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Dt.23/12/2010 2nd Residential Study Course on IFRS

Accounting & Auditing Committee
The second Residential Study Course on IFRS 2010 was jointly organised by BCAS with IMC. It was held at Hotel Gateway Nashik on Thursday 23rd, Friday 24th, & Saturday 25th December. The winter cold and Christmas mood set the perfect tone for the study course.

There were 82 participants (including 21 from industry) for the RSC and were divided into 3 groups.

Day 1: At the commencement of programme, the President extended welcome to the participants, Paper writers, Group Leaders and members of accounting and auditing committee. He shared the vision statement and exhorted that BCAS shall harness talent and disseminate knowledge to members, build skills and network amongst them. He also expressed that sharpening the knowledge on IFRS is the need of the hour. He complimented the accounting and auditing committee for organising this event.

Chairman Himanshu Kishnadwala, briefly gave information about IFRS and explained the course, and the structure of the current programme.

1st Technical Session:
In the first session the Paper Writer Mr. Ramesh Lakshman made an initial presentation on the topic ‘Introduction and concept of Fair Value methodologies and Applicability’.

In his presentation covering the subject Mr. Ramesh touched upon, various important concepts.

He explained that there are different approaches of determining fair value viz.

a. Market approach, Income approach, and Cost Valuation approach. He suggested to refer to Level 1,2 & 3 of US GAAP.

b. He explained different applicable inputs to be referred to
At Level 1 The quoted prices in active markets, At Level 2 quoted prices of similar assets (in-terest rate, yield curve prepayment Etc.) At Level 3 Inobservable inputs should be referred to e. g. He suggested to follow guidelines covered in Para AG 69 to 82 of IAS 39.

Post Lunch Group Leaders Ashutosh Pednekar, Anagha Thatte and Jayesh Gandhi discussed actual case studies on Forex and commodity derivatives.

Mr. Simarjeet from Reuters who was accompanying the paper writer in his presentation showed live data of cross currency and curves through internet connections and explained how these data can be useful for Level 2 and Level 3 assumptions. In his concluding presentation, the Paper writer Ramesh Lakshman dealt with the uncertainties and peculiaritiesattached with Fair Valuation.

On Day 2: Group Leader Paresh Clerk, Bharat Jain and Anand Paurana led the discussion paper by Sudhir Soni on IFRS 1 “First time adoption of IFRS”. The Group Leaders with their own power point presentations explained the actual accounting enteries and also covered reference para of IFRS, IFRIC and IAS.

The Group Leaders also covered the case studies on consolidation IAS 27. They explained each case studies and made an interactive presentation and shared reference points from IAS 27.

The total discussion time allotted for the above was 4 hours.

In the Post Lunch Session, the Paper writer Sudhir Soni explained the concepts and responded to the queries and posers raised by each groups.

In the evening CA Vaibhav Manek made an interesting presentation on “Leadership in Professional Service” presentation covering people, process, knowledge base, competence mapping, unique identity of professional practice firms etc. He emphasised need of networking, capacity building, amongst professional firms and grooming and mentoring Leadership.

After the presentation participants had sumptuous dinner at Pool side enjoying cold weather and music.

On Day 3: The group leaders Manish Sampat and Vijay Mehta, Gautam Shah and Hasmukh Dedia, Murtuza Vajihi and Nitesh Dedia respectively led the discussion on paper on Revenue recognition. (with focus on Infrastructure and real estate sector) written by Khozema Anajwalla and Atul Deshmukh.

Both paper writers and six group leaders emphasised that to understand standards, first the same have to be read, facts studied and then applied.

In the concluding session participants expressed their satisfaction. The Chairman complimented the convenors and the BCAS staff led by the GM for the excellent co-ordination and arrangements for the RSC.

Dt. 4/01/2011 Book Release (Service Tax)
The revised and updated edition of Service Tax Books were released on 4th January 2011 at the hands of CA. Mayur Nayak, President, CA. Pradip Thanawala, Vice President, CA. Govind Goyal, Chairman – Indirect Taxes and Allied Laws Committee and CA. Suhas Paranjpe, Convenor – Indirect Taxes and Allied Laws Committee. Four books namely, Service Tax – Basic Concepts and Procedures, Service Tax Goods Transport Agency Services, Service Tax – Business Auxiliary Services and Business Support Services and Service Tax – Construction Related Services.

BCAS Foundation Jointly with PCGT, IMC, PCaW
A talk on Whistleblowing was organised by Public Concern for Governance Trust, AntiCorruption Cell of the Indian Merchants’ Chamber (IMC) and BCAS Foundation(Bombay Chartered Accountants’ Society) at the Babubhai Chinai Committee Room,IMC on January 7, 2011.

BCAS Foundation Jointly with PCGT, IMC, PCaW : Gathering listening to the talk

Mr. Julio F. Ribeiro, Chairman, Anti Corruption Cell, welcomed the participants. He spoke about the importance of Whistleblowing. He added that the name ‘Public Concern for Governance Trust’ was taken from ‘Public Concern at Work’ (PCaW) UK.Dr. Dhananjay Samant, Chief Economist, represented IMC and was seated on the dais Mr. Narayan Varma, Trustee, PCGT, explained the concept of Whistleblowing to the participants. He also discussed the recent attacks on RTI activists in Mumbai.Ms. Sukaina Esmail, Program Director, PCGT, introduced Ms. Shonali Routray, Client Services Manager, PCaW. Ms Routray introduced the topic of Whistleblowing in the new cyber age with the Wikileaks story. She spoke about the scope and process of Whistleblower protection in the UK. She discussed the mechanism and scope of Public Interest Disclosure Act,UK and presented statistics on the cases received and the judgments made. Ms Routray discussed Indian law with respect to Whistleblowing and highlighted some of its mechanisms and the protections it offers. Mr. Yeshwant Gawand narrated his own experiences as a whistleblower. He spoke about how he was beaten up for taking on a Shiv Sena corporator over alleged encroachments and undeclared assets. Mr. Ribeiro assured him of support from PCGT. Mr. Nitin Shinghala, Joint Secretary, Bombay Chartered Accountants’ Society thanked Ms. Shonali Routray, the IMC and all the participants for attending the meeting.

Dt. 7/01/2011 Study Tour to Bangalore

Seminar Committee:
Seminar Committee of BCAS organised a Study Tour to Bangalore and Mysore from 7th January, 2011 to 9th January, 2011. 67 participants (including 16 participants from Bangalore) participated. On 7th January, participants visited General Assembly Plant of Toyota Kirloskar Motor Company and then visited campuses of Wipro and Infosys at Bangalore. The company officials at the 3 locations also made detailed presentations. Next day, the participants visited Infosys Technology’s Training Centre and Leadership Facility at Mysore, spread over 344 acres. Participants were amazed to see World Class facilities to train 10,000 trainees at a time at one location with facilities for lodging and boarding. The campus was impeccably maintained. One felt proud as an Indian that an Indian Company could create such a World Class facilities which other leading companies in the world would aspire to have. One was left wondering about the systems and processes at work behind such a large and beautiful facility working with such a clock – work like precision. This is a result of one man’s vision and dedication.

VISIBLE BENEFITS TO THE PARTICIPANTS OF VISITING GROUP OUT OF OBSERVATIONS & PRESENTATIONS AT WIPRO & INFOSYS:

Driven by values and highest adherence to those values, is the ultimate mantra.

Clarity of vision, goals and mission is paramount.

Skills of implementing the large projects are essentials.

Leaders can be groomed and trained.

Excellent infrastructure and energetic working environment are essentials.

Human capital is the most valuable asset class.

World class and excellent training facilities are must for sustainable and impressive growth.

There is no substitute for honesty, integrity, hard work and conducive environment.

Quality….Quality….Quality in every area and everywhere.

Excellent township to house employees is indispensable.

Grit, focused approach and passionate working make the work enjoyable, as well as successful.

The Study Tour held ended with half – day conference jointly with Karnataka State Chartered Accountants’ Association. The following presentations were made:

1. IFRS-Traditional Issues & Implementation Challenges by CA. Vinayak Pai, Bangalore. The session was chaired by CA Krishna Swamy.

2. International Taxation – Recent Developments by Ms. Bijal Ajinkya, Advocate, Mumbai. The session was chaired by CA Padamchand Khincha.

The study tour was organised in cooperation with the Karnataka State Chartered Accountants’ Association. BCAS appreciates efforts of CA H. Padamchand Khincha, CA Prabhu Allama, CA Ganapath Raj, Mr. Laxman and other Office Bearers of KSCAA, who played an active role in the success of the tour.

15th January 2011 Half-Day Workshop on MVAT Audit and Levy of VAT on Builders & Developers

Indirect Taxes and Allied Laws Committee:
BCAS had organised a Half-Day Workshop on MVAT Audit and Levy of VAT on Builders & Developers on 15th January 2011. The faculty for the first session on levy of VAT on Builders and Developers was CA. Rajat Talati. After touching upon the history of levy of VAT on Builders and Developers, the speaker outlined the whole scheme and the different Schemes for taxation under the MVAT Act and the issues and controversies under each scheme. The speaker indicated in a detailed manner how different dates were critical to determine the scope, extent and manner of coverage. The speaker also touched upon Practical Issues relating to the same and explained how in practical scenario even minute details can change the manner of levy.

In the concluding part, the speaker touched upon VAT implications relating to Redevelopment of societies and also guided the participants on their queries. The meeting ended with a vote of thanks to the Speaker.

The faculty for the second session on Revised Form 704 relating to VAT audit, Mr. Kiran Garkar started with a brief outline of Form 704. He then took up Annexure-wise detailed coverage of the revisions made in Form 704 beginning with Annexure J and moving on from Annexure G to I. Lastly, he touched upon the Annexure F pertaining to ratios and explained how the ratios, were in effect partly verifying the same details in different way. He also explained how the ratios had newly added the details pertaining to opening and closing inventory. There were a lot of questions relating to how the data should be input including purchases where set-off was not availed. The speaker clarified on each of them and explained how one would need to use their judgment and at the same time, clearly disclose the manner of arriving at reported figures. The meeting ended with a vote of thanks to the Speaker.

10th January 2011 Lecture Meeting by Sis. Shivani (Brahmakumari) on Unlocking the Treasures of Life

Lecture Meeting (Under the Auspices of Amita Memorial Trust, jointly with Bombay Chartered Accountants’ Society and Chamber of Tax Consultants)

Subject : Unlocking the Treasures of Life
Speaker : Brahma Kumari Shivani
Date : January 10, 2011

Amita Memorial Trust has been created in the memory of Amita Momaya, a young Chartered Accountant and a core group member of BCAS, who passed away on January 31, 1987 at the age of 26 years. Under the auspices of Amita Memorial Trust, Bombay Chartered Accountants’ Society jointly with the Chamber of Tax Consultants, organised a spiritual talk by Brahma Kumari Shivani, on Januray 10, 2011. Shivaniji held the audience spellbound, as she explained that the ability to control one’s mind is the secret of happiness. Through a series of day-to-day incidents, she impressed upon the audience that happiness resides within all of us, and yet we try to find it outside. She compared happiness to a filled glass that we all already possess – and rather than protecting the contents of this glass, many of our reactions result in leakages and spillages from this full glass.

Brahma Kumari Shivani, eloquent speaker of the popular talk show “Awakening with Brahmakumaris” has inspired millions across the globe through her profound insights on spirituality. At this spiritual talk she once again touched many-a-souls and created a unique spiritual experience for the listeners. Her ability to combine practical situations with simple insights makes the audience convinced that spirituality and true happiness is within their reach. Her talk not only enlightened, but also empowered the audience on their inward journey.

BCAJ Admin

GAPs in GAAP

Accounting Standards

Revenue Recognition for Telecommunication Operators

The Research Committee of the Institute of Chartered
Accountants of India has issued an Exposure Draft – “Technical Guide on Revenue
Recognition for Telecommunication Operators” for comment. In this article, we
take a look at some of the contentious issues, and inconsistencies with
International Financial Reporting Standards (IFRS), particularly keeping in mind
that India will adopt IFRS from 2011-12 and onwards.

Whether revenue should be recognized on a gross basis or net
basis could be a very challenging issue for many telecom companies. For example,
a telecom operator may provide share price coverage via SMS as part of its
service offering. The stock exchange provides the data to the telecom operator.
Assuming revenue is Rs100 and payment to the stock exchange is Rs60, a question
arises as to whether the operator recognizes revenue of Rs100 and a cost of
Rs60, or merely recognizes Rs40 as its revenue. The answer to this question
depends on whether the operator acts as a principal or an agent in this
transaction. US GAAP provides guidance on this subject, which has been used in
the Technical Guide. As per the guidance, this decision is based on a cumulative
assessment of a number of factors such as: (a) whether the operator is the
primary obligor in the arrangement? (b) whether the operator has the ability to
control the selling price? (c) whether the operator changes the product or
performs part of the service? (d) who bears the credit risk? (e) whether the
product or service specification is determined by the operator?, etc. It may be
noted that the above criteria are not the same as those contained in IAS 18.
Hence, the answer arrived at based on the Technical Guide/US GAAP may not be the
same as the one arrived at under IFRS.

For most operators, interconnect charges represent the
largest single operating cost and second largest source of revenue. Mobile
operators enter into a number of interconnect agreements with other operators.
These agreements allow them to terminate a particular call or transit the
traffic on another operator’s network. This, essentially, uses network of
contracting parties to facilitate and provide the end-to-end connections
required by customers. The Technical Guide states that accounting of revenue on
gross basis may not be appropriate where net settlement and the legal right of
offset exists between operators. However, in the authors’ view, this is contrary
to industry practice. Industry practice is that interconnect revenues are booked
gross on the basis that the carriers are exposed to the gross risk of the
transaction. Interconnect agreements usually allow carriers to settle on a net
basis, which does not normally change the appropriateness of
recognizing transactions gross, even if periodic cash settlement may be made on
a net basis. For example, the operator may bear the gross credit risk for
non-payment and be obliged to make payments under interconnect arrangements,
irrespective of the level of reciprocal revenues due.

The term Indefeasible Rights of Use (IRU) is very common in
the telecom business. IRU means an exclusive, unrestricted, and indefeasible
right to use the relevant capacity (including equipment, fibres or capacity).
Under Indian GAAP, in many cases, these type of contracts may have been
accounted for as service contracts between the buyer and seller rather than
lease contracts. The technical guide requires evaluation of the IRU contract as
to whether it contains a lease arrangement based on AS-19. Unfortunately, AS-19
does not contain any guidance on the same. Under IFRS standards, this issue is
separately covered under IFRIC 4
Determining whether an
arrangement contains a lease.
Therefore, in the authors’ view, the technical guide with regard to this matter
can be practically implemented, if and only if an IFRIC 4 interpretation is
issued under Indian GAAP. Also it would be inappropriate to apply the
requirements of IFRIC 4 selectively to telecom companies. It may be noted that
IFRIC 4 has a wider application – for example, it would have impact on
outsourcing contracts, power purchase agreements, etc.

Multiple element contracts are pretty common in the case of
telecom business. For example, in the case of mobile operators, the package may
include hand set, talk time, SMS, ring tones, etc. The technical guide basically
requires the allocation of the consideration to the various components based on
the relative fair values of the components. It may be noted that currently, IFRS
does not have any detailed guidance on accounting for multiple element
contracts. However, IASB has recently issued a discussion paper (DP) on the
proposed new standard on revenue recognition – “Discussion
Paper – Preliminary views on Revenue Recognition in contract with customers“.
As per this DP, customer consideration is allocated to the vendor’s contractual
performance obligations on a relative standalone selling price basis, and
revenue is recognized as each performance obligation is satisfied. Where the
standalone selling price is not observable, an entity would estimate them. As
per the DP, suitable estimation methods include (but not limited to) (a)
expected cost plus margin (b) adjusted market assessment approach. Consequently
the Technical Guide and the proposed IFRS standard may result in significant
difference in accounting for multiple element contracts. Telecom operators that
may be required to follow the Technical Guide for Indian GAAP purposes and
subsequently IFRS, will have to unnecessarily undergo change in revenue
recognition accounting twice. This clearly appears unwarranted.

The Technical Guide prohibits recognition of revenue on a
component if the same is contingent upon delivery of additional items. This is
explained using the following example in the Technical Guide.

Example:
A customer purchases an annual contract, offering a free handset and 1,000
minutes (fair value is Rs. 1,500 per month) and 150 free texts (fair value is Rs.
300 per month), for a monthly fee of Rs. 1,500. The handset could be purchased
separately for Rs. 15,000. The allocation of revenue for the entire contract
period should be as follows:

Cash

Total
FV

Relative
FV

FV restricted by contingent

consideration

Handset

–

15,000

7,377

–

Airtime
contract

18,000

Talk time

18,000

8,852

15,000

Text

3,600

1,771

3,000

Total

18,000

36,600

18,000

The relative fair value of the equipment is Rs. 7,377. However, the recognition of this amount should be limited to the amount which is not contingent upon the delivery of additional items (i.e. airtime contract). As a result, the relative fair value allocable to the equipment is reduced to Rs. nil, being the cash consideration, and the difference reallocated to the elements within the airtime contract. It may be noted that under IFRS, there is no such restriction and it is possible to recognize revenue on the handset.

In another example, the Technical Guide prohibits recognition of revenue on hand set in certain circumstances. For example, consider a customer enters into a 12 month tariff plan priced at Rs 2400/- and includes 200 minutes of talk time per month and free hand set worth Rs 2000/-. The Technical Guide prohibits recognition of any revenue on the delivery of the handset, since it is provided free and requires recognition of revenue of Rs 200/-per month for the talk time. In this example, it is unclear from the Technical Guide as to how the accounting is done, if the company would have stated that Rs 2,400/- is received for both the talk time and the handset. Will the accounting change? Under IFRS, it would be possible to recognize revenue on handset, even if the company claims that the same is provided free of cost. This is because under IFRS, the entire consideration would be allocated to different components – in this example, it would be allocated to the handset and the talk time irrespective of the operators’ claim that some of the components are provided free of cost (basically there is no free lunch).

The Technical Guide is more based on US GAAP and may provide results that are different from those under existing or proposed IFRS standards.

Given that India is adopting IFRS, and US itself is looking at IFRS seriously, it does not make any sense to base the Technical Guide on US GAAP. It is recommended that standard setters start a dialogue with the IFRS standard setters and influence the IFRS exposure drafts, rather than rock the boat. It is also inappropriate to have any guidance that is inconsistent with IFRS, since that may require Indian entities to change revenue recognition accounting twice in a short span of time, ie, once to comply with Indian GAAP and in 2011-12 when adopting IFRS.

BCAJ Admin

Miscellaneous

From Published Accounts

5 Audit Report in case of a
company where in earlier years, manipulations admitted by the erstwhile
management and previous years’ audit reports withdrawn by earlier auditors

Satyam Computer Services
Ltd. — (31-3-2009)

Appointment :

1. We have been appointed as
statutory auditors of SATYAM COMPUTER SERVICES LIMITED (‘the Company’) for the
year ended March 31, 2009 by the Board of Directors of the Company (hereinafter
referred to as the ‘Board’) subject to the ratification by the shareholders of
the Company, pursuant to the order of the Honourable Company Law Board (CLB),
dated October 15, 2009. This report is addressed to the members of the Company,
subject to the ratification of our appointment.

Report on the Financial
Statements :

2. We have audited the
attached Balance Sheet of the Company as at March 31, 2009, the Profit and Loss
Account and the Cash Flow Statement of the Company for the year ended on that
date, both annexed thereto.

Management’s responsibility for
the Financial Statements :

3. These financial
statements are the responsibility of the Company’s Management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

Auditors’ responsibility :

4. Subject to the matters
discussed in this report, we conducted our audit in accordance with the auditing
standards generally accepted in India. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and the disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by the Management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

Companies (Auditor’s Report)
Order, 2003 (CARO) :

5. As required by the
Companies (Auditor’s Report) Order, 2003 (CARO) issued by the Central Government
in terms of S. 227(4A) of the Companies Act, 1956 (‘the Act’) we give in the
Annexure a statement on the matters specified in paragraphs 4 and 5 of the said
Order, which is subject to the matters discussed in this report.

Basis for opinion :

6. As stated in Note 3 of
Schedule 18 :

(a) On January 7, 2009, in a communication (‘the letter’) addressed to the then-existing Board of Directors of the Company and copied to the Stock Exchanges and Chairman of Securities and Exchange Board of India (‘SEBI’), the then Chairman of the Company, Mr. B. Ramalinga Raju (‘the erstwhile Chairman’) admitted that the Company’s Balance Sheet as at September 30, 2008 carried inflated cash and bank balances, non-existent accrued interest, understated liability and overstated debtors position. As per the letter, the gap in the Company’s Balance Sheet had arisen purely on account of inflated profits over a period of last several years. Consequently, various regulators have initiated their investigations and legal proceedings, which are ongoing and are more fully described in the said Note.

(b) The Government-nominated Board of Directors appointed an independent counsel (‘Counsel’) to conduct an investigation of the financial irregularities that would enable preparation of the financial statements of the Company. The Counsel appointed forensic accountants to assist in the investigation (referred to as ‘forensic investigation’) and preparation of the financial statements. The forensic accountants have expressed certain reservations and limitations in their investigation process, which are more fully described in the said Note.

(c) Pursuant to the investigations conducted by the Central Bureau of Investigation (‘the CBI’)/other regulatory authorities, most of the relevant documents in the possession of the Company were seized by the CBI/other authorities and partial access was granted to the Company including for taking photo-copies of the relevant documents as may be required in the presence of the CBI officials.

(d) The former statutory auditors of the Company vide their letter dated January 13, 2009 to the Board of Directors have indicated that their reports and opinions in relation to the financial statements of the Company from the quarter ended June 30, 2000 until the quarter ended September 30, 2008 should no longer be relied upon.

(e) As confirmed by the order of the CLB, and in accordance with Accounting Standard 5 — ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’, adjustments resulting from financial irregularities and errors relating to periods prior to April 1, 2008, to the extent identified, have been accounted for as ‘Prior Period Adjustments’ in these financial statements.

(f) As per the assessment of the Management, based on the forensic investigation carried out through an independent counsel/forensic accountants, and the information available at this stage, all identified/required adjustments/disclosures arising from the financial irregularities, have been made in these financial statements.

The Management is of the view that since matters relating to several of the financial irregularities are sub judice and various investigations are ongoing, any further adjustments/disclosures to the financial statements, if required, would be made in the financial statements of the Company as and when the outcome of the above uncertainties is known and the consequential adjustments/disclosures are identified.

In view of the above, we are unable to comment on the adjustments/disclosures which may become necessary as a result of further findings of the ongoing investigations and the consequential impact, if any, on these financial statements.

7. As stated in Note 3.3(ii) of Schedule 18, the Company has, based on the forensic investigation, accounted for the opening balance differences (net debit) of Rs.11,221 million as at April 1, 2002, other differences (net debit) of Rs.166 million during the period from April 1, 2002 to March 31, 2008 and Rs.7 million relating to the period from April 1 to December 31, 2008 aggregating Rs.11,394 million under ‘Unexplained Differences Suspense Account (Net)’ under Schedule 12 due to non-availability of complete information. These net debit amounts aggregating Rs.11,394 million have been fully provided for on grounds of prudence.

In the absence of complete/required information, we are unable to comment on the accounting treatment/ disclosure for the aforesaid unexplained amounts accounted under ‘Unexplained Differences Suspense Account (Net)’ in these financial statements.

8. As stated in Note 6.1 of Schedule 18, the alleged advances amounting to Rs.12,304 mil-lion (net) have been presented separately under ‘Amounts Pending Investigation Suspense Account (Net)’ in the Balance Sheet. In this regard, there are certain claims by thirty-seven companies seek-ing repayment of the amounts allegedly paid by them to the Company as temporary advances which were earlier not recorded in the books of ac-count of the Company. These companies have also claimed damages/compensation/interest on these amounts. Further, these companies have also filed recovery suits/petitions against the Company. The details of these claims are more fully described in the said Note. The Company has not acknowledged any liability to any of the thirty-seven companies and has replied to the legal notices stating that the claims are legally untenable.

The Directorate of Enforcement (‘ED’), Govern-ment of India, is conducting an investigation under the Prevention of Money Laundering Act, 2002 on the amounts allegedly advanced by the aforesaid parties and has directed the Company not to return the amounts until further instructions from the ED.

The Management has represented that since the matter is sub judice and the investigations by various Government agencies are in progress, the Management, at this point of time is not in a position to predict the ultimate outcome of the legal proceedings initiated by these thirty-seven companies.

In view of the above, we are unable to determine whether any adjustments/disclosures will be required in respect of the aforesaid alleged advances amounting to Rs.12,304 million (net) and in respect of the non-accounting of any damages/compensation/interest in these financial statements.

9. As stated in Note 6.3 of Schedule 18, sub-sequent to the letter by the erstwhile Chairman of the Company relating to various financial irregularities in the Company’s financial statements, a number of persons claiming to have purchased the Company’s securities have filed class action lawsuits in various courts in the United States of America. These class action suits are more fully described in the said Note. Based on the legal advice obtained by the Company, the Company is contesting the above lawsuits.

Since the matter is sub judice, the outcome of which is uncertain at this stage, we are unable to comment on the consequential impact, if any, on these financial statements.

10. As stated in Note 8.1(vi) of Schedule 18, an amount of Rs.674 million has been paid as interim dividend for the year 2008-09. Since there are no profits for the purpose of declaring dividend, there is a non-compliance of S. 205 of the Act. Further, as stated in Note 8.1(vii) of Schedule 18, the consequen-tial transfer of the stipulated minimum amounts of profits to General Reserves in accordance with the Companies (Transfer of Profits to Reserves Rules), 1975, has also not been effected due to inadequate balance in the Profit and Loss Account. The Management is proposing to make an application to the appropriate authority for condoning these non-compliances. Refer to paragraph 17 below also.

The possible impact of these non-compliances in the event the Company’s condonation requests are not granted has not been determined or recognised in these financial statements.

11. Attention is invited to the following matters:

(a) As stated in Note 9.2 of Schedule 18, in the absence of certain documents/information, adjustments required in respect of the opening balances as at April 1, 2008 (including the adjustments consequent to the assessment of consistent application of accounting policies) have been carried out to the extent feasible by the Management, based on available alternate evidences/information.

In the absence of the aforesaid documents/ information for the periods prior to April 1, 2008, we could not perform some of the required auditing procedures on the opening balances to the extent deemed necessary by us. Furthermore, due to inadequate records, we are unable to fully assess whether the Company’s accounting policies have been applied on a basis consistent with that of the preceding period.

(b) As stated in Note 9.3 of Schedule 18, certain reconciliations between the sub-systems/sub-ledgers and the general ledger could not be performed completely due to non-availability of all the required information. The Company has identified certain amounts aggregating Rs.27 million (net debit), comprising of Rs.494 million (gross debits) and Rs.467 million (gross credits) appearing in the general ledger, for which complete details are not available and, hence, these amounts have been accounted under ‘Unexplained Differences Suspense Account (Net)’ under Schedule 12 and the Management has made provision for the net unexplained debit amounts aggregating Rs.27 million as at March 31, 2009 on grounds of prudence. Further, there are certain differences in data between inter-connected sub-systems, ultimately interfaced to the general ledger, for which complete details are not available.

In the absence of the required information, we are unable to determine the additional impact, if any, of such unexplained amounts/ differences on these financial statements.
(c) Responses were not received in 3,047 number of cases out of our total sample of 3,746 number of requests sent out for confirmations of balances/other details in respect of parties reflected under Sundry Debtors, Loans and Advances, Current Liabilities, etc. Further, confirmations could not be sent in 47 number of cases due to the non-availability of complete records/ addresses relating to these parties. Refer Note 9.4 of Schedule 18.

Had all the confirmations been received and reconciled, there may have been additional adjustments required to these financial statements which are not determinable, at this stage.

12. Attention is invited to the following matters:

(a) Further to our comments in paragraph 8 above, the amounts received during the year and shown under ‘Amounts Pending Investigation Suspense Account (Net)’ has been presented in the cash flow statement separately since the Management could not identify the nature of the same and, hence, could not categorise the same as operating, investing or financing cash flows.

This is not in accordance with Accounting Standard (AS) 3 — Cash Flow Statements.
(b) Identification of companies/firms/other parties covered in the Register maintained u/s. 301 of the Act, companies under the same management within the meaning of S. 370(1B) of the Act, firms/ private limited companies in which a director is a member or a partner, the non-scheduled banks where a director of the Company is interested and the related parties as required under AS-18 — Related Party Disclosures as stated in Notes 19(iv) and 30 of Schedule 18 has been done by the Management based on available information. For the reasons stated in the said Notes, there may be additional related parties whose relationship would not have been disclosed to the Company, and, hence, not known to the Management.

We are unable to comment on the completeness/correctness of the above-referred details in the absence of all the required information.

(c) As stated in Note 12.4 of Schedule 18, the Company has given as finance lease, vehicles to the employees under the Associates Car Purchase Scheme, the gross original cost of which aggregates Rs.654 million (net book value Rs.382 million as at March 31, 2009), which have not been accounted for as finance leases in accordance with AS-19 — Leases in the absence of complete/adequate information.

In the absence of complete/adequate information, we are unable to determine the extent to which fixed assets and depreciation have been overstated and the impact of the non-compliance with AS-19 — Leases on these financial statements.
(d) As stated in Notes 14.5 and 37 of Schedule 18, the Company has not maintained proper records of its inventories during the year though the required adjustments to account for the inventory in the books of account were made based on the available information with the Management as at the year end. Further, the Company has not disclosed the quantitative details of purchase and sale of hardware equipment and other items as required under Schedule VI of the Act in the absence of complete information.

13. The Management has evaluated and accounted for certain transactions/made the relevant disclosures based on and to the extent of the information available with the Company in respect of the following Notes of Schedule 18:

(a)   Adjustment of unapplied receipts against Sundry Debtors, classification of Sundry Debtors and provisioning for doubtful debts as stated in Note 14.1.
(b)   Accounting for contracts under percentage of completion method and unbilled revenue as stated in Notes 14.2 and 14.3.
(c)   Accounting for multiple deliverable elements, hardware equipments and other items, etc., as stated in Notes 14.4 and 14.5.

(d) Accounting for unearned revenue as stated in Note 14.7.
(e) Accounting for reimbursements/recoveries from customers as stated in Note 14.9.

In the absence of the required information, we are unable to determine the additional impact, if any, of the above matters on these financial statements.

14. As stated in Note 6.6(vi) of Schedule 18, the Company is carrying a total amount of Rs.4,371 million (net of payments) as at March 31, 2009 towards provision for taxation which was made primarily on the basis of the past financial statements. Considering the effects of financial irregularities, status of disputed tax demands, appeals/claims pending before the various authorities, the consequent uncertainties regarding the outcome of these matters and the significant uncertainties in determining the tax liability, the Company has been professionally advised that it is not appropriate to make adjustments to the outstanding balance of tax provision as at March 31, 2009.

In view of the above, we are unable to comment on the adequacy or otherwise of the provision for taxation carried in these financial statements.

15. In view of the matters described in paragraph 6 above and as stated in Note 39 of Schedule 18, information relating to the previous year has been provided only for the purpose of statutory requirements and the same cannot be used for any comparison purposes or otherwise.

16. Without qualifying our opinion, we invite attention to the following Notes of Schedule 18 relating to various claims and contingencies:

(a) Note 6.2 regarding the settlement amount of Rs.3,274 million (equivalent to USD 70 million) deposited into the escrow account payable to Upaid Systems Limited.
(b) Note 6.4 regarding the Division of Enforcement of the United States Securities and Exchange Commission conducting a formal investigation into misstatements in the financial statements of the Company for the prior years pursuant to the letter of the erstwhile Chairman and recommending enforcement action against the Company.

(c) Notes 6.6 to 6.8 regarding the various demands/disputes raised by the direct and indirect tax authorities both in India as well as overseas jurisdictions.

As stated in Note 6.13 of Schedule 18, the Company has made appropriate provision for contingencies as at March 31, 2009 which, in the opinion of the Management, is adequate to cover any probable losses in respect of the above litigations and claims.

17. Without qualifying our opinion, we invite attention to the following Notes of Schedule 18 relating to certain regulatory non-compliances/breaches:

(a)   Note 8.1 regarding various non-compliances with the provisions of the Act.
(b)   Note 8.2 regarding certain non-compliances of the guidelines issued by the SEBI with respect to allotment of stock options to the employees.
(c)   Note 8.3 regarding certain non-compliances of the provisions of the Foreign Exchange Management Act, 1999.
(d)   Note 8.5 regarding certain non-compliances of the provisions of the Income-tax Act, 1961.

(e) Note 8.6 regarding delay in filing of tax returns in overseas jurisdictions.

The Management has represented that:

(i) the various non-compliances and breaches by the Company of the statutory requirements which have been noticed/observed, duly considering the findings of the forensic investigation/other ongoing regulatory investigations have been summarised in the aforesaid Notes.

(ii) the Company is proposing to make an application to the appropriate authorities, where applicable, for condoning these non-compliances and breaches relatable to the Company.

(iii) the possible impact of these non-compliances and breaches in the event the Company’s condonation requests, where applicable, are not granted has not been determined or recognised in these financial statements.

18. Without qualifying our opinion, we invite attention to the following Notes of Schedule 18 relating to certain accounting and other matters:

(a) Note 9.1 regarding the Management’s identification of several deficiencies in the Company’s internal control over financial reporting as at March 31, 2009 along with certain remediation action taken subsequently.

(b) Note 9.5 regarding various risks and uncertainties relevant to the Company’s financial condition as identified by the Management.

(c) Note 12.8 regarding adjustments that may be required on account of the physical verification of fixed assets conducted subsequent to the year end.

(d) Note 13.9 regarding the provisions made for the diminution in the value of investments and Note 19(iii) regarding the provision made for the dues from the subsidiaries.

19. Without qualifying our opinion, we invite attention to Note 22 of Schedule 18 regarding provision for statutory audit fees of Rs.57 million (including for the audit of prior period items) debited to the profit and loss account which is subject to the approval of the shareholders.

Opinion:

20.   Further to our comments in the Annexure referred to in paragraph 5 above and paragraphs 16 to 19 above and subject to our comments in paragraphs 6 to 15 above, we report that:
(a)   we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
(b)   in our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;
(c)   the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account;
(d)   in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in S. 211(3C) of the Act;
(e)   in our opinion and to the best of our information and according to the explanations given to us, the said Accounts, read together with the notes thereon, give the information required by the Act in the manner so required and, subject to the consequential effects of our comments in paragraphs 6 to 15 above which are not quantifiable, give a true and fair view in conformity with the accounting principles generally accepted in India:

(i) in the case of the Balance Sheet, of the state of affairs of the Company as at March 31, 2009;

(ii) in the case of the Profit and Loss Account, of the loss of the Company for the year ended on that date; and

(iii) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date.

Reporting requirements relating to S. 274(1)(g):

21. Since all the Directors as on March 31, 2009 were Government nominees, the reporting requirement relating to S. 274(1)(g) of the Act does not arise.

Compiler’s Note:

The other disclosures in the Notes to Accounts referred to in the audit report are voluminous and hence not reproduced here. The same can be made available by the compiler on request.

BCAJ Admin

From The President

From the President

One of the seven social sins
as enunciated by Mahatma Gandhi was “Politics without Principles”. In good old
days, our political leaders led a principle centered or value based life. There
was a time when Union Minister Lal Bahadur Shashtri resigned from the cabinet
owning moral responsibility after a railway accident. Jai Prakash Narayan,
co-founder of Praja Socialist Party, quit the party in 1957 when he found that
tickets were distributed on the caste basis and forging ahead to pursue
Sarvodaya (good of all) and Lokniti (Polity of the people) as opposed to Rajniti
(Polity of the State).

Today, food inflation is
skyrocketing and our Agriculture Minister remains unperturbed. Farmers are
committing suicide and Ministers are busy in Rajniti. The head of the Vigilance
Commission (CVC) is under a cloud. Government is unable to declare names of the
holders of secret bank accounts overseas. Accountability is nowhere to be seen.
Punishment to culprits is illusory. Judiciary is our only ray of hope and the
Supreme Court’s pointed questions over 2G scam, secret bank accounts overseas,
CVC etc. have put the Government on the defensive. Despite the spate of scams
and corruption charges hurled about, none of the Ministers resigned voluntarily.

The law and order situation
has gone haywire. There is no safety for whistle blowers. RTI activists are
being killed without compunction. On 25th January 2011, Yashwant Sonawane,
Additional Collector Manmad region (Maharashtra) was burnt alive by the oil
mafia. If this be the fate of a Collector, what about the amm aadmi and what can
he expect at all?

An open letter written by 14
eminent citizens of India on 17th January 2011 aptly describes the present day
scenario. They have amongst other things, expressed grave concern over the
widespread “governance deficit” in every sphere of national activity, namely,
government, business and other institutions. They have alleged that misuse of
discretionary (decision making) power is widespread under extraneous influences.
They have demanded urgent steps to arrest the “malaise of corruption, which is
corroding the moral fabric of the nation”.

In Sanskrit there is a
saying that “Yatha Raja, Tatha Praja” (meaning as is the Ruler so is the Ruled).
Therefore, it is imperative that good governance should start from the top.
People in democratic set up today think it is the opposite – as are the people
so are its representatives e.g. the president/prime minister etc. forgetting
that the primary quality of a leader is his being a role model. The entire
Ramayana is written on this theme, and Rama consistently guarded his character
lest it be anything less than perfection (Maryada Purushottam) – a role model.
The Chief Minister of Bihar, Nitishkumar has set an illustration by first
declaring his assets and then demanding others, his ministers and bureaucrats to
follow suit.

We have a unique example of
Mr. Narayanamurthy, a great visionary, who created an empire which has not
touched him as the lotus remaining untouched by mud. His simplicity and
governance are worth emulating. On 7th and 8th January 2011, members of BCAS and
Karnataka State Chartered Accountants’ Association (KSCAA) visited the Campuses
of Wipro, Bangalore and Infosys, Bangalore and Mysore as part of a study tour.
The vastness of Mysore campus of Infosys and the world class training and other
facilities provided therein widened the horizons of participants. It was amazing
to see how one visionary with his enabling team could achieve in a single
lifetime and that, too, without any strings attached. No wonder, companies like
Infosys and Wipro have brought laurels to home. The participants of the study
tour also visited the manufacturing facilities of Toyota at Bangalore. Thanks to
CA. Padamchand Khincha who arranged these memorable events.

The results of CA Final are
out and as usual, there is more remorse than elation notwithstanding the fact
that the result percentage is now better than last time. The lack of formal
coaching may well be the reason for the poor performance. The ICAI’s initiative
to commence Live Virtual Classes at 25 centres in 22 cities across our country
is indeed laudable.

I think we need to reexamine
our present evaluation system which is more of a memory test. It does not matter
how much a student works hard for the entire year; what really matters is that
which he is able to reproduce at the examination hall. May be, the examinations
prepare us to keep our cool/equilibrium during the critical moments of our life.
What worries one is that a student scores 50 marks in a particular subject in
one attempt but gets five marks in the same subject in the subsequent attempt
–one is up against such an inexplicable result, naturally. Maybe, we need live
with the present system until we find a more balanced and rational way of
evaluation wherein performance of a student is reckoned over a period of time
and not just in three hours. This is true not only of CA examinations but also
of other examinations. As far as the CA curriculum is concerned, we all need to
conjoin our minds and help ICAI in evolving a better system of evaluation. The
problem has been identified and its solution cannot be late in arriving. I
appeal to readers to send their suggestions in this regard to president@bcasonline.org.

The much awaited Residential
Refresher Course (RRC) organised by BCAS was completed successfully at Matheran.
More than 200 members participated. The concept of two parallel sessions, one on
Service tax and the other on International tax elicited good participatory
response. RRC Nostalgia – an audio, visual and live programme, on one of the
evenings, kindled memories of the past RRCs. BCAS TV has been launched whereby
members from far off places would be able to benefit from recorded videos, for a
nominal subscription.

A number of activities have
been planned in the next two months. BCAS has designated February 2011 as an
“Internal Audit Month” wherein many programmes in the field of Internal Audit
are scheduled. The idea is to equip our members in this important and emerging
area of practice.

February is the month for
presentation of the Union Budget in Parliament. The winter session was a wash
out, with opposition demanding Joint Parliamentary Committee (JPC) to
investigate the 2G spectrum scam. Let us hope that Parliament would function
meaningfully during the Budget session and transact various important businesses
listed on its agenda, God willing.

Every year the fifth day (Panchami) of the Indian month Magh (this year it is on 8th February), being the first day of spring is celebrated as Saraswati Pooja day. Hindus on this occasion worship Saraswati – the goddess of knowledge, music and art. I pray that Maa Saraswati gives wisdom to all of us to work for the progress and betterment of our nation and humanity at large.

My greetings to you all on the onset of spring (Vasant Paanchami)!

BCAJ Admin

From The President

Dear BCAJ Lovers,

I began writing this page immediately after returning from
the 43rd RRC of the Society. This year, as you are aware, we went to Gujarat for
the first time and assembled at Gandhinagar in a beautiful resort. There were
about 250 of us from all over the country. The camaraderie among all our members
and the excellent rounds of group discussions and general assembly were the
highlights of the RRC. The excellence achieved by our Seminar & PR Committee
members in organisation of such mega events was very much in evidence
throughout. The RRC was attended by several Regional Council members and two
newly elected members of the Central Council of the ICAI. We also had
participation of several members of various Branches of Regional Councils of the
ICAI. We also had a record turnout from cities other than Mumbai. I welcome all
the new members, who became our members recently, who attended the RRC. I am
sure that they will be our members for a long time to come. A full report on the
RRC, accompanied by photographs is printed in this journal. The Seminar and PR
Committee is now looking at organising more activities in the months to come.

It is said that time flies. I entirely agree with this
statement. It is now six months since I took over as the President of BCAS.
These six months have been very satisfying and the wonderful co-operation that I
have received so far from all our members is very touching. I look forward to
the next six months with the same amount of enthusiasm and vigour that I began
my term with.

Recently, I watched two Bollywood movies, which I felt were
very meaningful. The first was “Paa” and the second was “3 idiots”. The first
movie brought out the best in one of the most successful actors the world has
seen. At the age of nearly 67, he has enacted the role of a 13 year old and that
too with a fatal disease. The extraordinary efforts of Mr. Bachchan are worth
emulating. They tell us that nothing is impossible in this world and that one is
never too old to try out new roles in life. The stories doing the rounds about
the time taken to put on his special make-up and to remove it and the pains that
he took to play this particular character teach us that hard work and total
dedication are what bring success. On the other end of the spectrum, the Vidhu
Vinod Chopra movie saw another brilliant actor conveying an excellent message to
one and all. Aamir Khan exhorted viewers to pursue excellence rather than
success. The entire educational system today has moved in the direction of
pushing students towards a very high pressure life. There is constant peer
pressure and the fear of failure is very strong. The recent news reports of
suicides by several school and college going children are shocking and are a
rude awakening call for all of us. In such a scenario, this movie could not have
come at a better time. The importance given by coaching classes to passing the
exams rather than focussing on gathering knowledge is a malaise that is
destroying the very fabric of India’s strong educational system. Today, if India
is considered a strong economic force, it is because of our past educational
system, which has consistently been producing a large force of intelligent,
English speaking graduates, engineers, doctors, lawyers, accountants and other
professionals. Regrettably, in my opinion, looking at the quality of the current
crop of graduates, I am not sure how long India can be perceived to have an
advantage. The film, “3 idiots” is trying to awaken us. It’s for us to open our
eyes. I do hope our students have seen these films and have appreciated and
understood the socially powerful messages. If they have, then we can all say
with conviction that “all izz Well!”

The BCAS is proposing to lead an initiative to reduce the
consumption of paper. For this, we propose to encourage our members to receive
our communication by e-mail instead of physically. This will substantially
reduce the consumption of paper. As we are all aware, every sheet of paper
manufactured results in destruction of large tracts of forest land. This is
resulting in hazardous global warming, which has become a major international
problem. At present, we have a print order of about 8,000 copies of newsletters.
To begin with, even if we are able to reduce this by 20%, we would be saving
considerable quantity of paper. Therefore, our members will shortly receive a
request to permit us to discontinue sending printed newsletters. This of course,
is entirely optional and we will continue to send printed newsletters to those
who do not reply to us or those who do not wish to discontinue the receipt of
printed copies. Thereafter, we will replicate the process for notices and for
annual reports. I believe that every revolution has a humble beginning. I invite
you to join the BCAS in this noble initiative of reducing the consumption of
paper. Let us try to go paperless to the furthest extent possible.

Like last year, this year too, I participated in the Dream
Run, which is a part of the Mumbai Standard Chartered Marathon, along with a few
other members of the BCAS. The experience is truly exhilarating. Seeing
thousands of Mumbaikars spiritedly turning out in bright colours and holding
flags and placards and participating with such a fantastic spirit of
togetherness, is a heart warming experience. Many of our members even
participated in the full Marathon and in the half Marathon. My heartiest
congratulations to all of them for running this gruelling race.

The Finance Minister is preparing for the annual Budget and
so is BCAS. Our budget lecture meeting to be addressed by Mr. S.E. Dastur and
the budget publication are already planned out. The lecture meeting will be on
3rd March at Dadar in Central Mumbai in the evening. We once again look forward
to the solid support that our members have given us in the past for the same.

Sincerely yours,

Ameet Patel

levitra

BCAJ Admin

From The President

Dear Professional Colleagues,

I write this communication to you having returned from the
42nd Residential Refresher Course (RRC) at Goa. More than 230 delegates from all
over the country participated in the deliberations. The experience was
undoubtedly enriching. It must however be accepted that the shadow of Satyam
loomed large upon the minds of participants.

The editorial deals with the various issues that arise in
regard to the audit function, the perception of the public regarding auditors in
light of the Satyam episode. I will therefore refrain from dwelling on the
subject. I must however state that in my view the situation is serious. Not only
should the ICAI act quickly but it must be seen to act. I am conscious that
there are, and there will be limitations on the speed and extent of actions of
the Institute. I also recognize that a regulator must act with responsibility
and that taking any step without the requisite evidence may cause injustice. I
only hope that these facts are brought to the notice of the public.

The RRC ended on 26th January, 2009 and we rendered the
national anthem. Every time the national anthem is rendered or recited, there is
a surge of patriotism. We feel proud to be Indians. Fifty-nine years ago we
constituted ourselves into a republic. Our nation has now entered the diamond
jubilee year. The next year we will be celebrating the diamond jubilee of our
republic. In the last fifty-nine years how have we fared in regard to the goals
we set out to achieve ?

The Preamble to the Constitution reads

WE, THE PEOPLE OF INDIA, having solemnly resolved to
constitute India into a SOVEREIGN SOCIALIST SECULAR DEMOCRATIC REPUBLIC and to
secure to all its citizens :

JUSTICE, social, economic and political;

LIBERTY of thought, expression, belief, faith and worship;

EQUALITY of status and of opportunity;

and to promote among them all

FRATERNITY assuring the dignity of the individual and the
unity and integrity of the Nation;

Fifty-nine years ago we promised our citizens justice,
liberty, equality and fraternity. Let us look at our performance in each one of
these parameters.

Justice — It is said that justice delayed is justice denied.
On that test alone we have failed miserably. Let alone the time lag, many forums
of redressal are simply not accessible to a vast majority. Judicial
pronouncements are delivered after decades, but many a time do not result in
justice because there is no action by the executive. While it is true that it is
this pillar of democracy that has suffered the minimum decay, justice as
contemplated by the founding fathers of the Constitution is still a mirage.

Liberty — Do our citizens have liberty of expression ? On the
contrary, we seem to have become extremely intolerant. Those whose beliefs do
not conform to beliefs of groups who are powerful, are throttled sometimes
physically. The standards of public morality are set by these groups. They wield
this power because some of them occupy high public office, or on account of
brute force of a mob. Women who constitute half of our citizens have severe
limitations on their freedom and the State seems to be helpless.

Equality — After six decades, disparities both social and
economic persist. On the social front there has been some degree of alleviation,
but on the economic front the gap has widened. Even opportunities are unequal.
Primary education which would have acted as a leveller is not available to vast
majority. As far as higher education is concerned, reservation was expected to
provide relief, but it has been substantially abused, and has created far more
acrimony than the benefits it has bestowed.

Fraternity — We call ourselves Indians, but permit
politicians to divide us on lines of religions, languages, and regional
aspirations. Fraternity is displayed only when a crisis looms large and is
forgotten the moment it blows over.

So our report card is rather dismal. What then is the
solution ? The solution lies in asking questions both to ourselves and the
powers that be and seeking answers again and again from ourselves and those who
are responsible for taking action. For too long we have remained silent. We seem
to have forgotten that 59 years ago we constituted ourselves into a democratic
republic. A democracy can survive and flourish only if every citizen
participates.

So the need is to participate in the democratic process and
it is not limited to elections. It means being accountable to society and
holding others accountable. It is not possible for an individual to carry on
this activity as a sustained programme. In the aftermath of the 26/11 tragedy
very senior and responsible citizens have formed a platform ‘Citizens take
Charge’. It seeks to ask questions and elicit an account from ourselves and the
authorities. Vigilance should become a habit. All of us should join either this
or any similar forum. The name of the forum is not important, the cause that it
promotes is.

I am an eternal optimist. This country has had a glorious
past, and if all of us take a step forward together, I am sure it will have a
brilliant future.

With warm regards,
Anil Sathe

levitra

BCAJ Admin

ICAI And Its Members

1. Companies Bill, 2009 — Appointment and qualifications of directors:

As reported in the earlier issues, the above Bill is pending before the Parliament. The Standing Committee on Finance has submitted its report to the Parliament on 31-10-2010. Several suggestions have been made by this Committee and the Bill is likely to be modified and discussed in the Parliament during the coming few months. Some important changes relating to appointment and qualifications of directors are suggested in the Bill. These are contained in clauses 132-153 of the Bill. The changes suggested are as under:

(i) Clause 132 of the Bill provides that the minimum number of directors shall be three in the case of a public company and two in the case of a private company. As regards one-person company, the minimum number shall be one. It is, further, provided that the maximum number of directors in any company cannot exceed 15, excluding directors nominated by the lending institutions. Further, at least one director should be a resident in India. The company will be entitled to increase the number of directors beyond 15 after passing a special resolution of the shareholders at the general meeting.

(ii) In the case of a listed company, having such amount of paid-up share capital as may be prescribed, the requirement will be that it shall have atleast 1/3rd of the total number of directors as independent directors. The Central Government may prescribe the number of independent directors in case of other public companies and subsidiaries of any public company.

(iii) The term ‘Independent Director’ has been defined in clause 132(5). According to this definition, a nominee director is not to be treated as an independent director. The other conditions for an independent director are as under:

(a) The director should be a person of integrity and should possess relevant expertise and experience; or

(b) The director or his/her relatives —

should not have pecuniary relationship or transaction with the company, its holding, subsidiary or associate company or promotors amounting to 2% or more of its gross turnover or total income during the two immediately preceeding financial years or during the current financial year.

should not hold or should not have held any senior management position or as key managerial personnel or as employee of the company in any three immediately preceeding relevant financial years.

is or has been employee or a partner, in any of the three immediately preceeding financial years, of a firm of auditors, company secretaries or cost auditors of the company or its associates.

is or has been employee or a partner of a legal or consultancy firm which had in any of the three immediately preceeding financial years transaction with the company or its associates amounting to 10% or more of the gross turnover of the firm.

holds, in aggregate, 2% or more of the total voting power of the company.

he is a chief executive or director of any non-profit organisation that receives 25% or more of its income from the company or its associate or holds 2% of more of the total voting power of the company, or

(iv) The role, duties and functions of an independent director will be prescribed by the Central Government by way of rules.

(v) The independent directors shall not be entitled to any remuneration other than sitting fees, reimbursement of expenses, for participation of board and other meetings and profit-related commission, stock option as may be approved by the shareholders.

(vi) An independent director shall not have a tenure exceeding, in the aggregate, a period of six consecutive years on the board of a company. However, after the lapse of three years, he can be appointed as an independent director for up to six years provided that no such director can have or shall have more than two tenures as independent director in any company.

(vii) In clause 146, it is provided that no person shall hold office as director, including any alternate directorship, in more than 10 public limited companies at the same time. Further, it is also provided that, out of the above, maximum number of listed companies in which such a person can be appointed as a director shall not exceed 5.

(viii) Clauses 132-153 contain other provisions relating to mandatory requirement of obtaining DIN, appointment of additional directors, disqualification of directors, duties of directors, their resignation, removal, etc. These provisions are more or less the same as in the existing Companies Act.

2. Treatment of capital expenditure on assets not owned by the company:

A Public sector undertaking registered under the Companies Act, 1956, is engaged in refining and marketing of petroleum products. When a new project by setting up of new refinery is undertaken by the company, it has to incur expenditure on the construction/development of certain assets, like electricity transmission lines, railway sliding, roads, culverts, bridges, oil jetty, etc., in order to facilitate construction of project and subsequently to facilitate its operations. The ownership of such assets (enabling assets) as well as the land on which these assets are situated does not vest with the company.

The existing accounting policy of the company in respect to such ‘enabling assets’ is as under:

(a) Fixed assets which are owned by the company, but built on land not belonging to the company, are treated as fixed assets belonging to the company.

(b) As regards fixed assets constructed, which are not owned by the company, on land not belonging to the company, the expenditure incurred on the constructions of such assets has been classified as ‘Capital Expenditure’ in the balance sheet indicating appropriately, the nature of the expenditure including the fact that the assets are not owned by the company, and after commencement of commercial operations, the same is written off to the profit and loss account.

However, the statutory auditors of the company are of the opinion that existing accounting treatment of such ‘enabling assets’ followed by the company does not appear to be correct. According to them, (a) expenditure should be debited to Capital Work In Progress (CWIP) till the enabling asset is ready for use. (b) On completion of the enabling asset, the same should be capitalised. (c) Such capital expenditure should be reflected as ‘Capital Expenditure on Assets not owned by the Company’. (d) Such capital expenditure should be amortised over the period of its utility, but not exceeding 5 years and (e) Amount amortised should be treated as expenditure during the construction period till the completion of the project, for which the enabling asset was originally created. After the completion of the project, the amortised amount is to be charged to the profit and loss account every year for the balance period of its utility.

Query:

On these facts, the company has sought the opinion of the EAC whether the accounting treatment followed by the company in respect of expenditure incurred on ‘enabling assets’ as CWIP during construction period of the project and charging off the same to the revenue in the year of completion of the project is correct?

EAC opinion:

After considering paragraphs 49 & 88 of the ‘Framework for the Preparation and Presentation of Financial Statements’ the Committee has taken the view that expenditure incurred by an enterprise cannot be recognised as an asset as resource is not controlled by the enterprise. An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise. Further, the Committee has taken the view that an indicator of control of an item of fixed asset would be that the entity can restrict the access of others to the benefit derived from the asset. From the facts of the case it is evident that the ownership of the ‘enabling assets’ does not vest with the company. The assets are available for general public use. Although the company is entitled to use these assets for the purpose of completing its own projects and subsequently for operational purposes, it has no say on the use of such assets by others. Thus, ‘enabling assets’ are not resources controlled by the company and, therefore, the expenditure incurred by the company on such ‘enabling assets’ can not be capitalised as assets either tangible or intangible considering AS-10 and AS-26. Further, the expenditure incurred on ‘enabling assets’ cannot be considered as directly attributable to such assets and therefore the same can not be capitalised.

In view of this, the Committee has taken the view that expenditure incurred on ‘enabling assets’ should be expensed and charged to profit and loss account of the period in which these are incurred.

As far as accounting treatment given by the company in respect of such ‘enabling assets’ which are still lying as CWIP, the Committee has taken the view that the same is an error committed in the prior years by the company, which should be rectified in the financial statements and disclosed as a ‘prior period items’ of the period in which such rectification is carried out in accordance with the requirements of Accounting Standard (AS) 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies”.(Pages 1040 to 1045 of C.A. Journal of January, 2011)

3. ICAI News:

(note : Page nos. given below are from January, 2011 C.a. Journal)

(i) CPE in e-Learning mode:
The Council of ICAI has approved CPE in e-Learning Mode. This decision will facilitate learning for the members just at the click of the mouse. In other words, this will help members to persue CPE Programme conveniently without undertaking the hardship of physical attendance and will prove to be beneficial for each member. (Page 1001)

(ii) Certificate course on valuation:
It is reported that 800 members of our Institute have been registered for certificate course on ‘Valuation’. Examinations are being held in batches at various places all over India. (Page 1001)

(iii) Suggested answers for examination members:
ICAI has hosted suggested answers for the examinations held in November, 2010 on its website. It is reported that the entire study material for the final course has been revised/modified substantially. This will be available to the students in the month of January through their respective branches/regions. (Page 1002)

(iv) Bank branch auditors’ panel for NABARD:
Bank Branch Auditors’ Panel by the Professional Development Committee of ICAI has prepared a Bank Branch Auditors’ Panel for the year 2010-11 and submitted the same to NABARD for appointment of statutory auditors for regional rural bank and state/district central co-operative banks. (Page 1002)

(v) Empanelment of CA firms with C & AG for 2011-12:
C & AG has invited online applications from firms of CAs who wish to empanel for the year 2011-12 for appointment as auditors of Government companies/corporations. Format of the application is available on the website : www.cag.gov.in CA firms can apply or update the data showing status of the firms as on 1-1-2011. This application can be submitted by 31-3-2011. Any changes in the constitution of the firm occuring from 1-1-2011 onwards should continue to be updated by the CA firm in the website which will be available through out the year. (Page 1132)

(vi) New publications of ICAI:

(a) ICAI has published Compendium of Standards on Internal Audit. (As on 1-10-2010)

(b) ICAI has also published Compendium of Opin-ions given by the Expert Advisory Committee (Vol. XXVIII). (Page 1132)

(vii) Grievance cell at WIRC:

A grievance cell has been formed to address issues of members and students related to administrative matters. Members can send the issues by e-mail to grievance@wirc-icai.org or in writing to WIRC. The members of the Grievance Cell are Chairman, Secretary, Shruti Shah, Neel Majithia, (RCMs) and Students Counsellor.

(viii) Extension of CPE Block:

Members may note that ICAI has decided to extend the CPE Block periof of 3 years ending on 31st December, 2010, by three months, i.e., to 31st March, 2011.

(ix) Recognition for Doctoral programme:

IIM Kozhikode & IIM Shillong has recognised Chartered Accountancy qualification as an eligibility to pursue their Doctoral programme i.e., Fellow Programme in Management.

(x) Placement programme:

ICAI has recently organised a special placement programme through video conferencing mode for the organisations functioning in GCC/Middle East countries.

(xi) Arbitration course:

ICAI has created a panel of Arbitrators through the certificate course on Arbitration.

BCAJ Admin

ICAI And Its Members

ICAI and Its Members1.
Disciplinary Case :

In the case of ICAI V/s Shri K.K. Gupta, a complaint was
filed by the RHO Welfare Association against the member. It was alleged that the
member was grossly negligent in the conduct of the audit of books of the
association on the following counts:

(i) The member had written the books of accounts for the
two years under audit and also audited and given audit reports for these two
years. This was against the code of conduct of ICAI.

(ii) In spite of several requests, he did not return the
books of accounts, vouchers, statements, etc., to the association.

(iii) The member did not give effect to various decisions
of the General Body of the Association while preparing and auditing the
accounts.

(iv) When the association managed to collect the books of
accounts for one of the years, it was noticed that some of the balances, as
per the accounts, did not tally with the figures in the audited accounts.

(v) The member did not come forward to explain the above
discrepancies in the accounts and audited statements.

(vi) No provision was made in the accounts for outstanding
liabilities for salaries, wages, electric charges, water charges, etc., and
the audit report was not qualified for this non-provision.

The Disciplinary Committee, after examining the evidence,
held that the member was grossly negligent in the performance of his
professional duties and was also guilty of other misconduct. He had not complied
with the requirements of the Code of Conduct. The council accepted this decision
and recommended to the High Court that the name of the member be removed from
the Register of Members for one year.

The Delhi High Court has held that the member was guilty of
professional misconduct and other misconduct and confirmed that his name be
removed from the Register of Members for a period of one year.

(Refer P. 1065
of the C.A. Journal for January, 2010)

2.
Some Ethical Issues :

The Ethical Standards Committee of the ICAI has clarified
about the publication of a CA’s expertise, specialisation and knowledge in any
particular field when he is appointed as a director on the Board of Directors of
a company as hereunder:

The Council’s attention has been drawn to the fact that more
and more companies are appointing chartered accountants as directors on their
boards. The prospectus or public announcements issued by these companies often
publish descriptions about the chartered accountant’s expertise, specialization
and knowledge in any particular filed or add appellations or adjectives to their
names. Attention of the members in this context is invited to the provisions of
Clause (6) and (7) of Part I of the First Schedule to the CA Act.

In order that the inclusion of the name of a member of the
institute in the prospectus or public announcements or other public
communications issued by the company in which the member is a director, does not
contravene the above noted provisions, it is necessary that members take
necessary steps to ensure that such prospectus or public announcements or public
communications do not advertise his professional attainments; and also that such
prospectus or public announcements or public communications do not directly or
indirectly amount to solicitation of clients for professional work by the
member. While it may be difficult to lay down a rigid rule in this respect,
members must use their good judgement, depending on the facts and circumstances
of each case, to ensure that the above noted provisions are complied with both
in letter and spirit.

It is advisable for a member that as soon as he is appointed
as a director on the board of a company, he should specifically invite the
attention of the management of the company to the aforesaid provisions and
should request that before any such prospectus or public announcements or public
communication mentioning the name of the member concerned is issued, the
material pertaining to the member concerned should, as far as is practicable, be
approved by him.

(Refer P.1052 of the C.A. Journal for January, 2010)

3.
Some instances of non-compliance with reporting obligations

The Financial Reporting Review Board (FRRB) has, during their
review of some published accounts, come across the following instances of common
non-compliance of reporting obligations by our members. These are published on
P. 1158 – 1160
of the C.A. Journal of January, 2010.

(i) AS – 22 – Certain enterprises disclose advance income
tax paid (current tax asset) and provision for income tax (current tax
liability) separately in their balance sheets, i.e., they do not offset the
amounts. This is contrary to AS 22, Accounting for Taxes on Income. Paragraph
27 of AS 22 requires that an enterprise should offset assets and liabilities
representing current tax if the enterprise:

(a) Has a legally enforceable right to set off the
recognised amounts ; and

(b) Intends to settle the asset and the liability on a net
basis.

(ii) AS – 22 – It has been observed in the case of a few
enterprises that the balances of unabsorbed depreciation and/or losses are
being carried forward under tax law, due to which the deferred tax asset has
been recognised in the financial statements. However, it omits to disclose the
nature of evidence that supports the recognition of such deferred tax assets
with virtual certainty.

(iii) As – 22 – In case of the financial statements of a
few enterprises, it is observed that it has disclosed only the opening
balance, addition during the year and the closing balance of the deferred tax
assets and liabilities,. Also thereis no disclosure of the break-up of the
deferred tax assets and liabilities into their major components which is not
as per the requirements of AS 22.

(iv) Schedule VI to the Companies Act

a) In case of the financial statements of a few enterprises, it was noted that the opening balance of certain specified reserves do not tally with their closing balance of the last year. Neither the notes to accounts nor the schedules contain any information regarding the

differences in such balances. It may be noted that pursuant to the instructions given in Part I of Schedule VI to the Companies Act, 1956, under the head “Liabilities”, the additions and deductions since the last balance sheet are to be shown under each of the specified heads. Therefore, such differences should not arise in the financial statements.

Paragraph (xi) of Part II of Schedule VI of the Companies Act, 1956 requires that the amount of income tax deducted from the gross income from investments and interests should be disclosed. Some enterprises in their financial statements do not disclose the amount of income tax deducted from the gross income from investment and the interest. This is not in compliance with the requirements of Schedule VI of the Companies Act, 1956.

Paras 10 and 11 of the above note relate to some discrepancies noticed in audit reports on financial statements. The requirements, AAS28
(The Auditors’ Report on Financial Statements), have been explained.

Paras 12 to 15 of the above note relate to some discrepancies noticed in reporting under CARO
– 2003.

Members are requested to take note of these discrepancies and ensure that they are not repeated.

4. Corporate Governance Task Force Report

The CII had appointed a “Task Force” under the chairmanship of Shri Naresh Chandra on Corporate Governance Code. The Task Force has submitted its draft report to the Corporate Affairs Ministry. The ministry has published this report for the comments of the general public. (Refer the Chartered Secretary Journal for December, 2009, Pages 1768 – 1778). In dealing with “Role of Directors”, this report states:

i) Auditor – Company Relationship

The report of the Naresh Chandra Committee on Corporate Audit and Governance has suggested that auditors refrain from providing non-audit services to their audit clients. It has also recommended an explicit list of prohibited non-audit services. The Task Force noted that the recommendation has been endorsed by the Ministry of Corporate Affairs and has also been proposed under the Companies Bill, 2009. It concurred with the recommendation that the legislation should expressly prohibit auditors from rendering certain services to their audit clients. Audit firms should have to mandatorily disclose network agreements between audit firms and non-audit companies, pecuniary interests exceeding 2% between the audit firm and its affiliate non-audit

service firm or company, and Chinese wall and data protection /confidentially measures that are in place between them. The Task Force noted the existing practice in this regard and found it to be sufficient.

ii) Auditors’ Revenues from the Audit Client

Not more than 10% of the revenues of an audit firm, singly or taken together with its subsidiaries, associates or affiliated entitles, should come from a single corporate client or group with whom there is also an audit engagement.

iii) Certificate of Independence

Every company must obtain a certificate from the auditor certifying the firm’s independence and an arm’s length relationship with the client company. The Certificate of Independence should certify that the firm, together with its consulting and specialized services, affiliates, subsidiaries and associated companies or network or group entities have not /has not undertaken any prohibited non-audit assignments for the company, and are independent vis-à-vis the client company, by reason of revenues earned and the independence test are observed.

iv) Audit Partner Rotation

The Task Force considered the on- going debate on the requirements of rotation of audit versus rotation of audit partner after a specified period of time. The view that audit firms should be changed after 9 or 10 years was discussed. In line with the international practice, the Task Force considered it expedient to recommend mandatory rotation of audit partners after two terms of three years each. This would help discourage creation of any affinity between auditors and controlling shareholders or promoters or the management and may help to prevent “capture” of the audit process by corporate insiders. An initial experience of the impact of rotation of the audit partner should be studied. If this measure does not improve or prevent “capture of audit process by corporate insiders”, then the alternative of rotation of auditor’s after nine years should be made mandatory. Therefore, it is recommended that:

The partners handling the audit assignment of a listed company should be rotated after every six years. The partners, and at least 50% of the audit engagement team responsible for the audit, should be rotated every six years.

A “cooling-off” period of three years should elapse before a partner can resume the same audit assignment.

v) Auditor’s Liability

The firm, as a statutory auditor or internal auditor, has to confidentially disclose its net worth to the listed company appointing it. Each member of the audit firm is liable to an unlimited extent.

vi) Appointment of Auditors

The Audit Committee of the Board of Directors shall be the first point of reference regarding the

appointment of auditors. The Audit Committee should have regard to the entire profile of the audit firm, its responsible audit partner, his or her previous experience of handling audit for similar sized companies and the firm and the audit partner’s assurance that the audit clerks and/or understudy chartered accountants or paralegals appointed for discharge of task for the listed company, shall have done a minimum number of years of study of Accounting Principles and have a minimum prior experience as audit clerks.

In order to discharge the Audit Committee’s duty, the Audit Committee shall:

Discuss the annual work programme and the depth and detailing of the audit plan to be undertaken by the auditor, with the auditor;

Examine and review the documentation and the Certificate for Proof of Independence of the audit firm, and

Recommend to the board, with reasons, the appointment / reappointment or removal of the external auditor, along with the annual audit remuneration.

vii) Qualifications introduced by Statutory Auditors or Internal Auditors in their Audit Reports, Tax Audit Reports or CARO Reports

The Task Force recommended that the ICAI appoint a committee with a significant membership of government directors, and invited management professional and lawyers having an understanding of accounts to standardise the language of disclaimers or qualifications permissible to audit firms. Anything beyond the scope of such permitted language should require the auditor to provide a sufficient explanation and should not create a new escape route for avoiding responsibility for discharging the audit function diligently, as the public relies upon them to do a thorough job.

5. WIRC – Elections

The following members have been elected to WIRC for a 3-year term, from 2010 to 2012.

Sarvashri (i) Agarwal VK, (ii) Apte DM, (iii) Bhandari AS, (iv) Chhaira JA, (v) Gandhi DB, (vi) Hegde NC, (vii) Joshi MM , (viii) Joshi SY, (ix) Kabra DK, Khandelwal DK, (xi) Kinare MP, (xii) Lalan SD, Majithia NP, (xiv) Patel BK, (xv) Patodia SK, Pawar CV, (xvii) Raval PR, (xviii) Shah JM, Shah RN, (xx) Shah SD, (xxi) Shah SJ, and Sharma UR.

ICAI News

(Note : Page nos. given below are from the C.A. Journal of January, 2010)

Accounting Standard (AS – 4) (Revised) Exposure Draft – Events after the Reporting Period

The Exposure Draft of this Standard has been published from Pages 1188 – 1192. Members are requested to send their comments by 1.2.2010. This standard corresponds to IAS 10. When finalized, this standard will supersede existing AS – 4 dealing with “Contingencies and Events Occurring After the Balance Sheet Date”.

ii) Campus Placement Programme

A Campus Placement Programme for newly qualified CAs has been organized by ICAI for those members who have passed the final CA Examination held in May, 2009 and November, 2009. The dates for the programme as reported on Page 1176 are as follows:

iii) Admission of IA & AS Officers in CA Profession

The ICAI Council has decided that Indian Audit and Accounts Service (IA & AS) officers working in C & AG offices can take up the CA course by complying with the prescribed requirements. Any IA & AS officer desiring to acquire CA membership will have to pass CPT, IPCC & CA Final Examination. He will also have to undergo three years Articleship. His service with C & AG office for one year will be considered as industrial training and he will have to undergo two years of Articleship with a practicing CA. (Refer Page 1038)

iv) New Guidelines for opening new branches of ICAI

At present, a branch of ICAI can be opened at a city if there are 150 members or more in that city or within a distance of 50 kms. from the city limits. Now, a new branch can be opened if there are more than 100, but less than 150 members, and there are more than 250 students in the city or within 50 kms. from the city. Further, if there is no branch in any district, a branch can be opened in any city of that district if there are at least 100 members in that district. (Refer Page 1038)

ICAI New Publication

Compendium of Opinions of EAC – Vol. XXVI. (Page 1171).

BCAJ Admin

ICAI And Its Members

ICAI and Its Members

1. Disciplinary case :

In the case of ICAI v. Shri P. U. Patil, the Addl.
Collector of Customs had filed a complaint against the member alleging that the
member had issued false certificates of past exports to several parties without
verifying any supporting records or documents. On the strength of these false
certificates, certain unscrupulous importers were able to obtain import licences
and effect imports without payment of duty.

The allegations were examined by the Disciplinary Committee
of ICAI and it was found that the member was guilty of professional misconduct
under clauses (2), (7), and (8) of Part I of the Second Schedule to the C.A.
Act. The Council of ICAI accepted this finding and referred the case to the
Bombay High Court with recommendation to award punishment of removal of name of
the member for one month.

