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Book Review

Title of the Book: THE ANTHOLOGY OF BALAJI

Author: ERIC JORGENSON

Reviewed by SHIVANAND PANDIT

When I saw a book sub-titled ‘A Guide to Technology, Truth, and Building the Future’, my guardrails went up, and a set of neurons in my brain started firing. Scepticism and wariness set in, because in the volatile world of start-ups, there’s no shortage of founders peddling pitches to investors, and this sounds like one of those claims.

However, my scepticism quickly faded as I flipped through the pages of this book, actually titled ‘The Anthology of Balaji’, written by Eric Jorgensen and illustrated by Jack Butcher. As I delved into just under 290 pages, my initial doubt gave way to a willing acceptance of Balaji’s aphorisms, which are succinctly captured and often humorously conveyed by the author. One such gem is: “Building a billion-dollar company is like assembling IKEA furniture blindfolded — challenging but rewarding!”

Of course, there are some general statements like “The future belongs to those who build it,” “In a world of noise, seek signal,” and “Technology is the ultimate force multiplier.”

If some of these concepts seem familiar, it’s likely because they are. Balaji relies on some classic ideas and modernises them. For example, the traditional 4 Ps of marketing evolve into 6 Ps in his framework: Product — What are you selling? Person — To whom? Purpose — Why are they buying it? Pricing — At what price? Priority — Why now? Prestige — And why from you? While useful, these ideas are not entirely original. However, once you become accustomed to this approach, it becomes easier to follow along.

His insights on technology remind us that it isn’t just about gadgets; it’s about shaping our world. Here are some standout points from these chapters:

a) The Value of Technology: “Technology is the ultimate lever. It allows us to do more with less.”

b) Building What Money Can’t Buy: “The best things in life are not for sale.” Balaji explores how technology creates value beyond mere transactions.

c) Faster, Better, and Cheaper: “Technology drives progress. It accelerates our journey toward a better future.”

d) Unlocking Unseen Value: “Look beyond the obvious. The real magic lies in the hidden potential.”

e) Technology Determines Political Order: “The tools we create shape our societies.” He delves into how technology influences governance.

In the second section, his relentless pursuit of truth urges us to question assumptions and seek clarity:

1) The Power of Radical Honesty: “Truth is liberating. It’s the foundation of trust and progress.”

2) The Art of Independent Thinking: “Don’t be a parrot. Be an original thinker.”

3) Embracing Uncertainty: “The future is a puzzle waiting to be solved. Embrace it.”

In part three — Building the Future — Balaji’s vision goes beyond the present, encouraging us to shape our destinies:

A) Creating New Nations: “Why not? The world needs fresh ideas and experiments.”

B) The Network State: “Imagine decentralised countries, powered by technology.”

“The Anthology of Balaji” is more than just a book — it’s a roadmap to navigate our complex and convoluted world. It’s a guide, indeed. At the beginning of any guided journey, scepticism is natural. One might wonder if this book is a collection of random ideas or an illusion. However, Eric Jorgenson’s compilation of Balaji Srinivasan’s musings takes the reader on a deep dive into the realms of technology, truth, and the future.

What’s commendable about the anthology is its ability to push readers to perceive technology in extraordinary ways. From blockchain to biohacking, Balaji covers a wide range of topics. For those seeking intellectual stimulation, the book offers plenty to chew on. It’s refreshingly honest: Balaji’s dedication to truth echoes the ‘Satyameva Jayate’ philosophy, which means ‘truth alone triumphs’ (yes, I know this might make you sceptical). This exploration of transparency and authenticity may resonate with the yet-unjaded Indian reader. His vision of decentralised governance is also fascinating: imagine India as a network state, powered by blockchain! It’s a bold idea, but isn’t boldness often a precursor to progress?

However, the book does have its drawbacks. There is a fair amount of esoteric language, with references to Silicon Valley jargon and crypto-speak that might perplex uninitiated Indian readers. The humour, which I mentioned earlier, is rather lacklustre. Balaji’s wit is reminiscent of PG Wodehouse’s restrained and polite style, unlikely to provoke a laugh. Additionally, there is a cultural disconnect: his global perspective can sometimes clash with local sensibilities. His mantra of “starting a new country” sounds a lot like a Silicon Valley start-up pitch. In a country that is a cacophony of contradictions rather than a controlled environment, the anthology might not always hit the mark.

In conclusion, “The Anthology of Balaji” is like a typical masala chai — strong and aromatic, but an acquired taste for someone who prefers the more refined and elegant Darjeeling tea. If you’re willing to sift through the jargon and embrace the boldness, give it a read. But remember, wisdom isn’t always presented on a silver platter in an air-conditioned dining room; sometimes, it’s hidden in a roadside dhaba.

Miscellanea

1. TECHNOLOGY

Humans vs. Robots: Scientists create self-healing human-like skin for robots

Scientists have successfully grafted living, self-healing skin onto robots, a feat that could revolutionise the future of robotics. Imagine robots that can not only move and think like humans but also look and heal like them. The team led by Michio Kawai, MinghaoNie, Haruka Oda, and Shoji Takeuchi from the University of Tokyo has developed a technique to seamlessly attach living skin to robotic faces, creating lifelike robots capable of displaying human emotions.

The magic lies in something called “perforation-type anchors.” Inspired by human skin ligaments, these anchors attach cultured skin to robotic surfaces through tiny perforations, much like how our skin connects to underlying tissues. This method ensures the skin adheres securely, even on complex 3D structures like faces, and can withstand the wear and tear of everyday interactions.
To showcase this technology, the researchers created a robotic face that can express emotions, like smiling. Using these innovative anchors, they attached a skin equivalent — a lab-grown model of human skin — onto the robot’s face. The robot’s smile isn’t just a mechanical movement; it’s a lifelike expression made possible by the skin’s ability to stretch and contract naturally, thanks to the underlying anchors.

This isn’t just about making robots more realistic; it’s about functionality. The living skin can heal itself, much like our own, making robots more durable and suitable for long-term use. This self-repair capability is crucial for robots expected to operate in unpredictable environments where they might get scratched or damaged.

The implications of this research are vast. From healthcare robots that assist the elderly to humanoid robots in customer service and entertainment, the possibilities are endless. Robots with lifelike, self-healing skin could blend seamlessly into human environments, making interactions more natural and effective.
In essence, this breakthrough takes us one step closer to a future where robots are not just tools but companions, indistinguishable from humans in both appearance and functionality. The team’s research, published in Cell Reports Physical Science, marks a significant milestone in the quest to create the ultimate human-robot symbiosis.

(Source: businesstoday.in dated 26th June, 2024)

India to Adopt Common Charger Law for Smartphones and Tablets by Mid-2025

Starting June 2025, all new smartphones and tablets sold in India will be required to feature a standard charging port, allowing a single charger and cable to power multiple devices. This regulation is similar to the “universal phone charger” law implemented by the European Union (EU). India’s common charging law will extend to laptops in 2026 but will not apply to basic phones and wearables at this time, according to three informed sources, says a report by Mint.

“USB-C or Type C charging port will be made mandatory for smartphones and tablets from June next year. Feature phones or basic phones, hearables and wearables will be kept out for now,” the Mint report cited a source as saying.

USB-C Port to be Mandated for Laptops

The source also mentioned that the USB-C port requirement for laptops will take effect in the country at the end of 2026. These deadlines were established following discussions with industry representatives and manufacturers.

The new regulation applies across a wide spectrum of devices, including not only Android and iOS smartphones and tablets but also Windows and Mac devices. However, the law excludes small accessories like fitness bands, smartwatches, earbuds and basic feature phones.

Although the Indian Union IT Ministry has not issued an official statement yet, reports suggest that the regulation will likely be announced soon.
To recall, in 2022, the Indian government unveiled its initiative to enforce uniform ports across consumer electronics, following an agreement reached during discussions with industry bodies including MAIT, FICCI and CII. As part of this move, USB Type-C was designated as the standardised charging port for smartphones, tablets and notebooks in India. The Type-C charging port uses a Type-C cable with identical connectors at both ends, allowing for reversible plug-in capability.

This simplifies consumer convenience by enabling the use of a single cable and charger across multiple devices. For manufacturers, adopting a standardised charging solution like Type-C streamlines their supply chains and sourcing efforts, reducing complexity associated with multiple components specific to different charging ports.

Additionally, this transition is expected to contribute to reducing the burden of e-waste.

(Source: abplive.com dated 27th June, 2024)

2. ENVIRONMENT

“Ocean Is Changing”: NASA Visuals Show Impact of Greenhouse Gases On Earth’s Water Bodies

The greenhouse gases are impacting Earth’s water bodies, NASA’s scary visualisation of the oceans revealed. Taking to Instagram, NASA Climate Change shared a visualisation showing sea surface currents on the Estimating the Circulation and Climate of the Ocean, Phase II (ECCO2) model. In the caption, the space agency wrote that the gases produced by human activities are altering the ocean. “Our ocean is changing,” the National Aeronautics and Space Administration (NASA) wrote in its post.

“With 70% of the planet covered by water, the seas are important drivers of Earth’s global climate. Yet, increasing greenhouse gases from human activities are altering the ocean before our eyes. NASA and its partners are on a mission to find out more,” NASA further posted.

Further, elaborating on the visualisation, NASA shared that different colours depict the average temperature for the sea surface currents. “With warmer colours (red, orange, and yellow) representing warmer temperatures and cooler colours (green and blue) representing cooler temperatures,” the agency added.

NASA shared the visualisation just a day back. Since then, it has accumulated more than 13,000 likes. Social media users posted varied comments while reacting to the post.

“Can you please explain what this data is showing? Is it taken over days or months? What time of year? Is it ocean currents or ocean temperatures? What have we concluded from this data?” asked one user. NASA responded, “The visualisation shows sea surface current flows. The flows are coloured by corresponding sea surface temperature data.

“Amazing data and visualisation. Very cool!” said one user.

(Source: ndtv.com dated 26th June, 2024)

Regulatory Referencer

I. DIRECT TAX: SPOTLIGHT – JUNE 2024 ISSUE

1. CBDT notified 363 as Cost Inflation Index for FY 2024–25 – Notification No. 44/2024, dated 24th May, 2024

2. RBI is excluded from the definition of “specified person” for the purposes of Section 206AB and Section 206CCA – Notifications No. 45/2024 and 46/2024, dated 27th May, 2024

II. COMPANIES ACT, 2013

1. MCA relaxes additional fees on filing of certain LLP Forms up to 1st July, 2024: In view of the transition of MCA-21 from version 2 to version 3 and to promote compliance on the part of reporting LLPs, MCA has granted relaxation in filing of LLP forms. Accordingly, LLPs may now file Form LLP BEN-2 and LLP Form No. 4D, without payment of any further additional fees up to 1st July, 2024. Form LLP BEN-2 is filed with the ROC regarding declaration u/s 90 of Companies Act, 2013. LLP Form No. 4D is filed with the ROC regarding declaration of beneficial interest in contributions received by LLP. [General Circular No. 03/2024, dated 7th May, 2024]

III. SEBI

1. Nomination for Mutual Funds shall be optional for jointly held Mutual Fund folios: Earlier, SEBI vide Master Circular for Mutual Funds dated 19th May, 2023 prescribed the requirement for nomination / opting out of nomination for all existing individual unit holders holding Mutual Fund units either solely or jointly by 30th June, 2024. SEBI has now modified this requirement in a Master Circular regarding nomination for Mutual Fund unit holders. SEBI has clarified that the requirement of nomination for Mutual Funds shall be optional for jointly held Mutual Fund folios. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/29, Dated 30th April, 2024]

2. Appointment of a dedicated fund manager for commodity-based funds shall be optional: SEBI has modified Clause 3.3.11 of the Master Circular for Mutual Funds dated 19th May, 2023 regarding the appointment of a dedicated fund manager. SEBI has clarified that appointment of a dedicated fund manager shall be optional for commodity-based funds such as Gold ETFs, Silver ETFs and other funds participating in the commodities market. However, the person appointed as a fund manager for such funds must have adequate experience in managing investments in the commodities market. [Circular No. SEBI/HO/IMD/IMD-POD-2/P/CIR/2024/30; Dated 30th April, 2024]

3. SEBI releases framework for administration and supervision of Research Analysts and Investment Advisers: Earlier, SEBI notified that a recognised stock exchange may undertake activities of administration and supervision over specified intermediaries. Accordingly, stock exchanges can be recognised as Research Analyst Administration & Supervisory Body (RAASB) and Investment Adviser Administration & Supervisory Body (IAASB) for administration & supervision of RAs and IAs. SEBI has now released a framework for the administration & supervision of Research Analysts and Investment Advisers. [Circular No. SEBI/HO/MIRSD/MIRSD-SEC-3/P/CIR/2024/34, dated 2nd May, 2024]

4. SEBI mandates person or entity involved in distribution of portfolio management services to get registered with APMI: In order to facilitate collective oversight of PMS distributors at the industry level, SEBI has decided that any person or entity involved in the distribution of portfolio management services must obtain registration with APMI. This move is aimed at promoting ease of doing business initiatives for portfolio managers. Further, portfolio managers must ensure that registration is obtained in accordance with the criteria laid down by APMI. The circular shall be effective from 1st January, 2025. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/32, dated 2nd May, 2024]

5. Portfolio Manager now requires new client’s separate signature on fee annexure with handwritten confirmation: SEBI has notified amendments to facilitate ease in the digital onboarding process for clients and enhance transparency for Portfolio Managers. Now, while onboarding a client, Portfolio Managers must ensure that the client has understood the fee and charge structure. Further, for physical & digital onboarding, a new client must provide a separate signature on the fee annexure, with acknowledgement either by handwritten note or by electronically typing or using a finger or stylus pen. [Circular No. SEBI/HO/IMD/IMD-POD-1/P/CIR/2024/35, dated 2nd May, 2024]

6. SEBI issues updated master circular on “Alternative Investment Funds”: SEBI has issued an updated master circular on “Alternative Investment Funds” (AIFs). The master circular consolidates all existing circulars issued by SEBI till date. [Circular No. SEBI/HO/AFD-1/AFD-1-POD/P/CIR/2024/39, dated 7th May, 2024].

7. SEBI prescribes timeline for payment of annual charge by Depositories: SEBI has notified amendment in Regulation 9, i.e., Payment of annual charge of SEBI (Depositories and Participants) Regulations, 2018. Now, a depository shall make payment of annual charge within 15 days from the end of each month a percentage of the annual custody charges received by it from the issuers during the month. Earlier, no such timeline was prescribed. [Notification No. SEBI/LAD-NRO/GN/2024/173, dated 10th May, 2024]

8. At least one KMP among associated persons functioning as AIF manager must obtain certification from NISM: SEBI has notified an amendment to Regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007. It states that at least one key managerial personnel (KMP), amongst the associated persons functioning in the key investment team of the Manager of an AIF, must obtain certification from the National Institute of Securities Market (NISM) by passing the NISM Series-XIX-C: Alternative Investment Fund Managers Certification Examination issued by NISM. [Notification No. SEBI/LAD-NRO/GN/2024/176, dated 10th May, 2024]

9. SEBI issues updated master circular on “REITs and InvITs”: SEBI has issued an updated master circular on “Real Estate Investment Trusts” (REITs) and “Infrastructure Investment Trusts” (InvITs). This is done to enable stakeholders to have access to all applicable circulars at one place. This master circular consolidates all existing circulars issued till 15th May, 2024. [Circular No. SEBI/HO/DDHS-POD-2/P/CIR/2024/43 & 44, dated 15th May, 2024]

10. SEBI issues updated master circular consolidating all existing circulars on “Debenture Trustees”: SEBI has issued an updated master circular on “Debenture Trustees” (DTs). This circular is a compilation of all the existing circulars issued till date. This is done to enable the Debenture Trustees and other market stakeholders to access all the applicable circulars at one place. Further, Debenture Trustees are directed to comply with the conditions laid down in this circular. Also, BODs of Debenture Trustee must be responsible for ensuring compliance with these provisions. [Circular No. SEBI/HO/DDHS-POD3/P/CIR/2023/46, dated 16th May, 2024]

11. SEBI issues updated master circular on “Credit Rating Agencies”: SEBI has issued an updated master circular on “Credit Rating Agencies” (CRAs). This circular is a compilation of all the existing circulars issued till date. This is done to enable the industry and other users to access all the applicable circulars / directions at one place. The circular covers norms such as registration requirements, rating operations, reporting and disclosures, internal audits for CRAs and miscellaneous guidelines. [Circular No. SEBI/HO/DDHS-POD3/P/CIR/2023/47, dated 16th May, 2024]

12. Unverified media reports to be excluded from purview of “generally available information” under Insider norms: SEBI has notified the SEBI (Prohibition of Insider Trading) (Amendment) Regulations, 2024. An amendment has been made to Regulation 2(1)(e). The definition of “generally available information” has been broadened. The term “generally available information” means information that is accessible to the public on a non-discriminatory basis and shall not include unverified events or information reported in print or electronic media. The amended norms are effective from 17th May, 2024. [Notification No. SEBI/LAD-NRO/GN/2024/181, dated 17th May, 2024]

13 SEBI allows non-individual public shareholders holding 5 per cent of post-issue capital to meet minimum promoters’ contribution: SEBI has notified the SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2024. Regulation 14 relating to minimum promoters’ contribution has been amended. It states that if promoters’ post-issue shareholding is less than 20 per cent, any non-individual public shareholder holding at least 5 per cent of the post-issue capital or any entity forming part of promoter group (other than promoters) may also contribute to meet the shortfall in minimum promoters’ contribution. [Notification No. SEBI/LAD-NRO/GN/2024/178, dated 17th May, 2024]

14. Company’s share price impact due to material price movement excluded from volume-weighted average price under buyback norms: SEBI has notified the SEBI (Buy-Back of Securities) (Amendment) Regulations, 2024. Regulation 19 has been amended. As per the amended norms, the effect on the price of the company’s equity shares due to material price movements and confirmation of reported events or information may be excluded when determining the volume-weighted average market price. The amended norms are effective from 17th May, 2024. [Notification No. SEBI/LAD-NRO/GN/2024/180, dated 17th May, 2024]

15. SEBI notifies Industry Standards on verification of market rumours: The Industry Standards Forum (ISF) comprising representatives from three industry associations, viz., ASSOCHAM, CII and FICCI, has formulated industry standards, in consultation with SEBI. The purpose is to effectively implement the requirement to verify market rumours under Regulation 30(11) of SEBI (LODR) Regulations, 2015. The industry associations which are part of ISF (ASSOCHAM, FICCI, and CII) and the stock exchanges shall publish the industry standards note on their websites. [Circular No. SEBI/HO/CFD/CFD-POD-2/P/CIR/2024/52, dated 21st May, 2024]

16. SEBI issues updated Master Circular for Research Analysts: SEBI, from time to time, has been issuing various circulars / directions to Research Analysts (RAs). In order to enable users to have access to the applicable circulars at one place, this master circular consolidating all the existing circulars on Research Analyst has been issued. The provisions of circulars issued until 15th May, 2024 have been incorporated in this master circular. [Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2024/49, dated 21st May, 2024]

17. SEBI issues updated Master Circular for Stock Brokers: SEBI, from time to time, has been issuing various circulars / directions to Stock Brokers (SBs). In order to enable users to have access to the provisions of applicable circulars at one place, SEBI has issued master circular dated 17th May, 2023 in respect of Stock Brokers, which is superseded by the instant master circular. [Master Circular No. SEBI/HO/MIRSD/MIRSD-POD-1/P/CIR/2024/53, dated 22nd May, 2024]

IV. FEMA

I. Regularisation permitted through compounding for partly paid units issued by AIFs before amendment allowing such issuance:

Investment funds were not permitted to issue partly paid units to non-residents. In March 2024, the FEM (Non-Debt Instruments) (Second Amendment) Rules, 2024 were notified permitting investment funds to issue partly paid units to non-residents. Under FEMA, a contravention needs to be first regularised before it can be compounded. In order to simplify the regularisation of cases where partly paid units had been issued by AIFs when it was not permitted, regularisation has been permitted through compounding. In essence, where AIFs had issued partly paid units to non-residents at the time it was not permitted, there is no separate regularisation required; the Fund can directly apply for compounding. The AD Banks have been directed to ensure that necessary administrative action, including the reporting of such issuances by Alternative Investment Funds to the Reserve Bank, through Foreign Investment Reporting and Management System (FIRMS) Portal and issuing of conditional acknowledgements for such reporting, is completed.

[A.P. (DIR Series 2024-25) Circular No. 7, dated 21st May, 2024]

II. Launch of PRAVAAH portal:

The RBI launched PRAVAAH portal. PRAVAAH is a secure and centralised web-based portal for any individual or entity to seek authorisation, license or regulatory approval. At present, 60 application forms covering different regulatory and supervisory departments of RBI have been made available on the portal. Even compounding applications can be submitted on the portal though no changes are yet made in the Compounding Proceedings Rules. This also includes a general purpose form for applicants to submit their requests which are not included in any other application form. The application can be submitted online; it can be tracked and monitored; response to RBI’s queries can be provided online and the decision of RBI can be received on the portal.

[RBI Press Release: 2024-2025/393 dated 28th May, 2024]

III. IFSCA notifies regulations for Book-Keeping, Accounting, Taxation and Financial Crime Compliance Services:

The IFSCA has notified a comprehensive framework for providers of Book-keeping, Accounting, Taxation and Financial Crime Compliance Services. Detailed guidelines have been prescribed for registration application, requirements for “Fit & Proper” criteria and Key Management Personnel, and other conditions.

[Notification No. IFSCA/GN/2024/003, Dated 4th June, 2024]

IV. RBI expands the scope of Overseas Portfolio Investment (OPI):

Two-fold expansion has been made pertaining to Overseas Portfolio Investment (OPI) by residents. Residents could make OPI in units issued by an overseas Investment fund provided it (the Fund) was duly regulated by the regulator for the financial sector in the host jurisdiction. This created practical issues due to diverse regulatory frameworks governing investment funds across various jurisdictions. The main hurdle was that many countries regulate the Investment Manager and not the Investment Fund. Para 1(ix)(e) of FEM (Overseas Investment) Directions, 2022 required that the Investment Fund should be regulated. An explanation has been inserted to this provision whereby “investment fund overseas, duly regulated” would also include funds whose activities are regulated by financial sector regulator of host country or jurisdiction through a fund manager.

Secondly, such OPI was allowed only in “units” of investment fund. This has now been expanded to permit any other instrument issued by investment funds; not only “units”.

[A.P. (DIR Series 2024-25) Circular No. 7, dated 7th June, 2024]

V. Facility to AD Banks for opening additional current account for settlement of export transactions now extended for settlement of import transactions as well:

AD Category-I banks who maintain Special Rupee Vostro Account vide A.P. (DIR Series) Circular No. 10, dated 11th July, 2022 on International Trade Settlement in Indian Rupees (INR) were earlier permitted to open an additional special current account for its constituents, exclusively for settlement of export transactions. Now, this facility has been extended for import transactions as well.

[RBI FED Circular No. 11, Dated 11th June, 2024]

Part A | Company Law

5 In the Matter of M/s EIT Services India Private Limited

Registrar of Companies, Koramangala, Bengaluru

Adjudication Order No.ROC(B)/Adj.Order/454-118(1)/EITServices/Co.No.026968/2023

Date of Order: 05th January, 2024

Adjudication Order for not properly/consecutively numbering the pages of the minute book of the Board Minutes and a few pages of the book were left blank without crossing the same with initials of the Chairman, which amounts to a violation of section 118 (1) of the Companies Act, 2013 (CA 2013) read with the Secretarial Standard — I (SS-1) issued by the Institute of Company Secretaries of India

FACTS

It was observed during an inquiry conducted by the Inquiry Officer (“IO”) for violation of section 118(1) of CA 2013 that the Minute Book of the Board Minutes of M/s ESIPL dated 19th January, 2017, 23rd December, 2017 and 23rd March, 2018 did not contain proper pagination and few pages were left blank without crossing the same with the initials of the Chairman of the Board.

The Registrar of Companies, Koramangala, Bengaluru i.e., Adjudication Officer (“AO”) issued an adjudication notice dated 24th February, 2023 to M/s ESIPL and its directors. M/s ESIPL responded vide letter dated 12th March, 2023 accepting the default stating that due to management change and oversight, there was a non-compliance of section 118 of CA 2013 read with SS-I.

Relevant provisions of CA 2013:

Section 118(1) “Every company shall cause minutes of the proceedings of every general meeting of any class of shareholders or creditors, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of the resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.”

Section 118(10) “Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.”

Section 118(11) “If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.”

AO held a physical hearing which was attended by an Authorized Representative (AR) on behalf of M/s. ESIPL and its directors and made submissions. Further, AR submitted that M/s ESIPL has made good the offence and displayed the minutes book of the Board Meetings to the AO.

HELD

AO after considering the facts of the case and submissions made, for the non-compliance of the provisions of Section 118(1) read with SS-1, in the exercise of the powers vested under section 454(3) of CA 2013 imposed a penalty in the following manner on M/s ESIPL and its directors.

The amount of penalty was ordered to be paid through the MCA website, within 90 days of the receipt of the order and to be intimated by filing Form INC-28 attaching a copy of the order and payment challans. In case of directors, such penalty amount was ordered to be paid out of their own funds.

Learning Events at BCAS

LEARNING EVENTS AT BCAS

1. Power Summit 2024 | 28th & 29th June, 2024 | Hotel Fountainhead and Imaginarium AliGunjan, Alibaug

Human Resource Development Committee of BCAS organised a two-day residential program “The Power Summit 2024” on 28th and 29th June, 2024 at Hotel Fountainhead and Imaginarium AliGunjan, Alibaug. This was the 8th season of the Power Summit with the first one being held in 2011.

Much before the last date for early bird was to end, the registrations for the Summit were full. There were many members who had even listed down their names in the Wait List. Such an overwhelming response in itself is a strong testimony of the popularity of the Power Summit amongst our members.

The Power Summit hosted 88 participants from 15 different cities. We witnessed a mixed age group of audience with members in their twenties to experienced patrons and seniors. This diversity added to the charm of the Summit. The Summit had 8 eminent faculties. The program was curated and anchored by a team of 3 esteemed members — CA Nandita Parekh, CA Ameet Patel and CA Vaibhav Manek.

This is the second year in which we continued to hold this program in residential format. The benefits in residential format was truly reaped and cherished by the participants. They got added networking opportunities and chance to have casual interactions with the faculties some of whom were present through the entire duration of the program.

The theme for the Power Summit was “Walk the Talk | Leverage AI, Technology, Capital & Collaboration”. All the sessions had been strategically crafted around this theme.

The presentations by the faculties over the two days were creative, intriguing and intertwined in a way that all the participants came back with good food for thought and also a zeal to walk forward on the growth trajectory.

The program on Day 1 started with a panel discussion on the topic of Leadership Quotient for CA Firms. CA Hitesh Gajaria and CA Milan Mody shared their journeys as panellists and candidly explained the challenges of leading a CA firm. The session was moderated by CA Nandita Parekh.

In the next session, CA J. K. Shah shared his entrepreneurial journey and inspiring everyone by touching upon the values of Courage, Conviction and Commitment.

The next session was creatively crafted by CA Vaibhav Manek in the form of a Workshop. A mock Merger Lab had been organized wherein 4 CA Firms from amongst the participants were selected and divided in group of two firms each in advance. Each group was asked to stimulate a scenario wherein they have approached each other for a potential merger. The discussions that they would have carried out in a closed meeting room was stimulated and held on stage for all the participants to observe. This gave everybody an exposure on how the real-life merger discussions take place.

The last session for the day was a power packed session on Partnering with Technology for Growth by CA Lalit Valecha and CA Rajeev Sharma. They shared their experiences and introduced the Technology Best practices for CA Firms. This session continued late into the evening and yet saw a packed house till the very end.

While Day 1 of the Summit was hosted at Hotel Fountainhead, the Day 2 of Summit was hosted at Imaginarium AliGunjan. Imaginarium AliGunjan is a state-of-the-art research facility developed by Nishith Desai Associates in Alibaug. The philosophy of Blue Sky with which the research centre has been developed inspired our participants and added to their zeal for sessions to be hosted on this Day.

Day 2 began with a session by CA Aniket Talati. He shared insightful statistics around the composition of our current fraternity and the direction in which our fraternity and the profession is moving. He also reminded the participants about the Prime Minister’s wish to have large Indian firms emerging from amongst the existing firms.

The next session was by CA Dinesh Kanabar who shared his own journey and experiences of how one can navigate or sail through the Winds of Change.

The last session of the Summit focused on the new age HR practices for professional services firms. The session was led by Pakzad Nussirabad who has headed the HR function in various organisations in the past including a CA firm. He gave useful inputs to the participants on people management and how to face the challenges of a multi generational workforce.

The Power Summit was concluded with the closing bell session from CA Nandita Parekh, CA Ameet Patel and CA Vaibhav Manek summarising the learnings of the two days and motivating everyone to carry on the energy and zeal and take necessary action on their growth trajectory. They also thanked the convenors and other members of the HRD Committee for the excellent work done in organising the Summit.

The interest of the participants was evident in terms of the involved discussions and the large number of questions raised during and after each session and also during the casual networking interactions.

The Summit succeeded in generating a lot of interest amongst the participants thereby motivating them to strategically plan for their growth. The participants were extremely thankful to the organising team for the excellent work done by them and for providing a top-quality program to them. All the participants graciously shared their Testimonies and Gratitude over WhatsApp group and Social Media platforms.

2. Webinar on Use of Technology for Practice Management in CA Firm held on 18th May, 2024 Zoom Online Meeting

The Technology Initiatives Committee of BCAS conducted a Webinar on “Webinar on Use of Technology for Practice Management in CA Firm” on 18th May, 2024. The webinar was aimed enlightening the participants on how to improve a CA Firm’s practice management techniques through the use of technology.

The webinar began with CA Rahul Bajaj explaining the dashboard of the Practice Management Software BIZALYS. He demonstrated the features of the cloud based software like minimal data entry, auto work flow reports, automated reminders to clients and staff, branch and team management, document management, departmental hearing notices management, billing and receivables, appointment, library base etc. The speaker also answered multiple questions and addressed doubts of the participants.

In the second part of the webinar Mr Kshitiz Bharti, explained the features of MyTasksoftware. He demonstrated the management problems faced by the practicing professional firms and the benefits of using technology with enhanced tracking and control. He further elaborated the unique offerings of the software like Income Tax Return Status checker, geo location based attendance, client portal, GST return status tracker etc.

Key takeaways for the participants from the webinar:

  • With increasing complexity in the various laws of the land and with multiple due dates to be taken care of, it is risky to continue to rely on manual ways of managing one’s practice.
  • Various practice management software available in the market enable CAs to put in place proper processes and rules for carrying out each task in each assignment that the firm takes up
  • Exploring the latest trends and advancements in CA practice management software.
  • Understanding how automation can enhance productivity and reduce manual errors.
  • Demonstration of the features and dashboards of the software
  • Real-life case studies showcasing the transformative impact of software’s on CA Firm operations.

The webinar had 100+ participants from more than 35 cities.

3. ITF Study Circle Meeting held on Friday, 17th May, 2024 in Hybrid mode at BCAS.

Discussion on Case Study 1 of the ITF Conference Paper II: Unraveling GAAR, SAAR, PPT and LOB – Overlap and Intricacies by CA H Padamchand Khincha. The meeting was attended by approximately 28 participants.

The International Tax and Finance Study Circle organised a meeting (hybrid mode) on 17th May, 2024 to discuss the implications and different viewpoints of Case Study 1 of the ITF Conference Paper II

  • The basic facts of the Case Study were summarised.
  • Discussions began on various questions in the Case Study.
  • Several members expressed divergent views on various issues.
  • Various rulings and interpretations with respect to GAAR provisions were discussed.
  • Some members shared their experiences dealing with GAAR provisions.
  • Divergent views on different issues were well summarised.

Speaker: CA Rohit Jethani

4. Workshop on Positive Parenting held virtually on 21st April, 2024, 28th April, 2024 and 5th May, 2024.

The Human Resources Development Committee organised a workshop on “Positive Parenting” on 21st April, 28th April and 5th May, 2024. It was attended by 48 participants.

The faculty, Rev Fr Patrick D’Mello, Dr Janice Morais and Dr Sheryl John showed how parents can enjoy with their kids at the same time bring out the best in them.

The takeaways from the workshop are briefly given below:

1. “A child is the beauty of God’s presence in the world, the greatest gift to a family.” – Mother Teresa

2. The old ways of disciplining — shouting, correcting, spanking, punishing don’t work. They impact the children negatively. They are replaced by new ways — positive incentives, contracts, empathy, environmental control, curiosity questions, ‘and’ and not ‘but’.

3. The parenting process — holding, reassuring and letting go has to be age appropriate.

4. Various problems can be solved by “connect” and “skill-building” techniques

5. How to deal with internet addiction, excessive video games, and gadgets.

6. Spend time with children on activities that will have beneficial effects for their growth and success.

7. Positive parents nurture, discipline and respect their children
8. Universal problems like excessive mobile use, no motivation, disrespect & lying were discussed and the ways to deal with them were shown.

9. Important to be aware of the common mental health problems and seek help for the same.

10. Understanding that annoying and irritating behaviour are not misbehaviour.

11. Encourage children to express themselves and not to whine.

A lot was taught, enabling parents to use new strategies to get children to become more disciplined and grow to their full potential.

5. CAMBA Certified Management Programme for CAs held on 12th to 14th April, 2024 @ ATLAS SkillTech University Mumbai

These represent CAMBA — a certified Management Programme for CAs organised by BCAS in association with the ATLAS SkillTech University, mentored by CA Naushad Panjwani and designed by Dr Chetana Asbe. Approximately 90 participants from over 20 cities attended 10+ enjoyable sessions.

It was a unique program where CAs from across the country gathered not to enhance their technical skills but to dive into the nuances of personal and professional growth. From 12th to 14th April, 2024, participants embarked on an immersive journey designed to stretch their minds and broaden their perspectives. Sessions spanned topics like ‘AI for non-technical professionals’, ‘Leadership Ascendancy’ and ‘Design thinking for goal setting’. What truly set CAMBA apart was its hands-on, experiential approach to learning. Attendees didn’t just passively absorb information; they actively engaged in real-world scenarios, solving challenges, and refining their skills in real-time.

But it wasn’t all business. In between sessions, participants bonded over unique experiences like a Heritage City Bus Tour and a delightful Food Crawl, fostering connections that transcended professional boundaries.

A standout feature was the Speed Mentoring sessions, where eager young professionals had the invaluable opportunity to tap into the wisdom of seasoned experts, gaining insights that textbooks alone could never offer.
CAMBA wasn’t just a program; it was a holistic journey of growth, camaraderie, and enlightenment — an experience that left participants not just better professionals, but better equipped to navigate the ever-evolving landscape of the professional world with poise and confidence.

6. Suburban Study Circle Meeting on “Issue-based study and discussion on Section 44AD & 44ADA” on 7th June, 2024 at C/o Bathiya & Associates LLP, Andheri (E), Mumbai.

Suburban Study Circle Meeting on “Issue-based study and discussion on Section 44AD & 44ADA”, was led by CA Viral Shah as Group Leader under the Guidance of CA Ketan Vajani.

In a comprehensive and insightful session, CA Viral Shah, under the chairmanship of CA Ketan Vajani, elucidated the intricacies of Sections 44AD and 44ADA of the Income Tax Act. The session focused on the provisions, applicability, and critical issues related to these sections, which are designed to simplify the taxation process for small businesses and professionals. The meeting was attended by approximately 20 participants. They shared their views on the following:

  • Overview of Sections 44AD and 44ADA
  • Eligibility and Conditions
  • Computation of Income
  • Advantages and Limitations
  • Practical Scenarios and Case Studies
  • Recent Amendments and Judicial Pronouncements

During the course of an engaging question-and-answer segment, participants raised queries about specific concerns and received expert advice from CA Viral Shah and CA Ketan Vajani.

The session was highly informative, providing attendees with a thorough understanding of Sections 44AD and 44ADA. Both speakers effectively highlighted the benefits of these presumptive taxation schemes while also cautioning about potential issues, ensuring that professionals and small business owners are better equipped to make informed decisions regarding their tax filings.

Arbitration Clauses in Unstamped Agreements

INTRODUCTION

An agreement often contains a clause for arbitration. An agreement is an instrument under the meaning of the Stamp Act and if it falls within the Articles contained in the Schedule to the Stamp Act, then the agreement needs to be stamped. An interesting question arose as to what would be the status of the arbitration clause in an event where the underlying agreement itself is inadequately stamped? Would the reference to arbitration survive since the main agreement itself is not properly stamped? A seven-judge Bench has given its final opinion on this issue in the case of Re Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act 1996 And The Indian Stamp Act 1899 Curative Pet(C) No. 44/2023 In R.P.(C) No. 704/2021 In C.A. No. 1599/2020.

Judicial History

A three-judge Bench of the Supreme Court in its decision N N Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd. (2021) 4 SCC 379 held that an arbitration agreement, being separate and distinct from the underlying commercial contract, would not be rendered invalid, unenforceable, or non-existent. The Court held that the non-payment of stamp duty would not invalidate even the underlying contract because it is a curable defect.

However, this decision of the Supreme Court was at variance with an earlier decision of a co-ordinate bench of the Court in the case of Vidya Drolia vs. Durga Trading Corporation (2021) 2 SCC 1. In that case, the Court had held that an agreement evidenced in writing has no meaning unless the parties can be compelled to adhere and abide by the terms. A party cannot sue and claim rights based on an unenforceable document. Thus, there are good reasons to hold that an arbitration agreement exists only when it is valid and legal. A void and unenforceable understanding is no agreement to do anything. Existence of an arbitration agreement means an arbitration agreement that meets and satisfies the statutory requirements of both the Arbitration Act and the Contract Act and when it is enforceable in law. Accordingly, it was concluded that an arbitration agreement does not exist if the agreement is illegal or does not satisfy mandatory legal requirements. It concluded that an invalid agreement is no agreement.

Reference to Larger Bench

The Supreme Court in NN Global (supra) noted the earlier contrary decision and hence, referred the matter to a larger five-judge bench of the Supreme Court. The question framed was whether non-payment of stamp duty would also render the arbitration agreement contained in such an instrument, as being non-existent, unenforceable, or invalid, pending payment of stamp duty on the substantive contract/instrument.

The five-judge Bench in N N Global Mercantile (P) Ltd. vs. Indo Unique Flame Ltd 8 (2023) 7 SCC 1,by a majority of 3:2, held that the earlier decision in NN Global (supra) did not represent the correct position of law. It concluded that:

(a) An unstamped instrument containing an arbitration agreement was void under the Contract Act;

(b) An unstamped instrument, not being a contract and not enforceable in law, could not exist in law. The arbitration agreement in such an instrument could be acted upon only after it was duly stamped;

(c) The “existence” of an arbitration agreement contemplated under the Arbitration Act was not merely a facial existence or existence in fact, but also “existence in law”;

(d) The Court acting under the Arbitration Act could not disregard the mandate of the Stamp Act requiring it to examine and impound an unstamped or insufficiently stamped instrument; and

(e) The certified copy of an arbitration agreement must clearly indicate the stamp duty paid.

Curative Petition

Subsequent to the above five-judge Bench Decision, several other cases reached other three-judge and five-judge Benches of the Apex Court on the same issue. Considering the larger ramifications and consequences of the five-judge decision in the 2nd NN Global Case, a curative petition was referred to a seven-judge Constitution Bench of the Supreme Court. It was requested to reconsider the correctness of the view of the five-judge Bench.

Verdict of seven-Judge Bench

Scheme of Stamp Act

The Court analysed the entire framework of the Indian Stamp Act, of 1899 (which was the charging Stamp Act in the case at point). It noted that section 17 of the Stamp Act provided that all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution. Section 62 inter alia penalised a failure to comply with Section 17. However, despite the mandate that all instruments chargeable with the duty must be stamped, many instruments were not stamped or are insufficiently stamped. The parties executing an instrument may, contrary to the mandate of law, attempt to avoid the payment of stamp duty and may therefore refrain from stamping it. Section 33 provided that every person who has authority to receive evidence (either by law or by consent of parties) shall impound an instrument which is, in their opinion, chargeable with duty but which appears to be not duly stamped. The power under Section 33 may be exercised when an instrument is produced before the authority or when they come across it in the performance of their functions. In terms of Section 35, an instrument which was not duly stamped was inadmissible in evidence for any purpose and it shall not be acted upon, registered, or authenticated. The Collector was conferred with the power to impound an instrument under Section 33. If any other person or authority impounded an instrument, it must be forwarded to the Collector under clause (2) of Section 38. The Collector may also levy a penalty, as provided.

It noted that in terms of Section 42 of the Stamp Act, an instrument was admissible in evidence once the payment of duty and a penalty (if any) was complete. Once an instrument has been endorsed, it may be admitted into evidence, registered, acted upon or authenticated as if it had been duly stamped.

Section 36 of the Stamp Act provided that where an instrument was admitted in evidence, the admission of an instrument was not to be questioned at any stage of the same suit or proceeding on the ground that the instrument was not duly stamped.

Difference between inadmissibility and voidness

It held that the admissibility of an instrument in evidence was distinct from its validity or enforceability in law. The Contract Act provided that an agreement not enforceable by law was said to be void. The admissibility of a particular document or oral testimony, on the other hand, refers to whether or not it can be introduced into evidence. An agreement can be void without its nature as a void agreement having an impact on whether it may be introduced in evidence. Similarly, an agreement can be valid but inadmissible in evidence.

A very important distinction was made by the Court as follows:

“When an agreement is void, we are speaking of its enforceability in a court of law. When it is inadmissible, we are referring to whether the court may consider or rely upon it while adjudicating the case. This is the essence of the difference between voidness and admissibility.”

Unstamped does not mean Void

The Court held that the effect of not paying duty or paying an inadequate amount rendered an instrument inadmissible and not void. Non-stamping or improper stamping did not result in the instrument becoming invalid. The Stamp Act did not render such an instrument void. The non-payment of stamp duty was accurately characterised as a curable defect. The Stamp Act itself provided for the manner in which the defect may be cured and set out a detailed procedure for it. The Court observed that there was no procedure by which a void agreement can be “cured.”

The Supreme Court held that in Hindustan Steel Ltd. vs. Dilip Construction Co. (1969), 1 SCC 597 held that the provisions of the Stamp Act clearly provided that an instrument could be admitted into evidence as well as acted upon once the appropriate duty had been paid and the instrument was endorsed.

The Court held that the negative stipulations in Sections 33 and 35 of the Stamp Act were specific, albeit not so absolute as to make the instrument invalid in law. A “void ab initio” instrument, which was stillborn, had no corporeality in the eyes of law. It did not confer or give rights or create obligations. However, an instrument which was “inadmissible” existed in law, albeit could not be admitted in evidence by such person, or be registered, authenticated or be acted upon by such person or a public officer till it was duly stamped.

An instrument which is void ab initio or void, could not be validated by mere consent or waiver unless consent or waiver undid the cause of invalidity. However, after due stamping as per the Stamp Act, the unstamped or insufficiently stamped instrument could be admitted in evidence, or be registered, authenticated or be acted upon by such person.

It held that to hold that an insufficiently stamped instrument did not exist in law will cause disarray and disruption.

Harmonious Construction

The Court stated that the challenge before it was to harmonize the provisions of the Arbitration Act and the Stamp Act. The object of the Arbitration Act was to inter alia ensure an efficacious process of arbitration and minimize the supervisory role of courts in the arbitral process. On the other hand, the object of the Stamp Act was to secure revenue for the State. It was a cardinal principle of interpretation of statutes that provisions contained in two statutes must be, if possible, interpreted in a harmonious manner to give full effect to both the statutes — Jagdish Singh vs. Lt. Governor, Delhi, (1997) 4 SCC 435. The challenge, therefore, before the Court was to preserve the workability and efficacy of both the Arbitration Act and the Stamp Act.

Supremacy of Arbitration Act

The Apex Court laid down an important principle that the Arbitration Act was legislation enacted to inter alia consolidate the law relating to arbitration in India. It will have primacy over the Stamp Act and the Contract Act in relation to arbitration agreements.

The Arbitration Act was a special law and the Indian Contract Act and the Stamp Act were general laws and it was a settled proposition that a general law must give way to a special law — LIC vs. D.J. Bahadur 7 (1981) 1 SCC 315.

The issue in this case was not whether all agreements were rendered unenforceable under the provisions of the Stamp Act but whether arbitration agreements, in particular, were unenforceable. Hence, the special law in this case was the Arbitration Act. The Court held that the Arbitration Act was a special law in the context of the case because it governed the law on arbitration, including arbitration agreements — Section 2(1)(b) and Section 7 of this statute defined an arbitration agreement. In contrast, the Stamp Act defined ‘instruments’ as a whole and the Contract Act defined ‘agreements’ and ‘contracts.’ As observed by the Supreme Court in Bhaven Construction vs. Sardar Sarovar Narmada Nigam Ltd (2022) 1 SCC 75, “the Arbitration Act is a code in itself’.

It further observed that the Arbitration Act contained a non-obstante clause in section 5 by virtue of which must take precedence over any other law for the time being in force. Any intervention by the courts (including impounding an agreement in which an arbitration clause is contained) was, therefore, permitted only if the Arbitration Act provided for such a step, which it did not. The five-judge Bench held that this non-obstante clause did not mean that the operation of the Stamp Act, in particular, the power to impound would not have any play. The Constitutional Bench of the Supreme Court disagreed with this view and held that section 5 was rendered otiose by the aforesaid interpretation. The Court held that it must be cognizant of the fact that one of the objectives of the Arbitration Act was to minimise the supervisory role of courts in the arbitral process.

It also held that Parliament was aware of the Stamp Act when it enacted the Arbitration Act. Yet, the latter did not specify stamping as a pre-condition to the existence of a valid arbitration agreement.

The Arbitral Tribunal had full Powers

The Supreme Court held that section 16 of the Arbitration Act, empowered the arbitral tribunal to rule on its own jurisdiction. This included the authority to decide the existence and validity of the arbitration agreement. As per Section 16, an arbitration agreement was an agreement independent of the other terms of the contract, even when it was only a clause in the underlying contract. The section specifically stated that a decision by the arbitral tribunal holding the underlying contract to be null and void did not lead to ipso jure the invalidity of the arbitration clause. The existence of an arbitration agreement was to be ascertained with reference to the requirements of the Arbitration Act. In a given case the underlying contract may be null and void, but the arbitration clause may exist and be enforceable. The invalidity of an underlying agreement may not, unless relating to its formation, result in invalidity of the arbitration clause in the underlying agreement.

The Court held that it was the arbitral tribunal and not the court which may test whether the requirements of a valid contract and a valid arbitration agreement were met. If the tribunal found that these conditions were not met, it would decline to hear the dispute any further. If it found that a valid arbitration agreement existed, it may assess whether the underlying agreement was a valid contract.

The Court held that once the arbitral tribunal has been appointed, the Tribunal will act in accordance with the law and proceed to impound the agreement under Section 33 of the Stamp Act if it sees fit to do so. It has the authority to receive evidence by consent of the parties, in terms of Section 35 of the Stamp Act. The procedure under Section 35 may be followed thereafter. The arbitral tribunal continues to be bound by the provisions of the Stamp Act, including those relating to its impounding and admissibility. The interpretation of the law in this judgment ensures that the provisions of the Arbitration Act are given effect while not detracting from the purpose of the Stamp Act.

The interests of revenue were not jeopardised in any manner because the duty chargeable must be paid before the agreement in question was rendered admissible and the dispute between the parties adjudicated. The question was at which stage the agreement would be impounded and not whether it would be impounded at all.

The seven-judge Bench held that the decision of the five-judge Bench in N N Global 2 (supra) gave effect exclusively to the purpose of the Stamp Act. It prioritised the objective of the Stamp Act, i.e., to collect revenue at the cost of the Arbitration Act). The impounding of an agreement which contained an arbitration clause at the stage of the appointment of an arbitrator under Section 11 (or Section 8 as the case may be) of the Arbitration Act will delay the commencement of arbitration. It was a well-known fact that Courts were burdened with innumerable cases on their docket. This had the inevitable consequence of delaying the speed at which each case progressed. Arbitral tribunals, on the other hand, dealt with a smaller volume of cases. They were able to dedicate extended periods of time to the adjudication of a single case before them. It concluded that if an agreement was impounded by the arbitral tribunal in a particular case, it was far likelier that the process of payment of stamp duty and a penalty (if any) and the other procedures under the Stamp Act were completed at a quicker pace than before courts.

Conclusive Findings

The Supreme Court summarised its findings as follows:

(a) Agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. Such agreements are not rendered void or void ab initio or unenforceable;

(b) Non-stamping or inadequate stamping is a curable defect;

(c) An objection as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists;

(d) Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and

(e) The five-judge decision in NN Global stood overruled on this issue.

Epilogue

This is a very good decision by the Apex Court which will uphold arbitrations rather than referring disputes to lengthy and time-consuming Court procedures.

Allied Laws

16 Atanu Mondal vs.The State of West Bengal and Ors.

AIR 2024 Calcutta 144

9th January, 2024

Auction of property — Sale Certificate issued by Bank officer — Market Value higher than bid value — Bank Officer deemed to be a Revenue Officer — Stamp duty payable on Bid value and not Market value. [S. 47A, Stamps Act, 1899].

FACTS

A property was set up for auction by the United Bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Act, 2022 (SARFAESI Act). The Appellant emerged as the highest bidder and purchased the property at ₹39,00,000/-. The Authorised Officer of the bank issued a sale certificate to appellant after payment was made by the appellant. However, during registration of the said property, the stamp duty officer ascertained the market value of the property at ₹1,71,19,140/- and directed the Appellant to pay stamp duty at 6 per cent on the ascertained market value of the property as against the purchased value. Aggrieved, the appellant filed a writ petition before the Hon’ble Calcutta High Court (Single Bench). The Hon’ble Court dismissing the petition, held that the registration authority was empowered under section 47A of the Stamps Act, 1899 (Stamps Act) to determine the correct market value of the property and calculate the stamp duty payable thereon.

Aggrieved by the said order, an appeal was filed before the division bench of the Hon’ble Calcutta High Court.

HELD

The Hon’ble Court observed that the property was sold in an auction by the bank under the provisions of the SARFAESI Act. Further, an Authorised Officer of the bank conducting such a sale shall be deemed to be a Revenue Officer and a certificate issued by him shall be evidence of sale. Furthermore, the Court noted that such a sale by a revenue officer is exempted from the provision of section 47A of the Stamps Act. Furthermore, the Court also noted the market value of the property is a changing concept and the value fetched after it is sold in the open market pursuant to advertisement and publication, the invitation of bids shall be exempted from scrutiny under the Stamps Act. Thus, the appeal was allowed.

17 Sivarajan vs. Jagadamma

AIR 2024 (NOC) 372 (KER)

6th December, 2023

Will or Gift Deed — Entire property rights transferred — Only life interest was reserved to reside — Gift deed — No saleable rights after property transferred / gifted. [S. 63, Succession Act, 1925; S. 122, Transfer of Property Rights, 1882].

FACTS

The Plaintiff (Respondent- Jagadamma) had instituted a suit for declaration of title and peaceful possession of property against the Defendant (Appellant – Sivarajan). The Plaintiff, relying on a gift deed, had contested that the property in dispute was allegedly gifted to her by her mother. Whereas, Defendant had contested that the said property was sold to her by the mother of Plaintiff through a conveyance deed. Further, the Defendant also contested that the alleged gift deed was actually a Will and not a gift deed. Furthermore, the Defendant also contested that the time period for instituting the said suit began immediately after the death of her mother. Thus, since the suit was instituted after a period of three years from the death of the mother, the Defendant contended that the said suit was barred by limitation as per the provisions of the Article 58 of the Schedule of the Limitations Act, 1963 (Act).

HELD

The Hon’ble Kerala High Court observed that the alleged deed / Will gave the entire rights of the property to the Plaintiff. Further, only life interest was reserved by the mother of the Plaintiff to reside in the house until death. Thus, the Hon’ble Court concluded after relying on section 122 of Transfer of Property Rights, 1882 that the document was in fact a gift deed and not a Will. Further, the Hon’ble Court held that once the property was gifted to the Plaintiff, she (mother) had no saleable interest in the property and thus, the conveyance deed would not have any legal effect. Furthermore, the Hon’ble Court held that the period of limitation shall be as per the provisions of Article 65 (providing limitation period for suit for possession based on title) of the Schedule of the Act, i.e., a period of twelve years from the date of death of the mother and not as per Article 58 (providing limitation period for suit for obtaining a declaration) of the Act.

Thus, the appeal of the Defendant was dismissed.

18 Ramesh Tiwary vs. Sheo Kumari Devi

AIR 2024 (NOC) 393 Patna

3rd May, 2023

Power of Attorney — Attorney holder cannot depose for the acts of Principal — Spouse of the parties to the suit — Can depose as a witness to the extent of personal knowledge. [O. 3, R. 1 and 2, Code for Civil Procedure, 1908; S.120, Indian Evidence Act, 1872].

FACTS

The Respondent (Original Plaintiff) had instituted a suit against the Appellant (Original Defendant) for declaration of title over a property. Since the Plaintiff was an eighty-year-old woman suffering from various diseases, she had executed a power of attorney in favour of her husband (Respondent no. 2) to adduce evidence on her behalf. The Appellant, however, objected by relying on Order 3, Rules 1 and 2 of the Code for Civil Procedure, 1908 (CPC) that a power of attorney holder can adduce evidence or depose for the principal only in respect of acts done by the attorney holder in pursuance to said power. Further, the Appellant also argued that an attorney holder cannot depose on behalf of the principal in respect of acts done by the principal itself or where the principal is the only person who has personal knowledge about the facts. However, the Learned Trial Court dismissed the objections of the Appellant and allowed Respondent No. 2 to adduce evidence on behalf of her wife (Original Plaintiff).

Aggrieved by the said dismissal, a Civil Miscellaneous Application was filed under Article 227 of the Constitution before the Hon’ble Patna High Court.

HELD

The Hon’ble Patna High Court observed that Order 3, Rules 1 and 2 of the CPC restricted an attorney holder to adduce evidence only in respect of acts done by itself. However, the Hon’ble Court also noted that section 120 of the Indian Evidence Act, 1872 empowers the spouse of the parties to the suit to depose as a witness. Therefore, the Hon’ble Court held that Respondent No. 2 cannot adduce evidence in place of his wife (Original Plaintiff) but can adduce evidence as a witness only to the extent of his personal knowledge.

