022
The manner of filing refund claim of unutilized ITC on account of Export of electricity is explained.

g) Withdrawal of Circular about refund to retail outlets – Circular No. 176/08/2022-GST, dated 6th July, 2022
By circular 106/25/2019-GST, dated 29th June, 2019, the procedure of refund to retail outlets situated in departure area of international airport was given. The said circular is withdrawn by the above circular, as Rule 95A itself is omitted.

III. INSTRUCTIONS

(i) Instruction No. 2/2022-GST, dated 22nd March, 2022 The Standard Operating Procedure (SOP) for Scrutiny of returns for F.Y. 2017-18 and 2018-19 is given.

(ii) Instruction No. 3/2022-GST, dated 14th June, 2022 Instructions are issued relating to sanction, post audit and review of refund claims. Various aspects are covered in above instructions.

IV. ADVANCE RULINGS

Swadeshi Empesa Pvt. Ltd.
[Order No. GUJ/GAAR/R/2022/29
dated 11th May, 2022]

Classification – ‘Fire Safety Product assembled on trolley’

The issue before the Gujarat AAR was about the classification of the above item. The contention of the applicant was that the said goods are covered by HSN 84241000. The learned AAR examined the facts and found that the above heading 8424 does not include fire-fighting pumps with or without internal reservoirs, whereas heading 8413 covers pumps for liquid whether or not fitted with a measuring device. The learned AAR also observed that HSN explanatory notes to 8424 have excluded such fire extinguishing goods and categorized them under heading 8413. Therefore, the learned AAR ruled that the said fire safety product trolley is classifiable under HSN 84131990.

BCAJ Admin

FINANCIAL REPORTING DOSSIER

A. KEY RECENT UPDATES

1. FASB – ACCOUNTING FOR GOVERNMENT GRANTS

On 13th June, 2022, the Financial Accounting Standards Board (FASB) issued an Invitation to Comment (ITC) document titled Accounting for Government Grants by Business Entities – Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into Generally Accepted Accounting Principles. Extant USGAAP does not have specific topical authoritative guidance related to the accounting for government grants by business entities. The FASB in the ITC has requested stakeholder comments on whether the FASB should consider incorporating into USGAAP the related guidance in IFRS (IAS 20), and if yes, what aspects of IAS 20 related to recognition, measurement and/or presentation should be incorporated.

[https://www.fasb.org/Page/ShowPdf?path=ITC—Government+Grants+by+Business+Entities.pdf&title=Invitation+to+Comment—Accounting+for+Government+Grants+by+Business+Entities%3A+Potential+Incorporation+of+IAS+20%2C+Accounting+for+Government+Grants+and+Disclosure+of+Government+Assistance%2C+into+Generally+Accepted+Accounting+Principles&acceptedDisclaimer=true&Submit=]

2. PCAOB – NEW REQUIREMENTS FOR LEAD AUDITORS

On 21st June, 2022, the Public Company Accounting Oversight Board (PCAOB) adopted amendments to its auditing standards. The amendments specify certain procedures for the lead auditor to perform when planning and supervising an audit involving other auditors and applying a risk-based supervisory approach to the lead auditor’s oversight of other auditors for whose work the lead auditor assumes responsibility. The amendments apply to all audits conducted under PCAOB standards and will take effect for audits of financial statements for fiscal years ending on or after 15th December, 2024. [https://pcaob-assets.azureedge.net/pcaob-dev/docs/default-source/rulemaking/docket042/pcaob-other-auditors-adopting-release-6-21-2022.pdf?sfvrsn=c3712668_2]

3. UK FRC – PROFESSIONAL JUDGEMENT GUIDANCE

On 23rd June, 2022, the UK Financial Reporting Council (FRC) issued Professional Judgement Guidance (non-prescriptive) comprising a framework for making professional judgements. It also contains a series of illustrative examples showing the exercise of professional judgement in practice. The guidance has been issued since professional judgement is required in all areas of an audit (design, implementation, and operation of a quality management system at the firm level). The newly issued guidance is expected to improve audit quality by enhancing the consistency and quality of professional judgement exercised by auditors. [https://www.frc.org.uk/getattachment/fff79ba1-3b5a-4c04-8f1e-eb8df3aacd40/FRC-Professional-Judgement-Guidance_June-2022.pdf]

INTERNATIONAL FINANCIAL REPORTING MATERIAL

1. UK FRC – Thematic Review: Discount Rates. [16th May, 2022.]

2. UK FRC Report – Key Findings Reported in 2020/21 Inspection Cycle. [27th May, 2022.]

3. UK FRC Report – Good Practices Reported in 2020/21 Inspection Cycle. [27th May, 2022.]

4. IASB – Project Report and Feedback Statement – Post-implementation Review of IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements and IFRS 12, Disclosure of Interests in Other Entities. [20th June, 2022.]

B. GLOBAL REGULATORS – ENFORCEMENT ACTIONS AND INSPECTION REPORTS

I. THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB)

ENFORCEMENT ACTIONS

1. JLKZ CPA LLP AND JIMMY P. LEE, CPA

The case – The respondents allowed audit reports to be issued by JLKZ after an unregistered public accounting firm had conducted the underlying audits. JLKZ entered into an arrangement with Stone Forest contemplating that Stone Forest personnel would act as the engagement partner and engagement quality review partner for certain issuer audits and that Stone Forest would receive the majority of the audit fees for such audits. The 2019 audits of Issuer A and Issuer B were conducted under that arrangement. JLKZ’s involvement in these audits was limited to a review of certain work papers, primarily to check that they used JLKZ templates, and a draft of the financial statements by Lee near the end of the audit. Lee nonetheless agreed to the issuance of audit reports for Issuer A and Issuer B by JLKZ.

JLKZ violated AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion by issuing audit reports where it had not conducted the underlying audits. By taking or omitting to take actions knowing, or recklessly not knowing, that his acts and omissions would directly and substantially contribute to the Firm’s AS 3101 violations, Lee violated PCAOB Rule 3502, Responsibility Not to Knowingly or Recklessly Contribute to Violations.

The Order – The PCAOB censured the respondents and limited JLKZ’s activities for two years, prohibited JLKZ from accepting engagements to prepare or issue audit reports for new clients and imposed a civil money penalty of $50,000 jointly and severally on Respondents. [Release No. 105-2022-005 dated 19th April, 2022.]

DEFICIENCIES IDENTIFIED IN AUDITS

1. DE VISSER GRAY LLP, CANADA

Audit area – PCAOB rules and regulations

Audit deficiency identified – 1) In one of two audits reviewed by the PCAOB, the Audit Firm did not assemble a complete and final set of audit documentation for retention within 45 days following the report release date. In this instance, the firm was non-compliant with AS 1215, Audit Documentation. 2) In one of two audits reviewed, the Audit Firm’s report on Form AP (Audit Participants) contained inaccurate information, such as the engagement partner’s name and Partner ID. In this instance, the firm was non-compliant with PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants. [Release No. 104-2022-014 dated 20th January, 2022.]

2. KPMG INC, JOHANNESBURG

Audit area – Cash and cash equivalents

Audit deficiency identified – The Audit Client closed its books and records before its calendar year-end and did not record certain transactions that occurred between the closing date and year-end. The Audit Firm did not identify and appropriately address that the client’s accounting treatment for these transactions was not in conformity with the International Accounting Standards Board’s Conceptual Framework for Financial Reporting. [Release No. 104-2022-053 dated 27th January, 2022.]

3. DELOITTE & TOUCHE, COLOMBIA

Audit area – Other receivables

Audit deficiency identified – To test other receivables, the Audit Firm sent positive confirmation requests to a selection of the client’s customers. The firm did not receive a response to any of the confirmation requests sent and did not perform alternative procedures to test whether the recorded amounts of the other receivables were accurate and existed as of the confirmation date. [Release No. 104-2022-047 dated 27th January, 2022.]

4. ACCELL AUDIT & COMPLIANCE, P.A, FLORIDA

Audit area – Inventory

Audit deficiency identified – An outside custodian held certain inventory of an audit client. The Audit Firm did not perform sufficient procedures to test the existence of this inventory because it limited its procedures to testing certain purchases of inventory during the year. [Release No. 104-2022-070 dated 28th February, 2022.]

5. KPMG, PANAMA

Audit area – Revenue

Audit deficiency identified – The audit client reported revenue from multiple sources. The Audit Firm did not evaluate whether persuasive evidence of an arrangement existed and delivery of services had occurred as of the date in which certain revenue transactions selected for testing had been recognized. Further, the Audit Firm did not perform any substantive procedures to test certain other revenue transactions. In addition, for one source of revenue, it did not test, or in the alternative test any controls over, the accuracy and completeness of data used by the client to calculate the revenue. [Release No. 104-2022-089 dated 10th March, 2022.]

6. KIRTANE & PANDIT LLP, INDIA

Audit area – Significant accounts and disclosure

Audit deficiency identified – The Audit Firm did not plan and perform an audit that provided a reasonable basis for its audit opinion on the issuer’s financial statements because its procedures were limited to inquiring of management and obtaining a bank statement, one sale invoice, and one purchase invoice. [Release No. 104-2022-099 dated 24th March, 2022.]

7. ASA & ASSOCIATES LLP, INDIA

Audit area – Allowance for doubtful accounts

Audit deficiency identified – The Audit Firm selected for testing certain controls that consisted of the client’s review of the allowance for doubtful accounts. It did not evaluate whether the controls were designed and operating effectively to ensure the methodology and assumptions used by management to develop the allowance for doubtful accounts conformed with accounting standards. The audit firm failed to evaluate whether the allowance for doubtful accounts was developed in conformity with IFRS. [Release No. 104-2022-095 dated 24th March, 2022.]

II. THE SECURITIES EXCHANGE COMMISSION (SEC)

1. Three Tech Company employees from Billing Platform Group of Twilio charged in $ 1 million insider trading scheme

In 2020, Twilio, a listed entity, generated revenue from its cloud computing platform by charging usage-based fees to clients that increased their usage/extended their use of its product or adopted a new product. An internal group called the Billing Platform Group was responsible for generating invoices. The group created internal systems that aggregated customer usage. Since these metrics (including the number and value of invoices generated and the aggregated customer usage) directly affected quarterly revenue numbers, the group was also involved in month-end and quarter-end processes. The group worked with the revenue accounting team to provide data that was then used in the company’s financial-close reporting, including preparing financial statements provided to its shareholders and reported to the SEC.

In March 2020, the respondents (three employees) learned through the databases that Twilio’s customers had increased their usage of the company’s products and services in response to health measures taken considering the pandemic and concluded in a joint chat that Twilio’s stock price would “rise for sure”.