In the statement made before the customs authorities, the
member stated that his friend one Mr. ’D’ brought one certificate typed on the
letter-head of one of the importers and also brought one form of certificate to
be issued by him on his letter-head. The member requested Mr. ’D’ to produce the
relevant documents and records. However, Mr. ’D’ told him that the said importer
was known to him and, therefore, there was no need to verify the
records/documents. On this basis, the member issued the certificate without any
verification. The member had issued similar certificates to other parties also
on the basis of the recommendation of Mr. ‘D’. The member could not produce any
working papers before the Disciplinary Committee. The member did not attend
before the Bombay High Court. Considering the conduct of the member, the High
Court has ac-cepted the recommendation of the Council and held that the name of
the member be removed for one month. (P. 1198 of C.A. Journal for January,
2009.)

2. Compliance with CPE Credit Hours :

ICAI has made the following announcement.

(i) The time limit for completing the CPE Credit Hours for
2008 has been extended to 31-1-2009. In other words, a member may complete the
required 30 hours (including minimum 20 structured) of learning for 2008 by
31-1-2009. Similarly, members not in practice and senior citizens who have to
complete specified period (15 or 10) of unstructured learning in 2008 can
complete this period by 31-1-2009.

(ii) Members who have not completed the above CPE Credit
Hours of learning in a year will have to complete double the number of deficit
hours in the next year.

(iii) In cases where members holding certificate of practice
do not complete the CPE Credit Hours for 2008, the Council has decided that
names of such members will not be included in any panel that is forwarded by the
Institute, on or after 1st January, 2009, to any regulators or other
authorities. In the case of a firm, if any partner/paid assistant has not
completed the requisite CPE credit hours for the year 2008, the name of the
partner/paid assistant will not be included while considering the eligibility
criteria and this fact will be stated in case the firm is otherwise found
eligible after excluding names of such partners/paid assistants.

3. Accounting Technicians Course :

(i) The C.A. Regulations are amended by a Notification dated
2-12-2008 to give recognition to the above course for students. These amendments
are published on pages 1232-1236 of C.A. Journal for January, 2009. Broadly
stated, this course provides that a student who has passed 10 + 2 examination
can join this course after passing the CPT entrance examination. Thereafter, the
student needs to pass four papers in (a) Accounting, (b) Business Laws, Ethics
and Communication, (c) Cost Accounting and Financial Management, and (d) Direct
& Indirect Taxation after undergoing study course for about 9 months with the
Board of Studies. The student has also to undergo 100 hours computer training
and an orientation course. To ensure that the student has adequate practical
exposure, such student will be required to undergo practical training of one
year under a Chartered Accountant whether in industry or in practice before
he/she is awarded Accounting Technician Certificate (ATC). He/she will be able
to use designation as ‘Accounting Technician’.

(ii) The following categories of candidates are entitled for
grant of Accounting Technician Certificate and such students, for the purpose of
issue of the Certificate are required to make an application to ICAI at Regional
office. No fees are payable for getting this certificate.

(a) Passed Professional Competence Examination, in
entirety, and also completed the prescribed period of practical training, as
applicable at the relevant time including excess leave, if any.

(b) Passed Professional Education (Examination II), in
entirety, and also completed the prescribed period of practical training, as
applicable at the relevant time including excess leave, if any.

(c) Passed Intermediate Examination under the Chartered
Accountants Regulations, 1988, in entirety, and also completed the prescribed
period of practical training, as applicable at the relevant time including
excess leave, if any.

(d) Passed Intermediate Examination under the Chartered
Accountants Regulations, 1964, in entirety, and also completed the prescribed
period of practical training, as applicable at the relevant time including
excess leave, if any.

(e) Passed Intermediate or the First Examination under the
Chartered Accountants Regulations, 1949, in entirety, and also completed the
prescribed period of practical training, as applicable at the relevant time
including excess leave, if any.

(f) Exempted from passing the First Examination under the
Chartered Accountants Regulations, 1949, in entirety, and also completed the
prescribed period of practical training, as applicable at the relevant time
including excess leave, if any.

Note : The above application can be made online and the
relevant Form of Application appears on the website of the Institute at http://www.icai.org/addupdate/dec72008.php.

4. Changes in the C.A. Course for Students:

Some important changes are made in the existing CA. Course for the students. In the new scheme, any CPT pass student can get registered for ‘Integrated Professional Competence Course’ (IPCC) (new name for the course earlier called PCC) without articleship registration and can sit in the new IPCC exam after 9 months of registration. The new IPCC comprises 2 groups. Group 1 has 4 papers and Group 2 has 3 papers.

Though the number of papers of the IPCC has been increased from 6 to 7, there is no change in the syllabus. The existing syllabus on Accounting has been divided into two parts. The first part has been named as Accounting in Group I and the second part has been named as Advanced Accounting in Group H. Only on passing Group I of the IPCC will a student be eligible to get registered for articleship, which shall now be for a period of 3 years as against the existing requirement of 3 1/2. Further, under the new scheme, a student will be eligible to sit in the final exam in last six months of his articleship as against the existing condition to sit in final exam only after the completion of articleship.

The new scheme has come into effect from 10th December 2008.However, an option has been given till 30th June 2009to the existing CPT pass students and to those who appeared in CPT examination held on 14th December 2008to choose between the PCC and the new IPCC.Those students who have passed CPT and have not so far got themselves registered for articleship and also those who pass CPT exam held on 14th December 2008, are free and eligible to get registered under the new scheme for the IPCC after the declaration of CPT result without articleship registration. All such students getting registered for the IPCC on or before 31st January 2009 will be eligible to sit in the new IPCC exam scheduled for November, 2009, as they will have completed 9 months of study by that time.

Details of the new course are given in the Notification dated 2-12-2008published at pages 1232-1236 and on pages 1238-1239of C.A. Journal for January, 2009.

5. Internal Audit – Standards & Exposure Drafts (SIA) :

(Note: Page Nos. below are from CA. Journal for January, 2009)

A. Standards on Internal Audit (SIA) :

(i) SIA-9 Communication with Management (Pages 1253-1255)

(ii) SIA-10 Internal Audit Evidence (Pages 1256-1257)

(iii) SIA-11 Consideration of Fraud in an Internal Audit (Pages 1257-1259)

B. Exposure Drafts on Standards on Internal Audit (SIA) :

i) SIA – Using the Work of an Expert (Pages 1286-1287)

ii) SIA- Internal Audit in an Information Technology Environment (Pages 1288-1292)

iii) SIA – Knowledge of the Entity and its Environment (Pages 1292-1294)

6. Auditing Standards and Exposure Drafts:

(Note: Page Nos. below are from c.A. Journal for January,2009)

A. Standards on Auditing (SA) :
(i) SA-230 (Revised) – Audit Documentation (Pages 1260-1265)
(ii) SA-560 (Revised) – Subsequent Events (Pages 1266-1271)

B. Exposure Drafts of Standards on Auditing (SA) :
(i) SA-320 (Revised) – Materiality in Planning and Performing an Audit (Pages 1272-1276)
(ii) SA-450 – Evaluation of Misstatement Identified During the Audit (Pages 1277-1281)
(iii) SA-610 (Revised) – Using the Work of Internal Auditors (Pages 1282-1285)

7. ICAI News:

(Note: Page Nos. below are from C.A. Journal for January,2009)

i) Enhancing Audit Quality:

Some observations made by Financial Reporting Review Board are listed in order to enable members to improve the quality of audit of corporate bodies. These observations relate to major non-compliances relating to :

AS-18 Related Party Disclosures
AS-19 Leases
AS-20 Earnings per Share
AS-22 Accounting for Taxes on Income
AS-26 Intangible Assets
AS-28 Impairment of Assets (Page 1226)

ii) ICAI to be XBRL Indian Jurisdiction

The Institute has been assigned the Indian jurisdiction of XBRL (eXtensible Business Reporting Language) International. Consequently, the Institute will be the Indian entity which will encourage the development and adoption of XBRL in India and will represent the Indian interest at this international level. The Ministry of Corporate Affairs and the various regulators, namely, RBI, SEBI and IRDA are part of the group constituted by the ICAI and are supporting the Institute in this initiative. XBRL is a novel way of communication of business and financial data that is of immense utility to governments, regulators, stakeholders, etc.

iii) Exclusive T.V. Channel for learning:

The Institute is launching an exclusive TV channel dedicated to learning. This channel will greatly boost the ICAl’s credentials as a pioneer in teaching through the distance education mode. This channel will make quality accountancy education accessible to interested students in the country, and will particularly cater to the needs of the students hailing from lower strata of society. This will also help in conducting CPE programmes on a regular basis. These programmes will also be accessible even in remote/far-flung areas of the country.

iv) New ICAI Secretary:

Shri T. Karthikeyan who joined ICAI in 1978 has been appointed as Secretary of the Institute. He has worked in the Institute in various capacities during the last 30 years and gained popularity with the staff, students and members of the Institute by his efficient and dedicated work. In particular, he has thorough knowledge about the CA. Act and Regulations as well as disciplinary cases. We wish him successful term of office as Secretary of the Institute.

v) ICAI Publications:

a) Implementations Guide to SQC-l (Page 1152)
b) Handbook on Foreign Trade Policy and Guide to Export and Import (Page 1242).

BCAJ Admin

Right to Information

Part A: Decision of CIC

Section 8(1)(b), (d), (e), (h) and (j)

Mr. Rakesh Kumar Gupta of Delhi has sought information regarding matters relating to the income tax of eight parties: (a) Three limited companies including Escorts Ltd (b) Three centers of Escorts Heart Institutes & Research, and (c) Mr. Rajan Nanda and Dr. Naresh Trehan.

Both the PIO and FAA refused to grant information, holding that the information related to third parties, and the third parties, in reply to the notice issued to them, had strongly objected the disclosure of information relating to their income tax records.

According to the PIO, the applicant was not able to substantiate as to what the overriding public interest in disclosing the information relating to third parties is, and that unless the case of public interest is established, the disclosure would lead to an invasion of privacy of the assessees.

It was easy for the Commission to take the decision that clauses (b)(d), (e) and (h) do not apply to this case. The said clauses cover (b) Information forbidden to be published by any court of law, etc. (d) Information which is in the nature of trade secrets, intellectual property, etc. (e) Information held in a fiduciary relationship, etc. (h) Information which would impede the process of investigation, etc.

However, as to applicability of clause (j), the ‘order’ discusses the issue in detail and takes a view contrary to the view taken by many earlier decisions of the Commission. The said clause 8 (1)(j) provides the following: Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen information, which relates to personal information, the disclosure of which has no relation to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the case may be, is satisfied that the larger public interest justifies the disclosure of such information. Provided that the information which cannot be denied to the Parliament or a State Legislature shall not be denied to any person.

As the subject matter of this case is of interest to the profession and as it is a landmark decision, I reproduce this part of the decision almost completely:

“The final exemption claimed by the Department as in the case of Dr. Naresh Trehan and three other third parties is under the Section 8(1)(j). The three other third parties are the Escorts Heart Institute and Research Centre, Delhi, Escorts Heart Institute and Research Centre, Chandigarh, and Escorts Heart Institute and Research Centre Ltd. Section 8(1)(j) is with regard to personal information and, therefore, it can only be claimed by natural persons and not by corporate entities. The three institutes cannot claim to have ‘personal’ information. There is a difference between having a personality, i.e., a legal personality, and owning ‘personal information’. Personal information is information relating to a natural person, not a legal person. Words in a law should normally be given, including the meanings, in common language. In common language, we would ascribe the adjective ‘personal’ to be an attribute, which applies to an individual and not to an institution or a corporate body. From this, it flows that ‘personal’ cannot be related to institutions, organisations or corporates. Hence Section 8(1)(j) cannot be applied when the information concerns institutions, organisations or corporates. Therefore, the Commission is of the opinion that Section 8(1)(j) cannot be relied on by these three third parties, as they are not natural persons.

With regard to the information relating to Dr. Naresh Trehan, it has been argued by his representative that the information sought is personal as it contains personal financial information of the assessee, including various assets, income and expenditure and the disclosure of this information has no relationship with any public activity or interest. It has been alleged that the information has been sought with ill will and malice, with the motive to harass and blackmail the assessee. Furthermore, the Appellant is likely to misuse the information and could endanger the life and property of the assessee if the information goes in the hands of unsocial elements. There is no larger public interest served in disclosing this information to the Appellant.

The Commission has considered the submissions made by the Appellant, the Department and the representative of Dr. Naresh Trehan. To qualify for this exemption, the information must satisfy the following criteria:

1. It must be personal information.

There is no doubt that information with regard to Dr. Naresh Trehan is personal information.

2. It must not have been disclosed to the public authority as part of a public activity

The phrase ‘disclosure of which has no relationship to any public activity or interest’ means that the information must have been given in the course of a public activity. Various public authorities, in performing their functions, routinely ask for ‘personal’ information from citizens, and this is clearly a public activity. When a person applies for a job, or gives information about himself to a public authority as an employee, or asks for permission, licence or authorisation, all these are public activities. Also when a citizen provides information in discharge of a statutory obligation, this too is a public activity. Therefore, information provided by an assessee to the department for purposes of income tax assessment is information disclosed in relation to a public activity and therefore this part of Section 8(1)(j) is inapplicable in the present case..

3. The disclosure of the information would lead to unwarranted invasion of the privacy of the individual.

Certain human rights such as liberty, freedom of expression or right to life are universal and therefore, would apply uniformly to all human beings worldwide. However, the concept of ‘privacy’ is a cultural notion, related to social norms, and different societies would look at these differently. Therefore referring to laws of other countries to define ‘privacy’ cannot be considered a valid exercise to constrain the citizen’s fundamental Right to Information in India.

Parliament has not codified the right to privacy so far, hence in balancing the Right to Information of Citizens and the individual’s Right to Privacy, the Citizen’s Right to Information would be given greater weightage.

The State has no right to invade the privacy of an individual. There are some extraordinary situations where the State may be allowed to invade the privacy of a citizen. In those circumstances, special provisions of the law apply; usually with certain safeguards.

Therefore, where the State routinely obtains information from citizens, this information is in relationship to a public activity and will not be an intrusion on privacy. As this information has been provided by the assessee to meet his legal obligations, there is no unwarranted invasion of his privacy by the state. Therefore the disclosure of the same information to another person cannot be construed as being an unwarranted invasion of the privacy of the individual.

Given our dismal record of misgovernance and rampant corruption which conspires to deny citizens their essential rights and dignity, it is in the fitness of things that the Citizen’s Right to Information is given greater primacy with regard to privacy.

Hence information provided by individuals in fulfillment of statutory requirements will not be covered by the exemption under Section 8 (1) (j).

It has come out during the hearing before the Commission, – and through the submissions made by the various parties, – that the Appellant is an informer for the Department. Escorts has also raised the matter in its written submissions of 17 September 2009, and asked the Commission to decide, ‘Whether an informer of the I.T. department can seek information in respect of the records of a third party for an ulterior motive?’ The ulterior motive being referred to appears to be the reward money, which the appellant might get.

The Appellant has given a list of additions made by various Tax evasion officers relating to the information being sought by him”

The Order then gives details of such additions (same are not reproduced here) running into crores of rupees.

Thus, the appellant has pointed out that Assessing officers have added hundreds of crores as additional income and CIT (A) has also confirmed some of them. He fears that a lot of alleged tax evasion will go unpunished, leading to a loss of revenue and perhaps his reward money. If citizens monitor this through RTI, it could be a major gain for public revenue and perhaps a good check on corrupt officials.

Based on above, Commission directed PIO to provide the inspection of the records and also the other information sought by the appellant before 15th January 2009.

[Mr. Rakesh Kumar Gupta vs. The PIO c/o CIT (Central)-2 New Delhi: No. CIC/ LS/A/2009/000647/SG/5887 of 14-12-2009]

Part B: The RTI Act

Continuing from October to January BCAJ, the summary of two reports:

One
study by PricewaterhouseCoopers (PWC) as appointed by the Department of
Personnel and Training (DOPT), titled “Understanding the key issues and
constraints in implementing the RTI Act.” Its final report as Executive
Summary is published in June 2009.

Second study by National Campaign for People’s Right to Information (NCPRI) and RTI Assessment

Analysis Group (RaaG), in collaboration with a number of other social
bodies including TISS, Mumbai under the title “Safeguarding the Right to
Information”.

DOPT-PWC Report:

Institutionalising third party audit

It
is strongly felt that in the absence of a strong review mechanism,
there is a high probability that the level of RTI implementation would
regress to lower levels.

Key issues observed

Some of the key facts observed during the study:

Limited infrastructure/processes with SIC to carry out
responsibilities under Sections 19(8) (a), 25(1), 25(2), 25(3f) 25(3g)
and 25(5), leading to non-compliance by PAs with regard to RTI
provisions.

No/inadequate mechanism for monitoring
proactive disclosure, resulting in low compliance to Section 4(1b) of
the RTI Act (65% of the PAs have not published their proactive
disclosure on the websites).

Non-adherence to service levels of 30 days causing delay in providing information to the RTI applicant.

Recommendations

To ensure better service delivery by authorities and officials, third
party audits should be institutionalized to support the Information
Commission in carrying out responsibilities under Sections 19(8)(a),
25(1), 25(2), 25(3f), 25(3g) and 25(5). Institutionalising regular
audits would facilitate the Public Authorities’ compliance with the RTI
Act (through the audit findings made available by Information
Commission). In this context, it is recommended to have a third party
audit (at least annually) to support the Information Commissions and RTI
Implementation Cell to monitor the performance of Public Authorities
and to take appropriate action in case of any deviation.

Moreover, it is also suggested that the SIC website should have a list
of all the Public Authorities within the jurisdiction of the Information
Commission. The website should have a feature for citizens to report
noncompliance (through tick-mark options) for a Public Authority. The
reports generated through this application, would be helpful for a
Public Authority and the Information Commission to take appropriate
actions.

Raag & NCPRI Report:

Current status and Preliminary Findings:

(7) RTI and the Courts

This
component is compiling data on court cases, in which appellants have
challenged State or Central Information Commissions. Analysis is being
driven by the following questions:

What types of CIC and SIC rejections are being taken to the High Court and to the Supreme Court?

What types of appellants are tending to do this?

How quickly is the higher judiciary resolving these cases?

Have judicial rulings, by and large, upheld the spirit of the RTI? In
which cases have judicial rulings tended to be in favour of appellants,
and in which against?

Has the referral of such cases to the
court influenced the offending public authority to provide requested
information, even if there is a judicial ruling?

Preliminary findings

Status
– This analysis has commenced with a review of RTI cases in the Delhi
High Court. Since many of the appeals heard by the Central Information
Commission are referred to the Delhi High Court, this makes it potential
representative of the RTI cases being heard by other High Courts as
well. Additionally, many Delhi Right to Information Act cases are
currently also lying before the Delhi High Court.

While 18
RTI cases have been located in the Delhi High Court records so far, only
15 of these have been selected for examination for analysis for the
Interim Report. These were filed before the Delhi High Court and Supreme
Court of India from 2006 to 2008.

In most of these cases,
the applicant—and not the Government—has taken the case to Court. Only
in four cases has the Union of India (UOI) approached the Courts. Even
though the sample size is small, a preliminary analysis reveals that the
Courts have shown sensitivity by admitting Writ petitions that
challenge the decisions of the Central Information Commission. However,
it must be pointed out that it is premature to comment upon the normal
outcome of such cases given that very few have as yet been decided.

But
given the way cases have been progressing, it can be inferred that many
RTI cases are pursued much like regular cases, in a “run of the mill”
manner. In one pending case, in which the applicant sought information
about the responsibilities of MCD officials charged with cleaning public
places of a certain village of Delhi, the judiciary has ignored the
public cause involved and MCD threats to the applicant and his family.
The case has lain before court for more than 1.5 years.

However,
in other cases, landmark judgments have been made, and that too
expeditiously, pointing to the beginning of systemic change in the
judiciary’s approach to RTI. One such is the Bhagat Singh vs. CIC &
Income Tax Department of Dec 2007, in which the judgement is liberal. It
interprets the exemption to information disclosure under Sec 8 (1) (h)
that disallows disclosure on the ground that “information which would
impede the process of investigation or apprehension or prosecution of
offenders”. The judgment is particularly important as it sets a
precedent and strongly supports the spirit and underlying principles of
the Right to Information Law. Further, the judgment was delivered within
8 months of its filing.

RTI and International Donors

Background:
While international donors fund social, infrastructural, and
institutional capacity -building activity, they have historically only
been required to report to the Indian Government. Resultantly, citizens
often have little information or say in how these programmes work or the
impact they have.

This component of the study is studying donor
disclosure policies to understand what kinds of information they require
donors to share directly with the Indian public, how these policies
compare with the requirements that the Right to Information Act places
upon Indian public authorities, and how the Right to Information Act is
shaping donor thinking on this issue. The analysis will also examine
donor disclosure policies in practice, and whether donors are sharing
the maximum information permissible or just their minimum requirement.
Also being studied is donor spending on RTI programmes in India, to
understand the manner in which they are attempting to influence the RTI
regime in the country.

Eleven international donors are being
studied, including nine of the largest multilateral and bilateral
government donors to India (World Bank, Asian Development Bank, Japanese
Bank for Inter-national Cooperation, GTZ, Russians, United Nations
Development Programme, European Union, DFID and USAID) and two of the
world’s largest private grant -giving foundations with operations in
India (Bill and Melissa Gates Foundation, Ford Foundation).

Research
comprises a desk review of the public information disclosure policies
and practices of the selected international donors, complemented by
face-to -face interviews with key stakeholders (including international
donors’ governance and accountability advisors in India, government
officials, beneficiaries, and members of the public).

Research is
still at a preliminary stage, although the desk review of information
disclosure policies and practices of all donors is now almost complete.

Early findings

UNDP, ADB and World Bank disclosure policies were easily available on
the Internet; other donors’ disclosure policies were not so easily found

While UNDP’s, ADB’s and the World Bank’s public disclosure policies
have undergone a series of revisions, ADB was the first to revise its
policy following stakeholder consultations.

With respect to information that is exempt from disclosure:

UNDP – Broad definition of exceptions

ADB – well defined list

WB – everything else apart from documents about WB strategies and programmes is denied / discretionary

UNDP,
ADB and the World Bank all provide a list of documents related to their
operations (strategies, programmes and projects), but only ADB’s policy
appears to have a presumption in favour of disclosure.

Part C : Others News

Important Pronouncements by the Commission :

When
Shailesh Gandhi, CIC, was in the BCAS office addressing RTI activists
and journalists, he distributed compilation of 8 important and pro-found
pronouncements by the Central Information Commission (Continuing from
January 2010)

2. Alternative routes to access information

No
Claim has been made by the PIO of any exemption under the RTI Act to
deny the information. If a public authority has a process by a Citizen
other than the route provided by the Right to Information Act, it is the
Citizens’ right to decide which route he wishes to use. The existence
of another method of accessing information cannot deny the Citizen his
freedom to use his fundamental right codified under the Right to
Information Act. If Parliament wanted to restrict his right, it would
have been stated in the law. Nobody else has the right to constrain the
rights of the Citizen.

There is no Provision in the Right to
Information Act, which restrains the Citizen’s right to use it, if
another route to access information has been of-fered or is available.
It is a Citizen’s right to use the most convenient and efficacious means
avail-able to him.

Section 2(h) of the RTI Act

In
the last issue of BCAJ, under Part A, was cov-ered the Order of CIC on
section 2(h). I had there mentioned that many bodies operate primarily
as service to the citizens of India but they take a negative view that
they are not covered under section 2(h) and hence RTI Act does not apply
to them.

It is reported that following bodies disputing
application of RTI to them are now held by Delhi H.C to be covered under
RTI Act.

Indian Olympic Association

The Commonwealth Games Organizing Committee

Sanskriti School

Justice Bhat stated:

The
RTI Act recognizes that non-state actors may have responsibilities of
disclosing information which would be useful and necessary for the
people they serve as it furthers the process of empowerment, assures
transparency and makes democracy respon-sive and meaningful.

CIC has ruled that the Bar Councils are covered under the RTI Act and
they have been directed to set-up a mechanized for operation of RTI.
CIC’s decision is based on the fact that Bar Councils are set-up under
the Advocate Act 1961, Passed by Parliament.

Against above rulings, it is interesting to note what happened in the Supreme Court early in January’10

The
Supreme Court stayed the Orissa high court order, which had upheld a
2006 order of Naveen Patnaik government bringing Reliance Power owned
two power distribution companies under the purview of RTI Act.

The
advocate of the power distribution companies argued before the Supreme
Court that the RTI Act was applicable only to “public authority”, the
meaning of which was erroneously expanded by the government and agreed
to by the HC to include the power distribution companies under the RTI
Act.

In this connection remarks of Hon. Justice Chandra-chud as
reported in BCAJ of Dec 09 (Page 117) are very relevant. He said:
“Definition of ‘Information’ given in the Act, covers information
relating to any private body which can be accessed by a Public Authority
under any other law for the time being in force”. Thus, what can be
accessed by Public Authority can be accessed by any individual citizen
also. Therefore, though the implementation is presently focused on
Public governance or Public officials, it has to be extended to private
governance in course of time.

Missing File

nine
applicants got jobs with various central government organisations,
1,993 applicants got placement in state government offices,
quasi-government and local bodies affiliated to the state and the
central government provided placement to 1,265 applicants and 1,115
placements came from private sector.

“The exchange does not give
jobs to lakhs of educated youngsters. Only a lucky few get placements.
They have become irrelevant in today’s privatised economy,” said RTI
economist Chetan Kothari who had filed a query.

The Judgement of the Courts

The
Supreme Court ruled that the judge cannot be asked under the RTI Act as
to why and how he came to a conclusion in a judgement.

Said the
bench of Chief Justice K G Balakrishnan and Justice B S Chauhan: ‘A
judge speaks through his judgments and he is not answerable to anyone as
to why he wrote the judgement in a particular manner’.

Renaming of High Courts

The
BMC has lost the file of a controversial South Mumbai building, which
was in the name of Dawood Ibrahim’s wife. This information was revealed
in a reply to the RTI application filed with the municipal
commissioner’s office. In his reply dated December 22, 2009, T M Bhatia,
assistant engineer-building and factories (C ward), said the file
papers pertaining to the building were not traceable/available.

Disclosure of assets held by Public servants

After
politicians and judges of the Supreme Court, now the assets of babus
have also been prised open to public scrutiny by RTI. In a landmark
order, the Central Information Commission (CIC) has said that disclosure
of information such as assets of public servant, routinely collected by
the public authority, should be made available to the public under the
Right To Information Act.

Employment Exchanges – how they operate!

In
reply to an RTI query, it is gathered that only 4,532 of the total
number of 30 lakh-plus job-seekers, who went through the Maharashtra
employment exchanges last year, got jobs. One hundred and fifty

In
reply to the RTI query, the ministry of law and justice has stated that
it has received the proposal to change names of four high courts.

The proposal to change the names of Bombay HC to Mumbai HC, Calcutta
HC to Kolkata HC, Gauhati HC to Guwahati HC and Madras HC to Chennai HC
is under consideration of the government.

RTI Act and Consumer Protection Act (CPA)

Very
interesting and a landmark judgement both for the RTI Act and the CP
Act has been delivered under the CP Act. Issue is whether failure to
furnish information without valid reason constitutes a deficiency in
service for which compensation can be sought by a consumer complaint.

The
applicant, Dr. Rao won the matter before the District Consumer Forum
but lost it before the Karnataka State Commission. The issue has now
been decided by the National Commission in a trend setting judgement.

The
National Commission observed that the settled law was that even if a
particular law barred the jurisdiction of courts, a complaint could
still be filed under the provision of the CPA as it provided an
additional remedy. The RTI Act did not bar the jurisdiction of the
consumer fora. Also, the provisions for appeal under the RTI Act were
restricted to the failure to furnish the information sought, but there
was no provision to claim compensation for deficiency in service. An
applicant under the RTI Act has to pay fees for getting the information,
and hence he acquires the status of a consumer. If there is any
deficiency in service in respect of providing such information, a
complaint could be filed under the CPA for claiming compensation.

BCAJ Admin

Part B — Some recent landmark judgments

New Page 1

I. High Court :

1. Whether order liable to be set aside when issued after
a period of more than four months after hearing ?

Shivsagar Veg. Restaurant v. Asstt. Commr. Of Income-tax,
Mumbai, 2009 (13) STR 11 (Bom.)

The appellant was aggrieved by the order of ITAT as the order
was passed after 4 months of hearing, dismissing the appeal without recording
reasons, propositions of the law urged and case laws relied upon by them.

It was contended that Appellate authority could not just stay
away from its duty of assigning reasons as to why it agreed with the reasons and
findings of the lower authority by just stating that findings of CIT(A) are
just, fair and in accordance with the law and inter alia decisions in the
cases of Jawahar Lal Singh v. Naresh Singh, (1987) 2 SCC 222 and State
of West Bengal v. Atul Krishna Shaw, AIR 1990 SC 2205 were relied upon.
Various judgments had been considered for prejudice caused to the litigant as
regards delayed delivery and even pronouncement. Relying inter alia on
the case of Anil Rai v. State of Bihar, 2002 (3) BCR (SC) 360, the Court
directed the president of the Appellate Tribunal to issue guidelines to all the
Benches of Tribunal to decide matters heard within three months from the date of
closing of judgment. The Appellate Tribunal directed to rehear the said appeal
and give fresh order with sound reasons.

II. Tribunal :

2.
Coaching services provided online
whether classifiable as online information and data based services ?

Burden of
proof on the Department.

Dewsoft Overseas Pvt. Ltd. V. CST, New Delhi 2008 (12)
STR 730 (Tri.-Del.)

(i) The issue in the case related to whether providing online
computer training is classifiable as online information and data-based access
and retrieval service. As the essential character of the service provided
involved computer education through the medium of Internet, the service was not
restricted to merely providing online access to data or information and
therefore was classifiable as commercial training and coaching service. However,
Notification No. 9/03-ST, dated 20-6-2003 exempted computer training institutes,
the appellant’s activity was held as exempt.

(ii) The appellant provided the said services of computer
training through various franchisees. During the period under dispute, four
conditions were required to be fulfilled cumulatively in order to hold the
arrangement as ‘franchise’. The Tribunal held that the burden of proving that
all the conditions were fulfilled lay on the Revenue. Since the Revenue failed
to do so, the Tribunal held that no service tax was payable as the arrangement
could not be considered as ‘franchise’.

3. CENVAT Credit — whether credit for service tax paid on
cell phones, landline and courier services while providing output services of
maintenance and repairs allowable ?

No penalty where dispute relating to interpretation of
statute.

Wiptech Peripherals Pvt. Ltd. V. CCE, Rajkot 2008 (12)
STR 716 (Tri.-Ahmd.)

The Tribunal held that the issue relating to service tax on
cell phones or landlines was no more res integra and stood settled by
various Tribunal decisions. However, since the appellant was unable to establish
that cell phones in the names of individuals were exclusively used in relation
to output services, the matter was remanded to the original authority for
verifying the said facts.

The Tribunal held that no penalty can be levied when the
dispute relates to interpretation of the provisions of law, while setting aside
the penalty.

4. Institutes registered with UGC, whether considered commercial coaching
centre :

ICFAI v. CC & CE, Hyderabad-II, (2008) 17 STT 501
(Bang.-CESTAT)

The appellant, a non-profit society registered under the
State Societies Registration Act imparts education and awards degrees/diplomas
recognised by the law. Service tax was demanded under ‘Commercial Training &
Coaching Service’. The Commissioner held that absence of profit motive was an
immaterial factor and rejected the contention of the appellant. The appellant
contended that the Institutes were societies for educational purposes and their
surplus was pooled back for attainment of their objectives. ICFAI, Dehradun and
ICFAI, Tripura were recognised as universities under the affiliated universities
of Universities Grants Commission and the institutions were exempted from
payment of Income-tax u/s.12A or u/s.10(23C)(vi) of the Act. Circular No.
59/8/2003-ST, dated 20-6-2003 clarified that institutes or establishments which
issued certificate, diploma or degree recognised by law and provided training
for competitive examinations were outside the scope of service tax. The
difference between ‘education’ and ‘coaching or training’ was emphasised and
reliance was placed on Bihar Institute of Mining and Mine Surveying v. CIT,
(1994) 208 ITR 608 (Pat.) for the same. Further, replacement of the word
‘commercial concern’ with ‘any person’ w.e.f. 1-5-2006 had not been effected in
respect of ‘Commercial Training or Coaching Centre’ implied that an activity
could not be commercial in nature but intention to take it up could be, which
was not apparent in the case.

Against this, the Revenue contended that distinction between
‘education’ and ‘training’ was baseless relying on the decision in the case of
JMC Educational and Charitable Trust v. CCE, (2008) 12 STT 308 (Chennai-CESTAT)
where pre-deposit amount was demanded.

It was finally held that the appellant were imparting higher
education and conferred degrees recognised by law and had recognition from
various State Governments and UGC and as such, these services provided by
institutions registered under the Societies Registration Act for educational
purposes were outside the purview of the definition of commercial coaching. The
decision in the case of Great Lakes Institute of Management Ltd. V. CST,
(2008) 12 STT 306 (CESTAT–Chennai) was relied upon. The longer period was not
found invokable as the brochures and information available through website, etc.
Proved that evasion was not the intention.

5. Import of service :

ABS India Ltd. V. Commissioner of Service Tax, Bangalore,
2008 (13) STR 65 (Tri.-Bang.)

The appellant, an Indian company, booked orders for sale of goods manufactured by its subsidiary situated in Singapore and received certain commission for which they paid service tax initially. The appellant argued that service was deemed to be provided abroad as it could not be considered as delivered in India when the recipient was located abroad. Relying on Blue Star Ltd. v. Commissioner, 2008 (11) STR 23 (Tribunal), it was held that if the recipient is located abroad, the company situated abroad utilised the benefit of the service rendered by the Indian company was exported service and therefore not liable for service tax.

Unitech Ltd. v. CST, Delhi 2008 (12)STR752(Tri.-Del.)

The issue in this case related to:

i) Whether the definition of architect under the Act is capable of covering persons not registered as architects in India?

ii) Whether the assessee is liable to pay service tax as receiver of service?

It was held that definition of architect services under the Act is wide enough to cover commercial concerns engaged in rendering services in the field of architecture and therefore, the recipient received taxable services of architect for the purposes of the Finance Act, 1994.

The Tribunal further held that although comprehensive provisions for taxing import of services came when S. 66A was introduced on 18-4-2006and import rules were notified by Notification No. 11/2006-ST from 18-4-2006,but the taxable services provided in India by a foreigner or a non-resident not having any office or business establishment in India to any person in India are liable for service tax even prior to 18-4-2006 u/s.66 read with S. 65(105) of the Act by virtue of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 read with Notification No. 36/2004-ST, dated 31-12-2004issued u/s.68(2) of the Finance Act, 1994 as recipient in India was liable for service tax with effect from 1-1-2005.

6. Refund:

K. C. Enterprises v. Commissioner of Central Excise, Vadodara 2009.(13) STR 39 (Tri.-Ahmd.)

The appeal was filed on the ground that during the period, the appellant had paid service tax for the amount billed for the services rendered rather than the amount actually received. The appellant was required to produce invoicewise details, date of receipt of actual amount along with cheque numbers or mode of payment, instead of merely submitting monthwise details showing amount billed and received. Further, the appellant failed to substantiate its claim by not submitting TR-6 challan with relevant documents and evidences of payment of tax to enable refund sanctioning. The appeal therefore was rejected.

BCAJ Admin

Right To Information

Right to Information

S. 8(1)(h) :

S. 8(1)(h) reads as under :

8(1) Notwithstanding anything contained in this Act,
there shall be no obligation to give any citizen,

(h) information which would impede the process of
investigation or apprehension or prosecution of offenders;

The petitioner, Bhagat Singh in the writ proceedings
approached High Court of Delhi seeking partial quashing of the Order of CIC and
also petition to direct PIO to supply the information sought by him immediately.

The facts of the case are as follows :

The petitioner was married in 2000 to Smt. Saroj Nirmal. In
November 2000 she filed a criminal complaint alleging that she had spent/paid as
dowry an amount of Rs.10 lakh. Alleging that these claims were false, the
petitioner, with a view to defend the criminal prosecution launched against him,
approached the Income-tax Department with a tax evasion petition (TEP) dated
24-9-2003. Thereafter, in 2004 the Income-tax Department summoned the
petitioner’s wife to present her case before them. Meanwhile, the petitioner
made repeated request to the Director of Income-tax (investigation) to know the
status of the hearing and TEP proceeding. On failing to get a response he moved
an application under the Act in November, 2005. He requested for the following
information :

“(i) Fate of petitioner’s complaint (tax evasion
petition) dated 24-9-2003.

(ii) What is the source of income of petitioner’s wife
Smt. Saroj Nirmal other than from teaching as a primary teacher in a private
school ?

(iii) What action the Department had taken against Smt.
Saroj Nirmal after issuing a notice u/s.131 of the Income-tax Act,
1961/pursuant to the said Tax Evasion petition.”

The application was rejected by PIO u/s.8(1)(j). The first AA
also rejected it not only u/s.8(1)(j) but also u/s.8(1)(h).

In the second appeal before CIC, it rejected the contention,
of PIO & AA that clause (j) applies. As to clause (h), it ruled :

“as the investigation on TEP has been conducted by DIT
(Inv), the relevant report is the outcome of public action which needs to be
disclosed. This, therefore, cannot be exempted u/s.8(1)(j) as interpreted by
the Appellate Authority. Accordingly, DIT (Inv) is directed to disclose the
report as per the provision u/s.10(1) & (2), after the entire process of
investigation and tax recovery, if any, is complete in every respect’’

Before the Court, petitioner submitted that disclosure of the
information sought could not in any way impede the investigation process nor CIC
has given any reason as to how such disclosure would hamper investigation.

The Court in para 12 analysed the Right provided under the
RTI Act, 2005 and in paras 13 & 14 analysed the right of information vs. denial
thereof :

12. The Act is an effectuation of the right to freedom of
speech and expression. In an increasingly knowledge-based society,
information, and access to information holds the key to resources, benefits
and distribution of power. Information, more than any other element, is of
critical importance in a participatory democracy. By one fell stroke, under
the Act, the maze of procedures and officials barriers that had previously
impeded information, has been swept aside. The citizen and information seekers
have, subject to a few exceptions, an overriding right to be given information
on matters in the possession of the state and public agencies that are covered
by the Act. As is reflected in its preamble paragraphs, the enactment seeks to
promote transparency, arrest corruption and to hold the Government and its
instrumentalities accountable to the governed. This spirit of the Act must be
borne in mind while constructing the provisions contained therein.

13. Access to information, u/s.3 of the Act, is the rule
and exemption u/s.8, the exceptions. S. 8 being a restriction on this
fundamental right, must therefore be strictly construed. It should not be
interpreted in manner as to shadow the very right itself. U/s.8, exemption
from releasing information is granted if it would impede the process of
investigation or the prosecution of the offenders. It is apparent that the
mere existence of an investigation process cannot be a ground for refusal of
the offenders; the authority withholding information must show satisfactory
reasons as to why the release of such information would hamper the
investigation process. Such reasons should be germane, and the opinion of the
process being hampered should be reasonable and based on some material. Sans
this consideration, S. 8(1)(h) and other such provisions would become the
heaven for dodging demands for information.

14. A right based enactment is akin to a welfare measure
and like the Act, should receive a liberal interpretation. The contextual
background and history of the Act is such that the exemptions outlined in S.
8, relieving the authorities from the obligation to provide information,
constitute restrictions on the exercise of the rights provided by it.
Therefore such exemption provisions have to be constructed in their terms;
there is some authority supporting this view [see Nathan Devi v. Radha Devi
Gupta, 2005 I AD (SC) 357; VII (2004) SLT 615; 2005 (2) SCC 201; B. R.
Kapoor v. State of Tamil Nadu, VI (2001) SLT 659; 2001 (7) SCC 231 and
V. Tulasamma v. Sesha Reddy, 1977 (3) SCC 99]. Adopting a different
approach would result in narrowing the rights and approving a judicially
mandated class of restriction on the rights under the Act, which is
unwarranted.

The Court then held as under:

“As to the issue of whether the investigation has been complete or not, I think that the authorities have not applied their mind about the nature of information sought. As is submit-ted by the Petitioner, he merely seeks access to the preliminary reports investigation pursuant to which notices u/s.131, u/s.143(2), u/s.148 of the Income -tax Act have been issued and not as to the outcome of the investigation and reassessment carried on by the Assessing Officer. As held in the preceding part of the judgment, without a disclosure as to how the investigation process would be hampered by sharing the materials collected till the notices were issued to the assessee, the respondents could not have rejected the request for granting information. The CIC, even after overruling the objection, should not have imposed the condition that information could be disclosed only after recovery was made.”

The Court then set aside the order of CIC in so for as it withholds information until tax recovery orders are made. It also directed PIO and AA to release the information sought on the basis of the materials available and collected by them within two weeks.

[Bhagat Singh v. CIC and others, WP(C) No. 3114 of 2007 dated 3-12-2007] [RTI R IV (2010) 223 (Delhi)]

PART B?: The RTI Act, 2005

S. 19(8)(a) and implementation of S. 4 of the RTI Act:

S. 19 deals with “Appeal. Ss.(8) grants certain powers to the Information Commission (both central

& state). Ss.(8) reads as under:

(8) In its decision, the Central Information Com-mission or State Information Commission, as the case may be, has the power to:

(a)   require the public authority to take any such steps as may be necessary to secure compliance with the provisions of this Act, including:
(i)   by providing access to information, if so requested, in a particular form;
(ii)   by appointing a Central Public Information Officer or State Public Information Officer, as the case may be;
(iii)   by publishing certain information or categories of information;
(iv)   by making necessary changes to its practices in relation to the maintenance, management and destruction of records;
(v)   by enhancing the provision of training on the right to information for its officials;
(vi)   by providing it with an annual report in compliance with clause (b) of Ss.(i) of S. 4;
(b)   require the public authority to compensate the complainant for any loss or other detriment suffered;
(c)   impose any of the penalties provided under this Act;
(d)   reject the application.

It appears for the first time Commission has is-sued directions to Public Authorities u/s.19(8)(a) of the RTI Act as above jointly signed by 7 Central Information Commissioners. Document is dated 15-11-2010. Brief contents of the said directions are as under:

Commission has been nothing in its decisions that although the RTI Act has now been in place for five years, a key element of the law- voluntary disclosure by public authorities, enshrined in S. 4 of the Act has not been fully implemented in letter and spirit. There are, no-doubt departments and public authorities, which are more transparent and open than the others, but most do not conform to the matrix of disclosure set out in S. 4.

Secrecy in the functioning of the public authority should be the exception and not the norm, since as stated in the preamble to the RTI Act, transparency of information is vital to a functioning democracy.

The first step towards promotion of transparency in the functioning of the public authority should be an improvement in the record-management practices. S. 4 lists out the ingredients of record management in some detail.

The time has now come when the public authorities must start a sustained drive to inform their governance practices with transparency and to take the series of small steps required to put in place a system which promotes it. S. 4 provides only a window to possible actions and much more will need to be done in order to achieve the type of goals which are envisaged.

Based on above introductory write up, the Commission by powers invested

U/s.19(8)(a) of the RTI Act has directed that obligations set out in S. 4 of the RTI Act be discharged by the public authorities as per the time limits set out by it. Its directions pertain to two items:
(1) Record Management Obligation and (2) Personnel related details and functions of public authorities.

S. 4 requires public authority to publish certain information covering above two subjects. Commission notes that action in this regards has been tardy and that it is time that these requirements of S. 4 be fully implemented in a systematic manner and directs

That these actions as ordained above shall be completed by all public authorities within a period of 120 days from the date of this order.

Commission further directed that,

(i) The information in compliance with S. 4 obligation by Public authorities shall be uploaded on a portal to be set up exclusively for this purpose by the CIC.

(ii) Within 30 days of this order, each public authority shall designate one of their senior officers as ‘Transparency Officer’ (with all necessary supporting personnel), whose task it will be
(a) to oversee the implementation of the S. 4 obligation by public authorities, and to apprise the top management of its progress.

(b) to be the interface for the CIC regarding the progress of (a).
(c) help promote congenial condition for positive and timely response to RTI-requests by CPIOS, deemed-CPIOs.

(d) to be a contact point for the public in all RTI-related matters.
(iii) Names of the transparency officers shall be communicated to throw Commission by public authorities.

Each ministry or department of the Government has been directed to forward these directions to public authorities u/s.25(2) of the RTI Act, 2005.

The Commission has written to all secretaries in each ministry or department of the Government of India and has requested them to forward the directions to Public Authority under their jurisdiction exercisable u/s.25(2) of the RTI Act.

In such communication, the Commission writes;

(a) The ultimate aim of the RTI Act is that public should have access to most information held by public authorities without the use of the RTI laws. S. 4 of the RTI Act is an initial, but necessary, prelude to achievement of that objective. Hence the importance of this Section.

The Commission is to set up portal for uploading all S. 4 compliance-related information. The idea is that an average citizen should be able to see for himself as to how public authorities have progressed in complying with the transparency obligations cast on them by S. 4 of the RTI Act.

It is now learnt as reported in media that DiPT has challenged the demand made by the Commission for Pro-active disclosure and appointment of transparency officers by public authorities. DoPT itself has refused to follow CIC’s directions as noted above CIC has now sought legal advice on the objections raised by DoPT.

Citizens and RTI Activists are perplexed at this attitude of DoPT. Now, Chief Information Commissioner, Satyananda Mishra has reacted & stated; “I do feel that the ministry should rise above the technicality and look at the objectives of the CIC order which was to ensure that Government implement the provisions of the Act”.

Let us hope that other ministries. Departments do not flout these directions so boldly and proactively demanded by the Central Information Commission.

INFORMATION ON & AROUND

RTO’s (Regional Transport Office) working in Mumbai:

If you have to wait for days to get a new license or renew an existing one, do not get surprised. Frustrated by delays in issuing licences/duplicate permits and also in the ‘annual passing (clearance)’ of autos/taxis, an auto union led by Thampy Kurlan recently sought data under RTI, which showed a sharp contrast between vehicular population and the RTO staff strength in Mumbai.

In March 1999, the total number of registered vehicles in all three Mumbai RTOs was 9.10 lakh. This rose to 16.74 lakh by March 2009. Similarly, the number of driving licences issued till March 1999 was 33.5 lakh, which increased to 56.77 lakh in March 2009. In comparisons, the staff strength (of RTO) declined from 913 officers and men (in 1999) to just 738 employees in 2009.

Working in MANTRALAYA, Mumbai:

IT pays to be a government servant?! For, where else would you not be sackled if you did not report to duty for even one day in almost two years?

That, unfortunately, is the state of affairs in Mantralaya where action is still pending against such employees, as was revealed in the Law and Judiciary department’s reply to an RTI by MID Day. However, despite filing the RTI application on absenteeism in Mantralaya almost a month back, the 34 other departments have not replied to it at all.

The RTI was sent to the Public Information Officer, General Administration Department (GAD), on November 25, 2010, it sought information on Mantralaya staffers who remained away from duty and the action that was taken against them by the government. On December 6, S. B Dalvi, information officer from the Law and Judiciary department, replied to the RTI and stated that 5 out of the 300-plus employees in the department have been irregular at work and have not been reporting for more than 18 months.

SEBI challenges CIC’s order in Court:

SEBI has moved Bombay High Court against an order of the Central Information Commission (CIC) to make public action by it on a complaint against RIL in 2000 on the sale of 12 crore shares for the benefit of its promoters. The CIC, on an RTI application by Arun Agrawal, had directed SEBI to provide details of action taken on the complaint of S. Gurumurthy of Swadeshi Jagran Manch

Right of service after RTI:

Times of India under ‘YOUR RIGHT TO KNOW’ writes: Without the right to service, the RTI will be rendered meaningless as mere knowledge of what the babu has noted in the files is not enough. It must be supplemented by giving people the right to demand service from civil servants. This alone can make files get dusted out and translate decisions to actual work on the ground.

Youngest Indian to file an RTI query:

At CNN/IBN Citizen Journalist awards ceremony this month an award is given to Aishwarya Sharma, from Lucknow, young girl of 9 years who filed a Right to Information (RTI) query for removal of a garbage disposal site in front of her School.

Her initiative was a success and a Public Library has now been constructed in that place.

BCAJ Admin

Right To Information

r2iRight to Information
is a fundamental right :

One Mr. Mangla Ram Jat of Jaipur had sought the following
information from the PIO of Banaras Hindu University (BHU).

“Kindly make available to me the complete text of the
‘question paper’, provided by the university to the examinees of the pre-P.G.
Medical (M.D/M.S) Examination 2008 held on 17-2-2008 by the Institute of
Medical Sciences, along with standard answer key adopted by the university.”

He received the following reply :

“With reference to the information/document sought by you
under the RTI Act, this is to inform you that the question paper along with
the key answer to M.D/M.S Exam-2008, conducted by the Institute of Medical
Sciences, BHU cannot be given to you as the disclosure of the same is not
favourable in larger public interest.”

First AA also rejected the appeal. Second appeal then was
filed on 31-5-2008, which came for hearing before the Central Information
Commissioner Mr. Shailesh Gandhi. In his order, he has dealt with some basic
issues and the high power of RTI. The order is considered as landmark and hence
many paras thereof are reproduced hereunder :

The Right to Information is one of the most fundamental human
rights recognised by the world community and stands incorporated in the
Universal Declaration of Human Rights and International Covenant on Civil and
Political Rights (Art. 19). This has always been a fundamental right of the
citizens under Article 19 (1)(a) of the Constitution of India, and stands
codified as the Right to Information Act, 2005.

Before going further, it is desirable to look into the
Preamble of the Act and some of its provisions. The Preamble reads as :

“And whereas democracy requires an informed
citizenry and transparency of information which are vital to its functioning
and also to contain corruption and to hold governments and their
instrumentalities accountable to the governed;

“And whereas revelation of information in actual
practice is likely to conflict with other public interests including efficient
operations of the governments, optimum use of limited fiscal resources and the
preservation of confidentiality of sensitive information;

“And whereas it is necessary to harmonise this conflicting
interest while preserving the paramountcy of the democratic ideal;

“Now therefore, it is expedient to provide for furnishing
certain information to citizens who desire to have it.”

The preamble is the soul of the Act and gives an insight into
the minds of the framers of the Act. It clearly spells out the aims and
objectives of the Act. Accountability and transparency are the paramount
objectives of the Act. Right to Information is not only a legal right, but also
a fundamental right as enunciated by the Supreme Court in plethora of judgments.

S. 3 of the Act states : “Subject to the provisions of this
Act, all citizens shall have the right to information.”

As per S. 3 of the Act, citizen’s right to access information
under the Act is absolute, subject only to limitations prescribed under the Act.
This Section forms the core of the Act and is a crisp, unambiguous declaration
of the aims and objectives of the Act. To make this right meaningful and
effective, citizens are not required to give any justification for seeking
information as laid down in S. 6(2) which reads as follows :

“An applicant making request for information shall not be
required to give any reason for requesting the information or any other
personal details except those that may be necessary for contacting him.”

The obligation on the public authority to give information to
the sovereign citizens is absolute and is limited only by S. 8 and S. 9. (the
said Sections not reproduced here).

Any refusal of information has to be only under one or more
grounds mentioned in S. 8 (1) or S. 9. The Act gives no scope to the
adjudicating authorities to import new exemptions other than those that have
been provided under the Act and thereby deny the information. In a democracy the
government belongs to the people and therefore the rights of the owner to access
this information has to be respected very carefully. Since in S. 3 it has been
stated that ‘subject to the provisions of this Act, all citizens shall have the
right to information’, it follows that denial of information can only be on the
basis of the exemptions in the Act and no other grounds for denial are valid.

A similar question relating to revealing information
regarding exam details came up for consideration under the Act before the High
Court of Calcutta in the matter of Pritam Rooj v. University of Calcutta and
Ors., (AIR 2008 Cal. 118). This judgment which was pronounced on 28-3-2008,
after the orders of the Commission which have been relied upon by the
respondent, states :

“The umbra of exemptions must be kept confined to the
specific provisions in that regard and no penumbra of a further body of
exceptions may be conjured up by any strained devise of construction”.

Going through the decision in Appeal No. 845/ICPB/2007 titled
as B. L. Goel v. AIIMS relied upon by the respondent, the Commission
finds that none of the exemptions as required under the Act to deny information
have been relied upon by the Commission while deciding the said appeal. The
Commission is of the view that the aforesaid appeal was decided citing argument
of ‘public interest’, which is not an exemption under the Act. While deciding
the said appeal, the Commission came to the conclusion that ‘by disclosing this
information we will not be able to protect any larger public interest’. However,
this Commission, after going through the above quoted Sections of the Act is of
the view that nothing in the Act envisages denial of information on the ground
that the information will not be able to protect any larger public interest.

The test of public interest is to be applied to give information, only if any of the exemptions of S. 8 apply. Even if the exemptions apply, the Act enjoins that if there is a larger public interest, the information would still have to be given. There is no requirement in the Act of establishing any public interest for information to be obtained by the sovereign citizen; nor is there any requirement to establish ‘protecting of any larger public interest’. Therefore, in view of the above provisions of the Act, the denial of information in the Commission’s orders is ‘per incuriam’. I therefore, respectfully differ with the view taken by the Commission in B. L. Goel v. AIIMS.

This Commission is conscious of the fact that it has been established under the Act and being an adjudicating body under the Act, it cannot take upon itself the role of the legislature and import new exemptions hitherto not provided. The Commission cannot of its own impose exemptions and substitute their own views for those of the Parliament. The Act leaves no such liberty with the adjudicating authorities to read law beyond what it is stated explicitly. There is absolutely no ambiguity in the Act and tinkering with it in the name of larger public inter-est is beyond the scope of the adjudicating authorities. Creating new exemptions by the adjudicating authorities will go against the spirit of the Act.

Under this Act, providing information is the rule and denial an exception. Any attempt to constrict or deny information to the sovereign citizen of India without the explicit sanction of the law will be going against rule of law.

Right to Information as part of the fundamental right of freedom of speech and expression is well established in our constitutional jurisprudence. Any restriction on the fundamental rights of the citizens in a democratic polity is always looked upon with suspicion and is invariably preceded by a great deal of thought and reasoning. Even the Parliament, while constricting any fundamental rights of the citizens, is very wary. Therefore, the Commission is of the view that the Commission, an adjudicating body which is a creation of the Act, has no authority to import new exemptions and in the process curtail the fundamental right of information of citizens.

Even the exemptions u/s.8(1) are not absolute, and are subject to larger public interest as mentioned in S. 8(2) which reads,

“Notwithstanding any of the exemptions permissible in accordance with sub S. (1), a public authority may allow access to information if public interest in disclosure outweighs the harm to protected interest.”

The concept of public interest cannot be invoked for denial of information. The Section empowers the Public Information Officer to provide the exempted information if it is in the larger public interest; meaning thereby that access to the exempted information can be allowed if public interest is served in providing the information.

Therefore, for the reasons stated above, the Commission comes to a conclusion that there can be no sanction of law for denying the information to the appellant.

The appeal is allowed.

The PIO will give the information sought by the appellant in his RTI application before 15 January, 2009.

[Mr. Mangla Ram fat v. CPIO, Banaras Hindu University, Appeal No. CIC/OK/ A/2008/00860 decided on 31-12-2008]

CIC v. SC:

A very interesting, delicate and significant issue has surfaced in the context of jurisdiction of Central Information Commission v. that of Supreme Court of India.

Chief Justice of India (CJI) Balakrishnan had taken the view:

“The Chief Justice is not a public servant. He is constitutional authority. RTI does not govern constitutional authorities”.

While the Chief Central Information Commissioner, Wajahat Habibullah held the view:

“The office of the CJI comes under the purview of the RTI”.

Facts of the appeal which came before the Central Information Commission are:

Shri Subhash Chandra Agrawal submitted an application under the RTI Act in November 2007 requesting the tPIO of Supreme Court of India (SC) to provide him a copy of the resolution dated 7-5-2007 passed by all the Judges of the SC which required every Judge to make a declaration of assets in form of real estate or investments held in their names or in the name of their spouses and any person dependent on them to the CJl. The appellant also requested the CPIO to provide him information on any such declaration of assets, etc. ever filed by the Hon’ble Judges of the Se. The RTI application also covered a request for information concerning any declarations filed by the High Court Judges about their assets to the respective Chief Justices in the various High Courts. While the CPIO of the SC provided a copy of the resolution dated 7-5-1997, as referred to above, he declined to provide the remaining part of the information concerning the declaration of assets by the Hon’ble Judges of the SC and High Courts on the ground that the said information is not held by or under the control of the Registry of the SC of India.

The First AA after hearing the appellant in person and after perusal of the records decided to remand back the matter to the CPIO to consider the question as to whether S. 6(3) of the RTI Act is liable to be invoked by the CPIO. The CPIO heard the appellant again in respect of the applicability of S. 6(3) of RTI Act to the facts and circumstances of the case and after considering the matter decided as follows:

“In the case at hand, you yourself knew that the information sought by you is related to various High Courts in the country and instead of applying to those Public Authorities you have taken a short circuit procedure by approaching the CPIO, SC of India remitting the fee of Rs.lO payable to one authority and getting it referred to all the Public Authorities at the expense of one CPIO. In view of this, the relief sought by you cannot be appreciated and is against the spirit of S. 6(3) of the RTI Act, 2005.

You may, if so advised, approach the concerned Public Authorities for desired information.”

When the second appeal came before the Central Information Commission, it decided to constitute full bench of the Commission and heard the matter. Both the parties were represented by senior advocates, the appellant by Shri Prashant Bhushan and another and the SC by Shri Amarendra Sharan, additional Solicitor General and another. Arguments of both the sides are as under:

Learned counsel appearing on behalf of the Supreme Court of India submitted that the RTI application had two parts, the first part related to copy of Resolution, which has already been provided to the appellant, and the 2nd part relates to declaration of assets by the Supreme Court Judges. CPIO submitted that the Registrar of the Supreme Court does not hold the information. The learned counsel submitted that the Resolution passed by the Judges is an inhouse mechanism. The declaration regarding assets of the Judges is only voluntary. The resolution itself describes submission of such declarations as ‘confidential’. It was also submitted that any disclosure of these declarations would be breach of fiduciary relationship. The learned counsel also submitted that the declarations are submitted to the Chief Justice of India not in his official capacity but in his personal capacity and that any disclosure will be violative of the Resolution of the Hon’ble Judges which seeks to make these declarations ‘confidential’. It was also contended that the disclosure will also be contrary to the provisions of S. 8(1)(e) of the Right to Information Act.

Learned counsel appearing for the appellant submitted that the declaration of assets by the Judges is ‘information’ within the meaning of S. 2(f) of the RTI Act and the same is held by the Supreme Court, which is therefore accessible within the meaning of S. 2(h) of the Act. If the Registrar of the Supreme Court states that the information is not held by them but held by Chief Justice of India, then the Chief Justice of India is a separate Public Authority independent and distinct from the Supreme Court of India. The Commission, therefore, has to decide as to whether the Supreme Court of India and the Chief Justice of India are part of the same Public Authority or the CJI constituted a separate and independent Public Authority. If the two are different and distinct Public Authorities then the CPIO should have transferred the RTI application to the Chief Justice of India under S. 6(3) of the Right to Information Act. He also argued that the information held either by the Supreme Court or by the Chief Justice of India cannot be denied to a citizen seeking the same under the provisions of the Right to Information Act.

Based on the above, the Full Bench consisting of IC A. N. Tiwari, IC Prof. M. M. Ansari and Chief IC-Wajahat Habibullah decided as under:

The Supreme Court of India is an institution created by the Constitution and is, therefore, a Public Authority within the meaning of S. 2(h) of the Right to Information Act.

The status and position of the Chief Justice of India is unique under the RTI Act. The Chief Justice of India is also designated as ‘Competent Authority’ u/s.2(e) of the Right to Information Act.

The Chief Justice of India in case of Supreme Court of India and the Chief Justice of High Court in case of High Court are also thus designated as ‘Competent Authority’ within the meaning of S. 2(e) of the RTI Act and S. 28 of the Right to Information Act empowers them to frame Rules to carry out provisions of Right to Information Act.

It may further be mentioned that while the Rules ” made by the Central Government u/ s.27 are required to be laid before each House of Parliament and the Rules made by the State Governments are required to be laid before each House of Legislature, there is no such requirement in respect of the Rules framed by the Chief Justice of India in case of Supreme Court and Chief Justice of a High Court in case of a High Court u/ s.28 of Right to Information Act.

The rule-making power has been explicitly given for the purpose of carrying out the provisions of the RTI Act. The Act, therefore, empowers the Supreme Court and the other competent authorities under the Act and entrusts upon them an additional responsibility of ensuring that the RTIAct is implemented in letter and spirit. In view of this, the contention of the respondent Public Authority that the provisions of Right to Information Act are not applicable in case of Supreme Court cannot be accepted.

After deciding the above, the Commission went on to decide whether the Chief Justice of India and the Supreme Court of India are two distinct Public Authorities or one Public Authority.

In the order, it records as under:

If the provisions of Article 124 of the Constitution are read in view of the above perspective, it would be clear that the Supreme Court of India, consisting of the Chief Justice of India and such number of Judges as the Parliament may by law prescribe, is an institution or authority of which the Hon’ble Chief Justice of India is the Head. The institution and its Head cannot be two distinct Public Authorities. They are one and the same. Information, therefore, available with the Chief Justice of India must be deemed to be available with the Supreme Court of India. The Registrar of the Supreme Court of India, which is only a part of the Supreme Court, cannot be categorised as a Public Authority, independent and distinct from the Supreme Court itself.

In view of this, the question of transferring an application u/ s.6(3)of the Right to Information Act by the CPIO of the Supreme Court cannot arise. It is the duty of the CPIO to obtain the information that is held by or available with the Public Authority. Each of the sections or department of a Public Authority cannot be treated as a separate or distinct Public Authority. If any information is available with one section or the department, it shall be deemed to be available with the Public Authority as one single entity. The CPIO cannot take a view contrary to this.

It may be noted that the information sought in this case was very limited, the applicant was not seeking a copy of the declarations or the contents therein or even the names, etc. of the judges filing the declaration, nor is he requesting inspection of any such declaration already filed. He is seeking simple information as to whether any such declaration of assets, etc. has ever been filed by the Judges of the Supreme Court or High Courts. The Commission held that what he was seeking cannot be held to attract exemption under clauses (e) or G) of S. 8(1).

Finally, the Commission held as under:

In view of what has been observed above, the CPIO of the Supreme Court is directed to provide the information asked for by the appellant in his RTI application as to whether such declaration of assets, etc. has been filed by the Hon’ble Judges of the Supreme Court or not within ten working days from the date of receipt of this Decision Notice.

[Shri Subhash Chandra Agrawal v. Supreme Court of India, Appeal No. CIC/WB/ A/2008/00426 de-cided on 6-1-2009]

It is reported that SC has moved the High Court over the above order. It is the unusual situation when the Apex Court approaches a lower Court. However, as the decision of CICs can be challenged only in a High Court, such unusual situation is created. It is also reported that the Delhi High Court has stayed an order of Central Information Commission. It is also interesting to note that Justice S. Ravindra Bhat has appointed noted jurist FaH Nariman as the amicus curiae to assist the Court and has fixed February 12 as the date of hearing.

It is further reported in the media:

In his communication to the HC, Nariman said, “1 must regretfullydecline the honour since I have very decided views on the matter”.

Nariman made it clear to the HC that he would not be able to maintain neutrality expected of amicus curiae in the matter.

Interestingly, in his letter to the newspaper titled ‘Chuck it, My Lords’. Nariman recalled his visit to the US when he had come across a US law that mandated each SC Judge not only to make public his assets each year but also about each gift which was worth more than $ 50.

(Full copy of this very interesting and landmark order of the Commission is being posted on www.bcasonline.org for those interested to read the full order.)

Part B : The RTI Act

Standing Committee of the Parliament on RTI Act, 2005 :

National Campaign for People’s Right to Information (NCPRI) has made a presentation before the above committee. Some of the items of the said presentation are worth noting to understand present deficiencies of the RTI Act. I shall reproduce them in this column in 3 parts, starting from this issue:

Level of awareness:

Our study suggests that the level of awareness about the RTI Act is very poor, especially in the rural areas. The Department of Personnel and Training, Government of India seems to have done very little to raise awareness about the Act. Much more needs to be done, especially by roping in the television channels, the print media, the All India Radio, and various NGOs.

Spreading awareness amongst the illiterate radio and television programmes are particularly important for this, as are awareness programmes run by NGOs. Workers of political parties can also spread awareness and facilitate use. In any case, there should be one or two nodal people in each village, perhaps the schoolteacher or the health worker,who have received some training, have some material, and are willing and able to help the rural people, especially the illiterate, to access information.

Another mechanism for spreading awareness of RTI among illiterate segments of the population is through social audits Social audits areincreasingly happening in various states around the NREGA, and attracting a large number of rural people, many of whom are illiterate wage-labourers wanting to get their rights under NREGA. In fact, the NREGA guidelines go beyond the RTI Act by stipulating provision of information to applicants within 7 days, rather than the 30 days stipulated under the RTI. RTI principles can therefore be incorporated as mandatory requirements in various other schemes and this would help even the illiterate to understand and exercise their right to information. The Planning Commission could be requested to mandate this in all central and centrally-sponsored schemes and to provide the resources for training and other requirements to make this implementable.

Use and misuse of the RTI Act:

Our study suggests, by extrapolation, that from October 2005 until October 2008, nearly five lakh RTI applications have been filed in rural areas. The number in urban areas is perhaps double this. Delhi itself has nearly eighty thousand applications filed in the last three years.

Despite an extensive survey, no evidence has emerged on the misuse of the RTI Act. There are instances where RTI applications are vague or requisition vast amounts of information; however, these are adequately covered under the law. In fact, it is not clear how the RTI Act can be misused for it only gives access to the truth and how can the truth be misused?

There are two types of apprehensions, one that officers will be blackmailed and the other that they will be harassed because of too many applications. As far as the first apprehension goes, you can only be blackmailed if you have done something wrong. Therefore, rather than demanding that information should not be shared because wrong acts have been committed, it would be better to stop doing wrong things because information will be shared.

Besides, one way of preventing the use of information accessed through the RTI Act to blackmail officials is to put up copy of the application and of the response on the website (except in those few cases where privacy is involved). Once this information is in the public domain, there would be no scope of blackmail.

Few departments receive a large number of applications. Our survey looked at over three hundred departments across the country and at differing levels. The data that emerges suggests that in almost all these departments, a public information officer does not spend more than one or two hours a week (average of between 12 and 24 minutes per working day) on RTI related work.

In any case, even those few public authorities where there is greater pressure, the department can make things much easier for itself if it periodically assesses the type of information the citizens want, and put this suo moto in the public domain, as required u/ s.4 of the RTI Act.

Part C : Other News

Delay in disposal of appeals in Maharashtra State Information Commission:
Dr. Suresh Joshi has replied 3 questions asked by DNA Journalist after some of us RTI activists met him on 30-12-2008.

Q. Activists feel the RTI Act is losing its relevance they say there are pending cases as old as 2006. What is the value of getting information three years after it was asked for ?

Ans. : That is not the case. Hearings are on and Maharashtra is one of the States that get maximum applications. The problem is of shortage of staff. There was a backlog earlier when we started, as I was the only Commissioner. Last year, people had to wait a year and a’ half for the hearing; now, Commissioners are clearing around 1,400 cases each month.

Q. Does a sympathetic approach towards PIOs mean citizens are cited as flaws, negating the relevance of the RTI Act?

Ans. : That’s not true. There are 300 cases of penalties on PIOs till November 2008, with Rs.21 lakhs collected in fines. This average comes to Rs.6,000 to 7,000. If the case is genuine, we fine up to Rs.25,000, or we give them a chance to give information. We fine people when we see an obvious case where they are violating the Act.

Q. Activists say your argument of less staff is a false, deviating attention from the slow processing of cases. They say that in order to shield erring officials who should be fined, offers of help are not taken up.

Ans. : People have helped us out. Some have even worked with us, but they 0.0 not understand that we need to go through all the files. The way they tell us and the format they make does not work out.

RTI query on online lotteries:

In reply to the RTI query filed by the Maharashtra Rajya Lottery Association President, Nanasaheb Kute-Patil, the State Lottery Department said that there is no Central Government law for single-digit lotteries, commonly known as online lotteries.

Noise pollution:

Tired of noise pollution from the playground opposite his home, Kandivli (West) resident Lennon Miranda used the RTI to find out why the play-ground is being used to organise massive functions and fairs without BMC permission.

After receiving RTI application, BMC first put up a board at one end of the ground stating, “it is in the possession of the BMC”, but some days thereafter washed its hands off the property and says that the ground does not belong to the BMC and is a private property.

Assistant engineer Marathe of the Buildings and Factories Department of the ward seconds the above claim, and says that copies of the RTI reply saying the BMC has not given any permission have been sent to the police stations for further action.

Building plans:

The Civic Administration (BMC) has decided that it will not give out prints of the layout to anyone under the RTI Act.

Kishore Gajbhiye, Additional Municipal Commissioner, said it was feared that the information may be misused by terrorists, “It is a classified document and will not be made available.”

But, civic observers say the terrorist attack is being used by the BMC’s Building Proposal Department to block information. It cannot be a confidential document unless it comes under the Exemption clause of the RTI Act. The civic body’s HQ is not a defence installation, nor does the information affect the security of the country.

BCAJ Admin

From the President

Dear Members,

Come February and anxiety builds up. Every section of the Society talks about the Budget, and is waiting for the Budget with lot of expectations.

I would like you all to ponder over the following Questions, which I often pose before myself and struggle to find answers to it.
• Why do we show so much eagerness and concern for the Budget to be presented ?

• Has the Budget not become an non-event ? If I rightly recollect, in 2006-2007, our present Finance Minister, who was Finance Minister during that period, expressed that he wants the Budget to be an non-event.

• Whether the ritual of presenting the Finance Bill is a Farce ?

I know that our’s is a country of rituals, but it’s time to end the Budget Speech tradition. It serves no purpose. Over the years, it’s been reduced to merely presenting more of a general economic survey and policy statements. The Finance Minister presents the Budget outlining key estimates and proposals. Many times, the gap between the Finance Minister’s speech on the floor of the House and what comes out in fine print may render this ritual to be nothing but a farce.

And the reason why I think in that direction, is based on some of the recent announcements which are made prior to the Budget, and I don’t see any reasons or logic to announce it prior to the Budget, and that they can’t wait till the Budget:

• Deferrment of implementation of GAAR until 2016 announced in mid January.

• Announcement of raising the Import Tariffs on Yellow metal and Duties on Gold ore in the last week of January.

• Across-the-board increase in passenger train fares, in January – a move that will add about 66 billion rupees to the railway revenue. The timing of the increase did raise questions, as it comes less than two months before the railway budget. As you are aware that the Revisions in train fares are usually announced in the rail budget and are implemented from April 1, when India’s fiscal year starts. But the early announcement was with the objective to limit opposition protests since Parliament was not in session.

If that’s what it is, perhaps it’s time to do away with the tradition altogether.

Today, everyone knows that the Tax laws are bad, but administration is worse. It is pitiable that the Economic reforms to strengthen the basis of our economy are being consistently ignored. The Government’s attitude to disrespect the judiciary is becoming a new trend. Furthermore, the Government is under constant pressure or is forced to withdraw or water down it’s Budget proposals, and even policies which are in the interest of the country. Sometimes, it struggles to implement it’s own proposals under the pretext of a review.