Thus, the Miscellaneous Application was partially allowed.

19 People Welfare Society vs. State Information Commissioner and Ors.

AIR 2024 Bombay 54 (Nagpur Bench)

1st March, 2024

Right to Information — Supply of Information — Public Trust running educational institution from government fund/grant — Substantial grant — Duty bound to provide information about the educational institution — Charity Commissioner is not bound to supply information regarding Public Trust — [S. 2(h), 4, 6 – Right to Information Act, 2005; S. 18, Maharashtra Public Trust Act,1950].

FACTS

The moot question which was referred to the full bench of the Hon’ble Bombay High Court (Nagpur Bench) was whether a public trust registered under the provisions of Maharashtra Public Trusts Act, 1950, which is running an educational institution and receiving a grant from the state is duty bound to supply information sought from it under the provisions of Right to Information Act (RTI Act)?

HELD

The Hon’ble Bombay High Court held that if the information solicited under the RTI Act is regarding the Public Trust, which has not received substantial government largesse to implement the aims of the Public Trust, then, in that case, there is no obligation to supply information if that Public Trust does not fall within the ambit of section 2(h) of the RTI Act. Further, the Hon’ble Court also held that in case the information is solicited in respect of an educational trust or other institution, which is run by that Public Trust, in case financial support from the government is found to be substantial, (which is a plea to be decided by the Information Commissioner), information relating to such Educational or other Institutions can be directed to be supplied. Furthermore, the Charity Commissioner would also not be legally obliged to supply such information, which may be collected by him, in respect of the Public Trust, under the provisions of the Maharashtra Public Trusts Act, 1950 in case such information falls under the exempted category mentioned in Section 8(j) of the RTI Act and the demand does not have statutory backing.

20 Vivek Jain vs. Deputy Commissioner vs. Ors

2024 LiveLaw (Kar) 248

4th June, 2024

Gift Deed — Father to son — Property — Gift cannot be cancelled for failure to maintain if no condition is specified in the Gift deed to maintain father. [S. 23, Maintenance and Welfare of Parents and Senior Citizen Act, 2007].

FACTS

Respondent No. 3 (father) had gifted a property by way of a gift deed to his son (Respondent No. 4). Thus, Respondent No. 4 became a lawful owner of the property. Subsequently, Respondent No. 4 sold the property by way of a sale deed to the Petitioner. Two years after the sale deed, the father (Respondent No. 3) filed an application before the Learned Assistant Commissioner under section 23 of the Maintenance and Welfare of Parents and Senior Citizen Act, 2007 (Act) to set aside the gift deed and the subsequent sale deed. The Learned Assistant Commissioner observed that the son (Respondent No. 4) had failed to maintain his father, thus, he cancelled the said gift deed and subsequent sale deed.

Aggrieved by the said order, a Petition was filed by the Purchaser of the property (the Petitioner) before the Hon’ble Karnataka High Court.

HELD

The Hon’ble Karnataka High Court observed that section 23 of the Act mandates for a condition to be mentioned in the gift deed for maintaining the father. Thus, in absence of any such condition mentioned in the gift deed, the Hon’ble Court quashed the order of the Learned Assistant Commissioner.

The Petition was allowed.

BCAS Foundation Annual Activities Report – 2023–2024

The Board of Trustees of the BCAS Foundation are pleased to present the Annual Report of the activities of the Foundation during the Financial Year 2023–2024.

The year witnessed many activities during the financial year with the help of volunteers and joint projects with the Human Resource Development Committee of the Bombay Chartered Accountants’ Society (BCAS). The list of activities and their impact analysis are given below:

1. Children’s Education

1.1 Digital Classrooms at Vevji, Talasari

BCAS Foundation has undertaken various projects in the Vevji area of Talasari, Maharashtra and Umbergaon, Gujarat for the benefit of tribal and other poor children.

There is an acute shortage of teachers in the Talasari area and therefore, the Foundation set up 25 digital classrooms in 11 schools in the Vevji area. Each digital classroom comprises a TV Screen and preloaded content of the curriculum of standards 1 to 10 of the SSC Board, Maharashtra. In the absence of teachers, students learn on their own with the help of digital classrooms. The project was launched on 28th January, 2023 with the help of the Rushabh Foundation and is working very well. About 1900 students will benefit every year from this project.

1.2 Distribution of Notebooks to Children at Govandi — Mankhurd

BCAS Foundation distributed 4000 notebooks to needy children studying in Municipal Schools in the Govandi — Mankhurd areas, Mumbai, with the help of Dharma Bharati Mission (DBM).

Along with DBM, the Foundation had also been engaged in a project of “Chalo English Sikhaye” for the students at Vernacular Medium Schools of Govandi — Mankhurd areas.

1.3 Educational Tailormade Games / Toys at Arch Foundation, Valsad1

Balvadi is a kind of experimental platform which not only provides interactive processes to the children but also becomes an idea exchange ground for the persons interested in assisting young kids in their foundational journey.

With the help of BCAS’s contribution, Arch Foundation earlier made a number of wooden blocks and prepared other materials which helped a number of children. Wooden Blocks and building open-ended structures, Rollers, and Water play have got children interested in trying out various structures themselves.


1. Five of the short videos of physical knowledge activities.

https://drive.google.com/drive
folders/19cIkxc0n0uNp4we12LD90MAwg6hmdrhp?usp=drive_link

This year with BCAS Foundation helped in developing some other things — indoors and outdoors in preschool and the surrounding external campus. Arch Foundation provides objects and playthings so that children act on them and create their own knowledge. Some of these interesting play games are as follows:

Balance Beam

The balance beam enables kids to be challenged while improving balance and coordination. Kids improve vestibular balance, movement coordination, and concentration while understanding their body’s centre of gravity. The balance beam also helps to improve self-confidence, learning stability and sense of reaction. Balance is fundamental in all human movement. Research shows that balance skills help children to develop better language, improve reading and writing skills, and improve concentration and body control. In practising new skills in all sports and physical activity, balance is the most essential.

Wooden Wobble Board

Due to the sturdy, design of a balance board, children will support their physical development, practice spatial awareness, and strengthen coordination as they balance.

Playgrounds offer many benefits and childhood opportunities. Playground equipment and child development are closely linked. Children can work on their mental and emotional development by building confidence as they master play equipment such as swings and slides. They can also build social skills as they learn to share, take turns and play together.

Incline

The popularity of slides on playgrounds indicates that young children are naturally interested in incline. Incline seemed particularly rich in potential in physical knowledge activity because children wonder how objects move at different speeds by letting them go without applying any force to them and at different angles and this wonderment builds up their learning.

2.0 Solar Panels at Vraj Hostel, Kaprada, Gujarat — A Green Initiative by BCAS

Sparsh Foundation: Vraj Hostel: Solar Efficient Vraj is home to 20 boys between the ages of 8–14 years, most of whom belong to poor families. The hostel is situated at Tetbari, Kaprada District and the closest city is Vapi, which is 60+ km. away.

BCAS Foundation funded the Solar set up which will make the Hostel a Green Project.

3.0 Tree Plantation Drive

As we celebrate our 75th anniversary, the BCAS Foundation proudly launched a significant green initiative, planting 7,500 trees in Banaskantha, Gujarat, which we now call BCAS वन (Forest). We are deeply grateful to our CSR Donors, Omkara Asset Reconstruction Private Limited and Siyaram Silk Mills Ltd. The Van was created with the support of Vicharta Samuday Samarthan Manch (VSSM) and we are extremely thankful to them. We express our gratitude and sincerely appreciate generous contributions from our various donors.

75 trees were planted by the volunteers of BCAS Foundation at the divine land of Siddh Guru Pith (Proposed), (Courtesy: MaBap Foundation) at Nivari Faliya, Bathi Karambeli, Sanjan, Umargaon.

4.0 INTERNATIONAL YOGA DAY CELEBRATIONS

BCAS Foundation along with MaBap Foundation celebrated International Yoga Day on 21st June, 2023 at the Prestige Banquets, Andheri East, Mumbai 400069 from 7 am to 9 am. About 30 people participated and benefited. Yoga Teacher Pradeep Thakkar, a volunteer of the MaBap Foundation conducted the session. CA Gracy Mendes and CA Anand Kothari coordinated the event with the support of BCAS staff and volunteers of the MaBap Foundation.

5.0 OTHER HELPS

Some other activities of the Foundation

During the year the Foundation extended medical and educational help to needy students and family members of the BCAS staff. The foundation also became instrumental in carrying out 50 cataract operations for poor people in Vansada, Gujarat.

We take this opportunity to thank all our donors, volunteers, sister NGOs, office bearers of schools, Office Bearers and the Staff of BCAS, and participants of all conferences / seminars at BCAS for their continued support and encouragement to carry out some noble work to make a positive difference to the world. We also thank all beneficiaries, and children for giving us an opportunity to serve you.

We welcome suggestions and request volunteers to contact us at om1@bcasonline.org.

Best Regards,
For BCAS Foundation

Trustees

Article 11 of India-Cyprus DTAA — Assessee is the beneficial owner of income if it has the right to receive and enjoy interest income without any obligation to pass on income to any other person.

7 [2024] 162 taxmann.com 766 (Delhi — Trib.)

Little Fairy Ltd vs. ACIT

ITA No: 1513/Del/2022

A.Y.: 2017–18

Dated: 15th May, 2024

Article 11 of India-Cyprus DTAA — Assessee is the beneficial owner of income if it has the right to receive and enjoy interest income without any obligation to pass on income to any other person.

FACTS

Assessee, a tax resident of Cyprus, invested in Compulsorily Convertible Debentures (CCDs) of an Indian Company (ICO). In terms of India-Cyprus DTAA, the assessee offered a gross amount of interest on CCDs to tax @10 per cent. AO held that the assessee was not the beneficial owner of income as (a) the Assessee had not performed any activity in Cyprus; (b) there were other companies having the same registered address; and (c) the Assessee was merely a conduit for channelizing the funds invested in CCDs. Accordingly, AO charged tax @40 per cent on the interest income of the assessee.

On appeal, CIT(A) confirmed the order of AO. Being aggrieved, the assessee appealed to ITAT.

HELD

ITAT held that the assessee is the beneficial owner of income on account of the following facts:

  •  The Assessee had taken the following decisions in its Board meeting held in Cyprus:

               (a) Decision to invest in ICO. (b) Declaration of dividend to its sole shareholder.

  •  The parent company by itself does not become the beneficial owner of income because it does not get any right over the assets of the assessee.
  •  The Assessee made an investment in CCD’s of ICO in its own name through proper banking channels. Unlike in the case of manufacturing and trading businesses where a person is required to undertake business activity, after making an investment, no activity is required since the investment may fetch either interest or capital gains to the assessee without doing anything.
  •  The Assessee being an investment company, does not require any personnel other than directors on its payroll to carry out day-to-day operations. The Directors of the assessee company were qualified and competent to run the company and make its business investment decisions. Furthermore, the assessee had availed services of a professional administrator for general administration, such as book-keeping, company secretarial services, etc., and there was no need to have any employee on its own payroll.
  •  The Assessee received interest in its bank account. Assessee had the right to receive interest income. There was no compulsion or contractual obligation to simultaneously pass on the same to another entity. The assessee had also borne foreign currency risk as well as counter-party risk.

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

26 (2024) 162 taxmann.com 730 (DelhiTrib)

Genus Power Infrastructure Ltd. vs. ACIT

ITA Nos.: 2573 & 2680(Del) of 2023

A.Y.: 2010–11

Dated: 10th May, 2024

S. 115JB, 147–Reopening under section 147 is not maintainable where MAT liability would not get disturbed on correct application of law and tax on such book profits exceeded the total income determined as per the normal provisions of the Act.

FACTS

For AY 2010–11, the assessee filed its return of income on 23rd September, 2010 declaring total income at Nil. The case was subjected to regular assessment vide order under section 143(3) dated 28th March, 2013 and income was assessed at ₹8,71,08,200 and book profit under section 115JB at ₹31,04,38,156.

Thereafter, notice under Section 148 was issued by the AO on 31st March, 2017, that is, after a period of four years from the end of the assessment year where the original assessment was earlier completed under Section 143(3). The reasons recorded by AO showed that an adjustment at ₹4,28,41,017 was proposed to the book profit on the ground that provision on the repair of partly damaged assets had been wrongly allowed and was not eligible for deduction while computing book profits. The reasons recorded also made allegations towards escapement of income on varied grounds [namely, prior period expenses, deduction under s. 80IC, calculation mistakes etc.] while reassessing the taxable income under the normal provisions of the Act. The book profit was thus reassessed at ₹35.31 crores [as opposed to ₹31.04 crores in original assessment] whereas the taxable income under the normal provisions was assessed at ₹13.67 crores [as opposed to ₹8.71 crores in original assessment].

Cross appeals were filed by the Revenue and assessee against the order of CIT(A).

A jurisdictional controversy had been raised before the Tribunal as to whether re-opening under section 147/148 is maintainable where MAT liability as per book profits computed under section 115JB would not get disturbed on the correct application of the law, and tax on such book profits also exceeded the total income determined as per normal provisions.

HELD

The Tribunal observed as follows:

Escapement alleged qua book profits did not meet the conditions embodied in the first proviso to section 147 having regard to full and true disclosure of the relevant/material facts attributable to provisions for repairs in the ROI by making disallowances under normal provisions and suitable declarations in the audited financial statement;

One cannot say that when the adjustment on account of such provision for repairs has been made by the assessee while determining the income as per normal provisions of the Act, there was a failure on the part of the assessee to disclose facts in not making such corresponding adjustments while determining the book profit. The disclosures were also made in the financial statement. The condition of the first proviso was thus clearly not satisfied in the instant case. Hence, the escapement qua book profits were not sustainable in law.

In the absence of escapement qua book profits, the escapement alleged under normal provisions was of no consequence since despite the purported escapement qua normal provision which may lead to enhancement of taxable income under the normal provision, the tax liability thereon would still be lower than the book profits assessable in law;

The claim of the assessee that the tax liability on book profit was higher than the income assessable under normal provisions including escapement alleged qua normal provisions, had not been disputed by the revenue.

Accordingly, following the decisions of the Gujarat High Court in India Gelatine and Chemical Ltd. vs. ACIT, (2014) 364 ITR 649 (Guj) and Motto Tiles P. Ltd. vs. ACIT, (2016) 286 ITR 280 (Guj), the Tribunal quashed the reassessment notice and declared the reassessment order null and void.

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

25 Shree Swaminarayan Gadi Trust vs. CIT

(2024) 162 taxmann.com 772 (SuratTrib)

ITA Nos.: 369 & 370(Srt) of 2024

A.Y.: N.A

Dated: 13th May, 2024

S. 12A–Where the assessee-trust selected an incorrect clause in an application for section 12A / 80G, since the mistake was not fatal, CIT was directed to treat the application under the appropriate clause and consider the case on merits.

FACTS

The assessee-trust applied for registration under section 12A and section 80Gin Form 10AB. Instead of selecting section 12A(1)(ac)(iii) in the Form, the assessee incorrectly selected section 12A(1)(ac)(iv). A similar mistake was also made in the Form relating to section 80G. In the proceedings before CIT(E), the assessee requested the CIT to consider the application under the appropriate sub-clause.

CIT(E) held that he has no power to change / amend / rectify Form 10AB and therefore, rejected the applications.

Aggrieved, the assessee filed appeals before ITAT.

HELD

The Tribunal observed as follows—

a) the mistake in filing entry was not fatal and could be considered under the appropriate sub-clause or clause of section 12A(1).

b) Being the first appellate authority, the plea of the assessee for correction in Form-10AB should be accepted and the order of CIT(E) be set-aside.

The Tribunal directed CIT(E) to treat the application of the assessee under Section 12A(1)(ac)(iii) in place of Section 12A(1)(ac)(iv) and to consider the case on merit and pass the order in accordance with the law. Similar directions were also given for application for approval under section 80G(5).

Black Days

Arjun : (Chanting) Krishna Krishna Hare Krishna Krishna! Sabhi dishame Krishna Krishna

Shrikrishna : (enters) Arey Arjun, why are you chanting my name?

Arjun : Oh Krishna! Lord, I was not chanting your name. Krishna means darkness. For my profession, I see darkness everywhere. No one is there to protect us.

Shrikrishna : Why? You are capable of protecting yourselves. You are so highly qualified. Nothing moves without your signature.

Arjun : Those signatures only have brought this darkness. We do not see any ray of hope.

Shrikrishna : How can the signatures bring darkness?

Arjun : That I will tell you later. By the way, tell me, ‘Krishna’ means black or dark. Why is your name Krishna?

Shrikrishna : Arjun. You are right. But in Sanskrit language, every word has multiple meanings. Krishna means who has a lot of attraction in his personality. ‘Aakarshan’ karnewala krishna. He who pulls the attention of all, who is attractive.

Arjun : Oh Lord, our profession also was very attractive once upon a time. All of us got attracted and fell in this deep well. We cannot come out. I see no light around. Everything looks gloomy.

Shrikrishna : Why are you nervous?

Arjun : We have become like ‘Abhimanyu’, my brave son who was killed by Kauravas in an unfair manner. He knew how to enter the ‘chakravyuha’ but did not know how to come out.

Shrikrishna : But why do you want to come out? People outside envy you.

Arjun : Because people do not know about our real plight. The grass is always greener on the other side…

Shrikrishna : I do not understand why you have become so helpless.

Arjun : Who is there with us? We don’t get good staff. They are keen to grab some opportunity outside right from the day they join! We don’t get article trainees. There is a mountain of regulations. Unsurmountable!

Shrikrishna : Arjun, if you come together, you can lift the mountain. Do you remember? All Gopas and Gopikas had lifted Goverdhan mountain in Mahabharata.

Arjun : Natural mountains can be easily lifted. But this man-made mountain of laws and regulations…

Shrikrishna : But what you do is so valuable…

Arjun : (laughs sarcastically). Value? No one sees any value in it. The clients for whom we slog and invite risks for ourselves ask us ‘what value addition you have made.

Shrikrishna : But basically, it is clients’ responsibility to do it properly.

Arjun : Ha! Ha!! Ha!!! Lord, it is only in theory. Everybody feels it is our responsibility. So, no payment for carrying this burden.

Shrikrishna : Then why don’t you refuse to sign?

Arjun : If I say, “No,” there are hundreds of other CAs who will jump to sign. We are never together. We have no unity amongst us. So, the question of lifting the mountain does not arise. And if I refuse to sign, we will die of starvation! We have no choice, Lord.

Shrikrishna : Regulations are bound to be there. They were there also in the past.
Arjun : Agreed. But in the past, the regulators were more sensible and decent. They understood the spirit behind the law and our practical difficulties. Now, they are bent on killing us.

Shrikrishna : Who are they all?

Arjun : All investigating and regulatory authorities keep on complaining against us. Any fraud occurs, we are the first to blame as if we only commit frauds or we mastermind them.

Shrikrishna : Why are they having such a negative opinion against you?

Arjun : In the past, I admit that a few CAs might have been involved in scams or at least connived at it. They did the audit very casually and signed it very carelessly. But all are not like that.

Shrikrishna : But your Institute does not protect you?

Arjun : These regulators complain against us to our Institute only. And we have to also face disciplinary action.

Shrikrishna : Really?

Arjun : Managements sponsor a fraud. They themselves have vested interests. Such frauds are difficult to detect and we have limited time. We have to meet deadlines. Limited manpower, limited authority. And the investigating authorities routinely make us co-accused! We are made to face SEBI, RBI, Stock Exchange authorities, EOW, SIFO, NFRA, CBI…

Shrikrishna : Oh! You mean there are criminal cases against you CAs?

Arjun : Then our first task is to obtain bail. Today many CAs are on bail. The criminal proceedings take years together; and until it is settled, there is no peace of mind. Even technical errors are made a hype of! They treat it as misconduct.

Shrikrishna : How do you plead your case before the courts and investigators?

Arjun : That is another burden of expenditure on us. Compiling the old data, hunting for it, then conveyance, travelling, lawyer’s fees…just unaffordable. And in the process, regular work suffers. So again a loss. And they rake up matters where we would have done the audit even 15 years ago! They expect us to produce evidence of those years!

Shrikrishna : But you can always deny or refuse.

Arjun : Many times, the investigating officials have no concept at all as to what an audit is and how is it distinct from investigation. They have wide powers, team of experts working for them and their own sweet time of even a couple of years to detect the fraud. And for us, only a couple of weeks’ time — with limited authority, pressures from clients, limited manpower, and to look after so many rules and regulations!

Shrikrishna : What is the remedy!

Arjun : Lord, you are Bhagwan, and you are asking me for remedy? Even you will have no solution to this problem. Already, many are quitting the profession, surrendering their COP, giving up audit work, avoiding signing the audits…and their next generations profession. Grossly underpaid; and overburdened with regulation!

Shrikrishna : Who else complains against you?

Arjun : Our clients, our partners, our staff, our articles, our spouse, close relatives and almost everyone. Even a stranger can complain. I am told there are even professional black mailers! Lord, nothing appears to be positive. Ghor Kaliyuga.

Shrikrishna : Make more use of technology to add efficiency in your functioning.

Arjun : Technology? That is another monster. Soon we will be rendered outdated due to the automation. That is why I was chanting Krishna Krishna. Everywhere, there is darkness.

Shrikrishna : I feel, only a strong base of ethics and unity amongst you all can save you in this scenario.

Arjun : Agreed. But under ethics, they charge us for negligence. How can a fraud and negligence, exist together? In fraud, something is done consciously. In negligence, there is absence of application of mind.

Shrikrishna : You have a point.

Arjun : Moreover, these authorities are not accountable to anyone. In the process, our ordinary professionals are being harassed.

Bhagawan, it is high time that you use your ‘Sudarshan Chakra’ to save us. Otherwise, we see only ‘black days’ around.

Shrikrishna : Do not worry Arjun. Bright days will come soon. Keep on fighting ethically. And ultimate success will be yours.

|| Om Shanti ||.

Note: This dialogue is based on the general scenario in the profession today, where regulators have become a little too active against CA professionals.

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit. II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

24 Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. vs. ACIT

ITA No. 3569/Del./2016

Assessment Year: 2012–13

Date of Order: 24th April, 2024

Section: 80IB(10)

I. The area of Balconies open to the sky is not to be considered as part of the built-up area of a particular residential unit. Claim for deduction under section 80IB(10) cannot be denied in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit.

II. The project completion method is the right method for determining the profits. The Project Completion Method should not have been disturbed by the AO as it was being regularly followed by the assessee in earlier years also and there is no cogent reason to change the method.

FACTS I

The assessee aggrieved by the order of CIT(A) denying a claim for deduction under section 80IB(10) in respect of those residential units whose built-up area exceeds 1,000 sq. feet only when the area of open balcony is added to the built-up area of the residential unit preferred an appeal to the Tribunal.

HELD I

The Tribunal upon perusal of the orders of the authorities below and the decision of the Tribunal in the assessee’s own case for AYs 2008–09 to 2011–12 observed that the Tribunal for AYs 2008–09 and 2009–10 in the common order dated 30th May, 2016 in ITA Nos. 1950/Del/2012 & 5849/Del/2012 allowed the claim for deduction under section 80IB(10) of the Act in respect of flats excluding the balcony open to the sky for the purpose of calculating the built-up area of the individual units. Following the earlier orders, the Tribunal allowed the claim for deduction u/s 80IB(10) in respect of those flats whose area exceeded 1,000 sq. feet only as a result of including a balcony open to the sky. The AO was directed to verify the claim of the assessee after obtaining the details and allow the deduction after providing adequate opportunity of being heard by the assessee.

FACTS II

Aggrieved by the order of the CIT(A) directing the AO to accept the project completion method followed by the assessee, revenue preferred an appeal to the Tribunal.

It was submitted that this issue came up for adjudication in assessee’s case for AY 2008–09 to 2011–12. It was also mentioned that the Tribunal for AY 2008–09 and 2009–10 has upheld the order of the CIT(A) in accepting the project completion method adopted by the assessee.

HELD II

The Tribunal observed that the Tribunal has decided the issue in appeal in favour of the assessee by sustaining the order of CIT(A) in holding that the project completion method adopted by the assessee is the right method for determining the profits. The CIT(A) had held that the AO should not have disturbed the project completion method followed by the assessee regularly and there is no cogent reason to change the method. Both these findings of the CIT(A) were upheld by the Tribunal for AYs 2008–09 and 2009–10. The appeal of the revenue has been dismissed by the High Court in ITA No. 766/2016 and 178/2017 dated 16th May, 2017 holding that there is no substantial question of law. The tribunal also observed that the Court held that the question “whether the addition made by the AO to the income of the Respondent for the relevant year based on percentage completion method was not correct as held by the ITAT’ stands answered in favour of the assessee and against the revenue by order dated 16th November, 2016 in ITA No. 802/2016 in PCIT vs. Shipra Estate Ltd. & Jai Krishan Estate Developers Pvt. Ltd. Following this decision of the High Court, Tribunal rejected the ground of the revenue.

In This Issue, We Look At Some Interesting AI Driven Tools For Productivity At The Workplace

Summarize.tech

We often come across lengthy YouTube videos which may be useful but time consuming. We just want to know the summary of the content without having to go through the entire video.

Summarize.tech is a very useful tool to get a text summary of the entire video within seconds. Just head to summarize.tech, paste the YouTube or Video link in the space provided and within seconds, you will get a simple text summary of the entire video in a single paragraph. If you wish to see an elaborate summary of a lengthy video, you may scroll down and see the detailed summary broken up over the entire timeline.

It even works on Hindi and Hinglish Videos!

The free version of summarize.tech has daily limits of just a few videos a day. The premium version has no daily limits, and you can summarize up to 200 videos a month.

A very valuable tool if you are short on time and want the summary instantly!

https://www.summarize.tech/

 

Xume : Health Food Scanner App

Groceries now have ratings!

We all want to eat healthy, but do not know how to analyse the food products which we buy. It is almost impossible to sort through and decode all the perplexing and contradictory health claims and counterclaims mentioned on the labels.

Xume’s food scanner takes the con out of consumption by giving personalised health scores. No more demystifying food ingredient lists, decoding nutrition information or getting fooled by product claims.

All you have to do is to scan the barcode on the label of the food item you have and it will give you detailed information about its ingredients and nutritional information, along with a rating — whether it is healthy enough to consume. If it is rated as unhealthy, it will also suggest healthier alternatives. And, if there are any concerns in some ingredients, it will highlight those too! An important tab shows you how processed the food item is, along with a Taste Meter to tell you how tasty it is.

While at a supermarket or shopping online, you can scan the packaging before you actually decide to buy any food item.

The first few scans are free and to continue using it, you may have to subscribe for a paid version.

If you are serious about your health and the foods you eat, this is the app for you!

Android: https://bit.ly/4aT52pk

iOS: https://apple.co/3x5k11F

 

Cool the Globe

Are you serious about caring for the planet? Want to know what is your carbon footprint? Want to do something about it yourself?

Cool the Globe is the app for you. Just enter details of your daily travel, your appliances, the materials you use (including plastics), forest / tree plantations, etc., and it will immediately let you know your carbon footprint. It will also indicate choices which you have in your daily travel / consumption / food, etc. to help you improve your carbon footprint.

The app will instantly calculate your GHG wastage / savings which you can save on a daily basis. You can then share your scores on Social Media with family and friends and help create a movement for reducing emissions and cooling the earth!

Be the change – join this citizen-led movement for climate action!

Very cool, huh?

https://www.cooltheglobe.org/

Android : https://bit.ly/3Xb5Q63

iOS : https://apple.co/4c3iUOM

Ghostwrite

Are you tired of writing emails? Do you spend substantial time composing long emails? Stop wasting your valuable time and use AI to automate your email writing.

Install the Ghostwrite extension for Chrome or Outlook and start writing emails with just a few prompts. Ghostwrite is an AI tool that writes your emails using ChatGPT and other AI technologies. Your writing process will be automated so that you can spend more time on things that matter.

Once you install the extension, whenever you compose a new email, Ghostwrite will prompt ask you to tell it what the email is about. If it is a reply to an existing email, it will understand the context by reading it. You then need to give a few words on telling it about the content of the email you want to write. It will further prompt you to decide what Style you want to write in, what is the Tone (professional / casual), what is the Length of the email and what is the Language of the response. Then just click on Write and your email is composed automatically, magically.

The first 100 emails every month are free and if you are a heavy email composer, you may have to pay a nominal monthly fee beyond that.

https://www.ghostwrite.rip/

For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

23 Sunil Amritlal Shah vs. ITO

ITA No. 4069/Mum./2023

Assessment Year: 2011-12

Date of Order: 13th May, 2024

Section: 54

For a claim of deduction under section 54 the date of possession and not the date of agreement should be considered to be the date of purchase.

FACTS

The assessee, an individual, preferred an appeal against the assessment order dated 3rd October, 2023 passed under section 144C(13) read with section 147 read with section 254 of the Act determining total income of ₹35,97,395 and denying a claim of deduction of ₹34,25,243 made under section 54 of the Act.

During the year under consideration, the assessee had long-term capital gain on the sale of a residential house on 10th February, 2011. The entire long-term capital gain was claimed to be exempt under section 54 on the ground that the assessee purchased a residential house at Ghatkopar. For this new house, the assessee entered into an agreement for sale with builder Runwal Capital Land India Private Limited on 25th July, 2009 for a consideration of ₹73,06,530. The possession of the new house was granted to the assessee on 2nd February, 2011 after receipt of the occupancy certificate and when the building was habitable. Assessee considered the date of possession i.e., 2nd February, 2011 to be the date of acquisition of the property. The AO denied the claim by holding the date of acquisition of the property to be 25th July, 2009.

Aggrieved, assessee preferred an appeal to the Tribunal.

HELD

On behalf of the assessee reliance was placed on the decision of Bombay High Court in CIT vs. R K Jain [ITA No. 260 of 1993 (1994) 75 Taxman 145] wherein the Court has held that the date of possession of new residential premises is considered for exemption under section 54F instead of the date of sale agreement. It was submitted that there is no difference in the eligibility for deduction under section 54F and section 54 of the Act. It was also submitted that following this decision of the jurisdictional High Court, the co-ordinate bench in the case of Sanjay Vasant Jumde vs. ITO [148 taxmann.com 34] has so held. Reliance was also placed on several other decisions.

HELD

The Tribunal observed that —

(i) by agreement dated 25th July, 2009, the assessee acquired a `right to purchase a house’ which was under construction. On 2nd February, 2011 when the house was handed over to the assessee, when it was inhabitable (sic habitable) the assessee purchased the house;

(ii) in PCIT & Others vs. Akshay Sobit & Others [(2020) 423 ITR 321 (Delhi)], the Delhi High Court held that the provision in question is a beneficial provision for assessees who replace the original long-term capital asset with a new one. It was further held that booking of the bare shell of a flat is a construction of house property and not purchase. Therefore, the date of completion of construction is to be looked into which is as per provision of section 54 of the Act. In the present case as well, the assessee has booked the flat under construction which was handed over to the assessee upon completion of construction;

(iii) the Bombay High Court in the case of Beena K Jain [217 ITR 363 (Bom.)], in connection with section 54F which is parimateria, affirmed the action of the Tribunal and held that the date of the agreement is not the date of purchase but the date of payment of full consideration amount on flat becoming ready for occupation and having obtained possession of the flat is the date of purchase. The action of the Tribunal in looking at the substance of the transaction and coming to the conclusion that the purchase was substantially effected when the agreement of purchase was carried out or completed by full payment of consideration and handing over of possession of the flat on the next day was upheld by the court;

(iv) the co-ordinate bench in Bastimal K Jain vs. ITO [(2016) 76 taxmann.com 368 (Mum.)] has also held that the assessee’s claim for deduction under section 54 was to be reckoned from the date of handing over of possession of the flat by the builder to the assessee.

The Tribunal held that the assessee is entitled to deduction under section 54 of the Act on the purchase of a new house considering the date of possession when it is completed as the date of purchase of property as agreement to purchase the property was for under-construction property. By entering into an agreement to purchase assessee acquired the right to purchase the property and did not purchase the property as the same was under construction. The section requires “purchase” of property.

The Tribunal allowed the ground of appeal filed by the assessee.

From Published Accounts

COMPILERS’ NOTE

As per the amendments to the Companies Act, 2013 and Rules thereto, for Financial Years commencing on or after 1st April, 2023, i.e., audit reports issued for FY 2023–24, the auditor needs to report on whether the accounting software used by a company has a feature of recording audit trail (edit log) facility and whether the same has been operated throughout the year and it has not been tampered. To assist auditors on this new reporting requirement, ICAI has, in February 2024, issued an Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (Revised 2024) Edition.

Given below are instances of modified reporting on the above for the year ended 31st March, 2024. (One such instance was also given in June 2024 issue.)

HINDUSTAN UNILEVER LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

(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, except for certain matters in respect of audit trail as stated in the paragraph 2B(f) below;

….

f) The modifications relating to the maintenance of accounts and other matters connected therewith in respect of audit trail are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) of the Act and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f) Based on our examination which included test checks and in accordance with requirements of the
Implementation Guide on Reporting on Audit Trail under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014, except for the instances mentioned below, the Company has used accounting software for maintaining its books of account, which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software:

(i) The feature of recording audit trail (edit log) facility was not enabled at the database layer to log any direct data changes for the accounting software used for trade scheme masters;

(ii) We are unable to comment if the audit trail (edit log) facility was enabled at the database layer to log any direct data changes for accounting software operated by a third-party service provider and used for maintaining purchase orders in absence of independent auditor’s report in relation to controls at the third-party service provider;

(iii) For one accounting software, changes to the application layer by a super user does not have feature of a concurrent real time audit trail.

Further, where audit trail (edit log) facility was enabled and operated throughout the year, we did not come across any instance of audit trail feature being tampered with during the course of our audit.

The back-up of audit trail (edit log) maintained on the server physically located in India for the financial year ended 31st March, 2024, except for the back-up of audit trail (edit log) of trade scheme masters (maintained on servers physically in India from 1st January, 2024 onwards) and for back up of audit trail (edit log) of purchase orders (not maintained on servers physically in India).

TATA CONSUMERS PRODUCTS LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, based on our audit, we report that:

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, except for not complying with the requirement of audit trail to the extent stated in (i) and (vi) below.

……

f) The modification relating to the maintenance of accounts and other matters connected therewith is as stated in paragraph (b) above.

……

i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us;

vi. Based on our examination, which included test checks, the Company, has used accounting software systems for maintaining its books of account for the financial year ended 31st March, 2024 which have a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software systems, except in respect of maintenance of records of a hospital which was maintained in an accounting software system in which the audit trail feature did not operate from 1st April, 2023 till 31st August, 2023.

Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with, in respect of accounting softwares for the period for which the audit trail feature was operating.

As proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 is applicable from 1st April, 2023, reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 on preservation of audit trail as per the statutory requirements for record retention is not applicable for the year ended 31st March, 2024.

AMBUJA CEMENTS LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report, to the extent applicable, that:

b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books, except for the matters stated in the paragraph (vi) below on reporting under Rule 11(g);

…..

h) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3)(b) and paragraph (vi) below on reporting under Rule 11(g).

……

i) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, as amended, in our opinion and to the best of our information and according to the explanations given to us:

vi. Based on our examination which included test checks, the Company has used accounting software and a payroll application for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the software / application. However, audit trail feature is not enabled for certain direct changes to data when using certain access rights at the application level for the accounting software; and at the database level for the accounting software and payroll application, as described in Note 70 to the financial statements. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with in respect of the accounting software and payroll application.

From Notes to Accounts

Note 70 – Audit Trail

The Company uses an accounting software and a payroll application for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the accounting software and the payroll application, except that a) audit trail feature is not enabled for certain direct changes to the data for users with the certain privileged access rights to the SAP application and b) audit trail feature is not enabled at the database level for the payroll application and HANA database. Further, no instance of audit trail feature being tampered with was noted in respect of the accounting software and payroll application.

Presently, the log has been activated at the application and the privileged access to HANA database continues to be restricted to a limited set of users who necessarily require this access for maintenance and administration of the database.

SULA VINEYARDS LIMITED

Report on Other Legal and Regulatory Requirements

Further to our comments in Annexure I, as required by section 143(3) of the Act based on our audit, we report, to the extent applicable, that:

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; except for the matter stated in paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);

…..

f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in paragraph 17(b) above on reporting under section 143(3)(b) of the Act and paragraph 17(h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014 (as amended);

…..

h) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014 (as amended), in our opinion and to the best of our information and according to the explanations given to us:

vi. As stated in Note 49 to the accompanying standalone financial statements, and based on our examination which included test checks, except for instance mentioned below, the Company in respect of financial year commencing on 1st April, 2023, has used accounting software for maintaining its books of accounts which have a feature of recording audit trail (edit log) facility and the same have been operated throughout the year for all relevant transactions recorded in the software. Further, during the course of our audit we did not come across any instance of audit trail feature being tampered with in respect of the accounting software where such feature is enabled.

Nature of exception noted Details of exception
Instance of accounting software for maintaining books of account which did not have a feature of recording audit trail (edit log) facility. The accounting software (OnePos and IDS) used for maintenance of sales records for the hospitality services of the Company did not have a feature of recording audit trail (edit log) facility.

From Notes to Accounts

Note 49: Audit Trail

The Ministry of Corporate Affairs (MCA) has prescribed a new requirement for companies under the proviso to Rule 3(1) of the Companies (Accounts) Rules, 2014 inserted by the Companies (Accounts) Amendment Rules 2021 requiring companies, which use accounting software for maintaining its books of accounts, to use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in the books of accounts along with the date when such changes were made and ensuring that the audit trail cannot be disabled.

The Company uses accounting software (SAP ECC 6.0 and HROne) for maintaining its books of account which has a feature of recording audit trail (edit log) facility, and the same has operated throughout the year for all relevant transactions recorded in the accounting software.

The Company also uses accounting software (OnePos and IDS) for maintaining sales records of the hospitality services which does not have a feature of recording audit trail (edit log) facility. Based on management assessment, the non-availability of audit trail functions will not have any impact on the performance of the accounting software, as management has all other necessary controls in place which are operating effectively.

ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED

Report on Other Legal and Regulatory Requirements

As required by paragraph 2 of Schedule C to the IRDAI Financial Statement Regulations read with Section 143(3) of the Act, in our opinion and according to the information and explanations given to us, we report to the extent applicable that:

b) 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 except for the matters stated in the paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014;

…..

h) The observation relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2 (b) above on reporting under Section 143(3)(b) of the Act and paragraph 2 (j) (vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

j) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

vi. As stated in Note 5.2.30 to the financial statements and based on our examination which included test checks on the software applications, except for instances mentioned below, the Company, in respect of the financial year commencing on 1st April, 2023, has used software applications for maintaining its books of account which has a feature of recording audit trail (edit log) facility and the same has been operated throughout the year for all relevant transactions recorded in the respective software applications. Further, during the course of our audit, we did not come across any instance of audit trail feature being tampered with.

Instance of accounting software for maintaining books of account which did not have a feature of recording audit trail (edit log) facility. In case of one of the policy and claim administration applications, discontinued w.e.f. 31st October, 2023, used for maintaining policy and claim records related to the insurance business demerged from Bharti Axa General Insurance Company Limited and forming part of the Company’s business, we are unable to test whether the audit trail feature was enabled or tampered with.
Instances of accounting software for maintaining books of account for which the feature of recording audit trail (edit log) facility was not operated throughout the year for all relevant transactions recorded in the software. The audit trail feature was not enabled up to 15th March, 2024, at the database level for accounting software used for maintenance of commission and reinsurance records by the Company to log any direct database level changes.

From Notes to Accounts

The Company has implemented a framework to identify relevant applications from the overall IT universe as “Books of account” as per the Companies Act 2013. The Company’s books of account maintained in the electronic mode comply with the requirements to the Companies Act 2013, read with relevant rules and notifications, except:

The Company follows a specific procedure for direct database changes in a controlled environment which includes logging of changes into a ticketing approval tool with an integrated approval process. This tool records all the specific details regarding audit trail requirements for capturing timing, the executor and the details of the change. Further, this information was available for the entire fiscal year. In respect of Applications used for maintenance of commission and reinsurance records, the Company has implemented logs at the application level to record audit trail (edit logs) of transactions directly impacting the database from the backend, starting 15th March, 2024.

The Company has discontinued one of the policy and claim administration applications (used for maintenance of policy and claim records of business demerged from Bharti Axa General Insurance Company Limited and forming part of the Company) on 31st October, 2023 and all open transactions have been migrated to its other policy and claim administration applications. As of 31st March, 2024, access to this specific application and its database is no longer available to the Company to demonstrate the audit trail feature in a live environment.

ARCHEAN CHEMICALS INDUSTRIES LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

k) 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 except for the matters stated in paragraph (h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

g) The observation relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph (b) above on reporting under Section 143(3)(b) and paragraph (h)(vi) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

h) With respect to the other matters to be included in the Auditors’ Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

vi) Relying on representations / explanations from the Company and based on our examination which includes test checks on the software application, the Company has used accounting software (ERP) for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded, and we did not come across any instance of audit trail feature being tampered with during the course of our audit.

However, audit trail was not enabled to log any direct data changes at database level both in application layer and database layer of the accounting software.

INDIAN HOTELS COMPANY LIMITED

Report on other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

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 except for the matter stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

f) The modification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditors’ Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f. Based on our examination which included test checks, except for the instances mentioned below and as explained in note 47 of the standalone financial statements, the Company has used accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has operated throughout the year for all relevant transactions recorded in the respective software:

i. The feature of recording audit trail (edit log) facility was not enabled, for a portion of the year at the application layer of the accounting software used for maintaining general ledgers for master fields and direct data changes to transactions; the audit trail feature was enabled in a phased manner between June 2023 and July 2023.

ii. In case of the accounting software used for maintaining general ledger for one of its hotel units, the audit trail (edit log) facility for data changes performed by users having privileged access was enabled from 21st December, 2023 onwards at the application layer and accordingly, such audit trail feature was not enabled for the period from 1st April, 2023 to 20th December, 2023.

iii. The feature of recording audit trail (edit log) facility was not enabled at the database level to log any direct data changes for the accounting software used for maintaining the books of accounts. Further, for the periods where audit trail (edit log) facility was enabled and operated for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with.

From Notes to Accounts

Note 47 – Audit Trail

In the ERP, audit trail at transaction level on application layer has an embedded audit trail in sub-ledger accounting tables which creates unique events for every transaction along with dates of creating and updating transactions with the identity of users. General ledger journals are not allowed to be modified after posting and the date and creator of journals are tracked. This feature cannot be disabled. Additionally, audit trail was enabled for masters and transactions in a phased manner from June to July 2023. Audit trail feature with respect to application layer changes in accounting software has worked effectively during the year. PMS and POS (Property Management and Point of Sales software) has inbuilt audit trail feature from 1st April, 2023. Post publication of ICAI implementation guide, direct database level changes was also included in audit trial scope. In respect of ERP, access to direct database level changes is available only to privileged users and for PMS and POS, it is not available to any of the Company personnel. However, the software product owners have confirmed that there is no audit trail enabled for database level changes.

VIVRITI CAPITAL LIMITED

Report on Other Legal and Regulatory Requirements

As required by Section 143(3) of the Act, we report that:

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 except for the matters stated in the paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

…..

f) The qualification relating to the maintenance of accounts and other matters connected therewith are as stated in the paragraph 2A(b) above on reporting under Section 143(3)(b) and paragraph 2B(f) below on reporting under Rule 11(g) of the Companies (Audit and Auditors) Rules, 2014.

With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:

f. Based on our examination which included test checks, except for the instances mentioned below, the Company has used accounting software for maintaining its books of account, which has a feature of recording audit trail (edit log) facility and the same has been operating throughout the year for all relevant transactions recorded in the software:

With respect to one accounting software, the feature of recording audit trail (edit log) facility was not enabled at the database layer for the period from 1st April, 2023 to 28th November, 2023. Further, the feature of audit trail (edit log) was not enabled in full at the application layer of such core accounting software in respect of account payable and payment interface. With respect to maintaining loan management information, the feature of recording the audit trail (edit log) has not been enabled.

Further, for the periods where audit trail (edit log) facility was enabled for the respective accounting software, we did not come across any instance of the audit trail feature being tampered with.

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

22 Emaar MGF Land Limited vs. ACIT

ITA Nos. 825 to 820/Del/2018 and 1378/Del/20123

Assessment Years: 2010–11 & 2015–16

Date of Order: 30th May, 2024

Section: 153D

An assessment order passed, in search cases, without obtaining approval of the Joint Commissioner under section 153D is void. Failure on the part of the department to produce a copy of the approval gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with the law or not.

FACTS

The assessments of the assessee company for AY 2010–11 to 2015–16 were completed by the Assessing Officer (AO). Aggrieved by the assessments so made, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals) who vide his order dated 30th November, 2017 decided some of the grounds in favour of the assessee and some of the grounds were decided against the assessee.

Aggrieved by the order passed by CIT(A), the assessee preferred an appeal to the Tribunal. In the course of appellate proceedings before the Tribunal, the assessee filed an application under Rule 11 of the Income-tax Appellate Tribunal Rules, 1963 for admission of additional grounds which inter alia had the following as an additional ground —

“5. That, on the facts and circumstances of the case and in law, the approval under section 153D of the Act is mechanical and without application of mind and thus the impugned assessment order is illegal, bad in law and liable to be quashed.”

It was only ground no. 5 out of the additional grounds filed which was pressed and since the same raised purely a question of law, the Tribunal admitted the same.

HELD

Upon the Revenue not being able to produce a copy of the approval granted by the Range Head under section 153D of the Act, it was contended that as there is no order available with the Department for the purpose of section 153D of the Act, presumption has to be drawn that no such order was passed and in the absence of such order the assessment concluded in the relevant assessment years under section 153A read with section 143(3) of the Act are void. For this proposition reliance was placed on the decision of the Delhi High Court in the case of Rajsheela Growth Fund (P.) Ltd. vs. ITO [ITA No. 124/202 and other judgment dated 8th May, 2024].

On behalf of the revenue, reliance was placed on concluding para 7 of the assessment order and it was submitted that there is a reference of letter No. Jt. CIT/C.R.-1/153D Appr./2016–17/1025 dated 26th December 2016, by which approval was given, so it is not correct to contend that there was no approval under section 153D of the Act.

The Tribunal held that it is now a settled proposition of law that prior approval of competent authority under section 153D of the Act is mandatory and the same is required to pass rigour of the law, to show that the approval was granted after due consideration of the assessment record and it was not a mechanical approval.

In spite of giving reasonable and sufficient opportunities to the department, AO failed to produce any copy or other evidence of the existence of the approval. That only gives rise to a presumption that there was no approval at all. In the absence of the same, no conclusion can be drawn if the approval was in accordance with law or not but to hold that the assessments in hand were concluded without the requisite approval under section 153D of the Act.

The Tribunal allowed additional ground no. 5 with a caveat that, in case the department is able to lay hand on any evidence showing existence and content of approval, application may be filed for re-calling this order and to contest this issue afresh on merits along with other issues raised in respective appeals.

The Tribunal allowed the appeals of the assessee.

Amendment to Ind AS 12 – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

WHAT IS THE ISSUE?

MCA issued amendments to Ind AS 12 Income Taxes in order to address potential issues of inconsistency and interpretation by users in respect of the initial recognition exemption (“IRE”) detailed in paragraphs 15 and 24 of Ind AS 12 (for deferred tax liabilities and assets respectively).

Ind AS 12 contains exceptions from recognising the deferred tax effects of certain temporary differences arising on the initial recognition of some assets and liabilities, generally referred to as the ‘initial recognition exception’ or ‘IRE’. Prior to amendment views differed on whether (and to what extent) the IRE applied to transactions and events, such as leases, that lead to the recognition of an asset and a liability.

The amendments introduce an exception to the initial recognition exemption in Ind AS 12. Additional exclusions have been added to the IRE, detailed in paragraphs 15(b)(iii) and 24(c) for deferred tax liabilities and assets respectively. Applying this exception, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences – such that deferred taxes are calculated and booked for both temporary differences, both at initial recognition and subsequently. Only if the recognition of a lease asset and lease liability (or decommissioning liability and decommissioning asset component) give rise to taxable and deductible temporary differences that are not equal, would the IRE be applied.

Example

  • An entity (Lessee) enters into a five-year lease of a building.
  • The annual lease payments are ₹100 payable at the end of each year.
  • Advance lease payments and initial direct costs are assumed to be nil.
  • The interest rate implicit in the lease cannot be readily determined. Lessee’s incremental borrowing rate is 5 per cent per year.
  • At the commencement date:
  • Lessee recognises a lease liability of ₹435 (measured at the present value of the five lease payments of ₹100, discounted at the interest rate of 5 per cent per year) ,
  • Lessee measures the right-of-use asset (lease asset) at ₹435, comprising the initial measurement of the lease liability (₹435).

 

  • Tax law:
  • The tax law allows tax deductions for lease payments when an entity makes those payments.
  • Economic benefits that will flow to Lessee when it recovers the carrying amount of the lease asset will be taxable.
  • A tax rate of 20 per cent is expected to apply to the period(s) when Lessee will recover the carrying amount of the lease asset and will settle the lease liability.
  • After considering the applicable tax law, Lessee concludes that the tax deductions it will receive for lease payments relate to the repayment of the lease liability.

Deferred tax on the lease liability and related component of the lease asset’s cost:

  • At the inception:
  • The tax base of the lease liability is NIL because Lessee will receive tax deductions equal to the carrying amount of the lease liability (₹435).
  • The tax base of the related component of the lease asset’s cost is also NIL because Lessee will receive no tax deductions from recovering the carrying amount of that component of the lease asset’s cost (₹435).
  • The differences between the carrying amounts of the lease liability and the related component of the lease asset’s cost (₹435) and their tax bases of nil result in the following temporary differences at the inception:
  • a taxable temporary difference of ₹435 associated with the lease asset; and
  • a deductible temporary difference of ₹435 associated with the lease liability.
  • IRE does not apply because the transaction gives rise to equal taxable and deductible temporary differences.
  • Lessee concludes that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.
  • Lessee recognises a deferred tax asset and a deferred tax liability at inception, each of ₹87 (₹435 × 20 per cent), for the deductible and taxable temporary differences.

TRANSITIONAL PROVISIONS

98J Deferred Tax related to Assets and Liabilities arising from a Single Transaction, amended paragraphs 15, 22 and 24 and added paragraph 22A. An entity shall apply these amendments in accordance with paragraphs 98K–98L for annual reporting periods beginning on or after 1st April, 2023.

98K An entity shall apply Deferred Tax related to Assets and Liabilities arising from a Single Transaction to transactions that occur on or after the beginning of the earliest comparative period presented.

98L An entity applying Deferred Tax related to Assets and Liabilities arising from a Single Transaction shall also, at the beginning of the earliest comparative period presented:

(a) recognise a deferred tax asset — to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised — and a deferred tax liability for all deductible and taxable temporary differences associated with:

(i) right-of-use assets and lease liabilities; and

(ii) decommissioning, restoration and similar liabilities and the corresponding amounts recognised as part of the cost of the related asset; and

(b) recognise the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date.

EXAMPLE

Entity X recognised a provision for the decommissioning of a nuclear plant in 2011 for ₹9,00,00,000; it capitalised the associated expenses as an asset and depreciated this over the 60-year expected period of use until decommissioning is required. The tax rules allow for deduction of these expenses on a cash basis. At the time of the transaction, Entity X applied the IRE to both the asset and liability separately, therefore, no deferred tax has ever been accounted for in relation to this transaction. The decommissioning provision has been discounted in accordance with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets. The table below shows the associated carrying values of the provision and asset at relevant dates:

Date Carrying value of provision () in million Deferred tax asset at 20 per cent () in million Carrying value of asset () in million Deferred tax liability at 20 per cent () in million
1st April, 2011 90.0 18.0 90.0 18.0
1st April, 2022 170.8 34.2 73.6 14.7

Entity X adopts the Ind AS 12 amendments in its financial statements for the year ended 31st March, 2024, with the
beginning of the earliest period presented being 1st April, 2022. The required accounting entry on the date of transition (1st April, 2022) is:

Dr deferred tax asset ₹34.2m

Cr deferred tax liability ₹14.7m

Cr retained earnings ₹19.5m

If Entity X had, instead, previously recognised deferred tax on a net basis (i.e., assessed the temporary differences net), then, brought forward, as at 1st April, 2022 it would already be carrying a deferred tax asset of ₹19.5m. In which case, the required accounting entry on transition (1st April, 2022) is:

Dr deferred tax asset ₹14.7m

Cr deferred tax liability ₹14.7m

That is, there would be nil impact on opening retained earnings.

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

21 Culver Max Entertainment Pvt. Ltd. vs. ACIT

ITA Nos. 7685/Mum/2019 and 925/Mum/2021

Assessment Years: 2015–16 & 2016–17

Date of Order: 02nd May, 2024

Section: 199

The resulting company in case of demerger and the Transferee Company in the case of transfer are eligible to claim TDS credit, even if the TDS certificates are in the name of the demerged company / Transferor Company.

FACTS

MSM Satellite (Singapore) Pte Ltd. (MSN Singapore) a wholly owned subsidiary of the assessee purchased, in March 2005, a TV channel named “SAB TV” from a company named Shri Adhikari Brothers. Subsequently, during the financial year 2014–15 MSN Singapore demerged its broadcasting business and the same was taken over by the assessee herein. The demerger scheme was sanctioned by the Bombay High Court on 10th January, 2014 and it came into effect on 1st April, 2014.

Upon completion of the assessment u/s 143(3) r.w.s. 144C of the Act in pursuance of the directions given by the Dispute Resolution Panel, the assessee preferred an appeal to the Tribunal. One of the grounds of the appeal was with regards to the non-granting of TDS to the tune of ₹8,13,81,645.

On behalf of the assessee, it was submitted that the TDS credit was not given by the Assessing Officer (AO) for the reason that the TDS certificates were not in the name of the assessee, but it was in the name of amalgamated / demerged company. The contention was that the relevant income has already been assessed in the hands of the assessee and hence the TDS deducted from the said income should be allowed credit in the hands of the assessee.