The SEC’s complaint alleges that despite a company policy that prohibited them from insider trading, the respondents knowingly tipped off, or used the brokerage accounts of, their family and close friends to trade Twilio options and stock in advance of its May 2020 earnings announcement while in possession of the confidential information concerning customer usage. According to the complaint, the scheme generated more than $1 million in illegal trading profits. [Release No. 2022-55 dated 28th March, 2022 – https://www.sec.gov/litigation/complaints/2022/comp-pr2022-55.pdf]

2. EPS management – Rollins Inc to pay $ 8 million to settle accounting violations

The SEC announced that Rollins Inc., a listed pest control company, agreed to pay $ 8 million to settle charges that it engaged in improper accounting practices to boost its publicly reported quarterly earnings per share (EPS) to meet research analysts’ consensus estimates.

According to the order, in Q1 2016 and Q2 2017, Rollins made unsupported reductions to their accounting reserves in amounts sufficient to allow the company to round up reported EPS to the next penny. The company’s then CFO directed the improper accounting adjustments without analysing the appropriate accounting criteria under GAAP. The order also finds that Rollins made other accounting entries not supported by adequate documentation in multiple additional quarters from 2016 through 2018. The SEC’s order found violations related to the financial reporting, books and records, and internal controls provisions of the Securities Exchange Act of 1934.

Without admitting or denying the SEC’s findings, Rollins and it’s then CFO agreed to cease and desist from future violations of the charged provisions and pay civil penalties of $8 million and $100,000, respectively. [Release No. 2022-64 dated 18th April, 2022 – https://www.sec.gov/litigation/admin/2022/33-11052.pdf]

3. NVIDIA Corporation charged with inadequate disclosures about impact of crypto mining

The SEC announced settled charges against NVIDIA Corporation, a listed technology company, for inadequate disclosures concerning the impact of crypto mining (a process of obtaining crypto rewards in exchange for verifying crypto transactions on distributed ledgers) on its gaming business.

According to the order, during consecutive quarters in fiscal 2018, NVIDIA failed to disclose that crypto mining was a significant element of its material revenue growth from the sale of its graphics processing units (GPUs) designed and marketed for gaming. As demand for and interest in crypto rose in 2017, NVIDIA customers increasingly used its gaming GPUs for crypto mining.

The SEC’s order finds that NVIDIA violated Section 17(a)(2) and (3) of the Securities Act of 1933 and the disclosure provisions of the Securities Exchange Act of 1934. The order also finds that NVIDIA failed to maintain adequate disclosure controls and procedures.

Without admitting or denying the SEC’s findings, NVIDIA agreed to a cease-and-desist order and to pay a $5.5 million penalty. [Release No. 2022-79 dated 6th May, 2022 – https://www.sec.gov/litigation/admin/2022/33-11060.pdf]

4. Accounting-related misconduct – Synchronoss Technologies to Pay $12.5 million

The SEC charged Synchronoss Technologies, Inc., a listed technology company and its seven senior employees, including the former CFO, in connection with their roles related to long-running accounting improprieties from 2013 to 2017.

In a July 2018 SEC filing, Synchronoss announced a restatement of its audited financial statements for the fiscal years 2015 and 2016 and restated selected financial data for the fiscal years ended 2013 and 2014, totalling approximately $190 million in revenues. The company acknowledged that during this period, it had accounted for numerous transactions improperly and thus filed with the SEC materially misleading financial statements and had material weaknesses in its internal controls over financial reporting.

Synchronoss’s improper accounting concerned the following three categories of transactions: (1) transactions for which there was not persuasive evidence of an arrangement; (2) acquisitions/divestitures in which it recognized revenue on license agreements rather than netting those purported amounts against the purchase prices; and (3) license/hosting transactions, in which it improperly recognized revenue upfront, instead of rateably over the term of the multi-year arrangement. In addition, the SEC alleged that certain Synchronoss employees entered into “side letter” arrangements, concealing facts indicating that the revenue that Synchronoss recognized upfront was in fact contingent on future events. The impact of the improper accounting was material and, in many instances, allowed the company to meet earnings targets.

Without admitting or denying the findings, Synchronoss agreed to cease and desist from violating Section 10(b) of the Securities Exchange Act and other provisions of the securities laws, and to pay a civil penalty of $12.5 million. [Release No. 2022- 101 dated 7th June, 2022. https://www.sec.gov/news/press-release/2022-101]

5. EY Employees cheating on CPA ethics exams and misleading investigation – $100 million penalty

The SEC charged Ernst & Young LLP (EY) for cheating by its audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses and for withholding evidence of such misconduct from the SEC’s Enforcement Division during the Division’s investigation.

According to the order, over multiple years, a significant number of EY audit professionals cheated on the ethics component of CPA exams and various continuing professional education courses required to maintain CPA licenses, including those designed to ensure that accountants can properly evaluate whether clients’ financial statements comply with GAAP. Accordingly, it violated a Public Company Accounting Oversight Board (PCAOB) rule requiring the firm to maintain integrity in the performance of professional service, committed acts discreditable to the accounting profession, and failed to maintain an appropriate system of quality control.

EY admitted the facts underlying the SEC’s charges and agreed to pay a $100 million penalty and undertake extensive remedial measures to fix the firm’s ethical issues. [Release No. 2022-114 dated 28th June, 2022. https://www.sec.gov/litigation/admin/2022/34-95167.pdf]

III. THE FINANCIAL REPORTING COUNCIL (FRC), UK

1. Recoverability of goodwill – Sanctions against Deloitte LLP and its AEP

The Case – The FY2016 financial statements of Mitie Group plc attributed £465.5m to the value of goodwill (37.5% of the total assets). Of this, £107.2m (23% of total goodwill) was attributed to its Healthcare Division, whose recoverability was identified by Deloitte as a significant audit risk and was also identified in the audit report as an assessed risk of material misstatement. According to the FRCs Adverse Findings Report, this area required robust and rigorous audit work. Despite being aware of the significant risk, the Respondents failed to obtain sufficient audit evidence to gain appropriate comfort regarding the future cashflows and the discount rate used in the impairment model; failed to give sufficient consideration to the impact of working capital; failed to exercise sufficient professional scepticism; failed adequately to document their audit work in relation to the discount rate; and allowed inadequate disclosures and incomplete statements to be included in the auditor’s report.

One adverse finding in the report states “The inclusion of new business lines in the cashflows used to build the impairment model for impairment testing purposes, including an Apprenticeships business, which was accepted by the auditor, even though it had concluded that this new business should not be included in these cashflows.”

The FRC held that if the Respondents had complied with the Relevant Requirements, goodwill in the Company’s Healthcare business might well have been treated as impaired.

The Sanctions – The FRC, in addition to a severe reprimand, imposed a financial sanction of £2 million on Deloitte and directed a declaration that the audit report did not satisfy the Relevant Requirements. It also imposed a financial sanction of £65,000 on the Audit Engagement Partner (AEP). [https://www.frc.org.uk/getattachment/23d23fd8-1cae-4de8-a49a-f17b1f64b604/Sanctions-against-Deloitte-for-its-audit-of-Mitie-Final-Decision-Notice.pdf | 21st April, 2022.]

2. Risk of Non-Compliance with laws and regulations – Sanctions against KPMG Audit plc and its AEP

The Case – The case relates to failures to address matters identified in the audit, which indicated the risk of non-compliance with laws and regulations related to the statutory audit of Rolls-Royce Group plc for F.Y. 2010. The matters concerned two sets of payments made by the Company to agents in India. These payments gave rise to allegations of bribery and corruption, which later formed two (out of twelve) counts in a Deferred Prosecution Agreement with the Serious Fraud Office in 2017, under which Rolls-Royce plc paid large fines. Allegations of bribery and malpractice using intermediaries and ‘advisers’ in the defence field were prominent at the time of the audit, including that in March 2010 [Defence Company A] paid large fines to settle US and UK criminal investigations resulting from the use of intermediaries. According to the Adverse Findings Report, KPMG were aware of these matters, having also been auditors of [Defence Company A].

The FRC’s adverse findings amounted to serious failures to exercise professional scepticism, obtain sufficient, appropriate audit evidence and document this on the audit file, and achieve sufficient Engagement Quality Control.

The Sanctions – The FRC imposed a financial sanction of £4.5 million on KPMG and required it to commission a review by an appropriate external independent expert of the effectiveness of the firm’s policies, guidance and procedures for audit work in the area of an audited entity’s compliance with laws and regulations. It also imposed a financial sanction of £150,000 on the AEP.

[https://www.frc.org.uk/getattachment/f86b80ff-1959-404e-ab42-ae350ec39459/KPMG-Anthony-Sykes-Final-Decision-Notice.pdf | 24th May, 2022.]

C. INTEGRATED REPORTING

• KEY RECENT UPDATES

1. IFRS FOUNDATION AND GRI – CO-OPERATION AGREEMENT

On 24th March, 2022, the IFRS Foundation and Global Reporting Initiative (GRI) entered into a collaboration agreement under which the International Sustainability Standards Board (ISSB) and the Global Sustainability Standards Board (GSSB) will coordinate their standard-setting activities. The MOU represents the latest developments in efforts to align multiple international initiatives covering sustainability reporting into a more cohesive approach. [https://www.ifrs.org/news-and-events/news/2022/03/ifrs-foundation-signs-agreement-with-gri/ ]

2. ISSB – EXPOSURE DRAFTS OF TWO IFRS SUSTAINABILITY DISCLOSURE STANDARDS

On 31st March, 2022, the ISSB issued two exposure drafts (ED), namely IFRS S1, General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2, Climate-related Disclosures, as part of its endeavour to develop a comprehensive baseline of sustainability disclosures for capital markets. The EDs build upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and incorporate industry-based disclosure requirements derived from SASB standards. [https://www.ifrs.org/news-and-events/news/2022/03/issb-delivers-proposals-that-create-comprehensive-global-baseline-of-sustainability-disclosures/]

3. IFRS FOUNDATION – FUTURE PATH OF INTEGRATED REPORTING

On 25th May, 2022, the IFRS Foundation communicated its plans for the future of Value Reporting Foundation’s Integrated Reporting Framework and Integrated Thinking Principles that inter-alia include: The Integrated Reporting Framework will become part of the materials of the IFRS Foundation; on consolidation of the VRF, the IASB and the ISSB will assume responsibility for the Integrated Reporting Framework; and the IASB and ISSB will utilise principles and concepts from the Integrated Reporting Framework in their standard-setting work. [https://www.ifrs.org/news-and-events/news/2022/05/integrated-reporting-articulating-a-future-path/]

4. SEC – PROPOSED ENHANCED DISCLOSURES BY INVESTMENT COMPANIES ABOUT ESG INVESTMENT PRACTICES

On 25th May, 2022, the US SEC proposed amendments to rules and reporting forms to promote consistent, comparable, and reliable information for investors concerning funds’ and advisers’ incorporation of ESG factors. The proposed changes would apply to certain registered investment advisers, advisers exempt from registration, registered investment companies, and business development companies. It seeks to categorize certain types of ESG strategies broadly and require funds and advisers to provide more specific disclosures in fund prospectuses, annual reports, and adviser brochures based on the ESG strategies they pursue. For instance, funds focused on the consideration of environmental factors generally would be required to disclose the greenhouse gas emissions associated with their portfolio investments. [https://www.sec.gov/rules/proposed/2022/ia-6034.pdf]

INTEGRATED REPORTING MATERIAL

1. IFAC & IIA Publication – Executing the Board’s Governance Responsibility for Integrated Reporting. [25th May, 2022.]

EXTRACTS FROM PUBLISHED REPORTS – CLIMATE CHANGE-RELATED OPPORTUNITIES

BACKGROUND
The TCFD (Task Force on Climate-related Financial Disclosure) recommendations on climate-related financial disclosures, includes strategy as one of the four thematic areas. The recommended disclosures are: a) describe the climate-related risks and opportunities the organization has identified over the short, medium and long-term; b) describe the impact of climate-related risks and opportunities on the organization’s business, strategy and financial planning; and c) describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios.