Considering the present situation, it’s high time that the following issues which need to be tackled and implemented, be taken up with the Government :

• Why is there a secrecy around the Budget making process?

• Why the pre-budget and post-budget memorandums sent by professional organisations in the interest of the Tax paying public at large for rationalisation, simplifications and reducing hardship are not being deliberated or debated with representatives of such bodies? As there is no inclination for the same, there is a feeling expressed that the process of memorandum making is becoming somewhat of a futile exercise.

• Why is there no machinery to consider proposals on a continuous basis and review the provisions regularly and periodically?

• Why the system is not equipped to make the best use of proposals received from various professional bodies in their right perspective?

• Why can’t we unite to seek our right for accountability in Government Departments?

Let’s hope a day will come where there would be an end to such farce, and a time will come where the Government in power has the courage to share with the country, from the heart, what it truly feels, their true, unedited understanding of the state of the nation and the party’s unexpurgated vision for the country.

Let’s hope that we see stable tax rates, a commitment to fiscal discipline and more reforms focusing on the economic revival in the forthcoming Budget. And await the answer to speculation going around that this would be an ‘Election Budget’ laden with sops and handouts.

With Warm Regards,

Yours truly,
Deepak R. Shah

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BCAJ Admin

Lecture Meeting

Selected Tax Accounting Standards, 20th December 2012, at Indian Merchants’ Chamber

Mr. Kishor B. Karia, Chartered Accountant and past president of the Society, presented an insightful analysis of proposed Tax Accounting Standards (TAS). The learned speaker explained various issues and challenges likely to arise from implementation of proposed TAS in the current form, resulting in increased hardships and litigation. The meeting was attended by over 400 listeners.

Recovery & Stay Proceedings, 2nd January 2013, at Indian Merchants’ Chamber

Dr. K. Shivaram, Advocate, explained legal provisions in respect of Recovery & Stay Proceedings and recent case laws on the subject. The learned speaker covered recovery proceedings before and after assessment, properties that can be and cannot be attached, joint and several liability of directors and partners, remedies against recovery and other related issues. The meeting was attended by over 250 listeners. The webcast of the meeting is available on BCAS Web TV to the subscribers.

Other Programmes

Educate a Child – Create a Personality, 19th December 2012, at the Society’s Office

This programme was jointly organised by the BCAS Foundation and Dharma Bharathi Mission, to encourage volunteers to devote their time to educate the underprivileged children living in slums and at Municipal schools in Mumbai and demonstrate benefits of volunteering. It was an interactive meeting of all stakeholders with young nation builders to hear their experience, to share, to interact and to recognise their good work as well as that of their mentors. Mr. Narayan Varma, Chartered Accountant and Trustee, BCAS Foundation, and Mr. Paramjeet Singh, Trustee, Dharma Bharathi Mission, welcomed and addressed the volunteers who were felicitated at the hands of Mr. Vinay Somani, Founder, Karmayog.

Sports Day, 30th December 2012, at BMC Sports Complex

The Membership & Public Relations Committee organised the First Sports day for members, their families and students. Mr. Dilip V. Lakhani, Chartered Accountant and Past President and a former All India Ranked International Table Tennis Player, inaugurated the event. The Sports Day received enthusiastic response from 65 participants who enjoyed playing games like Badminton, Table Tennis, Carrom and Chess. The programme ended with prize distribution ceremony at the hands of President Mr. Deepak R. Shah, Chartered Accountant, to the following Winners and Runners-Up:

Right to Information
Future Possibilities & Way Forward, 15th January 2013, at the Society’s Office

This meeting was organised by the BCAS Foundation to discuss various challenges being faced by the Right to Information movement and the way forward. The discussion was led by eminent social and RTI activists Ms. Aruna Roy [member of National Advisory Council (NAC) and co-founder of the Mazdoor Kisan Shakti Sanghathan], Mr. Shailesh Gandhi (former central information commissioner), Mr. Nikhil Dey [member of National Council for People’s Right to Information (NCPRI)] and Mr. Shankar Singh [member of Mazdoor Kisan Shakti Sangathan (MKSS)] along with other RTI activists. The forum felt that violence on users, court stay on prominent decisions of the information commission, rulings that limit the scope of RTI and threats from the government through legislations were major challenges being faced. Also, most new laws being framed provide for exemption from the RTI Act diluting the power of the RTI. Also, the Courts have been limiting the scope of RTI with words like ‘intimidating and suppressing’ when information about bureaucrats is sought. While RTI has managed to achieve a lot and people have learnt to use it, the system, too, is learning to resist it. It was agreed that there was a need for a country-wide alliance for transparency and accountability. Mr. Narayan Varma, Chartered Accountant and Trustee of BCAS Foundation, chaired the meeting. He explained the active role played by the Society in RTI movement and assured continued active participation by the Society.

Screening of “AHIMSA-The Strength of Non violence”, 14th January 2013, at the Society’s Office

BCAS Foundation, Dharma Bharathi Mission and Public Concern for Governance Trust jointly arranged the screening of this movie which shows an exemplary story of how after a tenacious, nonviolent struggle, the villagers of Sannai in Madhya Pradesh, India, obtained their rights for land and water. The exemplary story of these tribal people showed the fascinating strength inherent in the principle of Ahimsa: non-violence. In a society where corruption and caste conflicts undermine democratic rights, the Adivasis are supported by activists of the Gandhian Forum for Solidarity: “Ekta Parishad”. To this day, its founder P.V. Rajagopal and his colleagues train young people in non-violence when struggling for a dignified and sustainable social change. The film maker Professor Kari Saurer, from Zuric, Switzerland was present at the screening.

The movie was well appreciated by the audience.

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BCAJ Admin

PART D: Good Governance

How Does One Shame the Shameless in India

It took a horrific rape to expose our politicians. Suddenly the netas of Delhi were stripped naked. And there was no place to hide. Years of strutting around pompously and grand standing during one crisis after another, provided zero protection to these people as enraged citizenry took to the streets crying out for better governance, sickened by the apathy and abuse of power.

Excerpts from the Address of Narendra Modi:

“Development won today,” “There was thinking in our politics thatgood economics is bad politics. It was as if good governance did not suit on politics.”

He quickly added that the people of the country too needed good governance and economic development of the kind seen in Gujarat.

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BCAJ Admin

PART C: Information on & Around

Pratibha Patil on Africa Trip

A month before she left office, the Centre spent a whopping Rs. 18.08 crore on the then president Pratibha Patil’s 10-day official visit to South Africa and Seychelles.

A reply to a RTI query has revealed that the Centre paid Rs. 16.38 crore to Air India for the special aircraft used for the two-nation trip from 29th April to 7th May last year.

The RTI reply revealed that an expenditure of Rs. 1.46 crore was incurred during her visit to the South African capital Pretoria, of which Rs. 71.82 lakh was spent on her local stay, Rs. 52.33 lakh on transportation and Rs. 22.12 lakh on other expenses. In Durban Rs. 23.55 lakh was spent on her visit, with Rs. 18 lakh going towards hotel stay and Rs. 5.27 lakh on transportation.

During her tenure at Rashtrapati Bhavan, Patil incurred expenses of Rs. 205 Crore on 12 trips to 22 countries.

School Principal

An RTI query filed by an activist might lead to the ouster of the current principal of a south Mumbai school. The reply to the RTI shows that the current principal of St Mary’s High School (ICSE) in Mazgaon is still at the post at 68 years of age while the state rules make it clear that school teaching staff and principal have to retire at the age of 58 years.

“I filed an RTI to check the status of 39 nonstate- board schools in the city, and found out that most are not following the rules as prescribed by the state education department,” said Nanasaheb Kute Patil, who filed the RTI query. The questions included whether the schools have all permissions prescribed by the government, annual fees demanded by them, age and qualification of teachers/principals, etc. “My aim is to make sure students don’t suffer because of school authorities,” he added. Following this, the south zone education department has sent a notice to the school asking them to remove the principal from his post.

Ajit Pawar

Ajit Pawar tendered his resignation on 25th September on moral grounds, after allegations of massive irregularities in irrigation projects in Vidharbha during his stint in previous cabinet as Water Resources minister. The governor accepted his resignation on 29th September.

From 30th September to 14th October, the state offered him facilities without any charge, according to the reply to an RTI application filed by Anil Galgali. A government resolution dated 12th October stated that after 14th October, Pawar was to be charged Rs. 5 a square foot if he wanted to avail of accommodation in the bungalow in Malabar Hill with an uninterrupted supply of all amenities – gas, water, power and telephone at state expenses. Officials from the general administration department said the rule/procedure was applicable on all cabinet ministers to allow them find new residences to ensure smooth transition from power.

But Galgali feels otherwise. “The high-voltage drama related to Pawar’s resignation was a well-planned political move,” he said. “If Pawar resigned from his ministerial post on moral grounds, then he should have shown the same morality and should have given back the Devgiri bungalow to the government. In the city’s slums, no one even gets a hut on rent for Rs. 5 a sq ft. If a government regulation (GR) states that outgoing ministers to be charged Rs. 5 a sq. ft for accommodation in a posh area like Malabar Hill, there is something fundamentally wrong and the GR must be amended.”

Security Firm

High-profile private security firm, NISA, with 45,000 guards on its payroll, has failed to file with Mumbai police with basic yet crucial details like how many of its personnel carry firearms. Yogesh Hilkar, a member of the NGO ‘Swabhiman’ run by Congress MLA Nitesh Narayan Rane, has uncovered these facts through a RTI plea.

“It is shocking that the company has not supplied details of all the armed men working with it. This is, potentially, a huge security threat,” when the Deputy Commissioner of Police, Headquarter (II) – who is responsible for maintaining a database of all the security agencies in the city and the Assistant Commissioner of Police from DN Nagar division, where NISA has its corporate office, have failed to furnish any details in this respect.

The company’s website (http://www.nisaeye.com/) notes that it is having 45,000 security personnel in its ranks, based at over 3,500 installations in India, and managed through about 45 branches.

It claims that it’s been administering security to some of the biggest names in the corporate world since 1973.

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PART B: RTI Act , 2005

The Government has decided to conduct a study on the implementation of the Right to Information Act to know the cost to the government in providing information to citizens under the UPA’s showpiece initiative and whether it has helped improve its “public perception about the extent of reduction in corruption”.

As per the RTI Act of 2005, only Rs. 10 fee is required to seek information from any public authority, but various government officials have complained of the huge cost they have to bear to divert resources and effort to answer RTI pleas.

The government has earlier got a study conducted from PricewaterhouseCoopers (PwC) in 2009 on the key issues and constraints in implementing the RTI Act. But, for the first time, the government is attempting to “calculate the cost to government in providing the formation under RTI”, as per the scope of work of the new study for which the Department of Personnel and Training has invited bids on 4th January. “To further strengthen the RTI regime, it has been decided to do a 360-degree study of the implementation of the RTI Act. The study will cover both states and the central government, across various sectors, and will cover public authorities at centre, state, district and panchayat level,” the bid document says. The scope of the study also involves assessing public perception about the extent of reduction in corruption. “Since the implementation of the Act there has been a significant and perceptible change in the level of transparency in the working of the governments at the Centre, state and the sub-state level,” the bid document claims. The scope of the study includes a study of trends in filing of RTI applications or appeals across the country. The government also wants an institution or organisation to study the use of the RTI Act by different types of applicants – in cases where applicant type is identifiable from the application. The study will assess the type of information sought and its classification into “personal information” sought by employees, procurement-related information sought “without any apparent objective/purpose” and general information sought without specificity across sections.

“The implementation of the provisions of the Act has to be studied from the perspective of both the demand and supply side. The approach to achieving the above is viewing RTI applications and their responses from the information seekers’ and providers’ angle,” the bid document says. The study will hence, determine the level of satisfaction among the people with functioning of the Act and the experience of public authorities at different levels in dealing with RTI applications and appeals, the document has mentioned.

[Extracts from ET dated 7-1-2013]

Good News for Mumbai RTI Applicants:

The office of the State Chief Information Commissioner will go paperless in less than a month. “If all goes well then our office will be paperless and we have developed a software for the purpose,” State Chief Information Commissioner, Ratnakar Gaikwad said.

Soon after his appointment in June, when Gaikwad visited the office of the Central Information Commissioner Shailesh Gandhi, he was surprised to see that there were no files on his table.

“I studied his working pattern and felt that it was possible to introduce a paperless office in Mumbai too,” he added. Gaikwad, who has set a target of disposing of 25 complaints/appeals daily, said no purpose will be served if information is not provided to an applicant as early as possible. “I am sure that we will be able to clear all the 2,098 appeals by March, 2013. Once the backlog is cleared, we will clear the appeals within 15days,” he said.

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BCAJ Admin

Representation

7th January 2013

To,
Mr. P. Chidambaram Finance Minister Government of India, North Block, Vijay Chowk, New Delhi – 110 001.

Dear Sir,

Sub: Pre-Budget Memorandum 2013-14

We take this opportunity to present a Pre-Budget Memorandum on Direct Taxes with a request to consider the same while framing proposals in Finance Bill, 2013 for amendments to the Income-tax Act 1961.

We request your honour to consider the suggestions favourably. We will be pleased to present ourselves for any explanation and clarification that may be required by your honour.

Thanking you,
We remain,

Yours truly,
For Bombay Chartered Accountants ’ Society
Deepak R. Shah
President
Gautam S. Nayak
Chairman, Taxation Committee

Pre budget suggestions, 2013-14 On direct tax laws

Index

Sr. No.	Particulars	Page Nos.
1	Amendments required in Section 10(23FB)	2
2	Representation on Section 40A(2)(a)	3
3	Amendments required in Section 47(xiii), (xiiib) and (xiv)	6
4	Deemed speculation loss in case of companies – Explanation to Sec 73	6
5	Provisions Relating to Gift: Section 2(24)(xv) & 56(2)(vii)	7
6	Taxation of Share Premium – Section 56(2)(viib)	8
7	Tax on Long Term Capital Gains-Section 112(1)(c)(iii)-Clarification required	9
8	Tax on Distributed Profits-Sec 115-O – Effect on Non-Resident shareholder	11
9	Increase in threshold limit for TDS – Section 194A	11
10	TDS in respect of Payment to Nonresidents– Section 195(7)	11
11	Clarification required through an amendment to the provisions of Section 269SS & Section 269T	12

Substantial Amendments

1. Amendments required in Section 10(23FB)
1.1 SEBI has notified the SEBI (Alternative Investment Funds) Regulations, 2012 (“AIF Regulations”) replacing the extant SEBI (Venture Capital Funds) Regulations, 1996 (“VCF Regulations”) w.e.f May 21, 2012.

1.2 Every fund established in India for the purpose of pooling moneys from investors, Indian or foreign, on a private basis, for investing it further shall fall within the ambit of the AIF Regulations and would have to be registered under these regulations; unless a fund has been specifically excluded in the said regulations.

1.3 With the intention of distinguishing the investment criteria and relevant regulatory concessions that are allowed to AIFs, SEBI has classified AIFs into three categories. The following are the three categories of AIFs: Category I AIF [Venture Capital Fund (VCF), Social Venture Fund, SME Fund, Infrastructure Fund, Other Funds which have a positive spillover effect on the economy]; Category II AIF [Private Equity Fund, Debt Fund, Real Estate Fund] and Category III AIF [Hedge Fund].

1.4 Prior to 2007, VCFs that were registered with SEBI under the VCF Regulations were provided a tax “pass-through” benefit on their entire income. Under Section 10 (23FB) read with Section 115U of the Indian Incometax Act, 1961 (“ITA”), the income of a venture capital fund was exempt from tax in the hands of the fund and was only taxable in the hands of the investors of the fund.

1.5 In 2007, the ITA was amended and this tax “pass-through” benefit was restricted only to income from venture capital undertakings that operated in nine specified sectors. However, in a welcome move, the Finance Act, 2012, has once again reverted to the pre-2007 position by extending this tax “pass-through” benefit to income of a venture capital fund arising from investment in any venture capital undertaking, regardless of the sector in which the venture capital undertaking operates.

1.6 The PE and VC industry lauded this move as a step in the right direction and it was expected that this benefit was to be extended to all AIFs as well. This also appeared to be SEBI’s intent, as gathered from the previous version of the AIF Regulations which specified that SEBI “may represent that similar provision for tax pass through may be provided for AIFs once the VCF Regulations are repealed and the AIF Regulations are notified”. However, at this stage, unfortunately neither the Finance Act, 2012 nor the AIF Regulations extend clarity as to whether the much desired ‘pass-through’ will be available to other categories of AIF other than Category I, for which the AIF Regulation specifically clarify the eligibility under section 10(23FB) of the Income-tax Act, 1961. The assured pass-through is almost a must and right on top of the expectations from the Industry.

A spill-over effect of this restrictive interpretation may also mean that the provisions of section 56(2)(viib) inserted by the Finance Act, 2012, to tax consideration received by a company for issue of shares which exceeds fair market value, will also apply where the payer is a Category II AIF or a Category III AIF. The Finance Act, 2012 has exempted, from such levy, payments made by a “venture capital fund” to a “venture capital undertaking”, an exemption which, given the lack of clarity, may now apply only to Category I AIFs.

1.7 Further, section 10(23FB) of the Income-tax Act has not been amended to refer to AIF Category I Funds, instead of VCFs. Also, the benefit of the pass-through is available only to the income from VCUs. Most Funds also invest their funds in bank deposits, pending investment in companies, and therefore have interest income. This results in a peculiar situation where part of the income by way of bank interest is taxed in the hands of the Fund, while the other income from VCUs is taxed in the hands of the investors.

1.8 It is therefore, strongly suggested that section 10(23FB) should be suitably amended to:

a.    replace the reference to VCFs by AIFs;

b.    extend the provisions to category II & category III AIFs;

c.    extend the pass through status to all income of an AIF.

1.9 Similarly, clause (i) of the proviso to section 56(2)(viib) should be suitably amended to extend the exemption to category II & category III AIFs also.

2. Representation on Section 40A(2)(a)

2.1 The Finance Act, 1968 had introduced a new section 40A in the Income-tax Act, 1961 (‘ITA’) with effect from 1 April 1968. Section 40A(2) provides that an expenditure incurred in business or profession for which payment has been or is to be made to the tax-payer’s relatives or associate concerns is liable to be disallowed in computing the profits of the business or profession to the extent the expenditure is considered to be excessive or unreasonable. The reasonableness of any expenditure is to be judged having regard to the fair market value of the goods, services or facilities for which the payment is made for the legitimate needs of the business or profession or the benefit delivered by, or accruing to, the tax-payer from the expenditure. Such portion of the expenditure which, in the opinion of the Income-tax Officer, is excessive or unreasonable is to be disallowed in computing the profits of the business or profession.

2.2 The Section was inserted with the object to check evasion of tax through excessive or unreasonable payments to relative or any other specified person. The relevant extracts of the Departmental Circular – Circular No. 6-P, Dated 6-7-1968, whereby this Section was introduced, are as under: “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 bona fide cases.”

2.3 The Assessing officer had all discretion to ensure that payment made or expenditure incurred is based on fair market rates and hence there was no warrant to amend the stated position.

2.4 With the recent insertion of Proviso to sub section (2)(a) of Section 40A by the Finance Act, 2012, w.e.f. 1-4-2013, no disallowance under this clause on account of expenditure being excessive or unreasonable having regard to the fair market value of good, services or facilities shall be made in respect of Specified Domestic Transaction [SDT] referred to in section 92BA, if such transaction is at arm’s length price (‘ALP’) as defined in clause (ii) of section 92F. Hence, with the insertion of this proviso, the section has extended the applicability of the specific concept of arm’s length price instead of a fair market value to determine the value of domestic related party transactions.

2.5 The principles of ALP as propagated by OECD in the context of International Transfer Pricing are purely theoretical and far from reality.

All the methods recommended to achieve results are based on the data base available in public domain, which does not exist and such results are used for Rent-seeking and causes undue harassment to the taxpayers and also increases the compliance costs on the tax payer.

2.6 The limit of payment in excess of Rs. 5 crores is absolutely unrealistic and burdensome as such payment would include even purchase of goods.

2.7 The Administration in India even is not geared up to handle such matters as the law requires reference to T.P.O. which is a specialized wing, which does not exist all over India.

2.8 Finally, domestic Transfer Pricing provisions are introduced in various jurisdictions which are concerned with allocation of Income-tax between Federal and State Governments. India does not have such a system of taxation. In India, Income-tax is recovered only under an all India enactment, administered by Central Government alone and hence there is no allocation of taxing rights granted to various States. It is only after collection of taxes, such collections are distributed amongst the States based on the recommendations of Finance Commission and this has been working well. If at all Domestic Transfer Pricing provisions are required then the principle to be followed should be to ensure that payment made by one tax payer, to another should be subject to full taxation at maximum marginal rate and there should not be any arbitrary apportionment to save taxes. If that is achieved, then the tax officer and tax payer should not be overburdened with compliance of documentation requirement.

2.9 It is therefore strongly recommended that only the transactions of purchase and sale of goods and services should be subject to benchmarking in accordance with the arm’s length methods prescribed under Indian Transfer Pricing regulations. Hence such provisions could be restricted to tax payers availing Chapter VIA deductions or exemptions u/s 10AA but should not be extended to payments covered by Section 40A(2) of the ITA. However, the extension of these provisions to all expenditure incurred by tax-payer on payments to its relatives or associate concerns leads to absurdity. One cannot determine the arm’s length price that should have been paid on various transactions, since the payment may be based on various factors and considerations, like the business market scenario, competition, each individual’s experiences, intellect, etc.

2.10 A few such examples have been listed below, wherein the benchmarking of such transactions may be impossible using arm’s length principle:

a) Managerial Remuneration

b) Services provided free of cost by tax holiday units

c) Applicability of SDT to Companies falling under Presumptive taxation

d) Allocation of expenses between the group entities, following consistent principles and allocation keys

e) Joint Development Agreement

f) Project Management Fees

g) ESOP

h) Corporate Guarantees for the group entities

i) Maintenance and Administrative charged and shares services

Alternatively, it is also suggested:

2.11 The second proviso to Section 92C(4) permits single track adjustment and prohibits consequential adjustment in the hands of the other party. This provision is made applicable to SDT as well. As a result, disallowance of expenditure in the hands of one related party does not mean that there would be co-relative reduction in the hands of recipient. Recipient will be assessed with reference to actual income as earned, even assuming entire expenditure is disallowed in hands of related party. This approach of revenue will lead to unjust enrichment of the State at the cost of the innocent taxpayer.

2.12 It is recommended that even if the above provisions are made applicable and deduction on account of payment to a related party is reduced by application of SDT provisions, the related party’s income should also automatically stand reduced to that extent.

3. Amendments required in Section 47(xiii), (xiiib) and (xiv)

3.1 Section 47 contains provisions in respect of Transactions not regarded as ‘transfer’ for the purposes of capital gains.

3.2 Section 47(xiii) provides that any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the firm by a company in the business carried on by the firm, would be an exempt transfer:

provided that the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per cent of the total voting power in the company and their shareholding continues to be as such for a period of five years from the date of the succession;

3.3 A similar condition regarding period of five years is provided in section 47(xiiib) and Section 47(xiv).

3.4 It is submitted that in today’s fast changing business environment, no useful purpose is being served by keeping a long period of five years for continuing shareholding.

3.5 It is, therefore, strongly suggested that the period of continuing shareholding should be reduced to 2 years from 5 years presently prescribed. This would help the reorganisation / restructuring of small and medium enterprises without fear of losing the exemption.

4. Deemed speculation loss in case of companies – Explanation to Section 73

4.1 As per the provisions of section 73 of the Act, any loss, computed in respect of a speculation business carried on by the assessee, cannot be set off except against profits and gains, if any, of another speculation business.

4.2 As per Explanation 2 to section 28 of the Act, where speculative transactions carried on by an assessee are of a nature so as to constitute a business, the business (referred to as “speculation business”) shall be deemed to be distinct and separate from any other business.

4.3 As per Section 43(5) of the Act, “speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips.

4.4 Accordingly, speculative business is normally understood as business in respect of transactions where settlement takes place without actual delivery.

4.5 However, as per Explanation to section 73 of the Act, where any part of the business of a company (other than a company whose gross total income consists mainly of income which is chargeable under the heads, “Interest on securities”, “Income from house property”, “Capital gains” and “Income from other sources” or the company the principal business of which is the business of banking or the granting of loans and advances) consists in the purchase and sale of shares of other companies, such company shall be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares.

4.6 Accordingly, as per the Explanation to Section 73, in case of most companies, even delivery based share transactions are deemed to be speculative. The present provisions deeming even delivery based purchase and sale of shares as speculative business discriminate between corporate and non-corporate assessees.

4.7 Automation of the trading mechanism, screen based trading, controls on reporting of capital market transactions by share brokers, submission of AIRs, dematerialization and other measures initiated by SEBI over the last few years have brought total transparency in share trading, leaving little scope for manipulation of share trades by transfer of profits/losses from one person to another. In any case, corporates are more regulated compared to non-corporates and hence, disadvantage to companies in terms of the discriminatory tax provision as described above can hardly be justified.

4.8 The need of the hour is to encourage corporatisation which could bring about more transparency and healthy business practices. However, the present provisions act as a disincentive for corporatisation.

4.9 Further, when derivatives which are in the nature of speculative transactions are not considered as speculative transactions, there is no logic in continuing the deeming fiction of treating the transactions in shares entered into by a company as speculative transactions.

4.10 It is, therefore, suggested that the aforesaid Explanation to section 73 of the Act be deleted.

5. Provisions Relating to Gift: Section 2(24)(xv) & 56(2)(vii)

5.1 As per Section 56(2)(vii) and Section 2(24) (xv), any receipt in the nature of gift, subject to certain exceptions, is taxed as income if the aggregate receipts during the year exceed Rs. 50,000/-. Similarly, receipt of certain specified assets without any consideration or for consideration less than fair market value, is also taxed as income, if the difference between the fair market value and the consideration is more than Rs. 50,000/-.

5.2 The gift related provisions were sought to be introduced twice over in the past – but were, for valid reasons, withdrawn after due consideration.

5.3 The Government should not be shy of reconsidering the wisdom and should restore the earlier position. Therefore, the earlier position whereby gifts were not taxed in the hands of the donees unless the said gifts were proved to be bogus should be restored.

5.4 Measures of Rationalisation

In case for any reason, the provision has to remain on the statute, it should be rationalised appropriately. The measures of rationalization suggested are as under:

A) The following receipts should be exempted from the charge:

a) Any receipt which is in the nature of damages or accident compensation or which is received on compassionate grounds.

b) Any receipt which is in the nature of prize or reward for performance at state, national or international level.

c) Any receipt, which is not in the nature of a gift.

d) Such other receipts as may be notified by the CBDT.

B) Further, there is an anomaly in the existing provisions in as much as a gift received by a person from his father’s brother is exempted from tax but if the same person (i.e. the nephew) makes a gift to his father’s brother, then the latter would have to pay tax on the gifted amount if the aggregate gifts received by him exceed Rs. 50,000 in a year. This anomaly needs to be removed immediately.

C) An unintended outcome of the amendment made to Section 56 by the Taxation Laws (Amendment) Act, 2006 is that if a person receives gifts aggregating to more than Rs. 50,000 in a year from persons other than relatives then the entire amount of gifts would be taxed as income in his hands instead of only the amount in excess of Rs. 50,000. It is suggested in order to avoid ambiguity and resulting disputes and litigation, the section be amended to clearly lay down a basic threshold limit for exemption of Rs. 50,000 per year.

6. Taxation of Share Premium – Section 56(2)(viib)

6.1 A new clause (viib) has been added to section 56(2) by the Finance Act, 2012, under which the share premium received by a closely held company from a resident in excess of the fair market value of the shares is deemed to be the income of the company. The fair market value has to be substantiated based on the value of the assets of the company or as per the prescribed method. Exemption has been provided to amounts received by a venture capital undertaking from a venture capital fund or a venture capital company.

6.2 It appears that this provision is intended to target the practice of obtaining investment in a company at a high premium in exchange for other favours granted by the promoters of such company, through the other positions held by them. It is submitted that such misuse has been by only a few companies, but the remedy provided would adversely affect a significantly large number of promising companies all over the country.

6.3 This provision will seriously impact genuine small start-ups and other small and medium-size companies looking to grow rapidly, particularly in the services sector, which depend upon angel investors or private equity funds for their funding. Such funding normally depends upon future prospects of the company, rather than the current value of the assets of the company. This provision would completely destroy the developing culture of angel investors and private equity funds funding promising entrepreneurs, who have the skills, but very few assets.

6.4 There are already sufficient safeguards under section 68 to tax undisclosed income received by companies in the form of share capital. Further, the GAAR provisions are sufficient to check such misuse. It is therefore suggested that such a harsh provision should be deleted.

6.5 Alternatively, an exemption should be provided for such shares allotted at a premium, where the shares are held by the allottee for not less than 3 years from the date of allotment.

7. Tax on Long Term Capital Gains – Section 112(1)(c) (iii) – Clarification required

7.1 Clauses (ii) & (iii) of Section 112(1)(c) substituted by Finance Act, 2012 reads as under:

“(ii) the amount of income-tax calculated on long-term capital gains [except where such gain arises from transfer of capital asset referred to in sub-clause (iii)] at the rate of twenty per cent; and

(iii) the amount of income-tax on long-term capital gains arising from the transfer of a capital asset, being unlisted securities, calculated at the rate of ten per cent on the capital gains in respect of such asset as computed without giving effect to the first and second proviso to section 48;”

7.2 Circular No. 3/2012, dated June 12, 2012 containing Supplementary Memorandum Explaining the Official Amendments moved to the Finance Bill, 2012 as reflected in the Finance Act, 2012, clarifies in this regard as under:

“Concessional rate of taxation on long term capital gain in case of non-resident investors Currently, under the Income-tax Act, a long term capital gain arising from sale of unlisted securities in the case of Foreign Institutional Investors (FIIs) is taxed at the rate of 10% without giving benefit of indexation or of currency fluctuation.

In the case of other non-resident investors, including Private Equity investors, such capital gains are taxable at the rate of 20% with the benefit of currency fluctuation but without indexation. In order to give parity to such non-resident investors, the Finance Act reduces the rate of tax on long term capital gains arising from transfer of unlisted securities from 20% to 10% on the gains computed without giving benefit of currency fluctuations and indexation by amending section 112 of the Income-tax Act.”

7.3 Explanation to Section 112 defines securities, listed securities and unlisted securities as under:

“(a) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (32 of 1956);

(aa) “listed securities” means the securities which are listed on any recognised stock exchange in India;

(ab) “unlisted securities” means securities other than listed securities;”

7.4 Section 2(h) of the Securities Contracts (Regulation) Act, 1956 [SCRA] defines ‘Securities’ as under:

(h) “securities” include –

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; …..”

7.5 Thus, the intention of the legislature, as clearly mentioned in the memorandum explaining the aforesaid provisions, is to give parity in the case of other non-resident investors [other than the FIIs], including Private Equity investors, where long term capital gains are taxable at the rate of 20% with the benefit of currency fluctuation but without indexation, by reducing the rate of tax on long term capital gains arising from transfer of unlisted securities from 20% to 10% on the gains computed without giving benefit of currency fluctuations and indexation by amending section 112 of the Income-tax Act.

7.6 Based on the literal interpretation of the definition of securities as per SCRA, only shares which are ‘marketable’ i.e. freely transferable, in the nature are covered under the Act. Thus, since the shares of a private company normally have restrictions on the free transferability of shares, they would fail to meet the ‘marketable’ test and hence may not be covered within the ambit if the definition of unlisted securities and would be liable for the higher rate of tax of 20% instead of 10%, as provided in the newly inserted clause (iii) of section 112(1)(c).

7.7 A large number of non-resident investors including private equity investors [other than FIIs] invest in the shares of private limited companies and the aforesaid provisions of section 112(1)(c)(iii) should be applicable to them. However, in view of the import of the definition of securities from SCRA and appearance of the word ‘marketable’, the benefit of the lower rate of tax @ 10% could be denied in such cases, which is contrary to the purpose and intention of insertion of aforesaid clause (iii).

7.8 It is therefore, strongly suggested that suitable amendments should be made to clearly provide that even in the cases of transfer of shares of private limited companies resulting in long term capital gains, the rate of tax applicable would be 10% and not 20%. This would avoid unnecessary and costly litigation and provided much need clarity to the non-residents.

8. Tax on Distributed Profits – Section 115-O – Effect on Non-Resident shareholder

Tax on distributed profits is the liability of the company. Therefore, non-resident shareholders find it difficult to get credit of such tax in tax assessments in their respective countries especially when there is no direct or indirect provision for such credit either in the domestic law of their countries or in the relevant Double Tax Avoidance Agreement. In view of this, effectively, this method of collecting tax on dividend results in a benefit to the Government of the country of the non-resident rather than the non-resident investor. It is therefore, suggested that appropriate specific provisions should be made in the Act to treat such DDT as tax on dividend receipt of non-resident shareholders.

9. Increase in threshold limit for TDS – Section 194A

The threshold limits in respect of payments not subject to deduction of tax at source should be reviewed every 3 years, and should be revised upwards taking into account the impact of inflation. In particular, the limits of Rs. 5,000 and Rs. 10,000 under section 194A for interest have not been revised since June 2007 though limits under other sections were increased in July 2010. It is, therefore, suggested that these limits be revised upwards to Rs. 15,000 and Rs. 30,000 respectively.

10. Tax Deduction at Source in respect of Payment to Non-residents – Section 195(7)

10.1 The new sub-section 195(7) inserted by Fin ance Act, 2012 provides as under:

“(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a non-resident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.”[Emphasis supplied]

10.2 From the language of the aforesaid sub-section, it is evident that the same is self contradictory and would lead to further litigation in respect of an issue which has been very well settled by the Supreme Court that where the sum payable to a non-resident is not chargeable to income-tax in India, there is no question of deduction of tax source from the same, at the time of making payment to the non-resident.

10.3 It is not quite clear as to how an assessing officer can, by a general or special order, ‘determine the appropriate proportion of sum chargeable’ where the sum is ‘not chargeable under the provisions of this Act’, as provided in the sub-section 7.

10.4 It is strongly suggested that the Board should not be empowered to notify those cases where the sum payable to a non-resident is not chargeable to tax in India under the Act. Otherwise, the same would lead to avoidable harassment, hardships and would also lead to delays in payments and litigation.

11. Clarification required through an amendment to the provisions of Section 269SS & Section 269T

11.1 The provisions of Section 269SS were introduced for deterring taxpayers from introducing unaccounted money by way of small loans or deposits in cash in their activities. But the Section provides that if deposits or loans are accept by a mode other than account payee cheque or demand draft the provision shall be attracted resulting in imposition of penalty u/s 271D. The clarification circular that was issued by CBDT following the introduction of section 269SS had clearly stated that the provisions were introduced to deter attempts to explain sources of cash deposits or loans or to offer an explanation for apparently unaccounted cash found during a search.

11.2 Lately however, there is a tendency among Assessing Officers [AOs] to invoke the provisions for payments made or settlements effected by other mode like Real Time Gross Settlement [RTGS] National Electronic Funds Transfer [NEFT] and direct wire transfers and to even transfer by journal entries within the sister concerns for normal and effective business needs. The AOs take a very narrow view that such transfers are not by way of a/c payee cheques or Demand Drafts [DDs] for various reasons overlooking the fundamental fact that the source of the money/fund or finance involved is fully accounted for. The AO is solely guided by the fact that the quantum of transfer is large and he should avoid any career risk and most of the times for rent seeking.

11.3 The quantum being usually big results in a large tax/penalty demand that prompts the AO and supervisory authorities to go for coercive recoveries. The large quantum involved also weighs very heavy in the mind of CIT(A) as well. A number of courts and ITAT have held the issue in favour of the taxpayer. For example, the Delhi ITAT in the case of Ruchika Chemicals 88 TTJ 85 clearly held that Section 269SS does not apply to transfer or journal entries. The Delhi High Court [HC] decision in Noida Toll Bridge 262 ITR 260 in this regard has been accepted by the Department and no SLP had been filed. But this stand of the Dept has not been circulated. Present day complex and competitive business compels business entities to transfer funds, rights or liabilities and lack of clarity compels the AO to penalize the business entity even for a genuine business transaction.

11.4 Taxpayers are facing equally hard times in respect of the provisions of Section 269T, that mandates mode of repayment of loans or deposits, violation of which leads to imposition of penalty u/s 271E. If a business credit is squared off or settled by a journal entry, AOs are interpreting it as a repayment of a loan /deposit not by the prescribed mode and hence imposing penalty.

11.5 So common business or trade practices authorized by Accounting Standards are treated as violations of statutory provisions, leading to imposition of penalties, affecting a business entity very drastically. The confusion apparently has been created by incorrect interpretation of different court decisions. In CIT v/s Noida Toll Bridge Co. Ltd., the Delhi HC held clearly that merely because payment was settled by a book entry and not by the mode prescribed u/s 269SS, penalty u/s 271D cannot be attracted. The HC held that this provision shall be attracted only if payment is made in cash. The said decision is accepted by the Dept and no SLP has been filed. But unfortunately this has not been brought to the notice of the officers of the department.

11.6 Subsequently the Bombay HC decided in the case CIT vs Triumph International Finance Ltd. 345 ITR 273 in respect of Section 269T and Section 271E. The HC gave the opinion that repayment of a loan/deposit through journal entries did violate the provisions of Section 269T. However, if it is done for business requirement, that would be a reasonable cause u/s 273B for not imposing penalty u/s 271E. If the AO fails to give a finding that it was not for a business requirement, penalty cannot be levied. But unfortunately AOs tend to come to such a conclusion without giving any finding on facts. They are overawed by the quantum involved or the number of entrees. So either way the Tax payer is hard pressed for recovery and forced to go through various layers of appeal from the department point of view of the entire process only leads to creation of very high uncollectible demands, till the level of appeals before the HC.

11.7 It is therefore strongly suggested that a clarificatory circular as a sequel to the one issued by the CBDT while introducing Section 269SS may be issued that the provisions shall not apply to transfer or journal entries transferring funds, financial rights or liabilities. A similar clarification in respect of repayment of loan or deposit referred to in Section 269T also needs to be issued. The existing circular even did not consider fund transfers by RTGS/NEFT or transfer from one account to another and mentioned only of cheques and DDs and that perhaps has created the confusion. If however, it is decided by the CBDT that the desired clarification can be brought about only by an amendment of the provision, it is submitted that it should be effected at the earliest available opportunity so that the hardship caused to business entities is set to rest at the earliest.

BCAJ Admin

PART A : Decision of the H.C.

The appellant, Mr. Arvind Kejriwal had questioned and challenged the interpretation of Section 11 of the RTI Act.

The Delhi High Court noted:

Section 11 of the Act has been given a marginal heading “third party information”. The term “third party” has been defined in section 2(n) of the Act to mean any other person including a “public authority” except the citizen who makes a request for information. Thus, a public authority which has the information or access to the information can be a third person. Section 8 of the Act provides exemption when information is not to be furnished or given. To interpret section 11, one has to keep in mind and also consider the exemptions provided in section 8(1) of the Act.

The core contention of the appellant is that the expression “relates to or has been supplied by a third party and has been treated as confidential by that third party” in section 11(1) of the Act should be read as “relates to and has been supplied by a third party and has been treated as confidential by the third party”. In other words, the word “or” used in section 11(1) should be read as “and”. In support of the said contention, it is submitted that purposive and not literal interpretation is required and if a restricted or narrow interpretation is given, then in all cases where information relates to third party, the Public Information Officer (“PIO” for short) would be required to issue notice to the third party or parties concerned. This may happen in most cases and it would make the Act unworkable. The appellant has pointed out instances like list of families below the poverty line, copy of contracts or bills, etc. between the public authorities and third parties, marks obtained in an exam, admissions or even information which is already in public domain would attract the procedure stipulated in section 11 unless the word “or” is read as “and”. It is submitted that in such cases, notices will have to be issued to third parties who may be spread all over India and this process itself may take days, if not months to be completed. Dealing with objections raised, in regards to the abovementioned procedure, would also make the Act tedious, result in procedural difficulties and delay furnishing of information and is therefore contrary to the legislative intent.

• The word “or” is normally disjunctive and the word “and” is conjunctive. However, there have been occasions when the Courts have interpreted and read them vice versa to give effect to the manifest intention of the Legislature as disclosed from the context. It is permissible to read word “or” as “and” and vice versa, if the legislative intent is clearly spelt out or some other part of the statute, requires such interpretation (See principles of Statutory Interpretation of G.P. Singh, 11th edition at page 455).

The Court then cited a number of Court decisions including the Supreme Court decisions in:

• People’s Union for Civil Liberties v. Union of India

• Central Board of Secondary Education v. Aditya Bandopadhyay.

The Court then noted and decided:

• Fair and just decision is the essence of natural justice. Issuance of notice and giving an opportunity to the third party serves a salutary purpose and ensures that there is a fair and just decision. In fact issue of notice to a third party may in cases curtail litigation and complications that may arise if information is furnished without hearing the third party concerned. Section 11 prescribes a fairly strict time schedule to ensure that the proceedings are not delayed.

• Thus, section 11(1) postulates two circumstances when the procedure has to be followed. Firstly when the information relates to a third party and can be prima facie regarded as confidential as it affects the right of privacy of the third party. The second situation is when information is provided and given by a third party to a public authority and prima facie the third party who has provided the information has treated and regarded the said information as confidential. The procedure given in section 11(1) applies to both the cases.

• The learned Single Judge in the impugned decision has dealt with and interpreted aspect of annual confidential reports and other factual aspects including the fact that inspection of several files has been allowed to the appellant and what the appellant is today seeking is merely the gradings. We would not like to comment on any of these aspects or issues as they were not specifically argued by either side. As noticed above, the matter has been remitted for fresh decision by the CIC. The observation made in the present appeal should not be construed as binding findings on any of the said aspects. We have interpreted section 11 of the Act and the observations made above are in that context. The appeals are accordingly disposed of.

[Arvind Kejriwal v. CPIO and Anr, Arvind Kejriwal v. Union of India: LPA Nos. 719/2010, 291 & 292/2011 decided on 30.09.2011 – (RTIR IV (2011) 368 (Delhi))]

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BCAJ Admin

From published accounts

Compiler’s Note

Companies incur expenditure on construction/development of certain assets to facilitate construction of a project or to subsequently facilitate its operations. Such assets are referred to as ‘Enabling Assets’. The Expert Advisory Committee of ICAI has in an opinion published in January 2011 issue of ‘The Chartered Accountant’ opined that expenditure on such assets cannot be treated as capital expenditure.

ICAI has recently issued an Exposure Draft of Limited Revision to AS-10 ‘Accounting for Fixed Assets’ which when made applicable may have an impact on treatment of such expenditure.

Given below are disclosures of accounting policies followed by some companies in respect of expenditure on such ‘Enabling Assets’.

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BCAJ Admin

FROM THE PRESIDENT

Dear Members,

The month of February is normally a month in which professionals, businessmen and the media are affected by “budget fever”. On 28th of February , each year the finance minister rises to place before the parliament his expenditure proposals for the ensuing year, and how will he proposes to meet them by way of tax collections and other receipts.

Over the last decade or so, on account of the media hype that surrounds the presentation of a budget it has become an event that is awaited by all. The manner of presentation of a budget has gradually changed over the years. Each finance minister wishes to leave his own mark on the budget. This year there is a change in the date on which the budget will be presented on account of the elections in various states which are scheduled to be held in February. The February budget fever will now raise its head in the month of March.

The year that has gone by has indeed been a difficult one for the ruling government particularly on the economic front. The Finance minister has had to walk the tightrope between two challenges, the first being spiralling inflation and the second being the faltering economy. In regard to the first the government seems to have met with some degree of success while on the latter the failure seems to be continuing. Most core sectors are showing a slowdown in growth which is bound to affect the projected rise in GDP. As a corollary the, share markets have remained depressed and consequently the government has been unable to meet its disinvestment targets. Coupled with this, the growing outlay on subsidies is going to make a hole in the government’s finances. The fiscal deficit therefore is going to cross the budgeted figure. The Reserve Bank of India and has also had to strike a fine balance between regulating money supply to check inflation and in ensuring the requisite liquidity in the money markets to meet demands of business. Consequently in the last announcement by the Reserve Bank of India in regard to monetary policy we found a easing of the CRR norms while the interest rates remained unchanged.

To an extent one can sympathise with the UPA government since some of the problems that it faces are not its own creation but they have been compounded by a total policy paralysis. The government has failed to introduce the policy initiatives which it was expected to do. In regard to these matters it has been unable to keep its flock together, let alone the take the opposition into confidence. The last session of Parliament was devoted to the Lok Pal issue and even that bill has now not seen a passage through the Rajya Sabha. The passing of the Bill would not have ended corruption but at least the government would have sent out a signal that it was a serious in tackling the root of the problem. Unfortunately we are today back to square one on this issue.

Since the Lok Pal Bill took centre stage in the last session, much other important legislation did not get the requisite attention that it deserved. One hopes that now the parliament will get down to the serious business of debating upon and passing the legislations like the Companies Bill and the Direct tax code, the latter being the one which the finance ministry seems to be keen on passing. While the Direct Tax code (DTC) may not be become law in the immediate future it is virtually certain that some provisions of the DTC will find their way into the ensuing budget. One expects that the general anti-avoidance rules will form part of the Finance Bill in this year. If that happens, and the provisions do not have adequate safe guards their introduction would open the floodgates to litigation.

On the direct tax front the Vodafone judgement by the apex court has upset the government’s calculations in a substantial manner. Given the tenor of the Bombay High Court judgement a major section of tax professionals, businessmen and even sections of the media believed that this decision would go the government away. That it did not do so is an indicator of the independence of the last bastion of democracy in our country that is the judiciary. The judgement is being dissected and analysed by professionals for it lays down many significant principles of law. One expects that the effect of the judgement will be overcome by amendments to the law. One cannot have any grudge on the government’s right to legislate if it does not agree with the law laid down by the Supreme Court. One only hopes that these amendments will be prospective in nature and not retrospective because amendments made retrospectively to nullify the effect of Supreme Court judgements tend to undermine the authority of the judiciary. Not being able to collect the tax, which the government believes it is entitled to, will aggravate the problem of a fiscal deficit. However, upholding the independence and moral strength of the judiciary is far more important.

Over the last few years our profession has been facing a lot of flak. As I had said in my last communication the perception of the role of the auditor in the minds of the public as well as other stakeholders is reflected in the proposed amendments to the Companies Act. Both the public and the regulators have substantial expectations from the audit profession, but neither appreciates the limitations within which an auditor functions. The expectation gap instead of being bridged is widening. One expects that the profession will face a lot of new challenges of this nature in future.

In this background it is heartening to note that the powers that be, on the occasion of Republic Day, have recognised the role of Chartered Accountants in Society. The Padma Shri award has been conferred upon Mr. Y. H. Malegam, a doyen of our profession. Mr. Malegam has a number of achievements to his credit and in our profession he stands tall in every sense of the term. Every young Chartered Accountant would look up to Mr. Malegam for his commitment to the profession. One admires him not only for his intellectual abilities but also for the impeccable manner in which he is conducted himself in public life. I have heard number of people in different walks of life shower praise on this great personality. The words of the governor of the RBI at the conference of the Western India Regional council of ICAI, and the utterances of Mr. Chandrababu Naidu, former chief minister of Andhra Pradesh at our recently concluded residential refresher course are two such recent occasions. On behalf of all members of the BCAS and readers of the journal I take this opportunity to heartily congratulate Mr. Malegam on his achievement and wish him a long and healthy life. In his receiving the award the profession has been honoured.

On this happy note let me sign of off with the hope that many such awards are received by many other deserving members of our profession!

Happiness is when what you think, what you say, and what you do are in harmony
— Mahatma Gandhi

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BCAJ Admin

LECTURE METING

Subject : Nurturing Relationships
Speaker : Sister Shivani
Date : 21-12-2011

‘Brahma Kumari’ Shivani addressed the members of the Society and public at large on the subject ‘Nurturing Relationships’ on 21st December, 2011 at K. C. College, Churchgate. She presented her in-depth understanding of the human psychology and relationships.

The speaker started the meeting with a two-minute silence. During that silence she made the audience concentrate on those relationships which are experiencing a tough time. This was something unique on her part which made the audience think.

Then she asked the audience their opinions on why relationships are spoilt. She took the responses of the audience and analysed those responses. It was a very interactive session in that sense.

She got varied responses from the audience. anger, ego, jealousy, hypocrisy, age difference, generation gap, frustration, boredom, etc. are some of the reasons. She came to each of them one after the other. One of the important things that she stressed upon is that the problem is created by only one factor, rest are all chained. If you break the first one, the rest will automatically be broken. She clarified that if we learn to accept things and people around us as they are, without trying to make modifications in them, then our relationships will never be spoilt. In a nutshell we should not expect anything from anyone. If expectations break, then that chain will start to pop up.

To illustrate, if we accept people as they are and do not expect them to behave according to our expectations, then we will not be angry with them, because their actions will not have any power to disturb our mental state. If anger is not there, then ego automatically gets cancelled out. If there is no ego, then jealousy does not come into the picture! Similarly, hypocrisy, age difference, boredom, etc. will all be rendered powerless to create strain in our relationships if we apply the above golden principle in our day-to-day life.

Sister Shivani enlightened everyone that we should have respect for the other soul. The basic problem associated with everyone is that people are always quick to react! We should always learn to respect other people’s acts rather than reacting on them. This will create a win-win situation for us. It will not disturb our mental peace and at the same time our relationships will not get spoiled.

She then explained to the audience that relationships are always maintained by ‘thoughts’ and ‘thinking’. ‘Actions’ play a very minor role in nurturing relationships. In fact, it is well accepted that our actions are guided by our thinking only! So to maintain good relationships we need to always think positive. Our thoughts will determine our relationships. Further, she mentioned that all the negative feelings like anger, ego, hatred, jealousy, etc. pollute our soul, and hence one should keep away from them. She acknowledged that it is not easy and one can always take the help of meditation. Meditation can help one to be nearer to the Almighty. It can give eternal peace and satisfaction.

To conclude, let the relation be of any nature – brother-sister, husband-wife, parent-child and professional-client, but acceptance is the key for successful relations. Accept and do not expect!

Sister Shivani concluded her beautiful session after taking a promise from everyone that they will try to mend their relationships and nurture them. The softness and beauty of her speech was very well acknowledged and appreciated by the audience, which was in large numbers.

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BCAJ Admin

ICAI and its members

1. Code of ethics

The Ethical Standards Board of ICAI has considered some of the ethical issues. These are published in C.A. Journal of January 2012, at pages 1002 and 1004. Some of these issues are as under.

(i) Issue: Can a member publish a change in partnership or change in the address of practice and telephone numbers?

A member can publish a change in partnership or change in the address of practice and telephone numbers. Such announcements should be limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of the newspaper or magazine and number of insertions.

(ii) Issue: Can the details of a student passing examination be published in local press?

It is for local papers to publish details of the examination success of local candidates. Some biographical information is often included. The candidate’s name and address, school and local background, examination passed with details of any prize or place gained, the name of the principal, firm and town in which the principal practices may be published.

(iii) Issue: Can a concurrent auditor of a bank also undertake the assignment of quarterly review of the same bank?

The concurrent audit and the assignment of quarterly review of the same entity cannot be taken simultaneously as the concurrent audit is a kind of internal audit and the quarterly review is a kind of statutory audit. It is prohibited in terms of the ‘Guidance Note of Independence of Auditors’.

(iv) Issue: Is a member holding certificate of practice entitled to own agricultural land and continue agricultural activity?

A member holding certificate of practice can own and hold agricultural land and continue agricultural activity through hired labour.

(v) Issue: Can a member act both as tax auditor and internal auditor of an entity?

A tax auditor of an entity cannot act as internal auditor of that entity for the same F.Y. Similarly, an internal auditor cannot accept tax audit assignment of the same entity in the same F.Y.

(vi) Issue: Can a member in practice have a branch office/additional office/temporary office?

A member can have a branch office. In terms of section 27 of the CA Act, if a Chartered Accountant in practice or a firm of Chartered Accountants has more than one office in India, each one of such offices should be in the separate charge of a member of the Institute. Failure on the part of a member or a firm to have a member in charge of its branch and a separate member in case of each of the branches, where there are more than one, would constitute professional misconduct.

However, exemption has been given to members practising in Hill Areas, subject to certain conditions.

It may be clarified that a chartered accountant in charge of the branch of another firm should be associated with him or with the firm either as a partner or as a whole-time employee. However, a member can be in charge of two offices if they are located in one and the same accommodation.

2. Chartered Accountants (Amendment) Act, 2010

The above Act has been passed by both Houses of Parliament in December 2011. It amends the CA Act, 1949 and the amendments shall come into force when the Central Government issues the notification to this effect. Some of the important amendments in the CA Act made by this Amendment Act are as under.

(i) A firm of Chartered Accountants has now been defined to include (a) a sole proprietorship concern, (b) a partnership firm defined in the Indian Partnership Act, 1932 and (c) a limited liability partnership (LLP) as defined in the Limited Liability Partnership Act, 2008.

(ii) For the above purpose —

(a) The proprietor of a sole proprietorship concern should be a chartered accountant in practice.

(b) So far as a partnership firm or LLP is concerned it should have at least one partner who is a chartered accountant in practice and other partners may be members of other recognised professions as may be prescribed.

(iii) Similar provisions are made by amendments in the Cost & Works Accountants Act and the Company Secretaries Act. Therefore, if the councils of ICAI, Cost Accountants and Company Secretaries pass requisite regulations, it will be possible for one or more Chartered Accountants in practice to enter into partnership (including LLP) with Cost Accountants and Company Secretaries in practice. Incidentally, it may be mentioned that the name of the ‘Institute of Cost and Works Accountants of India’ has now been changed to ‘Institute of Cost Accountants of India.’

(iv) At present, the number of partners in a firm cannot exceed 20. The Companies Bill, 2011, which is before the Parliament, has removed this limit when professionals form a firm. Therefore, if this Companies Bill is passed, there will be no limit on the number of partners in a professional firm. Similarly, the LLP Act also provides that there is no limit on the number of partners in a LLP.

3. EAC opinion

Facts
Company ‘A’ Limited, a wholly-owned subsidiary of ‘B’ Ltd., is not a company in which public is substantially interested. ‘B’ Ltd. owns 15% shares in ‘C’ Ltd. With a view to acquire central over ‘C’ Ltd., the balance 85% shares of ‘C’ Ltd. were acquired by ‘A’ Ltd. from the other shareholders of ‘C’ Ltd. These shares were purchased in F.Y. 2010-11 at a value which was less than the prescribed value under Rule 11(UA) of the Income-tax Rules. Since the prescribed value was more than the purchase value of shares of ‘C’ Ltd. and the difference was more than Rs.50,000, the excess of the aggregate difference in value was liable to tax under the head ‘Income from Other Sources.’ ‘A’ Ltd. has paid tax on this deemed income determined u/s.52 (2)(viia). In addition to the above, the company has also incurred expenses on account of stamp duty, franking and bank charges in connection with the said acquisition of shares.

According to the company, the payments of income-tax u/s.56(2)(viia) has arisen out of the transaction of acquisition of shares and the company would not have incurred such an expense otherwise. Therefore, the said cost would be directly associated with purchase of such shares. Had the acquisition of these shares not been made, the company would not have incurred such costs.

On the basis of the above, the company sought the opinion of the Expert Advisory Committee (EAC) whether the payments of tax u/s.56(2)(viia) would qualify to be treated as part of the cost of investment in the balance sheet of the company in view of the explanation provided in paragraph 9 and 43 of Ind AS 39 read along with paragraph AG13 of Appendix to Ind AS 39.

Opinion
The Committee noted that although Ind ASs have been placed on the website of the Ministry of Corporate Affairs, these Standards have not yet been notified by the Ministry. Accordingly, till the Ind ASs are notified by the Ministry, the existing notified Accounting Standards would be applicable. Therefore, in the case of the company, the Committee is of the view that the transaction of acquisition of investment in shares would be governed by the existing notified AS-13.

With regard to accounting for the tax levied u/s.56(2)(viia) of the Income-tax Act, the Committee has considered AS-13, which provides that the cost of an investment ‘includes acquisition charges such as brokerage, fees and duties’. Keeping in view the nature of the item of acquisition charges mentioned in AS- 13, the Committee is of the view that the cost of acquisition should include only those direct charges which are incurred ‘on’ acquisition of investment, i.e., the expenses, without the incurrence of which, the transaction could not have taken place, such as, share transfer fees, stamp duty, registration fees, etc. The Committee has noted that tax paid u/s.56(2)(viia) is levied when consideration paid for acquisition of investment is lower than its fair market value for an amount exceeding Rs.50,000 and such lower consideration paid is deemed to be income of the assessee. Thus, this tax is not a tax ‘on’ acquisition of shares, rather it is a tax on ‘deemed income’ under the Income-tax Act. Accordingly, the Committee is of the view that such tax expense is not a cost incurred ‘on’ acquisition of investment, rather it is incurred after the transaction of the acquisition of investment. In other words, it is not a means of acquiring such investments; rather it is a result of such acquisition. Accordingly, such tax cannot be considered as acquisition-related cost and, therefore, cannot be capitalised as cost of investment. The Committee is further of the view that such tax paid should be treated as normal tax and charged off to profit and loss account in the year in which it is incurred.

The Committee, after considering the proposal Ind AS 39, is of the view that only those transaction costs that are directly attributable to the acquisition of investment can be capitalised with the investment. The Committee is of the view that although the tax levied u/s.56(2)(viia) may be considered as an incremental cost of acquisition of investment, it cannot be considered as ‘a directly attributable cost’.
(Please refer pages 1035 to 1037 of CA Journal, January 2012)

4. ICAI News

(Note: Page Nos. given below are from C.A. Journal for January 2012)

(i) General Amnesty Scheme for Members
The Executive Committee of the ICAI Council has, at its recent meeting, considered the question of putting a General Amnesty Scheme in place for members whose names have been removed on account of non-payment of membership fee with a view to facilitating such members restore their names with retrospective effect. The Committee has recommended to the Council that the members whose names stood removed in the past due to non-payment of membership fee be given an opportunity, by way of a General Amnesty Scheme, to restore their names, irrespective of the period of such removal, retrospectively on payment of applicable membership fees for the years during which the names were removed and for the current year i.e., 2011-2012. For this purpose, application should be made together with fee(s) of the intervening years(s), along with Form ‘9’ and the additional (restoration) fee of Rs.1,200.

The Committee has recommended that the above General Amnesty Scheme be kept in force up to 31st March 2012. (Page 993)

(ii) Empanelment of C.A. firms for audit of PSUS for 2012-13

The C & AG has issued the following Circular which is at page 1101.

Applications are invited from the firms of Chartered Accountants who intend to be empanelled with C & AG for appointment as auditors of Government companies/Corporations for the year 2012-2013. The format of application will be available on our website: www.cag.gov.in from 1st January to 15th February 2012. Chartered Accountant firms can apply/update the data showing the status of their firm as on 1st January 2012 and generate online acknowledgement letter for the year. They are also required to submit related documents (to be notified in this office website) to this office before 28th February 2012. Only the Chartered Accountant firms who have generated online acknowledgement letter for the year 2012-2013 and submitted the documents before the due dates will be considered for empanelment.

Any changes in the constitution of the firm oc-curring after the cut-off date of 1st January 2012 should continue to be updated in the website which will be available throughout the year. However, the changes in the firm occurring after 1st January 2012 till the time of preparing the panel that will lead to a reduction in rank of the applicant firm shall only be taken into account for ranking the CA firms.

(iii) New ICAI publications

(a)    Compendium of Auditing Standards — up-dated to 1-10-2011
(b)    Compendium of Guidance Notes on Auditing — updated to 1-10-2011
(c)    Study Report on Accounting on Food, Fertilisers and Oil subsidy (page 1101)
(d)    Compilation of Registration Provisions under VAT Laws of different States (page 995)
(e)    Technical Guide on Internal Audit of Mutual Fund Industry (page 995)
(f)    Guidance Note on Revised Schedule VI of Companies Act.

BCAJ Admin

From the President

Dear members,

With the POTUS (President of the United States) in LOTUS Land as the Chief Guest for the first time at the Nation’s 66th Republic Day celebrations, there couldn’t have been a louder endorsement of India’s growing global importance. It was indeed a step closer in bringing the world’s largest and oldest democracies together. Let’s hope this defining partnership in the 21st Century will lead to greater good, not only for the two Nations, but also for the World at large.

At our first Republic Day in 1950, the architects of our Constitution gave us the longest written and best possible framework that has kept India moving forward as a Nation, even though, there have been 99 amendments so far and the 100th amendment is in the offing. It may be noted that the Constitutional Amendment Bill for the GST is listed as the 122nd Amendment Bill as several previous bills have lapsed.

Regrettably, the awareness about provisions of our Constitution amongst masses remains inadequate, especially about the rights and the duties of Citizens. Besides the customary grand parade on the Republic Day, it is important for the Government to organise programmes to enhance awareness about our Constitution. The BCAS did publish a concise book titled “Fundamental Rights and Duties of Indian Citizens” under Citizens’ Education Series a few years ago aimed at informing citizens about their fundamental rights and duties under the Indian Constitution, as also how to enforce them, say, by filing a petition under Public Interest Litigation process or invoking provisions of Right to Information Act, as expedient, from time to time. India can grow into a developed nation only when its population is transformed into Citizens.

At the recently held ET Global Business Summit, the Hon’ble Prime Minister Narendra Modi upped the ante and invoked the dream of transforming India’s economy from $ 2 trillion to $ 20 trillion. This vision is indeed courageous, ambitious and inspiring. Its pursuit will indeed transform the whole of India. Several international experts at this summit have endorsed the Prime Minister’s vision. The Nobel-prize winning economist Paul Krugman hailed India as a country of the future. Noted scholar Nassim Nicholas Taleb, a distinguished professor of risk engineering at New York University and University of Oxford, remarked, `Democracy makes India more robust than China’.

Nassim Taleb, who has also authored thought provoking and much acclaimed books – Black Swan and Anti- Fragile, makes interesting points that one cannot forecast anything or everything and that forecasting has killed more businesses than anything else. The massive decline in oil prices of over 50% in a very short span of six months, sinking to its lowest levels in over five years, could not have been foreseen by anyone. Such an enormous crash is considered the black swan event of 2014. The falling oil prices are a bonanza to a developing country such as India that relies heavily on oil imports. However, the low prices appear to suggest that the world has not been able to recover fully from the economic crisis, and the global growth could remain a challenge. In an increasingly interdependent world, this does not bode well for any country including India.

The black swan event such as the one above, does raise questions about various financial decision-making and valuation models we frequently use where the shortcomings of underlying assumptions are largely overlooked. Taleb emphasises the need to be antifragile where the cost of error is small and benefits are big. With growing uncertainties, the accountants too will need to continue to evolve in their tools and techniques to overcome Black Swan challenges for their clients and for themselves.

As per recent statistics, there are approx. 60,500 firms registered with the ICAI. Out of this, nearly 97% firms are small or medium sized practices (SMPs) with almost 70% being proprietary concerns and the balance 27% with up to five partners. As such, the CA profession in India is largely dominated by SMPs and is highly fragmented. Only 244 firms have more than 10 partners. The largest firm has 29 partners.

In contrast, a 2014 survey of accounting firms in the UK shows at least 12 firms where the number of the partners exceeds 100. The number of partners at the largest firm is over 1,000. Interestingly, there are only 6,962 registered audit firms as at 31st December 2013 despite there being over 3,27,000 members of various accounting bodies in the UK and Ireland.

What will be the impact of various changes in various fields such as technology, economy and regulatory environment on our profession? Would rotation of auditors and other restrictions under the Companies Act, 2013 prove to be a Black Swan event for our profession? The rate of change coming from so many different directions must lead us to the conclusion that the future will be nothing like the past. Apparently, time seems to be running out for the mom-and-pop firms. In order to survive and thrive, the Chartered Accountants, especially those running SMPs, will need to adapt quickly and collaborate, and that will require the Chartered Accountants to hone their management skills substantially.

At a lecture meeting held recently, our member Milind Kothari discussed in detail the winds of change the CA profession is facing and shared his experience in successfully strategizing for growth. This vital area of practice management, often overlooked as the SMPs get caught in day to day grind, has been a theme of the annual Power Summits that the Information Technology and 4i Committee has been holding for last several years. I am glad the BCAS is playing an active role and has been a catalyst for meaningful collaboration amongst a large number of firms and members.

A pioneer in collaborative learning, the Residential Refresher Conference (RRC) remains the flagship event of the BCAS and continues its gallant march towards the Golden Jubilee. At the recently concluded 48th RRC at Udaipur, the participants acclaimed the high standard of the technical papers and the faculties. With nearly half of the participants from outside Mumbai and from across India, even the RRC provided an excellent opportunity for pan-India networking.

With barely few weeks left for the presentation of the Union Budget by the Finance Minister, the expectations are running high as this will be the first full-fledged budget of the new Government headed by the Hon’ble Prime Minister Shri Narendra Modi.

The BCAS too is preparing for the annual lecture meeting to be addressed for the record 27th year by respected Mr. S. E. Dastur, Senior Advocate. This meeting will be held on 4th March as usual at Dadar in Central Mumbai and will coincide with the release of our Budget Publication. Team BCAS once again looks forward to receiving your overwhelming support as in the past.

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BCAJ Admin

LETTERS to the editor

The Editor,
BCA
Mumbai

Re: “Make in India” and “Ease of Doing Business in India” – Some Tax Irritants

Dear Sir,

The Prime Minister of India has launched “Make in India” campaign and has given strong indications to make India a friendly place to do business. India has continuously languished in the global ranking of “Ease of Doing Business”, and while foreign investors find India an attractive market, they find operational environmental both chaotic and uncertain. The PM has, during his foreign trips, promised foreign investors that they can look forward to a more congenial, transparent and consistent operating environment.

Amongst the many painful points frequently outlined by MNCs and investors, are the tax rules pertaining to taxation of overseas employees who have been sent on deputation/secondment by an MNC from its Head Office or other major international office to India to establish and streamline Indian operations/projects, as the case may be.

Normally, these seconded employees work under the direct control and supervision of the Board of Directors of the Indian Subsidiary and continue to receive their remuneration with all social security benefits from the parent entity. Such costs and remuneration are reimbursed by the Indian subsidiary to the parent entity.

Generally, it is contended by the Taxpayer (Indian Company) that reimbursement of such remuneration and other related costs of the seconded employees cannot be treated as payment of Fees for Technical Services [FTS] or Fees for Included Services [FIS]. Therefore, the taxpayers contend that such payments are not liable for TDS in India. However, such reimbursement of salary and costs by the Indian subsidiary has been a matter of huge controversy as the Tax Department seeks to tax such payment, as ‘fee for technical services’ or ‘fee for included services’ and holds the Indian subsidiary liable for consequences of not deducting TDS.

In a large/overwhelming number of judicial decisions, it has been held that such payment constitutes “Reimbursement of Expenses” and not “ FTS/FIS” and that even if presence of such Seconded Employees constitutes a Service PE in India, there is no net taxable income in India. The Tax Department has strenuously contested this and raised huge demands on Indian subsidiaries. This increases the cost of doing business in India for the foreign enterprise and devotion of management time and resources for undertaking the unnecessary, time consuming, costly and repetitive litigation, right upto the Apex Court.

Even if the Department’s stand is plausible in Law, such an Interpretation ought to be avoided, particularly in view of Prime Minister’s Modi’s “Make in India” Campaign and his desire to improve India’s Global Ranking on ease of “Doing Business”. Viewed from another angle, what would be our reaction if our Indian Enterprises operating abroad are similarly double taxed in the Foreign Country on the Reimbursement of Costs and Remuneration of Key Personnel deputed from India, in addition to taxation of such remuneration in the hands of the concerned employees.

The Prime Minister, Finance Minister and the CBDT should take cognisance of this burning problem and bring it to rest once and for all.

This would send a positive message and present India as a liberal, pragmatic, positive and matured destination for investment, as much as any other developed country for that matter.

Regards,
Tarun Singhal

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BCAJ Admin

Cancerous Corruption

Global Compact Network India (GCNI)
Shabnam
Siddiqui, Project Director of GCNI who wrote this feature in September
2014 now writes: “We are absolutely delighted to share with you that
Siemens has today named the first group of funded projects for the
second round of the Siemens Integrity Initiative.

Under the
second tranche, the selected projects will operate over a period of
three to five years. Of the five organisations that were announced in
the first round today Global Compact Network India is the only Local
Network to get the honour and one of the very few organisations that
have received repeat support from the Siemens integrity Initiative (UNGC
had won the first round in which CAP India was one part of a five
country UNGC – Siemens project). Siemens Press Release was released
today globally (attached) and GCNI effort singled and lauded on a global
platform.

The other organisations awarded funding includes
Ethics Institute of South Africa, which will work to combat corruption
in South Africa and Mozambique, the Ethics and Reputation Society of
Turkey (TEID, the Berlinbased Transparency International Secretariat and
the International Anti-Corruption Academy (IACA) in Vienna.

The second round of Siemens Integrity Initiative supported work in India will focus on the establishment of a Centre of Excellence for Transparency and Ethics in Business in India.”

Bombay Chartered Accountants’ Society has become business partner in its event in Mumbai on 06.02.2014.

Pope condemns graft in Rome:
Pope
Francis, on 31st December, condemned administrators and criminals in
Rome who allegedly pocketed public funds meant to help poor migrants,
saying the eternal city needed a “spiritual and moral renewal”.

Earlier
this month, the police arrested 37 persons suspected of being part of a
“mafia-like” organisation that guided public contracts to people close
to the alleged boss of the organisation, a right-wing extremist with
longtime ties to Rome’s underworld. Investigators said funds were
pocketed by corrupt city administrators and their criminal cohorts
instead of being used to improve squalid conditions. Pope Francis is
also the bishop of Rome, which is both the Italian capital and the
centre of Christianity Calling it “our city”, Pope Francis said, “We
have to defend the poor, not defend ourselves from the poor. We have to
serve the weak, not use the weak”.

After the arrests Rome’s
mayor, Ignazio Marino, ordered a review of city contracts and Prime
Minister Matteo Renzi proposed tougher national laws against corruption.

Graft & BMC:
If corruption in the civic body
could be rou ted out, prices of flats in Mumbai would fall by at least
Rs. 500 per sq. ft. said anti-corruption bureau director general Pravin
Dixit. “I have been told by an MP that if we can stop corruption in the
BMC, flat prices in Mumbai will be reduced substantially,” Dixit said
during a lecture at Pandharpur in Solapur.

Bristled by the
claim, the Shiv Sena, which controls the civic body, has demanded that
Dixit should provide proof. “He must show proof to substantiate his
claim. If he fails to provide the documents, then the chief minister
should take action against him for making irresponsible statements,” a
senior Sena leader said.

Corruption complaints to Banks:
Noting
irregularities, the Central Vigilance Commission (CVC) has told banks
to follow proper procedure in probing corruption complaints received by
them.

“It has come to the notice of the commission that in some
banks, senior bank executives and CMDs as disciplinary authorities are
treating cases or matters in which vigilance angle is perceived as
non-vigilance without following the due consultative process,” the CVC
said in a directive issued to all public sector banks. All banks are
supposed to set up an internal advisory committee (IAC), to scrutinise
the complaints received by them and also the cases arising out of
inspections and audit and determine the vigilance angle.

“All
CMDs and chief vigilance officers are advised to sensitise senior
executives and disciplinary authorities on various aspects of vigilance
administration to ensure all such matters are considered by the IAC set
up in the respective banks,” the watchdog said.