HELD

The Tribunal noted that in the following cases, in identical circumstances, the AO has been directed to allow TDS credit —

(a) Popular Complex Advisory P. Ltd. vs. ITO [ITA No. 595/Kol./2023; order dated 22nd August, 2023];

(b) Adani Gas Ltd. vs. ACIT [ITA Nos. 2241 & 2516/Ahd./2011; order dated 18th January, 2016];

(c) Ultratech Cement Ltd. vs. DCIT [ITA No. 1412/Mum./2018 & Others; order dated 14th December, 2011]

The Tribunal observed that —

(i) In the above-mentioned cases, the co-ordinate benches have held that the resulting company in the case of demerger and transferee company in the case of transfer, are eligible to claim TDS credit, even if the TDS certificates are in the name of demerged company / transferor company;

(ii) The assessee has offered the relevant income, even though the TDS certificates were in the name of demerged company.

Following the above decisions, the Tribunal directed the AO to allow TDS credit to the assessee after verifying that the relevant income has been assessed by the AO this year.

Exchange Rate to Be Used For Computation of Capital Gains In The Case Of Cross-Border Transactions Involving Transfer of Shares

With the removal of exemption for capital gains arising on transfer of shares under the Indian tax treaties (DTAA) with Mauritius, Singapore and Cyprus, gains arising on such transfer, in most cases, would now be taxed in the country of source. Further, there have been certain significant judgments which raise pertinent issues in respect of computation of capital gains arising on the transfer of shares in a cross-border scenario. Some of these judgments are in respect of domestic provisions in the Income Tax Act, 1961 (ITA) related to the computation of capital gains in a cross-border scenario whereas some are related to computation or eligibility of claim under the DTAA.

In this article, the authors have sought to analyse the issues related to the exchange rate to be used for computation of capital gains in the case of a cross-border scenario. These issues are dealing with the domestic provisions under the ITA and the Income Tax Rules, 1962 (Rules).

EXCHANGE RATE FOR COMPUTATION OF CAPITAL GAINS

An important issue in recent times has been related to the exchange rate to be used for the purpose of computing capital gains. There have been a couple of recent judgments, both by the Mumbai bench of the ITAT, which have discussed these issues at length. The issue of exchange rate to be used in the case of capital gains arises in both type of transactions — when a resident sells the shares of a foreign company as well as when a non-resident sells the shares of an Indian company. However, while the broad principle would apply in both the transactions, as the provisions of the ITA differ slightly in each of the above transactions, each transaction has been analysed separately.

a. Inbound

In this type of transaction, a non-resident is selling shares of an Indian company. The main issue in this type of transaction is the interplay of sections 48 and 112 of the ITA and Rule 115/115A of the Rules.

Let us take an example to understand this issue further. US Co, a US company, had acquired shares of I Co, an Indian unlisted private company, in 2014 when the exchange rate was 1 USD = INR 60. During FY 2024–25, these shares are sold to a UK-based company, when the exchange rate is 1 USD = INR 85. The computation of capital gains would be as follows:

Particulars Amount in USD Exchange Rate Amount in INR
Sales consideration 80,000 85 68,00,000
(-) Cost of acquisition 100,000 60 60,00,000
Capital Gains (20,000) 8,00,000

As can be seen from the computation above:

a. If one computes the capital gains in USD terms there is a loss; whereas

b. If one computes the capital gains by converting the cost of acquisition and the sales consideration at the exchange rate prevalent at the time of acquiring or transfer of the shares, respectively, it results in a gain.

Therefore, one can say that the gain is primarily on account of the difference in the exchange rates on both the dates.

The first proviso to section 48 of the ITA, which provides the mode of computation of capital gains, states as follows:

“Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company:..”

Therefore, the proviso requires one to convert the cost of acquisition as well as the sales consideration into foreign currency, compute the capital gains in foreign currency and then recompute the gains arrived in this manner, into INR.

Rule 115A of the Rules provides further guidance in case of sale of shares by a non-resident Indian. Rule 115A requires one to compute the capital gains in this manner:

(i) Convert the cost of acquisition into foreign currency at the rate as on the date of acquisition (USD 100,000 in the said example).

(ii) Convert the expenditure incurred in connection with the transfer as well as the full value of consideration into foreign currency at the rate as on the date of transfer of the capital asset (USD 80,000 in the said example).

(iii) Reconvert the capital gains into INR at the rate as on the date of transfer (loss of USD 20,000 converted to loss of INR 17,00,000).

While Rule 115A applies only to non-resident Indians and not all non-residents or foreign companies, in the view of the authors, one may be able to apply the same principle in the case of all non-residents.

Section 112(1)(c) of the ITA, which provides the rate of tax on long-term capital gains in the hands of a non-resident (other than a company) or a foreign company, states as follows:

“(1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head ‘Capital gains’, the tax payable by the assessee on the total income shall be the aggregate of, –

(a)..

(c) in the case of a non-resident (not being a company) or a foreign company, –

(i) …

(ii) …

(iii) the amount of income-tax on long-term gains arising from the transfer of a capital asset, being unlisted securities or shares of a company not being a company in which the public are substantially interested, 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; (emphasis added)

Therefore, in the case of transfer of unlisted shares of an Indian company by a non-resident or a foreign company, section 112 provides that the tax is to be computed on an income without giving effect to the first and second proviso to section 48 of the ITA. If one computes the gains without giving effect to the first proviso to section 48 of the ITA in the above example, it will result in taxable long-term capital gains of INR 8,00,000.

The question which arises is which section should one apply while computing the capital gains in the case of a non-resident or a foreign company, which is transferring unlisted shares of an Indian company — section 48 or 112(1)(c) of the ITA?

This issue has been evaluated by the Mumbai ITAT in the case of Legatum Ventures Ltd vs. ACIT (2023) 149 taxmann.com 436, wherein, on similar facts as our example above, the ITAT held that in such a situation, section 112 would apply and not section 48. The relevant extracts of the reasoning provided by the ITAT is as follows:

“17. From the perusal of section 112 of the Act, forming part of Chapter XII – Determination of Tax in Certain Special Cases, we find that though the said section deals with the determination of tax payable by the assessee on the total income which includes any income arising from the transfer of a long-term capital asset chargeable under the head ‘capital gains’. However, in the case of a non-resident (not being a company) or a foreign company, sub-clause (iii) of clause (c) to sub-section (1) also provides the mode of computation of capital gains. As per section 112(1)(c)(iii) of the Act, in case of a non-resident, capital gains arising from the transfer of a long-term capital asset, being unlisted securities or shares of a company in which public are not substantially interested, shall be computed without giving effect to 1st and 2nd proviso to section 48 of the Act. The aforesaid section further provides a tax rate of 10% on the capital gains so computed. Therefore, we are of the considered opinion that section 112(1)(c)(iii) is a special provision for the computation of capital gains, in case of a non-resident, arising from the transfer of unlisted shares and securities. While, on the other hand, section 48 of the Act is a general provision, which deals with the mode of computation of capital gains in all the cases of transfer of capital assets. Further, section 112(1)(c)(iii) of the Act does not provide for ‘re-computation’ of capital gains for levying tax rate of 10%. Since section 112(1)(c)(iii) is the specific provision, therefore, in case the ingredients of the said section, i.e. (i) in case of non-resident or foreign company; (ii) long-term capital gains arise; (iii) from the transfer of unlisted shares or securities of a company not being a company in which public are substantially interested, are fulfilled, capital gains is required to be computed as per the manner provided under the said section. It is a well-settled rule of interpretation that if a special provision is made respecting a certain matter, that matter is excluded from the general provision under the rule which is expressed by the maxim ‘Generallia specialibus non derogant’. Further, it is also a well-settled rule of construction that when, in an enactment, two provisions exist, which cannot be reconciled with each other, they should be so interpreted that, if possible, the effect should be given to both. Therefore, if the submission of the assessee that in the present case the income chargeable under the head ‘capital gains’ is to be computed only as per section 48 of the Act is accepted, then the same would render the computation mechanism provided in section 112(1)(c)(iii) of the Act completely otiose and redundant.

18. In view of the above, we also find no merits in the assessee’s submission that if the case of the assessee is governed under two provisions of the Act, then it has the right to choose to be taxed under the provision which leaves him with a lesser tax burden. In the present case, the capital gains has to be computed only by reference to provisions of section 112(1)(c)(iii) of the Act. Further, it cannot be disputed that if as per section 112(1)(c)(iii), the 1st and 2nd proviso to section 48 of the Act are not given effect, the assessee will have a long-term capital gains of Rs. 17,13,59,838 from the sale of unlisted shares of the Indian company. Therefore, we find no infirmity in the orders passed by the lower authorities taxing the long-term capital gains of Rs. 17,13,59,838 as per section 112(1)(c)(iii) of the Act.”

Therefore, the ITAT held that section 112 is a special provision and would override section 48, which is a general provision under the ITA.

With utmost respect to the Hon’ble ITAT, in the view of the authors, the above decision did not consider a few aspects, discussed in detail in the ensuing paragraphs, which could have an impact on the issue at hand.

i. At the outset, section 48 lays down the computation mechanism whereas section 112 prescribes the rate of tax. As both sections operate on different aspects and one needs to give impact to both the sections when one is finally computing the tax payable. Therefore, if one takes a harmonious reading of the law, one cannot state that either section should override the other.

ii. Section 112 of the ITA begins with the language “Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head ‘Capital gains’”. Therefore, for section 112 of the ITA to apply, there needs to be income which is chargeable under the head “Capital gains”. For the purpose of computing the capital gains, one would need to consider section 48 of the ITA, including the first proviso. If after computing the capital gains in accordance with the ITA, there is a loss, the question of applying section 112 of the ITA does not apply as the total income of the assessee does not include any income chargeable under the head “Capital gains”.

One may refer to the CBDT Circular 721 dated 13th September, 1995, wherein the application of section 112 in the set-off of losses under the other heads of income was discussed in detail. The relevant extracts of the said Circular are reproduced below:

“The above phraseology contains two significant expressions, ‘total income’ and ‘includes any income’. The total income is to be computed in the manner prescribed in the Income-tax Act. Set-off of loss as per the provisions of sections 70 to 80 is a stage which is part of this procedure. When this procedure is adopted for computing gross total income or total income, only the amount of income after set-off remains under a head as part of gross total income or total income. Only that amount of long-term capital gains which is included in the total income would be subject to tax at a prescribed flat rate. Thus, if there was a loss of Rs. 10,000 from business and there is long-term capital gains of Rs. 30,000, then after setting off of loss of Rs. 10,000 with long-term capital gains, only Rs. 20,000 would remain under the head ‘Capital gains’ to be included in the gross total income or total income. The flat rate of tax will be applicable in respect of Rs. 20,000 and not Rs. 30,000, since the amount of long-term capital gains included in that total income is Rs. 20,000. (Here it is assumed that the total income ignoring, long-term capital gains, is above the exemption limit).”

In the view of the authors, while the above circular is in the context of application of section 112 after set-off of the losses, it clearly lays down the manner of interpreting section 112 (the relevant portion of which has not been amended after this Circular), i.e., section 112 applies after the computation provisions have been given effect to. Therefore, the principles emanating from the Circular should also apply in the case interplay of section 112 and section 48 and allows one to give a harmonious reading of both the sections.

iii. Further, the ITAT applied the principle of “Generallia specialibus non derogant”, i.e., special provisions shall override the general provisions. While using this interpretation, it held that section 112(1)(c) specifically applies to non-residents whereas section 48 applies to all transfers. However, what should be considered is that the first proviso to section 48 is also a specific provision and applies only in the case of a non-resident transferring shares or debentures of an Indian company. In other words, both the sections [the first proviso to section 48 and section 112(1)(c)] are special provisions and not general provisions under the ITA.

iv. Another aspect to be considered while evaluating the above decision of the ITAT above is to compare it with the treatment provided to transfer of shares listed on a recognised stock exchange under section 112A of the ITA. In case of such gains also, the first and second proviso to section 48 of the ITA do not apply. However, the manner in which such exclusion has been implemented is by adding a separate proviso to section 48 itself and not in the taxing section 112A. The third proviso to section 48 of the ITA states as below:

“Provided also that nothing contained in the first and second provisos shall apply to the capital gains arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A:”

If a similar carve-out in section 48 was also provided for unlisted shares, taxable under section 112(1)(c), the ITAT decision could have been better appreciated. However, the fact that the legislature, in its wisdom, decided to carve-out the benefit of the first and second proviso in the section dealing with tax rate instead of that dealing with the computation would mean that its intention was different and has to be interpreted in a manner different than one would for section 112A.

v. If one follows the view of the ITAT, it could result in an absurdity wherein a situation of loss in foreign currency but gains in INR would be dealt with differently than loss in foreign currency as well as INR. In case of a loss in foreign currency as well as in INR, the provisions of section 112 of the ITA do not apply and for the purpose of the carry forward of the loss under section 74 of the ITA, one would consider the first proviso of section 48 for carrying forward such loss. Therefore, in the case of a profit due to exchange fluctuation, one would not apply the first proviso to section 48 whereas in the case of a loss, one would apply the first proviso to section 48, resulting in two different outcomes in two similar situations (loss in foreign currency).

vi. Lastly, if one views purely from a non-resident’s perspective, i.e., from the perspective of the US Co in this case, there is clearly a loss. In the above example, US Co had invested in I Co at USD 100,000 and received USD 80,000 in return. Therefore, while the value of the investment may have grown on account of the exchange rate fluctuation, it does not result in an actual profit or gain from US Co’s point of view.

Therefore, in the view of the authors, the only way one would be able to harmoniously apply both the sections without making either obsolete would be to first compute capital gains in accordance with section 48 (including the first proviso) and if the income in accordance with the said section is positive, apply the provisions of section 112 by recomputing the gains without giving effect to the first proviso to section 48. If the income, after computing in accordance with section 48, is a loss, then one need not apply section 112 of the ITA.

b. Outbound

Having analysed the case of a non-resident transferring the shares of an Indian company, one should also evaluate the issues arising in the transfer of shares of a foreign company by a resident. The main issue in this type of transaction is the interpretation of Rule 115 of the Rules.

Let us take a similar example as that above to understand this issue further. In this example, I Co, an Indian company, had acquired shares of US Co, a company incorporated in the US, in 2014 when the exchange rate was 1 USD = INR 60. During FY 2024–25, these shares are sold to a UK-based company, when the exchange rate is 1 USD = INR 85. The computation of the capital gains would be similar to above and as follows:

Particulars Amount in USD Exchange Rate Amount in INR
Sales consideration 80,000 85 68,00,000
(-) Cost of acquisition 100,000 60 60,00,000
Capital Gains (20,000) 8,00,000

Similar to the earlier example, I Co has made a loss in USD terms but a profit if one considers the exchange rate fluctuation.

In this situation, the first proviso to section 48 of ITA does not apply as it applies only in the case of a non-resident transferring the shares of an Indian company and not in the case of a resident transferring the shares of a foreign company. Similarly, section 112(1)(c) of the ITA also does not apply to this transaction.

Rule 115 of the Rules, which deals with the exchange rate to be used for conversion into INR of income expressed in foreign currency, provides as under:

“(1) The rate of exchange for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date.

Explanation.—For the purposes of this rule,—

(1) ‘telegraphic transfer buying rate’ shall have the same meaning as in the Explanation to rule 26;

(2) ‘specified date’ means—

(a) …
(b)…

(c) in respect of income chargeable under the heads ‘Income from house property’, ‘Profits and gains of business or profession’ not being income referred to in clause (d) and ‘Income from other sources’ (not being income by way of dividends and ‘Interest on securities’), the last day of the previous year of the assessee

(f) in respect of income chargeable under the head ‘Capital gains’, the last day of the month immediately preceding the month in which the capital asset is transferred:

Provided that the specified date, in respect of income referred to in sub-clauses (a) to (f) payable in foreign currency and from which tax has been deducted at source under rule 26, shall be the date on which the tax was required to be deducted under the provisions of the Chapter XVII-B.

(2) Nothing contained in sub-rule (1) shall apply in respect of income referred to in clause (c) of the Explanation to sub-rule (1) where such income is received in, or brought into India by the assessee or on his behalf before the specified date in accordance with the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973).”

The issue which arises is whether Rule 115 shall apply in a situation where the income accruing as a result of a transfer has been received in India — whether the exchange rate for the currency in which the transfer was effectuated and therefore, income accruing, is to be considered or does Rule 115 not apply as the income is received in India.

One of the key decisions on Rule 115 is that of the Supreme Court in the case of CIT vs. Chowgule & Co. Ltd (1996) 218 ITR 384, wherein the Apex Court held as follows:

“Rule 115 merely lays down that ‘for the calculation of the value in rupees of any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency’, the rate of exchange shall be the telegraphic transfer buying rate of such currency as on the specified date. Explanation (2) has clarified that the ‘specified date’ will mean in respect of income chargeable under the heading of ‘Profits and gains of business or profession’, the last day of the previous year of the assessee. This only means that if an assessee is assessable in respect of any income accruing or arising or deemed to have accrued or arisen in foreign currency or has received or deemed to have received income in foreign currency, then such foreign currency shall be converted into rupees notionally at the telegraphic transfer buying rate of such currency as on the last day of the previous year of the assessee. If on the last day of the previous year, the assessee does not have any foreign currency in his hand or the assessee is not entitled to receive any foreign currency, then there is no question of conversion of such foreign currency into rupees. It is only the foreign currency which will have to be converted into rupees. But, if the foreign currency received by an assessee has been converted into rupees before the specified date, question of application of rule 115 does not arise. Rule 115 does not lay down that all foreign currencies received by an assessee will be converted into rupees only on the last day of the accounting period. Rule 115 only fixes the rate of conversion of foreign currency. If there is no foreign currency to convert on the last day of accounting period, then no question of invoking rule 115 will arise. The assessee in this case is agreeable to have the outstanding amount of foreign currency payable to him at the rate of exchange prevalent on the last day of the previous year of the assessee. But this rule cannot apply to the amounts received by the assessee in course of the accounting period in rupees. Clause (2), which was introduced on 1-4-1990, is really clarificatory and does not bring about any change in rule 115.”

Therefore, the SC held that Rule 115 would have no implication if the income has been brought into India as on the last day of the previous year. The SC further held that Rule 115(2) of the Rules is merely clarificatory and does not bring about any change in Rule 115. This would, therefore, mean that in the case of capital gains, if the sales consideration (of which the income is a part) is brought into India before the last date of the previous year, the rate at which the income was brought into India would be considered for computing the capital gains.

In the view of the authors, the above SC decision is to be read in the context of the facts which were before the Apex Court. The facts of that case were in respect of business income, wherein the Rule itself provides for the exchange rate on the last date of the previous year to be applied. Therefore, one may be able to distinguish that the principle laid down by the SC in the above decision would not apply to other streams of income where a different date for considering the exchange rate is to be considered — for example, in the case of capital gains, on the last date of the month preceding the month of transfer.

Another point which needs to be considered is the language of Rule 115 which deals with exchange rate for “income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency”. Therefore, when the Rule itself distinguishes between income accrued and income received, considering the rate at which the income was brought into India and not at which the income was accrued, may not be in line with the Rule. Similarly, if one takes a view that the observation of the SC, that Rule 115(2) is clarificatory, should apply to all streams of income and not just business income, it may be considered as against the intention of the Rule which provides for the rate at which income was brought into India only for business income, income from house property, income from other sources (other than dividend) and interest on securities.

Therefore, in the view of the authors, the above SC decision may not apply to the case of capital gains. Secondly, even if one needs to consider the above SC decision and take the exchange rate as on the date on which it was brought into India, the said exchange rate would apply on the ‘income’ component, which is capital gains and therefore, one need not convert the cost of acquisition and sales consideration separately.

In the context of capital gains, one may refer to the recent decision of the Mumbai ITAT in the case of ICICI Bank Ltd vs. DCIT (2024) 159 taxmann.com 747. In the said case, the assessee had invested in foreign subsidiaries and some of the subsidiaries had been sold while some of the investments were redeemed during the year. As per the limited facts provided in the judgement, the sales consideration was accruing in foreign currency and received in India. The Pr. CIT, while passing an order under section 263, held that indexation of cost is available only when capital assets are acquired in Indian currency. The Pr. CIT further computed the income by converting the cost of acquisition and sales consideration at the exchange rate on the date of acquisition and date of sale, respectively, and held that the investment was made in INR and, therefore, indexation was computed on the gains computed in INR as stated above. The ITAT upheld the order under section 263 and held as follows:

“…. The assessee has sold the shares of the subsidiary company to another entity for a consideration of Russian rubles Rs. 122,49,51,818. This was purchased by the assessee for Russian ruble Rs. 183,12,16,035…..Undisputedly, all these acquisitions have been made by the assessee in Indian currency and sold and ultimately consideration was received in India in Rupees. The acquisition cost in INR was converted in to FC and sale in foreign currency was received in INR. The learned PCIT has given a reason that the order of the learned assessing officer is not in accordance with the concept of cost inflation index. In fact, assessee has not invested in foreign currency but in INR. Even the second proviso to section 48 is only with respect to Non-resident Assessee. By computing long term capital gain by incorrect method assessee has got the benefit of Foreign Exchange Fluctuation as well as cost inflation index both, which is not in accordance with Income-tax Act.”

While no detailed reasoning is provided, it seems that the ITAT has held that as ultimately the acquisition was made by converting INR into foreign currency and as the sales consideration, though in foreign currency, was received in India, the capital gains is to be computed by converting the cost of acquisition and sales consideration at the exchange rate prevailing on the date of purchase and sale, respectively.

Therefore, the ITAT effectively read Rule 115(2) even for capital gains and did not distinguish between “income accruing” and “income received”. As has been analysed above, in the view of the authors, such a position, with utmost respect of the ITAT, may need to be reconsidered on the basis of the arguments provided above. If the same is not reconsidered, in the view of the authors, the provisions of Rule 115 may become obsolete as income, would at some point of time, in the case of a resident, always be repatriated to India, in accordance with the rules under Foreign Exchange Management Act, 1999.

Therefore, in the view of the authors, if the income accruing as a result of transfer, is expressed in foreign currency, such income, being capital gains, would need to be converted in accordance with Rule 115, i.e., there would be a loss of USD 20,000 in the above example.

However, care needs to be taken that the income should be accruing in foreign currency and not in INR. The Bombay High Court in the case of CIT vs. E.R.Squibb & Sons Inc (1999) 235 ITR 1 held, while in an inbound scenario, where the sale price of the shares of an Indian company by a non-resident, as well as the RBI approval for the sale, was in INR, the income would not be said to be accruing in foreign currency and hence, Rule 115 would not apply. Therefore, for Rule 115 to apply in the case of capital gains, it is essential that the agreement in form as well as in substance, refer to the consideration to be received in foreign currency and not INR.

CONCLUSION

While the arguments provided above could help in distinguishing the decisions of the ITAT in the case of inbound investments as well as outbound investments, one may need to consider the possibility of litigation on this aspect as there is no favourable judicial precedent on the subject directly, taking the above arguments. Further, the Mumbai ITAT in the case of ICICI Bank (supra) has held, by upholding the order of the Pr. CIT under section 263, that indexation should apply only to investments in INR and not in case of income expressed in foreign currency. Such a view, not coming clearly from language of the second proviso to section 48 (which seems to apply to all transactions other than capital gains in the hands of a non-resident on sale of shares or debentures of an Indian company), would need a detailed evaluation.

Goods and Services Tax

HIGH COURT

23 Kalpana Cables Products Pvt. Ltd. vs.

Commissioner, Department of Trade and Taxes

(2024) 18 Centax 485 (Del.)

Dated 22nd April, 2024

Cancellation of registration cannot be done retrospectively by the department without providing any specific and justifiable reasons.

FACTS

Petitioner was a registered person engaged in the business of manufacturing PVC copper wires under GST law. Petitioner applied for cancellation of GST registration on 21st May, 2019, due to closure of business following director’s ill health. The respondent issued an order dated 5th June, 2020, rejecting the cancellation application without providing any reasons. Additionally, a show cause notice was issued on 1st September, 2020, stating that the taxpayer had not filed returns for a continuous period of six months. The petitioner was asked to appear for a personal hearing without specifying the date, time and reason. As a result, the petitioner could not represent itself before the respondent. Subsequently, an ex-parte order was passed, cancelling the GST registration retrospectively, with effect from 1st July, 2017 without assigning any reasons whatsoever. Aggrieved by this order, the petitioner filed a writ petition before the Hon’ble High Court.

HELD

Hon’ble High Court observed that petitioner’s GST registration was not liable to be cancelled retrospectively as there were no material facts on record justifying such action. The Hon’ble Court further held that discretion to cancel registration retrospectively must be exercised objectively and not arbitrarily. Accordingly, the Court directed that cancellation of GST registration would be effective from the date mentioned in the petitioner’s application. Thus, the impugned order was set aside, and writ petition was disposed of.

24 B. Kusuma Poonacha vs. Senior Intelligence Officer

(2024) 19 Centax 6 (Kar.)

Dated 20th February, 2024

Cash cannot be seized by Revenue during search operations as it does not fall under “goods” or “things” as envisaged under section 67(2) of CGST Act, 2017.

FACTS

The Petitioner was an employee of M/s. Vihaan Direct Selling (India) Pvt. Ltd. The respondent searched residential premises of the petitioner and seized various goods along with cash amounting to ₹1,71,07,500. Additionally, the petitioner’s statement was recorded. However, following the seizure of goods and cash and the recording of the statement, no SCN was issued by the respondent and more than a year and a half has since elapsed. Aggrieved by the seizure of goods and cash, the petitioner filed a writ before this Hon’ble High Court.

HELD

Relying on various judgments, the Hon’ble High Court held that the term “things” mentioned under section 67(2) of CGST Act does not include cash / currency / money. Therefore, it cannot be seized during search and seizure, in terms of the aforesaid provision. Additionally, it was also held that seizure of documents or books or things is only for the purpose of inquiry or any proceedings under the Act and cannot be used to tax the seized goods. Lastly, as per section 67(7) of CGST Act, 2017, the respondent does not have the right to retain the subject cash for beyond six months. However, in the given case, more than one year has elapsed. Therefore, High Court quashed the impugned seizure order and directed the respondent to return the entire cash together with accrued interest.

25 Vela Agencies vs. Assistant Commissioner,

State Tax

(2024) 19 Centax 35 (Mad.)

Dated 26th April, 2024

An Order creating a demand cannot be issued based on a subject matter if no allegations regarding it were raised in SCN.

FACTS

The Petitioner discontinued its business operations as an Aircel distributor following the closure of Aircel Ltd. on
29th December, 2022. An SCN was issued to the petitioner, demanding ₹8,27,252, for alleged under reporting of sales in comparison to ITC availed. Subsequently, an impugned order was passed, creating a liability amounting to ₹14,97,702 along with an equivalent penalty. The additional demand of ₹6,69,820 was based on a comparison between GSTR 3B and GSTR 2A, which was not included in SCN. Aggrieved by the impugned order, the petitioner filed an appeal before the High Court.

HELD

The Hon’ble High Court observed that there must be consistency between the grounds raised in SCN and its corresponding Order passed subsequently. Since impugned Order was passed on a ground different from that raised in SCN, the Court set aside the impugned order. The writ petition was disposed of, granting the respondent liberty to initiate fresh proceedings.

26 Laxmi Construction vs. State Tax Officer,

CT & GST

(2024) 18 Centax 490 (Ori.)

Dated 9th May, 2024

Notice uploaded electronically via GST portal is a valid mode of service even though the notice was not physically served to the noticee.

FACTS

The petitioner was engaged in the business of works contract. On 1st October, 2021, the petitioner was issued an SCN alleging that the petitioner had rendered works contract service; however, the same was not reported in its GSTR 3B returns. Subsequently, an order was passed electronically and uploaded on the common portal on 7th December, 2021, confirming the demand. However, this order was not physically served to the petitioner. The time limit to file an appeal had already expired when the petitioner became aware of such an order and filed a writ before Hon’ble High Court.

HELD

Hon’ble High Court held that the order uploaded electronically was sufficient and a valid mode of service, and it was not mandatory for the respondent to serve it physically. Accordingly, the writ petition was dismissed.

27 Universal Relocations India Pvt. Ltd. vs.

State Of Tamil Nadu

2024 (19) Centax 43 (Mad.)

Dated 26th March, 2024

GST cannot be demanded mechanically on figures of trade payables and employee benefit expenses mentioned in financial statements.

FACTS

The petitioner was engaged in the business of relocation service. An SCN was issued raising a demand regarding trade payables and employee benefit expenses, based on the petitioner’s balance sheet. However, the petitioner contended that he did not receive any SCN and was not offered a personal hearing. Despite this, an impugned order was passed, confirming the demand. Aggrieved by the impugned order, the petitioner filed this petition before the Hon’ble High Court.

HELD

High Court held that there is a lack of clarity regarding the basis for imposing GST on total trade payables, where the turnover was taken directly from the balance sheet of the petitioner. Similarly, the basis for levying GST on employee benefit expenses, based on amounts from the petitioner’s profit and loss account, was not established. Accordingly, the impugned order was quashed, and the matter was remanded for reconsideration.

28 Mahesh Devchand Gala vs. Union of India

(2024) 18 Centax 525 (Bom.)

Dated 10th May, 2024

The detention of the petitioner on behalf of his company cannot extend overnight or beyond 24 hours under the pretext of recording a statement, especially considering the petitioner’s cooperation during the investigation and the complete discharge of the entire GST liability.

FACTS

In October 2021, a thorough fraud investigation was carried out against the petitioner, followed by several summons. During one of these instances, the petitioner was summoned to visit the respondent’s office where he was detained overnight and arrested by the police the next day. Later, he was presented before the magistrate. The petitioner contended that such an allegation was illegal and was delayed for 13 hours, without providing any reason. Aggrieved by the prolonged and unnecessary arrest, the present petition has been filed.

HELD

The High Court held that the investigation was conducted in 2021 and since then, the petitioner had cooperated with the authorities. Despite this cooperation, he was detained without any substantial reason for more than 24 hours. Additionally, the entire liability was discharged by the company.

The Court criticised the practice of detaining individuals overnight under the guise of recording of their statements, regardless of their willingness to co-operate. Relying on the case of Arnab Manoranjan Goswami vs. State of Maharashtra (2021) 2 SCC 427, the Court underscored the need for judicial scrutiny where the State potentially misuses criminal law. Accordingly, interim bail was granted, and the petition was disposed of.

29 M. Trade Links vs. Union of India

[2024] 163 taxmann.com 218 (Kerala)

Dated 4th June, 2024.

The Hon’ble High Court dismissed the challenge to the constitutional validity of section 16(2)(c) and section 16(4) of the CGST Act. The Court ruled that for the purpose of section 16(4), the deadline for filing GSTR 3B return for month of September is deemed to be 30th November of each financial year, retrospectively effective from 1st July, 2017. Thus, assessees who filed their returns for September on / or before 30th November will have their ITC claims considered as availed within the specified time limit under section 16(4), provided they are otherwise eligible for ITC.

FACTS

The petitioners challenged Sections 16(2)(c) and 16(4) of the Central Goods and Services Tax Act and State Goods and Services Act, 2017. The provisions were challenged inter alia on the following grounds:

(a) The recipient dealer cannot be burdened to ensure that the supplier of goods and services has paid the tax. Such a condition would be absolutely impossible for the recipient dealer to comply with. Further, the recipient dealer has no means to force the supplier to make the payment and therefore, the doctrine of impossibility would be applicable in such a situation.

(b) Where the revenue is able to recover the tax along with interest and penalty from the supplier dealer and also denied the claim of the input tax credit as the said tax would not get reflected in GSTR-2A, this situation would lead to unjust enrichment of the Government as on the same taxable transaction, the Government would collect tax from the recipient dealer and also from the supplier along with interest and penalty, as there is no provision for refunding the amount collected from the recipient in cases where the department successfully recovers the unpaid tax from the supplier who had defaulted.

(c) Section 16(2)(c) confers unchecked powers on the respondent authorities, to treat bona fide and genuine purchaser dealers and guilty purchasers alike.

(d) The claim of ITC is a right of the recipient dealer and not a concession given by the taxing authorities under the statute. The input tax credit under the GST Act is the property of the recipient dealer, and denying the credit for default of the supplier dealer would be violative of Article 300 of the Constitution.

HELD

The Hon’ble High Court held as under:

(i) The recipient dealer’s claim for ITC is in the nature of concession or entitlement. It is not an absolute right and is subject to the conditions and restrictions as per the scheme of the GST legislation. Hence, there is no substance in the submissions that section 16(1) of the GST Act provides an absolute right to claim Input Tax Credit and conditions in sub-section (2) of section 16 cannot take away the right conferred thereunder. Section 16(2) is the restriction on eligibility and section 16(4) is the restriction on the time for availing ITC.

(ii) The Scheme of the Act provides that only tax collected and paid to the Government could be given as input tax credit. Hence, permitting ITC without payment of tax would render the GST laws and schemes unworkable. The condition imposed by section 16(2)(c) is therefore neither unconstitutional nor onerous on the taxpayer. In order to claim ITC, each registered person has a reason and incentive to request documentation and tax payment compliance from the person behind him in the value-added tax chain to ensure that the ITC chain is not broken.

(iii) Section 16(1) is subject to section 49 and section 16(2)(c) is subject to section 41. Eligible ITC is self-assessed in the GSTR 3B return, and only then it is credited to the electronic credit ledger, which can be utilised for payment of tax.

(iv) Prior to the amendment to section 39, by the Finance Act 2022, the date for furnishing the return under section 39 was 30th September. Considering the difficulties in the initial stage of the implementation of the GST regime, its understanding, and compliance, the Legislature effected the amendment and extended the time for filing the return for September to 30th November in each succeeding Financial Year. The amendment is only procedural to ease the difficulties initially faced by the dealers / taxpayers. Therefore, where for the period from 1st July, 2017 till 30th November, 2022, if a dealer has filed the return after 30th September and the claim for ITC was made before 30th November, such ITC claim should also be processed if he is otherwise entitled to claim the ITC.

30 Annalakshmi Stores vs. Deputy State Tax Officer

[2024] 163 taxmann.com 469 (Madras)

Dated 10th June, 2024.

When the show cause notice was served on a temporary ID created by the department, treating the petitioner as unregistered person while carrying out proceedings under section 63 of the CGST Act and the assessment order was passed ex-parte, on a best judgment basis, the Hon’ble Court set aside the matter for reconsideration on payment of 10 per cent of disputed tax demand.

FACTS

The GST registration of the petitioner was cancelled on 8th February, 2019 with retrospective effect from

31st August, 2017, on the grounds that the petitioner had not filed his returns continuously for a period of six months. Thereafter, the assessment was completed under section 63 of the CGST Act. The petitioner submitted that the show cause notice in Form ASMT-14 was mandatory and that he was unaware of the issuance thereof as the said documents were uploaded by creating a temporary ID.

HELD

The Hon’ble Court observed that tax liability was computed on a best-judgment basis by drawing on the particulars available in the auto-populated GSTR-2A. By using the total purchase value as the basis, the taxable value was arrived at and freight and miscellaneous charges and gross profit were added thereon. This exercise was carried out without hearing the petitioner in person and without considering the petitioner’s objections. Hence, the impugned orders are set aside subject to the petitioner remitting 10 per cent of the disputed tax demand in respect of each assessment period permitting the petitioner to file a reply to tax proposals in the show cause notice on merits and provide personal hearing in the said matter.

31 Rahul Bansal vs. Assistant Commissioner of State Tax

[2024] 163 taxmann.com 32 (Calcutta)

Dated 15th May, 2024.

Where the petitioner filed an appeal in time; however, due to technical glitches, it was rejected as deficient, and on resubmission, it was rejected on the grounds of limitation as being filed beyond the prescribed period mentioned in section 107 of the CGST Act, the Hon’ble Court held that statutory right to challenge the order passed under section 129 (3) of the said Act cannot be defeated by reason of technical glitches and directed to restore the appeal.

FACTS

The petitioner challenged orders passed by the first Appellate Authority under section 107 of the CGST Act, rejecting the appeals filed by the petitioner on the grounds of limitation. Petitioner’s goods were detained and seized and a penalty order was passed in terms of section 129(3) of the CGST Act. The petitioner got the goods released upon payment of penalty and also filed an appeal against the said order, but the said appeal was rejected on the grounds that no amount of disputed tax / interest / penalty is mentioned in form GST APL-01. According to the petitioner, by reasons of a technical glitch, the petitioner could not insert the disputed amount in the “disputed tax” column which ultimately resulted in the auto-generated rejection of the appeal, by the issuance of form GST APL- 02. The petitioner filed another appeal by incorporating the disputed amount, but on this occasion, since the appeal was filed beyond the prescribed period of limitation for filing of the appeal, the said appeal was rejected. The petitioner submitted that having paid the amount of penalty, he could not have been called upon by the appellate authority to make payment of any pre-deposit.

HELD

The Hon’ble Court observed that although the petitioner’s appeal was filed within time, by reasons of technical glitches, the same was rejected. It held that the petitioner’s statutory right to challenge the order passed under section 129(3) of the said Act cannot be defeated by reason of technical glitches and restored the appeal.

32 Shree Sai Hanuman Smelters (P.) Ltd vs. Senior

Intelligence Officer, Directorate General

of Goods and Service Tax

[2024] 163 taxmann.com 436 (Madras)

Dated 3rd June, 2024

Where a person registered with State GST authorities received a summon from the Central GST authority, the Hon’ble Court held that a writ of mandamus cannot be issued to restrain the performance of a statutory duty, especially in the instant case, where it was not possible to ascertain whether the summon was issued in connection with the inquiry of the petitioner or third party.

FACTS

The petitioner received a summon under section 70 of the Central Goods and Services Tax Act, 2017 from the Senior Intelligence Officer of the CGST department, which was addressed to its Accountant. The petitioner challenged the said summon on the ground that the petitioner’s assessment has been allotted to the State GST authorities and hence, the impugned summon is invalid. The department contended that the summons is in relation to proceedings initiated against M/s. GBR.

HELD

The Hon’ble Court noted that at this juncture, it is not clear as to whether the summon relates to proceedings against M/s. GBR or Shree Sai Hanuman Smelters Private Limited. It held that section 70 of the CGST Act empowers an officer to summon any person whose attendance is necessary in relation to the relevant enquiry and thus a mandamus cannot be issued to restrain the performance of a statutory duty.

Recent Developments in GST

A. GSTN INFORMATION 

i) The Government has issued information dated 16th May, 2024, whereby the availability of a facility to register machines for Pan Masala and Tobacco is informed (GST SRM-1). Further, information in the above respect is given vide information dated 7th June, 2024, for making available the facility of Form GST SRM-2 for reporting the details of inputs and outputs procured and consumed for the relevant month.

ii) The CBIC has issued Instruction No.1/2024-GST dated 30th May, 2024 whereby guidelines for initiation of recovery proceedings (in exceptional cases), before three months from the date of service of demand order, are given.

iii) Vide Press Release dated 6th May, 2024 the appointment of Justice (Retired) Sanjay Kumar Mishra as the first president of GST Appellate Tribunal is informed.

iv) Advisory dated 28th May, 2024 is issued to inform about the launch of the E-way Bill 2 portal.

B. ADVANCE RULINGS

14  TDS liability on PSU

M/s. Ramagundam Fertilizers and

Chemicals Ltd. (AR Order No.A.R.Com/17/2023 dt. 2nd January, 2024 (Telangana)

The facts are that Ramagundam Fertilizers and Chemicals Limited (RFCL) was incorporated on 17th February 2015 as a public company to set up a natural gas-based ammonia urea complex along with offsite & utility facilities at Ramagundam. RFCL is formed as a Joint Venture Company of various Public Sector Undertakings like National Fertilizers Limited (NFL), Engineers India Limited (EIL) Fertilizer Corporation of India Limited (FCIL) (Promoters) and Govt. of Telangana with participation in equity and control over RFCL. It has set up a natural gas-based ammonia urea complex along with offsite & utility facilities at Ramagundam, Telangana. RFCL supplies urea to National Fertilizers Limited (NFL) and NFL supplies the same to the farmers. Section 51 of the CGST Act requires the notified person to pay GST TDS by deducting the same from its suppliers. The Government of India has notified persons under Clause (d) of Section 51(1) vide notification no.33/2017-CGST (Rate). The Government has also issued Notification No.73/2018-CGST to give exemption from the operation of TDS provisions under certain circumstances.

The applicant has raised the following questions before ld. AAR.

“1. Whether the applicant can be classified under notified persons under section 51 of CGST ACT 2017 read with Notification No. 33/2017 dated 15th September, 2017?

2. Whether the applicant is liable to pay GST TDS by deducting it from the consideration payable to the Supplies?

3. Whether the exemption notification is applicable for the transactions undertaken by the applicant if other applicable conditions remain satisfied?”

The applicant has presented sufficient material to prove that it is covered by section 51(1)(d). The ld. AAR observed that the applicant is established by the Government through the investment policy under the Ministry of Fertilizers as a consortium of nominated Public Sector Undertaking, and the same is approved by the Central Government. It is further noted by the ld. AAR that the revival of RFCL is made on the directions of the government and nominated a group of Public Sector Undertakings for investment purposes and accordingly, a significant part of shareholding is jointly or severally held by Public Sector Undertakings.

The ld. AAR came to the conclusion that the applicant is established by the Government under the Ministry of Fertilizer as a PSU and Cumulative shareholdings in the company i.e., 87.3 per cent belong to Central PSUs & the State Government of Telangana. Hence, the applicant falls under section 51 (1)(d) of the CGST Act. It is accordingly held that the benefit of notification no.73/2018 dt. 31st December, 2018 is available to the applicant and gave the following ruling.

Questions Ruling
1. Whether the applicant can be classified under notified persons under section 51 of CGST Act,2017 read with Notification no.33/2017 dated
15th September, 2017?
Yes
2. Whether the applicant is liable to pay GST TDS by deducting it from the consideration payable to the Supplies? If the recipient is falling under clauses (a), (b), (c) & (d) of the sub-section (1) of section 51 then the applicant supplier will not attract TDS.
3. Whether the exemption notification applicable for the transactions undertaken by the applicant if other applicable conditions remain satisfied? Same as in question (2) above.

15  Rate of tax on leasing of goods with the operator

M/s. Ventair Engineers (AR Order

No.A.R.Com/11/2023 dt. 9th January, 2024

(Telangana)

The applicant, M/s. Ventair Engineers are providing industrial equipment falling under HSN Codes: 84151090, 84798920, 84145930 on rent/leasing with operators and are charging GST tax at the same rate as applicable for such equipment as per the HSN code of equipment. The customers of the applicant took objection that it should be 18 per cent in all cases. To have clarification about the correct position, the following question was raised before the ld. AAR.

“Applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipments provided with operator falling under HSN Codes: 84151090, 84798920, 84145930.”

The ld. AAR referred to relevant notification no.11/2017, as amended up to 18th July, 2022. The ld. AAR noted that the entry at serial No. 17 enumerates heading 9973 & the service description for leasing or renting of goods is enumerated at sub-entry (vii a) & (viii) and reproduced the same as under:

(viia) Leasing or renting of Goods The same rate of central tax as applicable on supply of like goods involving the transfer of title in goods.
(viii) Leasing or rental services, without an operator, other than (i), (ii), (iii), (iv), (vi) and (viia) above. 9

The ld. AAR observed that as per sub-entry (viii), which enumerates leasing or renting of goods without an operator, a rate of tax of 18 per cent is attracted and since the applicant provides the services along with the operator it will not fall under this classification. The ld. AAR observed that the services of the applicant will fall under sub-entry (vii a) where Leasing or renting of goods is enumerated without reference to the operator. The ld. AAR concluded that as per this entry, the rate of tax is the same as the rate of CGST applicable on the supply of goods involved and accordingly confirmed the view of the applicant.

The learned AAR also referred to the HSN mentioned by the applicant. The Ld. AAR noted that HSN Code 84151090 covers Air Conditioning etc. which is liable to tax @ 28 per cent, as per notification no.1/2017 dt. 28th June, 2017, as amended from time to time.

The ld. AAR noted that the HSN Code 84145930 covers Industrial fans and are liable to tax @ 18 per cent vide Sr. no.317B to Schedule III of Notification 1/2017-CT(R) dated 28th June, 2017.

The ld. AAR also referred to HSN 84798920 which covers Air humidifiers or dehumidifiers and noted that as per Notification 01/2017, dated 28th June, 2017, the applicable Rate of tax is 12 per cent.

Accordingly, the ld. AAR replied by question as under:

Questions Ruling
Applicable GST Tax Rate on Rental / Leasing Charges for Industrial Equipment’s provided with operator falling under HSN Codes: The supplies of rental / leasing services made by the applicant fall under sub entry (viia) of entry of sl. no 17 of Notification 11/2017. Therefore, the rate of tax for the service shall be same as applicable on supply of such goods which are:
1. 84151090 CGST 14 per cent + SGST 14 per cent
2. 84798920 CGST 6 per cent + SGST 6 per cent
3. 84145930 CGST 9 per cent + SGST 9 per cent”

16  Recovery towards Canteen facility — Taxable

M/s. Sundaram Clayton Ltd. (AR Order No.107/AAR/2023

dt. 5th September, 2023 (TN)

The applicant, M/s. Sundaram Clayton Limited is engaged in the manufacture and supply of die-casting parts for use in automobiles. The applicant submitted that they have 3 plants which are located in three different districts of Tamil Nadu namely, Padi (Chennai), Oragadam (Chennai) and Belagondapalli (Hosur) and a registered Corporate Office in Chennai. The applicant is governed by the Factories Act, of 1948 and section 46 of the Factories Act applies to them. The applicant has to provide a canteen facility as per the above provisions. It is further informed that the canteen facility is provided by two models as under:

“a. Model I — Canteen operated by the Applicant (Padi) — Applicant runs the canteen, hired a cook who is their employee and food supplies are bought by the Applicant

b. Model II — Canteen run by a third party (Oragadam and Hosur) — Applicant avails canteen services from its subsidiary company namely Sundaram Auto Components Limited (SACL). There is a common canteen for food preparation operated by SACL. After the food is prepared, SACL sends the food to the Applicant’s dining area within the Applicant’s plant. SACL recovers charges for the canteen facility provided to the Applicant’s workers and the Applicant in turn recovers subsidized amount from its workers.”

The applicant also informed about the recovery of the subsidized amount from the workers/employees as under:

Plant Location Type of worker Recovery per month/day
Padi (own canteen) Regular R25 per month
Trainee R25 per month
Contractors R15 or 30/per day
Oragadam (SACL) Regular R5 per day
Trainee R5 per day
Security R15 per day
Contractors R30 per day
Hosur (SACL) Regular R5 per day
Trainee R5 per day
Contractors R15 per day

It was clarified that the cost over and above recovery is borne by the applicant.

The applicant was canvassing that they are not liable on the above recovery, based on the following contentions:

  • There is no legal intention to provide a canteen facility
  • The provision of taxability is not against consideration but it is a statutory obligation under the Factories Act.
  • It was also contended that the activity of providing a canteen facility does not fall under any of the clauses of the definition of ‘business’. It was submitted that the main business is the manufacture and supply of die-casting parts and the provision of a canteen facility is not incidental or ancillary to their main business.

Therefore, it was contended that there is no liability for recovery from employees. Several judgments and Advance Ruling are cited to support the above contention. The ld. AAR noted that the applicant has raised the following question.

“‘Whether recovery of subsidised value from employees for providing canteen facility

would (a) amount to ‘supply’ under the CGST Act and (b) whether the recovery

would attract GST under the following two models:

  • Model I — Canteen operated by the Applicant within the factory premises
  • Model II — Canteen run by Applicant’s subsidiary company operating within common premises for which the subsidiary company recovers charges from the applicant.”

The ld. AAR also noted the above contentions made by the applicant for non-liability. The ld. AAR referred to the appointment letter issued to employees and noted that there is a clause which mentions that the employee is entitled to use the canteen facility subject to recovery at specified charges.

The ld. AAR observed that the applicant is required to provide a canteen facility as per the Factories Act, 1948 and also required to bear canteen costs. The ld. AAR referred to the definition of ‘business’ in section 2(17) of the CGST Act and reproduced the same as under:

““Business” includes:

(a) any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity, whether or not it is for a pecuniary benefit:

(b) any activity or transaction in connection with or incidents or ancillary to sub-clause (a);”

The ld. AAR observed that the canteen is established as per the Factories Act and hence it is an activity in furtherance of the business.

The ld. AAR also made reference to the term ‘Outward supply’, as defined in Section 2(83) of the CGST Act, 2017 and reproduced the same as below:

“‘Outward Supply’ in relation to a taxable person, means the supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business”.

Supply made by a taxable person in the course or furtherance of business is an ‘Outward supply’. The ld. AAR observed that establishing a canteen is in the furtherance of the business of the applicant and the provision of food in the canteen for a nominal cost is ‘Supply’ for the purposes of the GST Act.

Regarding the contention of applicant that there is no consideration but reimbursement of cost, the ld. AAR referred to the term ‘Consideration’ as defined in Section 2(31) of the CGST Act, 2017 and reproduced the same as under:

“‘Consideration’ in relation to the supply of goods or services or both includes, —

a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.”

The ld. AAR held that the applicant supplies food to their employees at a nominal cost, and the same
is the consideration for such supply made by the Applicant on which GST is liable to be paid. The judgments cited by the applicant were not applicable. The ld. AAR also held that the provision of food/drinks in the canteen is service as per Clause 6 of Schedule II to the CGST Act.

The ld. AAR also observed that circular no.172/04/2022-GST DT. 6th July, 2022 does not contemplate excluding the canteen facility from taxation. It is only perquisites which are sought to be excluded from taxation. The ld. AAR held that perquisites are non-cash benefits attached to an office or position of employee and cannot apply to a canteen facility which is against consideration.

The ld. AAR thus rejected all contentions of the applicant and held that GST is to be levied on the amount received by the applicant from the employees towards canteen provision.

In respect of Model II, the further argument was that the applicant is merely an agent and hence not liable for reimbursement from employees. However, the ld. AAR rejected the said argument also on the ground that the third person is providing services to the applicant and it is the applicant who provides further provides said services to employees. So this activity is also taxable, held the ld. AAR. Regarding citations, the ld. AAR held that such advance rulings passed by advance ruling authority and appellate authorities cannot be generalized and applied to all cases as they are binding only on the applicant of that Advance Ruling.

The ld. AAR gave the ruling as under:

Question: Whether recovery of subsidized value from employees for providing canteen facility would (a) amount to ‘supply’ under the CGST Act and (b) whether the recovery would attract Goods and Services Tax (GST), under the following two models:

(i) Canteen operated by the Applicant within the factory premises

(ii) Canteen run by Applicant’s subsidiary company operating within common premises

Answer: For both the models, recovery of subsidised value from employees for providing canteen facility will amount to ‘supply’ under the CGST Act and GST is to be levied on the amount recovered by the Applicant from the employees towards provision of canteen facility.”

17  Canteen Facility – Non-Taxable

M/s. Kolher India Corporation Pvt. Ltd.

(AR Order No. GUJ/GAAR/R/2024/03

(in application no. AR/ SGST & CGST/2023/AR/19)

dt. 5th January, 2024 (Guj)

The applicant, M/s. Kohler India Corporation P. Ltd. is engaged in the manufacturing of plumbing products for kitchens & bathrooms. Their manufacturing facility is in Gujarat and is governed by the provisions of the Factories Act, of 1948.

To comply with this requirement of providing canteen facilities, the applicant entered into a contract with a canteen service provider (for short — ‘CSP’) to provide canteen facilities to their workers at their factory premises.

The CSP raises the invoice along with applicable GST for its canteen services. The invoice is raised by the CSP on the basis of the consumption by the employees of the applicant, which is tracked based on employees of the applicant who avail the canteen facility. A part of the canteen charges is borne by the applicant whereas the remaining part is borne by their employees, which is collected from employee’s salaries and paid to the CSP.

The applicant has relied upon the scope of section 7 of GST and further relied upon various Advance Rulings and judgments and press releases dated 10th July, 2017 as well as circular no.172/04/2022-GST dt, 6th July, 2022.

The applicant also raised the issue about eligibility to ITC. With the following questions were raised before the ld. AAR.

“(i) Whether the subsidized deduction made by the applicant from the employees who are ultimate recipients of the canteen facility provided in the factory / corporate office would be considered as ‘supply’ under the provisions of section 7 of the CGST Act, 2017 and the GGST Act, 2017?

(ii) If the answer to the above is affirmative, the value at which the GST is payable?

(iii) Whether the Company is eligible to take the ITC for the GST charged by the CSP for canteen services, where the canteen facility is mandatory in terms of section 46 of the Factories Act, 1948.”

About canteen recovery, after examination of the given submission, the ld. AAR observed as under:

“Now in terms of Circular No. 172/04/2022-GST, it is clarified that perquisites provided by the ‘employer’ to the ‘employee’ in terms of the contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same is provided in terms of the contract between the employer and employee. We find that factually there is no dispute as far as [a] the canteen facility is provided by the applicant as mandated in Section 46 of the Factories Act, 1948 is concerned; and [b] the applicant has provided a sample copy of the HR Manual [only one page] reproduced supra. In view of the foregoing, we hold that the deduction made by the applicant from the employees who are availing food in the factory would not be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017.”

Thus, it is held that recovery towards the canteen facility is not taxable.

In view of the above, the ld. AAR held that the second question becomes infructuous.

The ld. AAR also dealt with the issue of eligibility for ITC. The ld. AAR held that Input Tax Credit will be available to the applicant with respect to food and beverages as it is obligatory for the applicant to provide a canteen facility under the Factories Act, 1948, read with Gujarat Factories Rules, 1963. The ld. AAR further held that the ITC on GST charged by the CSP will be restricted to the extent of cost borne by the applicant.

18  Classification — Seat covers for motorcycles

M/s. Lion Seat Cushions Pvt. Ltd. (AR Order

No.105/AAR/2023 dt. 5th September, 2023 (TN)

The facts are that the applicant is a manufacturer of Two-wheeler Seat Covers for bikes and scooters. The applicant has sought an Advance Ruling regarding the tax rate on the goods manufactured by them i.e., whether the GST rate of 28 per cent collected and paid for two-wheeler seat covers for Bikes and Scooters under HSN code 87089900 is correct or not?

The applicant submitted that the issue has arisen as other similar manufacturers collect tax @18 per cent under HSN code 9401 2000 or 5 per cent under HSN code 87149990. The applicant narrated that the customers are not buying the said two-wheeler seat covers from the applicant and resisting paying 28 per cent charged by them, referring to the other dealers who are charging lower rates on the same product. Applicant prayed to decide the correct rate.

The department authorities claimed that the goods are covered by heading 8711 or 8714 and levying the rate at 28 per cent is correct.