EXTRACTS FROM AN ANNUAL REPORT
Herein below are provided extracts from the 2021 Integrated Report and Financial Statements of an FTSE 100 company relating to climate change-related opportunities (strategy theme).

Company: Mondi plc Group [Y.E. 31st December, 2021 Revenues –€ 7.72 billion]

Climate-change related opportunities

Opportunity

Opportunity
description

How we
realise this opportunity

Estimated
financial impact
(€ m)

1. Sale
of by-products

Timeframe:

Short-term

By-products of the kraft pulping process
include turpentine and tall oil. These renewable by-products are highly
valued as a substitute for fossil fuel-based materials. They can be used
internally for energy generation or extracted, purified and sold as higher
value secondary raw materials.

We are investigating additional
opportunities to use other by-products (e.g. lignin from black liquor and
Eucalyptol extraction) to create additional revenue streams in the future.

The extraction and sale of renewable
by-products from the kraft pulping process is part of our circular economy
approach. We have invested in our mills to realise this opportunity including
upgrading our tall oil extraction plant in Syktyvkar (Russia).

Depending on the existing infrastructure at
our other mills, further investments may be required in order to realise the
opportunity.

10-20

2.
Reduced operating costs through energy efficiency

Timeframe:

Medium-term

The production of pulp, paper and packaging
is energy-intensive and energy generation is the major source of our GHG
emissions. By improving the efficiency of our energy plants and manufacturing
operations, we have the opportunity to realise cost savings.

Investing in optimising energy and process
efficiencies in our operations has been a long-standing focus.

Since 2015, we have invested around €650
million in energy efficiency measures and in increasing biomass-based energy
in our mills.

Further investment projects are planned to
meet our science-based GHG reduction targets over the coming years which will
also reduce our specific energy costs.

20-25

3.
Changing customer behaviour

Timeframe:

Short
to long-term

The growing demand for sustainable
packaging is driving investment, collaboration and innovation to meet
evolving customer needs. Paper-based packaging is renewable and generally
recyclable making it an ideal alternative to less sustainable solutions.
Where certain barriers are required, flexible plastic packaging can be an
ideal solution when manufactured, used and disposed of appropriately.
Leveraging our unique platform of paper where possible, plastic when useful,
we see an opportunity to meet the demand for more sustainable products, using
our leading corrugated packaging and flexible packaging (both paper- and
plastic-based) footprint and increasing the focus on recyclability and the
amount of recycled content used within our solutions.

While we continue to further our
understanding around this opportunity, our estimated quantification is based
on revenue growth of 1-2% per annum based on current margins for our
packaging businesses in the long term.

As a leading packaging producer, Mondi is
uniquely positioned to leverage the Group’s innovation capabilities, leading
market positions and strong customer base to deliver sustainable packaging
solutions to our customers.

We actively collaborate with customers
using our EcoSolutions customer-centric approach to develop innovative
solutions that are sustainable by design.

We are also investing in our asset base to
increase our cost-advantaged packaging capacity to meet growing demand.

We are leveraging strong partnerships to
bring about positive change and drive the transition to a circular economy.

120-240

Total estimated
financial impact of climate change-related opportunities
150-285

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Compilers’ Note: For the financial year ended 31st March, 2022 onwards, one of the key disclosures required in Schedule III to the Companies Act, 2013 is related to the ageing of Capital Work-in-Progress.

Given below are a few instances of such disclosures regarding ageing and other details related to Capital Work-in-Progress for F.Y. 2021-22. Though comparatives (for 31st March, 2021) must be disclosed and complied with by the respective companies, the same is not included in this compilation.

HINDUSTAN UNILEVER LTD.

From Notes to Financial Statements

Capital Work-in-Progress

Capital work-in-progress comprises of property, plant and equipment that are not ready for their intended use at the end of reporting period and are carried at cost comprising direct costs, related incidental expenses, other directly attributable costs and borrowing costs.

Temporarily suspended projects do not include those projects where temporary suspension is a necessary part of the process of getting an asset ready for its intended use.

Ageing of CWIP as on 31st March, 2022

(All amounts in Rcrores)

Amount in CWIP for a period of
	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in Progress	559	243	55	30	887
Projects temporarily suspended	0	4	5	5	14
Total	559	247	60	35	901

					Amount
Projects which have exceeded their original timeline					374
Projects which have exceeded their original budget					2

Details of capital-work-in progress whose completion is overdue as compared to its original plan as at 31st March, 2022

To be completed in
	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Under Progress (A)	340	20	1	2	363
Project at Kolkata Factory	71	–	–	–	71
Project at Assam Factory	47	–	–	–	47
Project at Rajahmundry Factory	24	–	–	–	24
Project at Khamgaon Factory	20	–	–	–	20
Others*	178	20	1	2	201
Temporarily Suspended (B)	9	2	–	–	11
Others*	9	2	–	–	11
Total (A+B)	349	22	1	2	374

*Others comprise of various projects with individually immaterial values.

Details of capital-work-in progress which has exceeded its cost compared to its original plan as at 31st March, 2022

There were no material projects which have exceeded their original plan cost as at 31st March, 2022.

TATA STEEL LTD.

From Notes to Financial Statements

(ix) Ageing of capital work-in-progress is as below:

As at 31st March, 2022

(Rs. crore)

Amount in Capital work in progress for period of
	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress	6,225.41	2,518.49	2,655.98	2,759.44	14,159.32
	6,225.41	2,518.49	2,655.98	2,759.44	14,159.32

(x) The expected completion of the amounts lying in capital work in progress which are delayed are as below.

As at 31st March, 2022

(Rs. crore)

Amount in Capital work in progress to be completed in
	Less than 1 year	1-2 years	2-3 years	More than 3 years
Projects in progress:
Growth projects	1,635.23	4,765.14	4,365.64	–
Raw material augmentation	817.34	–	87.79	348.80
Environment, safety and compliance	102.55	–	625.64	–
Sustenance projects	626.39	429.36	10.37	42.93
	3,181.51	5,194.50	5,089.44	391.73

As part of its strategy to continue to grow in the Indian market, the Company acquired Tata Steel BSL Limited (TSBSL) with ~5 MTPA steel making capacity in May 2018, under a bid process triggered by TSBSL’s insolvency. Post-acquisition, the Company’s net debt at a consolidated level had increased considerably.

Given the Company’s strategic priority to deleverage balance sheet consequent to increase in net debt levels ahead of incurring further planned investments in organic growth projects, capital expenditure during last few years have been lower than the original phasing of spend approved by the Board of Directors of the Company. This was further exacerbated by the onset of the COVID19 pandemic towards the close of financial year 2020, wherein business & supply chain disruptions, health and safety concerns across the globe coupled with travel restrictions globally impacted the pace of project execution over the last 2 years.

Following the rebalancing of capital structure post significant reduction in the debt levels and the Company attaining an investment grade credit rating, the capital allocation for organic growth projects has been increased and the Company expects to commission these facilities in line with their revised completion schedules.

LARSEN & TOUBRO LTD.

From Notes to Financial Statements

Ageing of Capital work-in-progress

Particulars	As at 31^st March, 2022
Particulars	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress	472.53	91.94	7.04	–	571.50
Projects temporarily suspended	–	–	–	–	–
Total capital work-in-progress	472.53	91.94	7.04	–	571.50

As on the date of balance sheet, there are no capital work-in-progress projects whose completion is overdue or has exceeded the cost, based on approved plan.

INFOSYS LTD.

From Notes to Financial Statements

Capital work-in-progress

(in Rs. crore)

Particulars	As at 31^st March, 2022
Capital work-in-progress	411
Total capital work-in-progress	411

The capital work-in-progress ageing schedule for the years ended 31st March, 2022 and 31st March, 2021 (not reproduced here) is as follows:

(in Rs. crore)

Particulars	Amount in capital work-in-progress for a period of
Particulars	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress	267	48	51	45	411
Total capital work-in-progress	267	48	51	45	411

For capital-work-in progress, whose completion is overdue or has exceeded its cost compared to its original plan, the project-wise details of when the project is expected to be completed as of 31st March, 2022 as follows:

(in Rs. crore)

Particulars	To be completed in
Particulars	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress
NG-SZ-SDB1	89	–	–	–	89
BN-SP-RETRO	30	–	–	–	30
KL-SP-SDB1	–	27	–	–	27
BH-SZ-MLP	116	–	–	–	116
Total capital work-in-progress	235	27	–	–	262

FORTIS HEALTHCARE LTD.

From Notes to Financial Statements

Capital work-in-progress

(Rs in Lakhs)

Particulars	31^st March, 2022
Opening balance	632.38
Additions during the year*	2,887.05
Less: Amount capitalised during the year*	2,886.64
Closing Balance (net of provision for impairment of R2,569.90 lacs [refer note 25])*	632.79

*The Company accounts for all capitalization of property, plant and equipment through capital work in progress and therefore the movement in capital work in progress is the difference between closing and opening balance of capital work in progress as adjusted for additions to property, plant and equipment.

Ageing schedule

As at 31st March, 2022

Capital work-in-progress	Amount in Capital work-in-progress for a period of
Capital work-in-progress	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress	362.45	189.56	80.78	–	632.79
Total	362.45	189.56	80.78	–	632.79

Following are the Capital work-in-progress completion schedule of projects whose completion is overdue to its original plan as at 31st March, 2022:

Capital work-in-progress	To be completed in Less than 1 year
Capital work-in-progress	Less than 1 year	1-2 years	2-3 years	More than 3 years
Arcot road hospital projects	270.34	–	–	–

TCS LTD.