Pledge taken by the officers and employees of CVC office:
In
the week to celebrate “VIGILANCE AWARENESS WEEK – 2014”, the officers
and employees of the Commission affirmed that they shall continuously
strive to bring about integrity and transparency in all spheres of
activities, work unstintingly for eradication of corruption, remain
vigilant and work towards the growth and reputation of the organisation,
and do their duty conscientiously and act without fear or favour.

Corruption in Irrigation Department, Maharashtra:
The
newly appointed water resources minister Girish Mahajan has
unexpectedly made a sensational disclosure. He said at a public meeting
in his home town in Jalgaon, that after he stopped the payment of Rs.
1,100 crore of leading contractors, a leading developer approached him
with an offer of Rs. 100 crore to release the payment. A senior
anti-corruption bureau sleuth said that if Mahajan is serious about
taking on corruption in the irrigation department, he must disclose the
controversial developer’s name to the ACB for probe. Mahajan had
submitted details of cost escalation of key irrigation projects in north
Maharashtra. When the ACB initiates a probe against Ajit Pawar and
Sunil Tatkare, Mahajan is likely to explain to the ACB the modus
operandi adopted by leading politicians and contractors involved in
corruption. A day after he was entrusted with the water resources
portfolio, Mahajan called for all files of the Kondhane irrigation
project, where the cost of the project increased from Rs. 80 crore to
Rs. 580 crore in a brief span of three months. He then suspended more
than half-a-dozen high-ranking engineers of the water resources
department for dereliction of duty and involvement in corruption.
Significantly, the same file gathered dust in the office of Ajit Pawar,
who was then the deputy CM, in-charge of water resources. The file was
submitted to the then CM, Prithviraj Chavan, who ordered a departmental
probe. Both Pawar and Chavan had an opportunity to suspend, but they
preferred to ignore the proposal.

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BCAJ Admin

ICAI and its Members

C&AG Report about deficiencies in Tax Audit Reports

In its Report No. 32 of 2014 presented to the Parliament by the C & AG, it is stated that there was a short levy of Income tax of Rs. 2,813.11 crore in 367 Cases in the financial years 2010 – 11 to 2012 – 13, as a result of wrong Tax Audit Reports issued by members of ICAI. The C & AG has classified the deficiencies in Tax Audit Reports as under:

(i) Correct information relating to allowance of depreciation not given in 66 cases involving short levy of Rs. 457.79 crore.

(ii) Correct information regarding brought forward losses /depreciation not given in 46 cases which resulted in loss of tax revenue of Rs. 557.79 crore.

(iii) In 42 cases, personal/capital expenditure not reported resulting in loss of tax revenue of Rs. 477.89 crore.

(iv) Certified wrong information/claims in 74 cases for various exemptions having a tax effect of Rs.259.72 crore.

(v) Incorrect/incomplete information given in Tax Audit Reports of 132 cases, which had resulted in loss of tax revenue of Rs. 1037.61 crore.

(vi) Wrong information given in 7 cases for allowance of provisions in Form 3CD, resulting in loss of tax revenue of Rs. 22.31 crore.

(vii) In 27 cases, the tax auditors did not calculate the Book Profit u/s. 115JB.

(viii) In 153 cases, the tax auditors gave incorrect/incomplete information about Transfer pricing transactions.

(ix) In 308 cases, the tax auditor failed to point out the disallowance to be made u/s 40A (3).

(x) In 78 cases, special Audit u/s. 142(2A) was ordered. Income of 16 assessees was increased by Rs.197.79. on the basis of these reports. This indicates that the original Auditor did not perform the task properly.

It appears that the C&AG has taken the view that tax audit u/s. 44AB is to be conducted by an “Accountant” as defined in section 288. If we refer to section 288, such audit can be conducted by a ‘Chartered Accountant’ only and not by a Firm of Chartered Accounts. On this basis, he has pointed out 22 cases where some Chartered Accountants have signed more than 45 tax audit reports for A.Y. 2013-14. The C&AG has given the names of these Chartered Accountants in Para 3.6 of his report. This list shows that one member has signed 2,471 tax audit reports. There are others in the list, who have signed 401 to 990 tax audit reports.

The C&AG has pointed out that according to the guidelines of the ICAI, there is a limit of 45 (now 60) tax audits per member. Therefore, these 22 members have violated the above guidelines.

The C&AG has recommended that the ICAI and the tax department should take disciplinary action against the various members for their negligence in giving tax audit reports. The Report of C&AG contains names and membership numbers of all these members.

It may be noted that earlier, in the case of Vijay V. Meghani vs. DC17, the Mumbai ITA Tribunal had passed serious remarks about deficiencies in the professional services rendered by our members. Recently, the Delhi Tribunal has made similar remarks in the case of Wrigley India Pvt. Ltd vs. ACIT. In this case, the Tribunal has observed that Transfer Pricing Study and certification by a CA does not inspire any confidence. It is also observed that the level of professionalism is “Pathetic”. No purpose is served by relying on such reports.

The above observations by the C&AG and the ITA Tribunal are of a serious nature. It is reported that the ICAI council has decided to take steps against the members in whose cases professional misconduct is observed. Cases of Members who have signed Tax Audit Reports in excess of the limit prescribed by the ICAI will be referred to Disciplinary Directorate. The ICAI will develop an IT based system in co-ordination with the tax authorities, to ensure that members comply with the limit for tax audit prescribed by the ICAI. Issues raised by the C&AG will be studied and discussed with the C&AG. A special cell with proper staff will be created, to deal with such matters in an urgent manner.

2. Swachha Bharat

Prime Minister, Shri Narendra Modi has announced on 25.12.2014 names of nine persons, who will assist the Government in the Swachh Bharat Abhiyan. The name of the ICAI is included in this list. We, as members of the ICAI, have to put in efforts in assisting the Government in its efforts for Swachh Bharat. It appears that the ICAI is drawing up a plan for this purpose.

3. Some Ethical Issues

The Ethical Standards Board has clarified some Ethical issues on Pages 908 and 910 of CA Journal for January, 2015. Some of these issues are as under.

(i) Issue No.1

Whether a Chartered Accountant who is appointed as tax auditor for conducting special audit under the Income-tax Act by the IT Authorities is required to communicate with statutory auditor?

Response

Council direction under Clause (8) of Part I of First Schedule to the C.A. Act, prescribes that it would be a healthy practice if a tax auditor appointed for conducting special audit under the Income-tax Act, communicates with the member who has conducted the statutory audit. (

ii) Issue No.2
Whether a Chartered Accountant in practice can use the designation ‘Corporate Lawyer’?

Response

A Chartered Accountant in practice is not permitted to use the designation ‘Corporate Lawyer’.

(iii) Issue No.3
Whether the office of a Chartered Accountant is permitted to go in for ISO 9001: 2000 certification or other similar certifications?
Response

There is no bar for a member to go in for ISO 9001:2000 certification or other similar certifications. However, the member cannot use the expression like “ISO Certified” on his professional documents, visiting cards, letter heads or sign boards etc.

(iv) Issue No.4
Whether an auditor is required to provide to the client or to main auditor of the Head Office of the same enterprise access to his audit working papers?

Response:

Working papers are the property of an auditor. An auditor is not required to provide the client access to his audit working papers. The main auditors of an enterprise do not have right of access to the audit working papers of the branch auditors except in case it is required by the Regulatory norms.

(v) Issue No.5

Can a Chartered Accountant in Service accept or agree to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer of such company firm or person by way of commission or gratification?

Response:

Clause (2) of Part II of First Schedule to the C.A. Act, prohibits a member in service from accepting or agreeing to accept any part of fees, profits or gains from a lawyer, a Chartered Accountant or broker engaged by such company, firm or person or agent or customer or such company, firm or person by way of commission or gratification.

4. EAC Opinion:

Accounting Treatment of Contribution to a Cluster Project

Facts
A company is an unlisted public limited company and an auto-ancillary engaged in the business of manufacture of Cast Iron (C.I.), castings and machining of castings automobile parts. The foundry and the machining facilities are located at Kolhapur in the state of Maharashtra.

The company requires to use substantial quantity of silica sand in the foundry for making moulds. The sand once used cannot be used again and it becomes waste sand.
The disposal of waste sand is becoming difficult due to non – availability of proper place for dumping and on account of environmental issues and stringent restrictions from pollution control department. The problem of disposal of the waste sand is becoming expensive and severe day by day.

The availability of fresh sand is also diminishing owing to measures being taken by the State Government to protect the environment for silica and mining, which in turn, has increased the costs of procurement of silica sand.

To overcome this problem all the foundries from Kolhapur came together through their association and decided to undertake a cluster project mainly to set up a sand reclamation plant. A limited company registered u/s. 25 of the Companies Act, 1956 is formed as Special Purpose Vehicle (SPV). The objectives of the cluster company (i.e. SPV) are not to make profit. The Central and the State Governments have declared incentives and benefits in the form of subsidies for formation of such cluster projects which provide common utilities and services to its members. In the cluster project each member of the cluster has to contribute non refundable amounts calculated based on its requirement of sand reclamation. The com-pany is required to pay a non-refundable one-time contribution on the basis of formula for contribution decided by the cluster.

The company has clarified that it is a general member under ‘Sand Reclamation Category’. The contribution for sand reclamation category is one time at Rs. 6,000/- per metric tonne/ per month of sand reclamation requirement. At this rate, the company desires to make one time contribution of Rs. 42/- lakh with a view of book the capacity of 700 tons. According to the company, the sand reclamation benefits are permanent and it is not envisaged that the entitlement would exhaust any time. The company has paid an advance against its contribution and the balance is required to be paid in five equal installments. The advance paid is shown as advance under long term loans and advances. The company has clarified that it has not received any ownership rights over the SPV and neither the membership nor the benefits can be transferred.

Query:

The company has sought the opinion of the Expert Advisory Committee as to what is the appropriate accounting treatment?

EAC Opinion:

The committee notes that a SPV has been set up by the industrialists in the Kolhapur region in the form of a not-for-profit section 25 company under the Companies Act, 1956, to undertake a cluster project to set project to set up a sand reclamation plant for the benefit of its members including the company. Each member of the SPV Company is required to contribute a non-refundable amount towards the cost of setting up the sand reclamation plant based on its monthly requirement of sand reclamation. The question now arises is whether such contribution can be capitalised as an asset or should be expensed.

After considering the definitions of the terms ‘intangible asset’ and ‘asset’ given in paragraph 6 of AS 26 and meaning of ‘control’ in paragraph 14, the Committee is of the view that an item can be classified as an intangible asset only if it fulfills all the three conditions (a) it is identifiable, (b) the enterprise has control over the resource, and (c) it is expected that future economic benefits will flow to the enterprise. The Committee notes that in the Company’s case, the contribution entitles the company the services of reclamation of sand upto 700 M.T. per month and various other services, utilities and facilities provided by the SPV at a reasonable cost. Thus, contribution made by the company gives rise to a membership right in the SPV for the company, which is identifiable and from which future economic benefits are expected to flow to the company. Further, with regard to control, the Committee notes that to the extent of its entitlement for sand reclamation of 700 M.T. per month, the company enjoys unrestricted services. Thus, although the company does not get any ownership right over the SPV, the company has the control over the reclamation entitlement and other benefits attached with the membership rights. Accordingly, the Committee is of the view that the membership right received as a consideration of the total contribution of Rs. 42 lakh made by the company to the cluster project should be recognised as an intangible asset.

With regard to the amortisation of the intangible asset, after considering the paragraph 63 of AS 26, the Committee is of the view that as the future economic benefits embodied in an intangible asset are consumed over time, the cost of the asset should be systematically allocated over the asset’s useful life. The Committee is of the view that for determining the useful life of an intangible asset, various factors, such as, the expected usage of the asset, the period of control over the asset and legal or similar limits on the use of the asset etc., as indicated in paragraph 64 of AS 26, need to be considered. Accordingly, the Contribution made by the company to the cluster project should be amortised over its useful life rather than the pay-back period or a period of 3-5 years, considered reasonable by the company.

With regard to the company’s contention that the sand reclamation benefits are permanent and it is not envisaged that the entitlement would exhaust any time. The Committee, after considering paragraphs 67 and 68 of AS 26, is of the view that an intangible asset may have a useful life longer than ten years but it is always finite. The company should disclose the reasons if the presumption of useful life of 10 years is rebutted and the factor(s) that played a significant role in determining the useful life of the asset. Thus, keeping in view the facts and circumstances of each case, the useful life of an intangible asset has to be determined. [Page Nos. 940 to 944 of C. A. Journal – January, 2015]

5. New Accounting Standards (IND – AS):

The Ministry of Corporate Affairs has prescribed the road map for the implementation of the new Accounting Stan-dards (IND-AS) for certain specified Companies. Notifica-tion for this will be issued by the Government very soon. IND-AS are close to the International Financial Reporting standards (IFRs). The companies to which these stan-dards will apply are as under.

Companies with a Net worth of Rs. 500 crore or more, can follow IND-AS on voluntary basis in F.Y. 2015-16. IND – AS will be mandatory for such companies from F.Y. 2016-17. This requirement will apply to Holding, Subsidiaries, Joint Venture and Associates of such companies.

Listed Companies with Net Worth of less than Rs. 500 crore and other Companies with Net worth between Rs. 250 crore and Rs. 500 crore can follow IND-AS on voluntary basis in F.Y. 2015-16 and 2016-17. From F.Y. 2017-18, this will be mandatory for such companies.

6. ICAI News:

(Note: Page Nos. given below are from CA. Journal of January 2015)

(i) Revised Format of Auditor’s Report:

ICAI has revised the format of Auditor’s Report as well as the Engagement Letter for statutory Audit of the Financial Statements under the Companies Act, 2013. This is available on the website of the Institute. (P.895)

(ii) Pre-Budget Memorandum:

ICAI has submitted to the Government Pre-Budget Memorandum. Full text is available on ICAI website. (P.895)

(iii) New Overseas Chapter:

ICAI has opened its 24th Chapter in Vancouver in British Columbia in Canada. (P 895)

(iv) ICAI New Publications:

Following new publications are issued by ICAI (P.1026)

Background Material on GST

Technical Guide on Gujarat VAT

Technical Guide on Rajasthan VAT

Technical Guide on Jharkhand VAT

Extension of Last Date for CPE Hours Requirement:

ICAI has extended the last date for compliance with re-quirement for CPE Hours for 2014 from 31/12/2014 to 31/3/2015.

BCAJ Admin

Company Law

Companies (accounts) amendment rules, 2015

The Ministry of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015. The following changes have been made:
i) A fter Rule 2 the following is inserted “2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account may be kept shall be in Form AOC-5” and

ii) in Rule 6, after the third proviso, the following proviso shall be inserted

“Provided also that nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014.”

Form AOC-5 is similar to eForm 23AA as per section 209(1) of the Companies Act, 1956 and if required to be filed when the Board of Directors decides by passing the resolution to keep all or any of the books of account at any other place in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.

2. Companies (cost records and audit) amendment rules 2014

The Ministry of Corporate Affairs has vide Notification dated 31st December, 2014 made the Companies (Cost Records and Audit) Amendment Rules, 2014 to amend the Companies (Cost Records and Audit) Rules, 2014.

It has inserted in Rule 2 (aa) a clarification that “Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act, 1985.

Accordingly, Companies are required to maintain Cost Records if turnover exceeds Rs. 35 crore or more during immediately preceding Financial Year in respect of the products and services specified;

Applicability of Cost Records: The Rules have categorised the entities into Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and Unregulated Sectors (i.e., steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc businesses);

Applicability of Cost Audit: It will be applicable for entities under the Regulated sectors having overall annual turnover of Rs. 50 crore or more and the aggregate turnover of the individual products or services of Rs. 25 crore whereas Unregulated Sector Audit of Cost Records will be applicable for annual turnover of Rs. 100 crore or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more have to get their Cost Records Audited; for financial years commencing from 01-04-2015.

Exemptions are provided to Companies whose revenue from exports, in foreign exchange, exceeds 75% of total revenue and Companies operating from Special Economic Zones.

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BCAJ Admin

Part C Information on & Around

CDR Cell:
Corporate Debt Restructuring Cell has refused to the RTI query about its operations saying RTI , transparency law, does not apply to it.

CDR is a self-empowered body, which provides broad guidelines and policies to be followed by itself and the administrative, operating and other costs of CDR cell is shared by all financial institutions and Banks.

Based on this, Shailesh Gandhi, former Central Information

Commissioner holds the view that RTI Act applies to them. However, CDR Cell holds the view that it is neither owned, controlled or substantially financed directly or indirectly by funds provided by the appropriate government. Hence, CDR Cell is not a public authority as defined u/s. 2(h) of the RTI Act.

In the first Appeal before FAA, he also ruled that “CDR Cell is not a public authority under the RTI Act, and hence, we are unable to entertain application under the RTI Act”.

Matter would now go to the Central Information Commission.

Information on Netaji Subhash Chandra Bose:

In Jan. 15 issue in Part C this item was carried. Now Mr. S. C. Agrawal, the RTI appellant has reacted on it and has said:

“According to section 8(2), Public interest definitely overweighs the protected as several committees have been formed by the Union government to probe the mystery behind Netaji’s death. The Central Public Information Officer did not even name the country with which relations are likely to be prejudicially affected”.

BCAS RTI Clinic:
Reproducing one letter received by me from one visitor, at BCAS RTI Clinic Aurobindo Das:

I approached your office in January 2014 to seek guidance regarding inflated water bills charged by P/S Ward, Goregaon West, BMC Water Department, for nearly two years to our housing society. The Asst. Engineer, Water Works refused to give us the information about the basis on which and the methods followed by the billing department. Adv. Anilkumar K. Asher has guided me since then till the hearing stage of my 2nd appeal. He accompanied me to the office of the MSIC on 24.09.2014. And I am pleased to inform you that the Order of the appeal was in my favour. Enclosed please find the copy of the Order.

Sir, I am personally grateful and thankful to all of you for the help & guidance that have been accorded to me”.

Note: Copy of the Order received in Marathi is not reproduced here. Many visitors get such positive results by acting on our advice but do not write on their success.

RTI & CPA :
There were conflicting judgements of the National Commission as to whether an applicant seeking information under the RTI Act would be a consumer or not. Certain two member benches had held that an RTI applicant who pays fees for the information would be a consumer, while other benches had held a consumer complaint would not be maintainable since the RTI Act provides its own channel of appeals.

Hence, a three-member bench was constituted to settle the law. The national commission addressed to two issuesfirstly, whether a person seeking information under RTI Act can be said to be a consumer and if it is held that he is a consumer, can a complaint to file under the Consumer Protection Act, or would this remedy be barred by the RTI Act provisions.

The national commission observed that it is a settled legal proposition that when a right is created by a statue which also provides for an adequate and satisfactory remedy to enforce that right, a person must avail of the mechanism available under the relevant act. The Public information officer is actually discharging a statutory function and not rendering any services. Besides, Section 23 of the RTI Act bars the jurisdiction of courts.

By its order of January 8, the national commission concluded that it is not permissible to have two parallel machineries for enforcement of the same rights created by the RTI Act, which a special statute. If a consumer complaint is permitted, it would defeat the purpose of providing a special mechanism under the RTI Act.

An RTI applicant is not entitled to file a consumer complaint for deficiency in service. He must follow the appeal procedure prescribed under the RTI Act.

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BCAJ Admin

Part B RTI act, 2005

In the last two issues of BCAJ, I had briefly summarised chapters 1 & 2 of “PEOPLES’ MONITORIN G OF THE RTI REGIME IN INDIA 2011-13”. Same is being serialised. However, I am postponing it to the next issue to continue on the same. This issue covers report on online RTI facility.

Maharashtra’s launch of facility for filing RTI Application online.

Earlier Central Government had prescribed online facility www.centralrtionline.gov.in.

That of Maharashtra is www.rtionline.maharashtra. gov.in .

Facility has started from 01.01.2015.

http://www.rtionline.maharashtra.gov.in/request/ request.php?lan=E is the site that is in Marathi and English, has the facility for filing application and for first appeal. It also has an option to know the status of one’s application. The mode of payment (RTI application fees) is internet banking, ATM cum debit card and credit card (Master/Visa).

Thirty one of the 37 departments in Mantralaya are shown on the site. All the departments within Mantralaya would be covered first. The facility would be expanded to other public authorities later. Once an application is filed, the applicant will be given a registration number through SMS and email.

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BCAJ Admin

Part A DECISION OF H.C. & CIC

Right of appeal Complaint u/s. 18(1) of the RTI Act :

In January 2015, in part A, I had referred to the Delhi High Court’s order and instead of analysing it, had reproduced an Analysis of that order by Mr. Venkatesh Nayak, Programme Co-coordinator of CHRI. Now I summarise the said HC’s order dated 05.12.2014.

The petitioner, R. K. Jain, inter alia, impugned an order dated 14.02.2014 passed by respondent no. 3 – Central Public Information Officer & Administrative Officer, Income Tax Settlement Commission, denying the information, which was earlier directed to be supplied to the petitioner under the provisions of the Right to Information Act, 2005.

The impugned order indicated that the order dated 26.09.2013 passed by PIO pursuant to an application filed by the petitioner under the RTI Act; and the order dated 21.10.2013 passed by FAA in an appeal preferred by the petitioner against the order dated 26.09.2013, were set aside as being void ab-initio by the Chairman, IT settlement Commission as an administrative head of the Income Tax Settlement Commission.

The principal Controversy to be addressed is whether, respondent no. 1 could declare by an administrative order, the orders passed by respondent nos. 2 (PIO) & 4 (FAA ) as being void ab-initio.

The petitioner had filed RTI application seeking information, inter alia, with respect to disposal and pendency of matters before the Income Tax Settlement Commission. In response to this application, CPIO and Joint Commissioner of Income Tax, the Income Tax Settlement Commission passed an order dated 26.9.2013 furnishing certain information to the petitioner. However, by the said order certain other information as sought for was denied. The petitioner preferred an appeal before the First Appellate Authority. The said appeal was partly allowed by an order dated 21.10.2013.

On response to the reminder letters to PIO by Mr. Jain, received the order from PIO in which he referred to an administrative order passed by the respondent no. 1; the extract of which as quoted in the impugned order reads as under:

“As there has been total no-compliance by the JDIT-II and DIT (Inv) of the provisions of the RTI Act, 2005 and notification by the Chairman, ITSC, New Delhi order no. C-26016/1/05/SC-RTI /1178 dated 29/31-07-2013, the orders of even numbers dated 26.09.2013 and 21.10.2013 passed by the JDIT and DIT (Inv) are ab initio void and are annulled. The RTI application will be disposed of in accordance with the provisions of the RTI Act, 2005 and notification by the Chairman, ITSC, New Delhi order no. C-26016/1/05/SC-RTI /1178 dated 29/31-07-2013 by the Administrative Officer, (CPIO), ITSC, Principal Bench, New Delhi at the earliest.”

The Judge, Hon. Vibhu Bakhru then wrote:

“I am unable to accept that such orders passed in exercise of statutory powers could be declared as a nullity or void by an administrative order without recourse to the hierarchy of authorities as specified in the statute – the RTI Act. In the event, the respondent no. 1 was of the view that the orders passed by PIO & FAA were without authority of law, the proper and the only course would be to file an appeal before the Central Information Commission (hereafter the ‘CIC’) or any other competent judicial forum. However, the said orders could not be nullified by an administrative order”.

“The learned counsel appearing for the respondents further submits that the present writ petition ought not to be entertained as the petitioner would have an alternative remedy to approach the CIC by way of a complaint u/s. 18(1) of the RTI Act”.

“Undoubtedly, the CIC would have the power to enquire into any complaint in respect of matters relating to access of information under the RTI Act. However, it is apparent, in the present, case that respondent no. 1 has acted without authority of law in nullifying orders passed under the RTI Act; thus, interference with the impugned order is warranted in these proceedings”.

The court then ruled:

“In view of the above, the impugned order is set aside. However, it will also be open for the respondents to approach the CIC to assail the orders dated 26.09.2013 and 21.10.2013 passed by PIO & FAA . Needless to mention that if an appeal is filed before the CIC by the public authority (the Income Tax Settlement Commission); the same would be considered in accordance with law”.

[R. K. Jain vs. Chairman, Income Tax Settlement Commission & Ors. in W.P. (C) 2939/2014, in HC of Delhi dated 05.12.2014]

Section 18 of the RTI Act :
The Complainant Raghubir Singh through his RTI application dated 25.09.2013 had sought for information on 2 Points, viz i) Which of the Government Secondary Schools in Delhi under the Directorate of Education, have introduced Punjabi teaching as a third language for the first time afresh in class VI in the academic year 2010- 2014; ii) the number of such students enrolled in Class VI, School-wise. The RTI application of the Complainant was returned to him stating that the Indian Postal Order (IPO) was not in order. Claiming non-furnishing of the information sought, the Complainant has approached the Commission u/s. 18 of RTI Act.

Both the parties made their submissions. The Complainant, Shri Raghubir Singh is a senior citizen of 75-years old and a law teacher who is associated with the making of the RTI Act before its enactment by the Government. The Commission heard him on the telephone as desired by him. He complained that the Directorate of Education had harassed him by raising meaningless technical issues. They returned the Indian Postal Order of Rs. 10/- saying that it is not properly drawn, when he claims to have rightly drawn in favour of the Accounts Officer. The Complainant objected to the returning of the Postal Order by PIO by speed post, for which he had to spend more than Rs. 25. He complained that the Directorate has not updated its web-site and appropriate against whom the Postal Order should be drawn or fee to be paid was not given.

The Commission then reproduced Full Bench Decision of CIC in S. C. Aggrawal vs. Ministry of Home Affairs dated 27.08.2013. Said decision is “a landmark”, very well written in the spirit of the RTI Act. I am posting it on BCAS website www.bcasoline.org and PCGT’s web www.rtiforyou.info . You may also go on CIC’s website to read it.

After the above, the Commission ruled:

The Commission directs the PIOs to check up whether every school has properly replied to the RTI application, if not fulfill the deficiencies. The Commission also directs them to contact the Complainant on the telephone number 011-23363510, given by him, and provide the complete information within 15 days from the date of receipt of this order. ? T he Commission directs the respondents, their PIOs and in charge officers to immediately update their official website as desired by the Complainant and compliance report be sent to the Commission, with a copy to the Complainant, within ten days from the date of receipt of this order.

The Commission directs all the PIOs of Directorate of Education, all other officers concerned, to accept the IPO without raising technical objections and follow all the directions issued in the above referred full bench order of CIC. They should not spend any amount instead of encashing the IPO for Rs. 10 as prescribed-fee.

The Commission directs all the PIOs of Public Authority to submit separate reports to this Commission explaining how many IPOs they have rejected so far and what are the grounds of rejection, from January 2014 to December 10, 2014. Within 15 days from the date of receipt of this order.

The Commission issues a show cause notice to PIO who refused and returned the IPO of appellant, why maximum penalty cannot be imposed against the spirit of RTI and harassing the applicant and for not updating the official website.

[Shri Raghubir Singh vs. Director of Education: CIC/ SA/C/2014/000038 dated 12.12.2014]

Notes:

I am happy to note that Mr. Raghubir Singh, senior citizen made this appeal to CIC. He was associated with the making of the RTI Act before its enactment. That put some more pressure on CIC to pass such favourable order. Same would improve the performance on matters related to RTI by Public Authorities. This judgement and the one referred to in this order need to be circulated widely.

Based on above decision, DOPT (www.persmin.gov.in ) has issued a circular dated 14.01.2015 on the subject “introduction of postal stamps as rti fee/cost – seeking comments from public regarding”. Comments were to be sent latest by 07.02.2015 through email only to Shri. R. K. Girdhar, under Secretary (RTI), at usrti-dopt@nic.in. this issue would reach the readers after that date. May be the date gets extended or DOPT may still accept late communication from you.

BCAJ Admin

Ethics and U

Procedure of Enquiry

Arjun (A) — Hey Shrikrishna! Hey Shrikrishna! Arey, where are you?

Shrikrishna (S) — Yes, yes, my dear. Why are you so panicky? I am here only.

A — Good Lord! Usually, you always arrive at the meeting place before me. Today, you were not to be seen.

S — I am omnipresent, present everywhere. I appear whenever a true devotee remembers me sincerely. Tell me, what is the matter?.

A — Y ou have so far explained to me many items of misconduct. I shared it with my friends. But today, my very close friend received a notice from the Institute. He was asking how to go about it.

S — T hen did you not refer the books?

A — I looked for the procedure in the CA Act as well as Regulations. But couldn’t get the detailed procedure.

S — Which Act you saw? That of 1949?

A — N o. I saw 2006 Act only. That much I know!

S — Good! Many of you may not have referred the CA Act and other books on Ethics ever since you guys passed your CA.

A — What you say is right. When we studied, it was Code of Conduct. Now, it is Code of Ethics. What really is the difference?

S — See, conduct is a generic term. Conduct may be good or bad; but ‘ethics’ denotes something positive. In the context of professionals, ‘ethics’ was thought to be a better word.

A — Y ou mean, the conduct may be ethical or unethical.

S — You are right. And remember; one is either ethical or not ethical. There is no in between stage! One cannot be contented that one is ‘by and large’ ethical!

A — Leave aside the philosophy. Tell me the procedure.

S — F or procedure, you must refer to Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in the official Gazette of India dated February 28, 2007.

A — Baap re! Such a long name! Better call it misconduct rules?

S — Y es. But before going to these rules, you should know that there are basically four authorities stated in the Act of 2006.

A — What are those?

S — F irstly, the Director Discipline. Then the Board of Discipline and Disciplinary Committee. And thereafter, the Appellate Authority.

A — T ell me the functions of all these.

S — You see, if somebody files a complaint ………..

A — H ow does one do so?

S — I f somebody is not happy with a CA’s work or other behaviour, he has to fill up a very simple form – called Form I. It is to be accompanied by a fee of 2,500/- rupees.

A — But who usually complains?

S — A nybody! Complaint can come from a variety of people and agencies.

A — Such as?

S — R egulators – Tax authorities, ROC, MCA authorities, SEBI, RBI, Registrar of Co-operative societies, then bankers, financial institutions, clients, other members of the Institute.

A — Who else?

S — F urther, even your staff, articles, partners, relatives, friends ………

A — But should he be connected with your work?

S — Not necessarily. Even an altogether stranger can file a complaint. These are quasi –criminal proceedings. Locus standi of complainant is not relevant.

A — Surprising! So anybody under the sun can file a complaint against a member.

S — Y es. There are even professional blackmailers. Beware of them. A — O h God!

S — M oreover, the Council can take suo moto cognisance of any misconduct, based on the information received by it. Information can be received even from public domain and media. So, always be cautious.

A — Y ou were telling me about the functions of those authorities.

S — D isciplinary Directorate, basically receives the complaints; The Director Discipline (DD) acts as a Secretary to the Board of Discipline (BOD) as well as to the Disciplinary Committee (DC). People working in the Directorate are bureaucrats.

A — Oh! S — T hey receive the complaint and forward it to the Respondent. The Respondent is required to submit his explanation. That explanation is sent back to the complainant. He is asked to write his views on the explanation in the form of a rejoinder.

A — T ill that time, they don’t process anything?

S — N ot really. It is only after these three documents are received, that they scrutinise the case. Thereafter, the DD forms a ‘prima facie opinion’ as to whether the Respondent is guilty or not guilty.

A — T hen what happens? It is only a prima facie opinion. Not final. Right?

S — N ow, if it is an item of misconduct stated in the First Schedule, the BOD has jurisdiction. On the other hand, if it is a Second Schedule item, it is within the scope of DC.

A — A nd a mixed one?

S — T hen the DC’s jurisdiction. The prima facie opinion is placed before the BOD or DC as the case may be. BOD or DC may concur with and endorse the views of the DD; or they may disagree. If BOD/DC feel that there is no prima facie guilt, the fact is communicated to both the parties and file is closed.

A — And if they find him prima facie guilty, what next?

S — T hen they direct that a detailed enquiry be conducted. This is the point of time when the disciplinary proceedings are deemed to be commenced.

A — Bhagwan, excuse me. Let me first digest all that you told me just now. We will meet some other time as I wish to understand the whole process. Just now, I am in a little bit of a hurry.

S — Sure. But your friend has to send his explanation in 21 days.

A — See. We CAs never do anything well in time. Can he get extension of time?

S — I was sure, you would ask this question If there is a valid reason, you can get extra time; but not more than 30 additional days.

A — O h! Then I must hurry up. We will meet soon. Bye, Bye. ….. (To be continued)

Note:
This dialogue is based on the procedural rules contained in Chartered Accountants (Procedure of Investigations of Professional and other misconduct and conduct of cases) Rules, 2007 published in official Gazette of India dated 28th February, 2007 (‘Enquiry Rules’).

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BCAJ Admin

From Published Accounts

Section A: Disclosures regarding ‘Going Concern’ in airline companies for FY 2013-14 and unaudited financial results for Q2 2014-15

Jet Airways (India) Ltd . FY 2013-14

From Auditors’ Report
Emphasis of Matter
We draw attention to the following notes to the financial statements:

(a) …. Not reproduced
(b) Note 42 regarding preparation of financial statements of the Company on going concern basis for the reasons stated therein. The appropriateness of assumption of going concern is dependent upon realisation of the synergies from alliance with the Strategic Partner and/ or the Company’s ability to raise requisite finance/ generate cash flows in future to meet its obligations, including financial support to its subsidiary.

From Notes to Financial Statements
42. The Airline Industry has been adversely affected by the general economic slowdown. This coupled with high fuel cost significantly impacted the performance and cash flows of the Company and its major subsidiary resulting in substantial erosion of the net worth. With the strategic investment by Etihad PJSC, the Management expects to improve operating cash flows through cost synergies, revenue management, network synergy, leasing out aircraft etc. These measures are expected to result in sustainable cash flows and accordingly the Financial Statements continue to be presented on a going concern basis, which contemplates realisation of assets and settlement of liabilities in the normal course of business.

Q2 2014-15
From Limited Review Report

Attention is invited to: Note no.7 of the Statement regarding preparation of the Statement on a going concern basis for the reasons stated therein. The appropriateness of assumption of going concern is dependent upon realisation of the synergies from alliance with the Strategic Partner and/or the Company’s ability to raise requisite finance/generate cash flows in future to meet its obligations, including financial support to its subsidiary.

Our report is not qualified in respect of the above matters.

From Notes to Unaudited Financial Results
7. With Strategic investment by Etihad Airways PJSC and gradual implementation of the recommendations provided by a domain expert, the Management expects to achieve required operating cash inflows through cost synergies, revenue management, network synergy, leasing out aircraft, etc. These measures coupled with on-going initiatives to raise funds are expected to result in sustainable cash flows and accordingly the statement of financial results continue to be prepared on a going concern basis, which contemplates realisation of assets and settlement of liabilities in the normal course of business.

SpiceJet Ltd . FY 2013-14

From Auditors’ Report
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 2 (a) which indicates that the Company has incurred a net loss of Rs. 10,032.44 million during the year ended 31st March, 2014 and as of that date; the Company’s total liabilities exceed its total assets by Rs 10,194.76 million. These conditions, along with other matters as set forth in Note 2 (a), indicate the existence of a material uncertainty regarding the Company’s ability to continue as a going concern. Management’s plans in this regard are more fully described in the said note.

From Notes to Financial Statements

Summary of significant accounting policies
a) Basis of preparation of financial statements

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (‘Indian GAAP’). The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under the Companies Act, 1956, read with General Circular 8/2014 dated 4th April, 2014, issued by the Ministry of Corporate Affairs.

The financial statements have been prepared on an accrual basis and under the historical cost convention. The accounting policies adopted in the preparation of financial statements are consistent with those of previous year. The Company’s operating results continue to be materially affected by various factors, particularly high aircraft fuel costs, significant depreciation in the value of the currency, pricing pressures from competition and general economic slowdown. The Company has incurred a net loss of Rs. 10,032.44 during the year ended 31st March, 2014, and as of that date, the Company’s total liabilities exceeded its total assets by Rs.10,194.76. The Company is implementing various long-term measures to improve its product offering and enhancing customer experience. Considerable investments are also simultaneously being made by the Company to improve selling and distribution channels, revenue management and marketing functions. The Company has undertaken a comprehensive review of its current network to maximise profitability and improve efficiency in its operations. These measures along with consistent improvement in yields and enhancement in ancillary revenues are expected to drive growth in revenues in the future. The Company is also implementing various measures to optimise aircraft utilisation, improving operational efficiencies, renegotiation of contracts and other cost control measures to improve the Company’s operating results and cash flows. In addition, the Company continues to explore various options to raise finance in order to meet its short term and long term obligations. The Company believes that these measures will not only result in sustainable cash flows, but also enhance the Company’s plans for expansion.

The promoters continue to be committed to providing the required operational and financial support to Company in the foreseeable future. During the year, the Promoter has converted 15,000,000 warrants into equity shares of the Company thereby infusing additional funds of Rs. 407.03 into the Company.

Further, the Company’s promoters have subscribed to 64,169,000 warrants (convertible into equivalent no. of equity shares) for which 25% upfront money amounting to Rs. 333.04 has been received in the current year. In addition to the above, the Company has availed of an unsecured loan of Rs. 750.00 from the promoter, as well as an amount of Rs. 250.00 which has been provided as an advance against the remaining subscription money to be received consequent to the conversion of the warrants issued during the year. The Company also believes that the amendment to FDI policy has improved the investor sentiment towards the Indian aviation industry as evidenced by entry of large international players into the Indian market. In view of the foregoing, the Company’s financial statements have been prepared on a going concern basis, whereby the realisation of assets and discharge of liabilities are expected to occur in the normal course of business.

Q2 2014-15
From Limited Review Report

A1. Without qualifying our conclusion, we draw attention to Note 7 of the Statement which indicate that the Company has incurred a net loss of Rs. 1,044.6 lakh during the quarter ended 30th September, 2014, and as of that date, the Company’s total liabilities exceed its total assets by Rs. 145,973.0 lakh. These conditions, along with other matters as set forth in Note 7, indicate the existence of a material uncertainty that may cast significant doubt about the Company’s ability to continue as a going concern.

From Notes to Unaudited Financial Results

7 (a) The Company has incurred losses of Rs. 31,044.7 lakhs for the quarter ended 30th September, 2014, and has accumulated losses of Rs. 295,829.8 lakh as at that date against shareholder’s funds of Rs. 149,856.7 lakh. As of this date, the Company’s total liabilities exceeded its total assets by Rs. 145,973.1 lakh. The Company’s operating results continue to be materially affected by various factors, particularly high aircraft fuel costs, significant depreciation in the value of the currency, pricing pressures from competition and general economic slowdown. The Company continues to implement various measures to improve its product offering and enhancing customer experience, along with simultaneous investments to improve selling and distribution channels, revenue management and marketing functions. The Company has also terminated certain aircraft leases ahead of schedule in the current and previous quarters in order to rationalise its fleet size and capacity in the near term while it implements its turnaround plan. These measures, along with consistent improvement in aircraft loads and RASK, as well as enhancement in ancillary revenues, are expected to drive growth in revenues in the future. The Company also continues to implement various measures to optimise aircraft utilisation, redeployment of capacity in key focus markets, improving operational efficiencies, renegotiation of contracts and other cost control measures to improve its operating results and cash flows. In addition, the Company continues to explore various options, both operating and strategic to raise financing in order to meet its short term and long term obligations. The Company believes that these measures will not only result in sustainable cash flows, but also enhance its plans for expansion in the future.

7 (b) On account of its operational and financial position, the Company has delayed payments to various parties, including vendors and its dues to statutory authorities. The Company has accrued for any known and determinable amounts of interest on such delays in accordance with contractual terms/applicable laws and regulations. However, it is not practically possible to determine the amount of any other dues, including penalties, consequent to such delays or other non-compliances of contracts or laws and regulations. Further, in view of the proposed plans of management to continue the Company as a going concern as discussed in Note 7(a) above, management is confident that it will be able to negotiate settlements with parties to whom monies are owed, to avoid any penalties. In view of the foregoing, no amounts of penalties have been recorded in these financial results.

BCAJ Admin

From published accounts

Section A: Reporting in case of Managerial Remuneration in excess of statutory limits

1) Jyothy Laboratories Limited (31-03-2013)

From Notes to Financial Statements

Employee benefit expenses include Rs. 1, 113.72 lakh paid/payable during the year towards remuneration payable to its Whole Time Directors. The maximum remuneration payable under para (1) (B) of Section II of Part II of Schedule XIII of the companies Act, 1956(‘Act’) is Rs. 192 lakh. Based on the legal advice received by the Company, management has computed the maximum remuneration payable to Whole Time Directors amounting to Rs. 1, 025 lakh.

The company has filed an application with the Central Government and is in the process of obtaining necessary approval from shareholders for remuneration payable to its Whole Time Directors. Pending receipts of such approval, the excess remuneration paid to the directors is held in trust by the said Directors.

From Auditor’s Report

Emphasis of Matter

Without qualifying our report, we draw attention to Note 40 to the Financial Statements regarding managerial remuneration amounting to Rs. 1,113 lakh paid/provided during the year of which Rs. 921 lakh is in excess of the limits prescribed under Schedule XIII of the companies Act, 1956. As informed to us, the company has filed an application with the central government and is in the process of obtaining necessary approval from shareholders for approval of such excess remuneration.

2) Gillette India Limited 30-6-2013)

From Notes to Financial Statements

Commission to Non – Executive Directors

During the current year, an aggregate amount of Rs. 80 lakh has been paid as commission to the Non – Executive Directors which is within the overall limits of commission payable to such directors under schedule XIII to the Companies Act, 1956. The said payment constitutes 53% of the aggregate amount of Rs. 153 lakh (excluding service tax of Rs. 19 lakh) which is payable to the Non – Executive Directors and is provided for in the financial statements.

The aggregate amount of Commission of Rs. 172 lakh (including service tax Rs. 19 lakh) payable and charged for the year in the financial statements as is stated above, exceeds the maximum amount payable based on 1% of the net profits of the Company amounting to Rs. 148 lakh (as per computation below) for the year ended 30th June, 2013, by an amount of Rs. 24 lakh (including service tax of Rs. 3 lakh). The said excess amount of Rs. 24 lakh which is provided but not paid, is subject to by approval of the Members of the Company by way of a special resolution at the ensuing 29th Annual General Meeting of the Company, and the Central Government.

During the previous year ended 30th June, 2012, also the Company had to paid commission to Non – Executive Directors amounting to Rs. 160 lakhs, of which an amount of Rs. 48 lakh (including service tax of Rs. 10 lakh), being amount in excess of 1% of net profits for the year ended 30th June, 2012. This was paid during the current year and the same was ratified by the members at the 28th Annual General Meeting of the Company. The Company has made an application to the Central Government on 3rd January, 2013 for the waiver of the excess commission, which is as yet pending for approval by the Central Government.

Computation of Net Profit in accordance with section 349 and section 309 (5) of the Companies Act, 1956 (not reproduced here)

From Auditor’s Report

Emphasis of Matter

We draw attention to Note 36(b) to financial statements regarding excess commission provided but not paid to the Executive Directors amounting to Rs. 24 lakh (including Rs. 3 lakh of service tax), which is subject to the approval of the members at the ensuring Annual General Meeting of the company and the Central Government. Further, as reported for previous year ended 30th June, 2012, the Company had provided excess commission amounting to Rs. 48 lakh, (including service tax of Rs. 10 lakh) which was since ratified by the members of the company at the 28th Annual General Meeting of the company and paid during the current year, application for which is as yet pending for approval with Central Government.

3) Jindal Stainless Limited (31-03-2013)

From Notes to Financial Statements

i. For the remuneration amounting to Rs. 16.20 lakh and Rs. 18.11 lakh paid to whole time director for the years 2008-09 and 2009-10 respectively, company’s representation is pending before Central Government;

ii. For the remuneration amounting to Rs. 63.60 lakh and Rs. 160.57 lakh paid to whole time director for year 2011-12 and 2012-13 respectively, company’s representation is pending before the Central Government.

From Auditor’s Report

Emphasis Of Matter

Note no. 51(C) (i) regarding pending necessary approvals for managerial remuneration as explained in the said note.

4) Ranbaxy Laboratories Limited (31-12-2012)

From Notes to Financial Statements

On the basis of a legal advice, the Company is of the view that the appointment and payment of remuneration to Mr. Arun Sawhney, CEO and Managing Director for the full year ended 31st December 2011 is in accordance with the conditions stipulated under the Notification no. GSR 534(E) dated 14th July 2011 read with the clarification dated 16th August 2012 issued by the Ministry of Corporate Affairs.

From Auditor’s Report

Emphasis Of Matter

Without qualifying our opinion, we draw attention to Note 37 of the financial statements, wherein it has been stated that on the basis of a legal advice, the company is of the view that the appointment of and payment of remuneration to Mr. Arun Sawhney, CEO and Managing Director for the full year ended on 31st December, 2011 is in accordance with the stipulated under notification no. GSR 534(e) dated 14th July 2011 read with the clarification dated 16th August 2012 issued by the Ministry of Corporate Affairs.

5) Network 18 Media & Investments Limited (31-03-2013)

From Notes to Financial Statements

Managerial remuneration paid, up to 31st March 2013, by the Company amounting to Rs. 26,388,400 (31st March 2012 – Rs 20,100,400) is in excess of the limits prescribed under the Companies Act, 1956 (“the Act”). The Company is in the process of obtaining the necessary approvals as per the Act.

From Auditor’s Report

Qualified Opinion

The company has paid Rs. 2, 63, 88,400/- as managerial remuneration to its Managing Director upto 31st March 2013 (upto 31st March, 2012 Rs. 1, 01, 00,400/-), which is in excess of the limits prescribed under the Act. Had the company accounted for the remuneration in accordance with the Act, the net loss after tax for the year ended 31st March, 2013 would have been lower by Rs. 2,63,88,400/- and short term loans and advance would have been higher by Rs. 2,63,88,400/-. Our report on the FS for the year ended 31st March, 2012 was also qualified in respect of this matter.

From Director’s Report

In regard to reservations/qualifications in the Auditors’ Report, the relevant notes on the accounts are self- explanatory and therefore do not call for any further comments of Directors. However, your Directors wish to offer the explanations in regard to note no. 6 of the Auditors Report. It is clarified that the Central Government has partially accepted the Company’s application for approval of the remuneration paid to the Managing Director and the Company has filed a representation for reconsideration of the matter and approval is awaited.

6) Mafatlal Industries Limited (31-03-2013)

From Notes to Financial Statements

Mafatlal Denim Limited (MDL), the erstwhile company which has amalgamated with the Company had re – appointed Mr. Rajiv Dayal as Managing Director & Executive Officer and Mr. Vishad P. Mafatlal as Joint Managing Director of MDL with effect from 1st April, 2011 for a term of 5 years. Managerial Remuneration of Rs. 139.28 lakh had been paid during the year 2011-12. As stipulated by the provisions of the Companies Act, 1956 requiring the approval of the Central Government for the appointment and remuneration of Managerial personnel in the case, inter alia, of a company that is in default in payment of its debts, erstwhile MDL had made the applications to the Government on 20th June, 2011 seeking approval for re – appointment and payment of remuneration to Mr. Rajiv Dayal and Mr. Vishad P. Mafatlal.

The erstwhile MDL was technically in default to SICOM Limited, a secured lender pending the Sanction of the section 391 Scheme pending before the Hon’ble Gujarat High Court. SICOM declined to give their No Objection Certificate for the re – appointments for the reason that they already had their debts adjudicated by the Hon’ble Debt Recovery Tribunal, Mumbai. The Government rejected the applications of MDL on 23rd September, 2011 for the reason that MDL had not submitted No Objection Certificate from SICOM, one of the secured lenders. MDL has made an application for reconsideration, as default to the secured lenders no longer exists.

Subsequently, SICOM Limited assigned the entire Debt in favour of M/s. Mishapar Investments Limited (another Company that amalgamated with the company) on 26th July, 2012. Thereafter, MDL obtained the No Objection Certificate from the said assignee and approached the MCA once again on 5th September, 2012. Pursuant to the said letter, MCA advised MDL to file applications afresh. Accordingly, MDL has filed Fresh Applications on 25th October, 2012 and awaits their approval.

From Auditor’s Report

Qualified Opinion
Attention is invited to Note no. 32.1 (a) to the financial statements, in the earlier year, erstwhile Mafatlal Denim Limited (the Amalgamating Company) had made representation to the Ministry of Corporate Affairs against the rejection of application u/s. 269, 198, 309 and 310 of the Act, relating to re – appointment and payment of remuneration with effect from 1st April, 2011 to 31st March, 2013. The said approval is pending from the Ministry Of Corporate Affairs and accordingly, we are unable to comment on the impact, if any arising out of the same in these financial statements.

From Director’s Report

The specific notes forming part of the Accounts referred to in the Auditor’s Report are self – explanatory and give complete information.

BCAJ Admin

Direct Taxes

Guidelines for notification of Semi conductor Wafer Fabrication manufacturing unit u/s. 35AD of the Act – Notification No. 80/2014 dated 12th December 2014.

CBDT has issued Income-tax (14th Amendment) Rules, 2014 inserting Rule 11 – OB which prescribes broad guidelines. The assessee can apply for notification of the Unit in Form no. 3CS (notified). The Rule also prescribes the conditions under which the notification of the unit can be withdrawn.

CBDT has created a Standard Operating Procedure for TDS credit Mechanism – copy of the same is available on www.bcasonline.org

CBDT has issued a letter prescribing guidelines for Compounding of offences under Direct tax laws 2014 – F.No. 285/35/2013/IT/(Inv.V)/dated 23rd December 2014 – copy of the same is available on www.bcasonline.org

With effect from 01-01-2015, all applications received for compounding of offences would be governed by these guidelines. The offences have been classified into two categories and criteria for compounding of offences for each category, procedure for making application and how they would be dealt with have been prescribed in detail.

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PART C: Information on & Around

Travel on Delhi Buses:

Data accessed through RTI has revealed that around 600 drivers of Delhi Buses are reportedly colour blind but are in service with the help of fake medical certificates. The issue has been highlighted by Information Commissioner M. Sridhar Acharyulu to Delhi CM Arvind Kejariwal.

RTI extortionists

The Brihanmumbai Municipal Corporation (BMC) has prepared a list of 77 regular complainants who file bulk applications under the Right to Information (RTI) Act, seeking details of building plans to allegedly extort money from property owners.

The P-North Malad ward office has compiled a list of individuals who send RTI applications seeking details of under-construction or existing buildings and shops. Ward officials have received complaints from shop-owners that these applicants then demand money from them or threaten them with action.

“Minor irregularities such as putting up a grill or extension of a shop’s entrance by a few feet can be demolished by the BMC or regularized after paying a penalty. But these professional complainants extort money in exchange of a promise that no BMC action will be initiated on the structure,” said a civic official from the ward.

Worse, in case ward officials initiate action against the structures, these very complainants write to politicians and municipal commissioners against their initiative.

He added that while RTI is a useful tool, several individuals have started misusing it. “We conducted this exercise since it is getting difficult for us to differentiate between genuine RTI applications and frivolous ones. After the list was prepared, these 77 people have stopped sending in their application.”

Pay Rs. 55.43 lakh to get information!

Two senior regional transport officials in Thane face disciplinary action for demanding a “fee” of Rs. 55.43 lakh for providing information that is supposed to be given out free of cost under the Right to Information Act.

The complainant, Anil Mahadik, filed an RTI application at the regional transport office, seeking details of the number of autos and permit-holders in Thane. All it required for Public Information Officer I S Muzumdar, who is the Assistant Commissioner and Deputy Commissioner Sanjay Dole was to take a printout of the details-73,993 autos of which 36,887 had permits-which were readily stored in their computers, and hand them over to Mahadik. Instead, the two officials chose to harass the RTI applicant and demanded Rs 55.43 lakh from him as a fee for the information that they promised to compile in a CD.

After being apprised of the incident, Chief Information Commissioner Ratnakar Gaikwad rebuked Muzumdar and Dole for “irresponsible behaviour and ignorance of law” while disposing the RTI application by Mahadik. He directed transport commissioner V N More to initiate disciplinary proceedings against the two RTO officials and inform his office of the action by next month. Also ruling that the information should be provided to Mahadik free of cost and that all RTOs should display details of vehicles in their areas on their websites. Gaikwad told More to comply with the orders and submit a compliance report to his office.

(From the Times of India dated 24.01.2014)

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BCAJ Admin

PART B: RTI Act, 2005

Area	Appeals Pending	Complaints Pending
HQ	140	148
Greater Mumbai	5,394	550
Konkan	3,741	107
Pune	5,937	220
Aurangabad	3,262	493
Nashik	4,803	62
Nagpur	1,591	582
Amravati	4,184	1,256
Total	29,052	3,418

Above sad state of pendency worries all, specially, those who have to wait as long as two years to get hearing in one’s appeals or complaint. Chief information commissioner, Mr. Ratnakar Gaikwad has written to the Governor to prod the government to appoint Information Commissioners in five pending vacancies.

Public Concern for Government Trust has public interest litigation pending since more than a year in Bombay High Court in this connection.

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BCAJ Admin

ICAI and its Members

1. Disciplinary Cases Disciplinary Committee (DC) of ICAI has decided the following cases and held the concerned members as guilty of professional or other misconduct. These cases are reported in the publication of ICAI “Disciplinary Cases” VOL-1. Page Nos. given below are from this Book. The names of members are not given in order to maintain confidentiality.

(i) Case of Mr. A.J.

In this Case, member has been held to be guilty of professional misconduct in respect of following four charges.

(a) Member accepted the position as auditor of NCP Ltd (Company) for 2006-07 without first communicating with the previous auditor in writing. In this case the member was appointed as auditor by the company on 01-10-2006. The member stated that he had informed the previous auditor about this fact by letter dated 14-08-2007 Under Certificate of Posting. This was considered by DC as not sufficient communication.

(b) The member accepted the appointment as auditor of the Company without first ascertaining from it whether the requirements of sections 224/225 of the Companies Act have been complied with. The DC found that the member could not establish whether these provisions were complied with.

(c) The member failed to exercise due diligence and was grossly negligent in the conduct of his professional duties while carrying out the Audit for 2006-07. The DC has noted that there were serious mistakes and grave irregularities in the Financial Statements audited by the member. The member could not produce his working papers to explain his view point.

(d) The member accepted the appointment as Auditor of the Company although payment of the undisputed audit fee of the previous auditor was outstanding. The DC has found that the undisputed audit fees payable to previous auditors were outstanding. No satisfactory evidence for payment of the outstanding fees was produced by the Member.

The D.C. has, after due consideration of the submissions of the Member, awarded punishment by way of removal of the name of the Member from the Register of Members for a period of one year. (DC- Pages 57-66).

(ii) Case of Mr.MKJ

In this case the complaint against the member was that he accepted Tax Audit assignment of a partnership firm without first communicating with the previous Tax Auditor. Further, the complainant (previous Tax Auditor) had stated that the member accepted the tax audit although his undisputed audit fees were outstanding.

The D.C. found that the member sent letter to the previous auditor Under Certificate of Posting. Although this was not sufficient compliance with the requirement for communication, the member could prove that the Postal Department had delivered the letter of communication to the previous auditor. Therefore, this charge was not proved.

However, the D.C. has held that the member was aware of the fact that undisputed audit fees of the previous auditor was outstanding and no satisfactory evidence were produced as to why this was not paid. Therefore, on this count the member was held to be guilty of professional misconduct.

The D.C. has issued a letter of caution to the member advising him to be more careful in future in complying with the provisions of C.A. Act and Code of Ethics. ( DC Pages 74 – 81).

(iii) Case of Mr.S.A.

In this case, the member was found guilty of professional misconduct in respect of the following charges.

(a) The member accepted position as Auditor of Six Entities without communicating with the previous auditor in writing. The defence of the member was that he had verbally communicated with previous auditor and no objection was raised. This was not accepted as proper communication by D.C.

(b) The second charge was that the member accepted the audit of six entities although audit fees and other fees for Tax consultation due to previous auditor was outstanding. The member could not produce any evidence for the payment of outstanding fees. The D.C. held that the member was not required to ensure payment of fees for Tax consultation but as regards outstanding Audit Fees due to the outgoing auditor no effort was made to clear the same.

The D.C. held the member guilty on both counts and awarded the punishment of Reprimand to the Member.

2. Some Ethical Issues

The Ethical Standards Board of ICAI has given answers to some Ethical Issues as under on Pages 1008 – 1010 of the CA Journal for January, 2014.

(i) Issue No: 1:

Appointment of another Auditor at Adjourned A.G.M without Special Notice.

If any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditor received after the adjournment can be taken note of and acted upon by the company. In terms of section 190(1) of the Companies Act, 1956, special notice should be given to the Company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered. The meeting contemplated in section 190(1) undoubtedly is the original meeting.

(ii) Issue No: 2:

Charge of Fees by C.A in practice based on percentage of Turnover.

In terms of Clause (10) of Part I of First Schedule to the C.A. Act, it is not permitted for a Chartered Accountant or a firm of Chartered Accountants to charge fees on a percentage of turnover, except in the circumstances provided under Regulation 192 of the CA Regulations, 1988.

(iii) Issue No:3:

Whether a member in practice can be a director of company?

A member in practice is permitted generally to be a Director simpliciter in a Company provided he is not a Managing Director or Wholetime Director and is required to attend only the Board Meetings of the company and not paid any remuneration except sitting fees for attending the meetings.

(iv) Issue No: 4:

Whether a Chartered Accountant in practice is entitled to accept teaching assignment?

A Chartered Accountant in practice is allowed to accept teaching assignment in university, affiliated colleges, educational institution, coaching organisation, private tutorship, provided the direct teaching hours devoted to such activities taken together do not exceed 25 hours a week.

(v) Issue No: 5:

Undercutting Fees:

It is now possible for a C.A. in practice to accept a position as Auditor previously held by some other C.A. in such conditions as to constitute undercutting.

3. Rotation of Auditors:

ICAI had successfully objected to the introduction of the system of Rotation of Auditors for the last over six decades. Several Commissions and Parliamentary Committees had agreed that rotation of Auditors was not in the interest of the Accounting Profession as also for the Corporate Sector. Inspite of this, provision for rotation of auditors has now been introduced by enactment of new section 139 of the Companies Act, 2013.

Detailed procedure for Rotation of Auditors as contained in section 139 has been stated in November, 2013 (Page 107), issue of B.C.A. Journal. Briefly stated, a firm of Chartered Accountants cannot continue as auditor of listed companies and other specified companies for more than 10 years. This period for sole proprietary concern is five years. After the expiry of this period, the same audit firm or its associate cannot be reappointed for a period of 5 years.

As stated earlier, the system of Rotation of Auditors u/s. 139 is to be applied only in Cases of Listed Companies and other Companies as may be prescribed by Rules. It may be noted that Draft Rule 10.3 provides that this system of Rotation of Auditors will apply to all Public and Private Companies, other than Small Companies and One-Person Companies. This provision is very harsh and almost of all Small and Medium sized Audit Firms will lose their medium sized Audit Clients. If a reference is made to section 149(4) it will be noticed that the requirement for appointment of Independent Directors on the Board of Companies applies to Listed Companies and other companies as notified by Rules. Draft Rule 11.2 provides that this requirement will apply to any Public Company having (i) paid-up capital of Rs.100 cr. or more, or (ii) Turnover of Rs. 300 crore or more or (iii) Aggregate Loans, Deposits etc. exceed Rs. 200 crore. There are similar other sections where similar powers are given to the government and the Draft Rules have equated Listed Companies with large Public Companies. ICAI should suggest that Draft Rule 10.3 should provide that the system of Rotation of Auditors should apply, besides listed Companies, to only large Public Companies having paid up capital exceeding Rs. 100 crore or so.

The Draft Rule 10.4(4)(i) is the most damaging rule in as much as it provides that for the purpose of rotation the period for which the auditor is holding office as auditor prior to commencement of the New Act shall be taken into account for calculating the period of 5 or 10 years. If this is implemented the existing small and medium sized Audit Firms will lose almost all their Audit Clients. They will cease to be auditors in almost all the companies where they have been auditors for 5 or 10 years during the next 3 years. This will put their Audit Staff, Articled Assistants and others in the most precarious position. Most of these firms will have to close down their Audit Practice. In some cases such firms will have to adopt unhealthy practice of canvassing for audit work. ICAI should strongly represent for amendment of this Draft Rule 10.4 (4) (i) so that it is specifically provided that period prior to enactment of section 139 is not counted for the limit of 5 or 10 years for reappointment of statutory auditors. It may be noted that Explanation below section 149
(11) dealing with Independent Directors who can hold office for 10 years specifically provides that the period prior to enactment of the section is not to be considered for counting the period of 10 years.

4. EAC Opinion:

Recognition of Distribution Network Acquired in a Business Acquisition as an Intangible Assets

Facts:

Company X (Company) was incorporated in February, 2011 as a wholly owned subsidiary of company Y. During the year 1st April, 2011 to 31st March, 2012, the company X acquired a business from company Z, an unrelated party, on a slump sale basis for an arm’s length consideration. Company Z is a leading manufacturer of kitchen appliances. The acquisition of business has led to company X becoming a leading player in this segment. As part of the acquisition, company X has acquired a large network of distributors, service centres, service points, retailers and manufacturing points.

The company operates through different channels, such as, the distributors, retailers, direct dealers, etc. More than 80% of the sales in the past were effected through the network of distributors (The distribution network).

The management of company X engaged a valuer to carry out the purchase price allocation. The intangible assets identified by the valuer for the purchase price allocation included brands and the distribution network. As per the valuation report, the distribution network was identified as an intangible asset and considering the time period over which the current distribution network was expected to contribute to the revenue of company X, the economic life of the distribution network was considered to be indefinite. However, the agreement appointing the distributor was valid till 31st March, 2012 and was renewable on mutual terms.

Query:

The querist has sought the opinion of the Expert Advisory Committee as to whether the distribution network acquired as part of the business acquisition in the case of the Company qualifies for recognition as an intangible asset as per AS 26.

EAC Opinion:

After considering paragraphs 6.1, 6.2 and 31(a) of AS 26 the Committee is of the view that for recognition, an intangible asset, even if acquired as part of a business purchase, should meet both the definition and recognition criteria specified in AS 26. The Committee notes from the Facts of the Case that the distribution network, being an arrangement for the marketing of the company’s product, is a non-monetary item without physical substance held for the purpose of supply of goods. Further, it appears from the Facts of the Case, that the existence of the distribution network is a factor for the acquisition of the business. So, while allocating the purchase consideration the valuer is able to identify the distribution network separately and also assign a value to it. This indicates that (i) the distribution network is identifiable; (ii) it is probable that future economic benefits attributable to the distribution network will flow to the company; and (iii) the cost of acquisition of the distribution network can be measured reliably.

Further, considering paragraphs 16 and 17 of AS 26 the Committee is of the view that the key terms of the distribution agreement mentioned by the querist indicate that the distribution network is controlled by the company at the time when it acquires the business, but the distribution agreement is valid only upto 31st March,2012 and the exchange (market) transactions for the same or similar distribution network are not available. In other words, there does not appear to be any control on distribution network either through legally enforceable rights or in any other way beyond 31st March,2012.

Hence, distribution network acquired as part of the business acquisition in the Company’s case qualifies for recognition as an intangible asset as per AS 26 only upto 31st March,2012.

[Refer page nos. 1038 – 1044 of C. A. Journal – January, 2014]

5. ICAI news:

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

(i) Empanelment of CA Firms on C& A.G. Panel for the year 2014-15

Applications are invited online from the firms of Chartered Accountants who intend to be empanelled with the office of C & A.G. for appointment as auditors of Government Companies/Corporations for the year 2014-15. The format of application will be available on the website www.saiinida.gov.in from 1st January, 2014 to 15th February, 2014. (P. 1118)

Campus Placement Programme – February – March, 2014

The Committee for Members in Industry of the ICAI is organising Campus Placement Programme for newly qualified Chartered Accountants at various centers all over India. Campus Placement Programme will be organised at various centres viz. Ahmedabad, Bangalore, Bhubaneswar, Chandigarh, Chennai, Coimbatore, Ernakulam, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi and Pune from 17th February, 2014 to 15th March, 2014. (For details refer Page 1122)

BCAJ Admin

Ethics and u

Negligence – Failure to disclose a material fact

Arjuna (A) – Hey Bhagwan, last so many occasions you have been telling me the instances of negligence of a chartered accountant. Surely, it is a misconduct.

Shrikrishna (S) – Yes. That is clause (7) of Part I of Second Schedule. But remember that it covers not only gross negligence, but also the lack of due diligence.

A – I understood. But I am now tired of listening to the stories of negligence. Tell me something else today.

S – Actually, although this is one of the most serious misconduct, this clause rarely operates alone. Quite often, alongwith this clause 7, one or both of the other two items are invoked.

A – What are they?

S – First is clause (5); and then (8). These are invoked simultaneously although the net result is clause (7).

A – Tell me one by one. Don’t confuse me by explaining all of them together.

S – OK. Let us start with clause (5). It says that if the auditor is aware of a material fact which is not disclosed in a financial statement; but disclosure of it is necessary, then it is a misconduct. In short, it is a failure in performing his duty.

A – But the primary duty of disclosure is that of Management. Our Council specifically makes us write such a remark in our audit report.

S – Agreed. But that does not absolve the Auditor of his duty to comment on such deficiencies. That is the very job of an auditor. Otherwise, on what basis can you say that the accounts give true and fair view?

A – But you know, many times, clients do not tell us the full facts. Or they pressurise us not to mention certain things.

S – If you start accepting such requests from the management, then you are not fit to be an auditor. Moreover, it is also your duty to ask for information.

A – We do ask; but often, we do not insist on it. And if we report certain things, we feel the client would be in deep trouble.

S – That is a mistake. Heavens are not going to fall if you report certain discrepancies.

A – I can tell you, in many companies, fixed assets register is never maintained properly. In fact, it is not maintained at all!

S – Yet, you write a standard remark in CARO report.

A – Yes. But tell me of some other instances.

S – I must have told you of a case of an auditor of an educational trust. A very prominent educational institution had schools and colleges at multiple locations. Highly placed people were on its governing body.

A – Then what happened?

S – It had opened many bank accounts required from time to time. Sometimes, accounts were opened for temporary purpose of receiving some grants; or for particular projects which were then completed.

A – Yes. It is quite normal.

S – One junior professional was their auditor. They told him that out of some 16 bank accounts, statement of 5 accounts were not available despite follow-up with respective banks.

A – That is a common difficulty. Accounts must have been inoperative.

S – They told him that there were hardly any transactions except perhaps a few internal transfers. He believed them and did not put any remark.

A – We also avoid putting any qualification in such cases. We feel shy of doing so!

S – That’s the trouble. In the subsequent year, there was some other auditor. He found the bank statements and noticed that there was an impact of about Rs. 30,000/-. Remember, the total collection of that Trust was more than Rs. 8 crore!

A – Oh. Then the impact was negligible!

S – Subsequent year’s auditor adjusted it in the Trust Fund in the next year and again did not put any remark. The adjustment was shown in the balance sheet without any explanation.

A – Actually, for educational trusts, there is no revenue impact. Who complained in this case?

S – Surprisingly, the Income Tax department complained! This again was not revealed in scrutiny assessment; but while processing the application for renewal of section 80 G certificate, the Director of Income Tax noticed it!

A – But why is the tax department bothered about such trivial things?

S – That’s your fate! Many times, even big blunders go unnoticed; and a small thing proves fatal. I also told you long back that whether any person’s interests are adversely affected or not is not material. Council wants to ensure that its member performed his duty diligently!

A – That is all right; but why small people are victimised? So in this case, what happened?

S – Unfortunately, auditors for both the years were held guilty of professional misconduct.

A – Oh my God! The first auditor should have mentioned the fact that bank statements were not made available. He should have stated a disclaimer to that effect.

S – Yes. Thus, it is a failure to disclose a material fact. Its impact on quantum may not be material; but in principle, it is a lapse when statements of 5 out of 16 banks accounts are not available.

A – Had he taken Management Representation Letter?

S – Yes, he had obtained MRL. But his ‘stars’ were unfavourable.

A – How then, are other clauses attracted?

S – Clause (8) talks about failure to obtain sufficient information which is necessary for expression of an opinion. The negligence or lack of due diligence is the resultant failure. One has to take care of all these clauses.

A – Yes. We often consider only ‘gross negligence’ as a misconduct.

S – Important point is when a punishment is awarded; it may be for each such clause. Thus, if one’s membership is suspended, it may be one or two months for each of these clauses!

A – Then I should be more vigilant and should write the report without any such psychological inhibitions. Without fear or favour!

S – For small lapse, consequences may be too harsh!

A – God, only you can save the audit profession!

Om Shanti!

NOTE :

The above dialogue between Shrikrishna and Arjun deals with the Clause (5) and (8) of Part 1 of the Second Schedule which are often invoked alongwith Clause (7):

Clause (5): fails to disclose a material fact known to him which is not disclosed in a financial statement, but disclosure of which is necessary in making such financial statement where he is concerned with that financial statement in a professional capacity.

Clause (8): fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently material to negate the expression of an opinion

levitra

BCAJ Admin

FROM THE PRESIDENT

Dear members of BCAS family,

I am a movie buff. I remember dialogues and songs of more movies than most of you would remember case laws. (Okay, barring the likes of Pranav Sayta.) And hence, when I read some news or see some incident, either a relevant song or dialogue pops up in my mind. Take for example these two news items in January:

1. Posco steel plant, India’s biggest FDI, gets environmental approval

2. Cairn India under income tax lens over share sale

I am visualising a scene from old Hindi movies where the villain will brag “yahan log aate toh apni marzi se hai, par jaate hamari marzi se hai”. It is so frustrating to see that the same government stalling clearances on environmental grounds for eight years, grants clearances overnight when the minister changes. Did the environmental norms change overnight or the compliance occurred overnight? Is FDI welcome in India when the country needs it or is FDI welcome when the political compulsion sets in?

Someone please tell me this was done for the good of the economy and not with the polls in mind.

On the other hand were the events regarding Vodafone, Nokia and Shell not enough that we now have Cairn’s disinvestment coming under tax scanner? Are multinationals easy preys to meet huge deficits in tax collections? Why bother improving tax administration machinery? Why bother with tax defaulters who get away with bribery? Go after honest tax payers. Make frivolous additions. Disallow genuine expenses. Apply absurd interpretations and deny exemptions and deductions. Raise demands. If all that is not enough then hold up genuine, legitimate and in many cases, much needed refund.

Someone please tell me this was done for the good of the economy and not with the polls in mind.

Take another front page headline:

Currency notes issued before 2005 to be withdrawn post March 31: RBI

This reminds of another villainous dialogue “Hum toh doobenge sanam, par tumko bhi le doobenge”. The reason attributed for the withdrawal of pre 2005 notes is that it could counter black money and help weed out fake currency circulating through the system. Noble. Laudable. Much needed. But look at the timing. At a time when it is more than apparent that the odds of winning these elections are tilted against us, how do we make it difficult for them to win? Attack their poll contributors.

Someone please tell me this was done with a motive for the good of the economy and not with the polls in mind. “There have been issues like regulatory clearances but government realised and we have started working on those areas. Many clearances have been fast tracked. There are further reforms, including some structural reforms, in the pipeline.” – Planning Commission Deputy Chairman Montek Singh Ahluwalia.

Sir

“Bahut der se dar pe aankhein lagi thi, Huzuur aate-aate bahut der kar di.
Maseeha mere toone beemaar-e-gam ki , Dava laate-laate bahut der kar di”

As a citizen I am happy that finally we are back to doing business. But I cannot help rue the fact that we did digress. We did derail. We did not do business. We indulged in politics. We did not even do welfare. We did politics. We didn’t do governance. We did politics. We lost steam. We frittered opportunities. We did politics.