The ld. AAR examined the above classification under different headings given by the applicant i.e., 8708 9900, 9401 2000 and 8714 9990.

After a detailed examination of the classification under the above heading, the ld. AAR observed its own interpretation as under:

“6.7. Based on the examination of documents submitted by the Applicant, it is clear that they are making seat covers fit to be mounted on the existing seats of the Two Wheelers specifically Hero Honda Motorcycles. These seat covers are meant for the protection of the seats and the functional value of the seat cover is the comfort and convenience it extends to the rider and pillion rider. Thus, the seat cover is nothing but an accessory, which is generally bought by the customer for protection and comfort purposes. The features of the seat cover are distinct and clearly distinguishable from the seat.

6.8. From the above, we find that seat covers are accessories to Two-wheelers. Chapter 87 covers Vehicles other than railway or tramway rolling stock, and Parts and accessories thereof, under which parts and accessories of two-wheelers specifically find place under 8714, which is given as follows:

Chapter / Heading/ Tariff

Item

Description of Goods
8714 Parts and Accessories of Vehicles of Headings 8711 to 8713.
8714 99 Other
8714 99 10 Bicycle chains
8714 99 20 Bicycle wheels
8714 99 90 Other

The heading CTH 8711 and 8713, are described as under:

Chapter / Heading/ Tariff

Item

Description of Goods
8711 Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars;
8712 Bicycles and other cycles (including delivery tricycles), not motorized;
8713 Carriages for disabled persons, whether or not motorised or otherwise, which is reproduced as under:

6.7 Thus, we find that Motorcycles are classified under CTH 8711 and on the seats of such Motorcycles, the seat covers are fitted. Hence, these seat covers are nothing but part and accessories of Motorcycles and fall under CTH 8714, and more specifically, under CTH 87149990.”

Based on the above HSN classification the ld. AAR held that the rate will be 28 per cent, under Sr. no.174
of Schedule IV of Notification 1/2017-CT(Rate) dt. 28th June, 2017. The ld. AAR passed the following ruling:

“Two-wheeler seat covers merit classification under the CTH 87149990 and is taxable @ 14 per cent CGST + 14 per cent SGST vide entry no. 174 of Schedule IV of Notification No. 1/2017-CT (Rate), dated 28th June, 2017, as amended.”

Section – 148 — Reassessment — Assessment Year 2013–14 — Search — computation of the “relevant assessment year”.

9 Flowmore Limited vs. Dy. CIT Central Circle – 28

WP (C) No. 3738 OF 2024 & CM APPL. 15409/2024

Dated: 27th May, 2024. (Del) (HC)

Section – 148 — Reassessment — Assessment Year 2013–14 — Search — computation of the “relevant assessment year”.

Pursuant to a search and seizure operation conducted in respect of the Alankit Group on 18th October, 2019, the Petitioner was served a notice under Section 153C on 3rd March, 2022. On culmination of those proceedings, the Department proceeded to pass a final order of assessment on 23rd March, 2023, accepting the income which had been assessed originally under Section 143(3) of the Act. The Petitioner stated that insofar as the original Section 143(3) assessment was concerned, an appeal was taken to the Income Tax Appellate Tribunal which ultimately accorded relief to the petitioner with respect to disallowances made under Section 40(a)(ia) of the Act.

The subsequent notice under Section 148 of the Act dated 31st March, 2023 was concerned with a search which was conducted in the case of the Proform Group on 9th February, 2022.

The court noted that for the purposes of reopening, bearing in mind the proviso to Section 149(1), action could have been initiated only up to A.Y. 2014–15. Since the notice was issued on 31st March, 2023, it would be the amended regime of reassessment which came into effect from 1st April, 2021 which would be applicable. The action for reassessment would thus have to satisfy the provisions made in the First Proviso to Section 149(1) of the Act.

The Court observed that from a reading of that provision, any action for reassessment pertaining to an A.Y. prior to 1st April, 2021 can be sustained only if it be compliant with the timeframes specified under Section 149(1)(b), Section 153A or Section 153C as the case may be and on the anvil of those provisions as they existed prior to the commencement of Finance Act, 2021. Viewed in that light, it is manifest that the assessment for A.Y. 2013–14 could not have been reopened.

The Honourable Court referred and relied on the following decisions:

Filatex India Ltd. vs. Deputy Commissioner of Income Tax & Anr.[WP(C) 12148/2023]; Principal Commissioner of Income Tax-1 vs. Ojjus Medicare Pvt. Ltd[2024 SCC OnLine Del 2439]

Principal Commissioner of Income Tax-Central-1 vs. Ojjus Medicare Pvt. Ltd.[2024 SCC Online Del 2439]

The Court further observed that the computation of the “relevant assessment year” from the date of the impugned Section 148 notice dated 31st March, 2023 would be as follows:

Therefore, ex-facie evident that A.Y. 2013–14 falls beyond the 10-year block period as set out under Section 153C read with Section 153A of the Act. Consequently, the impugned notice was unsustainable.

The writ petition was allowed, and the notice dated 31st March, 2023 under Section 148 of the Act was quashed.

Director’s Personal Liability

The thought of penning this article emerged from two decisions of the Bombay High Court1: The first was a case where a mammoth penalty of ₹3,700 crores was imposed on a key employee of the Company, and the second involved a case where past directors were made liable for tax dues pertaining to a period after their resignation. While the Court ultimately granted relief from such over-ambitious notices, the decision brought to the forefront the monetary exposures hovering over individual(s) operating under the aegis of a company.


1.  Shantanu Sanjay Hundekari v. UOI (WP (L) NO. 30198 OF 2023) & Prasanna Karunakar Shetty v State of Maharashtra (2024-VIL-358-BOM)

Directors are at the forefront of recovery of any statutory liability. In this context, the GST law provides for three areas for discussion — (a) Recoveries of tax dues from directors of private companies including those arising during liquidation; (b) Penalty recoverable from directors for offences committed by Companies; (c) Penalty imposable on directors for aiding or abetting an offence committed by Companies.

The first two categories are recovery provisions where the tax, interest or penalties would be first imposed on the company and in case of their non-recoverability, the extended provisions enable the revenue to recover the tax and penalty from the directors of such companies u/s 89 or 88(3) of the CGST/SGST Act, 2017. The said provisions are exclusive to private limited companies and hence public limited companies fall outside its purview. The third category involves a direct imposition of penalty on the director for aiding or abetting offences u/s 122(3) of the CGST/SGST Act and this applies to directors of both private and public limited companies.

Liability of Directors on Private Company (Section 89& 88(3))

Under the Companies Act, the personal liability of directors is limited to the acts which arise out of breach of trust, fraud, etc. However, it is practically cumbersome for the revenue department to prove such acts have resulted in non-recoverability of tax liabilities. Hence, the provisions of section 89 have been specifically legislated as deeming provisions:

“Notwithstanding anything contained in the Companies Act, 2013 (18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.……….”

Similarly, section 88(3) contains statutory powers to collect tax dues of companies undergoing liquidation –

“(3) When any private company is wound up and any tax, interest or penalty determined under this Act on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, then every person who was a director of such company at any time during the period for which the tax was due shall, jointly and severally, be liable for the payment of such tax, interest or penalty, unless he proves to the satisfaction of the Commissioner that such non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.”

While both these provisions are broadly similar in nature, a comparison throws up certain differences:

  • Section 89 provides for recovery even during its regular operations, section 88(3) provides for recovery only during the winding up of the company – being more specific, section 88(3) would prevail over section 89 in the specified circumstances;
  • Individuals holding the directorship during the existence of the company, especially during the initiation of recovery provisions, are covered under section 89, but section 88(3) applies only to directors holding their post at the time the tax was due on the Company — subsequent directors may not be covered by the provisions of section 88(3);
  • Section 89 contains overriding provisions which is absent in section 88(3), enabling it to surpass the Companies Act for recovery of amounts.

With these key differences in mind, the following elements can be dissected and analysed: (i) the overriding character of Section 89; (ii) the pre-condition that the tax dues should be “non-recoverable”; (iii) the tax dues should be in respect of any supply of goods or services; (iv) a negative presumption that directors are liable for payment of tax and rebuttable only if the directors prove that such non-recovery is not on account of gross neglect, misfeasance or breach of duty; (v) the director(s) of the company are jointly or severally liable for such recoveries.

Overriding character

A private limited company, though a separate legal entity, is an artificial person under law. Therefore, the decision-making functions of a company are entrusted to a Board of Directors mandated to operate under a fiduciary capacity. While the directors act as agents or representatives before third parties, the company continues to be primarily liable for all acts performed by the directors within their capacity.

Section 166 of the Companies Act, 2013 specifically lays down that the Directors should operate under the memorandum and articles of association as documented by its members. It is the duty of the Director to act with ‘diligence’ and in ‘good faith’ only to promote the best interests of its stakeholders. The decisions taken by the director should involve reasonable care, judgement and skill independent of personal interests. In case of conflicts (direct or indirect), the director ought to refrain from taking any undue advantage or gain. As directors of a company, they may be held liable for any loss or damage sustained by the company because of any breach of duty or failure to disclose a personal financial interest in a particular matter. They may be directed to repay any gain or advantage derived from their fiduciary duty and liable for penal action under the said Act. Therefore, the Companies Act expects directors to honour their fiduciary capacity and protects them from any liability in case of honest diligence. Losses on account of business exigencies or external factors despite reasonable care do not generally devolve upon the directors.

Consequently, all tax liabilities would first be recoverable from the company unless there are specific provisions enabling recovery from the directors or key managerial personnel. By invoking the Companies Act, recovery of any tax liabilities (as a civil liability) from directors of the company can emerge only after the establishment of a ‘fraud’ or ‘breach of duty’ on the part of the director concerned. Moreover, only the officer in default would be liable and other director(s) disengaged from the finance/ tax function could take shelter as not being in default and outside the recovery net. Being a very narrow provision, the Companies Act places a larger onus on the tax administration to establish such a breach of duty and only then proceed to recover the civil liabilities from the director(s) u/s 166 of the Companies Act, 2013.

Section 89 of GST law overrides this feature of the Companies Act, 2013 for the purpose of recovery of tax dues from private companies. The section is aimed at “looking through” the “separate legal entity” and identifying the directors who have been negligent as representatives of the Company. It simply states that tax recovery can be made from any director of the company ‘jointly’ or ‘severally’ in case taxes are non-recoverable from the Company. An onerous presumption has been placed that the directors have breached their fiduciary duties unless they prove that the non-recovery of taxes is NOT on account of willful neglect, fraud, breach of duty, etc. In view of the negative presumption, the director must come forward to prove that they have been diligent in complying with the statutory responsibilities and such default is not attributable to them. Directors would be obligated to enlist the efforts taken to ensure tax dues were discharged and the failure to discharge them was beyond their reasonable control.

On the other hand, section 88(3) does not contain overriding provisions akin to section 89. Can this be taken to imply that the Companies Act provisions would influence the provisions of section 88(3) at the time of recovery actions on the winding up of the company? It appears that unlike section 89, section 88(3) would have to undergo the rigorous test of fraud, etc. being established prior to invoking recovery from directors during the winding up of the Company. Section 88(3) appears to be milder to this and hence read harmoniously with the Companies Act provisions.

Non-recoverability from the Company

Section 89 of GST law specifies that the taxes should be “non-recoverable” from the Company. It places an onus on the department to exhaust all modes of recovery prior to calling upon directors to discharge the liability of the company2.


2. Indubhai T. Vasa (HUF) v. ITO [2005] 146 Taxman 163 (Guj.);

As a first step, the revenue officer would have to establish that tax, interest and penalty are available for recovery u/s 79. The revenue officer cannot invoke the said provisions pending investigation, adjudication, assessment, etc., Even in respect of confirmed tax demands which are under appeal, sections 78 and 107(7) or 112(8) stay the recovery of the tax dues along with interest and penalty. Hence balance amounts may not be available for recovery until the matter attains finality i.e., matter being decided in the apex court or the right of appeal not being exercised by the taxpayer.

Coming now to section 79, it provides multiple avenues to the tax department for recovery of tax dues of the company i.e., bank accounts, debtors, goods, movable / immovable property or as arrears as land revenue. The said section should be exhausted completely and cannot be short-circuited to directly attach the bank accounts / properties of the director. In essence, recovery officers should reach out to directors only once section 79 leads to a dead end.

Even before the tax department alleges that taxes are due from directors, a specific conclusion is to be arrived at and recorded in writing that the taxes are ‘non-recoverable’ from the company. Under parimateria provisions of Income-tax (section 179), the Bombay High Court3 held that only after the first requirement is satisfied would the onus shift on any Director to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. In the case of Amit Suresh Bhatnagar4, the court quashed the attempt of the revenue to take effective steps of recovery from the Company and stated that the phrase “cannot be recovered” requires the Revenue to establish that such recovery could not be made against the Company, and then and then alone would it be permissible for the Revenue to initiate action against the Director or Directors responsible for conducting the affairs of the Company during the relevant accounting period. The provision has been specifically inserted to shield the directors from any hasty recovery by the tax department. In summary, only those amounts which are recoverable under section 79 from the Company fall into consideration under both sections and the tax department should exhaust all such recovery remedies under section 79 for a tax due to be non-recoverable.


3. Manjula D. Rita vs. PCIT, [2023] 153 taxmann.com 468 (Bombay)
4. [2009] 183 Taxman 287 (Gujarat)

Now let us take a peculiar circumstance where a company enters insolvency and is either wound up or taken over by another company under a resolution plan. The process of insolvency involves agreement over a resolution plan by operational / financial creditors and other stakeholders. The government’s debt being classified as operational debt would in all likelihood be trimmed down under the resolution scheme. The government being a party to the said proceedings is bound by the resolution plan approved by all creditors in terms of section 31 of the Insolvency Bankruptcy Code5. Once the primary liability on the company’s account is reduced, the vicarious liability on the directors also stands correspondingly reduced. The phrase “non-recoverable” from the company presupposes a right to recover the amounts from the Company. The tax authorities cannot state that the amounts which have been written off continue to be recoverable from directors despite the resolution plan. Moreover, with respect to the reduced tax demands, tax authorities would have to abide by the timelines provided in the resolution plan prior to concluding that taxes are ‘non-recoverable’.


5. Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Co. Ltd. — [2021] 126 taxmann.com 132 (SC)

Presumption as to gross neglect, breach of duty, etc.

Section 89 places a statutory presumption that the non-recovery of taxes is on account of gross neglect, and breach of duty on the part of the directors. Since sovereign dues are considered to be supreme obligations, directors (in their fiduciary capacity) are expected to arrange their affairs in such a manner that sovereign defaults are avoided. The presumption is with reference to “nonrecovery” of tax dues and cannot be extended to circumstances prior to the fastening of tax dues — i.e., it refers to the circumstances after the tax demand is affixed on the company and the corresponding actions taken by the directors to make appropriate arrangements for payment of the said tax demands rather than the decision making resulting in the tax demand. For e.g., the directors cannot be held responsible for incorrect classification of goods/services but would certainly be responsible for payment of tax dues once the tax on incorrect classification is confirmed against the Company. Probably the intent of the section is to deter directors from taking evasive acts by depleting the company’s assets and making them responsible for the non-recoverability of taxes. The directors on the other hand would have to overcome the presumption by contending that despite the tax demand, business exigencies and external circumstances have resulted in insolvency and non-recoverability of tax demands.

In Maganbhai Hansrajbhai Patel6, the Gujarat High Court held that gross negligence etc., is to be viewed in the context of non-recovery of the tax dues of the company and not with respect to the functioning of the company when the company was functional. In that case, the revenue had placed the entire focus and discussion with respect to the Director’s neglect in the functioning of the company which was set aside by the Court. A similar view was also taken by Gul Gopaldas Daryani v. ITO7 wherein it was held that though the burden is cast by statute in the negative and on the director concerned, once in defence the director places necessary facts before the revenue to establish that non-recovery cannot be attributed to gross negligence, misfeasance or breach of duty on his part, the revenue is required to arrive at definite findings on negligence on part of directors. In this case, the director could not pay tax dues as its hotel building got damaged in the earthquake, in view of the fact that an insurance claim had been raised but was not passed by an insurance company and civil disputes were still pending, it could not be regarded as a case where director failed to take measures for protecting property or interest of the company. A similar view was held in Ram Prakash Singeshwar Rungta vs. ITO8 where even though directors were responsible for the non-filing of returns were not imposed with such harsh recovery as the emphasis of the section is with respect to neglect during the recovery proceedings against the company and not otherwise.


6.  [2012] 26 taxmann.com 226 (Gujarat)
7.  [2014] 46 taxmann.com 35/227 Taxman 190 (Mag.)/367 ITR 558
8.  [2015] 59 taxmann.com 174/370 ITR 641 (Mag.)

Status of directorship

The other question that arises is whether the individual should be in active directorship during the action of recovery from the tax department or past directors could be engulfed in the recovery actions. Recovery action against directors could be with reference to three different tax periods (a) holding directorship during the relevant tax period for which demand is raised; (b) holding directorship at the time of confirmation of tax demand; and (c) holding directorship while recovery attempts are made by tax department.

This section fixes personal liability on directors based on the nature of acts performed during their directorship. The focus of the section is with reference to the responsibility of the directors to meet tax dues and deter depletion/diversion of assets of the company for other purposes. Exclusion from recovery can be claimed only where the directors prove that they have acted in good faith and business exigencies have resulted in non-recovery of taxes. Naturally, this implies that the individuals should be directors at the time the tax demands are raised and recovery attempts are being made by the revenue. Thus, individuals holding directorship during the relevant tax period for which tax demand has been raised cannot be held responsible for tax demands as they cannot be expected to establish bonafides at a time when they are not holding directorship. But the Bombay High Court9 has held that the true purport of Section 179(1) of the Income Tax Act is that a person must not only be a Director at the relevant assessment year but also a Director at the time when the demand was raised and such Director can be held responsible only and only when “non-recovery” is attributable to gross neglect, misfeasance or breach of duty on the part of such Director.


9. Prakash B. Kamat vs. Pr. CIT [2023] 151 taxmann.com 344 (Bom.)

Unlike section 89, section 88(3) speaks about recovery of tax liabilities during the liquidation of companies and specifies the directors who were holding the position at the relevant tax period for which the taxes were due as responsible for payment of the tax dues on liquidation. Due to the specific identification of directors and linkage to a particular period of default, other directors would not be covered by such recovery action even if they are in directorship during the liquidation of the company.

Tax dues with respect to the supply of goods or services

Interestingly, section 89 provides for tax recoveries only in respect of “supply of goods or services”. This is a consequence of borrowing terms from parallel provisions under the Income Tax Act where the scope is restricted to tax dues in respect of the income of an assessee. Probably, the legislature must have missed recognizing that recoveries under the GST law can arise on four counts (a) output tax in respect of the supply of goods/services; (b) input tax on erroneous utilization; (c) erroneous refunds; and (d) transitional credit. With the missed phrases, one can argue that the recoveries from directors could be only in respect of short payment of output tax on account of non-payment, short-payment, under-valuation, rate classification, etc. While revenue may argue that such a narrow reading would make the provision toothless, courts may view such exceptional provisions very strictly.

Joint and several liability

The phrase ‘joint and several’ liability implies that the directors are both collectively or individually liable for the revenue. The revenue authorities can at their discretion ‘pick and choose’ the directors who they wish to pursue for recovery of their tax liability, irrespective of their involvement in the affairs of the company. To put it differently, while Director A may be responsible for gross negligence in protecting the assets of the company, the revenue can choose to pursue Director B for recovery of its entire dues, no matter that Director B may not have had an active role in the company. In the decision of the Gujrat High Court in Suresh Narain Bhatnagar v. ITO10 the ground raised by the director of the company being only in a technical capacity with limited control did not ipso facto make Section 179 of the Income Tax Act inapplicable to the director. That Section 179 would continue to apply even if the petitioner was functioning in a limited capacity vis-à-vis the company. Hence, it is quite clear from this decision that the degree of involvement of a director in the affairs of the company is not a yardstick in deciding whether Section 179 is applicable to the director or not.


10. [2014] 43 taxmann.com 420/227 Taxman 193/ 367 ITR 254 (Guj.)

Many times, the revenue makes the error of applying the phrase joint and several liabilities qua the directors and the company. Revenue officials pursue the remedy of recovering the tax liability from directors of the company on the premise that directors are jointly and severally liable to the company. Being a vicarious liability, it is important to put in perspective that the joint and several liability is qua the directors among themselves and not qua the company. It is only after crossing the stage of nonrecoverability from the company would the revenue be permitted to make all directors jointly and severally liable for such non-recoverable dues. This can also be confirmed from the earlier phrases which require the revenue to exhaust the recovery from the company and only then proceed to recover the dues from directors.

Time limitation

Section 89 does not contain any time limit for the initiation of recovery action. But it is well understood by many courts including Parle International Ltd. vs. Union of India11 that delay in adjudication defeats the very purpose of the legal process and a taxable person must know where he stands and if there is no action from the departmental authorities for a long time, such delayed action would be in contravention of procedural fairness and thus violative of principles of natural justice. In this case, a long period of about 8 years was set aside as being beyond a reasonable period of time. A similar principle may be adopted in specific cases of delayed recovery after the finalization of tax demands.


11. [2014] 43 taxmann.com 420/227 Taxman 193/ 367 ITR 254 (Guj.)

Type of Directorship

The above provisions include all the directors of the company as responsible for the statutory dues. Among the many types of directors in a Company — managing directors, full-time directors, non-executive directors, independent directors, nominee directors etc., questions arise on the applicability of the above provisions to directors. While executive directors cannot be said to be outside the scope of the above provisions, nominee directors could take shelter in view of their restricted role in the decision-making process of the Company. One would be mindful that the nomenclature by itself does not result in automatic immunity under the above widely drafted provisions. It is the appointment letters, emails/ transcripts, and board resolutions which would establish diligence on their part. Independent directors are appointed for specified public limited companies, and listed companies and hence would anyway be outside the scope of section 89 or 88(3) which are applicable only to private limited companies.

Penalty imposable for aiding/ abetting an offence

Directors can also be held responsible for aiding or abetting an offence by Companies. Section 122(3) provides for penalties on any person who aides/abets an offence as enlisted under section 122(1)(i) to (xxi). Naturally, once a Company is charged with any of the list of offences, directors who are in the knowledge of these offences would also become vulnerable to a charge of penalty under section 122(3). The phrase ‘aiding or abetting’ has its roots in the Indian Penal Code and implies an element of mens-rea in the act of instigating or encouraging a person to commit an offence, or promoting a person into a conspiracy of an offence, or willfully aiding another to facilitate in furtherance of the offence. Since men-rea is not a virtue of artificial persons, the individuals (especially directors) behind the scenes would be considered to be involved in the commission of the offence of companies. The maximum penalty in such cases would be ₹25,000 under each enactment.

Despite all the technicalities discussed above, directors of both private and public companies are answerable under the Companies Act for all their actions. Once fraud by directors is established, it vitiates all technicalities and the Companies Act would make the directors personally responsible for all recoveries by lifting the corporate veil. This makes the role of the Director in financial decision-making cautious and critical. Board minutes, demarcation of funds, operational involvement as evidenced by emails / employees, etc. would play a pivotal role in assessing the diligence of the director. While one may argue that the onus is on the revenue to allege any misdoing, the specific presumptions in law have shifted the primary onus on the directors to establish their bonafide, which obviously involves a written document rather than mere oral assertions.

Recovery provisions are extreme steps where the revenue is empowered to pierce the corporate veil and make the directors responsible for the discharge of their fiduciary duties. As is evident the section is a separate code in itself and all pre-conditions of the section have to be satisfied and duly recorded prior to initiating action against the directors of the company. The directors on the other hand must ensure that they manage the affairs responsibly and protect the assets of the company to discharge the statutory liabilities. The intent of the section is to make directors responsible where the revenue has been deprived on account of fraudulent depletion of assets of the company. Amongst the directors, each director should take precautionary steps and inter-alia act as a check for actions by other directors keeping in mind the overall interest of the company. In law, these matters are addressed by Courts based on the facts produced by the directors in their defence and hence the directors need to record all their actions to prove their diligence in their duties.

Section – 220(6) — Stay application — Rectification application —Adjustment of a disputed tax demand against refunds which were due during pendency of the above application.

8 National Association of Software and Services Companies vs. Dy. CIT (Exemption) Circle – 2(1)

WP (C) NO. 9310 of 2022

A.Y.: 2018–19

Dated: 1st March, 2024, (Delhi) (HC)

Section – 220(6) — Stay application — Rectification application —Adjustment of a disputed tax demand against refunds which were due during pendency of the above application.

The Petitioner filed its Return of Income for A.Y. 2018–19 on 29th September, 2018 claiming a refund of ₹6,45,65,160 on account of excess taxes deducted at source which was deducted during the course of the said year. In the course of processing of that ROI, notices under Sections 143(2) and 142(1) of the Act came to be issued on 22nd September, 2019 and 9th January, 2020, respectively. On 16th November, 2019, the petitioner received an intimation, referable to Section 143(1) of the Act, apprising it of an amount of ₹6,42,30,413 being refundable along with interest. However, when the assessment was ultimately framed and a formal order was passed under Section 143(3) read with Section 144B of the Act, various additions came to be made to the income disclosed in the ROI and leading to the creation of a demand of ₹10,26,85,633.

Aggrieved by the aforesaid, the petitioner preferred an appeal before the Commissioner of Income Tax (Appeals), which was pending. Simultaneously, petitioner also moved an application purporting to be under Section 154 of the Act for correction of rectifiable mistakes, which according to it were apparent on the face of the record. Along with the rectification application, the petitioner on 28th May, 2021 also filed a stay application in respect of the demand so raised. The rectification application however came to be perfunctorily rejected in terms of an order dated 7th June, 2021

During the pendency of the appeal before CIT(A), NFAC, and without attending to the stay application which had been moved, the department proceeded to adjust the demand that stood created by virtue of the assessment order dated 29th April, 2021 against various refunds which were payable to the petitioner for A.Y.s’ 2010–11, 2011–12 and 2020–21.

According to the Petitioner, the action so initiated and the adjustments effected are wholly arbitrary and illegal in as much as there existed no justification for the adjustments being made without its application referable to Section 220(6) being either considered or examined. According to petitioner, the very purpose of Section 220(6) has been nullified by the action of the department who have proceeded to make the impugned adjustments without even examining the application of the petitioner for not being treated as an “assessee in default”.

The Petitioner relied on the Central Board of Direct Taxes Office Memorandum No. 404/72/93-ITCC6 dated 31st July, 2017, to state that the department could have at best required the petitioner to deposit 20 per cent of the outstanding demand.

The department contented that the application for stay which was moved by the writ petitioner was not accompanied by any challan evidencing deposit of monies against the demand for A.Y. 2018–19 which was outstanding. Thus, and according to department, since a pre-condition as specified in the Office Memorandum dated 31st July, 2017 and OM dated 29th February, 2016 was not adhered to, the application of the assessee was rightly not considered.

The Honourable Court observed that the Revenue department have proceeded on a wholly incorrect and untenable premise that the assessee was obliged to tender or place evidence of having deposited 20 per cent of the disputed demand before its application for stay under section 220(6) of the Act could have been considered. The interpretation which was sought to be accorded to the aforesaid OM was misconceived.

The Honourable Court noted that the two OMs neither prescribe nor mandate 15 per cent or 20 per cent of the outstanding demand as the case may be, being deposited as a pre-condition for grant of stay. The OM dated 29th February, 2016, specifically spoke of a discretion vesting in the AO to grant stay subject to a deposit at a rate higher or lower than 15 per cent dependent upon the facts of a particular case. The subsequent OM merely amended the rate to be 20 per cent. In fact, while the subsequent OM chose to describe the 20 per cent deposit to be the “standard rate”, the same would clearly not sustain.

The Honourable Court referred and relied on the decision of Avantha Realty Ltd. vs. The Principal Commissioner of Income Tax Central Delhi 2 & Anr [2024] 161 taxmann.com 529 (Delhi) wherein it was observed that the administrative circular will not operate as a fetter on the Commissioner since it is a quasi-judicial authority, and it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20 per cent, pending appeal.

The Honourable Court further relied on the order passed by the Supreme Court in Principal Commissioner of Income Tax & Ors. vs. LG Electronics India Private Limited [2018] 18 SCC 447 wherein it had been emphasised that the administrative circular would not operate as a fetter upon the power otherwise conferred on a quasi-judicial authority; and that it would be wholly incorrect to view the OM as mandating the deposit of 20 per cent, irrespective of the facts of an individual case. This would also flow from the clear and express language employed in sub-section (6) of Section 220 which speaks of the Assessing Officer being empowered “in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case”. The discretion thus vested in the hands of the AO is one which cannot possibly be viewed as being cabined by the terms of the OM.

The Honourable Court further referred the following decisions:

Dabur India Limited vs. Commissioner of Income Tax (TDS) & Anr. [2023] 291 Taxman 3 (Delhi); Indian National Congress vs. Deputy Commissioner of Income Tax Central – 19 & Ors.[2024] 463 ITR 182 (Delhi); Benara Valves Ltd. & Ors. vs. Commissioner of Central Excise & Anr [2007] 6 STT 13 (SC).

Thus, the Honourable Court held that while 20 per cent is not liable to be viewed as an entrenched or inflexible rule, there could be circumstances where the department may be justified in seeking a deposit in excess of the above dependent upon the facts and circumstances that may be obtained. This would have to necessarily be left to the sound exercise of discretion by the department based upon a consideration of issues such as prima facie, financial hardship and the likelihood of success.

The Court held that the department have clearly erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been entertained without a 20 per cent pre-deposit. The aforesaid stand as taken is thoroughly misconceived and wholly untenable in law.

Undisputedly, and on the date when the impugned adjustments came to be made, the application moved by the petitioner referable to Section 220(6)of the Act had neither been considered nor disposed of. This action of the department was wholly arbitrary and unfair. The intimation of adjustments being proposed would hardly be of any relevance or consequence once it is found that the application for stay remained pending and the said fact is not an issue of contestation.

The writ petition was allowed and the matter was remitted to the department for considering the application of the petitioner under Section 220(6) in accordance with the observations made hereinabove.

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

28 Principal CIT vs. Oxygen Business Park Pvt. Ltd.

[2024] 463 ITR 125 (Del)

A.Y. 2011–12

Date of order: 8th December, 2023

Ss. 80IAB, 132, 143(1), 143(2) and 153A of ITA 1961

Search and seizure — Assessment in search cases — Special deduction — Return processed and no notice issued for enquiry — No incriminating material found during search — Special deduction cannot be disallowed on basis of statement recorded subsequent to search.

For the A.Y. 2011–12, the assessee’s return of income wherein it claimed deduction of net profit u/s. 80-IAB of the Income-tax Act, 1961 was processed u/s. 143(1). Thereafter, on 29th October, 2013, search and seizure operation was conducted u/s. 132 at the premises of the assessee. In response to notice u/s. 153A, the assessee requested the Department to treat the original return of income as the return filed in response to notice u/s. 153A of the Act. The Assessing Officer disallowed the deduction claimed u/s. 80-IAB and also initiated penalty proceedings u/s. 271(1)(c).

The Commissioner (Appeals) accepted the contention of the assessee that since no incriminating material belonging to the assessee was found during the course of the search, initiation of proceedings u/s. 153A was bad in law, especially because the assessment proceedings stood closed u/s. 143(1) and partly allowed the assessee’s appeal. The Tribunal dismissed the Department’s appeal.

The following question was raised in the appeal by the Department:

“Whether the decision in the case of CIT vs.. Kabul Chawla applies to a case where a fresh material/information received after the date of search is sufficient to reopen the assessment under section 153A (see Dr. A. V. Sreekumar vs. CIT)?”

The Delhi High Court dismissed the appeal filed by the Revenue held as under:

“i) The assessment for the A. Y. 2011-12 was finalized on 20th January, 2012 and no notice u/s. 143(2) having been issued, no assessment was pending on the date of search, i. e., 29th October, 2013. Also, during the search of the assessee no incriminating material was found and the material in the form of statement sought to be relied upon by the Department was recorded subsequent to the search action.

ii) In view of the aforesaid, we are unable to find any substantial question of law in this appeal for our consideration u/s. 260A of the Act. Therefore, the appeal is dismissed.”

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

27 Angelantoni Test Technologies Srl vs. Asst. CIT

[2024] 463 ITR 139 (Del)

A.Y.: 2019–20

Date of order: 19th December, 2023

Ss. 147, 148, 148A(b) and 148A(d) of the ITA, 1961

Reassessment — Initial notice — Order for issue of notice — Notice — Investments by foreign companies in shares of their own Indian subsidiaries — Transactions are capital account transactions — No proof of transactions being consequence of round tripping — AO treating investments as escapement of income chargeable to tax — In contravention of CBDT circular — Investment in shares capital account transaction not income — Notices and orders set aside.

Where the assessees, foreign companies, invested in shares of their own Indian subsidiaries, the Assessing Officer (AO) treated the investment as giving rise to income chargeable to tax which had escaped assessment. On writ petitions challenging the notices issued u/s. 148A(b) of the Income-tax Act, 1961, the orders passed by the AO u/s. 148A(d) of the Act, the consequential notices issued to the assessees u/s. 148 of the Act, the Delhi High Court allowed the writ petition and has held as under:

“i) It is settled law that investment in shares in an Indian subsidiary cannot be treated as ‘income’ as it is in the nature of a ‘capital account transaction’ not giving rise to any income.

ii) It was an admitted position that the transactions were capital account transactions. Though there was a doubt expressed that the transactions might be a consequence of round tripping, no evidence or proof of these said allegations had been stated or annexed with the orders and notices. Further, the action of the respondents was in contravention of the Central Board of Direct Taxes Instruction No. 2 of 2015, dated 29th January, 2015 [2015] 371 ITR (St.) 6, reiterating the view expressed by the Bombay High Court in Vodafone India Services Pvt. Ltd. vs. Union of India. In fact, the judgment of the Bombay High Court was accepted by the Union Cabinet and a press note dated January 28, 2015, was issued by the Press Information Bureau, Government of India. Consequently, the notices issued under section 148A(b) of the Act, orders passed under section 148A(d) of the Act and the notices issued under section 148 of the Act and all consequential actions taken thereto were set aside.

iii) It was clarified that if any material became subsequently available with the Revenue, it shall be open to it to take proceedings in accordance with law.”

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

26 Chambal Fertilizers and Chemicals Ltd. vs. Principal CIT

[2024] 462 ITR 4 (Raj)

A.Y. 2018–19

Date of order: 4th January, 2024

Ss. 270A and 270AA of ITA 1961

Penalty — Concealment of income — Immunity from penalty — Effect of ss. 270A and 270AA — Application for immunity — Assessee must be given opportunity to be heard — Amount surrendered voluntarily by assessee — Assessee entitled to immunity from penalty.

The petitioner had filed its original return of income u/s. 139(1) of the Income-tax Act 1961 on 30th November, 2018 for the A.Y. 2018–19 and revised return of income on 29th March, 2019 u/s. 139(5) of the Act. The case of the petitioner was selected for complete scrutiny and an exhaustive list of issues was communicated by a notice u/s. 164(2) of the Act on 22nd September, 2019. During the course of scrutiny, various notices u/s. 142(1) of the Act were issued and replies to the same were submitted by the petitioner. It is claimed that during the course of scrutiny proceedings, the petitioner realised that “provision for doubtful goods and services tax input tax credit” amounting to ₹16,30,91,496 had been inadvertently merged with another expense account and mistakenly claimed as expenses under the income-tax provisions. Accordingly, the said amount was suo motu surrendered by the petitioner by revising its return of income and adding back the amount “provision for doubtful goods and services tax input tax credit”, to the total income. The said aspect was communicated vide letter dated 24th February, 2021 along with submission of revised computation.

The assessment order u/s. 143(3) of the Act was passed by the National E-Assessment Centre (“NeAC”), making only addition of suo motu surrendered amount of ₹16,30,91,496; however, it was observed in the order that the penalty u/s. 270A of the Act is imposed for misreporting of the income. The petitioner filed an application u/s. 270AA of the Act against the penalty order before the Deputy Commissioner, which came to be rejected by an order dated 27th July, 2021.

The petitioner challenged the order of rejection by filing revision petition u/s. 264 of the Act, inter alia, on the grounds that no opportunity of hearing was provided to the petitioner, which was in non-compliance of section 270AA of the Act and that the order rejecting the application did not specify how there was misreporting of the income when the amount was disclosed by the petitioner on its own volition and that the case of the petitioner did not fall in any of the exceptions u/s. 270AA of the Act. However, the revision petition came to be rejected by an order dated 13th March, 2023.

The assessee filed a writ petition challenging the order u/s. 264. The Rajasthan High Court allowed the writ petition and held as under:

“i) A perusal of sections 270A and 270AA of the Income-tax Act, 1961, would reveal that under sub-section (3) of section 270AA of the Act, the assessing authority can grant immunity from imposition of penalty u/s. 270A, where the proceedings for penalty u/s. 270A have not been initiated under the circumstances referred to in sub-section (9) of section 270A of the Act, and under the provisions of sub-section (4), it has been provided that no order rejecting an application shall be passed unless the assessee has been given an opportunity of being heard.

ii) Although several notices were issued u/s. 142 of the Act, during the course of scrutiny proceedings, and as many as ten issues were raised, on which the authority could not make any additions, the aspect of merging goods and services tax input tax credit with expenses was not pointed out/detected and this was only pointed out voluntarily by the assessee. Admittedly, the assessee in its application u/s. 270AA of the Act had sought personal hearing and the authority was bound to provide such personal hearing, but, admittedly no opportunity of hearing was provided to the assessee. The Deputy Commissioner had violated the provisions of the proviso to section 270AA(4) of the Act by not providing any opportunity of hearing, and the order passed was wholly laconic.

iii) The order passed by the assessing authority rejecting the application u/s. 270AA and the order passed by the revisional authority rejecting the revision petition, could not be sustained.”

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

25 Munjal Bcu Centre of Innovation and Entrepreneurship vs. DY. CIT(Exemptions)

[2024] 463 ITR 560 (P&H)

Date of order: 4th March, 2024

Ss. 12A(1)(ac)(iii) and 282(1) of the ITA 1961;

R. 127(1) of the Income-tax Rules, 1962.

Notice — Service of notice — Method and manner of service of notice under statutory provisions — Charitable purpose — Registration — Notice by Commissioner (Exemptions) — Notice and reminders not sent to assessee’s e-mail address or otherwise but only reflected on e-portal of Department — Assessee not able to file reply — Violation of principles of natural justice — Notice set aside.

A notice was issued to the assessee by the Commissioner (Exemptions) for initiating proceedings u/s. 12A(1)(ac)(iii), but the notice was not sent to the assessee’s e-mail address or otherwise and was only reflected on the e-portal of the Department. Thereafter, two reminders in respect of the notice were published on the e-portal of the Department. The notice and reminders were not served upon the assessee, no e-mail was sent by the Department to the assessee, and an order was passed.

The assessee filed a writ petition and challenged the orde.: The Punjab and Haryana High Court allowed the writ Petition and held as under:

“i) The provisions of section 282(1) of the Income-tax Act, 1961 and rule 127(1) of the Income-tax Rules, 1962 provide for a method and manner of service of notice and orders. It is essential that before any action is taken, communication of the notice must be done in terms of these provisions. The provisions do not mention communication to be ‘presumed’ upon the placing of the notice on the e-portal. A pragmatic view has to be adopted in these circumstances. An individual or a company is not expected to keep the e-portal of the Department open all the time so as to have knowledge of what the Department is supposed to be doing with regard to the submissions of forms. The principles of natural justice are inherent in the Income-tax provisions which are required to be necessarily followed.

ii) The assessee had not been given sufficient opportunity to make its submissions with regard to the proceedings under section 12A(1)(ac)(iii) since it was not served with any notice. The assessee would be entitled to file its reply and the Department would be entitled to examine it and pass a fresh order thereafter. The order was quashed and set aside.

iii) The assessee was to reply to the notice and the Department would provide an opportunity of hearing to the assessee, consider the submissions of the assessee and thereafter pass an order.”

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

24 BDR Finvest Pvt. Ltd. vs. Dy. CIT

[2024] 462 ITR 141 (Del)

A.Y.: 2019–20

Date of order: 31st October, 2023

Ss. 154, 194, 205 and 237 of ITA, 1961

Deduction of tax at source — Failure by payer to deposit tax deducted — No recovery towards tax deducted at source can be made from assessee — Recovery proceedings can only be initiated against deductor — Assessee entitled to refund.

The order was passed pursuant to a rectification application filed by the petitioner concerning the return of income (ROI) dated 10th August, 2019. Via the rectification application, the petitioner sought to stake a claim with respect to the tax which had been deducted at source on the interest paid by its borrower, namely, Ninex Developers Ltd. This application was dismissed by an order dated 21st September, 2023.

The assessee filed the writ petition against the order. The Delhi High Court allowed the writ petition and held as under:

“i) Tax deducted at source is part of the assessee’s income and therefore, the gross amount is included in the total income and offered to tax. It is on this premise that the tax deducted at source would have to be treated as tax paid on behalf of the assessee. The amount retained against remittance made by the payer is the tax which the assessee or deductee has offered to tax by grossing up the remittance. The ‘payment of tax deducted at source to the Government’ can only be construed as payment in accordance with law.

ii) No recovery towards tax deducted at source could be made from the assessee in terms of the provisions of section 205 of the Income-tax Act, 1961.

iii) The assessee should be given credit for the tax deducted at source though it was not reflected in form 26AS. The assessee had followed the regime put in place in the Act for collecting tax albeit, through an agent of the Government. The agent for collecting the tax under the Act who was the deductor had failed to deposit the tax with the Government and the recovery proceedings could only be initiated against the deductor. The order passed u/s.154 was accordingly set aside. Since the assessee had lodged a claim with the resolution professional, if it were to receive any amount, it would deposit with the Department the amount not exceeding the tax deducted at source by the deductor undergoing the corporate insolvency resolution process.”

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

23 Tamil Nadu State Marketing Corporation Ltd. vs. DY. CIT(TDS)

[2024] 463 ITR 487 (Mad)

A.Ys.: 2016–17 to 2023–24

Date of order: 22nd December, 2023

S. 206C of the ITA 1961

Collection of tax at source — Scope of S. 206C — Sale of liquor and scrap — Meaning of scrap — Company owned by State Government having monopoly over sale of liquor in state — Licence granted to bar owners for sale of liquor and collection of empty liquor bottles — Empty liquor bottles not scrap within meaning of S. 206C — Assessee not taxable on income from sale of empty liquor bottles.

The assessee-company was wholly owned by the Government of Tamil Nadu. It was a statutory body which had been vested with the special and exclusive privilege of effecting wholesale supply of Indian-made foreign spirits in the entire State of Tamil Nadu under section 17C(1A)(a) of the Tamil Nadu Prohibition Act, 1937. The assessee ran a number of retail vending liquor shops across the State and, as a policy decision, it did not want to get into the business of running bars. The assessee had taken the responsibility of ensuring bars were located adjacent to its shop so that liquor sold in its shops were consumed in the licensed bars. From 2005, the assessee floated tenders to select third-party bar contractors (licensees) to sell eatables and collect empty bottles from bars situated adjacent to or within the assessee’s retail shops. The assessee awarded contracts to various bar owners to run the bar adjacent to the retail shops run by the assessee. The licensees who had been issued licences to run the bar adjacent to the retail outlets of the assessee were required to offer their bid to run the bar under a tender process under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. In the bar, the bar contractors (successful licensees) were entitled to sell food items (short eats) and collect the bottles left by the consumers after consuming liquor from the retail outlet in the premises licensed under the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 to the bar licensees. For the A.Y. between 2016–17 and 2023–24, the Assessing Officer held that the assessee ought to have collected tax at source u/s. 206C(1) of the Income-tax Act, 1961 on the amounts tendered by the successful bar licensee, inter alia, towards tax from sale of empty bottles by treating the sale of bottles as scrap.

Assessee filed writ petition challenging the orders. The Madras High Court allowed the writ petition and held as under:

“i) Section 206C of the Income-tax Act, 1961, seeks to prevent evasion of taxes and therefore shifts the burden to pay tax on the seller. Section 206C was enacted in the year 1988 to ensure collection of taxes from persons carrying on particular trades in view of peculiar difficulties experienced by the Revenue in the past in collecting taxes from the buyer. It therefore needs to be construed strictly to achieve the purpose for which it was inserted in the year 1988 in the Income-tax Act, 1961. Section 206C of the Act deals with profits and gains from the trading in alcoholic liquor, scrap, etc. Section 206C contemplates a seller of specified goods to collect as tax from a buyer, a sum equal to the percentage specified entry in column 3. There is no definition for the expression ‘buyer’ in section 206C of the Act. ‘Buyer’ is defined in section 2(1) of the Sale of Goods Act, 1930 as a person who buys or agrees to buy goods. Under sub-section (7) to section 206C of the Act, where a person responsible for collecting tax fails to collect it in accordance with section 206C(1) of the Income-tax Act, 1961, shall be liable to pay tax to the credit of the Central Government in accordance with the provisions of sub-section (3). The expression ‘scrap’ has been defined to mean waste and scrap from the ‘manufacture’ or ‘mechanical working of materials’ which is definitely not usable as such because of breakage, cutting up, wear and other reasons. The expression ‘mechanical working of materials’ in the definition of ‘scrap’ in Explanation (b) to section 206C has not been defined separately. Both manufacture and ‘mechanical working of material’ can generate ‘scrap’. Although, an activity may not amount to ‘manufacture’ yet waste and scrap can be generated from ‘mechanical working of material’. Though the expression ‘manufacture’ has been defined in the Income-tax Act, 1961, the expression ‘mechanical working of material’ has not been defined in the Act.

ii) The principle of nocitur a sociis, provides that words and expression must take colour from words with which they are associated. In the absence of definition for the expression ‘mechanical working of materials’ in section 206C of the Act, the doctrine of nocitur a sociis can be usefully applied. Only those activities which resemble ‘manufacturing activity’, but are not ‘manufacturing activity’ can come within the purview of the expression ‘mechanical working of material’. Only such ‘scrap’ arising of such ‘mechanical working of material’ is in contemplation of section 206C.

iii) Mere opening, breaking or uncorking of a liquor bottle by twisting the seal in a liquor bottle would not amount to generation of ‘scrap’ from ‘mechanical working of material’ for the purpose of the Explanation to section 206C of the Act. That apart, the activity of opening or uncorking the bottle was also not done by the assessee. These were independent and autonomous acts of individual consumers who decided to consume liquor purchased from the shops of the assessee which had a licensed premises (bar) adjacent to them under the provisions of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003. Scrap, if any, was generated at the licensed premises which were leased by the licensees from the owners of the premises. Rule 9(a) of the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 merely grants privilege to the respective bar owners only to run the bars to sell the eatables and to clear left over empty bottles. Bottles are neither ‘scrap’ nor the property of either the assessee or bar licensee.

iv) There was neither ‘manufacture’ nor generation of ‘scrap’ from ‘mechanical working of materials’, and the liability u/s. 206C of the Income-tax Act, 1961 was not attracted. Therefore, invocation of sections 206C, 206CC and 206CCA of the Act was wholly misplaced and unwarranted. The order were not valid.”

Builders and Developers – Understanding Reconciliation of GST and Accounting Records

This article aims at understanding the need and areas for reconciliation between accounting and GST records in the case of real estate sector. In accountancy the objective of reconciliation is to explain differences between two sets of financial records. Unexplained differences in the process of reconciliation signifies a possible red flag. Hence, reconciliation becomes relevant whenever transactions are differently recorded in two sets of financial records.

In simple transactions involving outward supply of goods, the revenue recognised in the books of accounts and the financial statements prepared based on the books of accounts as at the end of the year and the value of outward supplies recognised in the GST returns during that particular year would usually be in agreement. However, it may not be the same case when we come to supply of services. For instance, advances in case of services are liable for payment of GST but the income in respect of services provided is recorded only when the services are actually rendered. The situation in case of real estate sector gets even more complex due to the fact that the process of receipt of progressive payments and the ultimate transfer of possession of the unit sold to a buyer may happen over several accounting periods.

Tax payers declare their gross receipts / gross turnover to the Income Tax authorities by furnishing their annual Income Tax Return (‘ITR’). On the other hand, turnover relating to outward supplies of goods and services (taxable as well as exempt) are furnished by the tax payers in the monthly GSTR-1 and GSTR-3B. Further, in the annual return that the tax payer furnishes in GSTR-9 he consolidates the monthly turnovers and also declares details of no-supply (that is, transactions neither amounting to supply of goods nor supply of services). Depending upon the nature of business there could be various reasons for differences between the gross turnover declared by the tax payers to both these authorities.

In order to check potential tax evasion, there is a mechanism in place for sharing data between Income Tax Department and the Goods and Services Tax Network that aims at identifying differences between income declared to both these authorities and sending out alerts to the tax payers requesting them to explain the differences.

GST VS. ACCOUNTANCY — REASONS FOR THE GAP BETWEEN THE TWO RECORDS

Fundamentally, accounting principles are based on the matching concept. This is an important concept under the accrual method of accounting. Under this concept one recognises revenue when it is earned, and expenses incurred for earning such revenue in the same period. This ensures that the earnings reported in a period are accurate. Further, accounting follows the concept of conservatism. Under this concept expenses and liabilities should be recognised as soon as probable in a situation where there is uncertainty about the possible outcome and in contrast assets and revenues should be recorded only when they are assured to be received. However, the liability to pay GST would be guided by the provisions of time of supply provided in GST Law1.


  1. Section 12 of the Act in case of supply of goods and section 13 of the Act in case of supply of services.

Due to the above there is always a difference between the financial data as per books of accounts and the data as per the GST records. This precisely is the reason for need to reconcile both these records.

As far as accounting principles are concerned, general principles of accountancy equally apply to the real estate industry. However, there is one unique feature inherent to this sector, that is, duration of the activity of provision of construction services as stated above. Further, another reconciliation challenge is due to the fact that transactions in the Real Estate Industry take different forms and are inherently complex.

TYPICAL LIFE CYCLE OF SALE OF UNDER-CONSTRUCTION UNITS CONSTITUTION

Sale of under-construction units involves sale of units that are not complete at the point in time when the agreement for sale of the said unit is entered between the developer and the buyer. The entire process of sale passes through the following stages:

  • Filing of booking form by the prospective buyer and customer KYC.
  • Demand/ Receipt of booking advance.
  • Entering into an agreement of sale / agreement for sale of the unit(s).
  • Issue of demand notes (Tax Invoices) for milestone payments.
  • Completion of project.
  • Handover of possession of the unit.

ACCOUNTING PRINCIPLES APPLICABLE TO REAL ESTATE SECTOR

Due to its inherent nature the sale of under-construction units spans over more than one or two accounting periods. Accounting of transactions in real estate sector are guided by the Guidance note2 issued by the ICAI. The Guidance Note is based on the theory of risks and rewards and lays down the principles of revenue recognition by identifying the point where the transfer of significant risk and rewards takes place based on the contractual terms between the parties.


2. Guidance Note on Accounting for Real Estate Transactions, 2012 (Revised)

Based on the nature and time of the contract for sale of unit between buyer and seller real estate transactions for sale of units can be divided as under:

  • Sale of a unit while project is under-construction

– Significant risks and rewards transferred to the buyer

– Significant risks and rewards not transferred to the buyer

  • Sale of unit post completion of the project

SALE OF UNIT WHILE THE PROJECT IS UNDER-CONSTRUCTION

The Guidance Note states that the agreement for sale between the developer and the buyer which is entered during the construction phase can be considered to have the effect of transferring all significant risks and rewards of ownership of the property to the buyer provided the agreement is legally enforceable and subject to the satisfaction of conditions which signify transferring of significant risks and rewards.

The Guidance Note further states that in such cases the developer, in essence can be regarded at par with a contractor for the buyer. It suggests to adopt percentage completion method for revenue recognition as per Accounting Standard — 7 on Construction Contracts in such cases.

SALE OF UNIT IN OTHER CASES

Cases other than above could include a case where in terms of the agreement for sale significant risks and rewards are not transferred to the buyer at the time of entering into agreement for sale or where the sale of the unit takes place post completion of the project. The Guidance Note states that in such cases the Completion of Contract method is to be applied and revenue is to be recognised by applying principles laid down in Accounting Standard — 9 on Revenue Recognition relating to sale of goods. It further states that the project can be considered to be complete when following conditions are satisfied:

  • Significant risks and rewards are transferred to the seller.
  • Effective hand over of the possession to the buyer.
  • No uncertainty regarding the amount of consideration that will be derived from the sale.
  • Not unreasonable to expect ultimate collection of revenue from the buyers.

The principles laid down in the accounting standards and the Guidance Note are diagrammatically described as follows:

It is evident from the above that irrespective of the nature of contract the liability to pay GST is to be recognised based on time of supply provisions contained in section 13 of the Act. On the other hand, the point of time when revenue is to be recognised in the books of accounts would depend on various factors as stated above.

TAX TREATEMENT OF REAL ETSTAE TRANSACTIONS UNDER GST LAW

Under the GST law tax is imposed3 on the supply4 of goods or services by a person to another for a consideration. An activity which constitutes a “supply” shall be treated either as supply of “goods” or supply of “services” based on principles laid down in Schedule II5 to the Act. Construction services provided by a developer, except where the entire consideration is received after issuance of completion certificate is considered6 to be supply of services in terms of Schedule II. However, sale of land and sale of building (post completion) is neither a supply of goods nor supply of services7.


3.  The tax is imposed under the charging section 9 of the Central Goods and Services Tax Act, 2017
4.  Section 7 of the Central Goods and Services Tax Act, 2017 defines the scope of the term ‘Supply’
5.  Section 7(1)(c) read with Schedule II to the Central Goods and Services Tax Act, 2017.
6.  Entry 5(b) of Schedule II to the Central Goods and Services Tax Act, 2017.
7.  Entry 5 of Schedule III to the Central Goods and Services Tax Act, 2017

Typically, sale of under-construction flats by developers are considered to be “continuous supply of services8”. In terms of the GST Law9 in case of continuous supply of services, the liability to pay GST arises when each milestone payment becomes due by the buyer to the developer. Every agreement for sale of under-construction unit entered between the buyer and a developer specifically provides for a payment schedule. This schedule is linked to various stages of completion of the project which are known as milestones.


8. Section 2(33) of the Central Goods and Services Tax Act, 2017.
9. Section 13 read with section 31(5)(c) of the Central Goods and Services Tax Act, 2017.