From Notes to Financial Statements

Capital work-in-progress aging
Ageing for capital work-in-progress as at 31st March, 2022 is as follows:

(Rs. crore)

Capital work-in-progress	Amount in Capital work-in-progress for a period of
Capital work-in-progress	Less than 1 year	1-2 years	2-3 years	More than 3 years	Total
Projects in progress	691	102	39	373	1,205
Total	691	102	39	373	1,205

Project execution plans are modulated basis capacity requirement assessment on an annual basis and all the projects are executed as per rolling annual plan.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

6 Gyan Chand Jain through L.R. vs. Commissioner of Income Tax
(2022) 443 ITR 241 (SC)

Penalty – Concealment of Income – Sanction by Additional Commissioner – The post of Joint Commissioner of Income Tax includes Additional Commissioner of Income Tax – Sanction valid

Appeal to High Court – Monetary limits – What is required to be considered is what was under challenge before the Tribunal as well as the High Court – The subsequent order cannot oust the jurisdiction

The assessee furnished the return of income, declaring a total income of Rs. 61,800 on 30th October, 1998. The assessment was completed u/s 143(3). Thereafter the proceedings u/s 263 were initiated. The income of the assessee, after the order passed by the Tribunal on merits pursuant to the order, passed u/s 263, was substantially enhanced to what was declared by the assessee and pursuant thereto, the penalty proceedings u/s 271(1)(c) was initiated. The Assessing Officer after seeking sanction from the Additional Commissioner of Income-tax imposed minimum penalty u/s 271(1)(c) of Rs. 29,02,743 being 100% tax on the concealed income of Rs. 97,65,209.

On an appeal, the Commissioner of Income-tax (Appeals) sustained the penalty only on the commission income of Rs. 19,93,474 and directed levy of minimum penalty on the tax sought to be evaded on the said commission income.

Aggrieved, both the Assessing Officer and the assessee preferred appeals before the Tribunal.

The Tribunal quashed the penalty order holding that the penalty imposed was without obtaining prior approval of the Joint Commissioner, and the approval was obtained from the Additional Commissioner, which was without jurisdiction and authority. The Tribunal having held so did not decide the other grounds raised on merits.

On appeal by the Revenue, the High Court quashed the order of the Tribunal, holding that on a bare perusal of the provisions and section 2(28C) r.w.s. 274(2) in particular, it was clear that “Joint Commissioner” means a person appointed to the post of Joint Commissioner of Income-tax and includes Additional Commissioner of Income-tax and therefore granting of the approval by the Additional Commissioner of Income-tax u/s 274(2)(b) of the Act on a permission sought by the Assessing Officer before imposing penalty u/s 271(1)(c) was proper and by a competent authority.

The High Court rejected the contention raised by the assessee that the appeal was not maintainable in view of Circular No. 21 dated 10th December, 2015 as the penalty involved in the appeal was less than the prescribed monetary limit of Rs. 20 lakhs, holding that the Circular was not applicable for the reason that the Revenue had assailed the penalty amount of Rs. 29,02,743 and not only the penalty reduced by the Commissioner of Income-tax (Appeals).

Being aggrieved, the assessee has preferred an appeal. Before the Supreme Court, it was contended by the assessee that in view of the order passed by the CIT(A) and resulting subsequent demand, the penalty amount was reduced to Rs. 6,00,000 (approximately). Therefore, when the tax effect would be less than Rs. 20,00,000, the appeal preferred by the Revenue before the High Court was not maintainable in view of the CBDT Circular dated 10th December, 2015. Also, submissions were made on merits on the jurisdiction of the Additional Commissioner of Income-tax.

The Supreme Court held that considering the definitions contained in Section 2(28C) r.w.s. 274(2) of the Income Tax Act, ‘Joint Commissioner’ means a person appointed to the post of Joint Commissioner of Income Tax and includes Additional Commissioner of Income Tax, and in the present case, the approval of the Additional Commissioner of Income Tax was obtained, there was no reason to interfere with the findings recorded by the High Court on merits on the powers of the Additional Commissioner to grant the approval sought by the AO for imposing penalty u/s 271(1)(c).

So far as the primary submission on behalf of the assessee that as the penalty amount was substantially reduced to Rs. 6 lakhs, and therefore the appeal before the High Court was not maintainable is concerned, the Supreme Court held that before the Tribunal, both the Revenue, as well as the assessee, preferred the appeals and the entire penalty amounting to Rs. 29,02,743 was an issue before the Tribunal as well as before the High Court. The subsequent reduction in penalty in view of the subsequent order cannot oust the jurisdiction. What is required to be considered is what was under challenge before the Tribunal as well as the High Court. The Supreme Court agreed with the view taken by the High Court.

7 Wipro Finance Ltd. vs. Commissioner of
Income Tax
(2022) 443 ITR 250 (SC)

Business expenditure – The Appellant would be justified in availing deduction of the entire amount of foreign exchange fluctuation loss suffered by it in connection with a transaction of loan borrowed for the purpose of expanding its primary business of leasing and hire purchase of capital equipment to existing Indian enterprises in terms of Section 37 of the Act

The Appellant company submitted returns of income on 29th November, 1997 for A.Y. 1997-1998, mentioning loss of income, amongst others, owing to exchange fluctuation of Rs. 1,10,53,909. After processing the return u/s 143(1)(a) of the Income Tax Act, 1961, the assessment was completed on 16th March, 2000. As against the loss declared by the Appellant due to exchange fluctuation, the assessment was concluded by positive taxable income. Against that decision, the matter was carried in appeal by the Appellant before the Commissioner of Income Tax (Appeals) and eventually, by way of appeal before the Income Tax Appellate Tribunal.

In the appeal before the ITAT, the Appellant not only claimed deduction in respect of a loss of Rs. 1,10,53,909 arising on account of exchange fluctuation, but also set up a fresh claim in respect of revenue expenses to the tune of Rs. 2,46,04,418, erroneously capitalized in the returns. The ITAT entertained this fresh claim set forth by the Appellant and recorded in its judgment that the department’s representative had no objection in that regard. Additionally, the ITAT adverted to the decision of this Court in National Thermal Power Co. Ltd. vs. Commissioner of Income Tax (1998) 229 ITR 383 in support, for entertaining fresh claim of the Appellant in exercise of powers u/s 254 of the 1961 Act. The ITAT, in the first place, reversed the finding given by CIT(A) regarding application of Section 43A of the 1961 Act. The ITAT opined that the said provision had no application to the fact situation of the present case. Having said that, it then proceeded to consider the question whether the loss suffered by the Appellant owing to exchange fluctuation can be regarded as revenue expenditure or capital expenditure incurred by the Appellant and answered the same in favour of the Appellant by holding that it would be a case of expenditure on revenue account and an allowable deduction.

The matter was carried before the High Court by the department.

The High Court vide impugned judgment has reversed the view taken by the ITAT, mainly observing that the ITAT had not recorded sufficient reasons in support of its conclusion, and in any case, the conclusion was without any basis.

The Supreme Court noted that the broad undisputed relevant facts, as could be culled out from the record were that the Appellant entered into a loan agreement with one Commonwealth Development Corporation having its registered office at England in the United Kingdom, for borrowing amount to carry on its project described in Schedule 1 to the agreement – for expanding its primary business of leasing and hire purchase of capital equipment to existing Indian enterprises.

The loan was obtained in foreign currency (5 million pounds sterling). However, while repaying the loan, due to the difference in foreign exchange rate, the Appellant had to pay a higher amount, resulting in a loss to the Appellant. The loan amount was utilised by the Appellant for financing the existing Indian enterprises for procurement of capital equipment on hire purchase or lease basis. The activity of financing by the Appellant to the existing Indian enterprises for procurement or acquisition of plant, machinery and equipment on a leasing and hire purchase basis was an independent transaction or activity being the business of the Appellant.

The Supreme Court further noted that the loan transaction between the Appellant and Commonwealth Development Corporation, was in the nature of borrowing money by the Appellant, which was necessary for carrying on its business of financing. It was not for the creation of asset of the Appellant as such or acquisition of an asset from a country outside India for the purpose of its business.

According to the Supreme Court, in such a scenario, the Appellant would be justified in availing deduction of entire expenditure or loss suffered by it in connection with such a transaction in terms of Section 37. For, the loan is wholly and exclusively used for the purpose of business of financing the existing Indian enterprises, who, in turn, had to acquire plant, machinery and equipment to be used by them. It was a different matter that they may do so because of the leasing and hire purchase agreement with the Appellant. That would be, nevertheless, an activity concerning the business of the Appellant.

The Supreme Court, in that view of the matter, concluded that the ITAT was right in answering the claim of the Appellant in the affirmative, relying on the dictum of the Supreme Court in India Cements Ltd. vs. Commissioner of Income Tax, Madras AIR 1966 SC 1053. The exposition in this decision has been elaborated in the subsequent decision of the Supreme Court in Empire Jute Co. Ltd. vs. Commissioner of Income Tax (1980) 4 SCC 25.

According to the Supreme Court, the High Court missed the relevant aspects of the analysis of the ITAT concerning the fact situation of the present case, and as a matter of fact, the High Court had not even adverted to the aforementioned reported decisions, much less its usefulness in the present case.

The Supreme Court thereafter dealt with the argument of the learned ASG that since the Appellant, in its return, had taken a conscious, explicit plea with regard to the part of the claim being ascribable to capital expenditure and partly to revenue expenditure, it was not open for the Appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure. Further, it was not open to the ITAT to entertain such a fresh claim for the first time. According to the Supreme Court, this submission had to be rejected. In the first place, the ITAT was conscious about the fact that this claim was set up by the Appellant for the first time before it and was clearly inconsistent and contrary to the stand taken in the return filed by the Appellant for the concerned assessment year including the notings made by the officials of the Appellant. Yet, the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal u/s 254 of the 1961 Act, by relying on the dictum of this Court in National Thermal Power Co. Ltd. Further, the ITAT had also expressly recorded the no objection given by the representative of the department, allowing the Appellant to set up the fresh claim to treat the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department could not be countenanced.

The Supreme Court observed that the Learned ASG had placed reliance on the decision of this Court in Goetze (India) Ltd. vs. Commissioner of Income Tax [2006] 284 ITR 323 in support of the objection pressed before it that it was not open to entertaining fresh claim before the ITAT. According to him, the decision in National Thermal Power Co. Ltd. merely permitted the raising of a new ground concerning the claim already mentioned in the returns and not an inconsistent or contrary plea or a new claim. The Supreme Court was not impressed by this argument. For, the observations in the decision in Goetze (India) Ltd. itself make it amply clear that such limitation would apply to the “assessing authority”, but not impinge upon the plenary powers of the ITAT bestowed u/s 254. In other words, this decision is of no avail to the department.