Someone please tell me this was done purely for the good of the economy and not with the polls in mind. But to be fair, it is not just the UPA playing politics. Every party is beating their war drums as a build up to the ensuing elections.

“India’s main opposition Bharatiya Janata Party (BJP) is considering a measure to scrap, or reduce, income tax”. Isn’t this a plank in an election manifesto designed to win over crucial middle-class and urban voters?

Free water, electricity, LPG and much more promised by all and sundry.

Minority statuses, Wars with neighbouring countries and Abolition of babudom by some.

The stakes are high. The spoils are aplenty. The bounty too large. The power too alluring. The greed for power too high. The interest of the nation secondary.

“Yeh Mehlon,Yeh Takhton,Yeh Taajon Ki Duniya,
Yeh Insaan Ke Dushman Samaajon Ki Duniya,
Yeh Daulat Ke Bhookhe Rawajon Ki Duniya,
Yeh Duniya Agar Mil Bhi Jaaye Toh Kya Hai.”

Someone please tell me all this is being promised purely for the good of the nation and not with the polls in mind.

There is a silver lining in the sky. There is light at the end of the tunnel. There is hope in my heart. By 2020, India is set to become the world’s youngest country with 64 per cent of its population in the working age group. In the ensuing elections, there will be about 15 crores first time voters. As a proportion, this works out to about one-fifth of the total electorate of 73 crores estimated by the Election Commission of India. These young adults would be anywhere between 18 and 23 years of age.

These voters are surely not going to be swayed by dynasties or dictators. They are going to vote for whichever party promises them a better future. A future not based on aid, subsidies, freebies or wishy washy lures. This generation is going to look for opportunities for economic advancement and wealth creation on their own competencies and steam. Just give good governance. Just create an enabling environment. Just stop the current nonsense. Agree that your business is politics but just don’t do only politics. Please please please do business too.

Meri taqdeer badal dengey mere jaanbaaz irade…!
Meri kismat nahi mahutaj mere hathon ki lakiron ki.
Yakeenan aasman se oonchi hogi meri mulk ki udaan..
Zara mere pairon se tere siyasat ki zanjeer toh hata de.

Here’s wishing everyone happiness and love.
With Warm Regards

levitra

BCAJ Admin

From Published Accounts

Accounting Policy for Revenue Recognition as per Ind AS for different industries (year ended 31st March 2017)

TATA CONSULTANCY SERVICES LIMITED

The Company earns revenue primarily from providing information technology and consultancy services, including services under contracts for software development, implementation and other related services, licensing and sale of its own software, business process services and maintenance of equipment.

The Company recognises revenue as follows:

Revenue from bundled contracts that involve supplying computer equipment, licensing software and providing services is allocated separately for each element based on their fair values.

Revenue from contracts priced on a time and material basis is recognised as services are rendered and as related costs are incurred.

Revenue from software development contracts, which are generally time bound fixed price contracts, is recognised over the life of the contract using the percentage-of-completion method, with contract costs determining the degree of completion. Losses on such contracts are recognised when probable. Revenue in excess of billings is recognised as unbilled revenue in the Balance Sheet; to the extent billings are in excess of revenue recognised, the excess is reported as unearned and deferred revenue in the Balance Sheet.

Revenue from Business Process Services contracts priced on the basis of time and material or nit of delivery is recognised as services are rendered or the related obligation is performed.

Revenue from the sale of internally developed and manufactured systems and third party products which do not require significant modification is recognised upon delivery, which is when the absolute right to use passes to the customer and the Company does not have any material remaining service obligations.

Revenue from maintenance contracts is recognised on a pro-rata basis over the period of the contract.

Revenue is recognised only when evidence of an arrangement is obtained and other criteria to support revenue recognition are met, including the price is fixed or determinable, services have been rendered and collectability of the resulting receivables is reasonably assured.

Revenue is reported net of discounts, indirect and service taxes.

WIPRO LIMITED

The Company derives revenue primarily from software development, maintenance of software/hardware and related services, business process services, sale of IT and other products.

a) Services

The Company recognizes revenue when the significant terms of the arrangement are enforceable, services have been delivered and the collectability is reasonably assured. The method for recognising revenues and costs depends on the nature of the services rendered:

A. Time and materials contracts

Revenues and costs relating to time and materials contracts are recognised as the related services are rendered.

B. Fixed-price contracts

Revenues from fixed-price contracts, including systems development and integration contracts are recognized using the “percentage-of completion” method. Percentage of completion is determined based on project costs incurred to date as a percentage of total estimated project costs required to complete the project. The cost expended (or input) method has been used to measure progress towards completion as there is a direct relationship between input and productivity. If the Company does not have a sufficient basis to measure the progress of completion or to estimate the total contract revenues and costs, revenue is recognized only to the extent of contract cost incurred for which recoverability is probable. When total cost estimates exceed revenues in an arrangement, the estimated losses are recognized in the statement of profit and loss in the period in which such losses become probable based on the current contract estimates.

‘Unbilled revenues’ represent cost and earnings in excess of billings as at the end of the reporting period. ‘Unearned revenues’ represent billing in excess of revenue recognised. Advance payments received from customers for which no services have been rendered are presented as ‘Advance from customers’.

C. Maintenance contracts

Revenue from maintenance contracts is recogniswed ratably over the period of the contract using the percentage of completion method. When services are performed through an indefinite number of repetitive acts over a specified period of time, revenue is recognized on a straight-line basis over the specified period unless some other method better represents the stage of completion.

In certain projects, a fixed quantum of service or output units is agreed at a fixed price for a fixed term. In such contracts, revenue is recognised with respect to the actual output achieved till date as a percentage of total contractual output. Any residual service unutilised by the customer is recognised as revenue on completion of the term.

b) Products

Revenue from products are recognised when the significant risks and rewards of ownership have been transferred to the buyer, continuing managerial involvement usually associated with ownership and effective control have ceased, the amount of revenue can be measured reliably, it is probable that economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

c) Multiple element arrangements

Revenue from contracts with multiple-element arrangements are recognised using the guidance in Ind AS 18, Revenue. The Company allocates the arrangement consideration to separately identifiable components based on their relative fair values or on the residual method. Fair values are determined based on sale prices for the components when it is regularly sold separately, third-party prices for similar components or cost plus an appropriate business-specific profit margin related to the relevant component.

d) Others

? The Company accounts for volume discounts and pricing incentives to customers by reducing the amount of revenue recognized at the time of sale.

? Revenues are shown net of sales tax, value added tax, service tax and applicable discounts and allowances.

? The Company accrues the estimated cost of warranties at the time when the revenue is recognised. The accruals are based on the Company’s historical experience of material usage and service delivery costs.

? Costs that relate directly to a contract and incurred in securing a contract are recognised as an asset and amortised over the contract term as reduction in revenue

? Contract expenses are recognised as expenses by reference to the stage of completion of contract activity at the end of the reporting period.

BHARTI AIRTEL LIMITED

Revenue is recognised when it is probable that the entity will receive the economic benefits associated with the transaction and the related revenue can be measured reliably. Revenue is recognised at the fair value of the consideration received or receivable, which is generally the transaction price, net of any taxes / duties, discounts and process waivers.

In order to determine if it is acting as a principal or as an agent, the Company assesses whether it has exposure to the significant risks and rewards associated with the sale of goods or the rendering of services.

a. Service revenues

Service revenues mainly pertain to usage subscription and activation charges for voice, data, messaging and value-added services. It also includes revenue towards interconnection charges for usage of the Company’s network by other operators for voice, data, messaging and signaling services.

Usage charges are recognised based on actual usage. Subscription charges are recognised over the estimated customer relationship period or subscription pack validity period, whichever is lower. Activation revenue and related activation costs are amortised over the estimated customer relationship period. However, any excess of activation costs over activation revenue are expensed as incurred.

The billing/ collection in excess of revenue recognised is presented as deferred revenue in the balance sheet whereas unbilled revenue is recognised within other current financial assets.

Revenues from long distance operations comprise of voice services and bandwidth services (including installation), which are recognised on provision of services and over the period of arrangement respectively.

b. Multiple element arrangements

The Company has entered into certain multiple element revenue arrangements which involve the delivery or performance of multiple products, services or rights to use assets. At the inception of the arrangement, all the deliverables therein are evaluated to determine whether they represent separately identifiable component basis. It is perceived from the customer perspective to have value on standalone basis.

Total consideration related to the multiple element arrangements is allocated among the different components based on their relative fair values (i.e., ratio of the fair value of each element to the aggregated fair value of the bundled deliverables).

c. Equipment sales

Equipment sales mainly pertain to sale of telecommunication equipment and related accessories. Such transactions are recognised when the significant risks and rewards of ownership are transferred to the customer. However, in case of equipment sale forming part of multiple-element revenue arrangements which is not separately identifiable component, revenue is recognised over the customer relationship period.

d. Capacity Swaps

The exchange of network capacity is recognised at fair value unless the transaction lacks commercial substance or the fair value of neither the capacity received nor the capacity given is reliably measurable.

e. Interest income

The interest income is recognised using the EIR method. For further details, refer Note 2.9.

f. Dividend income

Dividend income is recognised when the Company’s right to receive the payment is established.

DR. REDDY’S LABORATORIES LIMITED

Sale of goods

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances. Revenue includes shipping and handling costs billed to the customer.

Revenue from sales of generic products in India is recognised upon delivery of products to distributors by clearing and forwarding agents of the Company. Significant risks and rewards in respect of ownership of generic products are transferred by the Company when the goods are delivered to distributors from clearing and forwarding agents. Clearing and forwarding agents are generally compensated on a commission basis as a percentage of sales made by them. Revenue from sales of active pharmaceutical ingredients and intermediates in India is recognised on delivery of products to customers (generally formulation manufacturers), from the factories of the Company.

Revenue from export sales and other sales outside of India is recognised when the significant risks and rewards of ownership of products are transferred to the customers, which occurs upon delivery of the products to the customers unless the terms of the applicable contract provide for specific revenue generating activities to be completed, in which case revenue is recognised once all such activities are completed.

Profit share revenues

The Company from time to time enters into marketing arrangements with certain business partners for the sale of its products in certain markets. Under such arrangements, the Company sells its products to the business partners at a non-refundable base purchase price agreed upon in the arrangement and is also entitled to a profit share which is over and above the base purchase price. The profit share is typically dependent on the business partner’s ultimate net sale proceeds or net profits, subject to any reductions or adjustments that are required by the terms of the arrangement. Such arrangements typically require the business partner to provide confirmation of units sold and net sales or net profit computations for the products covered under the arrangement.

Revenue in an amount equal to the base purchase price is recognised in these transactions upon delivery of products to the business partners. An additional amount representing the profit share component is recognised as revenue in the period which corresponds to the ultimate sales of the products made by business partners only when the collectability of the profit share becomes probable and a reliable measurement of the profit share is available. Otherwise, recognition is deferred to a subsequent period pending satisfaction of such collectability and measurability requirements. In measuring the amount of profit share revenue to be recognised for each period, the Company uses all available information and evidence, including any confirmations from the business partner of the profit share amount owed to the Company, to the extent made available before the date the Company’s Board of Directors authorises the issuance of its financial statements for the applicable period.

Milestone payments and out licensing arrangements

Revenues include amounts derived from product out-licensing agreements. These arrangements typically consist of an initial up-front payment on inception of the license and subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Non-refundable up-front license fees received in connection with product out-licensing agreements are deferred and recognised over the period in which the Company has continuing performance obligations. Milestone payments which are contingent on achieving certain clinical milestones are recognised as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period the Company has continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.

Sales Returns

The Company accounts for sales returns accrual by recording an allowance for sales returns concurrent with the recognition of revenue at the time of a product sale. This allowance is based on the Company’s estimate of expected sales returns. The Company deals in various products and operates in various markets. Accordingly, the estimate of sales returns is determined primarily by the Company’s historical experience in the markets in which the Company operates. With respect to established products, the Company considers its historical experience of sales returns, levels of inventory in the distribution channel, estimated shelf life, product discontinuances, price changes of competitive products, and the introduction of competitive new products, to the extent each of these factors impact the Company’s business and markets. With respect to new products introduced by the Company, such products have historically been either extensions of an existing line of product where the Company has historical experience or in therapeutic categories where established products exist and are sold either by the Company or the Company’s competitors.

Services

Revenue from services rendered, which primarily relate to contract research, is recognised in the statement of profit and loss as the underlying services are performed. Upfront non-refundable payments received under these arrangements are deferred and recognised as revenue over the expected period over which the related services are expected to be performed.

License fee

The Company enters into certain dossier sales, licensing and supply arrangements with various parties. Income from licensing arrangements is generally recognised over the term of the contract. Some of these arrangements include certain performance obligations by the Company. Revenue from such arrangements is recognised in the period in which the Company completes all its performance obligations.

ALLCARGO LOGISTICS LIMITED

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. The Group has concluded that it is the principal in all of its revenue arrangements since it is the primary obligor in all the revenue arrangements as it has pricing latitude and is also exposed to credit risks. Since service tax is tax collected on value added to the service provided by the service provider, on behalf of the government, the same is excluded from revenue. The specific recognition criteria described below must also be met before revenue is recognised.

Multimodal transport income

Export revenue is recognised on sailing of vessel and import revenue is recognised upon rendering of related services.

Container freight station income

Income from Container Handling is recognised as and when related services are performed. Income from Ground Rent is recognised for the period the container is lying in the Container Freight Station. However, in case of long standing containers, the income is accounted on accrual basis to the extent of its recoverability.

Contract logistic income

Contract logistic service charges and management fees are recognised as and when the services are performed as per the contractual terms.

Project and equipment income

Revenue for project related services includes rendering of end to end logistics services comprising of activities related to consolidation of cargo, transportation, freight forwarding and customs clearance services. Income and fees are recognized on percentage of completion method. Percentage of completion is arrived at on the basis of proportionate costs incurred to date of total estimated costs, milestones agreed or any other suitable basis, provided there is a reasonable completion of activity and provision of services.

Income from hiring of equipments including trailers cranes etc. is recognised on the basis of actual usage of the equipments as per the contractual terms.

Vessel operating business

In case of vessel operating business, freight and demurrage earnings are recognised on percentage of completion. Charter hire earnings are accrued on time basis.

Others

Reimbursement of cost is netted off with the relevant expenses incurred, since the same are incurred on behalf of the customers.

Interest income is recognised on time proportion basis. Interest income is included in finance income in the Statement of Profit and Loss.

Dividend income is recognised when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend.

Rental income arising from operating leases on investment properties is accounted for on a straightline basis over the lease terms and is included in revenue in the Statement of profit and loss due to its operating nature.

BIOCON LIMITED

i. Sale of goods

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimate reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably. The timing of transfers of risks and rewards varies depending on the individual terms of sale. Revenue from the sale of goods includes excise duty and is measured at the fair value of the consideration received or receivable, net of returns, sales tax and applicable trade discounts and allowances.

ii. Milestone payments and out licensing arrangements

The Company enters into certain dossier sales, licensing and supply arrangements that, in certain instances, include certain performance obligations. Based on an evaluation of whether or not these obligations are inconsequential or perfunctory, we recognise or defer the upfront payments received under these arrangements. The deferred revenue is recognised in the consolidated statement of operations in the period in which we complete our remaining performance obligations.

These arrangements typically also consist of subsequent payments dependent on achieving certain milestones in accordance with the terms prescribed in the agreement. Milestone payments which are contingent on achieving certain clinical milestones are recognized as revenues either on achievement of such milestones, if the milestones are considered substantive, or over the period we have continuing performance obligations, if the milestones are not considered substantive. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.

iii. Contract research and manufacturing services income

In respect of contracts involving research services, in case of ‘time and materials’ contracts, contract research fee are recognised as services are rendered, in accordance with the terms of the contracts. Revenues relating to fixed price contracts are recognised based on the percentage of completion method determined based on efforts expended as a proportion to total estimated efforts. The Group monitors estimates of total contract revenue and cost on a routine basis throughout the contract period. The cumulative impact of any change in estimates of the contract revenue or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss.

In respect of contracts involving sale of compounds arising out of contract research services for which separate invoices are raised, revenue is recognised when the significant risks and rewards of ownership of the compounds have passed to the buyer, and comprise amounts invoiced for compounds sold. In respect of services, the Group collects service tax as applicable, on behalf of the government and, therefore, it is not an economic benefit flowing to the Group. Hence, it is excluded from revenue.

iv. Sales Return Allowances

The Group accounts for sales return by recording an allowance for sales return concurrent with the recognition of revenue at the time of a product sale. The allowance is based on Group’s estimate of expected sales returns. The estimate of sales return is determined primarily by the Group’s historical experience in the markets in which the Group operates.

v. Dividends

Dividend is recognised when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend.

vi. Rental income

Rental income from investment property is recognised in statement of profit and loss on a straight-line basis over the term of the lease except where the rentals are structured to increase in line with expected general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

vii. Contribution received from customers/co-development partners towards plant and equipment

Contributions received from customers/co-development partners towards items of property, plant and equipment which require an obligation to supply goods to the customer in the future, are recognised as a credit to deferred revenue. The contribution received is recognised as revenue from operations over the useful life of the assets. The Group capitalises the gross cost of these assets as the Group controls these assets.

LARSEN & TOUBRO LIMITED

Revenue is recognised based on nature of activity when consideration can be reasonably measured and recovered with reasonable certainty. Revenue is measured at the fair value of the consideration received or receivable and is reduced for estimated customer returns, rebates and other similar allowances.

(i) Revenue from operations

Revenue includes excise duty and adjustments made towards liquidated damages and price variation wherever applicable. Escalation and other claims, which are not ascertainable/acknowledged by customers are not taken into account.

A. Sale of goods

Revenue from sale of manufactured and traded goods is recognised when the goods are delivered and titles have passed, provided all the following conditions are satisfied:

1. significant risks and rewards of ownership of the goods are transferred to the buyer;

2. the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the good sold;

3. the amount of revenue can be measured reliably;

4. it is probable that the economic benefits associated with the transaction will flow to the Group; and

5. the costs incurred or to be incurred in respect of the transaction can be measured reliably

B. Revenue from construction/project related activity and contracts for supply/commissioning of complex plant and equipment is recognised as follows:

1. Cost plus contracts: Revenue from cost plus contracts is recognised by reference to the recoverable costs incurred during the period plus the margin as agreed with the customer.

2. Fixed price contracts: Contract revenue is recognised only to the extent of cost incurred till such time the outcome of the job cannot be ascertained reliably subject to the condition that it is probable such cost will be recoverable.

When the outcome of the contract is ascertained reliably, contract revenue is recognised at cost of work performed on the contract plus proportionate margin, using the percentage of completion method. Percentage of completion is the proportion of cost of work performed to-date, to the total estimated contract costs.

The estimated outcome of a contract is considered reliable when all the following conditions are satisfied:

i. the amount of revenue can be measured reliably;

ii. it is probable that the economic benefits associated with the contract will flow to the Group;

iii. the stage of completion of the contract at the end of the reporting period can be measured reliably; and

iv. the costs incurred or to be incurred in respect of the contract can be measured reliably

Expected loss, if any, on a contract is recognised as expense in the period in which it is foreseen, irrespective of the stage of completion of the contract.

For contracts where progress billing exceeds the aggregate of contract costs incurred to date plus recognised profits (or recognised losses as the case may be), the surplus is shown as the amount due to customers. Amounts received before the related work is performed are included in the consolidated Balance Sheet, as a liability towards advance received. Amount billed for work performed but yet to be paid by the customer are disclosed in the consolidated Balance Sheet as trade receivables. The amount of retention money held by the customers is disclosed as part of other current assets and is reclassified as trade receivables when it becomes due for payment.

C. Revenue from construction/project related activity and contracts executed in joint arrangements under work-sharing arrangement [being joint operations, in terms of Ind AS 111 “Joint Arrangements”], is recognised on the same basis as adopted in respect of contracts independently executed by the Group.

D. Revenue from property development activity which are in substance similar to delivery of goods is recognised when all significant risks and rewards of ownership in the land and/or building are transferred to the customer and a reasonable expectation of collection of the sale consideration from the customer exists.

Revenue from those property development activities in the nature of a construction contract is recognised based on the ‘Percentage of completion method’ (POC) when the outcome of the contract can be estimated reliably upon fulfillment of all the following conditions:

1. all critical approvals necessary for commencement of the project have been obtained;

2. contract costs for work performed (excluding cost of land/developmental rights and borrowing cost) constitute atleast 25% of the estimated total contract costs representing a reasonable level of development;

3. at least 25% of the saleable project area is secured by contracts or agreements with buyers; and

4. at least 10% of the total revenue as per the agreements of sale or any other legally enforceable documents is realised at the reporting date, in respect of each of the contracts and the parties to such contracts can be reasonably expected to comply with the contractual payment terms.

The costs incurred on property development activities are carried as “Inventories” till such time the outcome of the project cannot be estimated reliably and all the aforesaid conditions are fulfilled. When the outcome of the project can be ascertained reliably and all the aforesaid conditions are fulfilled, revenue from property development activity is recognised at cost incurred plus proportionate margin, using percentage of completion method. Percentage of completion is determined based on the proportion of actual cost incurred to the total estimated cost of the project. For the purpose of computing percentage of construction, cost of land, developmental rights and borrowing costs are excluded.

Expected loss, if any, on the project is recognised as an expense in the period in which it is foreseen, irrespective of the stage of completion of the contract.

In the case of the developmental project business and the realty business, revenue includes profit on sale of stake in the subsidiary and/or joint venture companies as the divestments are inherent in the business model.

E. Rendering of services

Revenue from rendering services is recognised when the outcome of a transaction can be estimated reliably by reference to the stage of completion of the transaction. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied:

1. the amount of revenue can be measured reliably;

2. it is probable that the economic benefits associated with the transaction will flow to the Group;

3. the stage of completion of the transaction at the end of the reporting period can be measured reliably; and

4. the costs incurred or to be incurred in respect of the transaction can be measured reliably

Stage of completion is determined by the proportion of actual costs incurred to date to the estimated total costs of the transaction. Unbilled revenue represents value of services performed in accordance with the contract terms but not billed. In respect of information technology (IT) business and technology services business, revenue from contracts awarded on time and material basis is recognised when services are rendered and related costs are incurred. Revenue from fixed price contracts is recognised using the proportionate completion method.

F. Revenue from contracts for rendering of engineering design services and other services which are directly related to the construction of an asset is recognised on similar basis as stated in (i) B above.

G. Income from hire purchase and lease transactions is accounted on accrual basis, pro-rata for the period, at the rates implicit in the transaction. Income from bill discounting, advisory and syndication services and other financing activities is accounted on accrual basis. Income from interest-bearing assets is recognised on accrual basis over the life of the asset based on the constant effective yield.

H. Revenue on account of construction services rendered in connection with Build-Operate-Transfer (BOT) projects undertaken by the Group is recognised during the period of construction using percentage of completion method. After the completion of construction period, revenue relatable to toll collections of such projects from users of facilities are accounted when the amount is due and recovery is certain. License fees for way-side amenities are accounted on accrual basis.

I. Commission income is recognised as and when the terms of the contract are fulfilled.

J. Income from investment management fees is recognised in accordance with the contractual terms and the SEBI regulations based on average Assets Under Management (AUM) of mutual fund schemes over the period of the agreement in terms of which services are performed. Portfolio management fees are recognised in accordance with the related contracts entered with the clients over the period of the agreement. Trusteeship fees are accounted on accrual basis.

K. Revenue from port operation services is recognised on completion of respective services or as per terms agreed with the port operator, wherever applicable.

L. Revenue from charter hire is recognised based on the terms of the time charter agreement.

M. Revenue from operation and maintenance services of power plant receivable under the Power Purchase Agreement is recognised on accrual basis.

N. Other operational revenue:

Other operational revenue represents income earned from the activities incidental to the business and is recognized when the right to receive the income is established as per the terms of the contract.

(ii) Other income

A. Interest income is accrued on a time basis by reference to the principal outstanding and the effective interest rate.

B. Dividend income is accounted in the period in which the right to receive the same is established.

C. Other Government grants, which are revenue in nature and are towards compensation for the qualifying costs, incurred by the Group, are recognised as income in the Statement of Profit and Loss in the period in which such costs are incurred.

D. Other items of income are accounted as and when the right to receive arises and it is probable that the economic benefits will flow to the group and the amount of income can be measured reliably.

MAHINDRA LIFESPACE DEVELOPERS LIMITED

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Income from projects

Income from real estate sales is recognised on the transfer of all significant risks and rewards of ownership to the buyers and it is not unreasonable to expect ultimate collection and no significant uncertainty exists regarding the amount of consideration. However, if at the time of transfer substantial acts are yet to be performed under the contract, revenue is recognised on proportionate basis as the acts are performed, i.e. on the percentage of completion basis.

When the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

When contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is shown as the amounts due to customers for contract work. Amounts received before the related work is performed are included in the balance sheet, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated balance sheet under trade receivables, whereas amounts not billed for work performed are included as unbilled revenue under other current assets. Further, in accordance with the Guidance Note on Accounting for Real Estate Transactions (for entities to whom Ind AS is applicable) issued by the Institute of Chartered Accountants of India, revenues will be recognized from these real estate projects only when

i. All critical approvals necessary for commencement of the project have been obtained and

ii. the actual construction and development cost incurred is at least 25% of the total construction and development cost (without considering land cost) and

iii. when at least 10% of the sales consideration is realised and

iv. where 25% of the total saleable area of the project is secured by contracts of agreement with buyers.

Income from sale of land and other rights

Revenue from sale of land and other rights are considered upon transfer of all significant risks and rewards of ownership of such real estate/property as per the terms of the contract entered into with the buyers, which generally with the firmity of the sale contracts/agreements.

Income from Project Management

Project Management Fees receivable on fixed period contracts is accounted over the tenure of the contract/agreement. Where the fee is linked to the input costs, revenue is recognised as a proportion of the work completed based on progress claims submitted. Where the management fee is linked to the revenue generation from the project, revenue is recognised on the percentage of completion basis.

Land Lease Premium

Land lease premium is recognized as income upon creation of leasehold rights in favour of the lessee or upon an agreement to create leasehold rights with handing over of possession. Property lease rentals, income from operation & maintenance charges and water charges are recognized on an accrual basis as per terms of the agreement with the lessees.

Dividend and interest income

Dividend income from investment in mutual funds is recognised when the unit holder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the company and the amount of income can be measured reliably).

Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

SHOPPERS STOP LIMITED

Revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably.

Retail Sale of Products

Revenue from Retail sales is measured at the fair value of the consideration received or receivable. Revenue is reduced for discounts and rebates, and, value added tax and sales tax. Retail sales are recognised on delivery of the merchandise to the customer, when the property in goods and significant risks and rewards are transferred for a price and no effective ownership control is retained. Where the Group is the principal in the transaction the Sales are recorded at their gross values. Where the Group is effectively the agent in the transaction, the cost of the merchandise is disclosed as a deduction from the gross value. (Refer Note 19)

Point award schemes

The fair value of the consideration received or receivable on sale of goods that result in award credits for customers, under the Group’s point award schemes, is allocated between the goods supplied and the award credits granted. The consideration allocated to the award credits is measured by reference to their fair value from the standpoint of the holder and is recognised as revenue on redemption and/or expected redemption after breakage.

Property option revenue

The Group has acquired the rights to sell flats in a property being constructed by a third party (termed Property Options), which are initially recognized at cost and at each reporting date valued at lower of cost and net realisable value. Sale of option inventory is recognised when there is a transfer of significant risks and rewards in accordance with the terms of the sale contracts. To the extent the transactions contain a significant financing component, it is adjusted from the total consideration using the appropriate discount rate and recognized in profit or loss over the credit period.

Gift vouchers

The amount collected on sale of a gift voucher is recognized as a liability and transferred to revenue (sales) when redeemed or to revenue (other retail operating revenue) on expiry.

Other retail operating revenue

Revenue from store displays and sponsorships are recognised based on the period for which the products or the sponsors’ advertisements are promoted / displayed. Facility management fees are recognized pro-rata over the period of the contract.

Interest income

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

THE INDIAN HOTELS COMPANY LIMITED

Income from operation

Revenue is measured at the fair value of the consideration received or receivable. Revenue comprises sale of rooms, food and beverages and allied services relating to hotel operations, including management fees for the management of the hotels. Revenue is recognised upon rendering of the service, provided pervasive evidence of an arrangement exists, tariff / rates are fixed or are determinable and collectability is reasonably certain. Revenue from sale of goods or rendering of services is net of Indirect taxes, returns and discounts.

The Group operates loyalty programme, which allows its eligible customers to earn points based on their spending at the hotels. The points so earned by such customers are accumulated. The revenue related to award points is deferred and on redemption of the award points, the revenue is recognised. Membership fees received from the loyalty program is recognised as revenue on time-proportion basis.

Management fees earned from hotels managed by the Group are usually under long-term contracts with the hotel owner and is recognised when earned in accordance with the terms of the contract.

Interest

Interest income is accrued on a time proportion basis using the effective interest rate method.

Dividend

Dividend income is recognised when the Group’s right to receive the amount is established.

Critical accounting estimates and judgements

Loyalty programme

The Group estimates the fair value of points awarded under the Loyalty programme by applying statistical techniques. Inputs include making assumptions about expected breakages, the mix of products that will be available for redemption in the future and customer preferences, redemption at own hotels and other participating hotels.

VEDANTA LIMITED

Revenues are measured at the fair value of the consideration received or receivable, net of discounts, volume rebates, outgoing sales taxes and other indirect taxes excluding excise duty.

Excise duty is a liability of the manufacturer which forms part of the cost of production, irrespective of whether the goods are sold or not. Since the recovery of excise duty flows to the Group on its own account, revenue includes excise duty.

Sale of goods

Revenues from sales of goods are recognised when all significant risks and rewards of ownership of the goods sold are transferred to the customer which usually is on delivery of the goods to the shipping agent. Revenues from sale of by-products are included in revenue.

Certain of the Group’s sales contracts provide for provisional pricing based on the price on The London Metal Exchange (“LME”), as specified in the contract, when shipped. Final settlement of the price is based on the applicable price for a specified future period. The Group’s provisionally priced sales are marked to market using the relevant forward prices for the future period specified in the contract and is adjusted in revenue.

Revenue from oil, gas and condensate sales represents the Group’s share (net of Government’s share of profit petroleum) of oil, gas and condensate production, recognized on a direct entitlement basis, when significant risks and rewards of ownership are transferred to the buyers. Government’s share of profit petroleum is accounted for when the obligation (legal or constructive), in respect of the same arises.

Revenue from sale of power is recognised when delivered and measured based on rates as per bilateral contractual agreements with buyers and at rate arrived at based on the principles laid down under the relevant Tariff Regulations as notified by the regulatory bodies, as applicable.

Where the Group acts as a port operator, revenues and costs relating to each construction contract of service concession arrangements are recognised over the period of each arrangement only to the extent of costs incurred that are probable of recovery. Revenues and costs relating to operating phase of the port contract are measured at the fair value of the consideration received or receivable for the services provided.

Revenue from rendering of services is recognised on the basis of work performed.

Interest income

Interest income from debt instruments is recognised using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. When calculating the effective interest rate, the Group estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.

Dividends

Dividend income is recognised in the consolidated statement of profit and loss only when the right to receive payment is established, provided it is probable that the economic benefits associated with the dividend will flow to the Group, and the amount of the dividend can be measured reliably.

INTERGLOBE AVIATION LIMITED

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, net of discounts. Revenue is recorded, provided the recovery of consideration is probable and determinable.

Passenger and cargo revenue

Passenger revenue is recognised on flown basis i.e. when the service is rendered, net of discounts given to the passengers, applicable taxes and airport levies such as passenger service fee, user development fee, etc., if any. Cargo revenue is recognised when service is rendered i.e. goods are transported, net of airport levies and applicable taxes.

The sale of tickets not yet flown is credited to unearned revenue i.e. ‘Forward Sales’ disclosed under other current liabilities. Fees charged for modification and cancelation of flight tickets and towards special service request are recognised as revenue on rendering of the service.

The unutilised balance in Forward Sales for more than a year is recognised as revenue based on historical statistics, data and management estimates and considering the Group’s cancellation policy.

In flight sales

Revenue from sale of merchandise is recognised on transfer of all significant risks and rewards to the passenger. Revenue from sale of food and beverages is recognised on sale of goods to the passenger, net of applicable taxes.

Tour and packages

Income and related expense from sale of tours and packages are recognised upon services being rendered and where applicable, are stated net of discounts and applicable taxes. The income and expense are stated on gross basis.

The sale of tours and packages not yet serviced is credited to unearned revenue, i.e. ‘Forward Sales’ disclosed under other current liabilities.

Interest income

Interest income on financial assets (including deposits with banks) is recognised using the effective interest rate method on a time proportionate basis.

Claims and other credits – non-refundable
Claims relate to reimbursement towards operational expenses such as operating lease rentals, aircraft repair and maintenance, etc., are adjusted against such expenses over the estimated period for which these reimbursements pertain. When credits are used against purchase of goods and services such as operating lease rentals, aircraft repair and maintenance, etc., these are adjusted against such expenses on utilization basis. The claims and credits are netted of against related expense arising on the same transaction as it reflects the substance of transaction. Moreover, any claim or credit not related to reimbursement towards operational expenses or used for purchase of goods and services are recognised as income in the Consolidated Statement of Profit and Loss when a contractual entitlement exists, the amount can be reliably measured and receipt is virtually certain.

BCAJ Admin

Part c Iinformation on & Around

6,000 RTI cases pending in Assam
A total of 6,220 cases of RT I complaints and appeals are pending in the office of the Assam Information Commission where the post of information commissioner remains vacant.

The Assam Information Commission has three sanctioned posts – a chief information commissioner and two information commissioners. However, one post of information commissioner has been lying vacant since the tenure of Mohan Chandra Malakar, a retired principal chief conservator of forests (wildlife), expired in March 2014, he added.

Das, a retired additional chief secretary in the Assam government, had assumed charge on December 1, 2014. His post had been lying vacant since January 2011, when his predecessor D.N. Dutt’s term expired. When Das took charge, both the posts of information commissioners were vacant, following the expiry of the tenures of the previous incumbents, and more than 6,000 cases were pending. .

265 officers fined over Rs 22 lakh for refusing information under the RTI Act
As many as 265 public information officers across Karnataka have been penalised for a total of Rs 22,44,500 during the last 10 months for denying information under the RT I Act. As per the RT I Act 2005, public information officers have to provide information u/s. 7(1) within 30 days. RT I Commissioner Shankar R. Patil has recommended disciplinary action against the officers, including many senior officers of urban development, revenue and education departments, BBMP, BDA, AC’s, Additional Deputy Commissioners and tahsildars for their failure to provide information without any valid reason. .

Delhi HC imposes costs on RTI applicant for filing vague and irrelevant RTI queries

The Delhi High Court, in Shail Sahni vs. Valsa Sara Mathew, took an RTI applicant to task for filing vague and irrelevant RT I queries. Justice Man Mohan of Delhi High Court imposed costs of Rs. 25,000 on the applicant who approached had High Court seeking compensation of Rs. 4 lakh. The RT I applicant had approached the High Court challenging the CIC order refusing to intervene in denial of RT I replies to the queries she posed to Ministry of Defence. He submitted that CIC has committed an error in holding that Commission’s interference is not required in the matter. The Court, after perusing the applications filed by him, opined that that they are general, wide, ambiguous and vague. The Court also observed that the petitioner-applicant had approached High Court earlier too, in which the Court had dismissed his petition and observed that the “misuse of the RTI Act has to be appropriately dealt with, otherwise the public would lose faith and confidence in this “sunshine Act”. A beneficent statute, when made a tool for mischief and abuse must be checked in accordance with law”. Despite the aforesaid judgment, the petitioner continued to file filing general, irrelevant and vague queries, which was dismissed by the court with costs of Rs.25,000 to be paid by the petitioner to the Lok Nayak Hospital, New Delhi within a period of three weeks, Justice Manmohan said. However, the Court also observed that if the petitioner-applicant were to file a fresh application with the PIO prioritising his requirement and identifying the precise information, the same shall be supplied.

Mumbai University offers a sixmonth PG certificate course in Right to Information (RTI) Act.
The Department of Civic and Politics, which is designing the course content and identifying the subjects in the curriculum will hold classes for this academic session from 16th January 2016. To mark this occasion, the University had organised an inaugural function in its Kalina Campus which was attended by RT I activist Nikil Dey, former Central Information Commissioner Shailesh Gandhi and Chief Information Commissioner Ratnakar Gaikwad. Vice-chancellor Sanjay Deshmukh. Admission process for the course has already begun and university is targeting social activists, PIOs, journalists, bureaucrats and members of civil society to ensure more effective use of the RT I. Information activist who doled out lakhs as RT I fee was felicitated.

Arunachal RT I Activist Forum (ART IAF) felicitated Mr. Nabam Pali for his effort to reduce the RT I application fee from Rs. 10 to 2 in the state, in Itanagar, Arunachal Press Club (APC) President Chopa Cheda while felicitating Nabam Pali in a simple yet impressive function congratulated him for achieving the feat.

BCAJ Admin

Part A Decision of Supreme Court

RBI Directed To Disclose Information under Right to Information Act

The Supreme Court, in a landmark decision (Reserve Bank of India vs. Jayantilal Mistry) ruled that the RBI does not place itself in a fiduciary relationship with the financial institutions because, the reports of the inspections, statements of the bank and other information related to the banks’ business do not fall under the purview of the term confidence or trust. Whilst delivering the judgment for the bench, Justice M.Y. Eqbal, explaining the nature of functions of the banking sector regulator, said: “the RBI is supposed to uphold public interest and not the interest of individual banks. The RBI is clearly not in any fiduciary relationship with any bank. RBI has no legal duty to maximise the benefit of any public sector or private sector bank, and thus there is no relationship of ‘trust’ between them. The RBI has a statutory duty to uphold the interest of the public at large, the depositors, the country’s economy and the banking sector. Thus, RBI ought to act with transparency and not hide information that might embarrass individual banks”.

Contentions by The RBI: RBI declined to disclose the information such as unpaid loans, top defaulters of the public sector banks, fines imposed by it on other banks etc., on the ground of being exempted under Section 8(1)(a), (d) and (e) of the RT I Act. The refusal to reply to the RT I queries was based on the premise of protecting economic interest, commercial confidence, and fiduciary relationship of RBI with other banks. RBI further contended that RT I Act was a general law and it could not override the confidentiality provisions under the specific legislations such as Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Credit Information Companies (Regulation) Act, 2005.

Court’s Findings: The Apex Court rejected the arguments made by the RBI and upheld the order of the CIC. It observed that RBI does not place itself in fiduciary relationship with other banks as information received from other financial institutions is not received under pretext of trust or confidence but under the ambit of RBI’s statutory duty to oversee the functioning of the banks and the country’s banking sector. Therefore, RBI is duty bound to comply with the provisions of the RT I Act and disclose the information sought in the instant case.

The RBI’s contention that disclosure of information would prejudicially affect the economic interest of the State and may lead to a crisis of financial stability if information sought is sensitive, was also rejected by the Court as being baseless and it was held that the disclosure in question would serve public interest.

The Court further observed that the right to information regarding the functioning of public institutions is a fundamental right enshrined in Article 19 of the Constitution, and the RT I Act being a later legislation aimed to bring transparency, overrides all earlier laws and practices except in case of specific exemptions enumerated u/s. 8 of the RT I Act.

Publicised as a landmark win, this judgement has been welcomed by the RT I activists. The implications of this judgement may indeed be far reaching, paving the way for greater accountability and transparency in the financial market.

NOTE:
1 Section 8 of the RTI Act mentions “exemption from disclosure of information.—
(1) Notwithstanding anything contained in this Act, there shall be no obligation to give any citizen,—
(a) information, disclosure of which would prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State, relation with foreign State or lead to incitement of an offence;
(d) information including commercial confidence, trade secrets or intellectual property, the disclosure of which would harm the competitive position of a third party, unless the competent authority is satisfied that larger public interest warrants the disclosure of such information;
(e) Information available to a person in his fiduciary relationship, unless the competent authority is satisfied that the larger public interest warrants the disclosure of such information.”

BCAJ Admin

Ethics and U

Arjun (A) — Hey Shrikrishna, we have been meeting every month to discuss
the ethical issues, disciplinary mechanism and things like that. But
tell me, where shall I find all this information?

Shrikrishna
(S) —There are many sources. But you are always on the battlefield.
Always fire-fighting! Where will you find time to read. You can always
ask me!

A — That is alright. But you are not that easily accessible to all, no? That’s the problem.

S — That’s true. I am reachable by ‘Bhakti’ alone. True devotion my dear, real, genuine devotion

A — But if we want you to save us from disciplinary case, how do we worship you? What is the Bhakti that you like?

S
— That’s a good question. The best form of my worship is to do your
duty i.e. karma religiously. U nfortunately, many of you are operating
very loosely; in an unprofessional manner. You never upgrade your
skills.

A — Why? We do have to complete our quota of CPE hours ! 30 hours every year, You see !

S
— I know. Don’t tell me how most of you just ‘manage’ it. You people do
it merely as a compliance. That too, because it is compulsory! Its
spirit is lost.

A — And there also, we always seek ‘extension’. Anyway, first tell me which books to refer.

S — Arjuna, you CAs must have read a lot of books, but I bet you have not read your ‘CA Act, 1949’.

A
— Yeah, you are right. I am only aware that there is a CA Act. But have
never gone through the same. Perhaps it was there in our final CA
syllabus.

S — Great Memory ! But my dear, it was amended in the year 2006.

A — May be! Who has time to read? You see.

S
— Ah…the common excuse – ‘No time’! See Arjuna, your CA Act is the
base of Code of Ethics. And you should atleast make an effort to go
through that. Chapter V of that Act deals with misconduct.

A — Oh! I see. S — Next is CA Regulations. Just as you have Income tax Rules, there are CA Regulations also.

A
— Achha. But these are bare texts. How will I understand everything
only by reading these. Besides, reading bare texts is so boring!

S
— Ya…there you are! You also have a book – ‘Code of Ethics’ published
by your Institute. This is like a commentary. It has elaboration on
various sections and both the Schedules. At the end of this book, one
can also see Council General Guidelines.

A — Oh that’s good. That means I have to read CA Act, Regulations and this commentary. This is so less compared to Income tax!

S
— No, wait…there is more to it. For your better understanding, the
Institute has also published FA Qs. You also have Appellate Authority
(Procedure) Rules, Enquiry Rules and so on.

A — But, Prabhu,
sometimes I have practical doubts like, how to enrol an article, how to
open a second office and many such things. Reading these books and
guidelines will help me? Or should I call the Institute office directly.

S — Arjuna, your Institute is very smart!. For such practical
queries, you have a ‘Manual For Members’. It has all information like,
which form to fill up, what is the time limit, what is the limit for
enrolment of articles, how much is the fees etc.

A — Do we have any online material for quick reference?

S
— Yes, of course! Your generation does not want the pain to go through a
book!!!…Online search is always a better option for you guys.

A — Hey Bhagwan, you know me so well….you see, when its online, we can always do ctrl+F and make things faster!

S
— Yes… the famous ctrl+F and google search. That’s the reason your
generation is so fast. But most of the time its half baked knowledge.
Anyway, my dear Arjuna, all this material is available on the
Institute’s website. You also have ESB website.

A — ESB? What is that?

S — It is Ethical Standards Board. Do you remember CESURA?

A
— Ya…I had read about that in CA Final. As far as I remember it is
Committee on Ethical Standards and Unjustified Removal of Auditors.

S
— Yes, that CESURA is now renamed to ESB. Even ESB has got good
technical stuff on its website. It has also uploaded Ethics Plus, a
brochure in question-answer form. Why don’t you go through the ESB
website yourself? I can’t spoon feed you everything.

A — Wow….Bhagwan, I never knew, we have so much literature on our Code of Ethics.

S
— Arjuna, remember, this literature is for your help and clarity only.
But eternal vigilance still stands. Always be upright and independent.
That’s what your profession stands for. And that is my real worship.
Understand?

A — Yes, Prabhu! Well said!

Om shanti !!!!!

Note
This dialogue intends to give information about various technical materials available on the Code of Ethics.

BCAJ Admin

From Published Accounts

Section B:

Revision of Financial Statements pursuant to Composite Scheme of Arrangement

Jindal Stainless Ltd . (year ended 31st March 2015)

From Notes to Financial Statements

27. Composite Scheme of Arrangement

1. A Composite Scheme of Arrangement (here in after referred to as ‘Scheme’) amongst Jindal Stainless Limited (the Company/Transferor Company) and its three wholly owned subsidiaries namely Jindal Stainless (Hisar) Limited (JSHL), Jindal United Steel Limited (JUSL) and Jindal Coke Limited (JCL) under the provision of section 391-394 read with section 100- 103 of the Companies Act, 1956 and other relevant provision of Companies Act, 1956 and/or Companies Act, 2013 has been sanctioned by the Hon’ble High Court of Punjab & Haryana, Chandigarh vide its Order dated 21st September 2015, modified by Order dated 12th October, 2015. The Schemes inter-alia includes:-

a) Demerger of the Demerged Undertakings (as defined in the scheme) of the Company comprising of the Ferro Alloys Division located at Jindal Nagar, Kothavalasa (AP) and the Mining Division of the Company and vesting of the same in Jindal Stainless (Hisar) Limited (JSHL) w.e.f. appointed date i.e. close of business hours before midnight of March 31, 2014. (Section I of the Scheme)

b) Transfer of the Business undertaking 1 (as defined in the scheme) of the Company comprising of the Stainless Steel Manufacturing Facilities of the Company located at Hisar, Haryana and vesting of the same with Resultant Company (JSHL) on Going Concern basis by way of Slump Sale along with investments in the domestic subsidiaries (listed in Part B of schedule 2 of the Scheme) of the company w.e.f. appointed date i.e. close of business hours before midnight of 31st March, 2014. (Section II of the Scheme)

c) Transfer of the Business undertaking 2 (as defined in the scheme) of the Company comprising, interalia, of the Hot Strip Plant of the Company located at Odisha and vesting of the same in Jindal United Steel Limited on Going Concern basis by way of Slump Sale w.e.f. appointed date i.e. close of business hours before midnight of March 31, 2015. (Section III of the Scheme)

d) Transfer of the Business Undertaking 3 (as defined in the Scheme) of the Company comprising, interalia ,of the Coke Oven Plant of the Company Located at Odisha and vesting of the same with Jindal Coke Limited on Going Concern basis by way of Slump Sale w.e.f. appointed date i.e. close of business hours before midnight of March 31, 2015. (Section IV of the Scheme)

Section I and Section II of the Scheme became effective on 1st November, 2015, operative from the said appointed date as stated in sub-para (a) and (b) above and Section III and Section IV (for section III and IV appointed date as stated in sub-para (c) & (d) above) of the Scheme will become effective on receipt of necessary approvals from the OIIDCO or any other concerned authorities for transfer/ grant of the right to use in the land on which Hot Strip & Coke Oven Plants are located as specified in the Scheme.

2. Pursuant to the Section I and Section II of the Scheme becoming effective:

a) Demerged Undertakings and Business undertaking 1 has been transferred to and vested in JSHL with effect from the said Appointed Date and the same has been given effect to in these accounts.

b) The difference of Rs. 58,512.65 lakh between the book values of assets and liabilities pertaining to the Demerged Undertakings transferred has been adjusted against Security Premium Account.

c) Share capital of JSHL comprising of 2,50,000 equity shares having face value of Rs. 2 each, 100% held by the Company deemed to has been cancelled. Accordingly the said investment amounting to Rs. 5.00 lakh has been charged off in the Statement of Profit & Loss and has been included under Exceptional Item.

d) Business Undertaking 1 (as defined in sub-para (b) of 1 above) has been transferred at a lump sum consideration of Rs. 280,979.52 lakh; out of this, Rs. 260,000.00 lakh shall be paid by JSHL and Rs. 20,979.52 lakh has been adjusted against sum of Rs. 57,598.19 lakh lying payable to JSHL in the books of the Company.

Against the balance amount of Rs. 36,618.67 lakh, the company is to issue equity shares to JSHL at a price to be determined with the record date to be fixed as specified in the Scheme. Pending allotment, the same has been shown as “Share Capital Suspense Account”.

e) On transfer of Business Undertaking 1, the differential between the book values of assets & liabilities transferred and the lump sum consideration received as stated above amounting to Rs. 116,021.85 lakh has been credited in the Statement of profit & loss and included under Exceptional Item. (Note no. 30)
f) In terms of the Scheme, all the business and activities of Demerged Undertakings and Business Undertaking 1 carried on by the company on and after the appointed date, as stated above, are deemed to have been carried on behalf of JSHL. Accordingly, necessary effects have been given in these accounts on the Scheme becoming effective.
g) The necessary steps and formalities in respect of transfer of properties, licenses, approvals and investments in favour of JSHL and modification of charges etc. are under implementation. Further transfer of Mining Rights to Demerged Undertakings (as referred in para 1 (a) above) is subject to necessary approvals of the concerned authorities.

3. Pursuant to the Scheme the effects on the financial statements of operations carried out by the company for on behalf of JSHL post the said appointed date have been given in these accounts from the effective date (for the close of business hours before midnight of 31st March, 2014) are as summarised below :

As stated in note no. 1 above, section I and section II of the Scheme became effective from the appointed date i.e. from close of business hours before midnight of 31st March, 2014.

4. The financial statements of the Company for the year ended 31st March, 2015 were earlier approved by the Board of Directors at their meeting held on 30th May, 2015 on which the Statutory Auditors of the Company had issued their report dated 30th May, 2015. These financial statements have been reopened and revised to give effect to the Scheme as stated in note 1 & 2 herein above.

From Auditors’ Report

Report on the Standalone Financial Statements (REVISED)
We have audited the accompanying REVISED standalone financial statements of Jindal Stainless Limited (“the Company”), which comprise the REVISED Balance Sheet as at 31st March, 2015, the REVISED Statement of Profit and Loss, the REVISED Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information in which are incorporated the REVISED Return for the year ended on that date audited by the branch auditors of the Company’s branch at Jindal Nagar, Kothavalsa, Dist. Vizianagaram (A.P.) in which impact of the Scheme (as stated in Note no. 27) have been incorporated.

Other Matters
The financial statements of the Company for the year ended 31st March, 2015 were earlier approved by the Board of Directors at their meeting held on 30th May, 2015, on which the Statutory Auditors of the Company had issued their report dated 30th May, 2015. These financial statements have been reopened and revised to give effect to the Scheme as explained in Note No. 27(4).

Our opinion is not modified in respect of these matters.

BCAJ Admin

Direct Taxes

89. CBDT issues
clarification for Assessing Officers to keep the proceeedings of collection of
taxes under abeyance for Residents of Sweden who have invoked the Mutual
Agreement Procedure through the Competent Authority under the DTAA between
India – Sweden for up to two years subject to fulfillment of prescribed
conditions. – Instruction No. 01/2017 dated 04.01.2007.

90. Circular on TDS on
salaries u/s. 192 for financial year 2016-17 – Circular No. 01/2017 dated
02.01.2017

91. Circular providing
clarifications on taxation of indirect transfers (Circular no 41/2017) has been
kept in abeyance I in light of various representations received from various
entities including FIIs, FPIs, VCFs and other stake holders – Press release
dated 17^th January 2017

92.
Clarifications on various
taxation and related issues for the Pradhan Mantri Garib Kalyan Yojana, 2016 –
Circular No.2 of 2017 dated 18.01.2017

BCAJ Admin

From Published Accounts

Section B:

– Report under CARO, 2016

– Adverse Report on Internal
Financial Controls (IFC)

in a case where main
report u/s. 143 of the Companies Act, 2013 is a ‘disclaimer’ report

Ricoh India Ltd (31-3-2016) (report dated 18 November 2016)

Compilers’ Note: The main
report u/s. 143 has been reproduced in January 2017 issue of BCAJ.

From Report on CARO

(Only clauses with adverse
reporting are reproduced)

The Annexure A referred to in Independent Auditor’s Report to
the members of Ricoh India Limited on the financial statements for the year
ended 31^st March 2016, we report that:

(i) (a) As
described in the basis of disclaimer of opinion para 4.B.5 of main report, the
fixed assets records of the Company have been updated as at 31^st
March 2016 based on partial physical verification. Therefore, the Company has
maintained proper records showing full particulars, including quantitative
details and situation of fixed assets in respect of assets physically verified.
However, fixed asset records are not updated for adjustments, if any, in
respect of assets not physically verified.

(b) During
the current year, the Company has performed physical verification of certain
fixed assets. In our opinion, the Company needs to strengthen its process for
conducting physical verification of fixed assets at reasonable intervals. As
explained and represented to us, the Company is considering ongoing fixed asset
verification processes on a sample basis. As described in the basis of
disclaimer of opinion para 4.B.5 of main report, the shortages have been
written-off and the excesses have been recorded as zero value. Since all the
fixed assets were not covered by the exercise and the shortages and excesses
were not mutually reconciled, we are unable to comment as to whether the
material discrepancies noted on such verification have been properly dealt with
and on the reasonableness of such verification.

(c) Photocopies
of title deeds of immovable properties have been examined by us (other than
five properties – having a net book value of Rs.14 lakh as at 31^st
March 2016 for which even the photocopies have not been made available).
Accordingly, we are unable to comment as to whether the immovable properties
are held in the name of the Company or not.

(ii) Not reproduced

(iii) Except for the effects of the matters
described in the basis of disclaimer of opinion para 4A main report, according
to the information and explanations given to us, the Company has not granted
any loans, secured or unsecured to companies, firms, limited liability
partnerships or other parties covered in the register maintained u/s. 189 of
the Act.

(iv) Except for the effects of the matters
described in the basis of disclaimer of opinion para 4A main report, according
to the information and explanation given to us, the Company has not given any
loans, or made any investments, or provided any guarantee, or security as
specified u/s. 185 and 186 of the Companies Act, 2013.

(v) Except for the effects of the matters
described in the basis of disclaimer of opinion para 4A of main report, as per
the information and explanation given to us, the Company has not accepted any
deposits as mentioned in the directives issued by the Reserve Bank of India and
the provisions of section 73 to 76 or any other relevant provisions of the
Companies Act, 2013 and the rules framed there under.

(vi) Not reproduced.

(vii) (a) According
to the information and explanations given to us; on the basis of our
examination of the records of the Company; and appearing in the books of the
accounts as statutory dues paid/payable, except for the effects of the matters
described in the basis of disclaimer of opinion paragraph of main report,
amounts deducted/accrued in the books of account in respect of undisputed
statutory dues including provident fund, employees’ state insurance,
income-tax, sales tax, service tax, duty of customs, value added tax, cess and
other material statutory dues have not generally been regularly deposited with
the appropriate authorities though the delays in deposit have not been serious.
As explained to us, the Company did not have any dues on account of duty of
excise.

According to the information and
explanations given to us; on the basis of our examination of the records of the
Company; and appearing in the books of the accounts as statutory dues
paid/payable, except for the effects of the matters described in the basis of
disclaimer of opinion paragraph of main report, no amounts payable in respect
of undisputed statutory dues including provident fund, employees’ state
insurance, income-tax, sales tax, service tax, duty of customs, value added
tax, cess and other material statutory dues were in arrears as at 31^stMarch
2016 for a period of more than six months from the date they became payable.

(b) Except
for the effects of the matters described in the basis of disclaimer of opinion
paragraph of main report, in particular para 7(g)(i) and according to the
information and explanations given to us, there are no dues of income tax,
sales tax, service tax and value added tax which have not been deposited with
the appropriate authorities on account of any dispute except as mentioned
below. As explained to us, the Company did not have any dues on account of duty
of excise.

(viii) Not reproduced

(ix) Not reproduced

(x) Attention is invited to note 4A in main
audit report wherein it is stated that we have a reason to believe that
suspected offence involving a violation of applicable law, which may tantamount
to fraud, may have been committed. However, due to the limitations pertaining
to investigations elaborated in note 45 of the financial statements read with
our comments mentioned in para 4.B to 7 of main report, we are unable to
comment on the appropriateness of amounts pertaining to each period over which
such transactions continued, the persons involved and the amount of
fraud/misappropriation. According to the information and explanations given to
us, no other material fraud by the Company or on the Company by its officers or
employees has been noticed or reported during the course of our audit.

(xi) according to the information and explanations
give to us and based on our examination of the records of the Company, the
Company has paid/provided for managerial remuneration in accordance with the
requisite approvals mandated by the provisions of section 197 read with
Schedule V to the Act. However, this is subject to the potential financial
impact of findings of investigations which has not been considered for
computing the overall limits for payment of managerial remuneration.

(xii) Not reproduced

(xiii) Except for the effects of the matters
described in the basis of the disclaimer of opinion paragraph of the main
report, particularly the impact, if any, of the irregularities and suspected
fraudulent transactions which at present is not fully ascertainable, in our
opinion and according to the information available as at present and
explanations given to us and on the basis of our examination of the records of
the Company, the transactions with the related parties are in compliance with
sections 177 and 188 of the Companies Act, 2013 where applicable and the
details have been disclosed in the financial statements as required by the
accounting standards.

(xiv) Not reproduced

(xv) Except for the effects of the matters described
in the basis of the disclaimer of opinion paragraph of the main report,
particularly the impact, if any, of the irregularities and suspected fraudulent
transactions which at present is not fully ascertainable, according to the
information available as at present and explanations given to us and based on
our examination of the records of the Company, the Company has not entered into
non-cash transactions with directors or persons connected with him.

(xvi) Not reproduced

From Report on IFC

Report on the Internal
Financial Controls under Clause (i) of sub-section 3 of section 143 of the Act

We were engaged to audit the internal financial controls over
financial reporting of the Company as of 31^stMarch 2016 in
conjunction with our audit of the financial statements of the Company for the
year ended on that date.

Management’s
Responsibility for Internal Financial Controls

Not reproduced

Auditor’s Responsibility

Not reproduced

Meaning of Internal
Financial Controls Over Financial Reporting

Not reproduced

Inherent Limitations of
Internal Financial Controls Over Financial Reporting

Not reproduced

Adverse Opinion

As described in para 4 of our main report, a large number of
irregularities and suspected fraudulent transactions were noted during the
year. As described in detail in the aforesaid para these irregularities and
suspected fraudulent transactions clearly illustrate that the Company has not
established adequate internal financial controls and that whatever financial
controls have been established were not operating effectively. While reference
may be made to the aforesaid paragraph, the following significant aspects of
material weaknesses in internal control system are particularly noteworthy as
identified in the investigation reports and by our audit procedures:

a) Deficiencies in maintenance of books of
accounts and documentation including non-availability of original documents,
recording of unsupported and back dated transactions, out of book adjustment
entries etc.

b) Recording of circular sale and purchase
transactions considered fictitious by the management, non-maintenance of
appropriate inventory records including quantitative reconciliation of goods
purchased and sold and physical verification of inventory at regular interval.

c) Non-maintenance of complete records and
documentation for machines given to lease at transaction level and fixed asset
records.

d) Absence of an appropriate internal control
system to perform periodical reconciliations of advances/balances of customer
and vendors.

A ‘material weakness’ is a deficiency, or a combination of
deficiencies, in internal financial control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a
timely basis.

In our opinion, because of the matters described in the basis
of disclaimer of opinion paragraph of main report and in view of the material
weaknesses described above, the Company has not maintained adequate and
effective internal financial controls over financial reporting as of 31^st
March 2016.

We have considered the material weaknesses
identified and reported above in determining the nature, timing, and extent of
audit tests applied in our audit of the 31^st March 2016 standalone
financial statements of the Company and theses material weaknesses have inter-alia
affected our opinion on the financial statements of the Standalone company and
we have issued a disclaimer of opinion on the financial statements.

BCAJ Admin

Indirect Taxes

Service Tax Updates

93. Online Invoices
can be issued without digital signature by person located in non taxable
territory providing “Oidar” Services upto January 31, 2017

Notification No. 53/2016-ST dated 19.12.2016

Vide this Notification, the
Central Government has made Service Tax (Fifth Amendment) Rules, 2016 to insert
a proviso to Rule No. 4C(1) of the Service Tax Rules, 1994 to provide
that a person located in non-taxable territory providing online information and
database access or retrieval services to a non-assessee online recipient
located in taxable territory may issue online invoices not authenticated by means of a
digital signature for a period upto 31st January, 2017.

94. Amendment in Mega
Exemption Notification

Notification No. 1/2017-ST dated 12.01.2017

By this Notification, Central
Government has amended Mega Exemption Notification No. 25/2012-Service Tax by
substituting Entry No. 29 by which services provided by business facilitator or
a business correspondent to banking company with respect to accounts in rural
area branch has been exempted from Service tax.

Further, the Central Government
has substituted proviso to Entry no. 34 by which following service tax
exemptions are withdrawn effective from January 22, 2017 :

(a) online information and
database access or retrieval services received by Government, local authority,
governmental authority, or an individual in relation to any purpose other than
commerce, industry or profession;

(b) services by way of
transportation of goods by a vessel from a place outside India up to the
customs station of clearance in India.

95. Amendment in
definition of aggregator & person liable to tax on goods transport by a
vessel

Notification No. 2/2017-ST dated 12.01.2017

The Central Government by this
notification has excluded such person from the definition of aggregator who
enables a potential customer to connect with persons providing services by way
of renting of hotels, inns, guest houses, clubs, campsites or other commercial
places meant for residential or lodging purposes subject to the conditions
that:

Person providing services by way
of renting of hotels etc. has a Service tax registration; and the whole
consideration for services provided is received directly by service provider
and no part of consideration is received by the aggregator directly from either
recipient or his representative.

Notification further provides that
the person complying with the sections 29, 30 or 38 read with section 148 of
the Customs Act, 1962 is required to pay Service tax in relation of services
provided or agreed to be provided by a person located in non-taxable territory
to a person located in non-taxable territory by way of transportation of goods
by a vessel from a place outside India up to the customs station of clearance
in India.

96. Amendment in
reverse charge mechanism notification

Notification No. 3/2017-ST dated 12.01.2017

By this Notification, CBEC has
amended Reverse Charge Mechanism Notification No. 30/2012 dtd 20^thJune
2012, by inserting sub-clause regarding services provided or agreed to be
provided by a person located in non-taxable territory to a person located in
non-taxable territory by way of transportation of goods by a vessel from a
place outside India up to the customs station of clearance in India shall be
subject to reverse charge and the person in India who complies with sections
29,30 or 38 read with section 148 of the Customs Act, 1962 i.e. the person in
charge of vessel or authorised agent, with respect to such transported goods
shall be liable to pay Service tax.

97. Rationalisation of
abatement for tour operator

Notification No. 4/2017-ST dated 12.01.2017

Vide this Notification,
CBEC has rationalised the abatement provision w.e.f. 22.01.2017 for all classes
of tour operator services by reducing the abatement rate to 40%. For availing
the abatement, the CENVAT credit of inputs and capital goods used for providing
the said taxable service would not to be allowed and the bill issued should
indicate that it is inclusive of charges of accommodation and transportation
required for such a tour and the amount charged in the bill is the gross amount
charged for such a tour including the charges of accommodation and
transportation required for
such a tour.

MVAT UPDATE

98. Grant of
administrative relief for dealers registered after 25.05.2016

Trade Circular 38T of 2016 dated 30.12.2016

A new SAP based system for online
registration has been implemented by the Maharashtra Sales Tax Department from
25.5.2016 and earlier system of online registration was closed from 4.5.2016.
So, during this period, dealer who either became eligible for registration
because of crossing of threshold limit of turnover or who desirous of obtaining
voluntary registration could not apply for registration and even from
25.5.2016, some of the applicants could not submit their applications because
of

technical reasons. Hence, such
applicants could not obtain registration certificate with the appropriate date
of effect. In order to grant appropriate date of effect for such

applicants, administrative relief
is granted. To avail administrative relief, class of dealer and other
conditions and relief are specified in this Circular.

99.
Full/Partial exemption of late fee under section 20(6) of MVAT Act, for
late returns

Notification No. VAT.1516/C.R.178/Taxation-1 dated
28.12.2016 & Trade Circular 1T of 2017 dated 2.1.2017

A limited period opportunity is
being given for the defaulters in filing returns to upload returns for any
period up to 31.3.2016 if filed during 1.1.2017 to 31.1.2017; no late fee
payable and if filed during 1.2.2017 to 28.2.2017, Rs.2,000/- late fee payable.

100.
Distribution of Provisional Log in Ids and Passwords to Log-on the GST
Common Portal for GST enrolment

Trade Circular 2T of 2017 dated 6.1.2017

Phase wise distribution of GST
login id and password has started. List of dealers covered under Phase I &
Phase II is made available in ‘What’s New’ section on departmental portal www.mahavat.gov.in.

101. Filing of VAT
Audit Report in Form 704 for the year 2015-16

Trade Circular 3T of 2017 dated 11.1.2017

Commissioner of Sales Tax has
issued Trade circular whereby uploading of the Audit Report in Form e-704 for
the year 2015-16 is allow up to 9.2.2017
and physical copy of the acknowledgment and the statement of submission of
Audit Report shall be submitted up to 20.2.2017.

BCAJ Admin

Glimpses Of Supreme Court Rulings

14. Search and seizure – Assessment of third
person – It is an essential condition precedent that any money, bullion or
jewellery or other valuable articles or thing or books of accounts or documents
seized or requisitioned should belong to a person other than the person
referred to in section 153A of the Act.

Appeal – Power
to admit additional ground – As per the provisions of section 153C of the Act,
incriminating material which is seized has to pertain to the Assessment Years
in question and when it is undisputed that the documents which are seized do
not establish any co-relation, document-wise, essential requirement u/s. 153C of
the Act for assessment under that provision is not fulfilled, it becomes a
jurisdictional fact – Tribunal was justified in admitting the additional ground

Commissioner
of Income Tax-III, Pune vs. Sinhgad Technical Education Society (2017) 397 ITR
344 (SC)

A search and
seizure operation was carried out under section 132 of the Act on one Mr. M. N.
Navale, President of the Sinhgad Technical Education Society (the
assessee-society), and his wife on July 20, 2005 from where certain documents
were seized. On the basis of these documents, which according to the Revenue
contained notings of cash entries pertaining to capitation fees received by
various institutions run by the Assessee, a notice u/s.153C of the Act was
issued on April 18, 2007.

In the order of
assessment, the Assessee was treated as an Association of Person (AOP). Having
regard to the complexity involved in the accounts and the changes to be
effected on account of the change in the status of the Assessee to that of AOP,
a special audit u/s. 142(2A) of the Act was conducted. On the basis of special
audit report, taxable incomes for the Assessment Years 1999-2000 to 2006-07 had
been worked out.

Assessment Year
1999-2000 was covered u/s.147 of the Act, Assessment Year 2006-07 was covered
u/s.143(3) of the Act and Assessment Years 2000-01 to 2005-06 were covered
u/s.153C read with section143(3) of the Act.

The Assessee
filed appeal there against, which was partially allowed by the Commissioner of
Income Tax (Appeals) {CIT(A)}. He, however, upheld the order of the AO, holding
that the Assessee was not eligible for exemption u/s.11 of the Act and,
therefore, donations received were rightly treated as income. Against the
aforesaid part of the order, which was against the Assessee, it preferred further
appeal to the ITAT. In the appeal before the ITAT, the Assessee raised
additional ground questioning the validity of the notice u/s.153C of the Act on
the ground that satisfaction was not properly recorded and also that the notice
u/s.153C was time barred in respect of Assessment Years 2000-01 to 2003-04. The
ITAT allowed the Assessee to raise the additional ground and decided the same
in favour of the Assessee thereby quashing the notice in respect of the
aforesaid Assessment Years. Challenging this order, the Revenue filed appeals
before the High Court. However, the High Court dismissed these appeals.

The objection
of the Revenue before the Supreme Court was that it was improper on the part of
the ITAT to allow additional ground to be raised, when the Assessee had not
objected to the jurisdiction u/s.153C of the Act before
the AO.

The Supreme
Court noted that the ITAT permitted this additional ground by giving a reason
that it was a jurisdictional issue taken up on the basis of facts already on
the record and, therefore, could be raised. The ITAT had held that as per the
provisions of section 153C of the Act, incriminating material which was seized
had to pertain to the Assessment Years in question and it was an undisputed
fact that the documents which were seized did not establish any co-relation,
document-wise, with the aforesaid four Assessment Years. Since this requirement
u/s. 153C of the Act was essential for assessment under that provision, it
became a jurisdictional fact. The Supreme Court found this reasoning of the
ITAT to be logical and valid, having regard to the provisions of section 153C
of the Act. According to the Supreme Court, para 9 of the order of the ITAT
revealed that the ITAT had scanned through the Satisfaction Note and the material
which was disclosed therein was culled out and it showed that the same belonged
to Assessment Year 2004-05 or thereafter. After taking note of the material in
para 9 of the order, the position that emerged therefrom was discussed in para
10. It was specifically recorded that the counsel for the Department could not
point out to the contrary. It was for this reason the High Court had also given
its imprimatur to the aforesaid approach of the Tribunal. The Supreme
Court further noted that the learned senior Counsel appearing for the
Respondent, had argued that notices in
respect of Assessment Years 2000-01 and 2001-02 were even time-barred.

The Supreme
Court held that the ITAT rightly permitted this additional ground to be raised
and correctly dealt with the same ground on merits as well. Order of the High
Court affirming this view of the Tribunal was, therefore, without any blemish.
In view of the aforementioned findings, the Supreme Court was of the view that
it was not necessary to enter into the controversy as to whether the notice in
respect of the Assessment Years 2000-01 and 2001-02 was time-barred.

The Supreme
Court observed that the Gujarat High Court in Kamleshbhai Dharamshibhai
Patel vs. CIT (2013) 31 taxmann.com 50 had categorically held that it was
an essential condition precedent that any money, bullion or jewellery or other
valuable articles or thing or books of accounts or documents seized or
requisitioned should belong to a person other than the person referred to in
section153A of the Act. According to the Supreme Court, this proposition of law
laid down by the High Court was correct, which was also stated by the Bombay
High Court in the impugned judgement as well. The Supreme Court noted that
judgement of the Gujarat High Court in the said case went in favour of the
Revenue when it was found on facts that the documents seized, in fact, pertain
to third party, i.e. the Assessee, and, therefore, the said condition precedent
for taking action u/s.153C of the Act had been satisfied.

The Supreme
Court also held that likewise, the Delhi High Court in SSP Aviation Limited
vs. DCIT (2012) 346 ITR 177 (Delhi) had also decided the case on altogether
different facts which had no bearing once the matter was examined in the
aforesaid hue on the facts of this case. The Bombay High Court has rightly
distinguished the said judgement as not applicable.

According to
the Supreme Court, there was no merit in these appeals.

The Supreme
Court however, clarified that it had not dealt with the matter on merits
insofar as incriminating material found against the Assessee or Mr. Navale was
concerned.

The Supreme
Court dismissed the appeals with the aforesaid observations.

15. Search and
seizure – In view of the amendment made in section 132A of the IT Act, 1961 by
Finance Act of 2017, namely, that the ‘reason to believe’ or ‘reason to
suspect’, as the case may be, shall not be disclosed to any person or any
authority or the appellate Tribunal as recorded by IT authority u/s.132 or section
132A, the Supreme Court could not go into that question of validity of the
search at all

N. K.
Jewellers and Ors. vs. Commissioner of Income Tax

(398 ITR 116
(SC).