A typical payment schedule as appearing in any agreement for sale of an under construction residential flat or a commercial unit is reproduced hereunder for better understanding. However, it may be noted that in case of any advance payment the same becomes liable for payment of GST on the date such advance is received irrespective of the stage of completion as at the date of receipt of such advance.

Stage Milestones %
1 Booking of the Unit 10
2 Execution of Agreement 20
3 Completion of the Plinth 15
Stage Milestones %
4(a) Completion of 1st floor slab 5
4(b) Completion of 3rd floor slab 5
4(c) Completion of 5th floor slab 5
4(d) Completion of 9th slab 5
4(e) Completion of terrace slab 5
5 Completion of walls, internal plaster, floorings and waterproofing 5
6 Completion of doors, windows and sanitary fittings 5
7 Completion of the staircases, life wells, lobbies upto the upper floor level 5
8(a) Completion of the external plumbing, external plaster, and elevation of the building 5
8(b) Completion of the entrance lobby, lifts, water pumps, electrical fittings, driveways 5
9 At the time of handing over the possession of the apartment to the Allottee 5
Total 100

On achievement of each milestone the developer issues a demand note (Tax Invoice) for recovery of the milestone payment along with GST. However, that does not mean that the amount received / receivable and liable for GST payment would be disclosed as revenue in the books of accounts or the profit and loss account.

RECONCILIATION BETWEEN GST RECORDS AND ACCOUNTING DATA

In the above backdrop it is clear that the stage of completion does not have any impact on the amount on which GST becomes payable. GST is always payable on the amount of milestone-based payment that is due from the buyer to the developer. On the other hand, recognition of revenue in the books of accounts or financial statements is linked to various factors as described above. It is due to this differential treatment under both records that gives rise to difference in the revenue / value (taxable or otherwise) and hence need for reconciliation.

Let us examine with illustrative examples the manner in which revenue is recognised under both the methods viz, percentage completion method and completed project method.

A) PERCENTAGE COMPLETED METHOD

Illustration:

Builder and Co is construing a project comprising of saleable area of 10,000 Sq. ft. Year-wise details of the project relevant for our understanding are as under:

Year-1 of the Project

Out of the total saleable area of 10,000 Sq. Ft. of Builder and Co received bookings for 2 flats admeasuring a total of total 2,400 Sq. Ft. area as at the end of year-1 of the project.

Details of cost and amounts realised as at the reporting date are as under:

Flat Area in Sq. Ft. Agreement Value (Rs) Amount Received (Rs) Amount realised as a % of agreed Value GST (Rs)
1. 1,200 1,00,00,000 3,00,00,000 30 1,50,000
2. 1,200 1,00,00,000 5,00,000 5 25,000
2,400 2,00,00,000 35,00,000 1,75,000

 

Particulars Estimate Actual % of Estimate
Land Cost 3,20,00,000 3,20,00,000 100
Construction Cost 4,00,00,000 80,00,000 20
Project Cost 7,20,00,000 4,00,00,000 56

Let us examine the above facts by applying the conditions for revenue recognition as per the Guidance Note as at the reporting date for the 1st year of the project:

Conditions Response
Is 25 per cent or more of construction cost incurred No
Is 25 per cent of saleable area booked No
Whether 10 per cent or more of the agreement valued received Received in case of one of the units

It is evident that two of the three conditions laid down by the Guidance note for recognising revenue under percentage completion method are not satisfied as at the end of Year-1. Hence, no revenue is to be recognised as at the end of the first year of the project. However, amounts receivable or received during the year-1 shall be liable for payment of GST as per the provisions of time of supply discussed above under the GST Law.

Relevant extract of Profit and Loss account and Balance Sheet as at the end of Year-1 is as under:

Builder and Co

Profit and loss Account for the Year-1

Particulars Amount (Rs) Amount (Rs) Particulars Amount (Rs) Amount (Rs)
By Contract Revenue

Builder and Co

Balance Sheet as at Year-1

Liability Amount (Rs) Amount (Rs) Asset Amount (Rs) Amount (Rs)
Advance recieved from Flat Buyers 35,00,000 Work-in-Progress

 

Land Cost

Construction Cost

 

 

 

3,20,00,000

 

80,00,000

 

 

 

 

 

4,00,00,000

Year-2 of the Project

During the Year 2 Builder Ltd received booking for one more unit admeasuring 1,500 Sq. ft. Hence, as at the end of year-2 a total of 3 units have been booked.

Details of cost and amounts realised as at the reporting date of year-2 are as under:

Flat Area in Sq. Ft. Agreement Value (Rs) Year 1 Year 2 Total Amount realised as a % of agreed Value
Amount Received (Rs) GST (Rs) Amount Received (Rs) GST (Rs) Amount Received (Rs) GST (Rs)
1. 1,200 1,00,00,000 30,00,000 1,50,000 20,00,000 1,00,000 50,00,000 2,50,000 50
2. 1,200 1,00,00,000 5,00,000 25,000 30,00,000 1,50,000 35,00,000 1,75,000 35
3. 1,500 1,25,00,000 10,00,000 50,000 10,00,000 50,000 8
3,900 3,25,00,000 35,00,000 1,75,000 60,00,000 3,00,000 95,00,000 4,75,000

 

Particulars Estimate Actual %
Land Cost 3,20,00,000 3,20,00,000 100
Construction Cost 4,00,00,000 1,80,00,000 45
Project Cost 7,20,00,000 5,00,00,000 69

Let us examine the above facts by applying the conditions for revenue recognition as per the Guidance Note as at the reporting date for the 2nd year of the project:

Conditions Response
Is 25 per cent or more of construction cost incurred Yes
Is 25 per cent of saleable area booked Yes
Whether 10 per cent or more of the agreement valued received Received for 2 out of 3 units

It is evident that all the three conditions laid down by the Guidance note for recognising revenue under percentage completion method are satisfied as at the end of Year-2 in respect of 2 of the 3 units booked. Hence, at the end of the Year-2 revenue under percentage completion method can be recognised. Computation of various disclosures as per the Guidance Note and AS-7 are as under. However, amounts receivable or received during the year-2 in respect of all the 3 units shall be liable for payment of GST as per the provisions of time of supply discussed above under the GST Law.

Revenue to be recognised

(2,00,00,000 * 69.4444 per cent)

: 1,38,88,889
Cost to be recognised

(5,00,00,000 * 2,400 / 10,000)

:1,20,00,000
Work in Progress as at the reporting date :3,80,00,000

Relevant extract of Profit and Loss account and Balance Sheet as at the end of Year-2 is as under:

Builder and Co

Profit and loss Account for the Year-2

Particulars Amount (Rs) Amount (Rs) Particulars Amount (Rs) Amount (Rs)
To Construction Cost

 

To Profit

 

 

1,20,00,000

 

18,88,889

By Contract Revenue  

1,38,88,889

Builder and Co

Balance Sheet as at Year- 2

Liability Amount (Rs) Amount (Rs) Asset Amount (Rs) Amount (Rs)
Advance received from Flat

Buyers

Op.Balance

Add: Recd during the Year

 

Less: Re-claased under Debtors

 

 

 

 

35,00,000

 

 

60,00,000

95,00,000

 

 

 

-85,00,000

 

 

 

 

 

 

 

 

 

 

 

 

10,00,000

Work – In – Progress

Land Cost

Construction Cost

 

Less: Cost Recognised

 

Amount Due from Flat Buyers

Revenue Recognised

Less: Payments recd for above

 

 

3,20,00,000

 

1,80,00,000

5,00,00,000

 

-1,20,00,000

 

 

 

 

1,38,88,889

 

-85,00,000

 

 

 

 

 

 

 

3,80,00,000

 

 

 

 

 

 

53,88,889

Now on the basis of the above it is evident that the revenue recognised in the profit and loss account is ₹1,38,88,889 as against the GST turnover for year-2 being ₹60,00,000 only (cumulatively ₹95,00,000 up to Year-2).

B) COMPLETION OF CONTRACT (PROJECT) METHOD OF REVENUE RECOGNITION

Under this method the revenue of a project is recognised only when the construction service has been completed. Under this method in the case of real estate sector the revenue from a project shall only be recognised in the year when the construction is completed to the extent of the flats that have been sold. Usually, in this case all amounts due and received from the flat buyer are recognised as advance and the costs are accumulated as Work in Progress in the Balance Sheet. In the year of completion, the revenue and costs to the extent of flats sold would be taken to the Profit and Loss Account. In this case demand notes issued based on point of taxation provisions need to be reconciled with the advance from flat purchaser ledger.

DISCLOSURES OF REAL ETSTAE TRANSACTIONS IN GST RETURNS

Chapter IX of the Central Goods and Services Tax Act, 2017 contains provisions for filing of returns by the tax payer. In case of real estate transactions, the income accrued and the manner of declaration in returns is briefly tabulated in table below:

Nature of transaction Disclosure in GST returns Accounting implication
GSTR-1 GSTR-3B GSTR-9 GSTR-9C
On receipt of advance/ booking amount Furnished in Table 11A as advance received. Furnished as taxable outward supplies in Table 3.1(a) along with other taxable supplies. To the extent the advance remains unadjusted as at end of the year the same shall be disclosed in Table 4F. To the extent the advance remained unadjusted as at the beginning of the current year it shall be reported in Table 5I.

 

To the extent the advance remains unadjusted as at end of the year the same shall be disclosed in Table 5C.

Amount of advance received will appear as a credit entry in the “Flat Purchaser ledger”.

 

However, it may be noted that every credit entry in this ledger does not imply that it is taxable receipt.

There could be various reasons like stamp duty collection, re-credit on dishonour of cheque which would appear as a credit entry in this ledger.

On issue of demand note or Tax Invoice for stage-wise progressive payments Furnish details in Table 4/ 7.

 

To the extent tax already paid on advance received the same needs to be adjusted in Table 11B.

Furnish details in Table 3.1(a) as taxable outward supplies.

 

Advance adjustment to be reduced from value reported in Table 3.1(a).

Total value of demand notes and GST thereon shall be disclosed in Table 4A or 4B.

 

In case of sale of completed unit the same shall be disclosed in Table 5(F) as “No Supply”.

GSTR-9C requires tax payer to reconcile the turnover as per audited financial statements with the GST turnover reported in GSTR-9.

 

The revenue recognition in case of builders and developers depends on the method followed in each case.

On issuance of demand note a debit entry will appear in the flat purchaser ledger. The debit entry shall be for the amount receivable as progressive payment plus GST thereon.

 

It is common for developers not to record these debit entries and only record receipts in the flat purchaser ledger.

 

In some other cases all debit entries passed may be reversed at the end of the year.

In case of sale of completed units the same may be disclosed in Table 8 as non-GST supplies.

 

Some tax payers may not show such transactions in GSTR-1 since the same is neither supply of goods nor supply of services.

In case of sale of completed units the same shall be disclosed in Table 3.1(e) as non-GST outward supplies.

 

Some tax payers may not show such transactions in GSTR-3B since the same is neither supply of goods nor supply of services.

Some tax payers may not show such transactions in GSTR-9. Under percentage completion method revenue recognised in the profit and loss account may depend on costs incurred as at the date of balance sheet and other factors as discussed above.

 

As an alternative tax payers may reconcile turnover of demand notes with the GST turnover instead of starting Table 5A with the revenue as per Profit and Loss account.

Hence, it would be important for one to examine the method of accounting followed in every case and accordingly analyse the books of account.

 

At times a flat purchaser may engage the developer for the interior decoration of his unit. In such cases the debit entries to the flat purchaser ledger may attract GST @ 18 per cent as a works contract service.

Credit Note issued against flat cancellation. Credit note shall be disclosed in Table 9.

 

However, in cases where time limit10 for issuance of credit note has expired the developer shall issue a financial credit note after deducting the amount of GST collected on demand notes.

 

It has been clarified11 that in such cases the flat buyer may apply for refund of such GST.

The value of Credit note, and tax thereon shall be reduced from the amount disclosed in Table 3.1(a). To be furnished in Table 4I.

 

In case no GST is reversed in respect of credit notes issued (financial Credit Notes) the same shall not be reflected in GSTR-9.

Value of Credit notes where GST has been reversed shall not be reported in GSTR-9C, presuming that the amount furnished at Table 5A is total of demand notes less the value of Credit notes where GST is reversed.

 

In cases where no GST has been reversed in respect of credit notes issued (financial Credit Notes) the same shall be reflected in Table 5J.

 

The above treatment shall much depend on what is the starting point at Table 5A of GSTR-9C.

The flat purchaser shall be credited with the amount to be refunded including GST amount where the Credit note includes GST.

 

Amount of GST reversed shall be debited to the output tax ledger.

 

Where a financial credit note is issued the value of the credit note (excluding the GST amount) shall be credited to the flat purchaser ledger.


10. As per section 34(2) of the Central Goods and Services Tax Act, 2017 details of credit note(s) in respect of a Tax Invoice issued during a financial year need to be disclosed not later than 30th day of November of the following financial year.
11 Circular 180/20/2022-GST, dated 27th December, 2022.

RECONCILIATION OF DEMAND NOTES WITH AGREEMENTS MILESTONES

Varied accounting practices may be followed by various developers. In many cases (common in cases where project completion method is followed) only actual receipts from flat buyers is recorded in the balance sheet. In these cases, for the purposes of GST it becomes important to analyse the milestone payments receivable by comparing the agreements with the demand notes issued during the year. The steps to be followed in these cases shall be as follows:

  • Prepare a list of flats which have been booked since inception
  • Identify stage of completion at the beginning of the year
  • List down the project milestones achieved during the year
  • Map these milestones with those stated in the agreement for determining the point in time when demand notes need to be issued
  • Compare the liability as per above with the GST liability actually paid during the year.

RECONCILIATION DUE TO DIFFERENCE IN VALUATION

Another reason for reconciliation difference between GST records and revenue as per books is the base value on which GST is charged. The rate notification12 states that in case of real estate sale of under-construction units that involve transfer of property in land or undivided share of land, the value of construction service shall be equivalent to the total amount charged for the unit less 1/3rd of such value towards value of land or undivided share of land. Revenue shall be recognised in the books of accounts or financial statements based on the agreement value / consideration of the unit while the value disclosed in the GST records shall be agreement value less the value of land. This also would be one reason for the difference and hence a part of the reconciliation.


12 Notification No. 11/2017-Central Tax (Rate), dated 28-6-2017 (as amended).

FREE SALE AND EFFECT ON RECONCILIATION

Real Estate transaction takes different forms and various business models may exist. It is common to enter into joint development agreements with land owners. Here the land owner gives the developer a right to develop on his land parcel and in return may be given an area share in the form of certain flats free of cost. In such cases the developer is known as a promotor and the land owner is known as a co-promotor. The supplies involved in such a transaction can be understood with the help of the following diagram:

In terms of the GST law supply of flats by the developer to the land owner in consideration for supply of development rights is liable for payment of GST. Hence, the developer shall pay GST on the value of these flats. However, since this does not involve any monetary consideration the same shall not be recorded as revenue in the books of account or profit and loss account of the developer. This would lead to a difference between the turnover recorded in the GST records as compared to the revenue recognised in the books of accounts of the developer.

Before parting, in view of the author, it would be a better practice to analyse the data relating to milestone payments receivable during the year as per contractual terms and reconcile them with the demand notes issued by the developer to the buyer to correctly determine and compare the amount of value or turnover declared in GST returns. At times it may be impracticable or difficult to reconcile or map the financial turnover with the GST turnover. The exercise may become even complex in case where multiple projects are carried out by the developer in the same entity.

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

22 Principal CIT vs. Weilburger Coatings (India) Pvt. Ltd.

[2024] 463 ITR 89 (Cal):

A.Y. 2015–16

Date of order: 11th October, 2023

Ss. 143(2) and 143(3) of ITA 1961

Assessment — Limited scrutiny — Jurisdiction of AO — CBDT instruction — Conditions mandatory — AO cannot traverse beyond issues in limited scrutiny — Inquiries on new issue without complying with mandatory conditions not permissible.

The return of the assessee for the A.Y. 2015–16 was selected for limited scrutiny. The assessee was issued notice u/s. 143(2) of the Income-tax Act, 1961 in respect of the disallowance of carry forward of losses of earlier years. The assessee participated in the proceedings and thereafter, the assessment was completed u/s. 143(3) of the Act.

The Commissioner (Appeals) affirmed the disallowance. The assessee preferred an appeal before the Tribunal, raising an additional ground that the action of the Assessing Officer (AO) in making additions in respect of issues not mentioned in limited scrutiny were beyond the jurisdiction of the AO. The Tribunal, holding that the issue was jurisdictional and could be raised by the assessee at any point of time, admitted it and, holding that the AO had exceeded his jurisdiction in completing the assessment u/s. 143(3) of the Income-tax Act, 1961 on grounds which were not subject matter of limited scrutiny u/s. 143(2) for the A.Y. 2015–16, deleted the disallowance of carry forward of losses of earlier years.

The Calcutta High Court dismissed the appeal filed by the Revenue and held as under:

“i) The finding of the Tribunal, that the additional ground raised by the assessee against the order of the Commissioner (Appeals) confirming the addition made by the Assessing Officer in respect of issues not mentioned in the limited scrutiny were beyond jurisdiction of the Assessing Officer since it was selected for limited scrutiny assessment and not complete scrutiny, was a jurisdictional issue and could be raised by the assessee at any point of time was justified and in accordance with the settled legal principle. The Tribunal had also considered the Central Board of Direct Taxes Instruction No. 5 of 2016 to hold that the Assessing Officer had exceeded his jurisdiction.

ii) The Tribunal did not err in deleting the disallowance of carry forward of losses of earlier years and in holding that the Assessing Officer had exceeded his jurisdiction in enquiring into other issues which were beyond the scope of limited scrutiny u/s. 143(2) for the A. Y. 2015-16.”

Taxation of Interest on Compensation

ISSUE FOR CONSIDERATION

The Constitution of India has vested the Government of India with the power to acquire properties for public purposes, provided an adequate compensation is paid to the owner for deprivation of the property. Such a power was largely exercised by the government under the Land Acquisition Act, 1894 (“LAA”), which Act has been substituted by the Right to Fair Compensation and Transparency in Land Acquisition and Rehabilitation and Resettlement Act, 2013 (“RFCTLARRA”) w.e.f 1st January, 2014. In addition, various specifically legislated enactments permit the government to acquire properties, e.g., The National Highways Act and The Metro Railways Act.

On acquisition of properties, the government is required to adequately compensate the owner with payment of the assured amount under the award. This amount is determined as per certain guidelines provided in the respective acts and in the rules. At times, the awards are challenged on several grounds, including on the ground of inadequacy of the compensation. The government usually pays compensation as per the award within a reasonable period and the enhanced compensation is paid on settlement of the dispute.

The government pays interest for delay in payment of the awarded compensation under s. 34 of the LAA (s.72 of RFCTLARRA), and pays interest under s. 23 and 28 of the LAA (section 80 of RFCTLARRA) in cases of enhanced compensation for the period commencing from the date of award to the date of the payment of the enhanced compensation after settlement of the dispute.

Section 45 (5) of Income Tax Act, 1961 provides a deeming fiction to tax the compensation, including enhanced compensation, in the year of receipt of the compensation under the head “Capital Gains”. Section 10(37) of the Act provides for exemption from tax on capital gains arising in the hands of an individual or HUF on transfer of an agricultural land. A separate exemption is provided under s. 10(37A) for acquisition of properties under the Land Pooling Scheme of Andhra Pradesh on or after 2nd June, 2014 in the hands of an individual or HUF for development of the proposed city of Amravati. In addition, section 96 of the RFCTLARRA provides an independent exemption from payment of income tax on a compensation received under an award or an agreement under the said Act. No capital gains tax is payable at all on application of the provisions of the section 10 (37) and 10(37A) of the IT Act and section 96 of the RFCTLARRA. In respect of the other cases, the taxation is governed by section 45(5) of the Act.

Section 56(2)(viii) was inserted by the Finance Act, 2009 w.e.f A.Y 2010-11 to provide for taxation of interest on compensation in the year of receipt of the interest. Simultaneously section 145A/145B have been amended /inserted to provide that such interest would be taxed in the year of receipt, irrespective of the method of accounting followed by the assessee.

An interesting issue has arisen recently in relation to taxation of interest on the enhanced compensation. The Punjab and Haryana High Court, in a series of cases, held that such interest was taxable under the head Income From Other Sources, while the Gujarat High Court has held that such interest on enhanced compensation was a part of the compensation, and was governed by the provisions of section 45(5) and / or the tax exemption provisions. In fact, the Punjab & Haryana High Court has not followed its own decisions in later decisions, and the Pune bench of the Income tax Appellate tribunal has given conflicting decisions.

MANJET SINGH (HUF) KARTA MANJEET SINGH’S CASE

The issue first arose in the case of Manjet Singh (HUF) Karta Manjet Singh vs. UOI, 237 Taxman 161(P&H). During the period relevant to the assessment year 2010-11, the assessee, a landowner, received interest under section 28 of the Land Acquisition Act, 1894 and claimed that the said interest did not fall for taxation under section 56 as income from other sources, in view of the judgment of the Apex Court in the case of Ghanshyam (HUF) 315 ITR 1.

In this case, Notifications under sections 4 and 6 of the Land Acquisition Act, 1894 were issued on 2nd January, 2002 and 24th December, 2002 respectively for acquisition of land in District Karnal. After considering all the relevant factors, the Land Acquisition Collector assessed the compensation vide award No.22, which award was contested by way of a reference under Section 18 of the 1894 Act, which was accepted vide order dated 11th August, 2009. Higher Compensation was awarded on reference, along with other statutory benefits, including the interest in accordance with sections 23(1-A), 23(2) and 28 of the 1894 Act. Form ‘D’ had been drawn on 11th May, 2010 and 27th May, 2010 by the Land Acquisition Officer containing the complete details regarding the names of the petitioners, principal, interest, cost, total amount, TDS and net payable in accordance with the decision dated 11th August, 2009.

Proceedings for reassessment were initiated under Section 148 of the Income Tax Act,1961 on 9th April, 2012, by issue of notice under Section 148 of the Act to the assessee.

In the reply submitted to the Assessing Officer, the benefit of exemption under Section 10(37) of the Act was claimed. It was also pointed out that interest under section 28 of the 1894 Act did not fall for taxation under Section 56 of the Act as income from other sources in view of the judgment of the Apex Court in the case of Ghanshyam (HUF), and in case it was still treated as income from other sources by the AO, then the assessee was entitled to mandatory deduction as enumerated under Section 57(iv) of the Act on a protective basis.

A Writ Petition was filed before the Punjab & Haryana High Court by the assessee challenging the notice under s. 148, and requesting for appropriate orders by the court, including on the prayer of the assessee to refund the tax deduced at source from the compensation for the land acquisition which was claimed to be exempt from deduction under Section 194LA of the Act.

The High Court also noted that the assessee, on the basis of the judgment of the Supreme Court rendered in the case of Ghanshyam (HUF) (supra), had sought reconsideration of judgment of the Punjab and Haryana High Court in CIT vs.Bir Singh [IT Appeal No. 209 of 2004, dated 27th October, 2010], where the Division Bench had held that element of interest awarded by the Court on enhanced amount of compensation under section 28 of the 1894 Act fell for taxation under section 56 as income from other sources in the year of receipt.

The High Court noted that the primary question for consideration related to the nature of interest received by the assessee under section 28 of the 1894 Act. In other words, whether the interest which was received by the assessee partook the character of income or not, and in such a situation, was it taxable under the provisions of the Income-tax Act.

In accordance with the decision of the Apex Court in Ghanshyam (HUF), 315 ITR 1, it was claimed by the assessee that the amount of interest component under section 28 of the 1894 Act should form part of enhanced compensation, and secondly, that concluded matters should not be reopened. Reliance was placed by the assessee upon following observations in Ghanshyam (HUF)’s case (supra):—

To sum up, interest is different from compensation. However, interest paid on the excess amount under Section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under Section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under Section 28 is part of the amount of compensation whereas interest under Section 34 is only for delay in making payment after the compensation amount is determined. Interest under Section 28 is a part of the enhanced value of the land which is not the case in the matter of payment of interest under Section 34.”

The claim of the assessee was controverted by the revenue by filing a written statement. In the reply, the initiation of proceedings under Section 148 of the Act was sought to be justified by relying upon judgment of this Court in Bir Singh (HUF’s case (supra). It had also been stated that legislature had introduced Section 56(2) (viii) and also Section 145A(b) of the Act by Finance (No.2) Act, 2009 with effect from 1st April, 2010, according to which the interest received by the assessee on compensation or enhanced compensation should be deemed to be his income in the year of receipt, irrespective of the method of accountancy followed by the assessee subject however to the deduction of 50 per cent under Section 57(iv) of the Act. It had further been pleaded that the amendment was applicable with effect from assessment year 2010-11, and the assessee had received the interest amount during the period relevant to assessment year 2010-11 and therefore, the assessee was liable to pay tax.

The assessee submitted that the judgment of this Court in Bir Singh (HUF)’s case (supra) required reconsideration being contrary to the decision of the Hon’ble Supreme Court in Ghanshyam’s case (supra). In response, the revenue contended that the judgment in Bir Singh (HUF)’s case (supra) neither required any reconsideration nor any clarification, as the same was in consonance with the Scheme of the 1894 Act and law enunciated by the Constitution Bench of the Apex Court in Sunder vs. Union of India JT 2001 (8) SC 130.

The court reiterated that the main grievance was regarding the treatment given qua the amount of interest received under section 28 of the 1894 Act while arriving at the chargeable income under the Act. It observed that the grant of interest under Section 28 of the 1894 Act applied when the amount originally awarded had been paid or deposited and subsequently the Court awarded excess amount and in such cases interest on that excess alone was payable; section 28 empowered the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector; the compensation awarded by the Court included the additional compensation awarded under Section 23(1A) and the solatium under Section 23(2) of the said Act. It further observed that Section 28 was applicable only in respect of the excess amount, which was determined by the Court after a reference under Section 18 of the 1894 Act.

The High Court observed that a plain reading of sections 23(1A) and 23(2) as also section 28, clearly spelt out that additional benefits were available on the market value of the acquired lands under sections 23(1A) and 23(2), whereas benefit of interest under section 28 was available in respect of the entire compensation. The High Court observed that the Constitution Bench of the Supreme Court in the case of Sunder vs. Union of India JT 2001 (8) SC 130 had approved the observations of the Division Bench of the Punjab and Haryana High Court made in the case of State of Haryana vs. Smt. Kailashwati AIR 1980 Punj. & Har. 117, that the interest awardable under section 28 would include within its ambit both the market value and the statutory solatium, and as such the provisions of section 28 warranted and authorised the grant of interest on solatium as well.

The High Court then noted that the Three Judge Bench of the Supreme Court in the case of Dr. Shamlal Narula, 53 ITR 151 had considered the issue regarding award of interest under the 1894 Act, wherein the interest under section 28 was considered akin to interest under section 34, as both were held to be on account of keeping back the amount payable to the owner, and did not form part of compensation or damages for the loss of the right to retain possession. The principle of Dr. Shamlal Narula’s case had subsequently been applied by a Three Judge Bench of the Apex Court in a later decision in T.N.K. Govindaraju Chetty, 66 ITR 465.

The High Court also took note of another Three Judge Bench of the apex Court in the case of Bikram Singh vs. Land Acquisition Collector, 224 ITR 551, wherein the court following Dr. Shamlal Narula’s case (supra), and taking into consideration definition of interest in section 2(28A) of the Income-tax Act, had held that interest under section 28 of the 1894 Act was a revenue receipt and was taxable.

The High Court cited with approval the decision of the Supreme Court in the case of Dr. Shamlal Narula vs. CIT, 53 ITR 151, which had considered the issue regarding award of interest under the 1894 Act and held that the interest under Section 28 of the 1894 Act was considered akin to interest under Section 34 thereof, as both were held to be on account of keeping back the amount payable to the owner and did not form part of compensation or damages for the loss of the right to retain possession. It was noticed as under:—

“As we have pointed out earlier, as soon as the Collector has taken possession of the land either before or after the award the title absolutely vests in the Government and thereafter owner of the land so acquired ceases to have any title or right of possession to the land acquired. Under the award he gets compensation or both the rights. Therefore, the interest awarded under s. 28 of the Act, just like under s. 34 thereof, cannot be a compensation or damages for the loss of the right to retain possession but only compensation payable by the State for keeping back the amount payable to the owner.”

The Punjab & Haryana High Court held that in view of the authoritative pronouncements of the apex court in cases of Dr. Sham Lal Narula, T.N.K. Govindaraja Chetty, Bikram Singh (supra), State of Punjab vs. Amarjit Singh, 2011 (2) SC 393, Sunder vs. Union of India [2001] (8) SC 130, Rama Bai, 181 ITR 400 and K.S. Krishna Rao, 181 ITR 408, the assessee could not derive any benefit from the observations made by the Supreme Court in the case of Ghashyam (HUF) (supra).

While deciding the issue of the taxation of interest, the court kept open the issue of tax deduction at source, which was not being agitated in this case, and stated that it would be taken up in an appropriate case and thus the issue was left open, observing “We make it clear that since no arguments have been addressed with regard to the tax deduction at source, the said issue is being left open which may be taken up in accordance with law.”

It also noticed the claim of the assessee based on provisions of Section 10(37) and 57(iv) of the Act, and held that the issue required examination based on factual matrix, and therefore directed that the assessee might plead and claim the benefit thereof before the Assessing Officer in accordance with law.

Accordingly, finding no merit in the petitions, the court dismissed the same.

MOVALIYA BHIKHUBHAI BALABHAI’S CASE

The issue arose before the Gujarat High Court, this time under s.194 LA of the Income tax Act relating to the tax deduction at source in the case of Movaliya Bhikhubhai Balabhai vs. ITO TDS-1, Surat, 388 ITR 343.

In this case, the assessee’s agricultural lands were acquired under the provisions of the Land Acquisition Act, 1894 for the public purpose of developing irrigation canals. The compensation awarded by the Collector was challenged by the assessee before the Principal Senior Civil Judge, who awarded additional compensation with other statutory benefits. Pursuant to such award, the Executive Engineer of the irrigation scheme calculated the amount payable to the petitioner, that included an amount of interest of ₹20,74,157 computed as per s. 28 of the said Act. An amount of tax of ₹2,07,416 was proposed to be deducted at source as per section 194A of the Income tax Act by the Executive Engineer.

The assessee made an application to the Income-tax Department under section 197(1) for ascertaining the tax liability on interest, claiming that such interest was not taxable and requested the AO to issue a certificate for Nil tax liability. The application was rejected on the ground that the interest for the delayed payment of compensation and for enhanced value of compensation was taxable as per the provisions of sections 56(2)(viii) and 145A(b) r.w.s 57(iv). Being aggrieved, the assessee filed a writ petition before the Gujarat High Court.

The assesseee submitted to the court that, when the interest under section 28 of the Act of 1894 was to be treated as part of compensation and was liable to capital gains under section 45(5) of the I.T. Act, such amount could not be treated as Income from Other Sources and hence no tax could be deducted at source. It was submitted that subsequent to the refusal to grant the certificate under section 197 of the I.T. Act, the Executive Engineer deducted tax at source to the extent of ₹2,07,416, which was not in consonance with the statutory provisions, and directions should be issued for refund of tax deducted.

On behalf of the revenue, it was submitted that the interest in question was taxable under the head Income from Other Sources on insertion of s. 56(2) (viii) and s. 145A of the Act. Reliance was placed upon several decisions of the High Courts, including the decision of the Punjab and Haryana High Court in the case of Manjet Singh (HUF) Karta Manjeet Singh vs. Union of India (supra) in support of the view of the revenue.

Opposing the petition, the revenue submitted that the Income Tax Officer, TDS-1, Surat, while rejecting the application made by the petitioner under section 197 of the I.T. Act, had taken into consideration the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of that Act, and the action of the AO in rejecting the application was just, legal and valid in terms of the provisions of section 57(iv) read with section 56(2)(viii) and section 145A(b) of the I.T. Act. It was submitted that tax was required to be deducted at source under section 194A of the I.T. Act at the rate of 10% from the interest payable under section 28 of the Act of 1894.

Referring to the provisions of section 56 of the I.T. Act, it was pointed out that sub-clause (viii) of sub-section (2) thereof provided that income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A was chargeable to income tax under the head “Income from other sources”. It was pointed out that under sub-clause (iv) of section 57, in case of the nature of income referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income was permissible. It was pointed out that under section 145A of the Act, interest received by the assessee on compensation or on enhanced compensation, as the case may be, shall be deemed to be the income of the year in which it was received. It was submitted that the interest on enhanced compensation under section 28 of the Act of 1894, being in the nature of enhanced compensation, was deemed to be the income of the assessee in the year under consideration and had to be taxed as per the provisions of section 56(2)(viii) of the Act, as income from other sources.

As regards the decision of the Supreme Court in the case of Ghanshyam (HUF) (supra), it was submitted on behalf of the revenue that such decision was rendered prior to the amendment in the I.T. Act, whereby clause (b), which provides that interest received by an assessee on compensation or on enhanced compensation, as the case may be, should be deemed to be the income in the year in which it was received, came to be inserted in section 145A of the Act and hence, the said decision would not have any applicability in the facts of the case before the court.

In support of the submissions, the revenue placed reliance upon the decision of the Punjab & Haryana High Court in the case of Hari Kishan vs. Union of India [CWP No. 2290 of 2001 dated 30th January, 2014] wherein the court had placed reliance upon its earlier decision in the case of CIT vs. Bir Singh (HUF) ITA No. 209 of 2004 dt. 27th October, 2010, wherein the court, after considering the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra), had held that the interest received by the assessee was on account of delay in making the payment of enhanced compensation, which would not partake the character of compensation for acquisition of agricultural land and thus, was not exempt under the Income Tax Act. Once that was so, the tax at source had rightly been deducted by the payer.

The Gujarat High Court held that it was not in agreement with the view adopted by the other high courts, which were not consistent with the law laid down in the case of Ghanshyam (HUF) 182 Taxman 368 (SC). The Gujarat High Court took notice of the decision in Manjet Singh (HUF) Karta Manjeet Singh’s case, 237 Taxman 116 by the Punjab and Haryana High Court, wherein the court had chosen to place reliance upon various decisions of the Supreme Court rendered during the period 1964 to 1997, and had chosen to brush aside the subsequent decision of the Supreme Court in Ghanshyam (HUF)’s case (supra), which was directly on the issue, by observing that the assessee could not derive any benefit from the observations made by the Supreme Court in that case.

The court held that the view of the Punjab and Haryana High Court was contrary to what had been held in the decision of the Supreme Court in Ghanshyam (HUF)‘s case (supra), that interest under section 28, unlike interest under section 34, was an accretion to the value, hence it was a part of enhanced compensation or consideration, which was not the case with interest under section 34 of the 1894 Act. The Gujarat High Court stated that it was rather in agreement with the view adopted by the Punjab and Haryana High Court in Jagmal Singh vs. State of Haryana [Civil Revision No. 7740 of 2012, dated 18th July, 2013], which had been extensively referred to in paragraph 4.1 of the later decision of the said court.

It was clear to the Gujarat High Court that the Supreme Court, after considering the scheme of section 45(5) of the I.T. Act, had categorically held that payment made under section 28 of the Act of 1894 was enhanced compensation. As a necessary corollary, therefore, the contention that payment made under section 28 of the Act of 1894 was interest as envisaged under section 145A of the I.T. Act and had to be treated as income from other sources, deserved to be rejected.

The court also held that the substitution of section 145A by the Finance (No. 2) Act, 2009 was not in connection with the decision of the Supreme Court in Ghanshyam (HUF)’s case (supra) but was brought in to mitigate the hardship caused to the assessee on account of the decision of the Supreme Court in Rama Bai’s case, 181 ITR 400, wherein it was held that arrears of interest computed on delayed or enhanced compensation should be taxable on accrual basis. Therefore, in reading the words “interest received on compensation or enhanced compensation” in section 145A of the I.T. Act, the same have to be construed in the manner interpreted by the Supreme Court in Ghanshyam (HUF)’s case (supra).

The upshot of the above discussion, the court stated, was that since interest under section 28 of 1894 Act partook the character of compensation, it did not fall within the ambit of the expression ‘interest’ as contemplated in section 145A of the Income-tax Act. The Income Tax Officer was, therefore, not justified in refusing to grant a certificate under section 197 of the Income-tax Act to the assessee for non- deduction of tax at source, inasmuch as, the taxpayer was not liable to pay any tax under the head ‘income from other sources’ on the interest paid to him under section 28 of the Act of 1894.

The court noted that the assessee had earlier challenged the communication dated 9th February, 2015, whereby its application for a certificate under section 197 had been rejected, and subsequently, tax on the interest payable under section 28 of the Act of 1894 had already been deducted at source. Consequently, the challenge to the above communication had become infructuous and hence, the prayer clause came to be modified. However, since the amount paid under section 28 of the Act of 1894 formed part of the compensation and not interest, the Executive Engineer was not justified in deducting tax at source under section 194A of the Income-tax Act in respect of such amount. The assessee was, therefore, entitled to refund of the amount wrongly deducted under section 194A.

For the foregoing reasons, the court allowed the petition. The Executive Engineer, having wrongly deducted an amount of ₹2,07,416 by way of tax deducted at source out of the amount of ₹20,74,157 payable to the assessee under section 28 of the Act of 1894 and having deposited the same with the income-tax authorities, taking a cue from the decision of the Punjab and Haryana High Court in Jagmal Singh’s case (supra), the High Court directed the AO to forthwith deposit such amount with the Reference Court, which would thereafter disburse such amount to the assessee.

OBSERVATIONS

Under the land acquisition laws, two types of payments are generally made, besides the payment of compensation for acquisition of property. These payments are referred to in the respective amendments as “interest”. One such ‘interest’ is payable under section 34 of LAA (s.80 of RFCTLARRA) for delay in payment of the amount of compensation award, in the first place, on passing of an award of acquisition. This interest is payable on the amount of award for the period commencing from the date of award and ending with the date of payment of the compensation awarded. Another such ‘interest’ is payable on the increased/enhanced compensation under section 23 and/or s. 28 of the LAA of section 72 of the RFCTLARRA for the period commencing from the date of the award to the date of award for enhanced compensation, on the amount of enhanced compensation.

Section 28 of the LAA reads as “28. Collector may be directed to pay interest on excess compensation. – If the sum which, in the opinion of the court, the Collector ought to have awarded as compensation is in excess of the sum which the Collector did award as compensation, the award of the Court may direct that the Collector shall pay interest on such excess at the rate of nine per centum per annum from the date on which he took possession of the land to the date of payment of such excess into Court.”

Section 34 of the LAA reads as; “34. Payment of interest- When the amount of such compensation is not paid or deposited on or before taking possession of the land, the Collector shall pay the amount awarded with interest thereon at the rate of nine per centum per annum from the time of so taking possession until it shall have been so paid or deposited.

Provided that if such compensation or any part thereof is not paid or deposited within a period of one year from the date on which possession is taken, interest at the rate of fifteen per centum per annum shall be payable from the date of expiry of the said period of one year on the amount of compensation or part thereof which has not been paid or deposited before the date of such expiry.”

Section 2(28A) defines “interest” for the purposes of the Income -tax Act effective from 1-6-1976. The expression “interest” occurring in section 2(28A) widens the scope of the term “interest” for the purposes of the Income-tax Act.

The interest of the first kind, payable under section 34 of LAA, is paid for the delay in payment of the awarded compensation and therefore represents an interest as is so understood in common parlance. In contrast, the ‘interest’ on the enhanced compensation is not for the delay in payment of compensation, but is in effect a compensation for deprivation of the amount of the compensation otherwise due to be payable to the owner of the property. The nature of the two payments referred to as ‘interest’ under the LAA is materially different; while one represents the interest the other represents the compensation for deprivation of the lawful due which was otherwise withheld and not paid on account of an unjust order. LAA awards ‘interest’ both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 is an accretion to the value and is a part of enhanced compensation or consideration which is not the case with interest under section 34 of LAA. Additional amount paid under section 23(1A) and the solatium under section 23(2) form part of enhanced compensation under section 45(5)(b) of the 1961 Act , a view that is confirmed by clause (c) of section 45(5). Equating the two payments, with distinct and different characters, as interest under the Income tax Act is best avoidable. The Supreme Court in the case of Ghanshyam (HUF), 315 ITR1, vide it’s order dated 16th July, 2009 passed for assessment year 1999-2000, held that the interest on enhanced compensation paid under LAA was compensation itself and its taxability or otherwise was governed by the provision of section 45(5) of the Income Tax Act in the following words;

“The award of interest under section 28 of the 1894 Act is discretionary. Section 28 applies when the amount originally awarded has been paid or deposited and when the Court awards excess amount. In such cases interest on that excess alone is payable. Section 28 empowers the Court to award interest on the excess amount of compensation awarded by it over the amount awarded by the Collector. The compensation awarded by the Court includes the additional compensation awarded under section 23(1A) and the solatium under section 23(2) of the said Act. This award of interest is not mandatory but is left to the discretion of the Court. Section 28 is applicable only in respect of the excess amount, which is determined by the Court after a reference under section 18 of the 1894 Act. Section 28 does not apply to cases of undue delay in making award for compensation” [Para 23].

“To sum up, interest is different from compensation. However, interest paid on the excess amount under section 28 of the 1894 Act depends upon a claim by the person whose land is acquired whereas interest under section 34 is for delay in making payment. This vital difference needs to be kept in mind in deciding this matter. Interest under section 28 is part of the amount of compensation whereas interest under section 34 is only for delay in making payment after the compensation amount is determined. Interest under section 28 is a part of enhanced value of the land which is not the case in the matter of payment of interest under section 34.” [Para 24].

It is true that ‘interest’ is not compensation. It is equally true that section 45(5) refers to compensation. But the provision of the 1894 Act awards ‘interest’ both as an accretion in the value of the lands acquired and interest for undue delay. Interest under section 28 unlike interest under section 34 is an accretion to the value. Hence, it is a part of enhanced compensation or consideration which is not the case with interest under section 34 of the 1894 Act. So also, additional amount under section 23(1A) and solatium under section 23(2) of the 1894 Act form part of enhanced compensation under section 45(5)(b) of the 1961 Act. The said view is reinforced by the newly inserted clause (c) in section 45(5) by the Finance Act, 2003 with effect from 1-4-2004.” [Para 33]

“When the Court/Tribunal directs payment of enhanced compensation under section 23(1A), or section 23(2) or under section 28 of the 1894 Act, it is on the basis that award of the Collector or the Court under reference has not compensated the owner for the full value of the property as on date of notification.” [Para 35]

The ratio of this decision of the Supreme Court was followed by the apex court in the later decisions in the cases of Govindbhai Mamaiya, 367 ITR 498, Chet Ram (HUF), 400 ITR 23 and Hari Singh and Other, 302 CTR 0458.

In the background of this overwhelming positioned in law, it is relevant to examine the true implications of the insertion of section 56(2)(viii) and section 145A/B of the Income tax Act which provide for taxation of interest on compensation under the head Income from other sources. The Punjab and Haryana High Court, guided by the amendments in the Income Tax Act, has held in a series of cases, distinguishing the decision in the case of Ghanshyaam (HUF)(supra), that interest on enhanced compensation was taxable under the head Income From Other Sources, in the year of receipt of interest on enhanced compensation. The Gujarat high court has chosen to dissent from the decisions of the Punjab and Haryana high court to hold that such interest was in the nature of compensation even after insertion/amendment of the Income Tax Act. The Supreme Court has dismissed the Special Leave Petition of the assessee, 462 ITR 498, against the order of the high court in one of the decisions of the high court in the case of Mahender Pal Narang, 423 ITR 13(P&H), a decision where the court has dissented form the decision of the Gujarat high court. Like the high courts, there are conflicting decisions of the different benches of the Income tax Appellate Tribunal; the Pune bench has delivered conflicting decisions on the same subject. All of these conflicting decisions highlight the raging controversy about taxation of interest under consideration.

The issue according to us moves in a narrow compass; whether the law laid down by the Supreme Court in the series of cases, that interest on enhanced compensation is taxable as compensation and not as an interest has undergone any change on account of insertion of section 56(2)(viii) and 145A/B of Income Tax Act. In our considered opinion – No.

The insertion / amendment of the Income tax Act has the limited object of providing for the year of taxation of such interest in the year of receipt. The objective of the amendment is limited to settle the then prevailing controversy about the year of taxation of interest in cases where such interest was otherwise taxable. This can be gathered and confirmed by a reference to the Notes to Clauses and the Explanatory Memorandum accompanying the Finance (No.2) Bill, 2009. Circular No. 5 of 2010 in a way confirms that the amendments by the Finance Act, 2010 Act are not in connection with the decision of the Supreme Court in Ghanshyam’s case (supra); they are made to mitigate the hardship caused by the decision of Supreme Court in Rama Bai’s case about the year or years of taxation of interest, where taxable. Under no circumstances, the amendments should be viewed to have changed the law settled by the Supreme Court, where the apex court held that the interest on enhanced compensation was nothing but compensation and the payment being labelled as interest under the LAA did not change the character of the receipt of compensation for the purposes of the Income tax Act.

The better and the correct view is to treat the interest on enhanced compensation as a payment for unjust deprivation of the lawful dues payable under the statute and treat such payment as a compensation and not as an interest taxable under the head Income from Other Sources.

Glimpses of Supreme Court Rulings

4.  Condonation of delay in filing an appeal — Filing a belated appeal after knowing  of a subsequent decision is not a sufficient ground for condonation of the delay

Commissioner of Income (International Taxation) vs. Bharti Airtel Ltd

(2024) 463 ITER 63 (SC)

The Supreme Court noted that before the High Court, the Commissioner of Income-tax filed an affidavit stating that pursuant to the impugned order a decision was taken not to file an appeal and it was only after coming to know that in another case, that the Tribunal had given a decision in favour of the Department, it was decided to file the appeal. The appeal was filed after a delay of about four years and 100 days.

According to the Supreme Court, the explanation given for the delay in filing the appeal had no merits and neither could it be construed to be a sufficient cause for condoning the same.

The Supreme Court dismissed the SLP holding that the High Court was justified in dismissing the appeal filed under section 260A of the Act on the ground of delay.

5. Substantial questions of law — Once an appeal under section 260A is admitted, the same has to be decided on merits at the time of final hearing

Commissioner of Income-tax vs. I.T.C. Ltd

(2024) 461 ITR 446 (SC)

The Supreme Court noted that the High Court had admitted the appeal formulating ten questions of law.

When the matter came up for final hearing, the High Court dismissed the appeal holding that no substantial questions of law arose from the judgement of the Tribunal.

According to the Supreme Court, on a combined reading of the order of admission and the order dismissing the appeal upon final hearing, it had no option but to set aside the impugned order and remand the matter to the High Court for hearing of the appeal.

The Supreme Court accordingly restored the appeal on the record of the High Court and directed the High Court to decide the case on merits.

Whether an Inordinate Delay in the Disposal of Appeals by the First Appellate Authorities is Justifiable?

INTRODUCTION

The Indian public, especially professionals, are perturbed, agitated and upset as there has been an inordinate delay on the part of First Appellate Authorities in passing appellate orders in respect of appeals filed by the assessees against assessment orders passed by the Assessing Officers. This is for the reason that the assessees who may have received high-pitched assessment orders raising huge tax and interest demands must have approached the First Appellate Authorities by preferring appeals before them. However, it is very disturbing that the First Appellate Authorities, for reasons best known to them, have refrained from taking any further action in deciding the appeals, except sending notices after notices in standard formats to the assessees to file submissions in support of their grounds of appeal. It may be noted that after the introduction of the Faceless Appeal Scheme by the Government, the Faceless Appeal Centre conducts the functions of the First Appellate Authorities.

In this write-up, an attempt is made to highlight the legal position as to whether the time limit for passing appellate orders by the First Appellate Authorities is mandatory or directory, the consequences of inaction on the part of the First Appellate Authorities in hearing and disposing of appeals, whether the First Appellate Authorities can be made accountable for their inaction, and whether there is any remedy against such inaction.

PROVISIONS OF THE INCOME TAX ACT, 1961

The provisions relating to the appeals before the Joint Commissioner (Appeals) and the Commissioner (Appeals) (hereinafter referred to as “the First Appellate Authorities”) are contained under Chapter XX of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) covering sections 246 to 251 of the Act. Section 250 of the Act provides for the procedure in appeal. The Finance Act, 1999, for the first time, inserted sub–section (6A) to section 250 of the Act, which reads as follows:

Sub-section (6A)

In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide such appeal within a period of one year from the end of the financial year in which such appeal is filed before him under section (1) of section 246A.

The Finance Act, 2023, slightly amended the above sub-section by including the Joint Commissioner (Appeals) in the said sub-section and also provided for the time limit for passing orders when the appeal gets transferred to the First Appellate Authority. The amended sub-section (6A) reads as under:

Amended Sub-section (6A)

In every appeal, the Joint Commissioner (Appeals) or Commissioner (Appeals), as the case may be where it is possible, may hear and decide within a period of one year from the end of the financial year in which such appeal is filed before him under subsection (1) or transferred to him under subsection (2) or sub-section (3) of section 246 or filed before him under sub-section (1) of section 246A as the case may be.

The memorandum explaining the provisions of the Finance Bill, 1999, giving the reasons for the insertion of sub-section (6A) in section 250 of the Act, reads as under:

“In the absence of any statutory provision, there is considerable delay in the disposal of appeals. It is also seen that there is a disinclination to take up old appeals for disposal by the Commissioner (Appeals). To ensure accountability as well as to ensure disposal of appeals within a reasonable timeframe, it is proposed to provide that the Commissioner (Appeals) where it is possible, may hear and decide every appeal within a period of one year from the end of the financial year in which the appeal is filed.”

WHETHER THE PROVISIONS OF SUB-SECTION (6A) TO SECTION 250 ARE MANDATORY OR ONLY DIRECTORY?

There are several judicial pronouncements in which the Supreme Court has held that where a public officer is directed by a statute to perform his duty within a specified timeframe, the provisions as to time are only directory. Reliance in this regard may be placed on the ratio of the decision of the Supreme Court in the case of P. T. Rajan vs. T. P. M. Sahir (2003) 8 SCC 498.

As per the ratio of the decision of the Supreme Court in the case of T. V. Usman vs. Food Inspector Tellicherry Municipality JT 1994 (1) SC 260 it can be argued that although the provisions in a statute requiring a public officer to perform a public duty within a particular timeframe are directory, nonetheless the other party on whom the right is conferred is seriously prejudiced on account of non — performance of such duty within the prescribed timeframe then in such cases, the related provisions with regard to performance of public duty by a public officer within the prescribed time can be construed as imperative. Therefore, on the basis of this decision of the Supreme Court, it can be contended that even though the legislature has used the words “may” in the context of hearing and deciding appeals by using the expression “where it is possible may hear and decide every appeal” in sub-section (6A) to section 250 of the Act, as the assessees are seriously prejudiced on account of non — performance of their duties by the First Appellate Authorities in hearing and disposal of appeals within the time limit of one year, the said provisions with regard to time limit should be considered as mandatory. In such cases, assessees on whom the right is conferred to challenge the appellate orders before the Tribunals cannot do so on account of non-performance of duties by the First Appellate Authorities within the stipulated timeframe. Further, the legislature, in fixing the time limit, has contemplated that the First Appellate Authorities should be made “accountable” for not acting within the prescribed timeframe because, in the memorandum explaining the provisions of the Financial Bill, 1999, it has been emphasised that “to ensure accountability as well as to ensure disposal of appeals within a reasonable timeframe”, the time limit of the year has been prescribed for hearing and deciding the appeals. There are conflicting decisions of the Supreme Court with regard to reliance on the memorandum explaining the provisions of the Bill while interpreting the provisions of the Enactment, for example, in the case of Ajoy Kumar Bannerjee vs. Union of India, AIR 1984 SC 1130, while interpreting the provisions of section 16 of the General Insurance Business (Nationalisation) Act, 1972, the Supreme Court relied on the memorandum of the relevant Bill explaining the object of clause 16 of the Bill, which became section 16 of the said Act. Further, one can rely on the ratio of mischief rule laid down in the famous Heydon’s case for the proposition that “accountability” was contemplated by the First Appellant Authorities to cure the mischief of delaying the hearing and deciding appeals within a reasonable time.

But the directory provisions do not vest in the concerned First Appellate Authorities, who are quasi-judicial authorities to act according to their whims and fancy. Assuming for the sake of argument that the provisions regarding hearing and deciding appeals within one year, as stated in sub-section (6A) to section 250, are directory, then whether the First Appellate Authorities can take the assessees for a ride by not deciding the appeals for several years?

MEANING OF “ACCOUNTABILITY”

The Cambridge Dictionary defines the word “accountable” as meaning “someone who is accountable is completely responsible for what they do and must be able to give a satisfactory reason for it.” The Collins Dictionary defines the word accountable as meaning “if you are accountable to someone for something that you do, you are responsible for it and must be prepared to justify your actions to that person.” The synonym for the word “accountable” is “answerable” which has been defined by Mitra’s Legal & Commercial Dictionary as “Liable to be called to account, responsible, liable to answer.” When it comes to the accountability of public servants, the word “accountable” assumes a greater significance because a public servant is answerable to the Government and the Public for justification for his inactions.

Para 5 of the “Tax Payers’ Charter issued by the Income Tax Department states that the Department shall make decisions in every income tax proceeding within the time prescribed under the law. Therefore, non-passing of appellate orders within the timeframe prescribed under sub-section (6A) of section 250 of the Act amounts to infringement of the provisions of the Tax Payers’ Charter issued by the Income Tax Department, and this is a serious matter. The CBDT has also released a Citizen Charter in which it has been emphasized that the Income Tax Department should act in a fair manner with the taxpayers.

Now, the Tax Payers’ Charter has the mandate of section 119A of the Act and therefore, the Income Tax Department should not take this matter lightly, where a large number of assessees are adversely affected.

Way back in the Year 1955, the CBDT had issued administrative instructions for the guidance of Income Tax Officers on matters pertaining to assessment in terms of Circular No. 14 (XL — 35) dated 11th April, 1955 inter-alia stating in Para 3 that the officers of the Department must not take advantage of the ignorance of an assessee as to his rights. As the powers of the First Appellate Authorities are coterminous with those of the Assessing Offices, these instructions apply with equal force to the First Appellate Authorities.

Even the Direct Tax Laws Committee, in its Interim Report in the Year 1977 had observed that whenever litigation is inevitable, the same will be disposed of as expeditiously as possible.