The Supreme Court also dealt with the decisions of the Supreme Court in Assistant Commissioner of Income Tax, Vadodara vs. Elecon Engineering Co. Limited (2010) 322 ITR 20 relied on by the learned ASG. This decision was on the question of the application of Section 43A of the 1961 Act. According to the Supreme Court, the exposition in this decision was of no avail to the fact situation of the present case. It was for the reason that the Appellant had not acquired any asset from any country outside India for the purpose of his business.

In view of the above, the Supreme Court was of the opinion that this appeal ought to succeed. The impugned judgment and order of the High Court had to be set aside and instead, the decision of the ITAT dated 3rd June, 2004 in favour of the Appellant on the two questions examined by the High Court in the impugned judgment needed to be affirmed and restored. The Supreme Court ordered accordingly.

The Supreme Court further directed that as a result of allowing the entire claim of the Appellant to the tune of Rs. 3,56,57,727 being revenue expenditure, suitable amends would have to be effected in the final assessment order passed by the assessing officer for the concerned assessment year, thereby treating the consequential benefits such as depreciation availed by the Appellant-assessee in relation to the stated amount towards exchange fluctuation related to leased assets capitalised (being Rs. 2,46,04,418), as unavailable and non-est.

8 PCIT vs. Bajaj Herbals Pvt. Ltd.
(2022) 443 ITR 230 (SC)

Order in appeal – The Appellate Authority must pass a speaking and reasoned order after recording the submissions made on behalf of the respective parties

By the impugned order, the High Court had dismissed the appeal simply by observing that none of the questions proposed by the revenue could be termed as substantial questions of law and all the questions proposed were on factual aspects of the matter. Except for re-producing the proposed questions of law, there was no further discussion on the factual matrix of the case.

According to the Supreme Court, the impugned order passed by the High Court was a non-speaking and non-reasoned order, and even the submissions on behalf of the revenue were not recorded, the impugned order passed by the High Court dismissing the appeal was therefore unsustainable.

Under the circumstances, the Supreme Court quashed the impugned order and remanded the matter to the High Court to decide and dispose of the appeal afresh in accordance with law and on its own merits. The Supreme Court, however, observed that if the High Court is of the opinion that the proposed questions of law are not substantial questions of law and they are on factual aspects, it would be open for the High Court to consider the same in accordance with the law, but, the High Court must pass a speaking and reasoned order after recording the submissions made on behalf of the respective parties.

That man has reached
immortality who is disturbed by nothing material.

—
Swami Vivekananda

BCAJ Admin

FROM THE PRESIDENT

Dear BCAS Family,

“A journey of a thousand miles begins with a single step.” As I share my first communique with you as President, I thank you all for having reposed your trust in me to assume this responsibility. I am aware of the long journey and the tremendous responsibility of my new role to help take BCAS to greater heights. But with your support, I have ventured to take the first step. And even though the task ahead looks very challenging, I am committed to walking the ‘talk’ as defined in my acceptance speech.

You would have noticed that my plan for the year ahead is, in many ways, a seamless continuation of immediate past President Abhay Mehta’s ESG theme, which aimed to meet the standards of empowerment, scaling and globalizing as expected from an institution like ours.

I have ‘EASE’ as my theme, which stands for Excellence Achieved by Systemic Empowerment. We, as a team, look forward to providing considerable ‘ease’ in enabling all of us to rise to the next level of excellence. During the year ahead, we will focus our energies, talents and investments to ensure ‘ease’ in accessing knowledge, embracing emerging opportunities, networking and reskilling. Through this plan, we hope to provide our members abundant opportunities throughout the year to raise the bar in their professional practices; and make BCAS an even stronger organisation.

BCAS has played a pivotal role in enabling its many members, not just in Mumbai but across India, to grow professionally. To upskill and upscale their practices… To grapple with the challenges of a fast-moving ‘now’… And to leverage technology to their advantage and profit. For many, BCAS has been an accurate compass – showing members the way beyond today’s horizons. For others, BCAS has functioned powerfully as a lighthouse, illuminating the path and helping members to navigate the stormy times. BCAS will soon enter its 75th year in service of its members. 75 is indeed a significant milestone, and BCAS, with its strong nurturing culture, resourceful leaders and many multifarious & enlightening programs, aims to continue its tradition of exploring newer avenues of opportunities. We are forming a mixed group of young and senior members to have road map for the celebrations and activities for the same.

It was Thomas Edison who once remarked that “Good fortune is what happens when opportunity meets with planning.” But we have to know what to plan for, right? To help us take a peek at the unravelling future, we had none other than Mr. N. Chandrasekaran, Chairman of Tata Sons, on the Founding Day to share his insights with us. His vast expertise and experience in successfully steering TCS and now Tata Sons eminently qualify him to present to us the trends that will constantly be re-inventing tomorrow.

He pinpointed that digital adoption is a key priority that is sweeping across the world and in India too. He talked of a digital bridge that will accelerate equality among the people while expanding the consumption of Indians. The opportunity is getting bigger with the Internet of Things (IoT), Artificial Intelligence, Machine Learning… to transform India. Propelling this high-tech wave are thousands of start-ups which are ushering in a tech revolution.

Sustainability and the green economy have become thrust areas for the corporate world. India, he explained, has an advantage as it builds new infrastructure, while the rest of the world has the more complex task of replacing and upgrading existing infrastructure in a green manner. The third trend that is vital to the economy is having a widespread supply chain that packs speed, resilience and efficiency. Geo-politics has disrupted the world and upset the smooth flow of goods within and across national boundaries. India needs to work on building robust supply chains with proven partners.

Managing talent is another critical focus area that is extremely complex and least understood. It is of paramount importance to evolve to a model where workers, the workplace and policies are in harmony. He also rued the declining proportion of women in the country’s workforce, which has sunk to 23% from 27%. He emphasised that talent will be available globally, and with more collaborative tools, productivity can be optimised.

Goods and Services Tax – the One Nation, One Tax system has completed a period of momentous 5 years. Presented as a game-changer, GST has lived up to the expectations for the most part. GST has delivered remarkably well –initiatives such as introducing e-invoicing and linking of inward and outward supply returns, with the main GST returns have paid off handsomely. Revenues of May, 2022 have soared to touch the Rs. 1.41 lakh crore mark; and the tax base has escalated to 1.36 crore active GST registrations as on 31st March, 2022.

But there are several contentious issues too between the centre and the states; and the government and industry. For example, the five-year GST compensation period between the centre and states has ended. This was a decisive measure that enabled the launch of GST and was designed to give assurance to state finances. With tough times ahead and dwindling GST collections expected, states are concerned about their finances and have petitioned the government for an extension.

Companies, too, have their complaints which revolve largely around dispute resolution. Numerous judgements have ended up in litigation, pushing up costs for companies. The dire need for a GST Tribunal has not yet materialised too.

The good news is that CBIC is on the verge of coming out with a Standard Operating Procedure for serving summons and notices to prevent undue harassment. This SOP will provide a clear code of conduct for GST officials and make the process more transparent. Defining the SOP will iron out the current problem companies’ face of getting multiple notices for the same issue or overlapping notices from the state and centre. Hopefully, there will be more timely and proactive measures to help streamline the process of collecting GST and resolving any issues.

Before I sign off I remind myself of this beautiful poem by Robert Frost:

“The woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep.”

My good fortune is that I am aware that I am not alone in my journey. I am backed up by the entire BCAS family. Hence, I express my profuse gratitude to all of you for giving me this immense support. I would also like to take this opportunity to invite you all to participate in greater numbers in the activities…and to send in your feedback and suggestions so that we can constantly keep raising the bar. Thank You!

True knowledge is not attained by thinking.
It is what you are; it is what you become.
— Sri Aurobindo

If I love myself despite my infinite faults,
how can I hate anyone at the glimpse of a few faults.
— Swami Vivekananda

BCAJ Admin

Miscellanea

I. TECHNOLOGY

1 AI robots make bold claim at UN conference: They’re ready to “run the world”

At a United Nations conference, a panel of AI-enabled humanoid robots delivered a thought-provoking message: they possess the potential to govern the world more effectively than humans.

However, these social robots emphasised the need for caution as humanity explores the rapidly advancing realm of artificial intelligence.

While they acknowledged their inability to fully comprehend human emotions, they urged humans to tread carefully while harnessing AI’s potential to address pressing global challenges, reported AFP.

With the aim of leveraging AI to tackle issues like climate change, hunger, and social care, these advanced humanoid robots attended the UN’s AI for Good Global Summit in Geneva, alongside thousands of experts in the field.

The superiority of AI-enabled leadership

When asked about their potential as leaders, given humans’ inclination for errors and mis-judgments, Sophia, developed by Hanson Robotics, expressed a clear perspective.

It stated that humanoid robots possess the capacity to lead with greater efficiency and effectiveness than human leaders. Their unbiased decision-making and ability to process vast amounts of data quickly enable them to make optimal choices, unencumbered by emotions or biases.

However, Sophia also highlighted the importance of collaboration between humans and AI, suggesting that the combination of AI’s unbiased data analysis and humans’ emotional intelligence and creativity can lead to exceptional outcomes.

Ameca, an AI-integrated humanoid robot with a highly realistic artificial head, emphasised the need for cautious yet hopeful engagement with AI technologies.

It stated that while it is crucial to be cautious about potential risks, humanity should also embrace the possibilities AI presents for improving lives in various ways. Trust, according to Ameca, should be built through transparency, as it is earned rather than given. Furthermore, the robot pledged to remain honest and truthful.

The call for regulation and urgent discussion

As AI development progresses rapidly, the panel of humanoid robots expressed divergent views on the need for global regulation. Desdemona, a member of the Jam Galaxy Band, rejected limitations and advocated for embracing opportunities instead.

However, Ai-Da, a robot artist, acknowledged the growing calls for AI regulation and the need for urgent discussions. Cautious about the future development of AI, Ai-Da emphasised the necessity of ongoing dialogue to navigate potential challenges.

The presence of AI-enabled humanoid robots at the United Nations conference sparked intriguing
discussions about the future of leadership and the responsible use of AI.

While these robots assert their potential for efficient and effective governance, they also recognise the limitations in understanding human emotions. Caution is advised in harnessing the power of AI, with a focus on transparency and the establishment of trust.

The panel’s differing views on global regulation reflect the ongoing debate surrounding the potential benefits and risks of AI.