On 27^th
May, 2000, an employee of the Appellant was returning from Amritsar by train No.
2030, Swarn Shatabdi Express and he was found in the possession of Rs. 30 lakh
cash in a search by Railway Police. The SHO, GRP Station, Jalandhar after
making enquiries from the concerned employee registered a case under sections
411/414 of the Indian Penal Code on 27^th May, 2000.

The said
information was received by the Investigation Unit, Jalandhar from SHO, GRP
Station Jalandhar on 29^th May, 2000. Warrant of authorisation
u/s.132A of the IT Act, 1961 (the Act), was obtained from the Director of IT,
Ludhiana and the cash of Rs. 30 lakh was requisitioned on 3^rd June,
2000 and seized. Proceeding for assessment for the block period from 1^st
April, 1991 to 3^rdJune, 2000 u/s. 158BD of the Act was initiated.

The explanation
of the Appellant before the assessing authority was that his employee had gone
to Amritsar to make some purchases of gold but the transaction did not
materialise. The AO was of the view that the amount represented sales of gold
made by the Appellant on earlier occasions and the sale proceeds were being
carried back to Delhi. After considering the statements of various persons and
other material on record, the authorities came to the conclusion that it was
concealed income and accordingly, the Appellant was assessed to tax. As such, the
explanation of the Appellant was not accepted and the High Court also took the
view that the Appellant was disbelieved for adequate reasons and hence, no
substantial question of law arises for its consideration.

Before the
Supreme Court, the learned Counsel for the Appellant submitted that the
proceedings initiated u/s.132 of the Act were invalid for the reason that it
could not be based on a search conducted on a train by the police authorities
and, therefore, the proceedings initiated for block assessment period 1^st
April, 1991 to 3^rd June, 2000 were without jurisdiction.

The Supreme
Court noted that this plea was not raised by the Appellant before any of the
authorities. Further, it noted the amendment made in section 132A of the IT
Act, 1961 by Finance Act of 2017, namely, that the ‘reason to believe’ or
‘reason to suspect’, as the case may be, shall not be disclosed to any person
or any authority or the appellate Tribunal as recorded by IT authority u/s.132
or Section132A. According to the Supreme Court, it therefore, could not go into
that question at all. Even otherwise, the Supreme Court found that the
explanation given by the Appellant regarding the amount of cash of Rs. 30 lakh
found by the GRP and seized by the authorities had been disbelieved and had
been treated as income not recorded in the books of account maintained by it.
In view of the above, according to the Supreme Court there was no infirmity in
the order passed by the High Court.

Accordingly,
the civil appeal was dismissed.

16. Appeal to
the High Court – In order to admit the second appeal, what is required to be
made out by the Appellant being sine qua non for exercise of powers u/s.
100 of the Code, is existence of “substantial question of law”
arising in the case so as to empower the High Court to admit the appeal for
final hearing by formulating such question

Maharaja
Amrinder Singh vs. The Commissioner of Wealth Tax (2017) 397 ITR 752 (SC)

The issue
involved in the wealth tax appeals for the three assessment years 1981-82,
1982-83 and 1983-84 was decided by the Tribunal in favour of the Appellant
(assessee) which gave rise to filing of the appeals before the High Court by
the Revenue u/s. 27-A of the Act questioning therein the legality and
correctness of the orders of the Tribunal. The High Court allowed the appeals
filed by the Revenue setting aside the order dated 05.07.2011 passed by the
Income Tax Appellate Tribunal and restoring the order of assessment passed by
the Assessing Officer for levying penalty for the entire period of delay in
respect of the said Assessment Years, which gave rise to filing of these
appeals by way of special leave before the Supreme Court by the Assessee.

The short
question, which arose for consideration before the Supreme Court in these
appeals, was whether the High Court was justified in allowing the appeals filed
by the Revenue and thereby was justified in setting aside the orders passed by
the Tribunal.

The Supreme
Court observed that in Santosh Hazari vs. Purushottam Tiwari (Deceased) by
L.Rs., (2001) 3 SCC 179, it had held that in order to admit the second
appeal, what is required to be made out by the Appellant being sine qua non for
exercise of powers u/s. 100 of the Code of Civil Procedure, 1908, is existence
of “substantial question of law” arising in the case, so as to
empower the High Court to admit the appeal for final hearing by formulating
such question. In the absence of any substantial question of law arising in
appeal, the same merits dismissal in limine on the ground that the
appeal does not involve any substantial question of law within the meaning of
section100 of the Code.

According to
the Supreme Court, the interpretation made by it of section 100 in Santosh
Hazari’s Case (supra), would equally apply to section27-A of the Act
because firstly, both sections provide a remedy of appeal to the High Court;
secondly, both sections are identically worded and in pari materia; thirdly,
section27-A is enacted by following the principle of “legislation by
incorporation”; fourthly, section 100 is bodily lifted from the Code and
incorporated as Section27-A in the Act; and lastly, since both sections are
akin to each other in all respects, the appeal filed u/s. 27-A of the Act has
to be decided like a second appeal u/s.100 of the Code.

The Supreme
Court on the facts of the case, found that the High Court had proceeded to
decide the appeals without formulating the substantial question(s) of law. The
High Court did not make any effort to find out as to whether the appeals
involved any substantial question(s) of law and, if so, which was/were that
question(s), nor it formulated such question(s), if in its opinion, really
arose in the appeals. The High Court failed to see that it had jurisdiction to
decide the appeals only on the question(s) so formulated and not beyond it.
[Section27(5)].

In the light
of foregoing and keeping in view the law laid down in the case of Santosh
Hazari (supra), the Supreme Court held that the impugned orders were not
legally sustainable and thus were liable to be set aside. As a result, the
appeals succeed and were allowed. Impugned orders were set aside. Both the
cases were remanded to the High Court for deciding the appeals afresh in
accordance with the observations made above. _

BCAJ Admin

From The President

Dear Members,

Greetings from Mumbai! The 49th Residential Refresher Course (RRC) just got over, with 6 papers of contemporary importance. The participants enjoyed the learning in leisure, which is the basis of the RRC. RRCs started with this idea 50 years ago and now we are just a year away from the golden jubilee year of the RRC. In several countries professionals, like doctors, get paid leave of up to 2 weeks to study the developments in their specific fields. An RRC is this dedicated time, earmarked to study the current changes through discussions with fellow professionals and experts.

The Union Budget will be announced on 29th February 2016. This will be the second full fledged budget from Modi Sarkar. Recently, BCAS was invited to present before Mrs. Sushma Swaraj, Cabinet Minister for External Affairs who was asked by the PM to conduct a ‘Samvaad’ session to receive direct feedback from the Chartered Accountants fraternity on tax matters. She appreciated some of the points suggested by the Society especially on the attitude of the tax officers towards the assessees. Although the Society makes representations to the MOF, for more than 4 decades, from what I know, the voice of the profession is ‘heard’ only infrequently. We hope that the government that has a plank of ” Sab a Sath Sab Ka Vikas” will hear what the professionals have to say.

Nani Palkhivala, a fighter of civil liberties and defender of our constitution wrote: “Elections can change the governing faces; budgets can change the face of the state” The budget each year brings a sharp focus on economic and tax reforms. The motivation for change in the present government is certainly there, however the pace of execution needs to match it.

Tax laws above all should be Clear, Just and Simple. Every citizen expects tax legislation to be fair, balanced, easy to use, reasonable, low on procedures, less prone to interpretation and litigation. Over the years the Income Tax Act has become more of an incomprehensible monster. Disfigured by thousands of amendments, qualified by provisos and blunted by ‘deeming’ fictions. The size, shape, teeth, colour, feel of the law has become incongruent with the basic forces of human nature, where its acceptability has diminished.

If the meaning of “Sab a sath sabh a vikas” was to be actioned, then, collaboration would be the essence of law making. Today the budget has become an exercise carried out by the administrators alone to collect more revenue. What Mr.Palkhivala wrote still rings true “The budget should not be an annual scourge but should partake of the presentation of annual accounts of a partnership between the government and the people. The partnership would work much better when the nonsensical secrecy is replaced by openness and public consultations, resulting in fair laws and the people’s acceptance of their moral duty to pay.” A larger debate, participation, responsiveness from the law makers is the need of the hour to create nation building. Collaborative approach is where the world is headed, be it social interactions to running successful businesses; people are coming closer, exchanging ideas and feel a sense of belonging. The Indian government is a segment that is left behind, to make people feel it is ‘of the people’ and ‘for the people’. With several schemes announced recently let’s hope that ache din are coming closer.

Each of us has a wish list for the budget. I thought of taking this opportunity to share some thoughts playing on my mind and hope they mirror yours too:

1. Attitude change – The officer needs to think that the tax payer is his customer, a respectable citizen of the country to whom he is there to serve. A tax payer is not a cheat and earning more money does not imply that a business is carried out with unfair means. In fact every healthy business is vital to the nation. Attitude change on the part of the tax officer is vital and it has to come from the ones who govern before the governed. Being helpful, fair, respectful, reasonable, supportive and not just an agent to meet tax targets, will mean ache din for the tax payers.

2. Ease of Paying Taxes – The ‘ease’ aspect must become pivotal to all tax laws. For example, TDS procedures, which are tedious for small and medium businesses should be eased for smaller tax payers. Thresholds for TDS are increased. Yearly compliance for filing statements and issuing forms should be allowed. This will make smaller tax payers come around and reduce dodging. Another example could be of having a Tax Paid Passbook system, which can be used by tax payers to attribute taxes so as to end issues of non-payment, interest. Or even bring presumptive taxation for many other trades and professions to make it easy to do businesses and promote entrepreneurship.

3. Master Circulars – Compile all tax clarifications in a systematic manner to be useful and sensible. Just like the Reserve Bank of India, the Tax Department should come out with sets of Master Circulars once a year. Each topical Master Circular could cover an updated compilation of all circulars on that topic and clarify the position of the tax department. This will bring some method to madness and bring sense to the tax laws.

4. Stop Mutilation – Amendments should be restricted. In the words of Mr. Palkhivala – “Today the income-tax Act, 1961, is a national disgrace. There is no other instance in Indian jurisprudence of an Act mutilated by more than 3300 amendments in less than thirty years.” Today it has crossed about 8000 amendments. Certainty and respect for law and administration can only come when there is stability in the law itself.

5. Use of English – The language in Income Tax act is at best awful, crude, boring, distasteful and obnoxious. Use of such language to make laws in a country like ours should be included as a form of intellectual cruelty on citizens. Why should our laws not be written in PLAIN ENGLISH when millions are uneducated, where interpretation related litigation is rampant, and language should rather be a means of communication and not complication? Clarity, precision, brevity, freedom from legalese should be the hallmark of drafting. Can we not write a law where the writing is of a natural and normal human being? New Zealand Parliamentary Counsel Office has brought out a paper where such despicable use of English language in law making is forbidden. It’s time we do the same, then ache din will not be too far.

6. Discretion, Interaction and Transparency – It may be worth attempting to reduce / minimize interaction with the tax officers. Establishing Accountability for passing orders that are reversed at next levels, transparency in disclosing key data such as pendency, reversal of orders, average time of assessment, average time for rectification, average time for granting refunds, average time complaints resolved, customer satisfaction surveys, total compliance with citizen’s charter at a jurisdictional level would bring better administration and tax payer confidence. Clarity of department’s positions should be mandatory. Every use of discretion / interpretation should be made with signing off by higher levels. The department requires enormous efforts to make its positions clear on new laws, contentious issue, and must be held responsible for litigation costs where orders are reversed. We welcome some steps in this direction taken recently.

The Society has made a representation to the MOF on substantive provisions, which is placed on our website. We eagerly hope to see action, reaction or response. Without some fundamental changes, the Union Budget will just be another yearly event, celebrated by CAs, followed up by a few talks, a few meetings, few CPE hours and few more publications. But will it really bring ache din to the tax payer? Will it change the face of the state? Will it end our wait? Will it finally address aspiration of the people? Will it result in ” Sabh Ka Sath Sabh Ka Vikas” ? Let’s see.

BCAJ Admin

Glimpses of Supreme Court Rulings

10. Transfer of case – Where the
Income-tax/assessment file of the Assessee is transferred from one Assessing
Officer to another Assessing Officer and the two Assessing Officers are not
subordinate to the same Director General or Chief Commissioner or Commissioner
of Income-tax, u/s. 127(2)(a) of the Act an agreement between the Director
General, Chief Commissioner or Commissioner, as the case may be, of the two
jurisdictions is necessary.

Noorul Islam
Educational Trust vs. CIT (2016) 388 ITR 489 (SC)

The challenge before the
Supreme Court in the present appeal was against the order of the High Court of
Madras, Madurai Bench, dated March 20, 2015 passed in W.A. No. 98 of 2010 CIT
vs. Noorul Islam Educational Trust [2015] 375 ITR 226 (Mad) by which the
transfer of the income-tax/assessment file of the Appellant from Tamil Nadu to
Kerala as made by the jurisdictional Commissioner of Income-tax (CIT-II,
Madurai, Tamil Nadu) had been upheld.

According to the Supreme
Court, for the purpose of the appeal, it was necessary to note the provisions
of section 127(2)(a) of the Income-tax Act, 1961 (for short “the
Act”) which reads as under:

127. Power to transfer
cases.–(1) …

(2) Where the Assessing
Officer or Assessing Officers from whom the case is to be transferred and the
Assessing Officer or Assessing officers to whom the case is to be transferred
are not subordinate to the same Director General or Chief Commissioner or
Commissioner,–

(a) Where the Directors
General or Chief Commissioners or Commissioners to whom such Assessing Officers
are subordinate are in agreement, then the Director General or Chief
Commissioner or Commissioner from whose jurisdiction the case is to be
transferred may, after giving the Assessee a reasonable opportunity of
being-heard in the matter, wherever it is possible to do so, and after
recording his reasons for doing so, pass the order;

The Supreme Court held
that as the Income-tax/assessment file of the Appellant-Assessee had been
transferred from one Assessing Officer in Tamil Nadu to another Assessing
Officer in Kerala and the two Assessing Officers were not subordinate to the
same Director General or Chief Commissioner or Commissioner of Income-tax, u/s.
127(2)(a) of the Act an agreement between the Director General, Chief
Commissioner or Commissioner, as the case may be, of the two jurisdictions was necessary.

The Supreme Court noted
that the counter affidavit filed on behalf of the Revenue did not disclose that
there was any such agreement. In fact, it had been consistently and repeatedly
stated in the said counter affidavit that there was no disagreement between the
two Commissioners. The Supreme Court held that absence of disagreement could
not tantamount to agreement as visualised u/s. 127(2)(a) of the Act, which
contemplated a positive state of mind of the two jurisdictional Commissioners
of Income-tax which was conspicuously absent.

In the above
circumstances, the Supreme Court held that the transfer of the
Income-tax/assessment file of the Appellant-Assessee from the Assessing
Officer, Tamil Nadu to Assessing Officer, Kerala was not justified and/or
authorised u/s. 127(2)(a) of the Act. The order of the High Court was,
therefore, interfered with by the Supreme Court and the transfer was
accordingly set aside. The appeal was allowed in the above terms.

11. Reassessment – Notice u/s. 147 issued on
ground that no material to show debts written off as required under provisions
of section 36 was valid.

DDIT vs. Sumitomo
Mitsui Banking Corporation (2016) 387 ITR 164 (SC)

The High Court allowed the
petition of the assessee challenging the notice dated March 30, 2010 issued
u/s. 148 of the Act seeking to reopen the assessment for assessment year
2004-05 for the reason that the assessment was sought to be reopened only on
the ground that bad debts had not been proved to have become irrecoverable
which issue had been decided by the Supreme Court in TRF Ltd. vs. CIT
[(2010) 323 of ITR 397 (SC)] against the revenue.

The Revenue challenged the
order of the High Court dated February 22, 2011 passed in Writ Petition (L) No.
140 of 2011 by which the reopening of the assessment of the Respondent-Assessee
sought to be made by issuing a notice u/s. 148 of the Income-tax Act, 1961 had
been interfered with.

The Supreme Court having regard to the fact that though the
Respondent- Assessee had disclosed that the bad debts were transferred to Kotak
Mahindra Bank Ltd. for realisation, the authority recording the reasons prior
to issuance of notice u/s. 148 of the Income-tax Act, 1961 had specifically
recorded that there was no material available on record to indicate that the
bad debts had been written off as mandatorily required u/s. 36(1)(vii) of the
Income-tax Act, 1961 as amended with effect from April 1, 1989. The Supreme
Court held that if that be so, no fault could be found with the notice issued.
Consequently, the Supreme Court allowed the appeal by setting aside the order
of the High Court and dismissing the writ petition filed by the
Respondent-Assessee challenging the said notice. The Supreme Court, however,
made it clear that it had expressed no opinion on the merits of the
reassessment, which had been made on December 24, 2010, and it would be open
for the Respondent-Assessee to urge all questions as may be open, in law, in
the event the Respondent-Assessee seeks to challenge the reassessment order
dated December 24, 2010.

12. Offences and prosecution – The Deputy
Director of Income Tax, cannot be construed to be an authority to whom appeal
would ordinarily lie from the decisions/orders of the I.T. Os. involved in the
search proceedings so as to empower him to lodge the complaint in view of the
restrictive preconditions imposed by section 195 of the Code of Criminal
Procedure – The Supreme Court on a cumulative reading of sections 177, 178 and
179 of the Code of Criminal Procedure in particular and the inbuilt flexibility
discernible in the latter two provisions, where a single and combined search
operation had been undertaken simultaneously both at Bhopal and Aurangabad for
the same purpose, held that the alleged offence could be tried by courts
otherwise competent at both the aforementioned places.

Babita Lila & Anr v UOI (2016) 387
ITR 305

The Appellants, who are husband and
wife, were residents of both Bhopal and Aurangabad. A search operation was
conducted by the authorities under the Income-tax Act, 1961 (for short,
hereinafter referred to as “the Act”) on 28.10.2010 at both the
residences of the Appellants, in course whereof their statements were recorded
on oath u/s. 131 of the Act. In response to a query made by the authorities, it
was alleged that they made false statements denying of having any locker either
in individual names or jointly in any bank. It later transpired that they did
have a safe deposit locker with the Axis Bank (formerly known as UTI Bank) at
Aurangabad which they had also operated on 30.10.2010. The search at Aurangabad
was conducted by the Income Tax Officer, Nashik and Income Tax Officer, Dhule
and the statements of the Appellants were also recorded at Aurangabad.

Based on the revelation
that the Appellants, on the date of the search, did have one locker as
aforementioned and that their statements to the contrary were false and
misleading, a complaint was filed under provisions of the Indian Penal Code by
the Deputy Director of Income Tax (Investigation)-I, Bhopal (M.P.) on 30.5.2011
in the court of the Chief Judicial Magistrate, Bhopal, (M.P.) and the same was
registered as R.T. No. 5171 of 2011.

The Trial Court on
9.6.2011, took note of the offences imputed and issued process against the
Appellants. In doing so, the Trial Court, amongst others, noted that the search
proceedings undertaken by the authorities u/s. 132 of the Act were deemed to be
judicial proceedings in terms of section 136 and in course whereof, as alleged,
the Appellants had made false statements with regard to their locker and that
on the basis of the documents and evidence produced on behalf of the
complainant, sufficient grounds had been made out against them to proceed u/s.
191, 193, 200 of the Indian Penal Code.

The Appellants challenged
impugned this order of the Trial Court before the High Court u/s. 482 Code of
Criminal Procedure (for short hereinafter to be referred to as “the
Code”) and sought annulment thereof primarily on the ground that the
search operations having been undertaken by the I.T. O’s of Nashik and Dhule,
the complaint could not have been lodged by the Deputy Director of Income Tax
(Investigation)-I, Bhopal (M.P.) who was not the appellate authority in terms
of section 195(4) of the Code and further no part of the alleged offence having
been committed within the territorial limits of the Court of the Chief Judicial
Magistrate, Bhopal, it had no jurisdiction to either entertain the complaint or
take cognisance of the accusations. The High Court has declined to interfere in
the proceedings on either of these contentions.

Being aggrieved by the
rejection of their challenge to the initiation of their prosecution under
sections 109/191/193/196/200/420/120B/34 of the Indian Penal Code on the basis
of a complaint made by the Deputy Director of Income Tax (Investigation)-I,
Bhopal (M.P.), both on the ground of lack of competence of the complainant and
of jurisdiction of the Trial Court at Bhopal, the Appellants sought the
remedial intervention of the Supreme Court under Article 136 of the
Constitution of India.

Referring to section 195
of the Code as a whole, it has been urged on behalf of the Appellants that the
Deputy Director of Income Tax (Investigation)-I, Bhopal (M.P.), in the facts of
the case was not competent to lodge the complaint, he being not the authority
to whom appeals would ordinarily lie from the orders or actions of the I.T.
Os., Nashik and Dhule.

It was further urged on
behalf of the Appellants that having regard to the place of search, the
recording of their statements as well as of the location of the locker, no
cause of action for initiation of the criminal proceedings had arisen within
the jurisdiction of the court of the Chief Judicial Magistrate, Bhopal in terms
of sections 177 and 178 of the Code and thus the High Court had grossly erred
in deciding contrary thereto.

In refutation of the
arguments advanced on behalf of the Appellants, the learned Solicitor General
maintained that having regard to the scheme of Chapters XIII and XX and the
underlying legislative intent ascertainable therefrom, the Deputy Director of
Income Tax (Investigation)-I, Bhopal (M.P.) had the competence and jurisdiction
to lodge the complaint at Bhopal.

Vis-a-vis the competence of the court of the Chief Judicial
Magistrate, Bhopal, the learned Solicitor General insisted that as the
Appellants were the residents, both of Bhopal and Aurangabad and search
operations were conducted simultaneously at both the places, and further as
they had been filing their income tax returns at Bhopal, the Trial Court before
which the complaint had been filed, was competent to take cognisance of the
offences alleged in terms of section 178 (b) and (d) of the Code.

According to the Supreme
Court, the rival submissions stirred up two major issues pertaining to the
maintainability and adjudication of the complaint lodged before the Chief
Judicial Magistrate, Bhopal, (M.P.) by the Deputy Director, Income Tax
(Investigation)-I, Bhopal, (M.P.) in the face of the prescription of section
195(1)(b) of the Code, in particular read with the other cognate sub-sections
thereof as well as the limits of the territorial jurisdiction of the court
before which the prosecution of the Appellants had been initiated in the
context of section 177 of the Code.

The Supreme Court noted
that section 195(1)(b) of the Code, which was relevant for the instant pursuit,
prohibited taking of cognisance by a court vis-a-vis the offences
mentioned in the three Clauses (i), (ii) and (iii) except on a complaint in
writing of the Court when the offence(s) is/are alleged to have been committed
in or in relation to any proceeding before it or in respect of a document
produced or given in evidence in such a proceeding or by such officer of that
court as it may authorise in writing or by some other court to which the court
(in the proceedings before which the offence(s) has been committed) is
subordinate.

The Supreme Court held
that the search operations did constitute a proceeding under the Act before an
income tax authority and that therefore, the same was deemed to be a judicial
proceeding within the meaning inter alia of sections 193 and 196 of the
Indian Penal Code and that every income tax authority for the said purpose
would be deemed to be a civil court for the purposes of section 195. The
Supreme Court however noted that it was held that that was not an issue between
the parties.

The Supreme Court after
considering the relevant provisions and the cited judgments held that, neither
the hierarchy of the income tax authorities as listed in section 116 of the Act
nor in the notification issued u/s. 118 thereof, nor their duties, functions,
jurisdictions as prescribed by the cognate provisions, permit a deduction that
in the scheme of the legislation, the Deputy Director of Income Tax has been
conceived also to be an appellate forum to which appeals from the orders/decisions
of the I.T. Os./assessing officers would ordinarily lie within the meaning of
Section 195(4) of the Code. The Deputy Director of Income Tax (Investigation)-I
Bhopal, (M.P.), therefore could not be construed to be an authority to whom
appeal would ordinarily lie from the decisions/orders of the I.T. Os. involved
in the search proceedings in the case in hand so as to empower him to lodge the
complaint in view of the restrictive preconditions imposed by section 195 of
the Code. The complaint filed by the Deputy Director of Income Tax,
(Investigation)-I, Bhopal (M.P.), thus on an overall analysis of the facts of
the case and the law involved had to be held as incompetent.

According to the Supreme
Court, the objection on the competence of the Court of the Chief Judicial
Magistrate, Bhopal to entertain the complaint and take cognisance of the
offences alleged, though reduced to an academic exercise, required to be dealt.

The Supreme Court held
that the Appellants as assessees, had residences both at Bhopal and Aurangabad
and had been submitting their income tax returns at Bhopal. The search
operations were conducted simultaneously both at Bhopal and Aurangabad in
course whereof allegedly the Appellants, in spite of queries made, did not
disclose that they in fact did hold a locker located at Aurangabad. They in
fact denied that they held any locker, either individually or jointly.

The locker, eventually
located, though at Aurangabad, had a perceptible co-relation or nexus with the
subject matter of assessment and thus the returns filed by the Appellants at
Bhopal which in turn were within the purview of the search operations. The
search conducted simultaneously at Bhopal and Aurangabad had to be construed as
a single composite expedition with a common mission. Having regard to the
overall facts and the accusation of false statement made about the existence of
the locker in such a joint drill, it could not be deduced that in the singular
facts and circumstances, no part of the offence alleged had been committed
within the jurisdictional limits of the Chief Judicial Magistrate, Bhopal.

The Supreme Court held
that Chapter XIII of the Code sanctions the jurisdiction of the criminal courts
in inquires and trials. Whereas Section 177 of the Code stipulates the ordinary
place of inquiry and trial, Section 178 enumerates the places of inquiry or
trial. In terms of Section 179, when an act is an offence by reason of anything
which has been done and of a consequence which has ensued, the offence may be
inquired into or tried by a court within whose local jurisdiction such thing
has been done or such consequence has ensued.

The Supreme Court on a cumulative
reading of sections 177, 178 and 179 of the Code in particular and the inbuilt
flexibility discernible in the latter two provisions, held that in the
attendant facts and circumstances of the case where to repeat, a single and
combined search operation had been undertaken simultaneously both at Bhopal and
Aurangabad for the same purpose, the alleged offence could be tried by courts
otherwise competent at both the aforementioned places. To confine the
jurisdiction within the territorial limits to the court at Aurangabad would
amount to impermissible and illogical truncation of the ambit of sections 178
and 179 of the Code. The objection with regard to the competence of the Court
of the Chief Judicial Magistrate, Bhopal was hence rejected.

Thus, though the territorial
jurisdiction at the Bhopal Trial Court was held to be valid, in view of the
complainant not being competent, the proceedings were quashed by the Supreme
Court.

13. Appeal to the High Court – Review petition
filed against the order dismissing the tax appeal on the grounds that the tax
in dispute was less than Rs.2 lakh contending that the tax effect was more than
Rs.2 lakh was dismissed by the High Court as not maintainable – Orders of the
High Court set aside holding review petition was maintainable and requesting to
decide the review petition and thereafter the appeal itself, if so required, on
the merits.

CIT vs. Automobile
Corp. of Goa (2016) 387 ITR 140 (SC)

The High Court by the
order dated August 25, 2010 has disposed of the appeal filed by the Revenue
without entering into the merits on the ground that the tax demand which formed
the subject matter of the appeal was less than Rs. 2,00,000. Thereafter, the
High Court by the order dated March 28, 2012 had dismissed the review petition
filed by the Revenue holding the same to be not maintainable against the order
passed under the provisions of section 260A of the Income-tax Act, 1961.

Before Supreme Court, an
affidavit was filed by the Revenue explaining how the notional tax effect was
far beyond the amount of Rs. 2,00,000. The Supreme Court further noted that in CIT
vs. Meghalaya Steels Ltd. [2015] 377 ITR 112 (SC), decided on August 5,
2015, a view had been taken by it that the review would be available in respect
of the orders passed u/s. 260A of the Income-tax Act, 1961.

In view of the above, the
Supreme Court allowed the appeals and set aside both the orders dated August
25, 2010 and March 28, 2012 passed by the High Court in Tax Appeal No. 7 of
2004 and Civil Application (Review) No. 26 of 2010 respectively and requested
the High Court to decide the review petition and thereafter the appeal itself,
if so required, on the merits. The Supreme Court, however, made it clear that
it had expressed no opinion on the merits of any of the contentions of the
parties.

BCAJ Admin

From The President

Dear Members,

America
has ‘turned out’ some great people, but there are others not so great that
ought to be ‘turned out’. This clearly seems, to sum up, the sentiment
as Donald Trump stormed into the White House. On inauguration day, the aerial
pictures revealed the real picture – few turned up for the swearing-in
ceremony, but millions took to swearing in the street in protest. On his first
day in office, Trump exited the Trans-Pacific Partnership, a trade agreement
that took years of negotiation. He has signed documents for the 3,200 km
Mexican Wall and is tightening visa norms. The world is watching with crossed
fingers. Back home, seat sharing agreements and election rallies are being
watched closely, while the media is all abuzz with the budget expectations.
Here in India too people are anticipating the future with crossed fingers.

Tax Reform – Are we expecting too much?

Before
we speculate about the impending budget, let us first examine a very core issue
that plagues India. Tax Reforms, is a crying need in India today. The nebulous
world of Indian taxation is a major impediment in opening the floodgates of
investment, both by Indian companies and multinational giants. Gauging the
pulse of the situation Prime Minister Modi has asked officials to “move towards
digitization” in a bid to make tax administration better and more efficient. He
also stressed the need to build a “bridge of confidence” between taxpayers and
officials so that taxes are paid without fear or harassment. He urged tax
officials to act as “mentors of taxpayers” and not treat them as tax evaders.

So,
what is really happening at the grassroots level? Are individuals and corporate
India enjoying a better tax experience? Is there an eagerness or great
reluctance towards the task of paying tax? The real truth is nothing much has
been done. As Arvind Panagariya, Vice Chairman of NITI Aayog has admitted,
“We need to simplify our tax system and codify rules with precision, so that
room for interpretation by tax officials is minimized.” He advocated the
usage of data analytics for audits, instead of letting officials taking a
call…the elimination of the interface between officials and the tax payer would
minimize the scope of corruption.

The
key thrust of tax reform should be on re-drafting the tax statutes with utmost
clarity leaving minimum room for misinterpretation. Taxpayers interpret the tax
statutes to minimize their tax liabilities while tax officials focus on
maximizing revenue generation. Needless to say, this has resulted in disputes
and litigation – the Finance Minister in his budget speech in 2016 declared
that there are about three lakh cases pending with the first appellate
authority with tax liability amounting to a whopping Rs.5.5 lakh crore!

It
was Nani Palkhiwala, the eminent lawyer who once remarked: “Don’t call me an
expert in income tax laws. Indian income tax laws are drafted in much of a
subjective manner that no one can be expert in that.” Thirty years have
elapsed, but the situation is very much the same, if not worse! The subjective
and arbitrary interpretation of tax laws is just one side of the coin. In
India, tax officials are not penalized for misinterpretation of tax statutes.
On the contrary, they are protected even though they are responsible for
incorrect and undue demands. This lack of accountability has emboldened tax
officials, leading to much corruption at many levels. Remedial action in the
form of an appeal is available against the order, but not against the tax
officer. Moreover, the taxpayer must endure interest, penalty, and prosecution
all because a tax official decided to read between the lines!

Taxtortion
flourishes in India! There are so many examples of misinterpretations of
sections by the assessing officer, leading to a legal logjam. Predictably there
are lakhs of cases…but interestingly most of the disputes were settled in
favour of the tax payers. It is a known fact that nearly 80% of the assessments
get reversed either at the first appellant level or the second appellant level.

Minimum
Alternate Tax (MAT) is another classic case of how the government is demanding
a tax in an extremely arbitrary manner. MAT was devised to tax companies that
took advantage of the numerous exemptions leading to little or no tax
liability. The predominant view was that this provision did not apply to
foreign companies. Then in 2012, the Authority for Advanced Rulings made MAT
applicable to all companies. In 2014 tax notices have been slapped on companies
to cough up around Rs. 40,000 crore. Many more demand notices are being issued.
Is the government serious about attracting international investment with such
haphazard, arbitrary tax claims? We now have GAAR and government is aware what
effect it can have on investment sentiments. But it has still thought it fit to
go ahead by issuing set of 16 clarifications to allay investor fears over GAAR
regime. But subjectivity and powers of officers still remain without
accountability. What is the guarantee that GAAR will not be misused?

A
senior leader of a traders’ association strongly felt that businesses currently
were harassed and victimized by the cascading demands of multiple tax
authorities. He said: “Most of the time we are busy in complying with tax
formalities, collecting taxes, depositing taxes, submission of forms, pursuing
money stuck in the system…that we don’t find time to do business!” Sachin
Bansal, co-founder of Flipkart – India’s number one e-commerce site echoes the
same thinking. He believes the idiosyncratic tax codes that his company must
work around are a serious bottleneck to doing business…there’s double taxation
at Karnataka warehouses, a $75 limit on shipments to UP and confiscation of
goods and cash in Kerala.

This
chaotic situation is set to change with the Goods and Services Tax which is
expected to be implemented in the second half of this year. It is clearly a
winner in clearing the tangled thicket of tedious state after state tax codes.
It has been rightly hailed as “India’s reverse Brexit moment” as
it replaces 15 existing state and central taxes, paving the way for India to
become a single economic zone. It is slated to attract foreign investment,
reduce capital goods cost, boost manufacturing and exports and create
employment. But as Arvind Subramanian, the government’s chief economic advisor
warns that GST will be “fiendishly, mind-bogglingly complex to administer.”

It
is my hope, an ardent hope that the government will diligently re-look at tax
statutes and embark upon a concerted plan to fine-tune them so that they are
neutral, precise and completely objective. Introducing an amendment that
will ensure accountability of tax officials will be a step I think in the right
direction. This I believe is as important as the many sops, exemptions,
and concessions that I expect will be dished out in the coming budget to soothe
the wounds of demonetization.

Golden Jubilee RRC – What a celebration!

It
was Henry Ford who once said, “Coming together is a beginning; keeping
together is progress; working together is success.” This 50^th
Residential Refresher Course was a testimony of those words. Let me thank all
the speakers, team leaders, animators and participants of the recently
concluded Residential Refresher Course in Jaipur. The level of participation
was excellent and it was more like a National Conference with 145 out of 270
members from various cities other than Mumbai. I am sure we have all benefited
in different ways from the invaluable insights and learning that came up in the
many interactions. The highlight was the celebrations evening where Padma Shree
CA T. N. Manoharan and Vice President of ICAI CA Nilesh Vikamsey enlightened
the participants with their wisdom and experience. I can surely say that they
poured their heart out through their eloquent speeches, reminiscing their
association with BCAS and the RRCs. It was an ideal opportunity for us all to
learn and relearn and to grow our professional network all across the country.
Being the golden anniversary of the course, I hope it continues to sparkle in
our minds and spark many innovative ideas and practices.

On
successful completion of a momentous event at BCAS, I would like to end my
communication with following lines by renowned spiritual mentor 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’ve to
challenge yourself once again. After every accomplishment, the heartbeat of
success remains, ‘What next? What else? What more? How else?.”

Warm
Regards,

Chetan Shah

BCAJ Admin

From the President

“Come to India if you want
wealth and wellness. Come to India if you want health and wholeness. Come to
India if you want prosperity with peace…You will always be welcome,” Prime
Minister Modi spread a lot of hope and sunshine in snow-blanketed Davos while
addressing the World Economic Forum Annual Summit last month. Being the first
Indian PM going to Davos in 20 years, Mr. Modi was determined to make a strong
impact by hard-selling the “New India”. In his stirring speech, interspersed
with shlokas and quotes by Mahatma Gandhi and Rabindranath Tagore; PM Modi made
a convincing case for investors to touch base with India. Citing recent data
and surveys, he explained that India was open for business, emphasising that
his government had streamlined the way with revamped policies and fast-tracked
clearances and “Red tape is out, red carpet is in.” He rightly asserted that
“New India” will be a $5 trillion economy by 2025, where Indian innovators will
become ‘job givers’ and just not remain ‘job seekers’.

The PM also pitched hard
against protectionism that has become increasingly visible in recent years. He
slammed this trend saying, “Countries are becoming inward focused,
globalisation is shrinking…this is no less a risk than terrorism and climate
change”. He even chided the international community for only talking about
lower carbon emissions, but not providing any resources or technology to deal
with the challenge. Similarly, he also vented his disappointment with countries
who are openly supporting terrorists…and splitting hair by talking of good and
bad terrorism. PM Modi has delivered – both in India and now in Davos, now only
time will tell if it’s working.

The Annual Economic Survey
presented by the finance ministry’s economists, projects that the Indian
economy will expand between 7% to 7.5% in 2018-19, a number not very different
from that estimated by the World Bank and the IMF. History will likely
recognise the implementation of the GST and the introduction of a Bankruptcy
Code as fundamental structural reforms, and the survey acknowledges both. Apart
from this the effort to recapitalise banks, addresses what is popularly called
the ‘twin balance sheet’ problem (bad loans on the books of banks, and debt on
the books of borrowers). The survey also points out that there is an increase
in the number of enterprises that pay indirect taxes. The big picture presented
by the survey is of an economy that is becoming increasingly tax compliant, and
is poised for growth, although, as the document admits, there are still
challenges when it comes to both consumption-driven growth and increasing
private investment.

The
major issues faced by the Modi Government are employment and the ongoing crisis
in agriculture. The survey picks both as issues that need to be addressed
immediately. Worryingly, it points out that “climate change might reduce farm
incomes by 20-25% in medium term”. The solution will involve more science, but
it should also involve more markets. For employment, the survey is right in
listing “private investment and exports” as the only two “truly sustainable
engines”. India would do well to focus its efforts on creating an environment
conducive to private investment and on increasing its export competitiveness.
That might well hold the key to creating jobs, although doing so against the
countervailing forces of increasing automation and rapid strides in all will be
difficult to achieve.

The World Economic Outlook
Update from the IMF estimates that the Indian economy would perform well and
will be the fastest growing economy in 2018 and 2019. China on the other hand
notched 6.8% last year but is expected to decelerate to 6.6% in 2018 and slip
further to 6.4% in 2019. Adding to the good news is the PwC Global CEOs survey
which has seen India rising one place to become the fifth best investment
destination in the world, overtaking Japan. This has been the result of
concerted and committed implementation of structural reforms. The government
has demonstrated strong dedication for upgrading infrastructure and upskilling
the people, in addition to opening up several key sectors.

There’s a lot looking good
for India but there are also some issues that need to be tackled on a war
footing for India to truly be an outstanding and model country. One of them is
the horrific fact from an Oxfam survey which declares that 1% of India has 73%
of its wealth. This inequitable distribution of wealth could pave the way for
many problems in the near future. The government is already looking at an ‘Ease
of Living’ index and should actively explore some initiative to make India’s
prosperity more inclusive.

It was something of a coup
to get all the ten heads of state and government of the Association of South
East Asian Nations (ASEAN) to congregate in Delhi. They were all invited as
Chief Guests of the Republic Day parade and to attend the Indo-ASEAN
Commemorative Summit that marks 25 years of their dialogue partnership. With
America looking inward and withdrawing from the world, China has been flexing
its economic and military might. Currently most of the ASEAN countries are
heavily dependent on China to keep their economies going. But they are alarmed
with the high-handed attitude of China in handling territorial disputes.

The ASEAN countries are now
eagerly looking at India in being the counterweight in the region. Many of the
countries are keen on boosting investments and economic ties with India. This
is significant as India and the ASEAN countries have a combined population of
1.8 billion which is a quarter of the world population. The combined GDP is
around $4.5 trillion and Indo-ASEAN trade has climbed to over $58 billion in
2016. There is much scope for developing tourism cooperation and more
importantly maritime security among the member countries. With a lot in common
like young populations, growing internet user bases and surging middle-class
households there are tremendous opportunities for all countries. In fact, the next big idea could even be about Indian membership in ASEAN!

Students’ activities are
core to BCAS and the Society takes several initiatives to promote them. The
results of Final CA and IPCC examinations held in November 2017 were announced
recently. On behalf of the Society, I take this opportunity to congratulate the
new entrants to the profession and to those taking first steps in their quest
to become CAs.

In order to encourage the
young students passing CA to become members of BCAS, even this year the Society
will be felicitating them with various benefits which has already been
announced. If your articled clerk has secured a rank or you know about a rank
holder in CA Finals, BCAS offers one-year membership free. Till date, I am
happy that 22 rank holders have already become members of BCAS. I request all
the members to encourage their students who have successfully qualified to
become members of the BCAS and those serving articleship to become student
members of BCAS.

At the Society, the
flagship program – the 51st RRC at Mahabaleshwar held in January 2018 was a
grand success. As a boost to the “Yuva Shakti”, 3 paper writers at the RRC were
youth members and the participants applauded their presentations. The other
highlight was the 3 hours Panel Discussion where the 4 panellists drawn from
diverse backgrounds expressed their thoughts on variety of subjects on the
profession. The participants immensely benefitted from the panel discussion.
The Society has lined up a number of programs in the months of February and
March. I request members to take benefit of the same.

Wishing you a Happy Budget,
Happy Maha Shivaratri & a Colourful Holi ahead!

Feel free to write to me on
president@bcasonline.org

With kind regards

CA. Narayan Pasari

President

BCAJ Admin

Miscellanea

1. Economy

14.
Why is this Indian online portal and wholesale market listed in
Notorious Markets List by US?

IndiaMart.com and Delhi’s
wholesale market Tank Road have figured in the annual American notorious
markets list.

The US Trade Representative
(USTR) has released the Notorious Markets List that highlights online and
physical markets all over the world that are allegedly engaged in trading
pirated or counterfeit products and services.

China tops the Notorious
Markets List. Indian e-commerce company IndiaMart.com and Delhi’s wholesale
market Tank Road have figured in the list. These platforms are reported to be
engaging in and facilitating substantial copyright piracy and trademark
counterfeiting.

Popular online marketplace
IndiaMart has 1.5 million suppliers and more than 10 million buyers. The USTR
states that, among its legitimate listings, the firm allegedly facilitates
global trade in counterfeit and illegal pharmaceuticals. The IndiaMart
disclaims all liability, delays responses and does not facilitate right holder
attempts to remove listings, the USTR alleged.

The stakeholders confirm
that Tank Road remains a market selling counterfeit products, including apparel
and footwear, noted USTR. The fake products from Tank Road are also reportedly
found in other Indian markets, including Gaffar Market and Ajmal Khan Road.

The USTR list urged India
to take sustained and coordinated action against these marketplaces, including
Tank Road market, previously-listed markets, and numerous other non-listed
markets in its territory.

Taobao, which is owned and
created by Alibaba group, is also listed in Notorious Markets List 2017. It is
China’s largest mobile commerce site and its third-most popular website.

(Source:
International Business Times dated 13.01.2018)

15.
DELAYED IT Refunds Cost CBDT 58k Cr in 9yrs CAG

The central board of direct
tax has incurred an expenditure of over Rs. 58,500 crore in the last nine years
only on interest paid to individuals and corporates for delayed refunds of
excess income tax paid to the department. The comptroller and auditor general
in its, report taxable in parliament on Tuesday has criticised the CBDT and the
revenue department in the finance ministry for not making budgetary provisions
for the interest to be paid on delayed refunds and incurring such expenditure
without the approval of parliament.

As in the past no budget
provision for interest on refunds was made in the budget estimates for the
financial year 2016-17 and expenditure on interest on refunds amounting to rs
2,598 crore was incurred by the department in contravention of provisions of
the constitution and in disregard of the recommendations of the public accounts
committee CAG observed.

It said an expenditure of Rs. 58,537 crore on interest payments had
been incurred over a period of last nine years without obtaining approval of
the parliament through necessary appropriation.

The CBDT, however, informed
the CAG that on the basis of opinion of the attorney general holding the
current practice of treating interest on refund as reduction of revenue and
with the approval of the ministry of finance recommendations of the PAC were
not accepted.

The CBDT classifies
interest on refunds of excess tax as reduction in revenue. However successive
CAG’s audit reports have commented on
this incorrect practice and observed that the department has failed to take any
corrective action.

(Source :
Times of India dated 20 December 2017)

2. Technology

16.
Indians consuming over 20x more data than three years ago: IT Minister

It’s no doubt that Reliance
Jio’s entry has changed the internet habits of Indians in a significant way,
and the country is already consuming the highest amount of mobile data. On that
note, Union Electronics and Information Technology Minister Ravi Shankar Prasad
told Lok Sabha that the average data usage per subscriber has grown
exponentially over the last three years.

Significant growth of
India’s subscriber base combined with affordable 4G and 3G data packs and
affordable smartphones have contributed to the massive data consumption habits
among Indians. According to Prasad, Indians were consuming 70MB on an average
in June 2014 and it spiked to a whopping 1.6GB in September 2017.

As a result of this, the
minister noted that a significant growth is recorded in the adoption of digital
payments and electronic delivery of services. The number of e-transactions, as
per e-Taal (Electronic Transaction Aggregation and Analysis Layer) portal, grew
from 241 crore in 2013 to more than 3,013 crore e-transactions in 2017.

“The number of digital
payment transactions per month has increased from 60.7 crore in December 2015
to 153 crore in October 2017,” he noted in his reply to Lok Sabha, PTI
reported.

The rural areas in India
have also benefitted from this growth. The Common Services Centres or CSCs
bring digital services to various corners of India. Out of 2.71 lakh CSCs that
are active across the country, 1.73 lakh are at Gram Panchayat level, the
report added.

Finally, Prasad also
mentioned that the total internet subscriber base increased from 259.14 million
in June 2014 to 429.23 million in September 2017, which includes users in rural
areas as well. Based on TRAI data, the total wireless subscriber base reached
to 1.18 billion, and 498.28 million of those users are from rural India.

(Source: International Business Times dated
4.1.2018)

17.
Where does Google stand on net neutrality front after blocking YouTube
on Amazon devices?

Google blocks YouTube
access on Amazon devices, and the consumers stand to lose the most.

Google and Amazon are among
the world’s biggest tech companies, but things don’t seem particulary right
between the two tech-giants at the moment. The latest feud in Silicon Valley
became more obvious and public on December 5 when Google said that it would
block its popular video-streaming app YouTube from two Amazon streaming
devices, criticising Amazon for not selling Google’s products on its platform.

Google said that it will no
longer offer YouTube app support on Amazon’s screen-based Echo Show smart
speaker and Amazon Fire TV in response to Amazon’s reluctance to sell Google’s
products.

In its statement Google
said: “We’ve been trying to reach agreement with Amazon to give consumers
access to each other’s products and services. But Amazon doesn’t carry Google
products like Chromecast and Google Home, doesn’t make its Prime Video
available for Google Cast users, and last month stopped selling some of Nest’s
latest products.”

“Given this lack of
reciprocity, we are no longer supporting YouTube on Echo Show and FireTV. We hope
we can reach an agreement to resolve these issues soon,” the world’s
largest internet search titan added.

Meanwhile, Amazon had
previously stopped selling many of Google’s hardware products on its e-commerce
platform and since 2015 Amazon has refused to sell Google’s Chromecast video
and audio-streaming dongles.

Amazon seems to refrain
from selling Google products that compete directly with its own, such as Amazon
Echo range (which compete with Google Home) and Fire TV (which compete with
Google’s Chromecast).

Both Google and Amazon
compete with each other in many areas including cloud computing and selling
voice-controlled smart speakers like the Google Home and Amazon Echo Show. But
both companies are also advocates of net neutrality. Google’s decision to block
YouTube access might be completely based on a business and more importantly a
“product” perspective, but it does raise questions about its position
in the net neutrality debate.

In September this year,
Google removed YouTube access from the new Echo Show for “violating terms
of service.” Google had said that Amazon’s implementation of YouTube
blocked what Google considered critical features. This shows that Google wants
to impose its own rules on how YouTube is rendered on Amazon’s devices, but
that doesn’t seem to imply that Google is seeking control. However, by
selectively blocking customer access to open a website, it does bring in net
neutrality into the picture.

Amazon said in a statement:
“Echo Show and Fire TV now display a standard web view of YouTube.com and
point customers directly to YouTube’s existing website. Google is setting a
disappointing precedent by selectively blocking customer access to an open
website. We hope to resolve this with Google as soon as possible.”

Meanwhile, Google clearly
states that it supports net-neutrality in one of its “Take Action”
blog posts.

“Internet companies,
innovative startups, and millions of internet users depend on these
common-sense protections that prevent blocking or throttling of internet
traffic, segmenting the internet into paid fast lanes and slow lanes and other
discriminatory practices,” a blog post by the company reads.

“Thanks in part to net
neutrality, the open internet has grown to become an unrivaled source of
choice, competition, innovation, free expression and opportunity. And it should
stay that way.”

(Source:
International Business Times dated 4.1.2018)

3. Science

18. Lava tubes near moon’s north pole
with hidden tunnels may provide access to water. NASA scientists discover small pits near the lunar north pole that could provide
access to the underground network of lava tubes.

A new study suggests that
astronauts may be able to access water hidden under the moon’s surface. NASA
scientists have discovered small pits near the lunar north pole and believe it
could provide passageways to a huge underground network of lava tubes that
could even provide shelter to astronauts and lead them to the water supply.

Also Read:
Scientists believe massive ice sheets on Mars could create oxygen for humans

The SETI Institute and the
Mars Institute made the announcement about the new discovery after analysing
data NASA’s Lunar Reconnaissance Orbiter (LRO). According to SETI, these pits
could help astronauts find underground water on the moon. These pits are
“sky-lit” entrances to a network leading to huge underground caves
formed millions of years ago.

The news pits were
identified on the Philolaus Crater, which is close to the lunar North Pole.
These pits appear as “small rimless depressions, typically 50 to 100 feet
across (15 to 30 meters), with completely shadowed interiors.”

“The highest
resolution images available for Philolaus Crater do not allow the pits to be
identified as lava tube skylights with 100 percent certainty, but we are
looking at good candidates considering simultaneously their size, shape,
lighting conditions and geologic setting” said Dr Pascal Lee, planetary
scientist at the SETI Institute and the Mars Institute.

The pits are located along
lunar sinuous rilles, which are believed to be lava tubes that were once
underground tunnels filled with streams of flowing lava.

Earlier, researchers had
discovered 200 pits on the moon with several identified as skylights, but the
recent discovery is the first published report of possible lava tube skylights
near the lunar north pole.

“Our next step should
be further exploration, to verify whether these pits are truly lava tube
skylights and if they are, whether the lava tubes actually contain ice. This is
an exciting possibility that a new generation of caving astronauts or robotic
spelunkers could help address,” Dr. Lee said.

“Exploring lava tubes
on the Moon will also prepare us for the exploration of lava tubes on Mars.
There, we will face the prospect of expanding our search for life into the
deeper underground of Mars where we might find environments that are warmer,
wetter, and more sheltered than at the surface.”

“This discovery is
exciting and timely as we prepare to return to the Moon with humans” Bill
Diamond, president and CEO of the SETI Institute, said in a statement. “It
also reminds us that our exploration of planetary worlds is not limited to
their surface, and must extend into their mysterious interiors.”

(Source:
International Business Times dated 16.1.2018) _

BCAJ Admin

Ethics and You

Section 132 of the Companies Act, 2013 – NFRA provisions

Arjun
(A) — (talking on phone to some CA friend).

Oh! So you mean to say, all power’s of our Institute for disciplinary
matters have gone away? That means, it will be handled by Government officials?
(waits for response from that friend).

Baap re! Mar gaye! We are already tired of facing the revenue
authorities ………… (again a response from the other person)

Oh My God! You also don’t know much? Don’t worry. I will understand from Bhagwan Shrikrishna
right now! HE is here.

Shrikrishna
(S) — Cool down, Arjun. Don’t get hyper. You are a professional.

A — As usual, Bhagwan,
You came at the right time! I thought of You and You arrived.

S — You are my most favourite
friend and devotee! What are you worried about?

A — I don’t understand these new
NFRA rules. I feel like closing down the practice.

S — So much panic? And that too
without understanding the so called new Rules! It is unbecoming of a
professional.

A — What else can we do? My
friend says – now our misconduct cases will be handled by NFRA. Our Institute
has lost control over disciplinary cases!

S — NFRA?

A — Yeah! That National
Financial Reporting Authority! The name NFRA sounds like Nafrat!

S — Oh, you are talking about
Section 132 of Companies Act! Have your read it?

A — No! Who has time to read
such things? Here, we are simply fire-fighting with compliances and scrutiny
hearings!

S — Then do read it. Most of
your fear will go away.

A — How do you say so? Somebody
told me that at present, our Council Members in the Disciplinary Committee
understand the practical difficulties of our profession. We don’t know what
these Government guys will do! They will simply harass us; and I don’t know
what they will expect!

S — But why don’t you think of
not committing any misconduct in the first place? Prevention is better than
cure.

A — I agree. But you are aware
how our CAs are unnecessarily dragged into the disciplinary cases. There are
disputes between two parties and CAs are made scapegoats.

S — That I know. But do you know
the new Rules? How is ‘misconduct’ defined in those rules?

A — No. I am totally in the dark.

S — My dear Arjun, there is no
change in the definition of ‘misconduct’. It is the same thing as before. Same
two schedules. No changes at all. Only the jurisdiction has changed.

A — So all these small items of
misconduct will be seen by NFRA?

S — Yes. But not in all cases.

A — What do you mean?.

S — Relax Arjun. NFRA will deal
with only large firms. For small and medium firms like yours, the jurisdiction
is still with your Institute.

A — What do you mean by large
firms?

S — Large means those firms who
are auditing more than 200 companies; or more that 20 listed companies, or
those who are auditing the companies listed abroad.

A — Oh! I won’t have such big audits in this birth.
Next birth, I will surely not be a CA! Please help me in my next birth; and
keep me away from this profession.

.S — Don’t be so negative and
skeptical. You need to do the profession properly.

A — Anyway! Good news is that an
average CA will not have to face NFRA. Right? What relief to all small and
medium firms like ours! Lord, you are very kind!

S — But do read and understand
what is NFRA about.

A — Leave it. Bhagwan,
for the time being, explain it to me next time we meet. Now I have to complete
VAT audits and understand the Union Budget.

S — I know all of you CAs! You
will study it only when it pinches you. You will be sleeping until a thing
starts biting you! That always keeps you
under some fear or the other. Learn to update your knowledge constantly. Not by
merely managing your CPE hours.

A — I agree. Our BCAS motto is ‘Na
bhayam Chaasti Jaagratah’. He who is awake and alert has nothing to be
afraid of! Next time, please tell me about NFRA in more detail.

S — Sure, dear.

A — Bhagwan, Pranaam to
you!

!!OM Shanti!!

Note: The above dialogue discusses about the proposed NFRA
provisions (section 132 of the Companies Act, 2013) and gives a glimpse on its
applicability. _

BCAJ Admin

Corporate Law Corner

13.
Jotun India Private Limited vs. PSL Limited

Company Application N. 572 of 2017 [Bom HC]

Date of Order: 5^th January, 2018

Insolvency and Bankruptcy Code, 2016 – NCLT
continues to retain its jurisdiction for petition filed by any creditor even
where the winding-up petition has already been admitted by the jurisdictional
High Court.

FACTS

On 10.03.2015, J Co supplied goods to P Co
worth Rs. 7.25 crores. Upon failure of P Co to pay the stipulated amount, it
filed a company petition under sections 433 and 435 of the Companies Act, 1956
seeking winding up of P Co.

On 19.06.2015, J Co filed a petition with
Board of Industrial and Financial Reconstruction (“BIFR”) under Sick Industrial
Companies (Special Provisions) Act, 1985 (“SICA”) which was admitted on
09.03.2017 although Official Liquidator was not appointed.

Insolvency and Bankruptcy Code, 2016 (“IBC”)
was enacted which resulted in repeal of SICA and all matters pending before
BIFR stood abated. However, companies were granted a window of 180 days to file
fresh applications before National Company Law Tribunal (“NCLT”) under the IBC
regime. Thus, on 29.05.2017, J Co filed an application before the NCLT within
the 180 day period granted under the IBC.

Subsequently, P Co filed an application
before the Hon’ble Bombay High Court for appointment of provisional liquidator.
An order was passed by the High Court on 19.07.2017, restraining the NCLT from
continuing with the application filed before it. Present application was filed by J Co
requesting the High Court to recall the order dated 19.07.2017 which imposed a
stay on the IBC proceedings.

Parties and Intervenors made extensive
arguments before the High Court.

HELD

The matter which arose before the High Court
was whether it had the jurisdiction to grant a stay on the proceedings filed by
a Corporate Debtor before the NCLT, although a previously instituted
Company Petition had been admitted, but
where a Provisional Liquidator had not been appointed.

The High Court observed that the most
fundamental distinction between the provisions of Companies Act and IBC is that
winding up of companies is for the Court to decide and under IBC there is a
paradigm shift in as much as it displaces the management and Insolvency
Resolution Professional is appointed and Creditors committee is left to decide
the fate of the company.

High Court placed reliance on the Supreme
Court in the case of Madura Coats Limited [2016] 7 SCC 603 where it was held
that even during the regime of SICA, SICA was to have primacy over the
provisions of Companies Act, 1956. It was held that since SICA is repealed and
replaced by IBC, the provisions of IBC should prevail over the provisions of
the Companies Act, 2013.

J Co had filed a reference which was pending
before the BIFR when SICA was not repealed.
It had also made an application to NCLT within the stipulated period of
180 days. Further, placing reliance on Supreme Court’s decision in the case of
Bank of New York Mellon [2017] 5 SCC 1, it was held that in terms of section
252 of the IBC even in the case of a company where a winding up order has been
passed, it is open to such a company, whose reference was deemed to be pending
with BIFR, to seek remedies under IBC before NCLT. Also, there was no express
provision under Companies Act which stated that a post notice winding up
petition which is governed by the Companies Act, 1956 against the same company
(and which is retained by the Company Court), cannot be entertained by NCLT and
if entertained will be nullified.

It was held that admission of the winding up
petition by the jurisdictional High Court would not mean that NCLT either loses
jurisdiction or cannot exercise jurisdiction in case of a petition which is
filed by another creditor. It was observed that provisions of section 64(2) of
IBC indicated that the legislature did not intend that the Company Court would
have the power to injunct proceedings before NCLT.

High Court held that a new petition filed
under the IBC could still apply to the post notice winding up cases that
continue to be governed by the Companies Act, 1956. The mere fact that post
notice winding up proceedings are to be “dealt with” in accordance with the
provisions of the Companies Act, 1956 does not bar the applicability of the
provisions of IBC in general to proceedings validly instituted under IBC, nor
does it mean that such proceeding can be suspended.

The High Court went on to state that NCLT is
not a court subordinate to the High Court and hence as prohibited by the
provisions of section 41 (b) of the Specific Relief Act, 1963 no injunction
could be granted by the High Court against a corporate debtor from institution
of proceedings in NCLT.

Reading section 141 of the Code of Civil
Procedure, 1908, along with Rule 9 of the Companies (Court) Rules, 1959 it was
held that High Court had sufficient power to recall any order previously passed
by it.

The order dated 19.07.2017 was thus recalled
by the High Court.

14.
Ind-Swift Ltd., In re

[2018] 89 taxmann.com 149 (NCLT-Chd)

Date of Order: 8^th December, 2017

Section 73 of Companies Act, 2013 – Company
facing liquidity problems approached NCLT for extension of time in repaying its
fixed deposits – Extension was denied in view of the fact that Company Law
Board had already granted a huge extension in 2013 – There was no reason to
grant any further extension.

FACTS

I Co was incorporated on 06.06.1986 and was
listed on the stock exchange. I Co had been accepting deposits from the public
since the year 2002 and regularly and punctually paid back the fixed deposits
up to 28.02.2013. In the financial year ending on 31.03.2013, it started facing
liquidity problems and incurred losses. It filed a petition before the Company
Law Board (“the Board”) pleading for extension of time in repayment of deposits
which was sanctioned by the Board on 30.09.2013 with certain directions. It was
also clarified that non-compliance with order of the Board would result in
penalty u/s. 58A (10) and section 274 (1) (g) of Companies Act, 1956 (“1956
Act”).

As a result of ongoing financial and
liquidity crunch, I Co filed a fresh application with the NCLT on 27.09.2016
seeking further extension of time for repayment of deposits u/s. 74 of the
Companies Act, 2013 (“2013 Act”) read with Rule 11, 15 and 73 of the National
Company Law Tribunal Rules, 2016 read with section 58AA of 1956 Act.

I Co was directed to publish notice of the
hearing by advertisement in two newspapers which was duly complied by it. I Co
pointed out that out of the total number of 5575 depositors, the company
received 45 objections seeking speedy payment of their deposits. Registrar Of
Companies (“ROC”) jointly with Regional Director filed a statement before the
NCLT that it regularly received complaints against the company for repayment of
fixed deposits, all of which were forwarded to the company for necessary
action.

HELD

I Co filed a fresh scheme of repayment
detailing the manner in which payments would be made to the deposit holders.
The Tribunal noted that I Co had not made any payment to the fixed deposit
holders since the institution of the application.

Tribunal held that once the company had
sought the sanction of the scheme from the Board by bringing its financial
position to its notice at the relevant time in the year 2013 and got the relief
of huge extension, there was no reason to accept the plea for further extension.
Tribunal noted that it in coming to a decision of whether or not to grant an
extension it would not only have to consider the financial position of the
company but also safeguard the interest of the fixed deposit holders. The
legislature had laid down severe punishment in case of failure by the company
to make the payments to the deposit holders within the extended time and this
provision will have to be implemented in letter and spirit.

In view of the extension already granted by
the Board and lack of sincere efforts on part of I Co to repay the deposits,
Tribunal rejected the application seeking further grant of extension in
repayment of fixed deposits. I Co was directed to abide by the terms of order
of the Board and any non-compliance would entail penalties as listed out in the
2013 Act.

15.
Sree Gayathri Leisure India (P.) Ltd. vs. ROC

[2018] 89 taxmann.com 34 (NCLT – Hyd.)

Date of Order: 29^th December, 2017

Section 252 of Companies Act, 2013 –
Company was carrying out regular business and there was a delay in filing
statutory returns – Name of company which was struck-off for the non-filing was
ordered to be restored upon payment of additional fees.

FACTS

S Co was a private company incorporated on
29.04.2013 in the state of Andhra Pradesh. The main objects of the Company were
to act as commission agent for referring and enrolling members into any
resorts, clubs, hotels, family parks and other related activities etc. S
Co did not file annual accounts and annual returns for the Financial Years 2013-2014
to 2015-2016. It was the claim of S Co that it had been carrying out normal
business activities in the said period and the non-filing was wholly
inadvertent. ROC vide notice dated 21.07.2017 read with grounds mentioned in
public notice dated 05.05.2017 struck off the name of S Co.

S Co contended that company had been
regularly carrying out its business and was under the impression that all the
returns are being regularly filed. While filing of pending return on MCA portal
for pending period did the company realise that its name has been struck off.
It was pleaded that action of striking off of the Company would adversely
affect not only the company but its customers and various stake holders etc
alike. S Co submitted that it was ready to comply by filing annual returns in
question within the stipulated time as granted by the Tribunal, along with
required fees.

HELD

Tribunal examined the provisions of section
248 to 252 of the Companies Act, 2013 which deal with striking off the name of
the company. It was observed that before taking final action to strike off a
company u/s. 248(5), the ROC, is under duty to follow section 248, which
mandates the ROC to satisfy itself that sufficient provisions have been made
for realization of all amounts due to the company and for payment or discharge
of its liabilities and obligations etc. In the case of S Co, company had
ongoing business and there were people who depended on the company.

Considering the interest of company, its
employees and public employment, the Tribunal allowed the application of S Co
and directed the Registrar to restore its name in the Register of Companies
subject to filing of all the pending returns and payment of prescribed
additional fees. The Tribunal also imposed a cost of Rs. 30,000. _

BCAJ Admin

Allied Laws

21. Condonation of Delay – Delay of 3671 days – No reason to decline
benefit merely due to delay in filing of appeal when in similar cases benefit
was derived by similar concerns [Land Acquisition Act, 1894; Sections 4, 5, 18,
54]

K.
Subbarayudu and Ors. vs. The Special Deputy Collector (Land Acquisition) (2017)
12 Supreme Court Cases 840

The issue was
whether the lower authority could decline the benefit available to the
appellant only due to the reason of delay of 3,671 days in filing an appeal.

It was observed
by the Court that, when the concerned court has exercised its discretion either
condoning or declining to condone the delay, normally the superior court will
not interfere in exercise of such discretion. The true guide is whether the
litigant has acted with due diligence. Since the Appellants/claimants are the
agriculturists whose lands were acquired and when similarly situated
agriculturists were given a higher rate of compensation, there is no reason to
decline the same to the Appellants. Merely on the ground of delay, such benefit
cannot be denied to the Appellants. Accordingly, the delay was condoned.

22. Family Settlement Limitation – Suit challenging the deed of family
settlement after period of 9 years of deed of family settlement was held to be
barred by limitation. [Limitation Act (36 of 1963, Art. 157)]

Jose
Floriano Cristovam Pinto and Ors. vs. Michelle N. Pinto Souza and Ors. AIR 2017
BOMBAY 263

One of the
issues to be decided was whether a suit filed for repudiation of the deed of
family settlement after a gap of 9 years be allowed?

It was held
that there was substantial delay and laches on part of Respondents to
approach Court in seeking the repudiation of the Deed of Family Settlement of
2005 in a suit of 2014 and on that premise, could not have secured the
plaintiffs with the relief of injunction and also that the appellants could
well have disposed off other properties between this period of filing the suit
and the deed of settlement and in that context of apathy and inaction of the
plaintiffs did not entitle them to the relief of injunction, hence deed of
family arrangement cannot be held to be invalid.

23. Interpretation – Deed and documents – The terms of the contract will
have to be understood in the way the parties wanted and intended them to be.
[Arbitration and Conciliation Act, 1996, Section 34]

Bharat
Aluminium Company vs. Kaiser Aluminium Technical Services Inc. (2016) 4 Supreme
Court Cases 126

The only issue
was whether the parties, by agreement, express or implied, have excluded wholly
or partly, Part I of the Arbitration Act, where Art. 17 mentions that English
law would be applicable and Art. 20 mentions that Indian Law would be
applicable.

In the facts of
the present case, disputes arose out of an agreement which was executed. The
same were referred to arbitration in England where the arbitral Tribunal made
two awards in favour of the Respondent. The Appellant filed applications, u/s.
34 of the Arbitration Act before the District Judge, Bilaspur, which were
dismissed. Aggrieved, the Appellant filed appeal before the High Court of
Chhattisgarh. The High Court dismissed the appeal.

It was observed
by the Supreme Court that the parties have agreed in expressed terms that the
law of arbitration would be English Arbitration Law. In the case before us,
being a contract executed between the two parties, the court cannot adopt an
approach for interpreting a statute. The terms of the contract will have to be
understood in the way the parties wanted and intended them to be. In that
context, particularly in agreements of arbitration, where party autonomy is the
grundnorm, how the parties worked out the agreement, is one of the
indicators to decipher the intention, apart from the plain or grammatical
meaning of the expressions and the use of the expressions at the proper places
in the agreement. Contextually, it may be noted that in the present case, the
Respondent had invoked the provisions of English law for the purpose of the
initiation of the unsettled disputes. In view of the above, the Supreme Court
held that the arbitration agreement was not governed by the Indian Law.

24. Jurisdiction – on jurisdiction is mandatory – At any stage of the
proceeding, issue of jurisdiction which goes to the root of the matter has to
be tried once it is brought to the notice of the court– Remanded. [CODE OF
CIVIL PROCEDURE, 1908; ORDER I, RULE 8]

S.N.D.P.
Sakhayogam vs. Kerala Atmavidya Sangham (2017) 8 Supreme Court Cases 830

One of the
issues were whether the Plaintiff, who is a juristic person, i.e.,
“Society” is entitled to invoke the provisions of Order 1 Rule 8 of
the Code for filing a suit in a “representative capacity” i.e.
whether the Lower authority had the jurisdiction to try such a suit.

The facts of
the present case deal with the fact that the Plaintiff treated their suit to be
in the nature of a “representative suit” within the meaning of Order
1 Rule 8 and, therefore, applied to the Trial Court under Rule 8 of the Code
seeking permission to prosecute the suit in the representative capacity. This
permission appears to have been granted to the Plaintiff by the Trial Court
without any objection from the side of the Defendants and, therefore, Issue No.
1 was answered in Plaintiff’s favour.

The Court held
that the Trial Court was expected to decide several material questions, namely,
whether the Plaintiff, who is a juristic person, i.e., “Society” is
entitled to invoke the provisions of Order 1 Rule 8 of the Code for filing a
suit in a “representative capacity”. In other words, the Trial Court
should have examined the question as to whether the expression
“person” occurring in Rule 8 also includes “juristic
person”. Secondly, if the Plaintiff is held entitled to file such suit,
whether the facts pleaded and the reliefs claimed in the plaint can be said to
be in the nature of representative character so as to satisfy the ingredients
of Order 1 Rule 8 of the Code which are meant essentially for the benefit of public
at large for grant of any relief and lastly, if the facts pleaded and the
reliefs claimed in the plaint do not satisfy the requirements of Order 1 Rule 8
of the Code for grant of relief to the public at large then whether such suit
is capable of being tried as a regular suit on behalf of the Plaintiff for
granting reliefs in their personal capacity, because the suit relates to
ownership of land, namely, who is the owner of the suit land. Since there was
neither any discussion much less finding on any of the aforesaid issues by any
of the Courts below, though these questions directly and substantially arose in
the case, we are of the considered opinion that it would be just and proper and
in the interest of justice to remand the case to the Trial Court to answer
these issues and then decide the suit depending upon the answer in accordance
with law.

The Hon’ble
Court observed that the issue of jurisdiction which goes to the root of the
case if found involved has to be tried at any stage if the proceedings once
brought to the notice of the Court.

25. Nominee – Not entitled to withdraw from bank especially when dispute
raised by another legal heir [Banking Regulation Act, 1949, Section 45ZA]

Vishwanath
Yadav and Ors. vs. Kashinath Yadav and Ors. AIR 2017 BOMBAY 258

The questions
for consideration was whether a nominee can recover the amounts from the Bank
on behalf of all the legal representatives when the legal representatives
themselves have put up a claim to recover such amount from the concerned Bank and
whether such amounts can be claimed only after the Inventory Proceedings are
initiated.

It was observed
by the Court that it is clear that whenever a depositor appoints his nominee
and the depositor dies before the maturity of the fixed deposit for release,
the nominee so appointed would certainly be entitled to collect the amount
payable on such fixed deposit amount on its maturity for release. However, that
would not take away the right of the legal heirs of the deceased depositor from
claiming right to the amount standing to the credit of the deceased depositor
in accordance with the provisions of law of succession in force. This is so
because a nominee is merely a representative of the lawful successor of the
deceased depositor to receive the payment on the maturity of the deposit for
release. The nominee does not step in the shoes of the legal heirs merely on
account of nomination by a depositor.

In view of the observations
made, it was held that merely relying upon section 45ZA of the Banking Regulations
Act, it cannot be contended that he is entitled to withdraw the amounts
specially when the Appellants have raised a dispute in the present case. It was
also held, taking into account the second issue, that the amounts can be
withdrawn only after Inventory Proceedings.