It may be noted that in which manner the public officers performing public duty, including the First Appellate Authorities, can be made accountable for their inactions is a matter of great concern. Our constitution is silent for making public officers accountable for their acts of omission as well as their inaction in performing their official duties. Further, section 293 of the Act offers a shield to those erring officers, as the said section states that no suit shall be brought in any civil court to set aside or modify any proceeding taken or order made under this Act, and no prosecution, suit or other proceedings shall lie against the Government or any officer of the Government for anything in good faith done or intended to do under this Act. It needs to be emphasized that this section bars suits, etc., against the Government or its officers for anything in good faith done or intended to be done under this Act. Whether non-disposal of appeals by the First Appellate Authorities for several years, overstepping the time limit of one year laid down under sub-section (6A) of section 250 of the Act be construed as an act done in good faith? The answer will certainly be in the negative. Whether in such cases, the provisions of section 293 of the Act can be invoked? The answer will be in the affirmative.

EFFECT OF INORDINATE DELAY IN DELIVERING JUSTICE

With regard to the delay in delivering justice, it is apposite to quote the following observations of the Supreme Court in the case of Imtiaz Ahmed vs. State of Uttar Pradesh & Others (AIR 2012 SC 642).

“Unduly long delay has the effect of bringing about blatant violation of the rule of law and adverse impact on the common man’s access to justice. A person’s access to justice is a guaranteed fundamental right under the Constitution and, particularly Article 21.

Denial of this right undermines public confidence in the justice delivery system. It incentivises people to look for shortcuts and other fora where they feel that justice will be done quicker. In the long run, this also weakens the justice delivery system and poses a threat to the Rule of Law.”

Thus, it is very true that non-disposal of appeals within the time frame prescribed for the First Appellate Authorities under the Act has resulted in the blatant violation of the Rule of Law and has shaken the confidence of a large number of assessees who are eagerly awaiting appellate orders in their cases.

WHETHER A LONG TIME TAKEN FOR THE DISPOSAL OF APPEALS BY THE FIRST APPELLATE AUTHORITIES LIKELY TO IMPROVE THE QUALITY OF APPELLATE ORDERS?

If the quality of appellate orders passed by the First Appellate Authorities is likely to improve, then the slight delay in passing such appellate orders by the First Appellate Authorities may be justified.

One is reminded of the case of CIT vs. Edulji F. E. Dinshaw (1943) 11 ITR 340 (Bombay), which came up for consideration before the Bombay High Court in which his Lordship Chief Justice Beaumont remarked as under with regard to the quality of appellate orders passed by the First Appellate Authorities.

“I have been hearing income tax references in this Presidency for the last thirteen years, and I would say that in at least ninety per cent of the cases which have come before this Court, the Assistant Commissioner has agreed with the Income Tax Officer and the Commissioner has agreed with the Assistant Commissioner, however complicated and difficult the questions may have been.”

It appears that even after a long period of more than eighty years, the situation is far from satisfactory, as otherwise, the Income Tax Appellate Tribunals all over India may not have been flooded with appeals filed mostly by the assessees.

JUSTICE DELAYED IS JUSTICE DENIED AND AMOUNTS TO VIOLATION OF ARTICLE 21 OF THE CONSTITUTION OF INDIA

The expression “Justice delayed is justice denied” was used for the first time by the Jurist Sir Edward Coke in the Sixteenth Century.

Article 21 of the Constitution of India, which deals with the Protection of Life and Personal Liberty, states that “No person shall be deprived of his life or personal liberty except according to procedure established by law.”

In the landmark case of Hussainara Khatoon vs. Home Secretary, State of Bihar [1979 SCR (3) 532], the Supreme Court gave a wider interpretation to Article 21 of the Constitution of India, holding that speedy trial is a fundamental right of every litigation.

Thus, by not passing appellate orders in a reasonable timeframe by the First Appellate Authorities, there is a violation of Article 21 of the Constitution of India.

The delayed justice results in mental agony, harassment and frustration amongst the assessees.

HEADS I WIN AND TAILS YOU LOSE APPROACH OF THE INCOME TAX DEPARTMENT

It is a matter of great concern that when it comes to filing of appeals before the First Appellate Authorities against assessment orders passed by the Assessing Officers, the time limit has been laid down under section 249 of the Act, and only in exceptional circumstances, the time limit is extended by the First Appellate Authorities. Where there is a slight genuine delay on the part of the assessee in filing an appeal, he is at the mercy of the First Appellate Authority. In such cases, the assessee has to file a Petition for Condonation of Delay with the supporting affidavit duly notarized. Therefore, the honest assessees suffer at both ends. They have to file appeals within a particular timeframe and also they do not receive appellate orders well in time. The Income Tax Department expects that the assessees should strictly follow the law, but it does not take any action against the erring First Appellate Authorities, who act according to their whims and fancies and do not abide by the law.

CONCLUDING REMARKS

In view of the aforesaid discussion, it is amply clear that on account of the non-disposal of appeals by the First Appellate Authorities —

The delay in justice tantamounts to the denial of justice.

There is a violation of Article 21 of the Constitution of India apart from infringement of the Taxpayers’ Charter.

The Income Tax Department is neither taking any remedial action against the erring First Appellate Authorities nor making them accountable for their inactions. It appears that the Income Tax Department is unperturbed and is a silent observer. Even if the Income Tax Department has taken some actions, they are outside the public domain and certainly did not yield the desired results.

The honest taxpayers’ are suffering, undergoing mental stress and agony and facing considerable hardships on account of the non-disposal of appeals by the First Appellate Authorities within a reasonable period.

The main reason why no attention is being paid to the taxpayers’ grievances is because of the reason that those taxpayers who are willing to fight against grave injustice done to them are not duly supported by others, as a result of which their grievances go unnoticed and remain unredressed.

The eminent Jurist and Senior Lawyer Late Mr. Nani Palkhiwala had, in the context of tinkering with the Act every year, had once remarked during one of the great Budget Speeches that “the patience of the Indian Public is anaesthetised, and it continues to endure injustice and unfairness without any resistance”.

REMEDY

The appropriate remedy in such cases is to approach the High Court by filing a Writ of Mandamus. In the case of Praga Tools Corporation vs. Imannual AIR 1969 SC 1306, the Supreme Court observed that an order of mandamus is a form of a command directed to a person requiring him to do a particular thing which pertains to his office which is in the nature of a public duty. In the case of Samarth Transport Company vs. Regional Transport Authority, AIR 1961 SC 93, it was held by the Supreme Court that where there was an inordinate delay on the part of the Issuing Authority in disposing of an application for renewal of license, a writ of mandamus can be issued. Thus, the assessee can approach the High Court by filing a writ of mandamus against the First Appellate Authority, seeking an order of mandamus from the High Court directing the First Appellate Authority to hear and decide the appeal within a particular timeframe.

Accelerating India’s March of Education with Technology

INDIA HAS SUCCESSFULLY BUILT CAPACITY, MUST NOW FOCUS ON QUALITY AND ENROLMENT

The Indian higher education system is, by far, among the largest in the world today. The latest available data from AISHE (All India Survey on Higher Education, Ministry of Education) for the academic year 2021-22 shows that 4.32 crore students are enrolled in the system, growing at a 4 per cent CAGR over ten years from 2.91 crore in 2011-12. There are 58,643 active institutions, including 1,168 universities, 45,473 colleges, and the remaining are stand-alone institutions. The total number of institutions has grown at a 2.3 per cent CAGR over ten years, indicating a significant increase in capacity. The Indian HE Gross Enrolment Ratio (GER) stands at 28.4, meaning that 28.4 per cent of the eligible 18-23-year-old population is enrolled in higher education.

Growth Parameter 2011-12 2021-22 10-yr CAGR 2030-31 (Projected) 2030-31 (Accelerated)
Enrolment 2,91,84,331 4,32,68,181 4.0% 6,16,71,661 7,00,90,500

(at 5.51% CAGR)

Number of Institutions 46,651 58,643 2.3% 72,050
Number of Universities 642 1,168 6.2% 2,002
Number of Colleges 34,852 45,473 2.7% 57,773
18-23 Year Population 14,03,17,069 15,24,52,016 14,01,81,000 14,01,81,000
GER 20.8 28.4 44.0 50.0

Table 1: Trend analysis of certain growth parameters in the Indian HE system with projections to 2031. Data from AISHE and Population Projection Report 2011-2036, projections computed by authors.

Projected enrolment growth at a 4 per cent CAGR suggests that student numbers will surpass 6 crore by 2030-31. According to India’s Population Projection Report 2011-2036, the population aged 18-23 will be just over 14 crore at that time, leading to a GER of 44. NEP 2020, FICCI, and other stakeholders have set an ambitious GER target of 50 for 2030. To reach an enrolment of 7 crore, which is 50 per cent of 14 crore, enrolment must increase at a 5.5 per cent CAGR from the current 4 per cent . With institutional capacity already sufficient, the focus must shift from expanding quantity to enhancing quality to improve the educational standards.

Gender parity in Indian higher education was achieved in 2019-20 and remains above 1. More women are entering higher education with greater aspirations. The 10-year enrolment CAGR for women is 4.7 per cent , compared to 3.4 per cent for men. In 2021-22, women constituted 48 per cent of total enrolment, up from 44.6 per cent ten years earlier. Women’s GER stands at 28.5, slightly higher than men’s at 28.3, and has grown more rapidly, from 19.4 in 2011-12 compared to 22.1 for men. This indicates that a growing number of women aged 18-23 view higher education as a pathway to a better quality of life. This positive trend points towards a significant increase in the qualified workforce. To fully leverage this, quality employment opportunities must be developed nationwide, enabling educated women to join the workforce near their homes and communities.

Enrolment 2011-12 2021-22 10yr CAGR
Total 2,91,84,331 4,32,68,181 4.0%
Male 1,61,73,473 2,25,76,389 3.4%
Female 1,30,10,858 2,06,91,792 4.7%
Female % 44.6% 47.8%
Enrolment 2011-12 2021-22 10yr CAGR
Total GER 20.8 28.4
Male 22.1 28.3
Female 19.4 28.5
Gender Parity Index 0.88 1.01

Table 2: Higher education enrolment across male and female categories. Data from AISHE

 

SPECIALISATION AND DOMAIN EXPERTISE

Growing economies need expertise across all domains — science and technology, finance and commerce, culture and arts, education, healthcare and doctors, law, business administration, and so on.

Total number of graduates in 2021-22 exceeded 1 crore. Of these, the top fields studied by number are Bachelors degrees in Arts, Science, Commerce, Technology and Engineering, and Education. While the 5-year CAGR of total enrolment is 3.92 per cent, the CAGRs of these five top fields are 3.53 per cent, 1.46 per cent, 1.7 per cent, -1.21 per cent and 12.68 per cent. The negative trend in B.Tech + B.E. enrollment is disheartening at a time when technology has become ubiquitous in our daily lives and India needs more STEM graduates to drive R&D, intellectual property, and technological production. M.B.B.S enrolment is growing 8.7 per cent CAGR; an encouraging trend given the dearth of qualified medical personnel in the country. The Central Government’s push to increase institutional capacity in medical sciences is clearly working and more can be undertaken in this direction to respond to India’s medical and healthcare needs.

Graduates Total B.A.

(+ Hons)

B.Sc.

(+ Hons)

B.Com. B.Tech. B.Ed. M.B.B.S. Others
2021-22 1,07,38,573 28,19,421 13,89,106 11,07,966 8,46,613 6,63,862 54,547 38,57,058
Enrolment
2016-17 3,57,05,905 1,12,36,658 52,23,984 39,91,742 40,85,759 8,37,264 2,11,366 1,01,19,132
2021-22 4,32,68,181 1,33,67,637 56,17,138 43,41,916 38,45,332 15,20,715 3,20,149 1,42,55,294
5-yr CAGR 3.92% 3.53% 1.46% 1.70% -1.21% 12.68% 8.66% 7.09%

Table 3: Enrolment and graduates in top undergraduate HE fields studied. Data from AISHE

Specialisation is crucial for a growing economy. It enables productivity improvements in society, an increase in innovation, and the ability to produce world-class products and services domestically to, both meet our growing needs and capture global markets. Specialisation can be directly measured by the number of PhD and post-graduates. 2 lakh+ students were enrolled in PhD programs in 2021-22, having grown from 80,452 in 2011-12 at 10.2 per cent CAGR. PhD graduates have grown from 21,544 to 65,176 in the same period. Post graduate enrolment has increased from 27.9 lakh to 51 lakh in the same period, whereas PG graduates from 11 lakh to 35.5 lakh. While these numbers are encouraging, India must produce many more PhDs and PGs for a country with 1.44Bn population.

Table 4 gives a snapshot of some important fields of specialisation pursued by PhD and PG students. India needs more quality researchers with PhDs to lead research and innovation efforts across several disciplines. Agriculture innovation will be an essential factor in India’s reorganisation of sectoral workforces; commerce, in India’s financial infrastructure development strategies; education, in determining new ways to educate, upskill, and enable continuous learning; medical sciences, as we re-engineer our healthcare delivery; Scientific and technological development, and others. The low number in I.T. and Computers is troubling; with the world’s advancements in artificial intelligence, machine learning, quantum computing, data analytics, and others related to I.T. and Computers, India must be more aggressive in this field.

India must study domestic and global scenarios to understand domains that will be valuable going forward and invest in building competencies there. China has set a great example in the realm of quantum computing and artificial intelligence. With in-depth investment strategies and incentives for their top talent, China is surpassing even the United States in this field. If India doesn’t start investing in domain expertise, we risk being left behind in the new world.

Field PhD Post Graduates
Enrolled Graduated Enrolled Graduated
Agriculture 7,153 1,667 35,783 12,728
Commerce 7,112 1,058 5,18,631 1,89.765
Education 6,669 771 2,72,120 84,802
Engineering/Tech 52,748 6,270 1,73,950 62,178
IT and Computers 4,187 621 2,29,456 72,774
Medical Sciences 15,081 2,073 2,48,171 71,936
Science 45,324 7,408 7,52,807 26,402
Total 2,12,474 65,176 51,19,865 35,51,676

Table 4: PhD and post graduate scholars in select fields in 2021-22. Data from AISHE

AFFIRMATIVE ACTION HAS YIELDED RESULTS

Towards the objectives of inclusive enrolment and coverage, affirmative action has undoubtedly yielded results. Between 2012-13 and 2021-22, enrolment among various groups increased at astounding 9-year CAGRs – by 6.2 per cent (SC), 8.3 per cent (ST), 6.3 per cent (OBC), 6 per cent (Muslims) and 5.4 per cent (other minorities), all well over the average of 4 per cent. General enrolment is stagnating at 0.7 per cent. The Government’s focus on HE has enabled rapid development of previously deemed disadvantaged classes.

Community Enrolment (lakh) Population % HE Enrolment

9-yr CAGR

2012-13 2021-22 2021-22 (%) Census 2011
SC 38.48 66.23 15.3% 16.6% 6.2%
ST 13.2 27.11 6.3% 8.6% 8.3%
OBC 94.16 163.36 37.8% 40.9%* 6.3%
Muslims 12.52 21.08 4.9% 14.2% 6.0%
Other Minorities 5.64 9.05 2.1% 6.0% 5.4%
General 137.52 145.85 33.6% 13.6% 0.7%
All 301.52 432.62 100.0% 100.0% 4.1%

Table 5A: Population data from Census 2011, * from NSSO, HE data from AISHE

Enrolment proportions for the SC, ST and OBC communities in 2021-22 are close to their population composition –

For the SC community, 15.3 per cent enrolment against 16.6 per cent of the population; remarkably close

For the ST community, 6.3 per cent enrolment against 8.6 per cent of the population; this, too, is quite close

For the OBC community, 37.8 per cent enrolment against 40.9 per cent of the population; close, as well

Minorities, however, have not demonstrated the same progress. Minorities constitute 20.2 per cent of India’s population but only 7 per cent in HE enrolment. Low Muslim enrollment is a key issue, but the growth rates are impressive.
Disaggregating the social groups’ enrolment data by gender clearly revels Indian women’s aspirations.

Table 2 shows that across groups, women’s enrolment CAGR is ahead of men’s — 7 per cent (W) vs 5.6 per cent (M) among the SC community, 9.6 per cent (W) vs 7.2 per cent (M) among the ST community, and 6.8 per cent (W) vs 5.9 per cent (M) among the OBC community. Though the Muslim community’s representation in higher education is far lesser than its population composition, here too, women’s enrolment CAGR at 6.6 per cent is far higher than men’s at 5.4 per cent. The ‘other minorities’ group is the only one where this reversed — 4.9 per cent (W) vs. 6 per cent (M). In the general category, men’s enrolment has stagnated at 0 per cent CAGR as the enrolment in 2012-13 and 2021-22 is very similar. Women’s enrolment in this group is 1.5 per cent, higher than men’s here as well.

Community Male Female Total
2012-13 2021-22 9-yr CAGR 2012-13 2021-22 9-yr CAGR 2012-13 2021-22 9-yr CAGR
SC 21.19 34.52 5.57% 17.29 31.71 6.97% 38.48 66.23 6.22%
ST 7.32 13.65 7.16% 5.88 13.46 9.63% 13.20 27.11 8.32%
OBC 51.00 85.18 5.87% 43.17 78.19 6.82% 94.16 163.36 6.31%
Muslims 6.67 10.69 5.38% 5.85 10.39 6.60% 12.52 21.08 5.96%
Other Minorities 2.53 4.27 6.02% 3.12 4.78 4.86% 5.64 9.05 5.39%
General 77.47 77.46 0.00% 60.05 68.39 1.46% 137.52 145.85 0.66%
All 166.17 225.76 3.46% 135.35 206.92 4.83% 301.52 432.68 4.09%

Table 5B: Gender Split in Enrolment Across Social Categories. Data from AISHE

Overall, social groups are faring well in higher education. Driving enrolment up in key groups and regions across India can be facilitated by expanding the capacity of existing institutions and setting up greenfield institutions in regions with low institutional capacity. Distance education can also be utilised to drive enrolment. The key point here is that increasing the cake will enable more people to partake, rather than slicing the existing cake any thinner.

ONE COMMON POLICY ACROSS INDIA WON’T WORK

India is an incredibly diverse country with high variance across economic indicators — state GDP, per-capita income, fertility and population growth rates, urbanisation, and education and skill development. The education profiles of 14 major states across India are represented in Table 6, showing vastly different institutional capacities, enrolment profiles and pupil-teacher ratios.

Zones Enrolment GER Graduates Teachers Pupil-Teacher Ratio Number of Institutions Fertility Rate
North-Central
Uttar Pradesh 69,73,424 24.1 16,37,026 1,78,193 36 9,660 2.4
Rajasthan 26,89,340 28.6 7,07,179 83,192 29 4,598 2
Madhya Pradesh 28,00,165 28.9 7,65,365 82,461 31 3,220 2
Punjab 8,58,744 27.4 2,37,990 50,992 17 1,451 1.6
East
Jharkhand 8,79,965 18.6 2,01,517 15,089 58 514 2.3
Odisha 10,73,879 22.1 2,43,070 43,730 25 1,858 1.8
Bihar 26,22,946 17.1 4,10,485 38,152 69 1,444 3
West Bengal 27,22,151 26.3 5,63,911 73,817 37 2,146 1.6
South
Tamil Nadu 33,09,327 47 9,82,656 2,08,736 16 3,790 1.8
Andhra Pradesh 19,29,159 36.5 4,77,861 1,06,538 18 3,371 1.7
Telangana 15,96,680 40 3,56,044 84,086 18 2,573 1.8
Karnataka 24,36,540 36.2 6,41,072 1,50,885 16 6,220 1.7
West
Maharashtra 45,77,843 35.3 12,01,050 1,67,692 27 7,003 1.7
Gujarat 17,97,662 24 4,13,866 61,803 28 2,813 1.9
All-India 4,32,68,181 28.4 1,07,38,573 15,97,688 26 58,643 2

Table 6: Snapshot of states’ HE bases in 2021-22. Data from AISHE, NFHS-5

Uttar Pradesh’s higher education base tops the country, by far, in enrolment, number of graduates, and number of institutions. The state accounts for a significant 16 per cent of India’s enrolled students (69.7 lakh of 4.32 crore), 15.2 per cent of graduates (16.3 lakh of 1.07 crore), and 16.5 per cent of HE institutions (9,660 of 58,643). Maharashtra comes next with 10.6 per cent of India’s enrolled students (45.7 lakh of 4.32 crore), 11.2 per cent of graduates (12 lakh of 1.07 crore), and 11.9 per cent of HE institutions (7,003 of 58,643). Tamil Nadu comes in third with 7.6 per cent of India’s enrolled students (33 lakh of 4.32 crore), 9.2 per cent of graduates (9.8 lakh of 1.07 crore), and 6.5 per cent of HE institutions (3,790 of 58,643).

The National Education Policy 2020 recommends the consolidation of fragmented institutions into multidisciplinary universities of 3000+ students (more details on NEP 2020 are below). States with active university systems can quickly grow them into large multidisciplinary universities.

In terms of GER, Tamil Nadu by far leads the country with 47. Apart from Telangana, no other large state has even crossed 40.0 in 2020-21. In general, all southern states including Maharashtra have good GERs much higher than the all-India average of 28.4. GER is calculated as the ratio of the number of enrolled students to the eligible 18-23-year population.

All the states in the north-central-east zones, and Gujarat in the west, have GERs below 30. Rajasthan (28.6) and Madhya Pradesh (28.9) impressively are maintaining GERs above the India average, given their large populations. Uttar Pradesh and Punjab were doing well earlier but seem to have slipped behind after the pandemic. Crucial states like Bihar and Jharkhand have not crossed GER of 20, which is worrisome. Eastern states also have a very low number of institutions, which contributes to low enrolment, and indicates a lack of drive to develop human capital. Immediate planning is required to bring GERs in these states to at least the all-India average of 28.4.

Tamil Nadu leads by teaching staff as well, with 2+ lakh, followed by Uttar Pradesh with 1.78 lakh, Maharashtra with 1.67 lakh, Karnataka with 1.5 lakh, and AP with 1+ lakh. These are the only states with lakh+ teaching staff base in HE. Southern states have impressive average pupil-teacher ratios (PTR) of below 20, led by Karnataka and Tamil Nadu at 16.

On the other end, eastern states like Jharkhand and Bihar have absurdly high PTRs of 58 and 69. Uttar Pradesh comes next at 36, but given the large population and enrolment base, the state is showing promising results compared to other population-dense states like Bihar and Jharkhand. States with moderate PTRs are Odisha (25), Maharashtra (27), Gujarat (28), and Rajasthan (29). Of these, Maharashtra is the only state that has moderate PTR despite having a great teaching base because its enrolment base is also large. The other three — Gujarat, Odisha, and Rajasthan — have moderate PTRs because their enrolment base is lower than average as indicated by low GERs, and their teaching base is also low. Intensive effort to improve both must commence soon.

One common education policy across the country clearly will not work, and each state must formulate a specific policy responding to the needs of its citizens and youth base. In general, states in the north and east have younger, larger populations and must focus on driving enrolment and accessibility to education. States in the south and west have ageing populations, drastically lowered fertility rates, and better enrolment ratios, and can focus largely on improving quality of education and education-industry linkages.

FUTURE OF INDIAN EDUCATION

National Education Policy (NEP) 2020 was a transformational framework, enacted 34 years after the previous outdated policy in 1986. The system needs overhaul because it is rife with rigid structures with low flexibility to innovate and respond to today’s needs, an increasing shift to the private sector across all levels of education due to dissatisfaction with government-provided education despite education spending at ₹5-6 lakh crore annually, and rote learning favoured over learning abilities and outcomes. India’s HE system does not prioritise research and innovation and, in general, has been teaching the same curricula for the last twenty years.

Data indicates India is solving the capacity problem of equity and access but must aim to vastly improve quality over the next 20 years. For this, the autonomy of the Top 200 universities, by national ranking, is critical to pursue radical strategies for providing world-class education and ensure greater transfer to public research. Indian universities must also be encouraged to expand overseas and set up campuses in other countries. Today, more than 750,000 students study abroad spending $20Bn+ in fees. Indian universities must be empowered to capture some of that value. Globalisation of Indian education must be supported by both outbound and inbound strategies. NEP 2020 provides a ground-breaking framework and the flexibility to achieve these goals and more:

  • Consolidation of the large number of standalone institutions into large multidisciplinary universities and educational clusters will enable superior specialisation and expand domain expertise.
  • Multiple certification options like undergraduate, certificate, diploma, etc. will improve accessibility and flexibility of education.
  • A central repository like an Academic Bank of Credit will help students who are returning after a hiatus or with continuous learning and upskilling.
  • Internationalisation by inviting the Top 100 global universities to open academic centres in India will create a pull-up effect on overall quality of education.
  • Expanding open and distance learning, especially with today’s technological tools will radically improve equity of access.
  • Changing governance and autonomy structures will break the rigidity and inflexibility and allow for innovation education models.
  • A steady research focus that will feed into the country’s science and technological leadership vision must be instituted. Towards this, the proposed National Research Foundation with an ₹50,000 crore outlay over five years will be a tremendous step forward.

Technology can significantly enhance education by making learning more engaging, accessible, and personalised:

  • Personalised Learning: Adaptive learning software uses AI-powered tools that adapt to each student’s learning pace and style, providing customised resources and feedback. Learning Management Systems track student progress, provide personalised resources, and facilitate communication between teachers and students.
  • Online resources and courses can be incredibly useful. Massive Open Online Courses (MOOCs) from providers like Coursera, edX, and Udacity offer high-quality courses from top global universities. In addition, digital libraries and databases provide access to vast information and research materials online, such as Google Scholar or JSTOR.
  • Virtual and Augmented Reality models can create interactive and immersive learning experiences, such as virtual field trips or 3D modelling for science subjects. Similarly, simulation software can provide realistic simulations for training in medicine, engineering, and aviation.
  • Artificial Intelligence has a growing influence on education. Chatbots and AI tutors can provide instant help and tutoring outside of classroom hours, assisting with homework and study questions. Educators can use data analytics to analyse student performance data to identify learning gaps and tailor instruction accordingly.
  • Interactive learning platforms are applications that turn learning into an engaging experience; leading examples are Duolingo for language learning and Khan Academy for various subjects. Gamification incorporates game-like elements such as points, badges, and leaderboards to motivate students and make learning fun.
  • Accessibility can be vastly improved with assistive tools like screen readers, speech-to-text software, and adaptive keyboards that help students with disabilities. Similarly, translation apps enhance access to educational content and classes in other languages.
  • Technology also allows for blended learning, such as flipped classrooms and hybrid models that combine online and in-person instruction to provide flexibility and maximise learning opportunities.
  • Professional development and upskilling of educators can be undertaken via online workshops and webinars where teachers can continuously improve their skills.

India hosts one of the largest education systems in the world and has successfully established equity and access. These metrics are steadily improving every year. Concurrently, India has succeeded in population-scale socio-economic development over the last decade and has set sights on becoming a Top 3 economy over the next few years. To maintain economic and technological leadership, it is imperative to inculcate a drive towards superior quality education and internationalisation. Increasing institutional autonomy and public funding of research will serve India well.

March of Law and Judiciary

INTRODUCTION

As we celebrate 75 years of our independence, it is a time to remind ourselves of our times gone by and the institutions of Governance set up to protect people and societies. The Judiciary is one such critical Institution of Governance.

The judiciary in India has a rich and complex history, marked by significant transformations from the ancient era through colonial rule to the contemporary period. This evolution has seen the judiciary adapt to changing socio-political landscapes and technological advancements. The Indian judiciary is often regarded as one of the most independent, innovative, progressive, and powerful judicial systems in the world. It plays a critical role in maintaining the rule of law, upholding democratic principles, and shaping public opinion in the country.

The history of the Indian judiciary dates back to ancient times, when village assemblies and local panchayats served as the primary adjudicating bodies. The earliest document throwing light on the theory of jurisprudence, which forms part of practical governance, is the Artha Shastra of Kautilya dating back to circa 300 B.C. In medieval India, this changed and as custodians of justice, the Muslim rulers made the Sharia court subservient to their sovereign power.

But the rulers also set up a Court known as Mazalim (complaints), a secular Court. These courts dealt with disputes relating to the non-Muslim communities. The same system was followed till the British took over the power of India.

The formal judicial system, as we know it today began to take shape during British colonial rule. The British established the Mayor’s Courts in Madras, Bombay, and Calcutta in 1726. The promulgation of the Regulating Act of 1773 by the King of England paved the way for establishing the Supreme Court of Judicature at Calcutta. The Letters of Patent was issued on 26th March, 1774 to establish the Supreme Court of Judicature at Calcutta, as a Court of Record, with full power & authority to hear and determine all complaints for any crimes and also to entertain and determine any suits or actions against His Majesty’s subjects in Bengal, Bihar, and Orissa. The Supreme Courts at Madras and Bombay were established by King George — III on 26th December, 1800 and on 8th December, 1823, respectively. The India High Courts Act 1861 was enacted to create High Courts for various provinces and abolish Supreme Courts at Calcutta, Madras and Bombay and the Sadar Adalats in Presidency towns, which had been set up under Warren Hastings in his implementation of the Regulating Act, 1772. These High Courts had the distinction of being the highest Courts for all cases till the creation of the Federal Court of India under the Government of India Act, 1935. The Federal Court had jurisdiction to solve disputes between provinces and federal states and hear appeals against judgements from High Courts.

SUPREME COURT OF INDIA — PROTECTOR OF THE INDIAN CONSTITUTION

After India attained independence in 1947, the Constituent Assembly of India, engaged in extensive debates about the judiciary’s structure and independence. Recognizing the judiciary as the cornerstone of a democratic society, the Assembly’s discussions highlighted its critical role in safeguarding the Constitution and protecting fundamental rights.

Members of the Constituent Assembly emphasized that an independent judiciary was essential to prevent abuse of power by the executive and legislative branches. They argued that without judicial independence, the rights enshrined in the Constitution could become meaningless. One of the most contentious issues was the method of appointing judges. Concerns were raised about the potential for executive overreach and politicization of the judiciary. The compromise reached involved the President of India appointing judges in consultation with the Chief Justice of India and several safeguards for Judges were provided with security of tenure; they could not be removed from office except through a rigorous impeachment process by Parliament. These provisions were crucial in ensuring that judges could make decisions free from external pressures, thereby maintaining the integrity and impartiality of the judiciary.

Despite the creation of the Courts under the Constitution, the struggle for independence of the judiciary with the Executive / Legislature continued. In the First Judges Case (1981), the Supreme Court ruled that “consultation” with the Chief Justice of India (CJI) in appointing judges did not mean “agreement”, and the Union Government had the final say. This was changed in the Second Judges Case (1993), where the Collegium of Judges would comprise the CJI and two senior judges, giving the CJI’s opinion more importance. The Third Judges Case (1999) expanded this group to include the CJI and four senior judges.

In 2016, the Supreme Court struck down the Ninety-Ninth Constitutional Amendment and the National Judicial Appointments Commission Act, which aimed to change the judge appointment system and reduce judicial independence. The Court ruled that these changes violated judicial independence and the separation of powers.

Though it has taken time to lay down the law widening the scope of liberties in 1950, soon after the setting up of the Supreme Court, while looking at the right to freedom of expression in Romesh Thappar vs. State of Madras, while dealing with the ban on dissenting media struck it down as unconstitutional. In Maneka Gandhi vs. Union of India (1978), the Supreme Court ruled that the “(T)he procedure prescribed by law has to be fair, just, and reasonable, not fanciful, oppressive or arbitrary.

In His Holiness Kesavananda Bharati Sripadagalavaru vs. State of Kerala, [1973] (decided by a Bench of 13 Judges) one of the most celebrated cases in the history of Indian Constitutional law, held that the “basic structure of the Constitution” could not be abrogated even by a constitutional amendment.”

Despite this, post the declaration of the Emergency, came a low point of the Supreme Court when in ADM Jabalpur vs. Shivakant Shukla it was ruled that while a proclamation of emergency is in operation, the right to move High Courts under Article 226 for Habeas Corpus challenging illegal detention by State will stand suspended. The dissenting opinion of Justice HR Khanna where said — “detention without trial is an anathema to all those who love personal liberty… A dissent is an appeal to the brooding spirit of the law, to the intelligence of a future day, when a later decision may possibly correct the error into which the dissenting Judge believes the court to have been betrayed” catapulted Justice H.R. Khanna into one of the most celebrated liberal judges and as the protector of democracy. The said judgement came to be set aside only recently in Justice K.S. Puttaswamy (retd.) vs. Union of India and Ors., (2017) (Nine Judges). The Supreme Court held— “The view taken by Justice Khanna must be accepted, and accepted in reverence for the strength of its thoughts and the courage of its convictions…”. Sanjay Kishan Kaul, J. in his concurring judgment said: “…the ADM Jabalpur case which was an aberration in the constitutional jurisprudence of our country and the desirability of burying the majority opinion ten fathom deep, with no chance of resurrection.”

The Supreme Court has always been the harbinger of the rights of the citizens It has from time to time included various rights as part of the right to life, be it a person’s right to die with dignity (Francis Coralie Mullin(1981); the right to die by Euthanasia within parameters which may be documented in a Living Will, (Common Cause (2018)); the liberty to choose their sexual orientation, seek companionship within private space (Navtej Singh Johar(2018)); “right to education” (Pawan Kumar Divedi, (2014)) and the Right to privacy (Aadhar case). It emphasised Gender Justice amongst all communities. In Shah Bano’s Case (1985) it held that the maintenance under Section 125 of the Cr.P.C., was truly secular in character and is different from the personal law of the parties and that a Muslim woman was entitled to maintenance too. The Gender Justice was further extended in 2017 when the Supreme Court held the Triple Talaq to be Unconstitutional or when it upheld the right of women to enter the Shabari Mala temple. It pushed for electoral reforms and information about the candidates to be informed to the voters.

Similarly, while dealing with Criminal Law and fundamental rights the Supreme Court has been provocative and regularly taking steps to protect the rights of the citizens. The Supreme Court has been crying hoarse about arresting a person only when necessary and not merely because there is a power to do so. It also lays the mechanisms for making arrests more transparent and the police more accountable for violations of rights and issued a number of requirements / guidelines to be followed in all cases of arrests and detentions as preventive measures in D.K. Basu as well as in Arnesh Kumar requiring the need to balance individual liberty and societal order while exercising the power of arrest, which has now been incorporated into the statute.

The creation of Public Interest litigation or the Curative jurisdiction where it could correct its own errors under exceptional circumstances the most innovative remedies possibly in the world. SC also came up with the Vishaka Guidelines which paved the way for legislation dealing with workplace sexual harassment. It has also played an active role in protecting the environment; by propounding the principle of “Absolute Liability” after the Bhopal Gas Tragedy or the concept of polluter pays principle as an integral part of sustainable development.

One of the other areas where the Supreme Court has played a significant role is in the area of bail in criminal law. The jurisprudence of bail in post-independent India is anchored on the bedrock of Article 21.

The presumption of innocence is a foundational postulate in India’s criminal jurisprudence. This is the main reason why an accused is released on bail pending investigation and trial. However, in the recent past much more is desired from the Courts in this field and the Supreme Court has been slow in upholding the personal liberty rights of the accused in high-profile cases.

Effective 1st July 2024, a significant change is being brought about in Criminal Law. The three laws foundational to the criminal justice system are being repealed and replaced with The Bhartiya Nyaya Sanhita (The Indian Penal Code), The Bhartiya Nagarik Suraksha Sanhita (The Criminal Procedure Code) and The Bhartiya Sakshya Adhiniyam (The Indian Evidence Act). Whilst investigative techniques are progressive and the introduction of technology is dispensation of justice is necessary, the Indian Judiciary will be tested in its ability to uphold the Constitutional Rights of citizens, victims and accused, considering the many fundamental, though unnecessary, changes brought about in these legislations which have stood the test of time. “Laws”, especially criminal law, must always be clear, certain, and predictable. The repealed legislations have been in existence for over a century and have been interpreted repeatedly to ensure clarity, conciseness, and certainty. That is now being disrupted to an extent.

CHALLENGES FACED BY THE INDIAN JUDICIARY SYSTEM

The Indian judiciary faces challenges such as a significant backlog of cases, delays in justice delivery, and concerns over judicial transparency and accountability. This is a combination of both a lack of infrastructure as well a lack of quality manpower. The backlog of cases and delays in the Indian judicial system often results in the process itself becoming a form of punishment. This prolonged wait for justice leads to significant emotional, financial, and social burdens on individuals involved in legal proceedings. Victims may face extended periods of uncertainty and stress, while accused individuals might endure prolonged pre-trial detention. Such delays undermine the principle of timely justice, eroding public trust in the judicial system and effectively punishing people through the very process meant to deliver justice.

The Government, which is the largest litigator in the Country, has proposed a National Litigation Policy to reduce Government litigation in courts so that so as to achieve the Goal of the National Legal Mission to reduce the average pendency time from 15 years to 3 years.

The overburdened Indian judiciary, grappling with an overwhelming backlog of cases, underscores the urgent need for the use of alternate dispute resolution mechanisms such as arbitration and mediation. There has been a substantial push towards direction be it by way of amending the Arbitration Act from time to time to bring it on par with International Laws or by enacting a law to provide for the establishment and incorporation of the India International Arbitration Centre for the purpose of creating an independent, autonomous and world-class body for facilitating institutional arbitration, or even the amendment to the Commercial Courts Act in 2018 which provided for mandatory Pre-Institution Mediation and Settlement (PIMS) mechanism for certain commercial disputes or even the Mediation Act, 2023, which provides for institutional Mediation, but more needs to be done. Similarly, on the criminal side, the use of plea bargaining as a way of reducing the burden, though attempted, has not made much headway.

The burden on the criminal courts is equally heavy. The use of tribunals for criminal matters has not yet been looked at. It is worth considering shifting offences which are punishable with a fine only to tribunals thereby reducing the burden on the Court system and introducing AI methods in dispensing justice. In fact, even the cheque-bouncing cases, which are primarily a civil proceeding which has been given the colour of a criminal proceeding and forms a large number of pending criminal proceedings, could also be shifted to tribunals to reduce the burden on courts.

By aligning our legal framework with contemporary societal needs, we have embraced a more progressive, pragmatic, and humane approach, reflecting a nuanced understanding of justice and social change. In recent years, we have embarked on a transformative journey in our legal landscape, prominently featuring the decriminalization of various offences through legislative means such as the Companies Act amendments (done twice) and also under the Jan Vishwas Act.

USE OF TECHNOLOGY

The COVID-19 pandemic catalyzed the integration of technology into the judicial system, expediting access to justice and bringing legal services to everyone including the poor or those in rural areas. The Supreme Court and various High Courts swiftly adopted virtual court proceedings to ensure the continuity of access to justice. E-filing systems, virtual hearings, and video conferencing became the norm.

The advent of Artificial Intelligence (AI) marks a significant milestone in the evolution of judicial systems and is assisting in changing the landscape of Indian litigation. AI technologies are being developed and deployed to assist, replace, and even disrupt traditional judicial processes. Be it Supportive Technology where AI serves as an advisory tool, providing information and support to legal professionals or Replacement Technology where AI replaces some human interventions in judicial processes including automated document review, e-discovery, and the use of chatbots for initial consultations and routine legal inquiries or Disruptive Technology where AI fundamentally changes how justice is dispensed.

AI is poised to revolutionize dispute resolution by analysing legal documents and past rulings to predict outcomes, offering efficient and cost-effective alternatives to traditional litigation. Susskind, one of the foremost thinkers and proponents of AI and Legal infrastructure and who served as Technology Adviser to the Lord Chief Justice of England and Wales in his book “Online Courts and the Future of Justice,” predicts that global courts will undergo digital transformations, leveraging AI to enhance access to justice. Susskind argues that technology can address these problems by shifting court services online, making legal resolutions more accessible and efficient.

GLOBAL BEST PRACTICES

In December 2019, China announced that millions of legal cases are now being decided by “Internet courts” that do not require citizens to appear in court. The “smart court” includes non-human judges, powered by Artificial Intelligence (AI) and allows participants to register their cases online and resolve their matters via a digital court hearing.

The Chinese Internet courts handle a variety of disputes, which include intellectual property, e-commerce, financial disputes related to online conduct, loans acquired or performed online, domain name issues, property and civil rights cases involving the Internet, product liability arising from online purchases and certain administrative disputes. In Beijing, 98 per cent of the rulings have been accepted without appeal.

The Canadian commercial dispute process is paperless. A document management platform sifts through all parties’ documents to flag relevant vs. non-relevant documents. A subsequent platform reviews the relevant documents and tells you that your case has the stronger evidentiary background.

The Indian Income Tax Act is, in a sense, experimenting with Internet Courts. Having made its assessment proceedings not only faceless but technology-driven, this quasi-judicial function is now conducted by use of AI and data analytics.

INITIATIVES BY INDIAN JUDICIARY

India’s judiciary has begun integrating AI to address inefficiencies and backlogs. Notable initiatives include:

— SUPACE (Supreme Court Portal for Assistance in Court Efficiency): This AI-driven tool assists judges by summarizing case files and suggesting precedents, thereby expediting the decision-making process. Its functioning would be restricted to data collection and analysis.

— SUVAS (Supreme Court Vidhik Anuvaad Software): An AI-based translation tool that translates judicial documents into regional languages, ensuring wider accessibility.

Technology and AI have also been incorporated in relation to the Income Tax proceedings, where faceless assessment has been introduced to optimise resources as well as to use AI for standardised examination of draft orders, with a view to reduce the scope of discretion.

However, these are just the initial steps. Future plans include expanding AI’s role in predictive analytics for case outcomes and enhancing administrative efficiency. By analyzing historical case data and identifying patterns, AI would predict the likely outcomes of legal disputes with remarkable accuracy. This capability will not only assist lawyers in formulating strategies, but also bestow to clients a better understanding of their prospects of success. For example, lawyers can use predictive models to advise clients on whether to settle a case or proceed to trial, based on the probability of winning. This data-driven approach can lead to more informed decision-making and better resource allocation.

CHALLENGES IN THE USE OF AI

However, the accuracy and ethical implications of the predictions and information by AI remain a concern. Ensuring transparency in how these predictions are generated is crucial to maintaining trust in the judicial system. The integration of AI into the predictive process poses several challenges:

— Bias and Fairness: AI systems can perpetuate existing biases if they are trained on biased data. Ensuring fairness requires careful design and constant monitoring of AI algorithms.

— Transparency and Accountability: The “black-box” nature of some AI systems can hinder this, necessitating clear guidelines and explanations for AI-driven decisions.

— Empathy vs. Bias: While AI can ensure consistency, it lacks human empathy. Balancing AI’s data-driven approach with the empathy inherent in human judges is crucial for just outcomes.

Whilst the Chinese experience and other experiments need to be closely watched, in my view it is essential that there is always some human oversight that ensures that the AI never takes over the Judicial Process. AI should be to assist and not to Act. To this end it is necessary to establish clear guidelines for the use of AI in judicial processes, emphasizing transparency, accountability, and ethical standards implement robust monitoring mechanisms to regularly assess AI systems for bias and fairness; Provide training for judges and court staff on the effective use of AI tools; Engage with the public to build trust and awareness about AI’s role in the judiciary and also learn from international best practices and collaborate with global judicial bodies to adopt and adapt AI technologies effectively. Moreover, the rise of AI in law necessitates a shift in legal education and training. Future lawyers must be equipped with not only traditional legal knowledge but also an understanding of technology and its applications.

CONCLUDING THOUGHTS

The future in law is one of profound transformation. By automating routine tasks, enhancing access to legal services, and leveraging predictive analytics, AI has the potential to revolutionize the judiciary and legal profession. However, realizing this vision requires addressing ethical concerns and ensuring that legal professionals are adequately prepared for the technological shifts ahead. In essence, the legal landscape is where technology and human expertise coexist harmoniously, ultimately leading to a more efficient, accessible, and just legal system. As AI continues to advance, the legal profession stands on the cusp of a new era, one that promises to reshape the way judicial and legal services are delivered and experienced.

बालादपि सुभाषितं ग्राह्यम् ।

(Bālādapī Subhāṣitaṃ Grāhyam)

This line is often used as a proverb. Literally it means “Good ideas or good thoughts should be accepted even from a child”. We might have experienced that many times, innocent children unknowingly express a great thought which would even prove to be a solution to one’s problem.

The complete shloka

विषादप्यमृतं ग्राह्यं बालादपि सुभाषितम्।

अमित्रादपि सद्वृत्तं अमेध्यादपि काञ्चनम्॥

This is adopted from Manusmriti – 2.239

It means that if you receive any good thought or idea, accept it without any hesitation, irrespective of the source or medium through which it has come.

Thus, if you find that some drops of nectar (Amrit) are there in the poison take it out of the poison; if a child speaks something good or useful, consider it; if there are good qualities seen on the enemy’s side, adopt them in your own interest; and if some gold is seen fallen in a dirt or mud, don’t hesitate to pick it up!

This advice is very valuable. One should not underestimate the source or medium; nor should one have any prejudice about the source or medium.

Once I had been to my friend’s house. His grandson, maybe 4 to 5 years old, came running from another room. I stared at him and said, “Arey, your eyes are of your mother, and your nose is of your father”. The kid immediately reacted – “And this T-shirt is of my elder brother!” All laughed. But he gave a great message in his reply – Spiritually it meant there is nothing that is your own! and socially, it indicated the feeling of sharing among brothers. At present due to single-child custom, children are not aware of the concept of sharing.

Similarly, there may be a good thing (Amrit) surrounded by bad or dangerous things (poison). One should strive to get that good thing tactfully or skilfully if it is useful or valuable.

Sometimes, there are very good qualities in your rival or enemy, e.g., in sports, you can see and feel the talent of your rival, his skill, his discipline, timing and so on. Shivaji Maharaj invited many good Maratha warriors who had been fighting on behalf of their enemies. He made them loyal to his Swarajya and they even sacrificed their lives for the noble cause of Swarajya.

In a court case, your opponent’s lawyer may show a few good qualities or make brilliant points or present them much impactfully. One should immediately adopt them. Some good articles may appear in newspapers, which you otherwise hate since it belong to different ideologies. Still, you should read that article in your own interest.

Your valuable article, like a gold ring, fell down into mud or garbage or anywhere that is dirty (like a gutter!); yet you will put your hand into it and remove it.

It is interesting to note that Shree Datta Guru made 24 Gurus which included even every ordinary men, birds and insects! We need to develop a perception to grasp good things from anywhere and everywhere.

BCAS President CA Chirag Doshi’s Message for the Month of July 2024

As I pen down this message for the final time as the President of the Bombay Chartered Accountants’ Society, I am filled with a sense of gratitude and pride. It has been an honour to lead this prestigious institution during its 75th year, a milestone that stands testament to our enduring legacy and unwavering commitment to excellence. This journey has been marked by remarkable achievements, collaborative efforts, and the collective vision of our members, all of which have propelled us to new heights and has reaffirmed the Society as a thought leader in the finance/accounting/tax community. As we look to the future, I am confident that the foundation we have built over the years will continue to foster growth, innovation, and a spirit of camaraderie within our community.

Recently, the election results took an unexpected turn when the NDA secured 293 seats, while the INDI Alliance won 234 seats in the Lok Sabha. Despite been a coalition government, the NDA quickly refocused on “Modi 3.0.” The NDA alliance acted in a very mature manner ensuring within just five days, Prime Minister Narendra Modi and his cabinet ministers took their oaths of office. The key expectation of both B2B sector and B2C sector entities are around ease of business, fast track digitisation, digital infrastructure improvements, faster and easier access to credit facilities, better governance and continuous support. Infrastructure development and research and development expenditure will be pivotal in taking Indian corporates, start-ups and MSME ahead.

This month we had the ICAI torch bearers President CA Ranjeet Kumar Agarwal and Vice President CA Charanjot Singh Nanda along with other Central and regional council members visiting our BCAS office and had an interaction with our office bearers, managing committee, past presidents and core group members. The discussion was very insightful, and many topics related to the profession like impact of technology, globalisation of practices, CA curriculum, articleship, policy related to aggregation of firms and many more relevant topics were also discussed.

During this month our society was also invited to interact with the Revenue Secretary Mr Sanjay Malhotra at the Income Tax Office Mumbai, and we presented our views and expectations in coming times from the Revenue Department.

Our Society concluded an extremely power packed power summit at the Alibaugh with the theme of Walk the talk – Leverage AI, technology capital and collaboration. It was well attended by 90+ CA and the topics ignited lot of requirements the new age practice needs to adopt in the given changing times.

BCAS has also submitted their pre-budget memorandum 2024 -25 to the Hon. Finance Minister of India, highlighting the key concerns affecting the common man and offering recommendations to address them. We recommended reducing the maximum tax rate for individuals to 30% to provide relief to high- income earners, reinstating the exemption for medical reimbursements up to Rs. 50,000 per annum which will help salaried employees cover small and outpatient medical expenses, increasing the threshold for advance tax payment from Rs. 10,000 to Rs. 1,00,000 which will reduce the burden on taxpayers, reinstating the 150% weighted deduction for in-house R&D expenditure to promote innovation and technological advancement, raising the exemption limit under Section 54EC from Rs. 50 lakhs to Rs. 2 crores to provide adequate relief in line with inflation and many other recommendations were submitted. These recommendations aimed to simplify tax compliance, reduce the financial burden on individuals, and promote overall economic growth. We hope they will be considered favourably.

Talking about my journey during this year, it started with a 5-year plan with 5 pillars. Various new initiatives were undertaken:

  1. Reach – Increase in Social media presence across all platforms, print media coverage, outstation members meeting, PM’s commendation letter praising 75 years journey of BCAS, special invitees to various meetings before current budget, faculty sharing MOU with Comptroller and Audit General of India, Joint events with American Association of Accountants, joint events with IMC, joint programs with BIA and much more.
  2. Professional Development – Adan Pradaan (Mentor-Mentee initiative) with 75 mentees in a year, youth CAMBA event with Atlas University, various seminars on technology, international webinars, seminar on Forensic Accounting & Investigation Standards (FAIS), 75 hours long duration course on Accounting and Auditing, Professional Accountancy courses, Full Day Workshop –Use of Technology in GST Compliance and many more to continuously upgrade the professional skills and many more.
  3. Networking – launch of BCAS Engage platform, Pan India Networking events for members, RRC and other events had networking focus initiatives, NFC cards at Reimagine Conference, Outstation members meet in various cities.
  4. Advocacy / Research and Publications – Research paper on “Ease of Doing KYC”, Study paper on “Disclosure Overload—Issues in Financial Statements”, various representations to regulators, Publication of 75 Laws Relevant for Direct Taxes.
  5. Yuva Shakti – Student event Tarang@75, CAs got talent – JhanCAr was back with a bang and maximum participation, Digital branding seminar, Vibrant BCAS youth WhatsApp group.
  6. CA for Change – Digitalisation of schools in tribal areas, providing science lab, and library cum reading room to schools, creating a BCAS Van by planting 7500 trees in the 75th year.

More than 75 events in one year were organized which included lecture meetings on current topics, webinars, outstation meetings, RRCs, NRRC, students’ events, study circle meetings, workshops, seminars and non-technical sessions and events.

Amongst many initiatives and events, we organised this year, the 75th year celebration event, ‘ReImagine’ stood out as a beacon of our commitment to innovation and forward-thinking. This event brought together thought leaders, industry experts, and our vibrant member community to explore the future of our profession. We delved into topics such as the impact of emerging technologies, the evolving landscape of corporate governance and the importance of sustainable practices in finance and more. The insightful discussions and collaborative sessions not only broadened our perspectives but also equipped us with the tools and knowledge to navigate the challenges and opportunities that lie ahead.

‘Reimagine’ was not just an event; it was a movement that underscored our resolve to stay ahead of the curve and lead with vision and purpose.

Reimagine was about opening vision of the members towards the upcoming vistas, which can be explored with renewed vigour to excel and thereby achieve greater heights in the profession.

The crux of creativity is seeing things from a new perspective. The greatest block to creativity is old judgements. It is time to reprogram your minds. So, try the untried – Mahatria Ra

As I conclude my tenure, I extend my heartfelt gratitude to each one of you for your unwavering support, dedication, and contributions. The milestones we achieved together are a testament to our shared vision and collective efforts. This role has been a transformative experience for me personally. I have learned, grown, and been inspired by the dedication and passion of our members. The camaraderie and collaboration within our society are truly exceptional, and I cherish the memories and relationships formed during this period.

Thank you once again for the incredible honour of serving as your President, I am confident that the incoming President Anand Bathiya and his team of office bearers and managing committee will continue to steer the Bombay Chartered Accountants’ Society towards greater success, nurturing the principles of excellence, integrity, and innovation. Let us continue to work together, fostering a legacy that will inspire future generations of chartered accountants.

To end, I will say:

“Goodbyes are not forever, are not the end.

It simply means I will miss you all until we meet again”.

Bharat and BCAS – The March Towards a Centenary

It is heartening to note that on 6th July, 2024, BCAS will complete 75 years. Even the CA profession in India is completing 75 years, as ICAI was established on 1st July, 1949. Two years back, India or Bharat completed its 75 years of independence. Therefore, the theme for this special issue is “Bharat and BCAS March Towards Centenary”. At the Government level, the period of 25 years from the 75th anniversary to the 100th anniversary is regarded as an “Amrit Kaal”, with the objective of “Viksit Bharat” which means “Developed India”.

With the above theme in mind, this issue of the Journal contains thought-provoking articles on important aspects of India by leading domain experts in the fields of Law and Judiciary, Education, etc. I hope that the thoughts expressed here will help set India on the road map towards becoming Viksit Bharat.

Turning to 75 years of the CA Profession and looking to the future, we can say that we have a glorious past, are witnessing a difficult present but are hopeful of a bright future. The entire world is passing through a tumultuous transition, and the CA Profession is no exception. Disruptive technologies, disruptive ideas and expectations rule the world. Let us look at two traditional core areas of CA practice: Audit and Taxation. Both these areas of practice have undergone significant changes, which are continuing at a huge speed and on an unprecedented scale.

AUDIT AND ASSURANCE PRACTICE

In the good old days, Auditors were expected to audit manually and express their opinion on the true and fair state of the financial accounts. However, over a period of time, expectations from Auditors have increased significantly. Today, the Auditor is expected to have a 360-degree view of the state of affairs and to give an assurance to all stakeholders. This requires reasonably sound knowledge of various statutes, which may not be his domains of expertise. If anything goes wrong in a company, the Auditor comes under the scanner. He may be charged with negligence, incompetence, etc., till such time he proves his innocence beyond doubt. Auditing has become a high risk and less rewarding job if measured in terms of health and mental peace.