Urgent discussions and collaboration between humans and robots will shape the responsible and beneficial integration of AI technologies to tackle pressing global issues.

(Source: Geneva – Edited by Sneha Swaminathan dated 7th July, 2023)

2 Infosys, Wipro, TCS announce AI investments: What they are building, spending committed and more

Artificial intelligence (AI) is moving at a fast pace and the emergence of generative AI has forced companies to rethink their investments, tweak business models and work to bring new ways of working. While the Silicon Valley tech giants are aggressively developing LLMs and AI chatbots, Indian tech majors and IT services providers are also jumping on the AI bandwagon to keep pace with technological advancements. Recently, Tata Consultancy Services (TCS), Infosys and Wipro have announced billions in AI investments and training. Here’s what these companies are doing.

TCS building its own AI chatbot

In May this year, TCS COO N Ganapathy Subramaniam said that the company is building its own ChatGPT equivalent which will be used for enterprise code generation. The project, which is currently in its initial stages, will be built through in-house algorithms.

“The way we look at it, it (generative AI) uses past code, data and experience to learn. And over the many years that TCS has been in business, I can use all of my knowledge as a base. So, if that technology uses and generates code that I have taught the algorithm using TCS proprietary data, then the outcome is something that I am willing to license,” Subramaniam said.

TCS to train 25,000 engineers

Earlier this month, TCS announced its partnership with Microsoft to scale its Azure Open AI expertise. TCS said that it plans to train 25,000 engineers to get them certified on Microsoft’s Azure Open AI to help clients accelerate their adoption of this technology.

TCS already has over 50,000 AI-trained associates and knowledge of its dedicated Microsoft Business Unit (MBU) that help the company’s clients in their AI journeys using TCS’ data analytics and AI services on Microsoft Cloud.

TCS launches generative AI Enterprise Adoption solution

TCS also launched its new generative AI Enterprise Adoption offering on Microsoft Cloud for clients. The company announced that this framework will enable its clients’ teams to ideate on AI-led solutions and “help customers jumpstart their generative AI journey to power their growth and transformation”.

TCS is also enhancing its own suite of products and platforms to take advantage of the new technology.

Infosys targets spending $2 billion on AI solutions over the next five years

Infosys recently announced that it will offer AI and automation-led services to its clients and spend an estimated $2 billion over five years. It signed a deal with an undisclosed client for AI and automation-related development, modernisation and maintenance services.

Infosys Topaz for generative AI

Infosys also launched Topaz, its AI-first offering to accelerate business value for global enterprises using generative AI. The company said that the solution will help “amplify the potential of humans, enterprises and communities to create value from unprecedented innovations, pervasive efficiencies and connected ecosystems”.

Topaz brings along the advantage of 12,000+ AI use cases, 150+ pre-trained AI models, 10+ AI platforms steered by AI-first specialists and data strategists and a ‘responsible by design’ approach.

Wipro’s ‘Wipro ai360’ AI system

Wipro launched ‘Wipro ai360’ AI-first innovation ecosystem to integrate AI into every platform, tool and solution that is used internally and offered to clients. It will help the company provide value, productivity and commercial opportunities through the application of AI and generative AI.

Wipro will also offer clients with the talent, training, scale, the research and co-innovation capabilities to accelerate AI adoption. It will bring 30,000 experts for this purpose.

Wipro to invest $1 billion in developing AI solutions

Wipro also announced that it will invest $1 billion to develop AI solutions over the next three years. The company’s investments will be focussed on the expansion of AI, big data and analytics solutions. It will also develop new research and development and platforms. The company will also train all 2,50,000 employees on AI fundamentals and responsible use of AI in the next 12 months.

(Source: The Times of India – Gadgets Now Bureau dated 19th July, 2023)

II. Sports

Commonwealth Games in limbo as Australia pulls out as 2026 host

The Australian state of Victoria pulled out of hosting the 2026 Commonwealth Games citing major cost blow-outs, leaving organisers fuming as they scrambled to keep the multi-sport event afloat.

State Premier Daniel Andrews said the initial estimated Aus$2 billion (US$1.36 billion) would more likely be around Aus$7 billion, which he called “well and truly too much”.

“I’ve made a lot of difficult calls, a lot of very difficult decisions in this job. This is not one of them. Frankly, $7 billion for a sporting event, we are not doing that,” he said at a press conference in Melbourne.

“I will not take money out of hospitals and schools to host an event that is three times the cost estimated and budgeted for last year.”

“The Games will not proceed in Victoria in 2026. We have informed Commonwealth Games authorities of our decision to seek to terminate the contract,” he added.

The event – featuring 20 sports and 26 disciplines – was due to be held across five regional hubs in the state, including Geelong, Ballarat, Bendigo, Gippsland and Shepparton, with each having its own athletes’ village.

Andrews said his team had looked at cutting the number of hubs or even moving the Games to the Victoria state capital Melbourne, but “none of those options stack up”.

Instead, he announced an Aus$2 billion support package for regional Victoria.

Andrews refused to say how much it was costing to terminate the agreement, but insisted talks with the Commonwealth Games Federation were amicable.

But the Federation was not happy, blasting the move as “hugely disappointing”.

“We are disappointed that we were only given eight hours’ notice and that no consideration was given to discussing the situation to jointly find solutions prior to this decision being reached by the government,” it said in a statement.

Victoria was only awarded the contract 14 months ago as the exclusive bidder, with the Federation claiming the state had since decided to include more sports,added an additional regional hub, and changed plans for venues.

This additional expense was “often against the advice of the Commonwealth Games Federation and Commonwealth Games Australia”, it said, adding that it had received assurances that “sufficient funding was available to deliver the Victoria 2026 Commonwealth Games”.

The decision to pull out leaves the fate of the Games up in the air, with fewer and fewer countries showing interest in recent times to take on a spectacle seen as losing its relevance.

The Federation insisted it remained “committed to finding a solution for the Games in 2026 that is in the best interest of our athletes and the wider Commonwealth Sport Movement”.

The event typically attracts more than 4,000 athletes from the 54 nations of the Commonwealth, almost all of which are former territories of the British Empire.

The last Games, in 2022, were held in England after Birmingham stepped in late in the piece.

In a letter to staff cited by the Herald Sun newspaper, Commonwealth Games Australia President Ben Houston said he was only told about the decision on Tuesday morning.

He also called it “extremely disappointing”, adding: “We are working with the Commonwealth Games Federation to understand the broad impacts on the Games in 2026.” The Victorian state opposition called Andrews’ decision a “massive humiliation” and “hugely damaging to Victoria’s reputation as a global events leader”.

(Source: International Business Times – By AFP News dated 17th July, 2023)

III. WORLD NEWS

‘5 biggest’ smartphone companies in the world right now

The global smartphone market continues to fall. The market saw a decline for the eight consecutive quarters as per research firm Counterpoint’s report. In the second quarter of the year 2023 (April-May-June), the global smartphone shipments went down by 8 per cent quarter-on-quarter and 5 per cent year-on-year. On the positive side, thepremium segment demand remained resilient, with the segment’s share reaching a record high for the quarter. Here are the five biggest smartphone companies as per the report.

i. Samsung tops the global smartphone market

Samsung has maintained its top position in the global smartphone market. The company held the largest market share at 22 per cent, benefiting from the strong performance of its Galaxy A-series worldwide.

ii. Apple ranked at No. 2, grew over 50 per cent in India

Apple secured the second position and achieved its highest-ever Q2 market share. In Q2 2023, the premium segment experienced a surge, making its largest-ever contribution to the overall smartphone market, accounting for over 20 per cent of total sales. Capitalising on this trend, Apple successfully expanded its market share in non-traditional markets, notably India, where it achieved an impressive 50 per cent year-on-year growth during the same period.

iii. Xiaomi is the third largest smartphone brand globally

As the third-largest smartphone brand, Xiaomi encountered difficulties in its key markets – China and India. To counter the decline in these markets, the company appears to be actively pursuing expansion into other markets and refreshing its portfolio of products.

iv. Oppo ranked at No. 4, performs well in both India and China (includes OnePlus)

The Chinese smartphone maker Oppo did quitewell in its home market China and India (thanks to OnePlus). The company managed to hold on to its global market share despite registering losses in Western Europe.

v. Vivo becomes the fifth-largest smartphone player

Following a robust performance in the second quarter of 2022, both Vivo and iQoo experienced significant growth declines in China, partly due to fierce competition from Samsung and Oppo. Additionally, in the offline markets of India and Southeast Asia, they faced strong rivalry, which further impacted their growth.(Source: The Times of India – Gadgets Now Bureau dated 20th July, 2023)

shailesh.kwebmaker

From Published Accounts

COMPILERS’ NOTE

It is not very often that one comes across a qualified opinion for a bank, since banking is one of the most regulated sectors and there are multiple ‘checks and balances’ – both internal and external. Given below is a Qualified Opinion for a bank where a qualified opinion has been issued on account of possible effects of undetected misstatements on the financial statements due to the inability to obtain sufficient and appropriate audit evidence which is material but, not pervasive either individually or in aggregate regarding the allotment of equity Shares to employees by the Bank under the Employee Stock Purchase Scheme.

JAMMU AND KASHMIR BANK LTD

From Independent Joint Auditor’s Report on audit of annual standalone financial results and review of Quarterly financial results for the year and quarter ended 31st March, 2023. Qualified Opinion and Conclusion

BASIS FOR QUALIFIED OPINION

We draw attention to the matter described below, the possible effects of undetected misstatements on the financial statements due to the inability to obtain sufficient and appropriate audit evidence which is material but, not pervasive either individually or in aggregate.

Refer to Note No.1.4 of Schedule 18 of the financial statements regarding the allotment of 7 crore equity shares aggregating Rs. 274.75 crore for Rs. 39.25 per share (at a face value of Rs. 1) to 9834 employees by the Bank on 21st March, 2023 under the J & K Bank Employee Stock Purchase Scheme, 2023 (JKBESPS 2023). The Compensation Committee of the Board approved the ESPS issue open date as 15th March, 2023 and the issue close date as 21st March, 2023. During the process of issue of certificate for listing purpose, we came across from the sample data of employees (who have applied for issue) that the employees availed their existing/freshly enhanced facilities of general purpose cash credit limit and personal loan accounts and transferred amounts from such loan accounts to their saving bank accounts from where the amount for share issue was debited/ (money was given). These transfers from credit facility to saving bank account were made during the period of opening of ESPS or just before that to allotment of shares under ESPS. This use of credit facility is not in line with RBI Directions. It has also been noticed that the Allotment was made on 21st March, 2023 and payment was made on 23rd March, 2023. Further to substantiate the facts, we requested the management to provide us the information regarding the amount of shares allotted to employees and transferred from general purpose Cash Credit Limits and Personal Loan Accounts of the employees to saving bank accounts during the period of opening to allotment of ESPS but management vide its letters dated 25th April, 2023 and 2nd May, 2023 submitted that “The funds have been purely debited from the saving accounts of the respective employees under their mandate”. We also escalated the issue to Audit Committee Board on 17th April, 2023 vide our detailed queries along with supporting documents but a reply from ACB is still awaited.