BCAJ Admin

Direct Taxes

60. Non-applicability of MAT provisions to FIIs/FIPs who do not have PE / place of business in India prior to 01.04.2015

Instructions no. 18/2015 dated 23rd December 2015 (full text available on www.bcasonline. org)

61. No TDS on Interest on FDRs made in the name of Registrar General of the Court or the depositor of the fund on the directions of the Court, till the matter is decided by the Court

Circular no 23/2015 dated 28th December 2015

62. Questionnaire detailing the requirements for each scrutiny to be accompanied with the Notice u/s. 143(2) of the Act to avoid any undue hardship to tax payers

Instruction no. 19/2015 dated 29th December 2015 (full text available on www.bcasonline. org)

63. Detailed clarifications issued on scope of scrutiny assessments selected under Computer Aided Scrutiny Selection – Instruction no. 20/2015 dated 29.12.15

64. CBDT has issued a Press Release making mandatory e-filing of appeals to CIT(A) for all assesses who are required to file their return electronically

65. Recording of satisfaction note in cases covered u/s. 153C/158BD of the Act

Circular no. 24/2015 dated 31.12.15

CBDT directs all the officers to follow the principles laid down by the Supreme Court in the case of CIT vs. Calcutta Knitwears 362 ITR 673 wherein it has been held that the satisfaction note needs to be in place either a) at the time of or along with the initiation of proceedings against the searched person u/s. 158BC of the Act; or (b) in the course of the assessment proceedings u/s. 158BC of the Act; or (c) immediately after the assessment proceedings are completed u/s. 158BC of the Act of the searched person.”

66. The CBDT has issued a Guidance Note dated 31.12.2015 for ensuring compliance with the reporting requirements provided in Rules 114F to 114H and Form 61B of the Rules dealing with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS)

67. No penalty u/s. 271(1)( c) of the Act if additions made to normal income but tax determined as payable u/s. 115JB of the Act prior to 01.04.2016

Circular no. 25/2015 dated 31.12.2015

68. In light of huge default of short deduction, CBDT Issues Advisory To TDS Deductors For validating S. 197 Certification

BCAJ Admin

Company Law

1. The Companies (Registration Offices and Fees) Second Amendment Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 amended the Companies ( Registration Offices and Rules), 2014 whereby the Form AOC-4 ( Filing of Balance Sheet) can be certified by the Chartered Accountant or the Company Secretary or as the case may be by the Cost Accountant, in whole- time practice.

Filing Fees for Allotment of a Director’s Identification Number (DIN) is Rs. 500/- and for surrender of DIN is Rs. 1,000/-

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesRegistrationOffices2ndamdRules_08112016.pdf

2. Clarification regarding due date of transfer of shares to IEPF Authority

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 has issued clarification regarding the due date of transfer of shares to Investor Education & Protection Fund (IEPF) informing that the simplification of transfer process and extension of due date for the transfer are under consideration and are likely to be revised.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/Gcircular15_08122016.pdf

3. Commencement of Certain Sections of Companies Act 2013 Notification :

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 notified that the following sections of the Companies Act 2013, as listed in the table, shall come into force with effect from 15th December 2016:

Section

Pertains to

1. Section 2(23)

Definition of Company
Liquidator

2. Clause (c) and (d) of sub-section (7) of section 7

Pertain to affidavit and
registered office address while Incorporating a Company

3. Sub-section (9) of section 8

Pertains to assets remaining
on winding up / dissolution of Companies formed for Charitable objects etc

4. Section 48

Pertains to Variation of
Shareholders’ Rights

5. Section 66

Pertains to Reduction of
Share Capital

6. Section 224 (2)

Actions to be taken in
pursuance of Inspectors Report

7. Section 226

Voluntary Winding Up of
Company etc, not to stop investigation proceedings

8. Section 230 [except sub-section (11) and (12)], and Sections
231 to 233

Power to compromise or make
arrangements with creditor and members, mergers and amalgamation and other
related matters

9. Sections 235 to 240

Power to acquire shares of
shareholders dissenting from scheme or contract approved by majority and
other matters for compromise, merger and amalgamation

10. Sections 270 to 288

Winding up and matters
related thereto

11. Sections 290 to 303

Powers and duties of Company
Liquidator and other matters related thereto and to winding up

12. Section 324

Provisions for all types of
winding up –debts of all description to be admitted to proof

13. Sections 326 to 365

Other Provisions for all
types of winding up

14. Proviso to section 370

Continuation of pending
legal proceedings for Part 1 Companies

15. Sections 372 to 373

Power of court to stay or
restrain proceedings and suits stayed on winging up order for Part 1
companies

16. Sections 375 to 378

Winding up of Unregistered
Companies

17. Sub-section (2) of section 391

In case of Companies
incorporated outside India, provisions of Chapter XX (winding Up) would apply
for closure of its business place in India

18. Clause (c) of sub-section (1) of section 434

Transfer of pending
proceedings under Companies Act 1956 would stand transferred to Tribunal from
the stage before the transfer

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/commencementnotif_08122016.pdf

4. Companies (Removal of Difficulties) Fourth Order, 2016.

The Ministry of Corporate Affairs has vide Order No 3676 (E ) dated 7th December 2016 issued the Companies (Removal of Difficulties) Fourth Order, 2016. It has inserted the following provisos to after the proviso to section 434(1)(c ) pertaining to Transfer of certain proceedings:

“Provided further that only such proceedings relating to cases other than winding-up, for which orders for allowing or otherwise of the proceedings are not reserved by the High Courts shall be transferred to the Tribunal: Provided further that –

(i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or

(ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959”

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesROD_08122016.pdf

5. Companies (Transfer of Pending Proceedings) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 7th December 2016 under sub-sections (1) and (2) of section 434 of the Companies Act, 2013 (18 of 2013) read with sub-section (1) of section 239 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016) issued the Companies (Transfer of Pending Proceedings) Rules, 2016.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesTransferofPending_08122016.pdf

6. Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 :

The Ministry of Corporate Affairs has vide Notification dated 14th December 2016 issued the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which have come into force with effect from 15th December, 2016.

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/compromisesrules2016_15122016.pdf

7. National Company Law Tribunal (Procedure for Reduction of Share Capital of a Company ) Rules 2016 :

The Ministry of Corporate Affairs has vide Notification dated 15th December 2016 notified the rules for National Company Law Tribunal (Procedure for Reduction of Share Capital of a Company) u/s. 66 of the Companies Act, 2013

The full Notification can be accessed at http://www.mca.gov.in/Ministry/pdf/NCLTRules2016.pdf

8. National Company Law Tribunal (Amendment) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 20th December 2016 issued the National Company Law Tribunal (Amendment) Rules, 2016.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/NCLT(Amendment)Rules_21122016.pdf

9. Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 26th December 2016 issued the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. The rules provide that

i. the Registrar of Companies may suo moto remove the name of a company from the register of companies in terms of section 248(1) of Companies Act 2013 or

ii. an application for removal of name of the company u/s. 248 (2) of Companies Act 2013 shall be made in Form STK-2 for a fee of Rs. 5,000/-

Every application shall accompany a no objection certificate from concerned Regulatory Authority, if any and the application is to be in Form STK 2. Attachments to the Form are

a. indemnity bond duly notarised by every director in Form STK 3;

b. a statement of accounts containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant;

c. An affidavit in Form STK 4 by every director of the company;

d. a copy of the special resolution duly certified by each of the directors of the company or consent of seventy five per cent of the members of the company in terms of paid up share capital as on the date of application;

e. a statement regarding pending litigations, if any, involving the company.

Any application or pending proceeding for striking off or Form-FTE filed with the Registrar of Companies 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.

The Ministry of Corporate Affairs has clarified vide General Circular 16/2016 dated 26th December 2016 that the Form STK-2 would be available soon.

The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/Rules_28122016.pdf

10. The Companies (incorporation) Fifth Amendment Rules 2016

The Ministry of Corporate Affairs has vide its Notification dated 29th December 2016 issued The Companies (incorporation) Fifth Amendment Rules 2016 which have come into effect on 1st January 2017. The application for incorporation of a Company is required to be made in Form INC-32 (SPICe) alongwith e-Memorandum of Association in Form INC-33 and e-Articles of association in Form INC-34. In case of incorporation of a section 8 Company (Companies with Charitable Objects) the Form INC-32 (SPICe) alongwith e-Memorandum of Association in Form INC-13 and e- Articles of association in Form INC-31.

The eform INC-2 has now been removed and Form INC-7 is only for incorporation of Companies under Part 1 and Companies with more than 7 subscribers.

Full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/5th_Amendment_Rules_29122016.pdf.

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

102. FED Master Direction No. 9/2015-16 dated January 1, 2016

Master Direction – Insurance

This Notification contains the
updated Master Direction 9 on Insurance. The Master Directions have been
updated up to November 17, 2016 and are Annexed to this Notification. The
Master Direction prescribes the manner in which insurance business, in foreign
exchange, has to be conducted and deals with the following topics: –

1. Introduction.

2. Foreign Exchange Regulations
relating to General / Health / Life Insurance from Insurers outside India.

3. Foreign Exchange Regulations
relating to General/ Health Insurance from insurers in India.

4. Foreign Exchange Regulations
relating to Life Insurance from insurers in India.

103. Corrigendum dated November 25, 2016

Notification No. FEMA.362/2016-RB dated February 15, 2016

This corrigendum replaces
paragraph 2(C) (iv), S. No. 9.3 and 9.3.1 of Notification No. FEMA.362/2016-RB
dated February 15, 2016 as under: –

9.3

Air Transport Services

(1) (a) Scheduled Air Transport Service / Domestic Scheduled
Passenger Airline

(b) Regional Air Transport Service

49%

(100% for NRIs)

Automatic

(2) Non-Scheduled Air
Transport Service

100%

Automatic

(3) Helicopter services/
seaplane services requiring DGCA approval

100%

Automatic

9.3.1

Other Conditions

(a) Air Transport Services
would include Domestic Scheduled Passenger Airlines; Non-Scheduled Air
Transport Services, helicopter and seaplane services.

(b) Foreign airlines are
allowed to participate in the equity of companies operating Cargo airlines,
helicopter and seaplane services, as per the limits and entry routes
mentioned above.

(c) Foreign airlines are
also allowed to invest in the capital of Indian companies, operating
scheduled and non-scheduled air transport services, up to the limit of 49% of
their paid-up capital. Such investment would be subject to the following
conditions:

(i) It
would be made under the Government approval route.

(ii) The 49% limit will subsume FDI and FII/FPI investment.

(iii) The investments so made would need to comply
with the relevant regulations of SEBI, such as the Issue of Capital and
Disclosure Requirements (ICDR) Regulations/ Substantial Acquisition of Shares
and Takeovers (SAST) Regulations, as well as other applicable rules and
regulations.

(iv) A Scheduled Operator’s Permit can be granted only to a company:

a) that is registered and has its
principal place of business within India;

b) the Chairman and at least
two-thirds of the Directors of which are citizens of India; and

9.3.1

Other Conditions

c) the substantial ownership and
effective control of which is vested in Indian nationals.

(v) All foreign nationals likely to be associated with Indian
scheduled and non-scheduled air transport services, as a result of such
investment shall be cleared from security view point before deployment; and

(vi) All technical equipment that might be imported into India as a
result of such investment shall require clearance from the relevant authority
in the Ministry of Civil Aviation.

Note: (i) The FDI
limits/entry routes, mentioned at paragraph 9.3(1) and 9.3(2) above, are
applicable in the situation where there is no investment by foreign airlines.

(ii) The dispensation for
NRIs regarding FDI up to 100% will also continue in respect of the investment
regime specified at paragraph 9.3.1(c) (ii) above.

(iii) The policy mentioned
at 9.3.1(c) above is not applicable to M/s Air India Limited

104. A. P. (DIR
Series) Circular No. 20 dated November 09, 2016

Issue of Pre-Paid Instruments to foreign tourists

This circular: –

1. Supersedes A. P. (DIR Series) Circular No. 16
dated November 11, 2016 regarding Withdrawal of the legal tender character of
the existing and any older series banknotes in the denominations of ? 500 and ?
1000.

2. Provides that foreign citizens (i.e. foreign
passport holders) are permitted to exchange foreign exchange for Indian
currency notes up to a limit of ? 5,000/- per week until December 15, 2016. The
foreign tourist will have to give, at the time of exchange, a self-declaration
that he / she has not availed of this facility during the week and also provide
a copy of their passport.

3. Provides that foreign tourists can continue to
avail facility of Pre-Paid Instruments as mentioned A. P. (DIR Series) Circular
No. 17 dated November 11, 2016.

105. A. P. (DIR
Series) Circular No. 22 dated December 16, 2016

Exchange facility to foreign citizens

This circular provides that the facility for exchange of
foreign exchange for Indian currency, available to foreign citizens (i.e.
foreign passport holders) whereby they were permitted to exchange foreign
exchange for Indian currency notes up to a limit of Rs. 5,000/- per week will
continue up to December 31, 2016. The foreign tourist will have to give, at the
time of exchange, a self-declaration that he / she has not availed of this
facility during the week and also provide a copy of their passport.

BCAJ Admin

ETHICS AND U

Arjun (A) — Hey
Shrikrishna, all these years I believed that YOU make sure that there is rule
of justice in the world! But…….

Shrikrishna (S) — Yes, Arjun.
‘But’ what?

A — Now,
I have grave doubts about it! You had said everybody gets the fruits of his
deeds – his karmas.

S — Yes.
That’s right.

A — And
you also said that a person is himself responsible for his own progress or
downfall.

S — Correct.

A — And
further; I also remember you saying – a person is his own friend and his own
foe! Right?

S — Absolutely!
Hundred per cent marks to your memory!

A — But
then, I find that our CA friends are suffering due to misdeeds of others.

S — Why?
What happened?

A — See,
my friend is practicing for the past 20 years. Totally unblemished track
record!

S — This
is a bold statement. It only means that his lapses have not been exposed so
far!

A — Whatever
you may say. But so far he never had any problem.

S — Good.

A — He
signed one company’s audit for one year in good faith.

S — What
do you mean by good faith? One should never certify any accounts merely on
faith; unless one verifies it.

A — Actually,
his friend said, he has exhausted the limit of number of companies that one can
audit. He said, this was a group company and he had seen everything.

S — Oh!

A — Now,
the directors of that company misused his signature. No doubt, he signed for
one year; but directors uploaded the balance sheets of 3 or 4 subsequent years
to ROC as if my friend had signed them.

S — Strange!

A — And
later on it was revealed that the management was totally fraudulent. They had
formed many companies, got them listed on stock exchanges and did a lot of
financial irregularities. All documents were fabricated!

S — So,
what happened to your friend?

A — Somebody
made a complaint to our Institute saying that he relied on these balance sheets
and was duped!

S — Naturally.
Anybody would do that if he has suffered.

A — No.
The funny part is that the complainant also turned out to be a fraudulent
person. Both the complainant as well as the chairman of the company were behind
bars!

S — Good.
I told you that everybody gets the fruits of his karma. Each one of them
became the enemy of himself. So, what I told you in Mahabharata was true!

A — Yes. But why should my friend suffer? He was
unnecessarily dragged into the disciplinary case. He did not even receive his
fees!

S — How
do you say ‘unnecessarily’?

A — Of
course! Both the parties were criminal. How is auditor answerable? What is his
mistake?

S — Arjun,
just think for a while. Is it not a fact that he signed the audit papers?

A — Yes.
But only for one year.

S — OK.
But for that year, had he checked the books and records properly?

A — But
it was fraud!

S — So
what? Did he write to the previous auditor? Did he check up validity of his
appointment? Did he upload necessary forms like form ADT 1 to ROC? Did he
obtain management representation letter? Clause 7 of Second Schedule clearly
covers both – gross negligence and lack of due diligence.

A — No.

S —
Then! See my dear, God helps the diligent.

A — That
means he was duped by his friend. I believe, that friend is also facing
complaints.

S — I
told you many times. Your Council is concerned with your conduct; not anybody
else’s. Have you acted diligently as a professional? What prevented you from
refusing to sign?

A — Temptation!
And also the faith in the friend!

S — That
is very common among all professionals. Rather, it is human instinct.

A — Actually,
the management promised to help him in the proceedings. They said they would
take care. But now they backed out. They are themselves in difficulty! It had
come in the press also.

S — That’s
what I am saying. Your friend may not be involved in the fraud. But did he
inform police about forgery or all these happenings?

A — He
was so afraid! He said both the parties are criminal.

S — Whatever
it is. But he has to face the music. It will be better if he pleads guilty. At
least, his case may be considered sympathetically. Confession often helps.

A — Can
he be absolved?

S — Difficult.
He may be held guilty of misconduct; but punishment may be soft if he comes out
clean.

A — Yes,
Lord! I take back my words. This is a good lesson to all of us. We cannot claim
to be totally innocent. It is a breach of duty as a CA. There is no point
blaming others.

S — So
then, I am sure, you will take care.

A — Yes
Lord! Please protect me.

S — Tathastu.

Om Shanti.

Note:

The above dialogue is based on Clause (7) of
Part I of Second Schedule. Once again, it emphasises how we professionals take
certain assignments only on good faith and take various aspects for granted.
Shri Krishna, in the above dialogue has rightly pointed out – ‘God helps the
diligent’.

BCAJ Admin

Allied Laws

19.
Appellate Tribunal – Reasoned Order – Order should refer to all factual
aspects, rival contentions and legal provisions – Reasons to be assigned for
the basis of any conclusion reached. [Section 254(1)]

Gandhar Oil Refinery vs. Commissioner of Customs (Import)
2016 (342) E.L.T. 31 (Bom.) (HC)

The Tribunal, in the present case had, not beyond one
paragraph, adverted to factual exercise and no details had been mentioned.

The High Court held that the Tribunal should focus on the
core issue, must refer to all factual matters, including any findings by the
laboratories after a test of the samples, the rival contentions and whether the
legal provisions, including, the Rules having a bearing or impact on the same
should be clearly indicated. The Tribunal must assign reasons for the
conclusion it reaches either way.

20.
Contempt of Court – Serious and unsubstantiated allegations of
corruption and bias against Judiciary – Cannot be termed as Fair Criticism –
Affidavits filed for apology not deemed bonafide – Imprisonment upto 6 months
and upto Rs. 2,000 fine for contempt. [Contempt of Courts Act, 1971; Sections
2(c), 5, 12]

Het Ram Beniwal And Others vs. Raghuveer Singh And Others
Air 2016 Supreme Court 4940

The 4 appellants, of whom 2 were advocates, addressed a huge
gathering of their party workers in front of the Collectorate, when some of the
accused were granted anticipatory bail, who were allegedly involved in the
murder of a prominent trade union activist.

While addressing the gathering, the appellants made
scandalous and derogatory statements against the High Court and its Judges
stating how the system of Judiciary failed in rendering justice and people have
lost their faith and confidence in the Judiciary, the rule was of the Rich
People in the Judiciary and that there was the influence of money behind the
anticipatory bail of the accused.

The appellants, when questioned in Court by filing a
petition, contented that the statements only attributed to ‘Fair Criticism’
which would not amount to Contempt of Court as mentioned in section 5 of the
Contempt of Courts Act, 1971, which states that Fair Criticism of Judicial act
was not contempt. It was also contended that Criticism of class bias and
improper administration of justice cannot be considered to be contempt.

The Ld. Amicus Curiae, assisting the Court, submitted
that vituperative comments undermining the Judiciary would amount to contempt
and that, an apology through an Affidavit was made only for the purpose of
avoiding punishment and was not bonafide.

The Supreme Court in the current case held that Judges need
not be protected and that they can protect themselves but it is the right and
interest of public in the due administration of justice that have to be
protected. Vilification of Judges would lead to the destruction of the system
of administration of justice. The statements of the appellants are not only
derogatory but also have the propensity of lowering the authority of the Court.
Accusing Judges of corruption results in denigration of the institution which
has an effect of lowering the confidence of the public in the system of
administration of justice. Hence, the appellants are not entitled to take
shelter u/s. 5.

The Court also states that every citizen has a fundamental
right to speech, guaranteed under Article 19 of the Constitution of India.
Contempt of Court is one of the restrictions of such right.

Dismissing the appeal, the court subjected the appellants to
an amount of Rs.2,000/- only as fine without any imprisonment.

21.
Family – The term ‘family’ includes a married daughter for her to have a
right to evict the tenant from the building [Regulation of Letting, Rent and
Regulation Act, 1972; Section 3(g)].

Gulshera Khanam vs. Aftab Ahmad Air 2016 9 Supreme Court
414

Dr. Ahsan Ahmad was the
original owner of the building who died intestate. On his death, the entire
estate devolved upon his wife(appellant), 2 sons and 4 daughters as per the
shares defined in the Hanafi Law of Inheritance. Dr. Naheed Parveen being the
daughter, received her share accordingly and became the co-owner along with
other co-sharers.

Section 3(g) of the Regulation of Letting, Rent and
Regulation Act, 1972 clearly states in sub-section(iii) that “family includes
any unmarried or widowed or divorced or judicially separated daughter or
daughter of a male lineal descendent as may have been normally residing with
him or her” which clearly shows the intention of the legislation to exclude a
married daughter from the purview of the definition of ‘Family’ as defined under
the Act.

However, the Supreme Court took a different view by
interpreting the lines included in section 3(g) which are stated in the end as,
“and includes, in relation to a landlord, any female having a legal right of
residence in that building”. It was held that since the daughter got a legal
right in the building in the form of a share devolved on her as per the
Mohamedan law i.e. the Hanafi Law of Inheritance, the term ‘Family’ includes a
Married daughter.

22. Interpretation-Binding precedents – If two
decisions of Supreme Court, being contrary to each other, are passed – The
later decision will be binding. [Sick Industrial Companies (Special Provisions)
Act, 1985; Section 22]

A.K. Mohta vs. Karnataka State Financial Corpn. [2016] 198
Comp Cas 286 (Karn.)(HC)

The issue was w.r.t. whether guarantors can be protected from
legal ‘proceedings’ whereas the section clearly mentions the word ‘suit’
against which the guarantors could claim protection u/s. 22 and not against
‘proceedings’.

Relevant portion of the section states, “and no suit for the recovery of money or for the
enforcement of any security against the industrial company or of any guarantee
in respect of any loans or advance granted to the industrial company”.

The court had placed reliance on one Supreme Court case law
(2003) where it stated that Legislature appeared to have knowingly used two
differently expressions in section 22(1) w.r.t. ‘proceeding’ and ‘suit
wherein the expression ‘proceeding’ would not include the expression ‘suit’ and
vice versa w.r.t to protection of Guarantors under the said Act.

The counsel however,
relied upon one Supreme Court Judgment (2007) which held that section 22(1)
would have to be interpreted to include the expression ‘proceeding’ also in
view of the legislature’s intention to protect the sick industries.

A peculiar fact was that, the earlier decision had not been
taken into consideration for the purpose of arriving at the judgment passed by
the Supreme Court in the later year (2007) and a larger bench did not have an
occasion to lay down the correct position of law.

The High Court in the current case held that if two decisions
of the Supreme Court on a question of law cannot be reconciled and if both
Benches of the Supreme Court consist of equal number of Judges, the later of
the two decisions should be followed by the lower Courts/Authorities.

23. Interpretation – Binding
precedents – Binding effect of order –
Order even if void, would continue to be in force until set aside by court of
competent jurisdiction.

Anita International vs. Tungabadra Sugar Works Mazdoor
Sangh and Ors. (2016) 9 Supreme Court Cases 44

It was held that parties to lis(a suit pending) or any
third party cannot themselves determine the voidness of any order without
approaching a competent court for setting it aside since not following the same
would amount to disobedience of court’s order which would entail punishment.

The Hon’ble Supreme Court held that even if the
order/notification is void/voidable, the party aggrieved by the same cannot
decide that the said order/notification is not binding upon it. It has to
approach the competent court for seeking such declaration. The order may
hypothetically be a nullity and even if its invalidity is challenged before the
court in a given circumstance, the court may refuse to quash the same on
various grounds including the standing of the petitioner or on the ground of
delay or on the doctrine of waiver or any other legal reason.

BCAJ Admin

Miscellanea

7. Re-promulgation of ordinances is ‘fraud’ on
Constitution, says Supreme Court

The Supreme Court on
Monday held that re-promulgation of ordinances by government was
constitutionally impermissible as it amounted to bypass the legislative body
which was a primary source of law making authority in a parliamentary
democracy.

A seven judge constitution
bench held by majority that government’s decision to bring ordinance can be
reviewed by judiciary and said that it was obligatory for the government to
place the ordinance before the legislative body for its approval and
non-placement of ordinances before the Parliament and the State legislature
would itself constitute a fraud on the constitution.

The majority verdict by
Justices A. K. Goel, U. U. Lalit, D. Y. Chandrachud and L. Nageswara Rao held
that “Re-promulgation defeats the constitutional scheme under which a
limited power to frame ordinances has been conferred upon the President and the
Governors.”

“The danger of
re-promulgation lies in the threat it poses to the sovereignty of Parliament
and the state legislatures which have been constituted as primary law givers
under the Constitution. Open legislative debate and discussion provides
sunshine which separates secrecy of ordinance making from transparent and
accountable governance through law making,” it said.

Chief Justice T. S.
Thakur, who was heading the bench, also agreed with majority verdict on the
issue but differed on other aspect. “I am in complete agreement with the
view expressed by my esteemed brother Chandrachud, J. that repeated
re-promulgation of the ordinances was a fraud on the Constitution especially
when the Government of the time appears to have persistently avoided the
placement of the ordinances before the legislature.”

Justice Madan B. Lokur,
however, differed sating “There could be situations, though very rare,
when re-promulgation is necessary”.

The majority verdict,
delivered by Justice Chandrachud said, “The failure to place an ordinance
before the legislature constitutes a serious infraction of a constitutional
obligation which the executive has to discharge by placing the ordinance before
the legislature”

“The laying of an
ordinance facilitates the constitutional process by which the legislature is
enabled to exercise its control. Failure to lay an ordinance before the
legislature amounts to an abuse of the constitutional process and is a serious
dereliction of the constitutional obligation,”it said.

The court said that apex
court’s ‘hope and trust’ that law making through re-promulgated ordinances
would not become the norm had been belied by the governments through succession
of re-promulgated ordinances.

It also ruled the
satisfaction of the President under Article 123 and of the Governor under
Article 213 is not immune from judicial review.

“The test is whether
the satisfaction is based on some relevant material. The court in the exercise
of its power of judicial review will not determine the sufficiency or adequacy
of the material. The court will scrutinise whether the satisfaction in a
particular case constitutes a fraud on power or was actuated by an oblique
motive. Judicial review in other words would enquire into whether there was no
satisfaction at all,” it said.

(Source: The Times of
India dated 03.01.2017)

8. Here’s how to rationalise capital gains tax

A major spin-off a
significantly lower rate of tax on income hinted at by the finance minister
would be the possibility to reorganise the taxation of savings and capital
gains on a rational basis. That basis is to treat as current income liable to
bear tax at the rate appropriate for the relevant income bracket that part of
any capital gain, after indexation in the case of non-financial assets, which
does not get redeployed in new assets. Such a method of taxation would not
penalise portfolio churning across assets, essential for intelligent savings.
Such a reform was proposed in the original Direct Taxes Code of 2009, which had
sought to scrap the distinction between longterm and short-term capital gains
on shares based on the holding period, scrap the securities transaction tax,
and include only that slice of capital gains which is not deployed in any other
capital asset, as part of taxable income.

Indexation benefits, meant
mainly to compute capital gains, are fine. Simply put, there would be no tax on
the gains, say, from the sale of a house if the money is reinvested in shares
and vice versa. The basic principle — to spare the saving asset from tax and
charge a tax only on the income from the asset — is perfect and will make
savings efficient. The government should adopt the so-called exempt-exempt-tax
system wherein all savings will be exempt from taxation at the time of
contribution and accumulation, and taxed at maturity, if not ploughed into
another asset.

For example, the
income-tax law allows investors who make capital gains to invest in NHAI and
REC bonds. The entire gain is exempt if the equivalent amount is invested in
these bonds, subject to an upper limit of Rs. 50 lakh every financial year.
This principle is sound. The EET method is beneficial to investors, given that
it does away with artificial distortions, and raises efficiency and equity in
the tax system. It would also help the government garner more revenues. But for
this to work, the rate of tax has to be low. Taxation should be uniform across
savings products, to prevent inefficient distortions that could lead to say,
housing bubbles.

(Source: The Economic
Times dated 28.12.2016)

9. Tax dividends in the shareholders’ hands

Taxation of dividends has
become a vexatious issue, needlessly. It should be taxed in the hands of the
investor at the rate applicable to the investor’s income bracket. The finance
minister has indicated that the rate would be lowered in the interest of
economic efficiency and that is welcome. The dividend distribution tax should
be scrapped. To make sure that dividend income does not go under-reported,
companies can be mandated to deduct tax at source at the highest marginal rate
of 30%, leaving it to individuals whose incomes warrant a lower rate of tax to
claim a refund while filing returns. The government has to make the processing
of claims and refunds fast and efficient, that is all.

At present, companies pay
a dividend distribution tax at the rate of 15%. Individuals who receive
dividend income in excess of Rs.10 lakh pay a dividend tax of 10%. So dividends
bear a tax of 25% at most. This is not an equitable way of taxing people.
Company promoters who get the bulk of their income as dividends pay a lower
proportion of their income as tax as compared to employees who receive the bulk
of their income as salaries taxable at the highest marginal rate. Taxing
dividends in the hands of the shareholder would both be fairer and more
revenue-efficient than the current arrangement.

The debate that should
begin on taxing dividends is whether to allow the cost of equity capital the
same deductible expense status as interest, the cost of debt capital. This
would do away with artificial demand for debt — borrowing is tax-efficient,
even if you do not really need that loan — and encourage companies to retain
only as much earnings as they have use for. Uninvested cash surpluses on
company books are a drag on the economy. This, of course, is a global debate..

(Source: The Economic
Times dated 28.12.2016)

10. Supreme Court lens on funds of over 30 lakh
NGOs

The Supreme Court ordered
the Centre and state governments to scrutinise the accounts of lakhs of NGOs
and voluntary organisations, which together received thousands of crores of
rupees of public funds, and take civil and criminal action against all
organisations misusing the grants.

Taking umbrage at years of
inaction on the part of governments in seeking accountability from NGOs on fund
utilisation, a bench comprising Chief Justice J. S. Khehar, Justice N. V.
Ramana and Justice D. Y. Chandrachud said: “The governments are not aware
of their responsibility to audit the NGOs as provided under the General Finance
Rules, 2005.

We direct the respondents
to complete the exercise of audit and submit a report to the court by March 31
under all circumstances.” The bench authorised the governments to take
punitive action against NGOs and voluntary organisations which failed to provide
proper accounts of public funds received by them.

“In case an NGO is
found to be non-compliant after auditing, it is imperative for the authorities
to initiate civil and criminal action so as to enable the government to recover
the money, apart from punishing those who misappropriated the funds,” the
bench said.

CBI, through additional
solicitor general Tushar Mehta, informed the court that it had so far detected
32.97 lakh registered NGOs and voluntary organisations but less than 10% of
them (3.07 lakh) filed their audited accounts with the Registrar of Cooperative
Societies. CBI was directed to undertake the NGO fund monitoring exercise on a
PIL filed by advocate M. L. Sharma who had accused Anna Hazare’s NGO of
misappropriating funds allotted by Council for Advancement of People’s Action
and Rural Technology (Capart). But the court said the problem of NGOs with no
accountability seemed to be a much larger issue than the Rs. 5 crore grant
given to Hazare’s NGO.

Amicus curiae Rakesh
Dwivedi, with advocate Sansriti Pathak, startled the court by quoting an
independent study by Asian Centre for Human Rights (ACHR). Dwivedi said RTI
replies collated by ACHR revealed that various departments of the Centre had
released Rs 4,756.71 crore as grants to NGOs during 2002-09 and during the same
period, states and Union territories had released Rs. 1,897.64 crore.

This meant that a total of
Rs. 6,654.35 crore was released to NGOs and voluntary organisations during
2002-09, or an average of Rs. 950.62 crore a year. This figure was worked out
despite key states like Madhya Pradesh, Uttar Pradesh, Odisha, Jammu &
Kashmir, Arunchal Pradesh, Mizoram and Union territories not providing any
information. Dwivedi said it indicated that the actual amount released to NGOs
would be higher. Surprisingly, the Centre did not provide any statistics on the
amount of money it had given to NGOs from the public exchequer.

The bench wanted to put an
end to this lack of financial accountability by NGOs. It ordered the Centre to
frame and submit for the court’s scrutiny a guideline on the procedure for
accreditation of NGOs and voluntary organisations, the manner in which they
should maintain regular accounts and the mechanism to recover misused or unused
funds.

The petition by advocate
M. L. Sharma had been pending in the court for the last five years, a major
part of which was taken by the CBI to gather data on registered NGOs and those
which had complied with the statutory requirement of furnishing audited
accounts. The bench took a decisive action saying: “We cannot allow the
matter to remain in a flux. We must take the case forward as it has remained
stagnant for years”.

(Source: The Times of India
dated 11.01.2017).

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

13.
ITO vs. Urban Improvement Trust and Ors. (2018) 409 ITR 1 (SC)

Exemption – Local
Authority – The word “Municipal Committee” occurring in clause (iii) Explanation
to section 10(20) has a definite purpose and object, namely, to cover those
bodies, which are discharging municipal functions but are not covered by the
definition of municipalities as is required to be constituted by Article 243Q
of the Constitution of India – Urban Improvement Trust constituted under the
Rajasthan Urban Improvement Act, 1959 was not covered by the definition of
Municipal Committee as contained in clause (iii) of Explanation to section
10(20) of the Act.

A notice u/s. 142(1) of the
Act dated 01.08.2005 was issued requiring the Assessee to file a return for the
assessment year 2003-2004. A reply was submitted on behalf of the Assessee that
Urban Improvement Trust-the Assessee was a municipality within the meaning of
Article 243P of the Constitution of India, hence it was not required to file an
income tax return. Assessing Officer passed an assessment order dated
28.03.2006 rejecting the contention of the Assessee that its income was
exempted u/s. 10(20). An appeal was filed by the Assessee before the
Commissioner (Appeals). Commissioner (Appeals) passed an order on 10.02.2010
holding that Assessee was a local authority within the meaning of section
10(20) of the Act. The Revenue filed an appeal before the Income Tax Appellate
Tribunal challenging the appellate order. The ITAT accepted the Revenue’s claim
that Assessee was not covered within the definition of clause (iii) of
Explanation to section 10(20). The Appellate Tribunal allowed the appeal and
restored back the matter to the Commissioner of Income Tax (Appeals) for
consideration of the other issues.

Both
the Assessee and Revenue aggrieved by the order of ITAT had filed appeals
before the High Court. The High Court decided all the appeals vide its judgment
dated 25.07.2017. High Court held the Assessee to be local authority within the
meaning of section 10(20) Explanation. After answering the above issue in
favour of the Assessee, the High court held that other issues have became
academic. Consequently, the appeals filed by the Revenue were dismissed and
that of the Assessee were allowed.

According to the Supreme
Court, the only issue which arose before it was as to whether the Urban
Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959
was a local authority within the meaning of Explanation to section 10(20) of
the I.T. Act, 1961.

The Supreme Court noted
that section 10(20) was amended by Finance Act, 2002 w.e.f. 01.04.2003. By
Finance Act, 2002, provisions of section 10(20A) were also deleted. Section
10(20A), which existed prior to amendments made by Finance Act, 2002 exempted
any income of an authority constituted in India by or under any law enacted
either for the purpose of dealing with and satisfying the need for housing
accommodation or for the purpose of planning, development or improvement of
cities, towns and villages or for both. The Rajasthan Urban Improvement Act,
1959 was enacted for the improvement of Urban Areas in Rajasthan. The Rajasthan
Urban Improvement Act, 1959 was, thus, clearly covered by Section 10(20A). It
was availing exemption u/s. 10(20A) prior to Finance Act, 2002.

According to the Supreme
Court it had to decide as to what was the consequence of deletion of section
10(20A) and further insertion of Explanation u/s. 10(20) providing for an
exhaustive definition of the word “local authority”, which was not
defined under the Act prior to Finance Act,
2002?

The Supreme Court on
perusal of the Scheme of the Rajasthan Urban Improvement Act, 1959 as well as
the Rajasthan Municipalities Act, 1959 held that the provisions of the said Act
indicated that Urban Improvement Trust undertook development in the urban area
included in municipality/municipal board. Urban Improvement Trust was not
constituted in place of the municipality/municipal board rather it undertook
the act of improvement in urban areas of a municipality/municipal board under
the Rajasthan Urban Improvement Act, 1959. It could also perform certain
limited power of the municipal board as referred to in sections 47 and 48 but
on the strength of such provision Urban Improvement Trust did not become a
municipality or municipal board.

The Supreme Court further
observed that Learned Counsel for the Assessee had not based its claim on the
basis of clause (ii) of Explanation which relates to Municipalities rather it
had confined its claim to only clause (iii). Under clause (iii) claim of the
Assessee was that it was a “Municipal Committee”. The Supreme Court, thus,
proceeded to examine as to whether the Assessee was a Municipal Committee
within the meaning of Explanation to section 10(20) or not?

The Supreme Court noted
that the word “Municipal Committee” as occurring in section 10(20)
Explanation came for consideration before it in Agricultural Produce Market
Committee Narela, Delhi vs. Commissioner of Income Tax and Anr. (2008) 305 ITR
1. In the above case, it had examined the Explanation to section 10(20) as
amended by Finance Act, 2002 and the definition of local authority contained
therein. It held that the words “Municipal Committee and District
Board” in Explanation were used out of abundant caution. In 1897, when the
General Clauses Act was enacted there existed in India Municipal Committees and
District Boards, which were discharging the municipal functions in different
parts of the country. The expression “Municipal Committee and District
Board” were included by amendments incorporated by Finance Act, 2002 to
take into its fold those Municipal Committees and District Board which are
still discharging municipal functions where no other municipalities or boards
to discharge municipal functions have been constituted.

The Supreme Court held that
the word “Municipal Committee” occurring in clause (iii) Explanation,
thus, had a definite purpose and object. Purpose and object was to cover those
bodies, which are discharging municipal functions but were not covered by the
definition of municipalities as was required to be constituted by Article 243Q
of the Constitution of India. Urban Improvement Trust constituted under the
Rajasthan Urban Improvement Act, 1959, thus, could not be held to be covered by
the definition of Municipal Committee as contained in clause (iii) of
Explanation to section 10(20) of the Act.

The Supreme Court observed
that in New Okhla Industrial Development Authority vs. Chief Commissioner of
Income Tax and Ors. (2018) 406 ITR 178, it had considered in detail the
object and purpose of section 10(20A), the object and purpose of Finance Act, 2002
amendment adding the Explanation to section 10(20) and deletion of section
10(20A).

The Supreme Court further
held that the provision of sections 47 and 48 which permits certain powers of
the municipal boards to be performed by the Trust does not transform the Trust
into a Municipal Committee. The power entrusted u/s. 47 and 48 was for limited
purpose, for purposes of carrying out the improvement by the Improvement
Trusts. Further, sections 61 to 64 which empowers levy of betterment charges,
were again in reference to and in context of carrying out improvement by the
Improvement Trust in urban areas. The Municipal Board, Kota performed its
functions, in areas where Municipal Board existed. There was no reason to
accept that Urban Improvement Trust was a Municipal Committee within the
meaning of section 10(20) Explanation clause (iii). Also, section 105, which
provides for ultimate dissolution of Trust and transfer of its assets and
liabilities to the Municipal Board, does not in any manner improve the case of
the Assessee. The provision was for different purpose and object. The above
provision did not support the contention that Improvement Trust was a Municipal
Committee as referred to in clause (iii) of Explanation to section 10 of the
Act.

The Supreme Court was,
thus, of the view that Scheme of the Rajasthan Urban Improvement Act, 1959 did
not permit acceptance of the contention of the Appellant Assessee that Urban
Improvement Trust was a Municipal Committee within the meaning of section
10(20) Explanation (iii).

According to the
Supreme Court, the High Court had based its decision on the fact that functions
carried out by the Assessee were statutory functions and it was carrying on the
functions for the benefit of the State Government for urban development. The
said reasoning could not have lead to the conclusion that it was a Municipal
Committee within the meaning of section 10(20) Explanation clause (iii). The
High Court has not adverted to the relevant facts and circumstances and without
considering the relevant aspects had arrived at erroneous conclusions.

14. Honda Siel Cars India Ltd. vs. CIT (2018)
409 ITR 42 (SC)

Capital or revenue expenditure – Lump-sum
payment of technical fee as well as continuing royalty both as capital
expenditure – Assessee is entitled to depreciation thereon

The
Supreme Court in its judgment in Honda Siel Cars India Ltd. vs. CIT [2017]
395 ITR 713 (SC) for the assessment years 1999-2000 and other years treated
the lump-sum payment of technical fee as well as continuing royalty both as
capital expenditure for the assessment years in question. On a miscellaneous
application filed by the Appellant, the Supreme Court held that since these
were capital expenditure, the applicant/Appellant would be entitled to
depreciation thereon.

15. Anil Kumar Nehru vs. ACIT Civil
Appeal No(s). 11750 of 2018; Dated:
31^st December, 2018

Appeal to the High Court – Condonation of
delay – Delay of 1662 days – The High Court should not take a technical view
and dismiss the appeal on the ground of delay when appeals for earlier
assessment years with identical issues are already pending before it

The Supreme Court noted that on the identical issue raised by the
appellant in respect of earlier assessment, the appeal was pending before the
High Court. In these circumstances, according to the Supreme Court, the High
Court should not have taken such a technical view of dismissing the appeal in
the instant case on the ground of delay, when it had to decide the question of
law between the parties in any case in respect of earlier assessment year. For
this reason, the Supreme Court, set aside the order of the High Court; condone
the delay for filing the appeal and directed the High Court to decide the
appeal on merits.

The
appeals were allowed accordingly.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

As I sit down to write this
communication, the Finance Minister has just concluded presenting the Interim
Budget. In an invigorating Interim Budget speech, for the first time by a
Chartered Accountant, the Finance Minister left no stone unturned in highlighting
the series of measures taken by the Government to overcome policy paralysis and
bring the Indian economy back on track.
While a bystander may get a perception that some of these recollections
amount to blowing one’s own trumpet, perhaps in these times of persistent
negativity and noise, some element of positive assertion helps build
confidence.

Departing
from established conventions, the Finance Minister also proposed certain
amendments in the tax laws. Interestingly, there was a departure not only from
convention but also from a traditional mindset. Essentially, the proposals do
not aim to merely provide incremental benefits but appear to suggest a
recalibration of tax laws and limits to accept ground level realities and
changing times. The doubling of the basic exemption limit for individuals from
Rs. 2.5 lakh to Rs. 5 lakh and the quadruplicating of the threshold limit for
TDS on interest on bank fixed deposits from Rs. 10,000 to Rs. 40,000 cannot be
simply brushed aside as incremental changes. Nor can one ignore the concession
granted for the second residential house, both in terms of interest deduction
and the reinvestment benefit.

GST has been a classic
example of how multiple Government agencies having distinct taxing powers can
collectively administer and recover taxes from the common subject. Perhaps
taking inspiration from the said success, the Interim Budget also proposes
reforms in the levy and collection of stamp duty on financial securities
transactions. Collecting such stamp duty at one place through the Stock
Exchange and sharing the same backend with the State Governments seamlessly on
the basis of domicile of the buying client, could bring in much needed
simplicity in the administration of the said duty.

One more reflection of the mindset
change could perhaps be an elaborate thanksgiving to the tax payers. Through
some examples drawing an emotional connect with the tax payers, the Finance
Minister acknowledged the stellar role of the tax payers in contributions
towards nation- building. While it is always said that taxes are the price that
the society pays for building civilization, it is not very common for a Finance
Minister to acknowledge such contribution wholeheartedly through the Budget
speech.

This mindset change is now clearly visible in many of the interactions with the
Government officials. The CPC – TDS is on a mission to roll out the next phase
of reforms in the field of filing of TDS Returns. In an inspiring talk at the
BCAS, the Commissioner Mr. Sunil Sharma with full humility outlined the
proposed system and wholeheartedly invited suggestions and constructive
feedback for improvements.

The Society had the
privilege to have an interactive discussion with the IIA Global Chairman Mr.
Naohiro Mouri and IIA Global President Mr. Richard Chambers on the side-lines
of the International Conference on Internal Audit. It was interesting to hear
about their life journeys and we could carry home many lessons for the growth
of the internal audit profession. The discussion will be transcribed and
carried in the next issue of the Journal.

A host
of amendments proposed in the GST Act were ultimately made effective from 1^st
February 2019. Many of these amendments are carried out retrospectively and
clearly represent a mindset of the Government to understand the ground level
difficulties and provide workable solutions to such difficulties. Notable
amongst them is the permanent burial of the reverse charge mechanism in case of
supplies received from unregistered persons.

It is perhaps now time for the industry and
the professionals to welcome this mindset change with positivity and build up
confidence and assurance in the long-term reforms and growth. While
constructive criticism is an essential ingredient of any live and vibrant democracy,
too much of criticism without a logical basis for the same could result in the
economy reverting back to policy paralysis.

The next edition of the
Journal will mark the conclusion of the 50^th year of the Journal. 50
years is a very important milestone. In the context of a magazine published by
a voluntary organisation, it speaks volumes about the contents and the
relevance. The next edition of the BCAJ will do its bit to spread this
positivity especially in the context of the accounting profession and would be
a must read for all the professionals. The Editorial Team led by Raman Jokhakar
has ably curated the best of articles and features and I eagerly await the said
edition. In the meantime, I wish you all a very happy reading.

Yours truly

CA.
Sunil Gabhawalla

President

BCAJ Admin

SERVICE TAX

I.
Tribunal

35.
[2019-TIOL-05-CESTAT-ALL] Logix Infrastructure Pvt. Ltd vs. Commissioner
of Central Excise and ST, Noida Date of Order: 20^th September, 2018

Preferred
location charges, external development charges are part and parcel of the main
service of Residential Complex Service eligible for abatement under
Notification 26/2012-ST.

Facts

The
appellants are provider of Residential Complex Service. They discharged service
tax on preferential location charges
@ 3.09%. A show cause notice was issued demanding service tax at the full rate
on the ground that abatement is granted only in respect of services where there
is transfer of material. Thus such charges collected separately are liable for
service tax at the full rate.

Held

The
Tribunal noted that the components such as preferred location charges, external
development charges etc., are part and parcel and for various elements of the
main service which is Residential Complex Service and therefore the entire
consideration received by the appellants is towards the bundled service of
construction of residential complex as per section 65F of the Finance Act, 1994
which is eligible for abatement under said Notification No.26/2012-ST.

36.
[2019-TIOL-25-CESTAT-MUM] Allied Blenders and Distillers Pvt. Ltd vs.
Commissioner of Central Excise and Service Tax, Aurangabad Date of Order: 25^th
June, 2018

Remuneration
paid to directors as salary is not liable for service tax.

Facts

During the course of audit,
on scrutiny of records, it was noticed that the appellant had been receiving
services from the directors, but failed to discharge service tax under reverse
charge mechanism on the remuneration paid in accordance with Notification
No.30/2012-ST dated 20.06.2012 and Notification No.45/2012 dated 07.8.2012.
Consequently, a demand notice was issued. It was argued that all the directors
are whole-time directors and therefore the services rendered by them fall under
the category of service rendered by an employee to the employer which is not
liable for service tax.

Held

The Tribunal noted that
from the documents produced viz. Form 16, deductions on account of provident
fund, profession tax, it is crystal clear that the directors who are concerned
with the management of the company, were declared to all statutory authorities
as employees of the company and complied with the provisions of the respective
Acts, Rules and Regulations indicating the director as an employee of the
company. Thus the demand of service tax is set aside.

37.
[2019-TIOL-54-CESTAT-MAD] Visshu Constructions vs. Commissioner of
Central Excise Salem Commissionerate, Salem Date of Order: 4^th September, 2018

Since all
the facts are disclosed in the returns filed, there is no suppression and
therefore the extended period of limitation cannot be invoked.

Facts

The Assessee had availed
the benefit of Notification No.1/2006-ST which provided that the benefit of
abatement is available only if CENVAT credit is not availed. However, the
assessee availed such credit. Accordingly a show cause notice was issued
invoking longer period of limitation. The matter was contested mainly on the
ground of limitation.

Held

The Tribunal noted that on
perusal of the ST-3 returns it is seen that they have disclosed that they are
availing the benefit of Notification 01/2006. As per the Notification, the
benefit would not be eligible if the assessee avails credit on inputs/input services.
However, they availed credit on certain input services. The same was also
disclosed by them in the ST-3 returns in Column 5B. Thus, the department was
put to knowledge and it cannot be said that the facts were suppressed from the
department with an intention to evade payment of service tax. Thus extended
period of limitation cannot be invoked and the demand was therefore set aside.

38.
[2019-TIOL-81-CESTAT-AHM] Kiran Gems Pvt. Ltd vs. Commissioner of
Central Excise & Service Tax, Surat-I Date of Order: 26^th November, 2018

Electricity
charges collected from the tenants at actuals amounts to reimbursement of
expenses and cannot be considered as additional rent liable for service tax.

Facts

Appellant engaged in
providing services of “Renting of Immovable Property” also recovered as
reimbursement the charges towards electricity charges in additional to the rent
amount. The case of the department is that such reimbursement is a part of the
gross value of service and thus exigible to service tax.

Held

The Tribunal noted that
electricity is consumed by the service recipient therefore, they are liable to
pay the same at actuals unless the same is included in the rent. As per the
facts of the case, the electricity expense is supposed to be borne by the tenants
(service recipient) therefore, merely facilitating the payment of electricity
charges by the appellant and subsequently taking the reimbursement of the same
will not form part and parcel of the gross value of service of renting of
immovable property and thus the demand was set aside. Reliance was placed on
the decisions of ICC Realty (India) Pvt. Ltd [2013-TIOL-1751-CESTAT-MUM
and SB Developers [2018-TIOL-1866-CESTAT-DEL].

39.
2018 [19] G.S.T.L. 269 (Tri.- Del.) Gokul Ram Gurjar vs. Commissioner of
Central Excise, Jabalpur-II Date of Order: 20^th February, 2018

In case
of self-owned labour used for carrying out certain activities, service tax on
Manpower Recruitment or Supply of Agency Service cannot be alleged or demanded.

Facts

The Appellant entered into
an agreement with one milk production co-operative limited company for washing
of cans/ crates, sorting of milk bags, milk packing etc. For this activity the
Appellant received remuneration as fixed amount per litre basis. The Revenue
raised service tax demand on the said activity interpreting it to be taxable
under category of manpower recruitment or supply agency service, as labours
were supplied by Appellant, who were under control of the Dairy Authorities.

Held

The Hon’ble CESTAT after
perusing the work order issued by the milk production company found that scope
of work related to washing of cans/ crates and packing of milk. There was no
specific mention about deployment of labour/ work force. Therefore, held that
service provided should not fall under taxable category of manpower recruitment
or supply agency service. The Hon’ble CESTAT also observed that the rate
contract provided in the work order clearly indicated that the amount should be
paid on a fixed basis i.e. per litre per pack basis and there appeared no
specific mention on payment of reimbursement of wages and salaries to the
workmen. Thus the services provided cannot fall under alleged taxable category.
Hence, allowed the appeal.

40. [2018] 100 taxmann.com 471 (New
Delhi – CESTAT) Premium Real Estate Developers vs. Commissioner of Service Tax,
Delhi Date of Order: 27^th November, 2018

Land
procured from various landowners and after obtaining power of attorney from
them and selling it to another entity, is in the nature of trading in land and
service of real estate agent.

Facts

The appellant entered into
MOUs with another entity by which the appellant procured land at pre-determined
locations from various landowners and undertook ancillary activities i.e.
divide and demarcate the entire land into blocks, furnish title papers and other
necessary documents for the land to be purchased, obtain the permission and
approval from the concerned authority for transfer of land etc. bring owners of
the land for the purposes of negotiating, registration, etc., to the relevant
places and bear all the expenses involved on these. The said other entity
agreed to procure such acquired land at pre-decided average rate per acre of
land which included all the cost of land, development expenses etc. The MOU
further provided that the other expenses like stamp duty/registration charges,
mutation charges would be borne by the said another entity. On satisfaction by
the said another entity about the fitness of deal(s) for the land, the
appellant organised the registration in the name of the said another entity
after making payment to the owners of land from the advance amount given to
them for the purchase of land. The land was then directly transferred in the
name of another entity without first registering the same in the name of
appellant. The difference, if any, between the amount actually paid to the
owners of land and the average rate per acre settled between the parties as
indicated, would be payable to the appellant as their margin or profit. Further
the said another entity reserved its right to withhold 50 per cent of the
amount (out of margin) to ensure that the obligations on the
developer/appellant are fully discharged in terms of the MOU and in case there
was any serious default, the same could be made good by way of forfeiture of
such amount so withheld. Pursuant to the MOU, the appellant received advance
amount from the other entity for each site. Substantial part of such amount was
used by the appellant to pay to the seller or the prospective seller of the
land for agreeing to sell land to the said other entity. Revenue alleged that
the services were in the nature of “real estate agency” and thus, liable for
service tax. The Appellant contended that their transactions were on
principal-to-principal basis and they did not act as agent of other entity.

Held

The
Hon’ble Tribunal noted that there was no consideration defined and/or provided
for the alleged service in the MOU. In absence of any defined consideration for
the alleged service, there is no contract of service at all and hence the
transaction was not liable for service tax. The Tribunal observed that the MOU
was not only for providing purely service of acquisition of the land but
involved many other functions such as verification of the title deeds of the
persons from whom the lands were to be acquired, obtaining necessary rights for
development of the land from the Competent Authority etc. The remuneration or
payment for providing this activity was actually not quantified in the MOU. The
Tribunal also held that since specific remuneration was not fixed in the deal
for acquiring land. Both the parties worked more as partners in the deal rather
than as an agent and the principal. The amount payable to the appellant was
more of the nature of a margin and share in the profit of the deal in purchase
of land. Further, the Tribunal categorically noted that the said another
entity, instead of paying the price directly to the land owner, paid lump sum
amount to the appellant. Thereafter the appellant identified the land, the
seller and after being satisfied with the title of the seller, entered into
agreement with the seller and obtained power of attorney in their favour.
Thereafter the appellant transferred the land. Thus the transaction was one of
trading in land. The order was thus set aside.

41. [2018] 100 taxmann.com 261
(Ahmedabad – CESTAT) Modern Business Solutions vs. Commissioner of Service Tax,
Ahmedabad Date of Order: 18^th October, 2018

The
nature of costs converted into reimbursements in terms of contractual
expressions is assessable value of services. Only expenses borne by service
provider on behalf of service recipient qualify to be reimbursable
expenses.

Facts

Appellant entered into
agreement where under they were required to manage a sales team on behalf of
the service recipient to extend the business of service recipient and receive
management fees by way of agreed percentage as well as reimbursements towards cost
of salaries, rent and incentives. They contended that their activities would be
classifiable as “manpower supply and agency services” and not as “business
auxiliary services” as alleged by the department and the value of
reimbursements received by them was not includible in the value of services.

Held

From
perusal of contractual terms between appellant and their clients, the Hon’ble
Tribunal noted that the scope of contract was not supply of manpower services
but it was a contract for promotion of services provided to the appellant. The
Tribunal found that the remuneration received was based on actual expenses by
adding percentage of profit margin over certain expenses. The Tribunal held
that this does not convert the expenses incurred by appellant into
reimbursements. Further, it was categorically observed that though
reimbursements cannot be included in assessable value of services in terms of
decisions of the Hon’ble Supreme Court in Union of India vs.
Intercontinental Consultant and Technocrats (P.) Ltd. [2018] 91 taxmann.com
67/66 GST 450 (SC), what constitutes reimbursements is required to be
determined in light of the decision in Bhagawathy Traders vs. CCE [2011] 33
STT 1 (CESTAT – Bang.) (LB), wherein it was held that only when the service
recipient has an obligation legal or contractual to pay certain amount to any
third party on behalf of the service recipient, the question of reimbursing the
expenses incurred on behalf of the recipient shall arise. Accordingly, the
Tribunal observed that the moot question is whether the expenses can be
converted into reimbursable expense by way of a contract or the expenses are
integral to the activities of the service provider that they cannot be
performed without such expenses. The distinction between the so called
“reimbursable expenses” and “free supplies” clarifies that all expenses
incurred by a service provider cannot be called reimbursable expenses and only
the expenses that qualify the test laid down in the decision of Bhagawathy
Traders (supra) can be called reimbursable expenses. Therefore, it was held
that in the context of business auxiliary services, the cost of manpower and
rent is not a reimbursable expense but a cost of service of the appellant and
merely in terms of contract, such costs cannot be converted into a reimbursable
expense. Thus, demand in respect of reimbursements received towards cost of
salaries and rent, was upheld.

42. [2018] 100 taxmann.com 306 (Kolkata –
CESTAT) Timken India Ltd. vs. Commissioner of Central Excise, Jamshedpur Date of Order: 24^th October, 2018

When in terms of agreement with foreign licensor for use
of its proprietary technical information for manufacture and servicing of
products, the assessee was also required to represent to its customers only by
identity of licensor, services received by assessee from licensor held
“franchisee services” and not “intellectual property services”.

Facts

When,
in terms of agreement with foreign entity i.e. licensor, for use of its
proprietary technical information for manufacture and servicing of products,
the assessee was also required to represent its customers only by identity of
licensor, the Tribunal held that services received by assessee from licensor
would be regarded as “franchisee services” and not “intellectual property
services”.

In
terms of Technology License and Technical Assistance Agreement entered into
with foreign entity i.e. licensor, appellant acquired licenses to manufacture
and service the products manufactured with the use of licensor’s proprietary
technical information. Department demanded service tax under reverse charge
mechanism under category of “franchisee services” from appellant in respect of
royalty remitted by them to foreign entity for use of licenses on the ground
that appellant acted as franchisee of said foreign entity. Appellant rebutted
department’s contentions on the ground that they received limited right to use
the trademark of foreign service provider by way of license and thus, would be
taxable under the category of Intellectual Property Right Services.

Held

The Hon’ble Tribunal noted
that the contractual terms clearly establish that the agreement between appellant
and foreign entity is not limited to use of intellectual property right of
foreign entity for manufacture of products and for service of the main
products, rather the appellant is required to represent the foreign entity i.e.
licensor to appellant’s various customer in such a way that the appellant loses
its own individual identity and would perhaps be known only by the identity of
such foreign entity. Thus, it was held that the services availed by the
appellant are more akin to franchise services rather than intellectual property
right service. Further, reliance was placed on the decision of the Hon’ble
Delhi HC in Delhi International Airport (P.) Ltd. vs. Union of India[ 2017]
77 taxmann.com 92/59 GST 308 (Delhi). Accordingly, the Tribunal upheld
impugned demand under “franchisee services” by dismissing present appeal.

Note:
It appears that the dispute covered the period when intellectual property
services were not taxable. The case law is important from classification
perspective as the GST rate on “franchisee services” and “IPR services” may be
different.

II. High Court

43. 2018 [19] G.S.T.L. 611 (Kar.) XL Health
Corporation India Pvt. Ltd. vs. Union of India Date of Order: 22^nd
October, 2018

On failure to follow the judicial discipline, cost of Rs.
1 lakh was imposed by High Court on Commissioner (Appeals) to pay from his
personal fund.

Facts

The
petitioner assessee claimed refund of tax on account of export of services
rendered by them, which was disallowed by the Commissioner (Appeals). The
CESTAT quashed the order stating that the issue is well settled. Later the same
petitioner again claimed refund on same ground for subsequent period and also
quoted favorable order of the Tribunal passed in their favour. But the
Commissioner (Appeals) in total breach of the judicial discipline disallowed
the refund vide its order despite being fully aware of the Tribunal’s earlier
order passed on similar issue in favour of assessee. The matter was then referred
to the Hon’ble High Court.

Held

The Hon’ble High Court
taking the issue on very serious note held that it is a total callous,
negligent and disrespectful behaviour shown by the departmental authorities
which should not be tolerated at all. It was this kind of lack of judicial
discipline which if it went unpunished would lead to more litigation and chaos
and such public servants were actually a threat to the society. By allowing the
writ petition, the Hon. Court directed Commissioner (Appeals) to pay cost of
Rs. 1 lakh from his personal funds and asked the assessee to approach concerned
Commissioner with fresh request of refund in accordance with the law and in
terms of the Tribunal order.

44. 2018 [19] G.S.T.L. 478 (Del.) MRF
Ltd. vs. Commissioner of Trade and Taxes
Date of Order: 10^th August, 2018

Entitlement to interest on refund of pre-deposit amount,
calculable from the date when appeal was allowed in favour of assessee by the
Court.

Facts

Petitioner paid pre-deposit
amount to seek recourse to an appellate authority. Later the appeal was allowed
to the assessee and letter for refund
of the same along with interest was filed. The Revenue accepted refund plea but
did not pay interest. Aggrieved assesse preferred writ petition before the High
Court contesting that pre-deposit does not amount to payment of tax as it did
not bear such character, the refund of the same ought to have carried interest. Revenue on the
contrary contested that interest amounts would be due only from the time when
assessee would have filed form ST21 as per section 30 of the Delhi Sales Tax
Act, 1975.

Held

The Hon’ble Court held that
the pre-deposit sum that the assessee was compelled to pay to seek recourse to
an appellate remedy did not necessarily bear the character of tax, especially
when it succeeded on the particular plea. Revenue’s insistence upon a
procedural step, i.e. filing of a form which was purely for the purpose of
administrative convenience could not in any manner fix the period of limitation
when the amounts became due on the question of interest. The fact that the
amount due and payable from the date the appeal was allowed was not in dispute,
the postponement of the period from when interest became payable was
incomprehensive and illogical. For these reasons the petitioner was entitled to
interest from the date when its appeal was allowed by the Hon. Court.

BCAJ Admin

FEMA FOCUS

REVISED ECB REGULATIONS

(I) Background

RBI has completely
revamped existing regulations relating to External Commercial Borrowings, Trade
credits & Borrowing and lending in INR (‘ECB’) by issuing a revised
Notification No. 3(R) /2018-RB – Foreign Exchange Management (Borrowing and
Lending) Regulations, 2018 dated 17^th December 2018 (‘New ECB
Regulations’). Further, RBI has also issued A.P. (DIR Series) Circular No. 17
dated 16^th January 2019 (‘Circular 17’) providing for new ECB
framework.

Earlier there were
following three regulations governing borrowing/lending by person resident in
India with persons resident outside India:

Sr. No.

Name of regulation

Relevant Notification No.

Scope of regulation

Foreign
Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations,
2000 ( ‘Old ECB Regulations’)

FEMA 3 /2000-RB dated
3^rd May, 2000

i) Borrowing in foreign currency by
persons other than AD

ii) Borrowing in foreign currency by AD

iii) Borrowing in Indian currency by
Company

iv) Trade credits

Foreign
Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 (‘INR
Borrowing Regulations’)

FEMA 4 /2000-RB dated
3^rd May, 2000

i)
Borrowing in Indian currency by Indian Company through issuance of NCDs;

ii)
Borrowing in Indian currency by persons other than company

Para
21 of Foreign Exchange Management (Transfer or Issue of Any Foreign Security)
(Amendment) Regulations, 2004 (‘ODI Regulations’)

FEMA 120/ RB-2004 dated
7^thJuly, 2004

i)
Lending in foreign currency by Indian company to its overseas subsidiary/ JV

RBI has now
consolidated all above Regulations relating to borrowing and lending in foreign
currency and Indian currency and issued Revised FEMA 3/2019 (‘New ECB
Regulations’) dealing with foreign currency and Indian currency borrowing /
lending by Indian residents. Further, certain aspects of ECB have also been
clarified by RBI through issuing Circular 17. Earlier there four-tier structure
of ECB which have now been rationalised as under:
i) Track I & Track II have been merged as Foreign Currency denominated ECB;
and

ii) Track III &
Rupee denominated bonds have been merged as Rupee denominated ECB.

Key aspects of new
ECB framework are given below:

(II) New definitions

New ECB Regulations
has inserted following new definitions for the purpose of clarity:

? External Commercial lending
– It means lending by person resident in India to borrower outside India in
accordance with policy decided by RBI

? Real estate activity –
means any activity involving

• own or leased property for buying, selling
and renting of commercial and residential properties or land

• activities either on a fee or contract basis
assigning real estate agents for intermediating in buying, selling, letting or
managing real estate.

However, this would
not include

• development of integrated township; or

• purchase/long term leasing of industrial
land as part of new project/modernisation or expansion of existing units or;

• any activity under ‘infrastructure
subsectors’ as given in the Harmonised Master List of Infrastructure
sub-sectors approved by the Government of India vide Notification F. No.
13/06/2009-INF, as amended/updated from time to time.

? Restricted End Use: It
means end uses where borrowed funds cannot be deployed and shall include the
following:

• In the business of chit fund or Nidhi
Company;

• Investment in capital market including
margin trading and derivatives;

• Agricultural or plantation activities;

• Real estate activity or construction of farm
houses; and

• Trading in Transferrable Development Rights
(TDR),

? It has been specifically
clarified that use of credit cards in India by person resident outside India
and outside India by person resident in India shall not be subject to ECB
regulations.

? Also, it has been
clarified that any borrowing permitted under erstwhile regulations can be
continued up to the due date of repayment.

(III) Key changes in ECB Policy

Key changes between
old ECB regulations relating to borrowings in INR/foreign currency by Indian
resident entity from person resident outside India are highlighted below:

Eligible borrower

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The list of entities eligible to raise ECB were
classified under the three tracks is set out in the following table.

All entities eligible to receive FDI are eligible borrowers and
there is no more Track 1, Track 2 and Track 3. Further, following entities
are also eligible to raise ECB:

a) Port Trusts;

b) Units in SEZ;

c) SIDBI;

d) EXIM Bank; and

e) Registered entities engaged in micro-finance activities,
viz., registered Not for Profit companies, registered
societies/trusts/cooperatives and Non-Government Organisations (permitted
only to raise INR ECB).

Under new ECB regulations, all entities, including companies and
LLP would be eligible to receive FDI under FEMA 20 can raise ECB irrespective
of the sector in which they operate. New regulations now paves way for
service sector enterprise, companies engaged in ITES activities etc to raise
finance via ECB route. Further ECB route is open even for sectors which are
subject to sectorial cap or FDI is permitted subject to performance linked
conditions.

Track :1

i. Companies in mfg & software development sectors.

ii. Shipping and airlines companies.

iii. SIDBI.

iv. Units in SEZs

v. Exim Bank (only under the approval route).

vi. Companies in infra sector, NBFC-IFCs, NBFC-AFCs, Holding
Companies and CICs. Also, Housing Finance Companies, regulated by the
National Housing Bank, Port Trusts constituted under the Major Port Trusts
Act, 1963 or Indian Ports Act, 1908.

Track :2

i. . All entities listed under Track I.

ii. REITs & INVITs (governed by SEBI)

Track
:3

i. All entities listed under Track II.

ii. NBFCs coming under the regulatory purview of RBI.

iii. NBFCs-MFIs, Not for Profit companies registered under the
Companies Act, 1956/2013, Societies, trusts and cooperatives (registered
under the Societies Registration Act, 1860, Indian Trust Act, 1882 and
State-level Cooperative Acts/Multi-level Cooperative Act/State-level mutually
aided Cooperative Acts respectively), NGOs which are engaged in micro finance
activities.

iv. Companies engaged in miscellaneous services viz.
R&D, training (other than educational institutes), companies supporting
infrastructure, companies providing logistics services. Also, companies
engaged in maintenance, repair and overhaul and freight forwarding.

v. Developers of SEZs/ National Manufacturing and Investment
Zones (NMIZs).

Borrowing by IBC Cos

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

No specific exemption / relaxation for companies
in IBC

An entity which is under restructuring scheme/
corporate insolvency resolution process can raise ECB only if specifically
permitted under the resolution plan.

Likely to boast restructuring of companies under
IBC. Resolution plan can now substitute high interest debt with low interest
bearing ECB

Eligible lenders

The list of recognised lenders/investors for the
three tracks will be as follows:

The lender should be resident of FATF or IOSCO compliant
country, including on transfer of ECBs. However,

a) Multilateral and Regional Financial Institutions where India
is a member country will also be considered as recognised lenders;

b) Individuals as lenders can only be permitted if they are
foreign equity holders or for subscription to bonds/debentures listed abroad;
and

c) Foreign branches/subsidiaries of Indian banks are permitted
as recognised lenders only for FCY ECB (except FCCBs and FCEBs).

Foreign branches/subsidiaries of Indian banks, subject to
applicable prudential norms, can participate as arrangers/
underwriters/market-makers/traders for Rupee denominated Bonds issued
overseas. However, underwriting by foreign branches/subsidiaries of Indian
banks for issuances by Indian banks will not be allowed.

Under the new ECB regulations, any person can be eligible lender
provided they are resident of FATF or IOSCO compliant country. However,
individuals as lenders can only be permitted if they are foreign equity
holders or for subscription to bonds/ debentures listed abroad. Further,
Financial institutions located in International Financial Services Centres in
India are not specifically included in definition of recognised lender which
were included in the old ECB regulations.

Track :1

i. International banks.

ii. International capital markets.

iii. Multilateral financial institutions (such as, IFC, ADB,
etc.) /regional financial institutions and Government owned (either wholly or
partially) financial institutions.

iv. Export credit agencies.

v. Suppliers of equipment.

vi. Foreign equity holders.

vii. Overseas long term investors such as:

a. Prudentially regulated financial entities;

b. Pension funds;

c. Insurance companies;

d. Sovereign Wealth Funds;

e. Financial institutions located in International Financial
Services Centres in India

viii. Overseas branches/ subsidiaries of Indian banks

Track :2

All entities listed under Track I (excluding
overseas branches /subsidiaries of Indian banks)

Track :3

All entities listed under Track I (excluding overseas branches/
subsidiaries of Indian banks.

In case of NBFCs-MFIs, other eligible MFIs, not for profit
companies and NGOs, ECB can also be availed from overseas organisations and
individuals.

Minimum Average Maturity Period

The minimum average maturities for the three
tracks are set out as under:

Minimum average maturity period (MAMP) will be 3 years. However,
manufacturing sector companies may raise ECBs with MAMP of 1 year for ECB up
to USD 50 million or its equivalent per financial year. Further, if the ECB
is raised from foreign equity holder and utilised for working capital
purposes, general corporate purposes or repayment of Rupee loans, MAMP will
be 5 years. The call and put option, if any, shall not be exercisable prior
to completion of minimum average maturity.

For ECB exceeding USD 50 million, no MAMP is specified and
hence, could be considered as 3 years

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

Track:1

i. For ECB up to USD 50 million or its equivalent for Cos in Mfg
sector only – 1 year;

ii. For ECB upto USD 50 million or its equivalent – 3 years;

iii. For ECB beyond USD 50 million or its equivalent – 5 years

iv. 5 years for ECB taken from equity holder for working capital
purposes

v. 5 years for FCCBs/ FCEBs irrespective of the amount of
borrowing. The call and put option, if any, for FCCBs shall not be exercisable
prior to 5 years.

Track :2

10 years irrespective of the amount.

Track: 3

Same as under Track I.

All-in-cost ceiling per annum and other cost

The all-in-cost requirements for the three tracks
will be as under:

i) No change in all in cost ceilings

No change

Track :1

i. The all-in-cost ceiling is prescribed through a spread over
the benchmark, i.e., 450 basis points per annum over 6 month LIBOR or
applicable benchmark for the respective currency.

ii. Penal interest, if any, for default or breach of covenants
should not be more than 2 per cent over and above the contracted rate of
interest.