Now the Auditor is answerable to multiple regulators and agencies such as NFRA, ICAI, SEBI, NCLT, RBI, CBDT, GST Authorities, Customs, MCA, and many others. The code of conduct prescribed by ICAI with good intentions puts onerous responsibilities on Auditors and conflicting obligations. For example, amendments to the Code of Ethics by ICAI, applicable w.e.f. 1st October, 2022, requires CA Employees and Auditors of Listed Companies to respond to Non-Compliance with Laws and Regulations (NOCLAR) about which they become aware during their engagement. The provisions of NOCLAR are quite onerous in nature1. The provisions of Tax Audit are now so framed that a Tax Auditor virtually does assessment of his client on behalf of the Assessing Officer, without being remunerated by the latter. He is expected not only to express an opinion on the true and fair view of the accounts but also to deliver his view on the import of various provisions where he and the auditee may have a genuine difference. System-driven reporting makes his job difficult and the AI-driven processing of his reports renders his life miserable.


1. Refer Editorial of June 2023 for the detailed discussion on the provisions of NOCLAR

The advent of ESG (Environment, Sustainability and Governance) Reporting has necessitated a different skill set from Auditors. An Auditor is supposed to assess the sustainability of the business and comment on the governance of the organisation. This shows a clear shift of auditing functions and expectations from the traditional role of assuring true accounting and opining on financials. The ever-increasing burden results in Auditors being cast with the title of “Conscience Keeper” for various stakeholders. The profession should be conscious of the heavy price that may have to be paid on account of this title, in terms of health and reputation. There is a limit to the responsibilities that one can shoulder.

THE ROAD AHEAD

Looking at the applicability of various statutes, varied expectations from stakeholders, sophistication in technology, numerous regulators, etc., in discharging audit function, it appears that very soon MSME firms will be out of this space. The time has come for multidisciplinary audit firms where different domain experts conduct audit as a team with joint and several responsibilities. Indemnity insurance will become a necessity for large audits and may be made compulsory.

Perhaps, additional pre-qualifications / requirements may be introduced for large private sector audits, just as prevalent today for audit of banks and PSUs. Once AI tools stabilise, their use may be made mandatory to eliminate human errors and ensure accuracy of data. The profession needs to accept, adopt and adapt to these challenges but with clarity on its role and responsibility. Dialogues need to take place with stakeholders (including regulators and agencies) and clarity needs to emerge as to the realistic expectations from Auditors, thus reducing or eliminating expectation gaps. It is here that the profession hopes that its alma mater, ICAI, will play a role.

TAX PRACTICE

Direct tax practice has been a stronghold of CA professionals since inception. However, here too, there is a significant shift, with more thrust on compliances. Readymade software has made computation of income easy. Information collated in the AIS form by the Income-tax department from various sources makes it impossible to hide any income. It also acts as a reminder and helps a taxpayer to disclose his income accurately. Online filing and e-compliances have made life quite simple.

Corruption in assessment and litigation was a major hurdle in tax practice. To address the menace of corruption, the government introduced Faceless Assessments and Faceless Appeals. Some experiences of Faceless Assessments have been really encouraging, despite difficulties in passive communication. A lot more still needs to be done. Possibly, a calibrated approach, with incremental coverage may help in solving the current crisis of huge pendency.

FUTURE OF TAX PRACTICE

The reopening of assessments based on audit objections, change of opinion and one-off Tribunal decisions continues to clog the judiciary with tax writ petitions. The objective of achieving early finality to tax assessments remains a pipedream, with the issue of summons by tax authorities to seek roving information which could form the basis for reassessment, in effect, assessment by the backdoor. The trust deficit between the government and taxpayers still continues, despite buoyancy in tax collections. Technology and the use of AI has enabled the Income-tax Department to collate information from various sources. Linking Aadhar with PAN will help in collecting various details of taxpayers / non-taxpayers, including investments and property dealings. India has signed a number of Automatic Exchange of Information Agreements, through which it seamlessly obtains details of overseas transactions of Indians.

Professionals too will have to adapt technology, use AI for preparing written submissions and be conservative in advising clients to avoid long drawn litigations and uncertainty. CAs should also be careful in advising clients and ensure that their advices are compliant with General Anti Avoidance Regulations (GAAR), Specific Anti Avoidance Regulations (SAAR), Prevention of Money Laundering Act (PMLA), Black Money Act (BMA) and any other applicable laws and regulations. The cost of litigation is increasing not only in terms of money but time and loss of opportunities. It is time the profession reminds its clients the age-old maxim, “Discretion is better than Valour”.

THE FUTURE OF THE PROFESSION

With India poised to become the third largest economy of the world, the demand for CAs will certainly go up. With a majority of CAs opting for industry roles, practicing CAs will be more in demand.

Realising the need for more CAs, ICAI has reduced the tenure of articleship from three to two years and will conduct CA exams thrice a year, instead of twice a year. CAs should continuously upgrade their knowledge and skills by attending educational programs offered by ICAI and voluntary professional bodies such as BCAS. The need of the hour for the CA profession is to introspect, raise standards by ethical practices, stop undercutting and continue to serve the Nation with vigor and enthusiasm, as CAs are torch bearers in Nation Building!

Wish you a happy CA and BCAS Founding Day!

Society News

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8th Residential Study Course on Service Tax & VAT


Mr. Naushad A. Panjwani (President) lighting the lamp

The Indirect tax and Allied Laws Committee of BCAS conducted its 8th Refresher Study Course on Service tax and VAT at Khanvel Resort, Silvassa from Friday, 13th June to Sunday, 15th June, 2014. Total 138 delegates attended, out of which 56 participants were from cities other than Mumbai viz., Pune, Nashik, Aurangabad, Jalgaon, Ahmedabad, Hyderabad, Telangana, Chennai, Delhi, Gurgaon, Agra, Jaipur, etc. It was inaugurated at the hands of the President Mr. Naushad A. Panjwani.

There were five papers – three discussion papers and two presentation papers as under:

Lecture Meeting – The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 on 4th June, 2014

The meeting was held at the Lotus Hall of Society’s Office. The Speakers were Senior Associate/Team Leader Mr. Abhijeet Sonawane, Solicitor, Senior Associate/Team Leader Ms. Viloma Shah, and Associate Ms. Tanisha Doshi.

The speakers explained the new Act which was enacted w.e.f. 9th December 2013. With Power Point Presentation, they covered important definitions viz. Sexual Harassment, Aggrieved Woman, who are covered under this Act, Responsibilities of the Employers.The speakers laid emphasis on formation of Internal Committee, comprising of the Independent Woman, and three other members. They also explained the importance of laying down policy guidelines, conducting appropriate training sessions and educating the members.In the interactive session, they addressed many questions from the audience.

In the opening remark, the President explained the relevance of the topic referring to the guidelines laid down in the judgement in Vishakha’s case.

Participants appreciated the relevance of the topic and felt it important to spread the qualitative education and awareness on the subject in the business environment.

Power Summit – Networking within and across Professions on 6th & 7th June, 2014


L to R : Ms. Nandita P. Parekh, Mr. Uday V. Sathaye, Mr. Narendra P. Sarda, Mr. Naushad A. Panjwani (President)

A 2-day Summit was organised by the 4i Committee of BCAS. The objective of the Power Summit was to bring together leaders of accounting firms to discuss and debate the changing paradigm of the profession and to explore whether the time for cross functional professional firms/ companies has indeed arrived. The Summit was for professional firms that want to contemplate growth through mergers, consolidation and networking and through strategic thinking and pro-active initiatives. CFO Round Table on 6th June 2014 The CFO Round Table was a unique event organised by the Managing Committee of the Society. The programme was sponsored by BCA Journal & Godrej Properties. The objective of the programme was to look at how CFOs being in the hot seat can better prepare themselves for what the future holds, and how they prepare themselves with effective risk management strategies, proper corporate governance, as well as a crystal ball to predict how an ever-changing landscape will impact the industry. Some of the Comments received are shared below:


L to R : Mr. Gautam Doshi, Mr. Naushad A. Panjwani (President), Mr. Y. H. Malegam, Mr. Nitin Shingala

• The session was very informative and I would have liked if Mr. Doshi could have spoken longer. Unfortunately, I cannot attend a similar workshop in Lonavala due to some prior commitments. Kindly let me know whether the literature discussed in this event can be made available. Thank you, Best Regards – Arnab Chakraborti, Head – Operations, Kotak Commodity Services Ltd.

• Thanks. It was my pleasure and honour to be part of the forum – Manish Jani, Great Ship Global

• Thank you for inviting me for the CFO Round Table. I benefitted greatly by listening to Gautam Bhai. Regards Sanjay Khetan, Khetan & Co.

• It was my pleasure to participate in the summit & meet with you & your colleagues. I am happy I was able to contribute to the event & learned quite a few things from other distinguished speakers as well as from the interactions at the CFO forum. All the best for BCA’s future programmes. Warm regards, Uday Phadke, Principal Advisor (Finance), Mahindra & Mahindra Ltd.

• It was a good experience Mr. Panjwani and look forward to further interactions. Would be glad if the presentations can be made available. Thanks & Regards Smriti Vijay, AKER Solutions

• Very happy to be with all of you – Shailesh Haribhakti, Chairman, DH Consultants Pvt. Ltd.

• Thanks for the invite and it was really a great value add in listening to these eminent speakers – Sunil Burde, Pidilite Co.

• It was indeed a good opportunity for me to present in BCAJ, one of the premier association of our profession, for the discussion on Companies Act, 2013. Hope this continues in years to come. Regards Nambi Rajan, Thirumalia Chemicals.

BCAS Referencer 2014-15 Release Function, 7th June, 2014

Membership & Public Relations Committee organised the BCAS Referencer 2014-15 Release function. The Referencer was released at the hands of the Society’s President Mr. Naushad Panjwani. This year the Referencer is being released in two parts. The Supplement and CD will be released in August 2014 after the presentation of the Union Budget, 2014.

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Society News

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Mega Lecture Meeting by N. P. Sarda on 10th June 2015

The meeting was held at the Jai Hind College Auditorium. The speaker Mr. Narendra P Sarda, Chartered Accountant dealt with the subject in his own inimitable style:

He explained the differences between AS and Ind AS, the issue between Adoption and convergence, Conceptual differences. He dealt between AS & IndAS, Conflict between reliability and relevance. Also, he mentioned that there are many situations which are not addressed in AS but are dealt with in IndAS. He also dealt with certain IFRS issues.

ICAI continued to keep abreast with the changes in IFRS by amending notified IndAS to continuously remain converged. He also stated, that the earlier schedule VI was not in compliance with the IFRS but the revised Section VI was made IFRS compliant

The speaker also elaborated on the concept for consolidation – things keep changing and hence, society’s dynamic concepts of accounting are also changing, to keep pace with society.

Full day Conference on Going Digital on 13th June 2015


A Full day conference was organized by the Infotech & 4i Committee of BCAS. The objective of the conference was to update professional to be with the Digital World of future.

46 participants attended and benefited from the

Workshop. Workshop on Business Etiquettes on 6th June 2015

Human Resources Committee of BCAS organized this workshop where the Faculty Mr. Mihir Sheth dealt with various aspects of business etiquette practices which can help the participants to carry effortlessly while dealing with their counter part from other countries. It is gave insight of different topics of business and social etiquette and also gave chance to actively participate by sharing their own experiences.

Etiquette topics that the workshop included were as follows:
Email etiquette
Mobile phone
Dining
Conducting a teleconference
Business Meeting protocol/Conducting negotiations
Gifts- Give appropriate gifts
Tips
Business practices of different countries
General protocols-Personal Hygiene

80 participants attended the workshop and gained immensely from the knowledge and experience shared by the faculty.

8th Jal Erach Dastur Students Annual Day on 30th May 2015

This is organized by the student members of BCAS for the CA students. This platform enables CA Students to come together and interact with each other and make new friends. It also gives them an opportunity to unwind into an evening of learning, singing, dancing and frolic.

The event commenced with a short prayer sung by Tej Bhatt followed by the anchors introducing the honorable Chief Guest, CA Dilip Desai, Chairman at DH Consultants Pvt. Ltd. along with the President, Chairman and Convenors of the HR Committee. The chief guest inaugurated the event with the lamp lighting ceremony and spoke to the CA Students about key aspects necessary for becoming a successful professionals. He explained that failure is not the end and quoted his own example of his journey from a primary school failure to a Gold Medallist CA. He stressed the importance of ‘excellence in service’ to be the ultimate objective and money should only be an incidental byproduct. President of the Society CA Nitin Shingala and Chairman of the Human Resources Committee CA Mayur Nayak also addressed the students and set the ball rolling. Mr. Narayan Varma, the Past President of BCAS and an ardent supporter of the students’ activities, conveyed his message through a video clip which was shot the earlier day. Mr. Varma could not remain present physically due to his ill health. the end, the judges gave mesmerizing performances gripping the audience with their singing and instruments. The true Maestros! As a gesture of team spirit and bonding towards the society, the entire Human Resource committee including the chair-man, the conveners and the chief coordinators together, sang an enchanting song for the audience.

With the clock ticking, the suspense and wait was about to be over. The winners of the competition representing their firms were finally announced. The List goes as follows:

Mr. Raj Khona enlightened students about various students’ activities such as Study Circle, Monsoon Treks, Sports Day, etc. Thereafter, a small skit was performed by students on the theme of “Andh Vishawas”. The skit was a hit and kept the audience roaring with laughter till the end. Post this, “Chandanben Manganlal Bhat Elocution Competition” was held where the finalists of the elimination round battled it out with each other to win the coveted trophies. All the participants delivered their speeches emphatically and gave the judges a tough time to emerge victorious. The elocution competition ended with the start of the tea break where the students feasted on sumptuous samosa pav along with a cup of tea/coffee.

After savouring the hot served snacks and tea, the audience assembled back with amplified enthusiasm, ready and excited for the lucky draw round, this marked the beginning of the post-break session. Also, a special lottery was introduced this year wherein the winners were drawn from the box filled with the feedback forms which acted as a great stimulus for the students as well as the society. The winners of the draw were presented with some of the most amazing books by brilliant authors. However, the audiences’ zeal continued even after the lucky draw as Mr. Nishad Vora and Miss Virti Kothari began with audience quiz filled with fun and entertainment. Audience participation and spirit was overwhelming. The auditorium was filled with laughter, music and applauses.

Immediately after that, the auditorium echoed with the beat of drums and tapping of feet perfectly synced and enjoyed by the entire crowd as the hosts announced the most awaited segment, ‘The Talent Round’. Soon the stage was taken over by young and talented stars showcasing their extra-ordinary talents. In all 20 finalists performed and graced the stage with dancing, singing, playing instruments and mono-acting giving a tough challenge to the judges. All the singers were supported by the live background music fantastically played with the help of various instruments. Huge round of applauses and cheering came from the crowds the entire time. At The Jal Erach Dastur Students Annual Day is an event that is organized by Bombay Chartered Accountant Society (BCAS) every year. This year the event celebrated its 8th anniversary at Navinbhai Thakkar Auditorium at Vile Parle (East).

A hearty congratulation to all the winners and their firms.

Judges for the Various Competitions were as follows:

The entire evening was hosted fabulously by Mr. Mudit Yadav and Miss. Charmi Doshi with their outstanding performances keeping alive the excitement and spirits till the end.

The chairman of the H.R. Committee, CA Mayur Nayak along with the conveners praised the efforts and felicitated each and every student of the core committee for putting up an excellent show in a short span of time. Also, the hard work of all the group leaders of the Study Circle for 2014-15 was recognized. Mr. Raj Khona and Mr. Jigar Shahs’ efforts were acknowledged for coordinating students ‘study circles during the last year.

Mr. Sagar Desai proposed vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the Annual Day in the fond memory of his brother late Jal Erach Dastur, the family of the Chandanben Manganlal Bhatt for sponsoring the Elocution Competition, the chief guest for the evening, the conveners of the Annual Day, CA Anand Kothari and CA Kinjal Bhuta, Judges of various competitions, BCAS Staff, Caterers, Mr. Jayant Shah and other trustees of the Navinbhai Thakkar auditorium, parents and principals of students, guest instrument players, sound technicians, HR Committee members, the students core committee team and all the students for participating in big numbers.

With great pride and delight, we announce that a total number of 450 students registered for the Annual Day, setting an overwhelming benchmark.

Instrumental Category

The overall rotating trophy for ‘The Firm of Series’ went to SGCO & Co.

A hearty congratulation to all the winners and their firms. Judges for the Various Competitions were as follows:
 
A sumptuous dinner was arranged after the event for all those who marked their presence at the annual day. The motto of the event to not only develop and encourage skills and extra-curricular participation but to bring together the entire fraternity was very well achieved. The Jal Erach Dastur Students’ Annual Day provides a single platform to the students for showcasing their talents as well as interacting with each other. All in all, at the end of the 8th Jal Erach Dastur Students’ Annual Day, a feeling of achievement with some splendid memories were taken along by each and every person, rather, it is not the end but a promise for a new beginning !!

Society News

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The IT study circle on ‘Super Advanced Excel for professionals’ held on 24th May and 7th June 2016

The Technology Initiatives Study Circle of the BCAS recently held a multi-session workshop on ‘Super Advanced Excel for Professionals’ addressed by the learned speaker CA Nachiket Pedhnekar.

Nachiket is a Microsoft certified corporate trainer for MS Excel and Excel VBA. He is the founder & CEO of ViN Learning Centre, a corporate training institute based in Mumbai. Nachiket was shortlisted in the top 30% candidates across the world in the “Excel Model Off” competition (a global competition on financial modelling using MS Excel) in their 2015 edition.

The first session was held on Tuesday, 24th May 2016 whereas the second session was on Tuesday, 7th June 2016. Over the last two sessions, the speaker has covered interesting topics such as “Flash Fill”, “Datedif Function”, “Goal seek” for performing Trial and Error, “Scenario Manager” for simulations, Alternatives to “nested if”, “If error” & “Ifna functions”, Pivot Tables, Sparklines, “Fuzzy lookup” add-in, Data Table etc.

Both sessions witnessed a large audience and were interactive. All participants have benefited immensely through these enriching sessions.

The third session of the workshop is scheduled to be held on Tuesday, 28th June 2016.

Indirect Tax Study Circle Meeting on CENVAT Credit Rules held on 3rd June 2016
Indirect Tax Study Circle Meeting was conducted at BCAS on 3rd June 2016, to discuss various issues relating to amendments made to Rule 6 of the CENVAT Credit Rules. The Meeting was led by CA Shri Jinit Shah and chaired by Advocate Shri. Vipin Jain. The group held very extensive discussions and debated on case studies drafted for the subject.

Presentation prepared by CA Jinit Shah was appreciated by members and guidance provided by Shri Jain was very helpful in deciding some of the very complex issues that were taken up for consideration. Study Circle received encouraging response from the members, as more than 50 members participated in the meeting.

Full day workshop on Fraud Reporting & Tools for Data Mining & Analytics for Statutory/Internal Auditors held on 4th June 2016 at BCAS

(Organized by Human Development and Technology Initiatives committee jointly with Accounting and Auditing Committee).

CA Raman Jokhakar, President BCAS welcomed the participants. CA Nitin Shingala set the tone for the workshop by highlighting the relevance of the topic in the current regulatory perspective.


CA Chetan Dalal took up case studies and explained the nuances of forensic investigation. He shared some sample forged/ manipulated documents and requested the participants to identify the gaps in the audit evidence. This helped the participants to gain insights and better understanding of the concepts of forensic investigations.

CA Sarang Dalal took up case study on identifying fraudulent practice at a toll collection centre using data analytic techniques. The participants’ brain stormed on various ideas to identify red flags for fraudulent transactions.

CA RU Kamath explained the Auditors’ and KMPs (Key Management Personnel) responsibility on prevention, detection and reporting of fraud under The Companies Act, 2013, Rules framed thereunder, CARO Report and Director’s Report. He also highlighted the implication on auditor for failure to report fraud. Through various case studies and practical examples, he explained the participants, the process to identify a fraudulent transaction and its reporting methodology under The Companies Act, 2013

CA Nikunj Shah explained the concept of Data Mining and Assurance Analytics in the context of statutory and internal Audit. With the help of live demonstration, he explained how Pivot table can be used to:

Summarize data exceeding one million rows.

Prepare pivot table from CSV files without importing CSV files in excel

Get kaleidoscopic view by slicing and dicing data.

Conduct Pareto analysis (80-20 rule) to identify high value (and high risk) transactions

Quickly perform a ‘Time Dimension’ analysis on data.

Interpret results of analysis and apply it in decision making

CA Nikunj Shah explained the concept of dashboards like important questions to ask, before one starts working on a dashboard, the process to organize data thereby ensuring that it’s interactive, real time and flexible. He also explained which chart types work best for different data types and steps to use pivot tables with a dashboard.

The workshop was attended by 115 participants. The overwhelming response from diverse gamut of participants – industry and practice, local and outstation participants, BCAS member and non members showcased the interest in the subject cutting across wide spectrum of stakeholders.

CA Kinjal Shah proposed vote of thanks to all the speakers and participants for making this workshop a grand success.

Lecture Meeting on Filing of Income Tax Return held on 8th June, 2016

Like in earlier year, this year too, the Society organized a lecture meeting on Filing of Income Tax Return at IMC, to take the members through the nuances of the new Income Tax Return Forms prescribed in March, 2016 for the Assessment Year 2016-2017. The purpose of the lecture meeting was to demystify the filing process, throw light on potential issues and spread awareness about the precautions to be taken while preparing and filing the tax returns.

President Raman Jokhakar welcomed the young speakers CA Siddharth Banwat and CA Bhadresh Doshi and gave his opening remarks. The lecture meeting commenced with the launch of the Third Edition of the publication ‘Gita for Professionals’ authored by CA Chetan Dalal. The book was released by CA K.C Narang, Past President of the Society along with Book’s author CA Chetan Dalal and the speakers present CA Siddarth Banwat & CA Bhadresh Doshi.

CA. Bhadresh Doshi spoke about the key changes in the new Income Tax Returns Forms notified by the CBDT on 31st March 2016 for A.Y. 2016-17. He presented the key legal provisions related to the ITR Forms through a very systematically prepared presentation. He highlighted the key issues and challenges in each ITR form very meticulously.

CA Siddharth Banwat dealt with a very important amendment relating to disclosure requirements of Foreign Assets and Bank Accounts in the new ITR Forms. He talked about the impact of non-filing of Return of Income under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2016 and also discussed issues concerning taxation for NRIs / Non Residents. He further touched upon the procedure of e-filing of tax returns for the A.Y.2016-17.

The speakers enthralled the audience at the venue which was filled to its capacity. It was attended by tax professionals and students in large numbers. The meeting concluded with the vote of thanks by Mr. Raj Khona who appreciated the well-articulated speech and excellent presentation given by the young speakers.

9th Jal Erach Dastur CA Students Annual Day held on 11th June 2016

The Jal Erach Dastur Students Annual Day is an event that is organized by the Bombay Chartered Accountants’ Society every year. The 9th Edition of the event was splendid and also got a new title ‘Tarang 2k16 – Tarasho Apne Talent Ke Rang.’ It was held at the K.C. College Auditorium, Churchgate on Saturday, 11th June 2016 from 2.30 pm onwards.

It is an event organized by the BCAS Students Forum under auspices of the Human Development and Technology Initiatives Committee of the BCAS for the CA students. The students are given an opportunity to showcase their talents and take a break from the daily routine activities. It is an excellent platform that enables students to come together, interact with each other and make new friends. The theme of the programme was ‘Start-ups & Entrepreneurship’ and the Chief Guest for the event was Mr. Vishal Mehta, Founder & CEO of Infibeam.

The event commenced with the participants showing respect and love for our motherland, by singing the National Anthem. It was succeeded by the members of the Managing Committee & HDTI Committee lighting the lamp of knowledge, tribute to Shri Jal E. Dastur and Shri Pradeep Shah guiding the future Chartered Accountants.

The Society lost a stalwart in Shri Narayan Varma who passed away on 24th December 2015. A tribute was paid to this great man who was the Past President of the Society and an ardent supporter of the student’s activities. For the first time, a mesmerizing Anthem ‘Let’s have fun at Tarang’ composed by CA. Devansh Doshi was prepared to promote the entire event.

The event this year was graced by Shri Soli Dastur, who ignited the future Chartered Accountants on why it is important to become not just a good Chartered Accountant but also a good person. He spoke of the importance of following ethics in the professional careers.

To keep up with the tradition, the student members of the organising team then presented a wonderful skit which was titled “Tarang – Pani da Rang” with a message about treating everyone with equal respect and honour.

The skit was followed by the Chandanben Maganlal Bhatt ‘Elocution Competition’ where six finalists battled it out with each other to win the coveted trophies. The difficulty bar was raised this time and the finalists were allotted the topics on random lot basis. All participants gave commanding performances on their respective topics which made the job of the judges a difficult one.
The Selfie Competition ‘Khinch Le’ was a new entrant in the Annual Day this year. Students were given themes on which they had to click creative selfies and mention an innovative tagline based on the theme selected. The CA students came up with some delightful and funny pictures for the audience to enjoy.

The final round of the Debate Competition ‘War of Words’ followed the Selfie Competition. The debate was moderated by CA Mudit Yadav with two teams of three students finalists, each coming up with very good points to defend their case. There was also an open house for the audience to ask questions to individual speakers of either of the teams. The competition was enjoyed by the entire audience and was a great hit.

President, CA Raman Jokhakar and the Chairman of the HDTI Committee CA Nitin Shingala then addressed the students, motivated them and also spoke about various initiatives taken by the society for student members. To keep up with the I.T. Revolution, the Co-Chairman of the HDTI Committee CA Mihir Sheth and Convener CA K.K

Jhunjhunwala addressed the students through a video clip.

The young and energetic student co-ordinators Mr. Raj Khona and Mr. Viren Doshi addressed the students and encouraged them to join the BCAS Students Forum and Students Study Circle. They also spoke about the various initiatives taken by the Students Forum during the year. This was followed by the break where the students were treated to a delectable samosa along with a cup of tea and coffee.

After savouring the hot snacks and tea, the audience gathered back with grander enthusiasm, ready and excited for the highlight of the event, The town hall Q & A Session with Mr. Vishal Mehta, Founder and CEO of Infibeam. com. CA Mihir Sheth gave a remarkable introduction of the keynote speaker. Mr. Vishal Mehta then addressed the audience and shared his start up story about how a professional from Silicon Valley, USA is now a CEO of his very own enterprise. He stressed how merely deciding to become an entrepreneur is not enough, it is essential to act on it. He also explained that becoming an entrepreneur is not about the glamour and status, one should believe in the opportunity and their business model and how the rest would follow. After the informative keynote address, Mr. Raj Khona along with Mr. Vishal Mehta began the Q&A round. The atmosphere in the auditorium was of motivation and energy after the session. Mr. Mayank Gosar proposed the vote of thanks to Mr. Vishal Mehta for giving an inspiring keynote speech and for sparing his precious time to interact with CA students.

Immediately after that, the beating of the drums, the strumming of the guitar, the melody of the keyboards and tapping of feet synced perfectly to the beats was enjoyed by the crowd, as the hosts announced the commencement of ‘The Talent Show’. The stage was then taken over by young and talented CA students who showcased their talent ranging from dance, singing, instrumental, stand-up comedy and mono-acting. In all 18 finalists gave marvellous performances with the judges facing a tough challenge to select the winners. All the singers were supported by the live background music fantastically played with the help of talented musicians. Huge round of applause and cheering came from the crowds all the time. At the end, the judges gave enthralling performances, gripping the audience with pitch perfect songs.

 With the clock ticking, the suspense and wait was about to be over. The winners of the competition representing their firms were finally announced. The list goes as follows:

The entire evening was hosted fabulously by Mr. Apurva Wani, Ms. Nidhi
Shah and Ms. Disha Unadkat with their outstanding performances, keeping
alive the excitement and spirit till the end.

The Chairman of
the HDTI Committee, CA Nitin Shingala and Convenor CA K.K. Jhunjhunwala
praised the efforts and felicitated each and every student volunteer for
putting up an excellent show in a short span of time. Also, the hard
work of all the group leaders of the Students Study Circle for the year
2015-16 was recognized. Mr. Raj Khona and Mr. Viren Doshi were
acknowledged for coordinating the Students Study Circle during the last
year.

Mr. Parth Patani proposed vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the annual day in the fond memory of his brother late Jal Erach Dastur, the family of the Chandanben Maganlal Bhatt for sponsoring the Elocution Competition, the Chief Guest for the evening Mr. Vishal Mehta, the members of the Managing Committee and HDTI Committee, the Coordinators of the Annual Day, the Event Moderators, Judges of various competitions, BCAS Staff, parents and principals of students, sound technicians, the vibrant team of student volunteers and all the students for participating in big numbers.

With great pride and delight, we announce that a total number of 516 students registered for the Annual Day, setting an overwhelming benchmark.

A sumptuous dinner was arranged after the event for all those who marked their presence at the annual day. The motto of the event, to not only develop and encourage skills and extracurricular participation but to bring together the entire fraternity was very well achieved. All in all, at the end, a feeling of achievement with some splendid memories were taken along by each and every person, rather, it is not the end but a promise for a new beginning!!!

Human Development Study Circle Meeting on “Eye Health and Eye Vision” held on 14th June, 2016.

Human Development Study Circle Meeting on “Eye Health and Eye Vision” was held on 14th June, 2016 at BCAS Conference Room, addressed by the speaker Mr Vikram Agrawal, Founder of Vision Yoga.

Viram Agrawal is working with a Vision “Better Eyesight at any age”. His organization promotes the cause of healthy natural vision for a lifetime.

Some of the insights received from his lecture are listed below:

Preservation of good eyesight is almost impossible without proper eye education and mental relaxation.

Keep your eyelids half closed, while reading or watching a distant object.

Shift your glance constantly from one point to another.

All errors of refraction are functional and therefore curable.

Mental strain creates an error of refraction and mental relaxation can cure it

Eyewash tones up the eye muscles

Vision Yoga is a holistic method of treating eye disorders, which is a part of the vedic tradition as given in the Chakshushopanishad and Netra Dwayam – Upanishads of the eyes.

At Vision Yoga, people from 5 years to 80 years are doing eye exercises. This course benefits all eye disorders like myopia, hypermetropia, presbyopia, squint, cataract, nystagmus etc.

The speaker is passionate about healing all eye problems:
– He believes that exercises can help to avoid Glasses, avoid Lasik Surgery and improve eye vision.

– He also spoke on some eye treatments for eye ailments.

– Acute eyesight problems need proper consultation

The participants felt they have learned a lot about eye care and eye health and recommended more similar programs for welfare of more individuals.

Lecture Meeting on ‘Recent Regulatory issues impacting Audit Finalisation for the year ended on 31st March, 2016’ held on 15th June 2016

A Lecture Meeting, covering various ‘Recent Regulatory issues impacting Audit Finalization for the year ended 31st March, 2016’, like the amendments in Companies Act 2016, Internal Financial Controls over Financial Reporting, IND AS, CARO 2016, Fraud Reporting, Changes in Audit report, SEBI updates and other Regulatory Changes impacting the Audit Finalisation was organized at Wallchand Hirachand Hall, IMC, Churchgate on June 15, 2016.

The speaker CA. Khushroo B. Panthaky shared his knowledge and practical experience. Various regulatory issue, intricacies of reporting requirements and expectations from auditors and preparers of financial statements were well covered and explained to the attendees by way of practical examples, well designed to understand the complexities of the regulatory issues in a simplest way. He talked on various aspects of audit and how it has moved from a sampling certification to a risk based confirmation. He highlighted the significance of thorough checks, Study of client business end to end, what precautions an auditor needs to take up right from accepting the audit assignment till the final signing of the report.

The lecture meeting was attended by more than 300 participants from various industries and the practice arena. The interactions between the participants and speaker were commendable.

Direct Tax Study Circle Meeting on ‘Equalisation Levy’ held on 16th June 2016

 Direct Tax Study Circle Meeting on Equalization Levy was held on 16th June, 2016, jointly with Suburban Study Cirle

The Group leader, CA Palav Shah Parekh, under the guidance of the Chairperson, CA Mayur Nayak commenced the meeting by showcasing a video of how House of Commons Public Accounts Committee, UK led by Margaret Hodge MP interrogated the Google Boss on UK tax dodging. Palav gave a brief background as to how digital commerce business has evolved during these years and how these companies dodge from paying income taxes by not having a physical presence in a particular jurisdiction.

Thereafter, she commented upon the 3 options given by the BEPS Action Plan 1 to tackle the tax issues relating to E-commerce transactions and the reason as to why Indian Revenue authorities had to select the option of Equalisation Levy. She thereafter explained the scope, applicability and the various provisions relating to Equalisation Levy brought about by the Finance Act 2016 and the corresponding rules. She educated the members with similar existing provisions in other countries. At the end, various issues which one could face while implementing these provisions were discussed by the group and the session was concluded by the Chairperson giving his concluding remarks.

Yoga session held on 19th June 2016

The Human Development and Technology Initiatives Committee organised a ‘Yoga’ Session, jointly with ISH foundation on Sunday 19th June 2016, at Direct-I-plex, Andheri(E), Mumbai-400069 between 8-00 a.m. and 9-00 a.m. That was to mark a celebration of the upcoming International Yoga Day on 21st June, 2016.

Pradeep Thakkar, a Professional Yoga teacher and also an active member of ISH Foundation guided about 21 participants who attended this programme. He demonstrated and guided participants to perform different Asanas with ease, comfort for healthy body and mind relaxation.

CA Mayur Nayak welcomed the participants and CA Mukesh Trivedi discussed in brief the meaning of the word Yoga and how to practise it in life for the self-less service at the highest altar.

Participants had good learning of Yogasanas for healthy body and peaceful mind.

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Gaps in GAAP

Accounting Standards

Can an entity be consolidated when the ‘parent’ has the
ability in practice, but not the legal right to exercise control over the
entity ?  e.g., Entity A owns 40% of the voting power in Entity B
and the remaining 60% of shares are widely dispersed, such that Entity A may
exercise de facto control.



‘Control’ is defined in IAS 27 as : “the power to govern
the financial and operating policies of an entity so as to obtain benefits from
its activities”. It follows from this definition that control involves : 
(a) decision-making ability that is not shared with others; and (b) the ability
to give directions with respect to the operating and financial policies of the
entity concerned, with which directions the entity’s directors are obliged to
comply. In order to meet the definition of control, an investor must govern the
financial and operating policies of an entity for the purpose of obtaining
benefits from the entity’s activities. A trustee or other fiduciary with
decision-making powers that are limited to directing the on-going activities of
an entity for the benefit of others does not meet the IAS 27 definition of
control.

In order to have the ability to govern the financial and
operating policies of an entity, an investor must be able to hold the management
of the entity accountable. It is therefore unlikely that de facto control
over an entity can exist unless the investor has the power to appoint and remove
a majority of its governing body (i.e., normally the board of directors
in the case of a company). This power is normally exercisable by holders of the
voting shares in general meeting.

Since the concept of control is defined in terms of
decision-making ability and not how power is actually exercised,
it is theoretically possible for control to be exercised passively as well as
actively. However, any determination of whether de facto control
exists will always have to be made based on the particular circumstances
and
it is unlikely to be sufficiently certain that de facto control exists
until actions have been taken that provide evidence of control, i.e.,
control must have been actively exercised
.

This will be evidenced by participation and voting at the
Annual General Meeting, where strategic decisions are put to the vote – e.g.,
director nominations. Evidence will be required that the entity was able to vote
in a director of their choice or make decisions that indicated an alignment with
their own business and purpose. In general, the more the legal or
contractually-based powers that are held in relation to an entity fall short of
50% of the total, the greater will be the need for evidence of actively
exercised de facto control.

In practice, de facto control is most likely to be
evidenced where a minority voting interest holder is able to (re) nominate its
nominee to an entity’s board of directors and its votes exceed 50% of the votes
typically cast in the entity’s election of directors. For example, if typically
only 70% of the eligible votes are cast on resolutions for the appointment of
directors, a minority holding of 40% might give de facto control,
provided that if the remaining shares are widely held (such that, for example,
no party has an interest of sufficient size either of itself or with a small
number of others to block decisions).


The October 2005 issue of IASB Update states, “an entity
holding a minority interest can control another entity in the absence of any
formal arrangements that would give it a majority of the voting rights.
For
example, control is achievable if the balance of holdings is dispersed and the
other shareholders have not organised their interests in such a way that
they exercise more votes than the minority holder.”

At this moment it appears that there is a mixed practice with
regards to consolidation based on de facto control under IFRS. This is
because the IASB has not come up with any detailed guidance on this issue. Until
such time as the IASB issues detailed guidance to assist preparers in exercising
the judgment required to apply the control concept, there will be differences in
how IAS 27 is applied.

In India, under Indian GAAP, the general practice is not to consolidate
entities based on de facto control. That may change once India adopts
IFRS.

levitra

Society News

Report on the Europe Tour of BCAS

A delegation of 21 persons comprising of members of BCAS and their families went on an educational tour to Europe from 30th May to 12th June 2011. The delegation visited six countries, namely, Switzerland, Austria, Germany, Belgium, Netherlands, and France.

The members started off from Switzerland where they visited Zurich University at which the campus of the veterinary medical college was simply awesome. It had big parks and a lake inside, with a modern library and congenial atmosphere for learning. Our delegates interacted with some students including an Indian and learnt that the Zurich University is spread over a huge area and that the campus we visited is just a small part thereof.

Thereafter, the delegation embarked on an orientation tour of Zurich which is a well planned and clean city, with large buildings of UBS, Credit Suisse and other monuments. Being a sunny day, most Europeans were found riding bicycles and/or taking sun bath by the side of a river. Post Zurich, the members travelled to Luzern and stayed at Swiss Chalet –Schloss Hotel.

On 3rd June 2011 the members visited the University at Munich, Germany, where they were warmly received by Prof. Denial and Prof. Bahwa, juniors of Prof. Dr. Moris Lehner. Members were taken for an orientation tour of the Munich University covering Convocation Hall, Class Rooms and were briefed about the historic association therewith. The University comprising different departments is spread over many buildings. One of the buildings, houses two Auditoriums – one very old and the other recent one. Members visited the class room where Late Prof. Dr. Klaus Vogel used to take lectures.Prof. Dr. Lehner exchanged pleasantries with the delegation. He has succeeded Prof. Dr. Klaus Vogel. He and his team is presently busy working on the 6th edition of the most celebrated title “Klaus Vogel on Double Taxation Conventions”. This book will be published in German Language, whereas Prof. Dr. Ekkehart Reimer (once his junior) from Heidelberg University is working on the English edition of the book. Members were touched by the hospitality extended by Dr. Lehner and his team. It was a very rewarding experience to have visited Munich University.

On Saturday 4th June 2011, the delegates visited Heidelberg University where they were warmly received by Prof. Dr. Ekkehart Reimer and his team. The University was established in 1385 and has 625 years of glorious history. The late Prof. Dr. Klaus occupied his chair at this University from 1966 to 1977 and then moved on to Munich. Prof. Reimer had organised a conference to discuss German Tax System and some of the recent rulings in the light of German Tax Treaties. He made an excellent presentation where members participated enthusiastically. The delegates were shown the “Students’ Jail” where punishment was meted out to errant students in good old days, which has now become a place for sightseeing. Members appreciated efforts and pains taken by Prof. Reimer and his team.

On Tuesday 7th June 2011, in the first half, members visited the University of Leiden which is the first University in the Netherlands, founded on 8th February 1575. The motto of the University is “Praesidium Libertatis”, Bastion of Liberty. The delegation visited the International Tax Centre situated on the banks of a canal. Leiden is beautiful city with, neat and clean streets and picturesque buildings on both sides of the canal. Mr. Michail Tegos (Mike), Program Coordinator for Adv. LLM International Tax Law extended a warm reception to the delegation. Delegation visited International Tax Centre (ITC) with class rooms, studio apartment for faculties, students’ reading room, researchers’ reading cubicles and the convocation hall. Normally, a batch comprises 40 students, mostly Europeans, and sometimes Asians including Indians. We found one student from India and one NRI student from Singapore pursuing their Masters at Leiden. The group was fortunate to meet the Director of ITC and an erudite personality, Prof. Dr. Kees Van Raad. He spent some time with the delegates and explained various courses conducted by the ITC at Leiden. He exhorted members to take advantage of these courses. Later, members visited the Law Department building beautiful library and a lecture hall. Members expressed their gratification over the visit and thanked Mike for all his efforts in making the visit memorable.From Leiden, the delegates drove to Amsterdam and visited International Bureau of Fiscal Documentation (IBFD) where the Director, Belema Obuoforibo, of the Knowledge Centre and various other officials extended a warm welcome to the delegates. Seven different presentations were made on various activities of IBFD. The entire programme was meticulously planned. First, Ms. Belema, introduced the working of the Knowledge Centre. Thereafter, Ms. Jolien Terpstra informed about the Library and Documentation Centre. Ms. Myra Flaminiano briefed about the activities of the Government Consultancy Department, whereas Mr. Ban Van Breevoort, Publisher introduced the Online Research Platform. Mr. Shee Boon Law and Ms. Leandra Juilen, both from the International Tax Academy, enlightened the delegates about the Academy’s activities and expressed a desire to organise joint programmes with BCAS. Mr. Frans Vanistendael, the Academic Chairman, talked about the various academic initiatives undertaken. The delegates then visited state of the art library on International Tax Literature. It was a proud moment to see one of the publications of the BCAS in the IBFD library.

On Thursday 9th June, 2011 at 9.30 am, the delegation of Organisation for Economic Co-operation and Development (OECD) at Paris, France. Mr. Stefaan. DEBAETS, Advisor – Transfer Pricing, had oragnised a conference on Transfer Pricing for the benefit of the delegates. Ms. Linda Aidan from the OECD Public Affairs Division. warmly received delegates. Mr. Jean de la Rochebrochard briefed members about OECD and its activities. Ms. Mayra Lucas made a presentation on the OECD Transfer Pricing Guidelines, 2010 which was very informative and instructive. She also briefed about the future work contemplated by OECD. After the presentation, the delegates visited some of the facilities at OECD. The infrastructure at OECD is amazing. As high ranking officials/ representatives visit the institution throughout the year, the security is very stringent. Meeting and Assembly halls of different capacities are in place to take care of meetings of various working groups of members countries/observers on a variety of issues from environment to governance and taxation.In conclusion, the tour was very successful, as members had an opportunity to visit some of the reputed educational institutions the world over, which has not only widened their academic horizon but would also help them in their professional pursuit. Young members were fascinated by the courses offered by various institutions and got a valuable input for their career planning. Seniors had an occasion to interact with faculty to understand the subjects from different perspectives. The kind of respect and reception our members received from each of these seats of learning was simply unparalleled. Delegates realised that the BCAS is known and respected overseas everywhere.

A set of reading material received from various Institutions/Universities is available in the BCAS library for the benefit of its membership.

BCAS acknowledges with thanks the efforts put in by S/s Roy Rohatgi, T.P. Ostwal and Dhaval Sanghavi in facilitating above visits.

Tech update

Computer Interface


Computer Interface

Samir Kapadia
Chartered Accountant

Tech
update

While change is inevitable, keeping up with change is also a
challenge. This month I have chosen three hot topics (while there were many more
to choose from) I thought would interest you more than the others. The topics
are :

(1) Social networking

(2) 3G auction and rollout

(3) Microsoft launches Office 2010

Social media and networking — To be or not to be :

“To be or not to be — that is the question”. While many would
immediately recall these words quoted straight out of Shakespeare, some (movie
buffs like me) would think about Mel Brookes performing on the stage and
delivering his version of Shakespeare in the movie “To be or not to be”. The
scene where he repeats these words (over and over again) is one of my all-time-favourites.
No matter how many times I watch the movie, I keep coming back for more. But for
many netizens, this is a very peculiar question to ask when one is discussing
the merits and demerits of social media and networking tools.

While there is no doubt that social media and networking have
changed the very face of marketing, recently (particularly last month) social
media and networking have been at the receiving end. Popular sites like Facebook
and You tube faced a lot of flak, in some cases faced bans.

Facebook was in the media for all the wrong reasons last
month. Here are a few instances

  • Facebook faced public
    lash-back and was banned in Pakistan and in Bangladesh over a controversy
    related to a certain drawing. The fallout began in Karachi (Pakistan) where
    people took to the streets protesting against the social networking site.
    These protests culminated to a ban being imposed on the site. Bangladesh was
    quick to follow suit. Needless to say that emotions ran high that week. In
    fact six tech-savy Pakistanis following the furore launched a halal version of
    the Facebook by the name Millatfacebook.com. The question that many are now
    asking is — do we really need another Facebook and what’s next gender
    seggregation ?


  • Facebook was also under
    the spotlight on account of privacy concerns. Facebook’s growth as an Internet
    social networking site has met criticism on a range of issues, especially the
    privacy of their users, child safety, the use of advertising scripts, data
    mining, and the inability to terminate accounts without first manually
    deleting all the content. Facebook Chief Executive Mark Zuckerberg had to
    respond by saying that the Internet social network would roll out new privacy
    settings for its more than 400 million users, amid growing concerns that the
    company is pushing users to make more of their personal data public. A google
    search on this issue gave some very interesting insights related to this
    controversy.


  • May 30-31 went down in
    history as the “quit Facebook day”. There has been a lot of angst amongst
    users on account of the privacy issues, frequent changes in personal settings,
    etc. While the response was hardly noteworthy (some 27000 people quit facebook),
    it appears in India it passed almost unnoticed.


  • Limit on number of
    friends. For many the lucky number is 7, for others the lucky number is 5000
    (Yes, it is Facebook). In case you didn’t know, you cannot have more than 5000
    Facebook friends. While there has been some amount of outcry against this
    ‘arbitrary’ limit, recent news reports suggest that the popular site is likely
    to enforce the limit, much to the disappointment of its loyal followers.


To summarise, while social media continues to grow as a
popular medium, there are questions being raised regarding its unintended
consequences. Hence the question that begs to be answered — “To be or not to be
?”

3G auction and rollout plans :

The recently concluded auction for 3G spectrum has brought in
a lot of cheer for many parties —the winners of the auction, the Government (the
budget deficit may be more manageable) and the subscribers. There is a lot of
excitement about the rollout plans. Equipment manufacturers have already started
dolling out 3G-ready phones and the consumers are lapping the new models. The
noteworthy issues which need to be considered are :

  • In spite of the amounts
    being so large, the entire licence fee was paid by the winners, in one
    instalment. In fact none of the winners asked for an extension (that includes
    MTNL and BSNL — however there are reports of BSNL asking for a refund). A lot
    is at stake. One could say that it is a make-or-break scenario, especially for
    the telcom service providers.


  • When one pays such high
    licence fee, it is natural that the cost of the service is likely to be
    impacted. There are concerns regarding the pricing strategy and how the
    winners would recover these amounts. The pricing strategy is being watched
    very closely. Unfortunately for the subscribers, it is likely to take at least
    6-9 months before any of the winners launch the 3G service.


  • In the meanwhile
    subscribers are going about upgrading their phones. As mentioned, equipment
    manufacturers have already started dolling out 3G-ready phones. The price of
    the new instruments ranges from (as low as) Rs.3500 to (as high as) Rs.35000.
    Naturally, one needs to be aware about what is being offered. While these
    phones may be 3G-ready, performance i.e., download speed, quality of the
    content (picture, sound), battery life, memory can vary significantly. Hence
    be careful, all that glitters may not be gold.


  • As expected (read my
    columns for January-March 2010), the investments and developments in mobile
    technology ecosystem have started gaining momentum. There are a lot of media
    reports about tie-ups for content, new investment in R&D, etc.


There is a lot more action waiting to happen, just wait and
watch.

Microsoft launches Office 2010 :

While I have not been able to check the new offering myself, I did some digging. News reports on this product say the following :

    Microsoft Office 2010, brings a set of important incremental improvements to the office suite. Among them : making the Ribbon the default interface for all Office applications, adding a host of new features to individual applications i.e., video editing in PowerPoint, improved mail handling in Outlook, introducing a number of Office-wide productivity enhancers, photo editing tools and a much-improved paste operation.

    What is being touted as the most important change to Office in years — a Web-based version for both enterprises and consumers and access to Office for mobile phones and other mobile clients. Reportedly, Microsoft has also strengthened the links between Office and various Microsoft communication server products. Apparently, if you use Microsoft Office Communications Server 2007 R2 and Microsoft Office Communicator 2007 R2 with Office 2010, you’ll be able to see the availability status of other people with whom you work and ways to contact them, such as e-mail and instant messaging. SharePoint is even more intimately tied to Office, and lets people collaborate on Office documents.

    The Ribbon feature was introduced in Office 2007, but in Office 2010 a major change has been made to Office’s interface — it has replaced the old menus and submenus with a graphical system that groups buttons for common tasks together in tabs. But apparently, Microsoft didn’t go whole hog with it back then; Outlook, among other applications, was not given the full Ribbon treatment. In this version of Office, all applications now share the common Ribbon interface, including Outlook, OneNote and all other Office applications, and SharePoint. Love it or hate it, the Ribbon is here to stay.

    Email/Outlook users are most likely be pleased with the new version of Outlook, which adds a variety of features designed to help solve the most common productivity problem — e-mail overload. One of the most useful new features is called Quick Steps, which speeds up mail handling considerably. Right-click on a message, and you can choose from a variety of actions to take on it — moving the mes-sage to a specific folder, forwarding it to your manager, setting up a team meeting with its recipients, sending e-mail to an entire team and so on. This new version of Outlook also tackles one of Outlook’s perennial problems

— how poorly it follows threads of messages. There’s a related feature that helps cut down on e-mail clutter — the ability to ‘clean up’ a conversation. When you do this, you delete all of the unnecessary quoted and previous text in long e-mail threads; only unduplicated versions remain. However, once you do that, all of the quoted and previous text and e-mails are actually deleted, not just hidden, so use this feature carefully. It would be more useful if you were given the option of hiding the text, not completely deleting it.

    Not much new in Excel though! Excel hasn’t been touched as much as the other major applications in Office 2010, but its not a total loss, there have been some useful additions. The most important is called ‘Sparklines’ — small cell-sized charts that you can embed in a worksheet next to data to get a quick visual representation of the data. For example, if you had a worksheet that tracked the performance of several dozen stocks, you could create a Sparkline for each stock that graphed its performance over time, in a very compact way. Conditional formatting — the ability to apply a format to a range of cells, and then have the formatting change according to the value of the cell or formula — has been improved as well, including the addition of more styles and icons.

    PowerPoint apparently has entered the video age. 2010 introduces a slew of enhanced video features, although in the Technical Preview not all were working properly. Key among the new features is a set of basic video editing tools built directly into PowerPoint. They’re not as powerful as full-blown video editing software, but work well for common tasks such as trimming and compressing videos and adding fade-ins and fade-outs. Highlight a video you’ve embedded in a presentation, and the tools appear in the Ribbon. Also useful is a set of video controls you can use during the presentation to pause, rewind, fast-forward and so on — something that the previous version of PowerPoint did not have.

I am hoping that I get an opportunity to test this new product soon.

ICAI And Its Members

ICAI & Its Members

1. Disciplinary
case :


ICAI v.
Shri B. R. Kurhade (C.A. Journal, June 2008, Page 2016)


In the above case, the Jt. Director of Industries, Mumbai,
filed a complaint against the member alleging that the member had certified
information of past consumption, production, etc. in respect of import
applications made by 12 SSI units located in Ahmednagar district. It was found,
on subsequent investigation, that these certificates given by the member were
wrong. It was also found that some of the SSI units were not working regularly
or had not maintained required consumption, etc. records or did not require or
could not use the raw material applied for in their manufacturing process.

The Council found the member guilty of professional
misconduct under clauses (7) and (8) of Part I of the Second Schedule of the
C.A. Act and recommended to the High Court to remove the name of the member for
2 years. The Bombay High Court accepted this finding, but reduced the punishment
for removal of name of the member to 3 months.

2. Capitalisation of exchange loss :


The Expert Advisory Committee (EAC) of ICAI has considered
the above issue on pages 2002–2004 of C.A. Journal of June, 2008.

(i) The facts in this case are as under :

The company entered into an agreement for foreign currency
loan in respect of its expansion projects. As on 31-3-2007, there was a
reduction in exchange rate of Euro. As a result of this the liability for the
foreign loan is reduced. The question for consideration was as to whether the
exchange rate variations on the foreign exchange currency loan taken for the
expansion project, during the period of construction, should be capitalised or
abated.

(ii) EAC has given the following opinion :

The foreign exchange loss on foreign currency loan can be
capitalised only to the extent mentioned in para 4(e) of AS-16 (Borrowing
Costs). Any excess exchange loss should be treated as revenue loss. The exchange
gain with respect to the qualifying asset under AS-16 can be adjusted against
the cost of the asset only to the extent mentioned in para 4(e) of AS-16. The
exchange gain in excess of this amount should be credited to Profit & Loss A/c.

3. Advertisement by practising CAs :


The Council of ICAI has framed guidelines allowing practising
CAs and their firms to advertise their services through a write-up issued,
circulated or published through print or electronic media. These guidelines have
been hosted on the website of the Institute. Brief outline of these guidelines
is as under.

(1) The member(s)/firm(s) should ensure that the contents of
the write-up are true to the best of their knowledge and belief and are in
conformity with these guidelines and be aware that the ICAI does not own any
responsibility whatsoever for such contents or claims by the writer member(s)/firm(s).

(2) The word ‘write-up’ is defined to mean the writing of
particulars according to the information given in the guidelines setting out
services rendered by the members or firms and any writing or display of the
particulars of the member(s) in practice or of firm(s) issued, circulated or
published by way of print or electronic media or otherwise including in
newspapers, journals, magazines and websites (in Push as well in Pull mode) in
accordance with the guidelines.