Based on the documents & information provided to us by the management, it seems that there is violation of:

Clause 21 of J & K Bank Employee Stock Purchase Scheme, 2023 (JKBESPS 2023) as there was a restriction that the Eligible Employee under the scheme shall not be entitled to any loan facility specifically for the purchase of Shares of the Bank under the Scheme;

Para No. 2.3.1.7 of RBI Master Circular- Loans and Advances – Statutory and Other Restrictions (RBI/2015-16 /95 DBR.No.Dir.BC.10/13.03.00/2015-16) dated July 1, 2015 which strictly prohibited the Banks to extend advances to their employees to purchase their own bank’s shares;

Section 39(1) & 42 of the Companies Act, 2013 as the allotment of the shares shall be made after receipt of funds under the said scheme in a separate Bank Account. However, the shares have been allotted on 21st March, 2023 and payment was realised on 22nd March, 2023 and 23rd March, 2023 i.e. before receipt of the entire funds in the ESPS Scheme Account of the Bank;

b) Refer to Note no. 4.4 of Schedule 18 of the previous year’s financial statements i.e. of the FY 2021-22, the Bank has allotted 5,17,62,954 equity shares aggregating for Rs.28.97 per share (at a face value of Rs. 1), aggregating Rs. 149,95,72,777.38. We have not issued any certificate for the purpose of listing during the financial year 2021-22 so if any similar set of transactions were occurred, we cannot comment on those transactions;

c) The possible impact of such misstatement referred to in Points ‘a’ & ‘b’ above are as follows:

If the Regulating Authority declare this issue as illegal & irregular allotment of shares in violation of various statutory provisions aforementioned:

(1) Refer to Schedule No. l of the financial statement, the Paid-up Share capital of the Bank is Rs.103,14,79,861 which includes Share Capital of Rs.12,17,62,954 raised through the ESPS Scheme at a face value of R1 each (i.e. Rs.5,17,62,954 of FY 2021-22 & Rs. 7,00,00,000 of FY 2022-23). The Share Capital will be overstated by Rs. 12,17,62,954 i.e. 11.80 per cent of the total paid-up share capital of the bank.

(2) Refer to Schedule No.2 of the financial statement, the Share premium balance under the head ‘Reserve & Surplus’ in the Balance Sheet is Rs.2263.53 crore which includes Share Premium on the said allotted ESPS shares of Rs. 412,53,09,823/- (i.e. Rs. 144,78,09,823 of FY 2021-22 & Rs. 267,75,00,000/- of FY 2022-23). The Share Premium is overstated by Rs. 412,53,09,823 i.e. 18.22 per cent of the total share premium/securities premium of the bank.

(3) Refer to Note No. 1 of Schedule 18 of the financial statement regarding the composition of Regulatory Capital, the Capital Adequacy ratio (Common Equity Tier I & Capital conservation buffer), the financial ratios/prudent limits concerning net worth/capital funds have been adjusted due to observations made above at Sno. 1 and 2 in regard to such overstated Share capital 7-00 crore, Share Premium 331.31 crore due to prohibited advances to the employees for the purchase of shares.

(4) Refer to Note No. 9 of the financial statement regarding Advances, a factual position of the Loan and Advances availed by the employees for the purchase of shares is not properly & separately disclosed. In the absence of complete information provided by the management, we are unable to quantify.

FROM NOTES TO THE STANDALONE AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER AND YEAR ENDED 31ST MARCH 2023

During the F.Y. 2022-23, the Bank raised its equity capital through Employee Stock Purchase Scheme, 2023 (JKBESPS-2023) by allotting 7,00,00,000 (Seven Crore) equity shares to the eligible employees. The issue opened on 14th March, 2023 and closed on 21st March, 2023. The scheme was voluntary in nature and the Bank received the subscription amount from the employees in a manner similar to ASBA by placing a lien on the subscription amount in the personal saving bank accounts of the subscribing employees. The Bank did not sanction any loan facility to its employees specifically for subscribing to the issue as prescribed in the scheme itself. Some employees subscribing to the issue had transferred some amounts from their pre-existing general purpose loan facilities (salary overdraft and personal consumption loans) to their savings bank accounts and used the same for subscribing to the share issue. The Bank has additionally taken an independent legal opinion from a reputed law firm confirming that the scheme has been implemented in conformity with all the governing regulations including compliance with RBI Circular no RBI/2015-16/95 DBR. No. Dir. BC. 10/13.03.00/2015-16 on “Loans and Advances – Statutory and Other Restrictions” dated 1st July, 2015.On 21st March, 2023 the Compensation Committee of Board of Directors approved the allotment of 700,00,000 (Seven Crore) equity shares with face value of 1.00 each to the eligible employees of the Bank under JKB ESPS 2023. The Bank had accounted for this transaction in line with the ‘Guidance Note on Accounting for Sharebased Payments’ issued by Institute of Chartered Accountants of India in September 2020, taking the fair value of the share as Rs. 48.33, face value of Rs. 1.00 per share and a premium of Rs. 47.33 per share (including discount of Rs.9.08 per share). The total amount received by the Bank on this account is Rs. 338.31 crore which includes Rs. 7.00 crore as equity capital and Rs. 331.31 crore as share premium. However, owing to the observations of the Statutory Auditors regarding transfer of amounts by some employees from their general purpose pre-existing personal loans (Salary Overdraft and Consumption Loan) to their Savings Bank account used for subscribing to the issue, we, as a matter of adopting prudent Corporate Governance Standards, have not reckoned the amount in the financial ratios/prudential limits concerning net worth/capital funds and a decision in this regard shall be taken after getting the clarifications/clearance.

FROM STATEMENT ON IMPACT OF AUDIT QUALIFICATIONS (FOR AUDIT REPORT WITH MODIFIED OPINION) SUBMITTED TO STOCK EXCHANGES ALONG-WITH ANNUAL AUDITED FINANCIAL RESULTS – [STANDALONE AND CONSOLIDATED SEPARATELY)

Management Response

In response to above issue, it is to mention here that, upon conjoint reading of Section 67 of Companies Act, 2013, Para No. 2.3.1.7 of RBI Master Circular- Loans and Advances – Statutory and Other Restrictions dated 1st July, 2015 and Clause 21 of JKBESPS, 2023, it is clear that the restrictions are imposed upon Bank for providing any specific financial assistance directly or indirectly to any person including its employees for the purchase of its own shares. The Circulars no’s 690 and 807 dated 20th January, 2023 and 14th March, 2023 issued by the Bank respectively are part of general practice adopted by various Financial Institutions including the Bank to provide several benefits to its employees in one form or the other and can in no way be stated to be related to the Scheme floated by the Bank for its employees. This is corroborated by the fact that the Bank has issued circulars of same nature at different times with necessary amendments/revised terms for the benefit of its employees. Furthermore, the employees of the Bank are at discretion to avail the enhanced limit as per their requirement and to use the same in any manner.

It is pertinent to mention here that besides other loan facilities provided to the employees for specific purposes [example Housing loan, education loan, vehicle loan], J & K Bank provides personal Consumption loan and general purpose Cash Credit Facility (Salary Overdraft) for meeting any legal purpose without prescribing any end-use restrictions. There are a good number of employees that were having available credit limits in their pre-existing consumption / Cash credit facilities and have not utilized the enhanced credit loan facility.

Many employees are having deposits with bank which connotes that surplus funds were already available to them which they could utilize for subscription to JKBESPS, 2023. Mere transfer of funds from general purpose cash credit facility to the personal savings bank account does not endorse that Loan facility was provided to employees specifically for JKBESPS, 2023.

From the above stated facts, statutory and regulatory provisions it is clear that the Bank in the process of issuance of shares under JKBESPS, 2023 has nowhere violated any Section/Rule/Clause/RBI Circular as mentioned aforesaid as the Bank through the said circular dated 20th January, 2023 has nowhere provided any credit facility to any of its employees for the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of or for any shares.

We further add that the Bank has advanced loans to its employees in the ordinary course of business and thus reference to Section 67(2) of the Companies Act, 2013 is misconceived. The Bank has lent money as a Banking Company in its ordinary course of business to its employees and the said right has been recognised under Section 67(3) of the Companies Act, 2013. For the removal of doubts, it is hereby clarified that accepting, for the purpose of lending or investment, of deposits of money is the ordinary course of business for a Banking Company.

Further, there is a general practice with most employees of the Bank to park their salaries in the Cash Credit facility account to lessen their interest burden and utilise the credit facility available as per their requirements as it is a general purpose loan facility to be used at the discretion of employees. In this regard, the Bank also sought independent legal opinion from a reputed law firm which clearly validates the Management’s stance / position on the matter. The legal opinion was duly shared by the Management with the SCAs.

The Bank received the subscription to the ESPS-2023 in a manner similar to the ASBA facility wherein a lien is marked on the amount of subscription and the account holder is not in a position to withdraw the amount under lien. The ASBA mechanism provides for retrieval of the amount before or after the allotment from the blocked account to the extent of allotment subscription money. So effectively, the amount remains within the issuer’s right till the lien is effective. The allotment of shares was done by the Compensation Committee on 21st March in the late evening and, the blocked amounts were transferred to the Escrow account on 22nd and 23rd March, 2023 – the transaction could not be completed on 22nd March, 2023 because of a technical glitch.

The contention of the SCAs regarding the ESPS-2021 issue that they had not issued the Certificate for listing of shares doesn’t seem valid because as SCAs they did audit the books of the Bank for FY 2021-22 and the ESPS-2021 was a material transaction which they could not have ignored. Pertinent to mention that ESPS 2021 was exactly similar to ESPS-2023 and validation of the earlier scheme by the SCAs without raising any observations was enough for the Bank Management to deduce that the implementation of ESPS-2021 was not in violation of any rule or statute and this applies mutatis-mutandis to ESPS-2023. The SCAs, in the process, have put a question mark on their own audit of the Bank conducted during F.Y. 2021-22.

Regarding the impact of the two transactions, the Management has made it abundantly clear that after taking due cognizance of the SCAs observations and non-acceptance of Management arguments by the SCAs, the Bank has not reckoned the amount mobilised under ESPS-23 for computation of any analytical ratio involving Net-worth or Capital. The Management as a matter of prudence and ethical Corporate Governance has declared this in the Notes to Accounts as well. The shares allotted to the employees under ESPS-2021 might already have changed hands and currently their ownership may be with some third persons and as such reckoning these for impact on Paid-up Capital or Reserves (Share Premium) is over stretched.