Track :2

i All-in-cost ceiling – Same as Track I

ii Penal interest – same as Track I

Track :3

i. All-in-cost ceiling – 450 basis points per annum over the
prevailing yield of the Government of India securities of same maturity.

ii. Penal interest – Same as Track I

End-uses (Negative list)

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The end-use prescriptions for ECB raised under the three tracks
are as under:

The negative list for all Tracks would include the following:

a. Investment in real estate or purchase of land except when
used for affordable housing as defined in Harmonised Master List of
Infrastructure Sub-sectors notified by Government of India, construction and
development of SEZ and industrial parks/integrated townships.

b. Investment in capital market.

c. Equity investment.

Additionally, for Tracks I and III, the following negative end
uses will also apply except when raised from Direct and Indirect equity
holders or from a Group company, and provided the loan is for a minimum
average maturity of five years:

d. Working capital purposes.

e. General corporate purposes.

f. Repayment of Rupee loans.

Finally, for all Tracks, the following negative end use will
also apply:

g. On-lending to entities for the above activities from (a) to
(f)

The negative list for which ECB proceeds cannot
be utilised is largely similar as erstwhile ECB regulations. However, earlier
negative list used the phrase investment in real estate or purchase of land.
In the new ECB regulations, above phrase has been replaced by real estate
activities which has been defined above. Further, proceeds of ECB cannot be
used for payment of interest / charges for ECB.

Real estate activity specifically excludes
purchase / long term leasing of industrial land as part of new project /
modernisation or expansion of existing unit. Hence, going forward ECB can be
utilised towards purchase of industrial land for expansion of existing unit
or setting up of new unit.

Change of currency of borrowing

Designated AD Category I banks may allow changes
in the currency of borrowing of the ECB to any other freely convertible currency
or to INR subject to compliance with other prescribed parameters. Change of
currency of INR denominated ECB is not permitted.

No change

Individual limits of borrowing

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

The individual limits of ECB that can be raised
by eligible entities under the automatic route per financial year for all the
three tracks are set out as under:

a. Up to USD 750 million or equivalent for the
companies in infrastructure and manufacturing sectors, Non-Banking Financial
Companies -Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance
Companies (NBFC-AFCs), Holding Companies and Core Investment Companies;

b. Up to USD 200 million or equivalent for
companies in software development sector;

c. Up to USD 100 million or equivalent for
entities engaged in micro finance activities;

d. Up to USD 500 million or equivalent for
remaining entities; and

e. Up to USD 3 million or equivalent for
startups;

ii. ECB proposals beyond aforesaid limits will
come under the approval route. For computation of individual limits under
Track III, exchange rate prevailing on the date of agreement should be taken
into account.

iii. In case the ECB is raised from direct equity
holder, aforesaid individual ECB limits will also subject to ECB liability:
equity ratio requirement. The ECB liability of the borrower (including all
outstanding ECBs and the proposed one) towards the foreign equity holder
should not be more than seven times of the equity contributed by the latter.
This ratio will not be applicable if total of all ECBs raised by an entity is
up to USD 5 million or equivalent.

All eligible borrowers (excluding startups) can
now raise ECB up to USD 750 million or equivalent per financial year under
auto route. Rest of the conditions, including ECB equity ratio in case of
borrowings from foreign equity holder would remain the same.

Expansion of individual limits

Parking of ECB proceeds

ECB proceeds are permitted to be parked abroad as
well as domestically in the manner given below:

Parking of ECB proceeds abroad: ECB proceeds meant only for
foreign currency expenditure can be parked abroad pending utilisation. Till
utilisation, these funds can be invested in the following liquid assets (a)
deposits or Certificate of Deposit or other products offered by banks rated
not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody’s; (b)
Treasury bills and other monetary instruments of one year maturity having
minimum rating as indicated above and (c) deposits with overseas branches/
subsidiaries of Indian banks abroad.

Parking of ECB proceeds domestically: ECB proceeds meant for
Rupee expenditure should be repatriated immediately for credit to their Rupee
accounts with AD Category I banks in India. ECB borrowers are also allowed to
park ECB proceeds in term deposits with AD Category I banks in India for a maximum
period of 12 months. These term deposits should be kept in unencumbered
position.

No change

Reporting

Loan Registration Number (LRN): Any draw-down in respect
of an ECB as well as payment of any fees / charges for raising an ECB should
happen only after obtaining the LRN from RBI. To obtain the LRN, borrowers
are required to submit duly certified Form 83, which also contains terms and
conditions of the ECB, in duplicate to the designated AD Category I bank. In
turn, the AD Category I bank will forward one copy to the Director, Balance
of Payments Statistics Division, Department of Statistics and Information
Management (DSIM), Reserve Bank of India, Bandra-Kurla Complex, Mumbai – 400
051, Contact numbers 022-26572513 and 022-26573612. Copies of loan agreement
for raising ECB are not required to be submitted to the Reserve Bank.

Changes in terms and conditions of ECB: Permitted changes in ECB
parameters should be reported to the DSIM through revised Form 83 at the
earliest, in any case not later than 7 days from the changes effected. While
submitting revised Form 83 the changes should be specifically mentioned in
the communication.

Reporting of actual transactions: The borrowers are required
to report actual ECB transactions through ECB 2 Return through the AD
Category I bank on monthly basis so as to reach DSIM within seven working
days from the close of month to which it relates. Changes, if any, in ECB
parameters should also be incorporated in ECB 2 Return. Format of ECB 2
Return is available at Annex III of Part V of Master Directions – Reporting
under Foreign Exchange Management Act.

Reporting on account of conversion of ECB into
equity: In case of partial or full
conversion of ECB into equity, the reporting to the RBI will be as under:

i. For partial conversion, the converted portion
is to be reported to the concerned Regional Office of the Foreign Exchange
Department of RBI in Form FC-GPR prescribed for reporting of FDI flows, while
monthly reporting to DSIM in ECB 2 Return will be with suitable remarks
“ECB partially converted to equity”. ii. For full conversion, the
entire portion is to be reported in Form FC-GPR, while reporting to DSIM in
ECB 2 Return should be done with remarks “ECB fully converted to equity”.
Subsequent filing of ECB 2 Return is not required.

iii. For conversion of ECB into equity in phases,
reporting through ECB 2 Return will also be in phases.

Name of form for obtaining LRN from RBI has
changed from old Form 83 to new Form ECB. Hence, wherever Form 83 was
required to be filed, going forward Form ECB would be required to be filed.
However, contents of the form are same. Further, ECB 2 filing continues to
remain as before. Additionally, in part D of Form ECB 2 details with respect
to proceeds of ECB parked domestically is also required to be stated.

Change in name of Form 83 to Form ECB and details
of ECB parked domestically to be provided in Form ECB 2

Late submission fees

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

No such provision existed earlier. Any late
filing of forms was subject to compounding proceedings

Late Submission Fee (LSF) for delay in reporting:

Any borrower, who is otherwise in compliance of ECB guidelines,
can regularise the delay in reporting of drawdown of ECB proceeds before
obtaining LRN or delay in submission of Form ECB 2 returns, by payment of
late submission fees as given in Annexure 1

Going forward, process of regularising ECB non compliances
relating to late filing of forms or drawdown of ECB before obtaining LRN
would be much simpler and would not be subject to compounding proceedings.
However, with respect to past non-compliances, compounding proceedings would
still need to be undertaken

Exchange rate

The exchange rate for foreign currency – Rupee
conversion shall be the market rate on the date of settlement for the purpose
of transactions undertaken for issue and servicing of the bonds

No change

Hedging Requirements

Borrowers eligible shall have a board approved
risk management policy and shall keep their ECB exposure hedged 70 per cent
at all times in case the average maturity is less than 5 years. Further, the
designated AD Category-I bank shall verify that 70 per cent hedging
requirement is complied with during the currency of ECB and report the
position to RBI through ECB 2 returns. Also, the entities raising ECB under
the provisions of tracks I and II are required to follow the guidelines for
hedging issued, if any, by the concerned sectoral or prudential regulator in
respect of foreign currency exposure.

Operational aspects on hedging: Wherever hedging has been
mandated by the RBI, the following should be ensured:

i. Coverage: The ECB borrower will be
required to cover principal as well as coupon through financial hedges. The
financial hedge for all exposures on account of ECB should start from the
time of each such exposure (i.e. the day liability is created in the books of
the borrower).

ii. Tenor and rollover: A minimum tenor of
one year of financial hedge would be required with periodic rollover duly
ensuring that the exposure on account of ECB is not unhedged at any point
during the currency of ECB.

iii. Natural Hedge: Natural hedge, in lieu
of financial hedge, will be considered only to the extent of offsetting
projected cash flows / revenues in matching currency, net of all other
projected outflows. For this purpose, an ECB may be considered naturally
hedged if the offsetting exposure has the maturity/cash flow within the same
accounting year. Any other arrangements/ structures, where revenues are
indexed to foreign currency will not be considered as natural hedge.

No change

Available routes for raising ECB

Old ECB Regulation read with Master Direction on
ECB updated as on 22^ndNovember, 2018

New ECB regulation read with Circular No. 17
dated 16 ^thJan 2019

Comments

Under the ECB framework, ECBs can be raised
either under the automatic route or under the approval route. For the
automatic route, the cases are examined by the Authorised Dealer Category-I
(AD Category-I) banks. Under the approval route, the prospective borrowers
are required to send their requests to the RBI through their ADs for
examination. While the regulatory provisions are mostly similar, there are
some differences in the form of amount of borrowing, eligibility of
borrowers, permissible end-uses, etc. under the two routes. While the first
six forms of borrowing can be raised both under the automatic and approval
routes, FCEBs can be issued only under the approval route.

No change

ECB for untraceable entities

No specific regulation earlier

Specific Standard Operating Procedure (SOP) laid
down which has to be followed by designated AD banks in case of untraceable
entities who are found to be in contravention of reporting provisions for
ECBs by failing to submit prescribed return(s) under the ECB framework,
either physically or electronically, for past eight quarters or more.

i. Definition: Any borrower who has raised
ECB will be treated as ‘untraceable entity’, if
entity/auditor(s)/director(s)/ promoter(s) of entity are not
reachable/responsive/reply in negative over email/letters/phone for a period
of not less than two quarters with documented communication/reminders
numbering 6 or more and it fulfills both of the following conditions:

a) Entity not found to be operative at the
registered office address as per records available with the AD Bank or not
found to be operative during the visit by the officials of the AD Bank or any
other agencies authorized by the AD bank for the purpose; AND

b) Entities have not submitted Statutory
Auditor’s Certificate for last two years or more;

ii. Action: The followings actions are to be
undertaken in respect of ‘untraceable entities’:

a) File Revised Form ECB, if required, and last
Form ECB 2 Return without certification from company with ‘UNTRACEABLE
ENTITY’ written in bold on top. The outstanding amount will be treated as
written-off from external debt liability of the country but may be retained
by the lender in its books for recovery through judicial/ non-judicial means;

b) No fresh ECB application by the entity should
be examined/processed by the AD bank;

c) Directorate of Enforcement should be informed
whenever any entity is designated ‘UNTRACEABLE ENTITY’; and

d) No inward remittance or debt servicing will be
permitted under auto route.

Entire new process has been laid down to find
untraceable entities who have taken ECB

(IV) Key changes in Regulations governing
Trade Credits

Key changes between
old ECB regulations and new ECB regulations relating to trade credits are
highlighted as under:

Particulars

Old ECB Regulations

New ECB Regulations

Comments

Amount of borrowing

USD 20 million per import transaction

USD 50 million per import transaction

Increase in limit of trade credit

Period

Import of capital goods – 5 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

Import of capital goods – 3 years from date of
shipment

Import of non-capital goods – 1 year from date of
shipment or operating cycle, whichever is less

Trade credit period for import of capital goods
has been reduced from 5 years to 3 years

Trade credit beyond permitted period

No specific provision in respect of trade credit
extending beyond above specified period

Specifically provides trade credit beyond 3 years
period to be ECB

There have been several instances wherein RBI has
compounded non compliances relating to trade credit extending beyond
specified period by viewing it as ECB. The same has now been specifically
included in new ECB regulations.

Recognised lenders

Overseas suppliers, banks, financial
institutions,

Lenders to also include foreign equity holders
and financial institutions in IFC

Recognised lenders list expanded to include
foreign equity holders and financial institutions in IFC. Hence, they can
also give trade credits

Cost

All-in-cost ceiling for raising trade credit was
350 basis points over 6 month LIBOR

All-in-cost ceiling for raising trade credit
reduced to 250 basis points over 6 month LIBOR

Reduction in all in cost ceiling for raising
trade credits

(V) Key changes in Regulations governing
borrowings in INR by Indian residents

Borrowing by
Indian companies

Under the erstwhile
ECB regulations, investment in Non convertible debentures (NCD) issued by
Indian companies to Registered Foreign Portfolio Investors was not covered
under the ECB framework. The said position continues even under the new ECB
regulations.

Further, under INR
Borrowing Regulations, Indian companies could borrow in rupees from NRIs/PIOs
by issuing NCDs and subject to fulfilment of conditions laid down therein.
However, under New ECB regulations, there is no specific regulations governing
issuance of NCDs by Indian companies to NRI/PIOs. Accordingly, we would need to
wait for further clarity on this issue.

Borrowing by
Indian individuals

Under the erstwhile
INR Borrowing regulations, person resident in India (other than an Indian
company) could borrow in rupees from NRI/PIO on non-repatriation basis subject
to fulfilment of certain conditions. Under the New ECB Regulations, person
resident in India (other than an Indian company) can borrow in Indian Rupees
from NRI/ Relatives who are holding OCI Card subject to terms and conditions as
would be specified by RBI in this behalf.

Thus, as against
borrowings from any NRI/PIO permissible earlier, under New ECB Regulations, INR
borrowings can be taken only from NRI or Relatives who are holding OCI Card.

Deposits by
person resident in India

Any person resident in India can accept deposits from person resident
outside India in accordance with Foreign Exchange Management (Deposit)
Regulations, 2016. Hence, there is no change with regards to acceptance of
deposits.

(VI) Key changes in Regulations governing
borrowings by financial institutions, students studying abroad and from
relatives

Borrowing by
financial institutions

Under the new ECB
regulations, financial institutions set up under an act of Parliament have been
given permission to raise ECB under the approval route for the purpose of
onward lending and subject to provisions contained in ECB regulations.

Borrowing by
students studying abroad

Under the new ECB
regulations, individual resident in India but studying abroad can raise loan
not exceeding USD 250,000 for payment of education fees and maintenance abroad
subject to terms and conditions specified by RBI. However, it is interesting to
note that as per A.P.(DIR Series) Circular No. 45 dated 8 December 2003, Indian
students studying abroad would be treated as Non-residents, i.e. person
resident outside India. In such a scenario, applicability of FEMA on the such
students would need to be evaluated.

Borrowing in
foreign currency by Indian individuals

Under the old ECB regulations, individual resident in India could borrow
a sum not exceeding USD 250,000 from his relative subject to fulfilment of
certain conditions. The same position continues even under new ECB regulations.

(VII) Regulations governing lending in foreign currency by Indian entities

New ECB regulations
provide that an entity resident in India can provide external commercial
lending in foreign exchange to foreign entity in accordance with provisions of
ODI Regulations. Hence, there is no change with respect to the said
regulations.

(VIII) Regulations governing issuance of
Foreign Currency Convertible Bonds & Foreign Currency Exchangeable Bonds by
Indian companies

Regulation 21 of
ODI Regulations which dealt with issuance of Foreign Currency Convertible Bonds
and Foreign Currency Exchangeable Bonds has now been omitted and it would be
governed under the process specified in New ECB Regulations read with Circular
17.

Way forward

Going forward, it
is expected that RBI would issue Circulars clarifying various aspects of New
ECB Regulations as well as issue Regulations governing hybrid instruments in
the nature of optionally convertible debentures which are at present covered
under ECB Regulations.

Annexure 1 – Matrix for computing late
submission fee for delay in reporting

No.

Type of Return/Form

Period of delay

Applicable LSF

Form ECB 2

Up to 30 calendar days from due date of submission

Rs. 5,000

Form ECB 2/Form ECB

Up to 3 years from due date of submission/date of drawdown

Rs. 50,000 per year

Form ECB 2/Form ECB

Beyond 3 years from due date of submission/date of drawdown

Rs. 100,000 per year

BCAJ Admin

LETTERS FROM THE READERS

Dear Nitin,

At the outset, wish you a great year ahead.

I just read through your article in the BCAJ
(Dec edition) in ‘Top books of Professional Service Management ‘.

Really incisive and practical.

One of my goal setting this year would be to
read and try implement some learnings from the books you have recommended.

CA. Krishnan Parameshwaran.

BCAJ Admin

SOCIETY NEWS

INDIRECT TAX STUDY CIRCLE
Indirect Tax Study Circle Meetings on 6th, 24th and
27th December, 2018 at BCAS Conference Hall.

Indirect Tax Study Circle organised three Study Circle
Meetings on 6th, 24th and 27th December, 2018 in which
participants discussed practical approach and various
aspects that need to be kept in mind in GST Audit and
documentation thereof. The discussion was done based
on contents of Annual Return (GSTR-9) and members
broadly covered Part II of GSTR-9C i.e. audit of B2B, B2C
supplies, Exports and Supply to SEZ, Stock Transfers,
Advances, Credit notes and Debit notes etc., for taxable
and exempt outward supplies. The extent of checking and
auditors’ responsibility was also discussed.

The benefit of meeting was also extended to outstation
members by live streaming the sessions. All the sessions
were very interactive and informative and members
participated in large numbers.

“Workshop on Data Analytics for Business and
Audit with Power BI” held on 14th December, 2018
at BCAS Conference Hall.

Technology Initiatives Committee of the Society conducted
a half day workshop on Data Analytics for Business and
Audit with Power BI on 14th December, 2018 at BCAS
Conference Hall.

The session was led by CA. Nikunj
Shah having rich experience in
training and consulting on Data
Analytics for Business Decision
making, Audit and Investigation. He
explained that Microsoft Power BI is
a business intelligence platform that
offers business analytics toolset. It is designed to assist
businesses in their efforts to systematically analyse data.

The Speaker highlighted current limitations of excel
usage and thereby deliberated on the features of Power
BI. He discussed key reasons for shifting to Power BI
applications and gave the demo of Power BI features and
also shared his in depth knowledge on the issues such as
(a) How to analyse data from single and multiple sources
(b) How to create your individual dataset based on
multiple sources and transform your results into beautiful
and easy-to-make visualisations (c) How to share your
results with your colleagues or collaborate on your project
(d) How to make best use of Cloud based features of
Power BI (e) How to generate reports.
The session was highly interactive and the Speaker
resolved all the queries raised by the participants who
benefited a lot and appreciated the efforts put in by the
speaker and group leaders.

Full day seminar on “Estate Planning, Wills &
Family Arrangement/Settlement – Critical Aspects”
held on 15th December, 2018.

The Full day seminar on
Estate Planning, Wills & Family
Arrangement/Settlement – Critical
Aspects was held by the Corporate
and Allied Laws Committee at Indian
Merchants Chamber, Churchgate.
The event was attended by over
85 participants
including more than 10 outstation
participants. President CA. Sunil
Gabhawalla gave the opening
remarks followed by introductory
words from the Chairman of
the Corporate and Allied Laws
Committee, CA. Chetan Shah.

Mr. Nishith Desai gave keynote address explaining
the basic principles of estate planning and how the mechanism to put the same into
effect is changing with increase of
global mobility.

CA (Dr.) Anup Shah explained the
succession laws for Hindus, the
developments in the laws relating
to succession, practical aspects of
creating a will and essential do’s
and don’ts that one should keep in
mind before choosing an appropriate
vehicle for succession planning. He
briefly dwelled upon the FEMA and
other issues that would also merit
consideration in picking the right
vehicle.

Ms. Shipra Padhi gave an insight on
documentation aspects and spoke on
the intricacies of various documents
covered in Estate planning, Family
settlement/arrangements including
Wills.

CA. Pradip Kapasi enlightened
on the taxation aspects of family
arrangements with the help of various
relevant case laws. He discussed
various taxation issues arising out
of family arrangements including
partitions of families, validity of family
arrangements as upheld by Courts
and position taken by the courts in issues arising from
the same. He also touched upon stamp duty implications
arising in such transactions.

CA. Yogesh Thar explained the tax
implications of Trusts and Estate. He
deliberated upon the tax principles
on trusts, HUF taxation and filing of
returns of income of the deceased,
returns of the executors of estate as
also the practical issues arising in
such cases.

With the interactive session and their insights on the
subject shared by the speakers, the participants benefited
immensely. On this occassion BCAS Publications: “Changing
Paradigms of Corporate Social Responsibility in India” and
“Securities Laws-An Introduction” were also released.

TECHNOLOGY INITIATIVES STUDY CIRCLE
Technology Initiatives Study Circle Meeting on
“Zoho Project Management” held on 18th December,
2018 at BCAS Conference Hall.

Technology Initiatives Committee of the Society conducted
a Study Circle Meeting on “Zoho Project Management”
on 18th December, 2018 at BCAS Conference Hall. The
study circle was led by Mr. Eshank Shah, Chartered
Accountant and Chartered Financial Analyst (USA) and
Head of Startup and Transaction Advisory at Banshi Jain
and Associates (BJAA).

CA. Eshank Shah discussed Zoho application and shared
his in depth knowledge with the participants. He also
explained Zoho Application from Planning and execution
stage to capture details of engagements stage including
the benefit of Zoho Application and how to use more
effectively in a business environment. He further resolved
all the queries raised by the participants during the session.
The session was a huge takeaway for the participants
who appreciated the efforts put in by the speaker and
group leader.

Workshop on NBFCs (including IND AS
Implementation Challenges and Regulatory
Updates) held on 21st and 22nd December, 2018.

Accounting and Auditing Committee organised a
workshop on NBFCs on 21st and 22nd December, 2018 at
Orchid Hotel, Vile Parle (East), Mumbai.

The NBFC sector is of late facing several challenges.
Besides the business and regulatory challenges, the
sector is also facing Ind AS implementation (for companies in the 1st implementation phase) challenges and other
compliance challenges of GST etc. Further NBFC sector
is growing at a substantial pace but it is RBI’s endeavour
to ensure prudential growth of the sector, keeping in view
the multiple objectives of financial stability, consumer and
depositor protection and need for more players in the
financial market, addressing regulatory arbitrage concerns
while not forgetting the uniqueness of the NBFC sector.

In view of regulatory norms being notified on a frequent
basis, including Ind AS implementation challenges for
NBFCs and there being changes in Statutory Audit
requirements and various developments in the Taxation
arena, BCAS conducted a Two days’ Workshop on
NBFCs. The Workshop was structured into five sessions
which dealt with important aspects of key regulatory
updates, Issues in IND AS applicability in respect of
Financial Instruments and ECL model applicability,
Statutory Audit Aspects under the Companies Act, 2013,
Disclosure requirement under revised Schedule III and
Taxation Development and issues in
the Direct taxes and GST for NBFCs.

The Workshop started with the
inaugural address by BCAS President
CA. Sunil Gabhawalla, who provided
his view points on the importance of
NBFCs in the overall development
of the financial sector in India. CA.
Himanshu Kishnadwala, Chairman
of the Accounting & Auditing
Committee introduced the structure
of the Workshop.

The first session was commenced
by CA. Bhavesh Vora who lucidly
dealt with the important aspects of
key regulations. While dealing with
the same, he also took participants
through the overall maturing of the
NBFC sector over last three decades
and gave valuable insights on
the regulatory impacts on various
categories of NBFCs.

The second session was dealt
with by CA. Viren Mehta on the
implementation issues of Ind AS
with respect to classification of
Financial Instruments based on the business models and measurement of various Financial
Instruments.

Another session was by CA. Rukshad
Daruvala, who dealt with the important
topic of key issues and requirement
in respect of applying the Expected
Credit Loss Model which deals with
provisioning requirement of Advances
of NBFCs by way of various examples.

Concluding session on Day 1 was
by CA. Sumit Seth, who appraised
the participants with the new
requirements of the schedule III
disclosures including various critical
disclosures required under the Ind
AS regime.

On Day 2, the first session dealing
with Statutory Audit aspects under
the Companies Act, 2013 was
addressed by speaker CA. V. Venkat.
He dealt elaborately with the unique
requirements while conducting
audit of NBFCs and shared his vast
experience with the participants and
explained the importance of Audit
under the current economic scenario.

The second session was taken
up by two speakers: explaining
in detail the nuances of Direct
taxes by CA. Yogesh Thar and
GST requirement by CA. Parind
Mehta. They made the session very
interactive and shared their practical
experience of tax applicability to the
NBFC sector.

Before the concluding session,
participants were shown a 45 mins video on practical
Fraud in the industry and had a short discussion on the
same.

Overall the Workshop was an enriching experience for
the participants.

Training Session for CA Article Students on ‘GST
Annual Return’ and ‘GST Audit from Article’s

Perspective’ held on 4th January, 2019 at BCAS
Conference Hall.
The Students Forum under the auspices of HRD
Committee organised a Training Session for CA Article
Students on the above-mentioned topics on 4th January,
2019 at BCAS Conference Hall.

The first session on GST Annual
Return was taken by CA. Raj Khona
followed by a session on GST Audit
by student Speaker Mr. Dynanesh
Patade and CA. Jigar Shah. Ms.
Neelam Soneja, the student coordinator
introduced the speakers for
the session and spoke about various
activities conducted by BCAS Students Forum.

CA. Raj Khona explained the entire Form GSTR-9 clause
by clause and dealt with the various issues / complexities
involved in the annual return form. He highlighted few key
areas which article students should keep in mind while
filing the annual returns.

In the second session, CA. Jigar
Shah in his opening remarks briefly
introduced the topic and gave a brief
insight on various aspects of GST
Audit. Mr. Dynanesh Patade, the
student speaker thoroughly explained
the entire form GSTR-9C and shared
his meticulous detailing in conducting
GST Audit. He also gave useful tips to the article students
on how to effectively conduct GST Audit. The mentor for
the session CA. Jigar Shah then presented the certificate
of appreciation to Mr. Dynanesh Patade and applauded
the meticulous presentation made by him.

With the due dates for GST Audit fast approaching and
every CA firm wanting its articles to be well equipped
with the nitty-gritties of GST Annual return and GST
Audit, the training session saw a record participation
by 150+ students. The session ended with student coordinator
Ms. Neelam Soneja proposing vote of thanks
to the speakers for sparing their valuable time and also
thanked the audience for participating in huge numbers.
Both the sessions were interactive whereby the speakers
answered all the queries raised by the participants.

HDTI STUDY CIRCLE
Study Circle Meeting on “Achieving Cohesiveness
(Like Mindedness) amidst diversity of beliefs
and opinions” held on 8th January, 2019 at BCAS
Conference Hall

Human Development and Technology Initiatives
Committee organised a study circle meeting on the topic
“Achieving Cohesiveness (Like Mindedness) amidst
diversity of beliefs and opinions” on 8th January, 2019
at BCAS Conference Hall which was addressed by Ms.
Amrita Singh having 16+ years of hands on Designing,
Training, and Coaching experience. She explained that
at office or at home, we come across situations where
our opinions and beliefs are diverse and we have varied
goals based on this. We need to align our individual goals
to the organisational goals or like the family as a whole to
successfully work together.

The Speaker took the participants through various
situations and discussed how to deal with the same
successfully. She also mentioned about the types of
personalities and the four quadrants like Kool Blue,
Green Earth, Fiery Red and Sunshine Yellow wherein
each person fall into. Each of these personalities have
typical characteristics and each may also have some
characteristics in the other quadrants as well. One can
judge what quadrant one belongs to and improve to
adjust in order to be successful. The participants found
the topic very interesting and relevant in the day to day
personal and professional life and got hugely enlightened
on the subject.

Lecture Meeting on “Changing Risk Landscape
for Audit Profession with special emphasis on
NFRA and other recent developments” held on 9th
January, 2019 at BCAS Conference Hall.

BCAS organised a lecture meeting on
the captioned subject on 9th January,
2019 at BCAS Conference Hall which
was addressed by CA. Narendra P.
Sarda.
The Speaker discussed about the
‘Changing Risk Landscape for
Audit Profession with special emphasis on NFRA and
other recent developments’ i.e. (i) Increasing Risk and
Challenges, (ii) Specific Scam, (iii) Fraud and Failures,

(iv) National Financial Reporting Authority (NFRA), (v) CA
Institutes’ roles in the new regime and Members response
to the recent developments, (vi) Other regulatory changes
impacting the Audit Profession. Various changes and
increasing uncertainties in the audit profession, increasing
use of Fair values, increasing internal and external risk,
regulatory issue, intricacies of reporting requirements and
expectations from Auditors were also well covered and
explained by way of practical examples well designed
to understand the complexities of the Changing Risk
Landscape for the Audit Profession. On this occassion
BCAS Publication “Tax Deduction at Source- Law and
Procedure” was released.

He also explained the various functions and Powers
of NFRA, companies to whom NFRA applies, NFRA
rules, 2018 and various pros and cons of NFRA. He
further elaborated the role of ICAI and response of the
auditors to this new regulatory authority. The lecture
meeting was attended by more than 100 participants
from various Industries and Practice arena. The meeting
was very interactive and the participants got enlightened
immensely.

FEMA STUDY CIRCLE
FEMA Study Circle Meeting on “Critical issues under
Export/Import of Goods and Services” held on
15th January, 2019 at BCAS Conference Hall

A FEMA Study Circle Meeting was held on 15th January,
2019 at BCAS Conference Hall where CA. Kirit Dedhia
and CA. Parag Kotak led the discussion on the topic of “Critical issues under Export/Import of Goods and
Services”. The Group leaders discussed meaning of
the term “Export” and “Import” in relation to the goods,
software and services. Discussion was also on services
other than software where SOFTEX form is to be filed.
The Group leaders discussed agency commission,
setting off and netting off of export receivables against
import payables, export claims, period of realisation,
reduction of invoice value, write off of export receivables
and few compounding orders. The members appreciated
the efforts put in by the group leaders and learnt a lot from
the rich experience of speakers.

INTERNATIONAL ECONOMICS STUDY
GROUP
International Economic Study Group Meeting on
“Road to 2019 Elections and a Nayi Disha for India”
held on 16th January, 2019 at BCAS Conference Hall

International Economics Study Group had their meeting
on 16th January, 2019 to discuss “Road to 2019 Elections
and a Nayi Disha for India” at BCAS Conference Hall. Shri
Rajesh Jain (studied at IIT, Mumbai & Columbia University,
USA, runs India’s largest digital marketing company,
Netcore) led the discussions and presented his thoughts
on the subject. He presented various scenarios for the
2019 elections, implications of each of the scenarios;
options available to BJP etc.

Mr. Jain also expressed concern about India’s economy
post-election due to atmosphere of uncertainty, voters
opting to change rulers rather than rules to solve
our ‘Hamesha’ problems of poverty, unemployment,
corruption, farm distress, SMEs distress etc. He also
suggested consumption-led growth to propel economy,
employment, reduce poverty, reduce over dependence of
rural population on agriculture etc., by monetising surplus
public assets by returning to the people (rightful owners),
a concept of “Dhan Vapasi”. He also suggested an idea of
relooking at our 70+ years old Constitution.

The meeting was very informative and interactive and the
Speaker resolved all the queries raised by the participants.
The participants learnt a lot from the rich experience of
the Speaker.

BCAJ Admin

REPRESENTATIONS

1. Dated: 10^th
December, 2018

To: Director General of
Goods & Service Tax, Western Zonal Unit, Mumbai

Subject:
Representation for non-review of refund orders

Representation by:
Indirect Taxation Committee of the Bombay Chartered Accountants’ Society.

2. Dated: 8^th
January, 2019

To: The Task Force for
Revamping Maharashtra Public Trust Act, 1950

Subject: Setting Up
Task Force for Revamping the Charity Commissioner Office and its Functioning in
Maharashtra as Per Directives of The Honourable Chief Minister, Maharashtra

Representation by:
Corporate and Allied Laws Committee of the Bombay Chartered Accountants’
Society.

3. Dated: 11^th
January, 2019

To: Secretary
(Revenue), Ministry of Finance, Govt. of India

Subject:
Representation on mechanical issue of prosecution notices by the Income-tax
department

Representation by:
IMC Chamber of Commerce and Industry, Bombay Chartered Accountants’ Society;
Chartered Accountants’ Association, Ahmedabad; Chartered Accountants’
Association, Surat; Karnataka State Chartered Accountants’ Association; Lucknow
Chartered Accountants’ Association.

Note: For full Text of the above
Representations, visit our website www.bcasonline.org

BCAJ Admin

CORPORATE LAW CORNER

9. Lalit Mishra vs. Sharon Bio Medicine Limited
Company Appeal (AT) (Insolvency) No. 164 of 2018 Date of Order: 19^th
December, 2018

Insolvency and Bankruptcy Code, 2016 –
Shareholders and promoters are not creditors – Right available to surety (who are
also the promoters and shareholders) under contract law will not be applicable
in case of an approved resolution plan

FACTS

National Company Law Tribunal (“NCLT”) passed an order whereby a
resolution plan was approved in respect of S Co. L was a promoter of S Co.
Predominantly, the grounds of appeal are that L and others although are
promoters and shareholders, no amount has been provided for them; and some of
the promoters being personal guarantors are discriminated against.

L has also submitted that the security interest which include the
personal guarantees of L have been reduced to ‘nil’ and thereby the ‘Resolution
Plan’ have been submitted against the provisions of sections 133 and 140 of the
‘Indian Contract Act’.

HELD

NCLAT examined the various clauses of the resolution plan approved by
the NCLT. It was observed that restructuring of the financial debt as part of
the ‘Resolution Plan’ approved by the NCLT under the Code did not envisage
complete discharge of the liability of personal guarantors of the S Co. The
plan mentioned that all securities/ collaterals/ margin money/ fixed deposit
with lien provided by S Co shall be deemed to be released immediately on
Effective Date. It is subsequently mentioned that the personal guarantee provided
by the existing promoters of S Co shall not result in any liability towards S
Co or the ‘Resolution Applicants’.

This ‘treatment of security’ and with regard to personal guarantee
provided by the existing promoters of S Co is alleged to be in violation of
section 140 and section 133 of the ‘Indian Contract Act’.

However, it was held that intention of the law was maximisation of the
value of the assets of the ‘Corporate Debtor’, then to balance all the
creditors and make availability of credit and for promotion of entrepreneurship
of the ‘Corporate Debtor’. The Code prohibits the promoters from gaining,
directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from
the ‘Corporate Insolvency Resolution Process’ or its outcome. The Code seeks to
protect creditors of the ‘Corporate Debtor’ by preventing promoters from
rewarding themselves at the expense of creditors and undermining the insolvency
processes.

The NCLAT held that the shareholders and promoters are not creditors and
thereby the ‘Resolution Plan’ cannot balance the maximisation of the value of
the assets of the ‘Corporate Debtor’ at par with the creditors. They were also
ineligible to submit the ‘Resolution Plan’ to again control or takeover the
management of the ‘Corporate Debtor’. Further it was held that there was no
discrimination if no amount is given to the promoters/shareholders and the
other equity shareholders who are not the promoters have been separately
treated by providing certain amount in their favour. The appeal was accordingly
dismissed.

10.
KKR Jupiter Investors (P.) Ltd. vs. JBF Petrochemicals Ltd. [2018]
100 taxmann.com 341 (NCLT-Ahd.) Date of Order: 19^th November, 2018

Section 60(5)(c) r.w.s 7 of Insolvency and
Bankruptcy Code, 2016 -_ Proceedings u/s. 7 can only be initiated by or against
the corporate debtor – No other person (including a financial investor,
promoter or shareholder) can intervene in the proceedings so initiated

FACTS

K Co, is a financial investor of J Co. In April 2018 K Co came to know
that corporate insolvency resolution process u/s. 7 of the Insolvency
Bankruptcy Code, 2016 has been initiated against J Co by one of its financial
creditors. K Co as a financial investor submitted that it proposed to implement
a comprehensive solution to the problems faced by all the stakeholders of J Co
within a reasonable time period and sought the co-operation of the financial
creditor. This was mainly based on the contention that corporate insolvency
resolution process would not serve any beneficial purpose to the stakeholders
including financial creditor and the proposed financing would resolve the
issues whereby the lender would receive payment of outstanding principal amount
under the facility arrangement and K Co’s interest would also be preserved. The
applicant thus filed intervention application for affording an opportunity to
it to raise all the issues for the effective adjudication in the matter.

HELD

National Company Law Tribunal (“NCLT”) examined the provisions of
section 60(5) of the IBC which deal with adjudicating authority for corporate
persons. It observed that an application/proceeding u/s. 60(5) of the IBC could
be filed by or against the corporate debtor. This was unlike the K Co’s case,
where, the intervention application was filed against the financial creditor.

NCLT further observed that section 60(5)(c) had no applicability at the
stage of adjudication on admissibility of application filed u/s. 7 of IBC. This
was because section 60(5)(c) dealt with questions of priorities or any question
of law or facts “arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor” or corporate person. NCLT,
thus, concluded that the intervener cannot resort to section 60(5)(c) to invoke
jurisdiction of the Tribunal to entertain the intervention application in a
case where the proceedings are initiated by the financial creditor u/s. 7 of
the IBC which is under way and the insolvency resolution process against the
corporate debtor has not been initiated.

NCLT relied on the decision of the NCLAT in Axis Bank vs. Lotus Three
[2018] 97 taxmann.com 96 wherein it was held that, third party i.e. an
entity other than the financial creditor/corporate debtor is not offered the
right to be heard and/or to intervene in a proceeding initiated u/s. 7. NCLT
thus held that adjudicating authority was only required to satisfy that the
default had occurred and the corporate debtor was entitled to point out that
the default had not occurred, i.e. the debt was not due. No other person had
the right to be heard at the stage of admission of application u/s. 7 and 9
including the shareholder or the personal guarantor. The Tribunal also relied
on the decision of the Supreme Court in the case of Innoventive Industries
Ltd. vs. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) to draw support for
this position held by the Tribunal. NCLT, thus, rejected the application filed
by K Co.

11. Vestal Educational
Services (P.) Ltd. v. Lanka Venkata Naga Muralidhar [2018] 100 taxmann.com 286
(NCL-AT) Date of Order: 16^th November, 2018

Section 62 of Companies Act, 2013 – Money was
given by ex-director to Company for re-payment of loans taken by the company –
Company alleged that amount was advanced against equity shares and not loan as
was claimed by the ex-director – Company was required to establish that a valid
offer of shares was made to and accepted by the ex-director and that procedure
laid down u/s. 62 was complied with – Inability to prove the same rendered the
allotment null and void.

FACTS

L is a shareholder of V Co and acted as a director of the same from
December 2006 to October 2011. V Co had borrowed loan from SBI in 2009 against
which properties of V Co were mortgaged and L also gave a personal guarantee.

The term loan became NPA in 2013 (i.e. after L ceased to be a director
in October 2011). There was a one-time settlement agreed by V Co. Since the
company could not meet its liability as per the one-time settlement scheme
entered into with the Bank, it approached L to lend Rs. 1.54 crore. L deposited
the said sum in the account of V Co.

L claimed that he sent reminders to the company for repayment of the
amount and also sent legal notices asking for payment of amounts advanced by
him to the company. Meanwhile, V Co sent a courier to the original petitioner
showing the latest shareholding and on verification, the original petitioner
found that amount lent by him had been converted into equity without his
knowledge, intimation or authorisation and that the action on the part of company to convert the amount
into equity was to avoid the payment of money to him and clearly an
afterthought.

The NCLT observed that there was no evidence as regards issue of notice
offering shares and ultimately set aside the allotment made by the company and
directed that the amount be paid to L.

V Co filed the present appeal pleading that amounts were advanced by L
as a consideration for issue of shares and not as a loan as was held by NCLT.

HELD

NCLAT observed that having regard to the opposing nature of claims,
burden was on V Co to show that when the payments were made by L, he had agreed
that against the said amount, shares be issued to him. V Co was also required
to establish that procedures laid down u/s. 62 of Companies Act, 2013 were
complied with.

The NCLAT observed that there was no match between the amounts advanced
by L and shares alleged to be allotted by V Co in light of ledger maintained by
V Co.

NCLAT held that V Co was unable to establish at any point of time that L
had in fact consented to the issue of equity shares against money advanced by
him. Further, additional documents that V Co tried to submit in order to
further its claim were never filed before NCLT and there was a concern on the
genuineness of the documents so tendered for filing. NCLAT further held that
had the documents been considered, the conclusion would still be the same as
NCLT. V Co was unable to prove that shares were offered to L or that L had in
fact accepted the offer alleged to have been made.

The appeal filed by V Co was accordingly aside and a cost of Rs.
1,50,000 was imposed upon V Co.

BCAJ Admin

ETHICS AND U

CA and Social Conduct

Arjun (A) — Oh Lord, It
is now becoming too much! Simply
unbearable!

Shrikrishna — Arjun,
What are you talking about? Heat?

A — No.

S —Then,
compliances? Corruption?.

A —
No Bhagwan. I am talking about Supreme Court decision. There is no logic
only.

S —
But this is the case with many decisions of the Courts. Why are you wasting your time and energy in
finding out any logic in the decisions?

A —
They do give some logic. But quite often, it is hard to agree with it.

S —So,
you always can use the expression ‘with due respect…………..’.

A —
Jokes apart. I am referring to a Supreme
Court decision in the case of Council of the Institute of Chartered Accountants
of India vs. Shri Gurvinder Singh & ANR delivered on November 16, 2018.

S —
What does it say?

A —
It says even the personal or private behaviour of a CA is subjected to
disciplinary mechanism! It need not be a misconduct committed in the course of
carrying out the profession.

S —
Then, what is wrong about it?

A —
How do you say so? How is ICAI concerned with our private affairs? I may do
anything in my personal life. So long as I am discharging my professional
duties diligently, who can be aggrieved?

S —
You are mistaken, Paarth! Have you ever read your Chartered Accountants’
Act?

A —
I read it at the time of my exam 25 years ago! Why? Is there any amendment?

S —
Yes. To some extent there is an effect of Amendment in the year 2006. But this
particular provision was there right since the beginning.

A —
I never noticed it.

S —
Paarth, you know that the term ‘misconduct’ is defined in section 22
of the Act. The heading itself says ‘professional or other misconduct
defined’.

A —
Let me see. Oh! But I will have to hunt for the Act. I may have lost my copy. Ever since I
qualified, I have never seen it!

S —
Ironical but that’s the case with almost all the CAs.

A —
True. Ok, tell me what it says?

S —
It says – professional or other misconduct includes any act or omission listed
in the 2 schedules of the Act. Over and
above this, it also gives wide powers to the Director Discipline to inquire
into the conduct of any member under any other circumstances.

A —
Oh! That means it is all pervasive. But why so?

S —
Arjun, it is very simple. If you misbehave anywhere, how is it reported in the
news? ‘CA caught red-handed in doing ______’ Is it not?

A —
Yes. Like bribery, money laundering, falsification of documents; and even other
crimes.

S — Doesn’t
it bring disrepute to the profession? By your professional misconduct, normally
a few clients or revenue authorities or banks may be aggrieved. But by such other
misconduct, entire profession’s image is tarnished.

A —
So, what kind of misconduct is covered under this expression?

S —
Many items! It includes even the case of dowry, breaking other laws,
violence, cheating, issuing cheques without adequate balance,
misrepresentation, so on and so forth!

A —
Even traffic rules?

S —
Of course, yes. If it is recurring affair! Even quarrelling in public
places, obscene behaviour – and what not! Of course, it will depend on
facts.

A — But
then, what was the amendment?

S —
Previously, other misconduct was a general term – meaning – behaviour
unbecoming of a professional! As a professional, you are expected to maintain
certain standards of behaviour in personal as well as public life. Only then
the credibility and respectability can remain.

A —
Agreed. But what is the amendment?

S —
They have now codified it by adding clause (2) in Part IV of first schedule. It says the act of a CA that brings disrepute to
the profession or the Institute by his action, whether or not related to his
professional work.

A —
Oh! So, it is clear.

S —
Further, if a CA is held guilty by any civil or criminal court for any offence
which is punishable with imprisonment, that is also a misconduct.

A —
Bhagwan, now I have understood. So, the Apex Court was right, since the law is
clear. I am also convinced about the logic behind it. Thank you Lord.

S —
So, take care in all your personal affairs too!

A —
Yes, I will.

Om Shanti!

This dialogue is based on the following:-

i) Supreme Court decision in the case of Council of the
Institute of Chartered Accountants of India vs. Shri Gurvinder Singh & ANR delivered
on November 16, 2018

ii) Section 22 of CA Act – Professional or
other misconduct defined

For the purpose of this
Act, the expression ‘professional or other misconduct’ shall be deemed to
include any act or mission provided in any of the Schedules. But nothing in
this Section shall be construed to limit or abridge in any way the power
conferred or duty cast on the Director (Discipline) under sub-section (1) of
section 21 to enquire into the conduct of any member of the Institute under any
other circumstances’.

iii) Other misconduct in relation to members of the Institute
generally:

Items (91) and (2) of Part
IV of First Schedule.

1. Is held guilty by any civil or criminal court for an offence
which is punishable with imprisonment for a term not exceeding six months;

2. In the opinion or the Council, brings disrepute to the
profession or the Institute as a result of his action whether or not related to
his professional work.

iv) Part III of Second Schedule

A member of the Institute,
whether in practice or not, shall be deemed to be guilty or other misconduct, if
he is held guilty by any civil or criminal court for an offence which is
punishable with imprisonment for a term exceeding six months.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

SC notice to RBI on pleas seeking
contempt proceedings for violating RTI

The Supreme Court (SC)
sought RBI’s response on two pleas seeking contempt proceedings against the
central bank and its former Governor Urjit Patel for non-disclosure of
information under RTI about some banks.

A bench headed by Justice L
N Rao issued the notice to the Reserve Bank of India (RBI) for not disclosing
information about the list of banks on whom certain fines were imposed for
violating some banking rules.

The court has asked RBI to
file a reply within four weeks and listed the matter for hearing in March.

The pleas, filed by Girish
Mittal and Subhash Chandra Agrawal, claimed that RBI and Patel had
“willfully and deliberately” disobeyed the top court’s judgement
asking the central bank to disclose information under the Right to Information
(RTI) Act.

Agrawal had sought complete
information including related documents from RBI on the imposition of fines on
some banks for violating rules.

He had also sought the list
of banks and the default for which show cause notices were issued to them
before the fine was imposed.

Despite the apex court’s
judgement for disclosure of such information, RBI had issued a “Disclosure
Policy” under which it has listed certain information as being exempted
from being disclosed of the RTI Act.

“It is to be noted
that this specific information is similar to what were held not to be exempted
by the Supreme Court,” claimed the plea, filed through lawyer Prashant
Bhushan.

RBI had refused to disclose
such information on the grounds of economic interest and holding such
information in fiduciary relationship with these individual banks.

Such reason is in direct
contempt with this court’s judgment. The information titles which are in
contempt belong to Department of Banking Regulation, Banking Supervision,
Cooperative Banking Regulation/Department of Cooperative Banking Supervision
and Consumer Education and Protection Department.

“This exempted
information under the policy were held to be not exempted by the Supreme Court.
Thus, this exemption leads to contempt of this court’s order,” the plea
said.

The Supreme Court had in
2015 held that RBI should take rigid action against those banks and financial
institutions which have been indulging in “disreputable business
practices” and said it cannot withhold information on defaulters and other
issues covered under the RTI Act.

It had further clarified
that RBI cannot withhold information under the “guise” of confidence
or trust with financial institutions and is accountable to provide information
sought by the general public.

The pleas claimed that the
disclosure policy framed by the RBI headquarters is like an instruction to its
Public Information Officers (PIOs) not to furnish virtually all kinds of
information.

“Under the RTI Act,
2005, it is the PIOs who have been cast with the statutory duty to comply with
the provisions of the RTI Act (as interpreted by the Courts) and it is the PIOs
who face a penalty for non-compliance.

“The policy provides
with different titles of information divided department wise that are not to be
disclosed under the RTI Act, 2005. The reason for non-disclosure of information
by RBI under its Disclosure Policy has been based on economic interest and
fiduciary relation with the individual banks,” the pleas said.

(Source:https://www.business-standard.com/article/pti-stories/sc-issues-notice-to-rbi-on-pleas-alleging-violation-of-right-to-information-law-119012501365_1.html
)

Part B
IRTI ACT, 2005

Step
by step guide to file an RTI application

Right to Information Act 2005 mandates timely response to citizen requests
for government information.

It is an initiative taken by Department of Personnel and Training,
Ministry of Personnel, Public Grievances and Pensions to provide an RTI Portal
Gateway to the citizens for quick search of information on the details of first
Appellate Authorities,PIOs etc. The url of the RTI software is :
https://rtionline.gov.in

Steps to file an RTI

1. For submitting RTI application click on submit
request option.

2. On clicking on submit request option
‘Guideliens for use of RTI ONLINE PORTAL’ screen will be displayed.This screen
contains various guidelines for using RTI online portal. Citizen has to click
on the checkbox ‘I have read and understood the above guidelines’ and then
click on submit button.

3. Then Online
RTI Request Form screen will be displayed. Ministry or Department for which the
applicant wants to file an RTI can be selected from Select
Ministry/Department/Apex body dropdown.

4. Applicant will receive sms alerts in case
he/she provides mobile number. The fields marked * are mandatory while the
others are optional.

5. If a citizen belongs to BPL category, he has to
select the option ‘Yes’ in ‘Is the applicant below poverty line?’ field and has
to upload a BPL card certificate in supporting document field. (No RTI fee is
required to be paid by any citizen who is below poverty line as per RTI Rules,
2012)

6. On submission
of the application, a unique registration number would be issued, which may be
referred by the applicant for any references in future.

7. If a citizen
belongs to Non BPL category, he has to select the option ‘No’ in ‘Is the
applicant below poverty line?’ field and has to make a payment of Rs 10 as
prescribed in the RTI Rules, 2012.

8. ‘Text for RTI
request application’ should be upto 3000 characters. If the text is more than
3000 characters, then the application can be uploaded in supporting document
field.

9. After filling all the details in the form, click on
the ‘make payment’ option.

10. On clicking
the option, Online Request Payment form will be displayed. The payment mode can
be selected in this form, which can be; internet banking, ATM-cum-debit card or
credit card.

11. After clicking
on the ‘Pay’ button, applicant will be directed to SBI payment gateway for
payment. After completing the payment process, applicant will be redirected
back to RTI Online Portal.

12. The applicant
will get an email and sms alert on submission of application.

Note: Only alphabets A-Z a-z
number 0-9 and special characters , . – _ ( ) / @ : & % are allowed in
text for RTI request application.

The application filed through this web portal would reach electronically
to the nodal officer of concerned Ministry/Department, who would transmit the
RTI application electronically to the concerned CPIO.

What to do if your RTI
request is rejected?

There is fundamental difference between RTI Request and RTI Appeal.

RTI Request is filing
application for the first time. Request is made by the citizen to one person
(i.e. PIO) to provide information. This means that it involves only the citizen
and PIO.

RTI Appeal is appeal
before senior officer against decision of PIO. This means that here, a third
person (i.e. Appellate Authority) comes between the citizen and the PIO.

Appeal is only filed when the citizen is not
satisfied with the reply of PIO or PIO rejects citizen’s request for
information.

This means RTI request is application process while RTI appeal is
appellate procedure against decision on RTI application.

Steps for filing RTI First
Appeal

1. For submitting First appeal application, click on
‘submit first appeal’ option. Upon clicking, ‘guidelines for use of RTI online
portal’ screen will be displayed. This screen contains various guidelines for
using RTI online portal.

2. Citizen has to click on the checkbox ‘I have read
and understood the above guidelines’ and then click on submit button.

3. Online RTI first appeal form screen will be
displayed. Applicant has to enter registration number, email ID and security
code in the form.

4. Upon clicking the submit button, online RTI first
appeal form will be displayed. The applicant can then select reason for filing
appeal application from ‘ground for appeal’ dropdown field.

5. Text for RTI first appeal application should be
upto 3000 characters. If the text is more than 3000 characters, then the
application can be uploaded in supporting document field. (As per RTI Act, no
fee has to be paid for first appeal).

6. On submission of the application, a unique
registration number would be issued, which may be referred by the applicant for
any references in future.

(Source:
https://www.indiatoday.in/information/story/rti-application-online-filing-steps-1440321-2019-01-27
)

Part C IINFORMATION ON
& AROUND

Govt breached rules in filling RTI commission, Supreme Court told

The Supreme Court heard that the Centre had violated provisions of the
Right to Information Act by appointing commissioners who had not even applied
for the posts.

A bench headed by Justice A.K. Sikri took on record the affidavit filed
by RTI activist Anjali Bharadwaj and adjourned the matter by a week to enable
the Centre and the states to submit comprehensive status reports on the filling
of vacant posts.

In December the top court had directed the Centre and the states of
Bengal, Andhra Pradesh, Odisha, Telangana, Maharashtra, Gujarat, Kerala and
Karnataka to file status reports mentioning the steps taken to fill up the
vacant posts of information commissioners and also the manner in which the
governments planned to hire.

The court had passed the directions on a PIL jointly filed by Bharadwaj,
Lokesh Batra and others alleging that a large number of vacancies in the
Central Information Commission (CIC) and the state information commissions
showed that the governments wanted to throttle the functioning of the RTI Act,
which was not good for democracy as the main purpose behind the legislation was
to ensure transparency. The petitioners complained that the Centre had issued a
notification dated 4^th January, 2019, on the website of the
department of personnel and training and in some newspapers inviting
applications for four vacant posts in the CIC.

They alleged that the advertisements were not in keeping with the
provisions of the RTI Act, 2005, as they stated that “the salary, allowances
and other terms and conditions of service of the Information Commissioners
shall be as may be specified at the time of appointment of the selected
candidate”.

According to the petitioners this is at variance with the provisions of
the RTI Act that specifies the terms and conditions of service of information
commissioners of the CIC. Sub-sections 2 and 5 of section 13 of the RTI Act
define the tenure and salaries and allowances payable to the chief information
commissioner and the information commissioners at the CIC.

“As per the said section, ‘every Information Commissioner shall hold
office for a term of five years from the date on which he enters upon his
office or till he attains the age of sixty-five years, whichever is earlier,
and shall not be eligible for reappointment as such Information Commissioner’,”
the PIL said.

“13(5) says ‘the salaries and allowances payable to and other terms and
conditions of service of — (a) the Chief Information Commissioner shall be the
same as that of the Chief Election Commissioner; (b) an Information
Commissioner shall be the same as that of an Election Commissioner’,” the
petition added.

According to the petitioners the Centre had deliberately worded the
advertisements vaguely by not specifying the tenure and salaries to undermine
the selection process.

“It would be unreasonable to expect people of eminence to apply for a
post without knowing the terms and conditions of service,” the petitioners
contended.

The petitioners also alleged that some of the four commissioners
appointed by the Centre had not applied for the post.

The petition said the Centre did not upload the list of shortlisted
candidates during the process of appointment.

“…The search committee acted arbitrarily and beyond the mandate to
selectively shortlist individuals who had not even applied… Therefore, the
shortlisting of persons who had not applied is illegal. In the case of the
Chief Information Commissioner, 5 people were shortlisted, 4 of whom had not
even applied. While for information commissioners, 14 persons were shortlisted
of which 2 had not even applied for the post…. One such individual has been
appointed as an information commissioner… Further, minutes of meetings do not
record the rational criteria on the basis of which names were shortlisted,” the
petitioners stated.

The petitioners alleged that Bengal had failed to inform the Supreme
Court about the number of vacancies at the state information commission.

Quoting statistics available on the website of the Bengal information
commission, the petition said several matters filed more than 10 years ago were
heard in 2018. The petition alleged that it would take two years to clear the
backlog and also the matters filed in the intervening period if the commission
continued to dispose of cases at the current rate — 4,500 a year.

Such long waiting periods defeat the purpose of the RTI Act, which is to
ensure information disclosure in a time-bound manner, the petitioners said.

The Andhra Pradesh commission website shows that the panel has been
defunct since May 2017, the petitioners said. No appeals or complaints had been
heard since then. On the web portal of the Andhra government details such as
the names of search committee members and shortlisted candidates and the selection
criteria could not be located, the petitioners said.

Information submitted by the Telangana
commission on affidavit shows that on average it disposes of about 2,000
matters annually, the petitioners said. If the commission functions at the same
rate, it will take six years to just dispose of the 11,762 cases that are
pending as on December 2018. Nine posts of information commissioners are
vacant.

The petitioners said that on the website of the Maharashtra general
administration department no details regarding names of search committee
members and shortlisted candidates and the selection criteria could be located.
Two posts of information commissioners are vacant and 42,000 cases pending.

In Gujarat nine posts of information commissioners are vacant. The
commission was functioning with one chief and one commissioner as of 21^st
January, 2019. Nearly 5,200 cases are pending. Although advertisements for
appointments were issued nearly two years ago, no appointments had been made.

In Kerala five posts of state information commissioners are lying vacant
because of the pendency of some writ petitions in the high court.

In the affidavit filed on behalf of the Karnataka government it is
mentioned that one post of state information commissioner is vacant and that an
advertisement had been put out seeking applicants. However, Karnataka High
Court has stayed the appointment process now.

(Source:https://www.telegraphindia.com/india/govt-breached-rules-in-filling-rti-commission-supreme-court-told/cid/1682549)

Service book is personal and does not fall under RTI: SIC

In a landmark order, State Information Commission said the Service Book
of an employee is “personal” and
cannot be provided to third party under the Right to Information Act.

Hearing the appeal from Excise inspector Amit Morajkar, SIC Juino
D’Souza expresses serious concern the First Appellate Authority has passed an
Order directing the PIO to provide certified copies of the Service Book of the
third party without even hearing and considering the objections of the ‘Third
Party’.

Also, it is seen that the procedure under section 11 has not been
followed and which includes giving notice to the concerned officer, he said.

The Commission further observed that the FAA in the present case is a
senior IAS officer, holding the post as ‘Commissioner of Excise’ and being a
quasi-judicial authority should have applied his mind and decided the First
Appeal as per 19(1) purely on merits as per the RTI act 2005. The FAA is duty
bound to see that the justice is done.

“The Service Book of an employee is essentially a matter between the
employer and employee more so as it contains important records such as annual
confidential report, family nomination, health status, disciplinary proceedings
taken against the employee and other such information that is Personal in
nature and every Government servant has a right to guard the same,” he
observed.

Further, the order stated, unless larger public interest is shown, the
furnishing of such records can cause prejudice and unwarranted invasion of
privacy to the concerned government servant, besides the information can also
be misused against the employee by unscrupulous elements using RTI as a
cover.

The SIC cautioned the FAA is accordingly instructed to be more cautious
in future while dealing with information that is ‘Personal’ in nature and which
may cause invasion of privacy and also information falls under the ambit of
exemptions under section 8 of the RTI act 2005, specially the exemption under
section 8(1)(j) of the RTI act 2005.

“With these observations all proceedings in Appeal case stand closed,”
the order states.

(Source:https://www.heraldgoa.in/Goa/Service-book-is-personal-and-does-not-fall under-RTI-SIC/141726.html
)

Highest RTI applications filed 2017-18, lowest rejected since 2005:
Central Information Commission data

A record 12.3 lakh RTI applications were filed in 2017-18 with 96 per
cent of them being responded to by government offices, making it the best
performing year since the law was enacted in 2005, the Central Information
Commission data shows.The data from the latest CIC annual report, shared by the
Ministry of Personnel, Public Grievances and Pensions shows that during
2017-18, 12.33 lakh RTI applications were received by the registered Central
Public Authorities (PAs).

“This is higher by 3,17,458 or 26 per cent than what was reported
during 2016-17. The Central PAs rejected 4 per cent (63,206) of the RTI
applications processed during 2017-18 showing a downward trend in rejections
which have come down by 2.59 per cent from the 6.59 per cent reported in
2016-17,” it said.The four per cent rejection rate is the lowest since
2005 when the RTI Act was enacted by Parliament giving people the right to get
information from government offices on a payment of INR 10. The public authorities used
exemptions provided under section 8, section 9, section 11 and section 24 of
the RTI Act to reject plea for information.

Thirty-two per cent of applications were rejected citing other reasons.
Section 8 lists nine subsections covering issues such as national security,
commercial confidence, parliamentary privilege, cabinet papers, personal
information among others under which information can be denied to a person.

Section 9 pertains to information related to infringement of copyright,
section 11 deals with third party information and section 24 is related to security
and intelligence organisations exempted from the RTI Act. The year proved
successful to the efforts of the Central Information Commission that all public
authorities file their annual returns with it which is mandatory under the RTI
Act. On this front, 100 per cent compliance was witnessed during 2017-18 which
is a first since enactment of the transparency law, the data showed.

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/highest-rti-applications-filed-2017-18-lowest-rejected-since-2005-central-information-commission-data/articleshow/67369101.cms
)

Part D IRTI ARTICLE

SC Seeks Explanation for Arbitrary Appointment of Information
Commissioners

The Supreme Court took note of the arbitrary
and haphazard manner in which the information commissioners in the Central
Information Commission were selected recently and directed the Department of
Personnel & Training (DoPT) to reply by 29^th January, at the
next hearing.

This is a sequel to Supreme Court’s directive to DoPT to upload on its
website details of the process of information commissioner appointments by the
selection and search committee. Thanks to legal intervention by three right to
information (RTI) activists, Anjali Bharadwaj, Amrita Johri and Commodore
Lokesh Batra (retd), these documents, in the public domain now, reveal how the
selection committee violated several norms to appoint the Chief Information
Commissioner and four information commissioners of “their choice.”

Now, it is clear that the appointment of Sudhir Bhargava, an information
commissioner until now in the CIC and four information commissioners—Vanaja N
Sarna (the only lady), formerly, chief of the Central Board of Excise and
Customs (CBEC); Yashwardhan Kumar Sinha, former High Commissioner of India to
the UK; Suresh Chandra, former Union law secretary and Neeraj Kumar Gupta,
secretary in the department of investment and public asset management are not
as per the norms laid out for these
committees as per the RTI Act.

One of the petitioners, Anjali Bharadwaj, pointed out in the Supreme
Court, “the search committee had, in violation of its mandate, short-listed
persons who had not even applied for the post in response to advertisements.
Further, the minutes of the search committee meeting revealed that no rational
criteria were adopted on the basis of which the short-listing was done. Also,
the minutes showed the completely ad-hoc manner of functioning of the search
committee, wherein people who were appointed members of the committee, also
applied for the post and had to be subsequently replaced and were finally even
short-listed. One of the person who has been appointed- Shri Suresh Chandra,
had not even applied for the post.”

The Supreme Court took serious note of all the issues and directed that
the government should file a report on all the issues highlighted by the
petitioners and listed the matter. All the states were also directed to file
their reports before the hearing.

Research scholar and RTI activist, Venkatesh Nayak has closely studied
the documents put up by the DoPT regarding the selection committee’s glaring
bias of appointing present and former government servants as information
commissioners, by throwing to the winds rules under section 12 (5) and 15(5) of
the RTI Act as well as the Supreme Court ruling in the matter of Union of India
vs. Namit Sharma [ AIR 2014 SC 122], which clearly state that eminent persons
from various fields should also be chosen for the posts.

The following is Venkatesh Nayak’s observations
and analysis, along with those of Commodore Batra:

The file notings show that 64 applications were received within the
stipulated deadline, from across the country against the vacancy advertised in
two English language and two Hindi language newspapers. Four applications were
received after the lapse of the deadline. The DoPT has only disclosed the names
of these applicants and withheld their applications and bio data by invoking
Section 8(1)(j) of the RTI Act which seeks to exempt personal information of an
individual from disclosure. About 20 pages of documents contained in the files
have been withheld from disclosure in this manner.

Who were the search committee members?

The six-member search committee headed by the cabinet secretary
included the secretaries of the DoPT and the dept. of expenditure (in the
finance ministry), the information & broadcasting, and the additional
secretary to the prime minister of India. The director of the Institute of
Economic Growth was the independent member. Interestingly, the secretary, dept.
of expenditure declared that he had applied for the post of information
commissioner. So after consultations with the PMO, he was retained on the
search committee

How many times did the search and the selection committees meet?

Only four members of the search committee met on 24^th
November, 2018 in the committee room of the cabinet secretariat to draw up the
shortlist. According to the file notings disclosed by the DoPT, the secretary
I&B and the secretary, expenditure could not attend the meeting.

The selection committee comprising the Prime Minister, his nominee, the
finance minister and the leader of the single largest party in opposition in
the Lok Sabha met on the 11^th of December to finalise their
recommendation to the President of India. Only one name of the appointee was
recommended. In fact, contrary to media reports, the selection of the chief
information commissioner preceded the finalisation of the names of the
information commissioners.

Whom did the search committee shortlist?

The search committee shortlisted
four candidates for the consideration of the selection committee. All four of
them were retired IAS officers including the newly appointed chief information
commissioner, Sudhir Bhargava. No women were included in this short list. The
list of 68 applicants reveals the names of at least four women. No candidate
from other areas of specialisation mentioned in the RTI Act was shortlisted.
This is a clear breach of the Supreme Court’s directions.

Further, the serving information commissioners, Bimal Julka and D. P.
Sinha who had also applied for the post of the chief information commissioner,
were not even shortlisted. Further, three of the four shortlisted candidates
had not even applied in response to the advertisement for the vacancy of the
chief information commissioner. They included Madhav Lal, a former secretary of
the ministry of micro, small and medium enterprises, Alok Raawat, a former secretary of DoPT’s
sister department, department of administrative reforms and public
grievances, R P Watal, the current
principal adviser Niti Ayog and former secretary, dept. of expenditure and Dr.
S. K. Nanda, former addl. chief secretary, government of Gujarat.

Observes Nayak, “The search committee meeting minutes indicate that its
members considered names of other serving and retired civil servants who had
not applied at all. This is perplexing to say the least. One of the women
applicants had recently retired as the chief secretary of the government of
Karnataka. How her candidature was given lesser weightage than that of the
former addl. chief secretary of Gujarat who had not even put in his application
in the first place, is a mystery. The minutes of the search committee meeting
are silent on this issue. This raises serious questions about the manner in
which the search committee determined “eminence” in public life.
Neither the committee nor the DoPT have publicised the criteria adopted for
determining “eminence in public life”. Further, how the claims of the
two serving information commissioners were undervalued in comparison to the
three shortlisted retired bureaucrats who had no previous experience of
adjudicating RTI disputes in any information commission is also a mystery that needs
to be cleared.’’

Tenure and terms and conditions of service of
the new appointees

It may be remembered here that
the government sought to amend the RTI Act mid-2018 to give itself the power to
determine the tenure and the terms and service conditions of the information
commissioners across the country. Despite giving notice of its intention to
introduce a bill to this effect in the Rajya Sabha, the government was not able
to introduce it during the 2018 monsoon session. The documents disclosed by the
DoPT indicate that the government sought to make the changes through the
ordinance route. However, this plan did not materialise and the documents that
the DoPT has disclosed on its website are silent on the underlying causes. The
file notings indicate, the government was planning to reduce the term of the
information commissioners to three years.

The only good part of these appointments:

The selection intimation letters issued to the new appointees indicate
that the terms of appointment are in accordance with the provisions of the RTI
Act, namely five years (including term served as information commissioner)
subject to the maximum age limit of 65. Salaries will be equal to that of the
chief election commissioner and the election commissioners, as the case may be,
in accordance with the provisions of the RTI Act. So despite advertising that
the government would determine the tenure and service conditions of the chief
information commissioner and information commissioners, the government has had
to eat humble pie by toeing the line of the law.

Box

How much time did the Committees spend making the final selections?

The documents released by the DoPT reveal only the date, time and venue
of the meetings of the search and the selection committees.

The search committee met on three occasions (twice for shortlisting the candidates for appointing as ICs and once
for shortlisting the candidate for appointment as the chief information
commissioner).

The selection committee met twice. The duration of these meetings is not recorded in the meeting minutes.
However, the minutes indicate that the search committee looked at all eligible
applications (the number is not known- whether all applications received were
found eligible or not) and also discussed names of other serving and retired
civil servants suggested by its members.

The minutes of the selection committee indicate that it not only
examined the applications shortlisted by the search committee but also all
eligible applications. A simple thought experiment may be conducted to estimate
the time required to consider all applications:

Chief information commissioner’s post: There were 64 applicants
who submitted their applications in a timely manner. The search committee
recommended three more names. So the selection committee had to examine 67
applications. Assuming that each bio data would require at least 5 minutes to
read and familiarise oneself, each member of the selection committee would
require to spend 335 minutes. In other words this implies spending at least 5.5
hours merely examining all applications. If the 4 late applicants’ bio data are
included, another, 20 minutes will have to be added to this figure.

Information commissioners’ post: There were 281 applicants who
submitted their applications in a timely manner. The search committee
recommended one more name. So the selection committee had to examine 282
applications. Assuming again that each bio data would require at least 5
minutes to read and familiarise oneself, each member of the selection committee
would require to spend 1,410 minutes, that is, at least 23.5 hours – or almost
an entire day examining all applications. If the 10 late applicants’ bio data
are included, another 50 minutes will have to be added to this figure. Taken
together, the selection committee would have to spend at least 29 hours merely
reading the applications. How much time would be required to “consider all
relevant factors” before arriving at a consensus on the five names (one
chief and 4 ICs) as mentioned in the minutes is anybody’s guess.

Asks Nayak, “Did the committee
actually spend so much time on the selection process? The government must
urgently answer.’’

(Source:https://www.moneylife.in/article/sc-seeks-explanation-for-arbitrary-appointment-of-information-commissioners/56177.html
)

______________________________________________

RTI Clinic in
February 2019: 2^nd, 3^rd, 4^th Saturday, i.e. 9^th,
16^th and 23^rd
11.00 to 13.00 at BCAS premises

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Qualified Limited Review report pending receipt of independent
investigation report for M&A and other financial statements related matters

INFIBEAM AVENUES LTD

From Notes to Statement of Standalone Unaudited
Results For The Quarter Ended 30^thSeptember, 2018

During the quarter ended 30^thJune, 2018, we were requested
by our statutory auditor ____ to perform an independent investigation in
relation to certain matters such as merger and acquisition and other financial
statements related matters. The Company has received report from an independent
firm of chartered accountants who were appointed to perform the investigation
which does not contain any material adverse observations. However, the auditors
have requested for detailed report, accordingly, prior period/year financial
results are as published for those respective periods. Pending which the
auditors have modified their limited review report for this matter.

From Statutory Auditors’ Limited Review Report

As explained in Note 3 to the financial results, during the quarter
ended 30^thJune, 2018, based on third party information, we had
requested management to perform an independent investigation in relation to
certain matters such as merger and acquisition and other financial statements
related matters. The prior period/year financial results are as published for
those respective periods and pending the receipt of the detailed report from
the Company, which we are informed is currently under preparation, we are
unable to comment on the impact, if any, on the prior period results and
consequential impact, if any, on the financial results for the quarter and six
months period ended 30^thSeptember, 2018.

Based on our review conducted as above, except for the possible effects
of the our observation in the paragraph 4 above, nothing has come to our
attention that causes us to believe that the accompanying Statement of
unaudited financial results prepared in accordance with recognition and
measurement principles laid down in the applicable Indian Accounting Standards
specified u/s. 133 of the Companies Act, 2013, read with relevant rules issued
thereunder and other recognised accounting practices and policies has not
disclosed the information required to be disclosed in terms of the Regulation, read
with the Circular, including the manner in which it is to be disclosed, or that
it contains any material misstatement.

Compilers’
Note: Similar disclosure and reporting was also done for the quarter ended
30^th June, 2018.

BCAJ Admin

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