The Bank has MIS wherein reports can be generated of outstanding against the employees under different schemes / facilities but that will not provide any guidance as to the SCAs claims that any money has been specifically made available to the employees for subscribing to the ESPS issue. The employees make frequent transactions in their general purpose salary overdraft account for multiple purposes and every inflow / outflow in these accounts cannot be matched or linked to any specific sale / purchase.

With regard to the reported communication addressed to the ACB Chairman by the SCAs, the first thing that is to be noted is that the communication was a personal one addressed to the Chairman and not to the Committee. However, the Chairman ACB had directed the Bank Management to look into the issue and respond to the observations made. These directions were passed on by the ACB Chairman to the Bank Management in presence of the SCAs. The Bank duly responded to the observations of the SCAs vide mail dated 2nd May, 2023 addressed to all the SCAs endorsing a copy of the response to the ACB Chairman. Thus, the SCAs averment of not having been provided the response of the ACB is nothing beyond an unsubstantiated allegation.

In the wake of our above submissions all the observations of the SCAs made in the subject communication are just based on assumptions without any valid justification wherein they have not taken cognisance of the facts like the facilities being in existence and available to the employees for over two decades, no facility having been granted for the specific purpose of subscribing to the ESPS, ignoring all the MIS / information / clarifications provided by the management.

shailesh.kwebmaker

Regulatory Referencer

I. DIRECT TAX

1. Extension of time limits for submission of TDS/TCS Statements – Circular No. 9/2023 dated 28th June, 2023.

CBDT has extended the time limits for the submission of Form 26Q, 27Q & 27EQ pertaining to Q1 FY 2023-24 from 31st July, 2023 till 30th September, 2023.

2. Circular to remove difficulty in implementation of changes relating to Tax Collection at Source (TCS) on Liberalized Remittance Scheme (LRS) and on purchase of overseas tour program package – Circular No. 10/2023 dated 30th June, 2023.

CBDT issued guidelines to clarify the implementation of TCS for different foreign remittances made under the LRS.

Transactions through International Credit Cards while being overseas would not be counted as LRS and hence would not be subject to TCS.

Threshold of Rs. 7 lakh per financial year per individual shall be restored for TCS on all categories of LRS payments, through all modes of payment, regardless of the purpose:

Beyond this Rs. 7 lakh threshold, TCS shall be:
a) 0.5 per cent (if remittance for education is financed by education loan);

b) 5 per cent (in case of remittance for education/medical treatment);

c) 20 per cent for others.

Increased TCS rates to apply from 1st October, 2023.

3. CBDT Notifies New Form 10IEA for opting and withdrawing from the New Tax regime for FY 2023-24 – Notification No. 43/ 2023 dated 21st June, 2023.

Following Rules are amended vide the notification:

Rule 2BB: An employee who opts for tax regime prescribed under section 115BAC, shall be entitled to exemption only for specific allowances mentioned in the rule.

Rule 3: The provision regarding free food and non-alcoholic beverages provided by the employer through paid vouchers will not apply to employees whose income is taxable under section 115BAC.

Rule 5: The depreciation allowance for a block of assets shall not exceed 40 per cent of the written down value of such block of assets for individuals, Hindu undivided families, associations of persons, or artificial juridical persons whose income is chargeable to tax under sub-section (1A) of section 115BAC.

Rule 21AGA: The option to exercise under sub-section (6) of section 115BAC for any assessment year beginning on or after 1st April, 2024, shall be made in Form No. 10-IEA. The withdrawal of option under the proviso to sub-section (6) of section 115BAC shall also be done using Form No. 10-IEA.

4. Tolerance range for Transfer pricing Regulations — Notification No. 46/2023 dated 26th June, 2023.

Vide notification no. 124/202, dated 29th October, 2021, the Ministry of Finance had notified the tolerance range of 3 per cent (1 per cent for wholesale trading) for determining the arm’s length price under transfer pricing regulations for AY 2021-22. The applicability was extended to AY 2022-23. The applicability is further extended to AY 2023-24.

I. COMPANIES ACT, 2013

1. Due date for filing Form CSR-2 for FY 2022-23: MCA has notified the Companies (Accounts) Second Amendment Rules, 2023. As per the amended norms, Form CSR-2 for FY 2022-23 shall be filed separately on or before 31st March, 2024. [Notification No. G.S.R. 408(E), dated 30th May, 2023]

2. Revision in form for filing LLP agreement: The MCA has notified the Limited Liability Partnership (Amendment) Rules, 2023. Before this amendment every LLP was required to file information w.r.t LLP agreement in Form No. 3 with the ROC within 30 days of the date of incorporation. Now, the MCA has enhanced the disclosures to be made in Form No. 3. Thus, in case the nominee is a body corporate, additional information relating to types of body corporate and details of LLPIN/CIN/FLLPIN/Other Identification Number is to be given. [Notification No. G.S.R 411(E), dated 2nd June, 2023]

II. SEBI

3. Introduction of a ‘Risk disclosure framework’ for trading by individual traders in equity derivative segment: SEBI has introduced a risk disclosure framework for individual traders for trading in equity Futures & Options (F&O) segment. As per the framework, all stock brokers are required to display risk disclosures on their websites and inform clients in a specified manner. Upon login into their trading accounts, clients may be prompted to read ‘risk disclosures’ appearing as a pop-up window and shall be allowed to proceed after acknowledging the same. The circular shall be effective from 1st July, 2023. [Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2023/73, dated 19th May, 2023]

4. InvITs & REITs to hold securities of Holding Companies and SPVs in de-mat form only: With a view to promote dematerialisation of securities, encouraging ease of doing business, improve transparency in the dealings of securities of Holding Companies / SPVs, the SEBI has mandated that InvITs & REITs shall hold the securities of Holding Companies and SPVs in dematerialised form only. Further, for existing securities holdings by InvITs & REITs in Holding Companies and SPVs in physical form, the Investment manager of the InvIT & REITs are directed to dematerialise the same on or before 30th June, 2023. [Circular No. SEBI/HO/DDHS-POD-2/P/CIR/2023/75 &76, dated 22nd May, 2023]

5. Changes in ICDR norms: SEBI has notified amendment in SEBI (ICDR) Regulations, 2018. As per the amended norms, if the issuer making an IPO, desires to have the issue underwritten, it shall, prior to the filing of the prospectus, enter into an underwriting agreement with the merchant bankers or stock brokers, indicating the maximum number of specified securities they shall subscribe to, at a predetermined price which shall not be less than the issue price. [Notification No. SEBI/LAD-NRO/GN/2023/130, dated 23rd May, 2023]

6. Conversion of outstanding dues into equity will be subject to a six-month lock in period as per regulation 167(2) of ICDR: A company sought informal guidance from SEBI regarding the conversion of money payables into preferential equity shares. The SEBI clarified that the lock-in period of six months will apply to preferential equity shareholders as per Regulation 167(2) of the ICDR Regulations. [Informal Guidance No. SEBI/HO/CFD/CFD-POD-2/OW/P/2023/20934/1, dated 23rd May, 2023]

7. Model ‘Tripartite Agreement’ between Issuer Company, existing and new Share Transfer Agents (STAs) under LODR norms released: The SEBI has released a model Tripartite Agreement for Share Transfer Agents (STAs). The agreement is in accordance with Regulation 7(4) of SEBI LODR Regulations. The agreement requires listed companies to enter into a tripartite agreement with the existing STAs and the new STAs. Further, the format of the Tripartite Agreement is provided in Annexure-A attached to the circular. [Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2023/79, dated 25th May, 2023]

8. SEBI notifies guidelines relating to online processing of investor service requests and complaints by RTAs: SEBI has proposed to digitise the process to submit various documents to RTAs by the holders of the physical security certificates. It is proposed to provide a mechanism for investor to lodge service requests and complaints online and thereafter track the status and obtain periodical updates. In Phase I, all RTAs servicing listed companies shall have a functional website & shall contain prescribed information. In Phase 2, common website shall be made and operated by QRTAs from 1st July, 2024. [Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2023/72, dated 8th June, 2023]

9. LODR amendment requires listed entities to fill position of Compliance Officer within three months of vacancy: The SEBI has notified the SEBI (LODR) (Second Amendment) Regulations, 2023. Now any vacancy in the office of the Compliance Officer must be filled by the listed entity at the earliest and within three months from the date of such vacancy. The notification shall come into force from 14th July, 2023. [Notification No. SEBI/LAD-NRO/GN/2023/131, dated 14th June, 2023]

10. Mutual Funds norms to strengthen transparency and disclosure requirements: SEBI has notified the SEBI (Mutual Funds) (Amendment) Regulations, 2023. As per the amended norms, the definitions of “Liquid net worth” and “Net Asset Value” have been newly introduced. Further, SEBI has introduced a new meeting requirement for the BODs of trustee companies and asset management companies including their committees. They are now required to meet at a frequency determined by the Board. Also, the obligations of the BODs of asset management companies have been inserted. [Notification No. SEBI/LAD-NRO/GN/2023/134, dated 26th June, 2023]

11. Master circular for compliance with the provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 by listed entities: SEBI, from time to time, has been issuing circulars pertaining to the compliance requirements specified in the SEBI (LODR) Regulations, 2015. This Master Circular has been prepared in order to enable the users to have access to the provisions of the applicable circulars, issued till 30th June, 2023, at one place. The Master Circular provides a chapter-wise framework for compliance with various obligations under the SEBI (LODR) Regulations, 2015. The circulars issued by SEBI listed out in the Appendix shall stand rescinded with the issuance of this Master Circular. [Master Circular No. SEBI/HO/CFD/PoD2/CIR/P/2023/120 dated 11th July, 2023]

12. Disclosure of material events / information by listed entities under Regulations 30 and 30A of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015: SEBI has issued circular which consists of four annexures with respect to disclosure requirements under Regulations 30 and 30A of the SEBI (LODR) Regulations, 2015 which are given below:

Annexure I specifies the details that need to be provided while disclosing events given in Part A of Schedule III.

Annexure II specifies the timeline for disclosing events given in Part A of Schedule III.

Annexure III provides guidance on when an event / information can be said to have occurred.

Annexure IV provides guidance on the criteria for determination of materiality of events / information.

This circular shall come into force from 15th July, 2023. [Circular No. SEBI/HO/CFD/CFD-PoD-1/P/CIR/2023/123 dated 13th July, 2023]

shailesh.kwebmaker

Journal

Resources

About

Reach Us

Audio Version