(3) The write-up may include only the following information :

(A)
For members






(i) Name . . . . . . . . . . . . . . .Chartered
Accountant,

(ii) Membership No. with Institute,

(iii) Age,

(iv) Date of becoming ACA,

(v) Date of becoming FCA,

(vi) Date from which COP held,

(vii) Recognised qualifications,

(viii) Languages known,

(ix) Telephone/Mobile/Fax No.,

(x) Professional address,

(xi) Web,

(xii) E-Mail,

(xiii) CA logo,

(xiv) Passport size photograph,

(xv) Details of employees (Nos. —)

(a) Chartered Accountants,

(b) Other professionals,

(c) Articles/Audit assistants,

(d) Other employees —

(xvi) Names of the employees and their particulars on the
lines allowed for a member as stated above, and

(xvii) Services provided —

(a) ,

(b) ,

(c) [Note : Item (ii) is mandatory]





(B)
For firms



(i) Name of the firm . . . . chartered accountants,

(ii) Firm Registration No. with Institute,

(iii) Year of establishment,

(iv) Professional address(s),

(v) Working hours,

(vi) Tel. No.(s)/Mobile No./Fax No(s),

(vii) Web address,

(viii) E-Mail,

(ix) No. of partners,

(x) Name of the proprietor/partners and their particulars on the lines allowed for a member as stated above including passport-size photograph,

(xi) CA logo,

(xii) Details of employees (Nos. —)

(a) Chartered Accountants,
(b) Other professionals,
(c) Articles/Audit assistants,
(d) Other employees
(xiii) Names of the employees of the firm and their particulars on the lines allowed for a member as stated above, and

(xiv) Services provided:
(a)
(b)
(c)………… [Note: Item (ii) is mandatory]

(4) Other conditions relating to the write-up:
(i) It should not be false or misleading and bring the profession into disrepute.
(ii) It should not claim superiority over other member(s)/firm(s).
(iii) It should not be indecent, sensational or otherwise of such nature which may likely to bring the profession into disrepute.
(iv) It should not contain testimonials or endorsements concerning member(s).
(v) It should not contain any other representation(s) that may likely to cause a person to misunderstand and/or to be deceived.
(vi) It should not violate the provisions of the CA Act and Rules made thereunder and CA Regulations.
(vii) It should not include the names of the clients (both past and present).
(viii) It should not be of font size exceeding 14.
(ix) It should not contain any information other than stated in Para (3) hereinabove.
(x) It should not contain any information about achievements/ award or any other position held. A.

4. Prospects for members in industry :

ICAI had organised Campus Placement Programme for members during February-April, 2008 at 16 centres in India. Out of members who qualified in November, 2007 examination, 3781 candidates (preceding programme: 1823 candidates) participated in this programme. 243 Interview Boards representing 109 organisations interviewed the candidates at 16 centres. More than 1250 candidates were selected for jobs in various industries. Maximum salary offered to 4 candidates was Rs.16.17 lacs P.A. for international posting. For Indian posting maximum salary offered to 5 candidates was Rs.12 lacs P.A. The following are the figures for salary range. (Refer pages 2084-2086 of C.A. Journal for June, 2008).

5. Amendment to CA. Regulations 1988 :
Notification dated 5-5-2008 giving draft of the amendments to C.A. Regulations has been published on pages 2069-2073 of CA. Journal, June, 2008. Broadly stated the draft regulations provide for the following:
(i) Amount payable for obtaining copies of list of members.

(ii) Revision in fees payable for restoration of membership, restoration of COP, filing complaints against members, etc.

(iii) Permitting members to enter into partnership or arrangement for sharing fees with members of (a) Institute of Company Secretaries of India, (b) Institute of Cost and Works Accountants of India, (c) Bar Council of India, (d) Indian Institute of Architects, (e) Institute of Actuaries of India, and (f) Engineer, Technician, MBA, etc. from recognised universities.

(iv) Functions of Executive Committee of ICAL

(v) Functions of Finance Committee of ICAL

6. ICAI News:
(Note: Page Nos. given below are from CA. Journal for June, 2008)

(i) Unstructured CPE Learning Activities:
In May, 2008, issue of BCA Journal (Page 224) details about CPE credit requirement for ICAI members are given. The indicative list of unstructured CPE activities is also given. Now, details of unstructured CPE Learning Activities have been published on pages 2005-2006 of C.A. Journal of June, 2008.

(ii) Observations during conduct of Peer Review:

Observations of reviewers during conduct of Peer Review on Compliance with AAS-6, AAS-7, AAS-8, AAS-ll and AAS-14 to improve audit quality have been published (Page 2058).

(iii) Audit and Assurance Standard Board (AAS Board)
Recent developments relating to AAS are explained by ICAI at pages 2060-2065.

(iv) ICAI Publications:

The following publications are released by ICAI :
(a) What is an Audit – Understanding an Audit of Financial Statements.
(b) Practitioners’ Guide to Audit of Small Industries.
(c) Background Material on Auditing and Assurance Standards
(d) Implementation Guide to SQC-1
(For details refer to page 2066 and 2076)

(v) ICAI Vision – 2021 :
ICAI has appointed a Special Purpose Committee for bringing out a vision – 2021 document. The questionnaires for members in practice and in industry are published on pages 2094-2017. Members may send their responses to ICAL

(vi) Accounting Standards for Local Bodies (ASLB) :

The following exposure drafts are issued for comments by members:
(a) Revenue from Exchange Transactions (Pages 2108-2120)
(b) Borrowing Costs (Pages 2121-2127)

(vii) Auditing Standards (Revised Standard (SA) 600) :

Exposure draft of Revised Standard on Special Considerations – Audits of Group Financial Statements (including the work of component auditors) and Explanatory Memorandum to the above standard has been issued by AASB (pages 2128-2155).

(viii) Revival of Membership of CA :

With a view to encourage those CAs who have ceased to be members of the Institute for some reason or the other, a new scheme has been formulated by ICAL They will be able to revive their membership on payment of specified fees. This scheme is hosted on the Institute’s website (Page 1986).

(ix) PE-II Examination to continue till May, 2009 :

ICAI has decided to continue PE-II examination till May, 2009. Therefore, students who have not been able to pass in May, 2008 PE-II examination will get two more attempts in November, 2008 and May, 2009. Thereafter, they will have to shift to new PCC examination (Page 1987).

(x) New Chapter in New York:
ICAI has set up a new Chapter in New York. This is the 20th Chapter of the Institute outside India (Page 1989)

From The President

From The President

Dear BCAJ Lovers,

had a dream many years ago — it was to head the BCAS as its
President. About 12 months ago, that dream became a reality for me. For that
dream to turn into reality, I had to work hard. I also had to work smart. As
they say, it is not enough to place a ladder against the wall to climb higher —
the wall that is chosen must be the right wall or else you would be headed in
the wrong direction. The past decade and more have been well spent by me in the
service of the BCAS. This august organisation has given me what I could never
have dreamt of in the normal course. I am grateful to all the members of the
BCAS for elevating me to the top position and for reposing confidence in me for
leading the organisation in the year that has flown by. Throughout the year, I
have received overwhelming response from many of you in terms of feedback to my
messages, words of appreciation for some of the initiatives that we were able to
take and also lots of suggestions for improvements. The latter have been taken
up by the office bearers in right earnest and wherever possible, have been
implemented too. As I prepare to lay down office at the AGM on 6th July, I must
place on record my deep sense of gratitude to everyone who touched my life
during this year. Every core group member, every staff member, every person who
wrote to me or who spoke to me — to all of you, my heartfelt thanks.

During the year that has passed by, your office bearers and
other managing committee members have made every effort to bring about
substantial changes in the functioning of the Society. The various initiatives
taken by us were more attuned to raising the bar in terms of quality rather than
quantity. I am acutely aware of the various shortcomings at the Society. We have
a long way to go before we can proclaim that ours is an organisation that runs
smoothly in all respects. But the journey continues and I am optimistic about
the future. Here, I am reminded of a line — “It’s funny about life — if you
refuse to accept anything but the very best, you will very often get it. There
are no speed limits on the road to excellence.”

My fellow office bearer and current Vice-President Mayur
Nayak will be the next President of BCAS. I wish him and the other members of
the managing committee all the very best for a very successful and fulfilling
year. The ethos and the ethics at the BCAS are such that at all times, the
President stands fully supported by a large number of people around who are all
working selflessly and sincerely for a common goal — to serve the BCAS and its
members. I am sure that in the years to come, the BCAS will be steered into
uncharted territories with great finesse by its future leaders. BCAS is known
for its innovation and for its forward thinking. Our visionaries of the past
have drilled this into the minds of the younger members. Such an organisation
must succeed and should succeed. At the same time, we cannot afford to allow
complacency and arrogance to seep into our functioning. The future leaders must
ensure that the BCAS adapts itself to changing times and is flexible enough to
respond to the need of the hour and is also in a position to provide newer
services to the members. Without the will to change, no organisation can sustain
itself in the dynamic environment that we all are living in today.

This is my last communication to you through the BCAJ by way
of the President’s Page. It has been my privilege and honour to have been able
to communicate my ideas, thoughts and views with all of you. The responsibility
of writing for this journal was a very heavy one. I am acutely aware of the wide
reach of this journal and how, in the past, the illustrious Presidents of the
BCAS have adorned these pages with words of wisdom. I hope that I have done
justice to the position that I have occupied and all of you have found at least
something of merit in the messages that I have written.

I cannot proceed further without paying my respect to the
memory of late CA Hiten C. Shah, one of the BCAS managing committee members who
expired suddenly on 14th June. His quiet, selfless and commendable work — in
professional organisations like BCAS as well as social work in remote tribal
areas of Dharampur in Maharashtra — will be remembered by all of us for a long
time to come. We will miss him at the BCAS. May God grant everlasting peace to
the departed noble soul and may his family members get the strength to bear this
loss with fortitude.

The year ahead promises to be a very exciting and challenging
one for Chartered Accountants. Several new laws are expected to come into effect
in the next 12 months. The new Direct Tax Code, the GST Act and the IFRS all
would come into effect soon. The ICAI and bodies like the BCAS would need to
play a very important role in helping their members in coping with this change.
Unlearning the old law and learning the new law will be a challenge for all. At
the same time, the complex question of whether to allow foreign CA firms to
practice in India will also, in all probability find an answer in the coming
months. This too will provide new challenges to Indian CAs. On the other hand,
the increasing importance of India as an emerging economic power and the growing
recognition of the talent, skill and knowledge of Indians in all spheres of life
around the globe herald the oncoming boom in the demand for Indian CAs. Time
will tell how well we are able to respond to all these phenomena.

One aspect in which I feel that CAs are lagging behind and
where we need to focus upon is the use of information technology. The world has
made enormous progress in this direction. The kind of technological tools that
are available for each and every kind of business or profession are mind
boggling. We need to imbibe information technology in our daily lives. Today,
the speed with which young children — even infants — are able to start using
latest gadgets is amazing. If the older generation does not even start to use
latest technology, then the divide between the different generations would be
more stark and wide. As the Chairman of the Information Technology Committee of
the BCAS for the next year, it would be my mission to create an IT wave amongst
the BCAS members. I seek your support and assistance in this regard. The
committee will come up with a detailed action plan soon. And I promise that the
next year will bring with it lot of changes on the IT front as far as our
members are concerned. And you will definitely see more of BCAS on the Internet
and on the various professional and social networking sites.

Finally, as I put down my pen (actually, it’s the keyboard
that I am putting away), I am left with a sense of emptiness in my stomach. I
will miss writing these pages and I will miss receiving your feedback and your
words of appreciation and criticism. These had become a way of life for the past
12 months. But, all good things must come to an end and so must my tryst with
destiny. I am sure that life holds many more peaks for me to climb. I close this
page with an inspiring quote that I read — “That first peak is the best place to
pause and look back, to see if you took the easiest route, to learn the lessons
from the first climb. And it is the best place to examine the terrain ahead, to
change your plans and goals, to take a deep breath and
begin climbing again.” — Michael Johnson.

So, Sayonara friends ! I need to take a deep
breath before beginning my climb again.

From The President

From the President

Dear Professional Colleagues,

“I have never let my
schooling interfere within my education “. These famous words of Mark Twain
would possibly reflect the sentiment of many a successful individual about our
schools and colleges. Over the last fortnight we have been reading the
travails of students, who having passed through school are knocking at the
doors of institutions of higher education. After six decades of independence,
the State is unable even to fathom the magnitude of the problem, let alone
solve it.

The world is facing an
economic slowdown, but it is said that once the upswing starts, India will
lead the pack of developing nations. Its young educated population is said to
be one of its strengths. One really wonders how far this is correct and even
if it is, whether the advantage will last.

I believe that as a
developing nation, we have not given the priority to education, which it
deserves. In any cabinet formation, there are no takers for this portfolio.
The problems that the education sector faces are enormous. I think that they
can be broadly divided into three areas, availability, affordability and
quality.

The media concentrates on the
problems in higher education, but those who face these have crossed the
threshold of school. We have been concentrating on the top of the pyramid,
while ignoring the base. Undoubtedly, we must build many more institutions of
higher education, many more colleges and institutions like ITI which impart
job-oriented education. But these will be utilised by a larger cross section
of the population, only if we have more schools. It is disturbing to read
stories of children having to trudge 5 to 6 kilometres to reach their school.
A vast population of children still does not have school education available
to them. While in urban areas the problems are of admission to college to a
child, in a village, a school with one blackboard, one teacher and a roof that
does not leak, is still a dream. We all talk of physical infrastructure like
roads, bridges and dams. These can be built with monetary investment, but
building a strong foundation of schools will require funding, planning and
above all honest intentions and strong will. We need to invest vast sums in
primary education and ensure that these sums are well spent. In this area the
government needs to involve NGOs both for actually building the
infrastructure, and running primary schools as well as in monitoring
government spending in these areas. One can possibly make a beginning by
asking the government as to where it has spent the education cess that it has
collected for the past 5 years.

The other problem area is
affordability of education. Many are unable to pursue higher education simply
because it is beyond their means. Here, possibly a private-public partnership
will work, if schemes are well-structured and well-monitored. In fact, the
principle of cross subsidisation which is contemplated in health care
services, should also be used in education. A healthy return on investment
should be permitted by recovering fees from those who can afford it, while the
education to the economically weak is subsidised. The schemes must be
transparent and free from political interference. Further, the availability of
educational loans should be increased substantially. The State supports soft
loan schemes to agriculture. It should increase the support to loans for
education with adequate safeguards to ensure that this subsidy is useful to
the nation when the student completes his/her education.

The third aspect is the
quality of education. A major reason for the drop in quality is the standard
of teachers / professors. Except for coaching classes, one does not find the
teaching profession to be remunerative. Consequently, it does not attract
talent. I am conscious that the world over, the teaching profession is
underpaid. This is compensated by social respect and recognition. In our
country even this respect has been on a decline. It is often seen that while
fixing pay scales, the salary of a school teacher is equated with that of a
clerk. In government parlance the grade of a teacher is a clerical grade. I
simply do not understand, as to how a primary school teacher who is expected
to inculcate values in a child, teach him principles of mathematics, and
introduce him to literature can be equated with the salary of a booking clerk
who issues tickets across the window. School education has to become
affordable, but not cheap. It is only if we compensate teachers well, will we
be able to attract talent in this field. If this causes a deficit, the State
must pick up the tab. It is only if we are able to revamp our education
sector, will we be able to dream of a solid future. To quote Franklin
Roosevelt “We cannot always build future for our youth but we can build youth
for the future”.

I selected education as the
subject of my last communication since this is a subject close to my heart.
When this issue reaches you, I will have completed my term as the president of
a body which prides itself as an institution imparting professional education.
I have enjoyed communicating with you in these twelve months. I hope you read
those communications and found the time spent worthwhile. During my tenure I
have been fortunate to have the support, guidance, blessings and good wishes
of a large number of people. I take this opportunity to express my gratitude.
In the next month I will join the rank of ‘past presidents’.

The diamond jubilee year of
the Society is nearing completion. A milestone will soon be crossed. It is as
they say in cricketing parlance, time for the institution to take fresh guard.

Ameet Patel, a dear friend,
the incoming president, will communicate with you. He has dreams and the drive
to turn them into reality. In the words of Victor Hugo, “There is nothing like
a dream to create the future. Utopia today; flesh and blood tomorrow.” With
Ameet at the helm, the Society has a great future. I wish him and his team all
the very best.

Thank you and Good bye

With warm regards,

Anil Sathe


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From The President

From The President

Dear Professional colleagues,

Bombay Chartered Accountants’ Society is entering 60th year.
The recognition it received from various quarters viz. professionals, taxpayers,
and the Government is the testimony of the Society’s successful journey of 59
glorious years. This achievement is the result of efforts of several dedicated
professionals who served the profession before serving self.

However, the Society cannot be complacent. The solid
foundation it has laid over the years is only a part of continuous journey
towards accomplishing its mission. Let us all re-dedicate ourselves to the
progress of our Society which in turn will only benefit each one of us.

Paradoxically, India has gone through a contradictory
trajectory in its global relevance since the visionary Nehru years. Five decades
ago, when India’s economic and military strengths were less dominant, India
brought many distinctive and normative ideas to the global table — be it
disarmament, or non-alignment. Today, in the early 21st century, when India is
recognised as an economic and military power and the Indian
entrepreneur/professional is acknowledged globally, India appears to be devoid
of innovative ideas and thoughts backed by assertive political conviction.

Thoughtful leadership of our profession should actively
involve in formulating International Accounting Standards suited to developing
and developed countries both. The profession can also play an effective role in
formulating consensus views on sharing tax revenues between two countries in the
international trade. The present method of sharing of revenue leaning in favour
of developed countries needs to be neutralised by putting across the various
issues in the right perspective. The profession can play an active role in
evolving equitable transfer pricing regime across the globe.

Today, the profession faces the danger of widening the gap
between what investors and other stakeholders expect from the auditors and what
the auditors do or can actually do. While it is imperative to educate the public
about the auditor’s role and bridge the expectation gap, the profession at the
same time needs to do some introspection, put its own house in order and avoid
situations giving rise to conflict of interests. Even one failed audit causes
great damage to the reputation of the profession. The profession will have to
meet the challenge with impeccable integrity and high ethical standards.

Corruption is one more area of concern. Its global presence
cannot make it acceptable. It has devastating effects — it hinders economic
growth, sustainable development and generates apathy and cynicism. The country’s
moral fabric is its first casualty. Transparency particularly in administration
and decision-making process of the government acts as a great deterrent to
corruption. Though, the RTI and e-governance have started showing positive
results at a slow pace, a lot needs to be done. The profession will have to put
collective efforts to raise the issue of accountability, transparency and equity
at various levels of social and economic systems.

Technological revolution in the present decade has
far-reaching ramification on the profession. The rapid pace of technological
innovation is making the future of global business impossible to predict and it
is rapidly changing the business world. The profession will have to prepare
itself and stand out in this time of technological revolution. The profession
will have to be ready to react, to adapt, to improvise, to innovate at a faster
pace than ever before.

Global inflation rates are climbing to historic levels after
five years of solid growth in the world economy. Inflation has soared to its
highest level in 16 years across the EU, to a 14-year high in Switzerland, a
25-year high in Singapore, an 11-year high in China and a 13-year high in India.
Rising crude oil prices and the food crisis are supposed to be the causes for
this inflationary trend.

The world will have to address this issue collectively.
Economic development the world over has led to large-scale migration of
employment away from agriculture, because industry and services are able to
sustain higher growth and incomes. In India too, growth rates in agriculture
have dipped and its share in national income has halved from about 36% in 1980
to 18% in 2007. India will have to think of various avenues to enhance
agricultural productivity and also explore ways to allow corporate farming and
co-operative farming to ultimately raise productivity. It seems we have
tremendous potential that can be unlocked through new opportunities thrown up by
the current global food crisis.

As I lay down the office of the President of this august
institution, I must say I owe a lot to all of you for giving me this honour. I
have enjoyed communicating to you through this page for the last one year. I
have learnt a lot. The interaction with all of you at various forums has
enhanced my knowledge and experience too. I thank each one of you for your
whole-hearted support in discharging my duties. I would certainly cherish the
memory for ever. Adieu.

With regards,
Rajesh Kothari

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ICAI And Its Members

ICAI and Its Members

1. ICAI News :


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

(i) A New Grievance Resolution Mechanism (e-sahaayataa)
:


‘e-sahaayataa’ is the only e-channel for the entire base of
members and students of the Institute and other stakeholders of the profession,
wherein all their queries/complaints/grievances pertaining to the day-to-day
working shall be catered to and be resolved in a time-bound and transparent
manner. This service is available on ICAI website (htpp://www.icai.org/help).

Objectives :


  • To provide timely
    services to all the stakeholders of the profession throughout the globe.

  • To resolve the
    query/complaint/grievance within 3-7 days from the date of submission of the
    same.

  • To eliminate the
    operational bottlenecks and smoothen the flow of the education process of
    Chartered Accountancy.

Key statistics :

Total
queries/complaints/grievances submitted till May 20,2010
1742
Total
queries/complaints/grievances resolved till May 26, 2010
1689
Total
queries/complaints/grievances under the process
53

Scope :

‘e-Sahaayataa’ caters only to the
queries/complaints/grievances pertaining to the day-to-day working of the
Institute which are general in nature. This facility is not meant for
registering or making allegations, personal observations and personal comments.
(Page 1918)

(ii) Implementation of S. 51A of Unlawful Activities
(Prevention) Act, 1967 :


ICAI has issued the following announcement on Page 2046.

The provisions of the Unlawful Activities (Prevention) Act,
1967 were amended in 2008, by inserting S. 51A which was notified on 31-12-2008
by the Government of India. S. 51A reads as under :

“51A. For the prevention of, and for coping with terrorist
activities, the Central Government shall have power to :

(a) freeze, seize or attach funds and other financial
assets or economic resources held by, on behalf of or at the direction of the
individuals or entities listed in the Schedule to the Order, or any other
person engaged in or suspected to be engaged in terrorism;

(b) prohibit any individual or entity from making any
funds, financial assets or economic resources or related services available
for the benefit of the individuals or entities listed in the Schedule to the
Order or any person engaged in or suspected to be engaged in terrorism; and

(c) prevent the entry into or the transit through India of
individuals listed in the Schedule to the Order or any person engaged in or
suspected to be engaged in terrorism.”

In order to implement the provisions of S. 51A effectively,
the Ministry of Home Affairs, Govt. of India requested the Ministry of Corporate
Affairs to issue an appropriate order to ICAI, ICSI and ICWAI to sensitise their
members to the provisions of S. 51A of the Unlawful Activities (Prevention) Act,
1967. Accordingly the Ministry of Corporate Affairs vide its letter dated
22-3-2010 asked the ICAI to advise its members to act as per mandate of the
Ministry of Home Affairs.

Accordingly, all members of ICAI are informed that as and
when any member comes across any such fact which is connected with the
violation(s) of provision(s) of the Unlawful Activities (Prevention) Act, 1967,
he must take action forthwith for the implementation of S. 51A as per procedure
laid down in the Office Memorandum dated 22-2-2010 issued by the Ministry of
Home Affairs, Government of India.

In other words, the members of ICAI must ensure that in case
any of their client match with the particulars of designated individual/entity,
as per Order dated 8-7-2009, wherein the list of such designated
individual/entities have been given, they shall immediately, not later than 24
hours from the time of finding out such client, inform full particulars to the
Joint Secretary (IS.I), Ministry of Home Affairs, at Fax No. 011-23092569 and
also convey over telephone on 011-23092736. The particulars apart from being
sent by post should also be conveyed on e-mail id:isis@nic.in.

(iii) ICAI publications :


The following Technical Guides are issued by ICAI :

(a) Technical Guide on Internal Audit of Construction
Industry

(b) Technical Guide on Internal Audit of Educational
Institutions

(c) Technical Guide on Accounting for Development
activities of SEZs. (Pages 2048-2049)





2. Accounting Standards :

The Accounting Standards Board has issued further exposure drafts revising the following Accounting Standards and also issued exposure drafts of New Accounting Standards after convergence with the IFRS/IAS for public comments :

    i) Revised Standards :

    a) AS-22Income Taxes(corresponding to IAS-12)
    b) AS-24Non-Current Assets held for Sale and Discounted Operations (corresponding to IFRS-5)
    c) AS-27Interests in Joint Ventures(corresponding to IAS-31)
    d) AS-28 Impairment of Assets(corresponding to IAS-36)

    ii) New Standards :

    a) AS-33 Share-based Payment (corresponding to IFRS-2)

    b) AS-36 Accounting and Reporting by Retirement Benefit Plans (corresponding to IAS-26)

    3. Capitalisation of expenditures in re-spect of projects under construction (EAC Opinion) (Pages 1937-1938) :

Facts :

A government company is engaged in the construction and operation of thermal power plants in the country. The company has also diversified into hydro-power generation, coal mining and oil & gas exploration, etc. The company is an electricity generation company and is governed by the provisions of the Electricity Act, 2003. The company prepares its annual financial statements as per the provisions of t h e Companies Act.

The company has three-tier organisation structure consisting of projects/stations, regional headquarters and corporate office. The company is undertaking constructions of a number of new power projects at the greenfield sites as well as expansion of existing projects. Some of the key activities related to the construction projects, such as design & engineering, award of major contracts, post-award contract management, project monitoring, etc. are performed centrally at the corporate office. The expenditure of engineering, contracting, project monitoring, hydro region head-quarters, coal mining and finance concurrence departments were considered as expenditure during construction and allocated through the project under construction/expansion on systematic basis i.e., capital expenditure incurred during the year at these projects. Expenses of other departments providing common services were charged to the statement of profit and loss. Further, administration and general overhead expenses attributable to construction of fixed assets incurred till they were ready for their intended use were identified and allocated on a systematic basis to the cost of related assets. However, the government auditor observed that administration and other general overhead expenses were usually excluded from the cost of fixed assets since they did not relate to a specific fixed assets, while the company has allocated expenses relating to the divisions on the ground that they perform functions relating to construction only. Hence according to Auditors the allocation of expenses was not in accordance with AS-10.

Query :

On these facts, the company has sough the opinion of the Expert Advisory Committee (EAC) as to whether allocation and capitalisation of expenses related to the identified departments of corporate office and the regional headquarters which were engaged in project engineering, designing, contract management and project monitoring activities, etc. to/at the project under construction/expansion was correct.

EAC Opinion :

After considering paragraphs 9.1, 9.2 and 10.1 of AS-10 the Committee observed that the basic principle to be applied while capitalising an item of cost to a fixed asset/project under construction/ expansion is that it should be directly attributable to the construction of the project/fixed assets for brining it to its working condition for its intended use. The costs that are directly attributable to the construction/acquisition of a fixed asset/project for bringing it to its working condition are those costs that would have been avoided if the construction/acquisition had not been made. These are the expenditures without the incurrence of which, the construction of project/asset could not have taken place and the project/asset could not be brought to its working condition, such as site preparation costs, installation costs, salaries of engineers engaged the construction activities, etc. The avoidance of costs has the basis of identifying directly attributable cost for the purpose of capitalisation is also supported by Accounting Standard (AS ) 16, ‘Borrowing Costs’. In the present case, the Committee is of the view that it should be seen that whether the expenses incurred on the activities of the various departments are directly attributable to the construction as discussed above. Accordingly, if expenses incurred at various departments are directly attributable to construction, these can be capitalised with the cost of concerned fixed asset(s)/project(s).

In view of the above, the capitalisation of expenses related to various departments of corporate office and the regional headquarters to the projects/assets under construction/expansion would be correct provided the expenses incurred on the activities of these departments can be considered to be directly attributable to the constriction of project(s)/fixed asset(s) for bringing them to their working condition as discussed above.

[Refer pages 1937 to 1940 of C.A. Journal]

ICAI And Its Members

1. Disciplinary case :

    In the case of ICAI vs. Shri A. L. Ghael (C.A. Journal — June, 2009, P. 2054-55) CIT Gujarat had filed a complaint against the member. In this complaint it was alleged that during the search carried out u/s.132 of the Income-tax Act, at the premises of the member, the Department found as under :

    (i) 15 bogus certificates purported to have been issued by a bank to the effect that the bank was maintaining a non-resident external savings bank account. These were bogus bank certificates of gifts from NRE account.

    (ii) 13 bank acknowledgements of Income-tax returns affixed with the seal of ITO and receipts under the seal of the Department.

    The disciplinary committee, after examining the evidence brought on record, held that the member acted contrary to the conduct befitting a Chartered Accountant and committed ‘other misconduct’ for which he was liable u/s.22 read with S. 21 of C.A. Act. The Council of ICAI accepted the report of the disciplinary committee and recommended to the High Court that the name of the member be removed from the Register of Members for a period of 6 months.

    The Gujarat High Court has taken a serious view of the conduct of the member. It has observed that so far as bogus certificates of the bank with regard to NRE account were concerned, it was clear that even after knowing the fact that the certificates were bogus, the member did not give copies to the Bank Manager for further investigation. This indicated the guilty mind behind the conduct of the member. As regards the blank acknowledgements and receipts under the seal of Income-tax Department, it was observed that the intention of the member was bad and illegal. Such conduct would not only result into loss of revenue but would also be a fraud on the public. On overall consideration of the matter, the court has confirmed the finding of the council of ICAI and held that the name of the member be removed from the Register of Members for a period of six months.

2. Auditing Standards :

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

    The following Exposure Drafts are issued by ICAI. Members can submit their comments by 31-7-2009.

    (i) Standard on Review Engagements (SRE) — 2400 (Revised) — ‘Engagements to Review Financial Statements’. (Pages 2154-2161)

    (ii) Standard on Auditing (SA) — 700 (Revised) — ‘Forming an Opinion and Reporting on Financial Statements’. (Pages 2162-2176)

    (iii) Standard on Auditing (SA) — 705 — ‘Modification to the Opinion in the Independent Auditors’ Report’. (Pages 2177-2188)

    (iv) Standard on Auditing (SA) — 706 — ‘Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditors’ Report’. (Pages 2189-2193)

3. EAC opinion :

    The Expert Advisory Committee of ICAI (EAC) has given an opinion for accounting for maintenance spares supplied free of cost along with the main equipment in the case of a public sector undertaking. One of the usual terms of the sale of the equipment by the company is that the price of the equipment includes certain specified quantity of maintenance spares supplied free of cost. In other words, the company agrees to supply certain spares free of cost i.e., without charging anything in excess of the agreed price of the equipment. However, while recording such sales, the company credits the sales account with the gross value of the equipment plus value of spares to be supplied free of cost and debits the account of the customer. Thereafter, the company debits the sales account with the value of the spares supplied free of cost and gives credit to the account of the customer. The question for consideration was whether the above accounting entry was in compliance with Accounting Standard (AS-9) dealing with ‘Revenue Recognition’.

    The Committee has given the opinion that the accounting for sale of equipment duly reducing the value of free supply of spares would be in line with AS-9 provided significant risks and rewards of the ownership in respect of free spares are transferred at the time of the delivery of spares to the buyer. However, according to EAC, separate entries should be passed for (a) booking recognition of revenue from sale of equipment net of the amount related to revenue from spares when the risk and rewards of ownership of the equipment are transferred and (b) booking recognition of revenue from spares when the risks and rewards of ownership of spares are transferred. (Refer pages 2059-2061 of C.A. Journal for June, 2009)

4. Enhancing Audit Quality :

    Financial Reporting Review Board (FRRB) reviews the General Purpose Financial Statements of certain enterprises and auditors’ reports thereon. Observations on major non-compliances in the following matters noted by FRRB are stated on page 2130 of C.A. Journal for June, 2009 :

    (i) Disclosure of Accounting Policies (AS-1)

    (ii) Valuation of Inventories (AS-2)

    (iii) Revenue Recognition (AS-9)

    (iv) Accounting for Investments (AS-13)

    (v) Leases (AS-19).

5. Women Steering Group :

    The World celebrated International Women’s Day on 8th March 2009. ICAI has constituted a Women Steering Group (WSG). The Mission statement of WSG states as under :

“The Women Steering Group of the Institute of Chartered Accountant of India (WSG of the ICAI) is a wing of ICAI, which is dedicated to serving women Chartered Accountants and female stu-dents aspiring to be the members of the ICAL The WSG will provide a supportive environment and valuable resources for female members and students to achieve their personal and professional goals. through various opportunities including leadership, networking and education.”

To accomplish this mission, WSG offers in-depth support in four important areas:

    1. Increase Professional and Public Awareness about the Indian Women Chartered Accoun-tants.

    2. Facilitate a national network of individuals and organisations to encourage networking and mentoring of women members.

    3. Provide opportunities  for professional growth.

    4. Advocate  professional  parity.
 

It is stated that out of about 1,50,000 CAs. in our country, about 15% (22,500) are women. Out of about 4,50,000 CA. students, about 40% (1,80,000) are girl students. (Details about activities of WSG are published on pages 2132-2133 of CA. Journal for June, 2009).

6. ICAI News:

(Note: Page Nos. stated below are from CA. Jour-nal for June, 2009)

i) Transfer  of Articles:

Announcement of the Council of ICAI dated 27-3-2009 about transfer of articles of Articled Assistants has been published in BCA Journal of June, 2009. This has now been published in CA. Journal for June, 2009 at page 2134.

(ii) Requirement of CPE credit:

Now  members can view / check  their  CPE credit hours (Calendar yearwise) on the site www.cpeicai.org.maintained internally by the EDP Section, at the member login (not POU Login) for which they need to insert six (6) digit membership number [add zero (0), if required] and password would be that (6)-digit membership number pre-fixed with the letters (cpe). (Refer details on page 2136)

iii) Working  hours  of Articled  Assistants

On page 240 of BCA Journal for May, 2009, summary of the announcement relating to Working Hours of Articled Assistants is published. Details are now available on pages 2137-38 of CA. Journal for June, 2009.

iv) ERP  Courses:

ICAI is offering ERP Courses for members and students (Final / Articles completed) of the Institute to enable them to offer value-added services in the field of ERP consulting as functional consultants in the finance domain. Details are on page 2146.

v) Your Inspiring  Success  Stories:

On page 2142 there is an inspiring announcement by the Editorial Board on CA. Journal which reads as under:

“As part of multi-pronged activities to mark the ICAI Diamond Jubilee year, the Editorial Board has decided to publish extra-ordinary success sto-ries of Chartered Accountants in various walks of professional life in the Institute’s Journal, ‘The Chartered Accountant’. Do you think there is something remarkable about your achievements in professional life that the others should know? If yes, write down that glorious story and send it to us. You may ask yourself: What did I do to create my professional success? What inspired me in this mission? How did I not deviate despite the presence of blockages and distractions in my way? How did I overcome my weaknesses and work on my strength? How my achievements helped the organisation/other professionals/society at large? and Finally, how my CA qualification laid the foundation of my success?

The object of the write-up should be to motivate all our students, members, other readers as well as those who wish to join chartered accountant fraternity.”
 
vi) Professional  Development  Portal:

Professional Development Committee has enhanced and upgraded P.O. Portal with a view to provide timely and necessary information on practice development and professional opportunities to members. (Refer page 2139 for details)

Some Recent Judgments

I. Supreme Court :


    1. Import of service : Recipient not liable prior to 1-1-2005 :

  •     Department’s appeal against the CESTAT Misc. Order No. ST/85/2008 (PB) dated 27-6-2008 in the case of Hindustan Zinc Ltd. v. Commissioner, 2008 (11) STR 338 (Tri.-LB) was dismissed with the comment ‘no merit’. In view of this, the Larger Bench’s decision that recipient of service provided from outside India or by a non-resident having no office in India is not liable to pay service tax prior to 1-1-2005. (Detailed analysis of the decision of the Larger Bench was made in September 2008 issue of BCAJ).

    2. Explanation widening tax net is not retrospective for operation :

    UOI v. Martin Lottery Agencies Ltd., 2009 (14) STR 593

  •     In the definition of business auxiliary service u/s.65(19) of the Finance Act, 1994, an explanation was inserted with effect from 16-5-2008 whereby promotion and marketing of lottery tickets was made exigible to service tax. However, the present appeal arose from a judgment and order dated 18-9-2007 (period prior to insertion of the explanation) passed by the Sikkim High Court in a writ petition filed by the respondent challenging legality wherein the High Court had not upheld the levy under the category of business auxiliary service. Service tax was sought to be recovered from the respondent agent considering the service in relation to promotion/marketing of lotteries as business auxiliary service.

    The core question that the Court had to consider was whether the explanation inserted post-decision of the Sikkim High Court was clarificatory or declaratory so as to be interpreted as having retrospective effect and retroactive operation. Referring to and relying on the decisions of several High Courts and the Supreme Court, the Court ruled that by reason of an explanation, a substantive law may be introduced. The Parliament is entitled to bring new concepts of imposition of tax and also entitled to raise legal fiction. However, when substantive law is introduced, it will have no retrospective effect. For the said purpose, an expression like ‘for the removal of doubt’ is not conclusive. The Court also stated that constitutional validity was not examined by them. However, holding that explanation was not clarificatory/declaratory, the High Court’s decision was upheld opining categorically that service tax, if any, would be payable only and with effect from May 2008, i.e. prospectively on the insertion of explanation.

II. High Court :

    3. Clearing and Forwarding Agent :

    CCE v. Kulcip Medicine Pvt. Ltd., 2009 (14) STR 608 (P & H)

    â In this case of Revenue’s appeal, the short question relates to whether or not both ‘clearing’ and ‘forwarding’ are necessary to be covered within the scope of the definition of clearing and forwarding services as the assessee was engaged in the activity of handling and distribution of products of manufacturer and thus not engaged in clearing activity i.e. he dealt with already cleared goods from the factory. The Court in this case noted and approved the decision in the case of M/s. Mahavir Generics v. CCE, Bangalore 2006 (3) STR 276 (Tri.). According to the Court, the word ‘and’ used after the word ‘clearing’ and before the word ‘forwarding’ in the definition provided in S. 65(105)(j) of the Finance Act, 1994 has to be understood in a conjunctive sense and not disjunctive. According to the Court, if the word ‘and’ was read as ‘or’, then it would amount to doing violence to the simple language used by the legislature which cannot be imputed to ignorance of English language. The Court thus expressed its inability to accept the view taken by the Larger Bench in the case of Medpro Pharma Pvt. Ltd. v. CCE, 2006 (3) STR 355 (Tri.-LB) and overruled the same. Further, stressing on the binding nature of the Board circular, the Court observed that they were meant for adoption for the purpose of bringing uniformity and on that count also, the expression ‘clearing and forwarding agent’ was interpreted in the light of the Board Circular dated 20-4-2002 issued in this regard. The Court also observed and the revenue agreed that the department had not appealed against the decision in the case of Mahavir Generics and as such it had attained finality. Thus, considering the dealer not as a clearing and forwarding agent, the revenue’s appeal was dismissed.

    4. Bottling of liquor considered manufacturing and not liable for service tax :

    SOM Distilleries Pvt. Ltd. & Ors. v. UOI & Ors., 2009 TIOL 292 HC – MP – ST – LB

  •     Question referred from Divisional Bench, whether bottling of liquor amounts to ‘manufacture’ (as defined by clause (f) of S. 2 of the Central Excise Act, 1944) of liquor or only packaging so as to attract Service Tax u/s.65(76b) of the Finance Act, 1994.

    The Court, overruling the decision of the division bench in M/s. Vindhyanchal Distilleries Pvt. Ltd. v. State of M.P. and Anr., (2007) 7 VST 197 (MP) held that packaging and bottling of liquor falls within the ambit of ‘manufacture’ and does not attract service tax u/s.65(76B) of the Finance Act, because:

  •      S. 65(76b) by referral legislation excludes from liability any process amounting to ‘manufacture’ as defined in clause (f) of S. 2 of the Central Excise Act, 1944.

  • The question as to whether exclusion clauses goods/processes would apply to non-excisable goods (as even though they fall within the definition of ‘manufacture’, alcoholic beverages are excluded from excise duty by Entry No. 92C in list 1 of Schedule VII to the Constitution of India) has now been settled by Cir. F.No. 249/1/2006-CX.4, dated 27th October 2008 to conclude that ‘manufacturing process’ is a term which must be understood distinctly and it is not necessary for every process amounting to manufacture to result in the emergence of an excisable good.

  • M/s. Vindhyanchal Distilleries (supra) was incorrectly decided in that the question of whether tax is exigible in respect of a transaction is to be determined on the terms of the contract alone, and not from the invoice issued by the person entitled to receive money under the contract. [Arun Electrics Bombay v. Commissioner of Sales Tax, (1966) 17 STC 576].

  • Further, that the process of bottling can be regarded as independent (as in M/s. Vindhyanchal Distilleries) is not correct, especially in view of the statutory requirement that liquor must be sold in sealed bottles. Therefore, packaging and bottling of liquor is a part of the manufacturing process and because it falls within the ambit of clause (f) of S. 2 of the Central Excise Act, 1944, it is excluded from service tax liability in view of the exclusionary facet of the definition contained in S. 65(76b) of the Finance Act, 1994.

III. Tribunal:
5. CENVAT Credit:

(i) Outward transportation from place of removal is input service — A Larger Bench decision:

M/s. ABB Ltd. & Others v. CCE & ST & Others, 2009 TIOL 830 CESTAT-Bang. (Tri.-LB)

The Larger Bench made a detailed analysis of the definition of ‘input service’ in terms of Rule 2(1). The definition, according to the Tribunal could be conveniently divided into the following 5 categories:

(a) Any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products,

(b) Any service used by the manufacturer whether directly or indirectly, in or in relation to clearance of final products from the place of removal,

(c) Services used in relation to setting up, modernisation, renovation or repairs of a factory, or an office relating to such factory,    

d) Services used in relation to advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs,

e) Services used in relation to activities relating to business and outward transportation upto the place of removal

  • The Tribunal noted that each of the limbs is an independent benefit/ concession and therefore even if an assessee satisfies one of the limbs, the credit is admissible. To illustrate this, it is stated that a service in relation to renovation or repair of factory will be allowed as credit as it is a service in relation to setting up of modernisation even if it is assumed as an activity not relating to business. Various decisions were cited and discussed in support of this contention which inter alia included Share Med.ical Care v. UOI, 2007 (2009 ELT 321 (SC), HCL Ltd. v. Collector, 2001 (130) ELT 405 (SC), Indian Petro Chemicals, 1997 (92) ELT 13 (SC).

  • The Tribunal noted that the definition of ‘input service’ includes the expression ‘activity relating to business’. The term ‘business’ is of wide import and the words ‘in relation to’ further widen the scope. The words are of comprehensiveness, which may have direct, as well as indirect significance. It is equivalent to or synonymous with ‘concerning with’ or ‘pertaining to’ which are expressions of expansion and not of contractions. Further, there is no qualification to the words’ activities relating to business’. The words ‘such as’ in the definition also are purely illustrative.

  • Transportation of goods to customer’s premises is an activity relating to business and an integral part of manufacturing business. The Tribunal further noted that if the activities like advertising and market research are eligible to credit, the service ensuring physical availability of goods i.e. transportation should also be eligible for credit.

  • The Tribunal stated that for admissibility of instant credit, there is no requirement that the cost of freight should enter the transaction value of the manufactured goods. Meaning thereby that credit cannot be automatically disallowed in cases where freight does not form part of the transaction value. Referring to the case of All India Federation of Tax Practitioners v. UOI, 2007 (7) STR 635 (SC), it stated that service tax is a value added tax in the sense that it is on commercial activities and not a charge on the business but a tax on value addition by rendition of service.

  • An additional observation that the Tribunal has made in this case is that the dispute in the case bemg that of admissibility of credit of service tax on GTA service and not one of valuation of excisable goods u/s.4 of the Central Excise Act, 1944 and therefore, the two issues viz. ‘valuation’ and ‘CENVAT Credit’ are independent and have no relevance with each other. In this frame of reference the relevant guidelines issued by OECD were discussed. Citing the decision of All India Federation of Tax Practitioners (supra), it stated that revenue’s submission that no CENVAT credit is available if the nature of service does not form part of value of goods subject to excise duty, is against the princip,l,e laid down in the said case of All India Federation of Tax Practitioners and the OECD guidelines, as service tax and excise duty are consumption taxes to be borne by the consumer. If credit is denied, Ievy T’ of service tax on transportation will become a tax on business  rather  than  on consumption.

  • Lastly, the Tribunal has further made a very important and distinct point that the interpretation of the expression ‘input service’ cannot fluctuate with the change in the definition of value in S. 4 of the Central Excise Act and cannot vary depending on whether the goods are levied to duty u/s.4A of the Excise Act or tariff value u/s.3(2) of the Excise Act. This has been done by the Tribunal while also noting the decision of Punjab & Haryana High Court in the case of Ambuja Cements Ltd. v. UOI & Others, 2009 (14) STR 3 (P&H) which provided its decision based on and approving the clarification given vide CBEC Circular No. 97/8/2009 dated 23-8-2007 as regards CENVAT credit. Thus, interpreting all the aspects of the definition of ‘input service’ in detail, it was held that GTA service of final products from the place of removal should be treated as input service.

[Note: Readers may note that the last two points make the decision distinct from the decisions provided in the case of CCE Mumbai 5 v. GTC Industries ua., 2008 (12) STR 468 (Tri.LB) and the Punjab & Haryana High Court decision in the case of Ambuja Cements Ltd. (supra). The gist of these two decisions was provided in December 2008 and May 2009 BCAJ respectively].

ii) Supplementary invoices and invoice without registration number, whether eligible for credit :

Sanghi Industries Ltd. v. CCE, Rajkot 2009 (14) STR 462 (Tri.-Ahmd.)

  • In this case CENVAT credit was denied on the ground that a supplementary invoice was issued for the amount of service tax as the original invoice omitted to mention the same. In another invoice, registration number of the service provider was not provided. It was held that Rule 9 of the CENVAT Credit Rules was not considered by the lower authorities: Substantive compliance being sufficient for granting credit, the matter was remanded to the Commissioner (Appeals) to decide afresh in the light of the aforesaid observations.

iii) Car repairs, photography, rent-a-cab, etc. used ,for business admissible as credit:

CCE, Jaipur v. J. K. Cement Works, 2009 (14) STR 538 Tri.-Del)

Revenue’s appeal against allowance of CENVAT credit in respect of rent-a-cab service, repairs of motor cars and photography services used for business purposes was dismissed on the following grounds:

(a) The revenue did not controvert use for business.

(b) Tribunal’s decisions in various cases including those in the case of Indian Rayon Industries Ltd. v. CCE, 2006 (4) STR 79, Grasim Industries v. CCE, [aipur 2008 (11) STR 168 and CCE, Nasik v. Cable Corporation of India Ltd., 2008 (12) STR 598 were considered wherein allowancy of CENVAT in relation to similar services was upheld as input services for the manufacturer based on the con-tention that ‘in relation to’ in the definition of input service has to be given wider connotation and the illustrative list of the activities is not ex-haustive as the words ‘such as’ follow the words ‘activities relating to business’. Accordingly, denial of credit was not found justified.

(iv) GTA services used for construction of plant admissible as input service:

CCE, Vadodara v. Videocon Industries Ltd., 2009 (14) (STR) 692 (Tri.-Ahmd.)

The Revenue’s appeal was rejected as service tax paid on goods transport agency service in respect of steel, cement, etc. used in civil work of new plant/factory was held as covered by the definition of input service.

Right to Information

Part A : Decisions of CIC

 S. 5(4) of the RTI Act :

    Ss.4 of S. 5 of The RTI Act provides that the Public Information Officer may seek the assistance of any officer as he or she considers it necessary for the proper discharge of his or her duties.

    Rakesh Agarwal of New Delhi applied for inspection of certain records of Tis Hazari Court, New Delhi.

    In reply, the PIO stated that the appellant can inspect the records or take copies of the documents with the permission of Ld. Presiding Officer.

    The appellant objected to the condition put for inspection in an appeal to CIC.

    CIC, Shailesh Gandhi, in the Order noted as under :

    “The onus lies on the PIO to approach any officer of the court as he considers necessary to procure the information that the appellant is seeking. If the appellant is exercising his right to information under the RTI Act, then he is within his statutory rights to only approach persons designated as PIO or APIO. He is not expected to seek permission from persons who are not designated under the RTI Act. The purpose of putting in place S. 5(4) is to ensure that applicants for information do not have to run from pillar to post to access information to which they are rightfully entitled to under the RTI Act. In present case, to ask the appellant to apply for permission from the Presiding Officer of the Court is in clear contradiction to the spirit and word of the law. The Commission considers the PIO’s reply as an instance of shirking responsibility and takes strong exception to such actions.”

S. 28 of the RTI Act :

    S. 28 provides that the competent authority (the Chief Justice of all High Courts and Supreme Court are competent authorities u/s.2(e) of the RTI Act) may make rules to carry out the provisions of the RTI Act.

    The Delhi High Court (Right to Information) Rules, 2006 as amended include :

    The information specified in S. 8 of the Act shall not be disclosed and made available and in particular the following information shall not be disclosed :

    (a) Such information which relates to judicial functions and duties of the Court and matters incidental and ancillary thereto.

    CIC in his order noted as under for above rule :

    The Delhi High Court RTI Rules have been framed u/s.28 of the RTI Act. This provision clearly states that the competent authority may make rules to carry out the provisions of the Act. Therefore, rules framed by the High Court u/s.28 cannot run contrary to the fundamental basis of the RTI Act which is to ensure that citizens can enjoy their fundamental as well as statutory right to information. Rule as above, in effect, appears to add another ground based on which disclosure of information can be exempted. No public body is permitted under the Act to take upon itself the role of the Legislature and import new exemptions hitherto not provided. The Act leaves no such liberty with the public authorities to read law beyond what it is stated explicitly. There is absolutely no ambiguity in the Act and creating new exemptions 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. Even the Parliament, while constricting any fundamental rights of the citizens, is very wary. Therefore, the Commission is of the view that no competent authority has the sanction to import new exemptions and in the process curtail the fundamental right of information of citizens”.

    Above two issues are part of the decision in Mr. Rakesh Agarwal v. Tis Hazari Court, New Delhi : CIC/SG/A/2009/000677/3392 of 22-5-2009.

 PM’s surgery :

    Mr. Jagdish Jetli made an RTI application to AIIMS, New Delhi seeking information on 7 points connected to the second heart by-pass surgery on the Prime Minister Dr. Manmohan Singh by a team drawn from Asian Heart Institute (AHI), Mumbai led by Dr. Rama Kant Panda. Information sought included :

  •      Details of expertise of all members of the AHI team

  •      Rules of the AIIMS under which a team from a private institute was asked to conduct this surgery.

    The CPIO gave certain information which according to Mr. Jetli was vague and evasive.

The Bench of Mrs. Annapurna Dixit, CIC decided as under:

“The respondent submitted that the AIIMS has nothing on record regarding the qualifications of Dr. Panda who conducted the by-pass heart surgery, nor have reasons for his selection been recorded. He stated that the decision to invite Dr. Panda was taken jointly by the PMO and family members of the Prime Minister. The appellant’s contention was that the public has a right to know why a premier institute such as the AIIMS which is staffed by the best doctors in the country and with the best of medical facilities had to invite a “doctor from outside to conduct the operation in its premises. He added that this is a matter of great concern to the public and that inviting a doctor from another institute has eroded the reputation of AIIMS. Keeping the peculiar facts of the case in mind and in the light of the fact that Dr. Panda had used the facilities belonging to AIIMS, which is a public authority, the Commission directs the CPIO to obtain the relevant information from the Asian Heart Institute regarding particulars of Dr. Panda and to provide the same to the appellant. The appellant also to be informed about how the decision to invite Dr. Panda to conduct the surgery was arrived at and for what reasons and also be provided with minutes of any meetings in this connection, available with the AIIMS. All information to be provided by 20th June, 2009.”

[Mr. Jagdish Chander Jetli v. AIIMS, CIC/ AD/ A/ 09/00609 dated May 21, 2009]


Part B : The RTI Act

S. 25 of the RTI Act provides that the Central Information Commission and the Sta te Informa tion Commissions as soon as practicable after the end of each year, prepare a report on the implementation of the provisions of the RTI Act during the year and forward a copy thereof to the appropriate Government.

Annual Report 2006-07 of Central Information Commission is now submitted in April 2009. It is surprising that it has taken two years to prepare and publish the annual report. One does not know when Annual Reports of 2007-08 and 2008-09 would be prepared and published. Words ‘as soon as practicable’ are nebulous. One wishes that time limit was set in the Act as it stands in other Acts like the Companies Act. As reported in this feature in June, Maharashtra SIC submitted the annual report of 2008 to Vidhan Sabha on 16-3-2009, i.e., within less than 3 months, praiseworthy achievement. Hereunder, I reproduce salient features of the Annual Report of the Central Information Commission as appears in the executive summary printed in the said Report:

i) The number of requests made to each Public Authority [Vide S. 25(3)(a) of RTI Act] : the period under report witnessed exponential increase in the number of requests (1,71,404) received by Public Authorities. If all ministries are taken together the number of requests received in year 2006-07 are seven times over previous year. This increase will rise to more than 8 times if comparison is made for top ten ministries. The number of requests received by Public Authorities of top ten Ministries in year 2006-07 were 1,38,501 in comparison to 16,680 during 2005-06.

ii) Rejection of the requests [Vide S. 25(3)(b) of RTI Act] : out of 1,14,724 requests received by top 5 ministries only 8.9% requests are rejected during 2006-07 in comparison to rejection of 26.5% requests by top five ministries under different sections in the previous year. When all ministries are considered together, only 8.98% requests received are rejected in the year 2006-07 in comparison to 13.9% in the previous year. The major rejections were u/s.8 of RTI Act 2005 followed by u/s.11, u/s.24 and u/s.9. On an average, authorities under different ministries disposed 66% of the requests received in year 2006-07.

iii) Number of appeals/complaints decided by the Central Information Commission (Vide S. 25(3)(c) of RTI Act) : Total number of appeals or complaints received by CIC were 6839 during 2006-07 (1156 in Quarter-I, 1483 in Quarter-If, 1583 in Quarter-Ill, and 2617 in Quarter-Tv). The total number of appeals received by Public Authorities during 2006-07 was 15298. Out of these 8466 (74.93%) appeals were accepted by Public Authorities and 4888 (31.95%) were rejected.

iv) Disciplinary  action taken  [Vide S. 25(3)(d) of RTI Act] :
The total number of show cause notices issued against various public information officers by Central Information Commission for not being able to comply with the provisions of the RTI Act during 2006-07 were 259. Out of these 259 cases, penalties are imposed in 24 cases u/s.20(1) of the RTI Act and also recovered in 12 cases. In addition, S. 20(2) was invoked in 8 cases. Further, compensation was awarded to 12 appellants by the Central Information Commission u/s.19(8) of RTI Act.


Part C : Other News

Amendments to the  RTI Act :

In the address by the President of India, Shrimati Pratibha Devisingh Patil to the Parliament on 4th June 2009, in Para 32, she has covered number of measures on which her Government will initiate steps within the next hundred days. One of the items therein is :

Strengthening Right to Information by suitably amending the law to provide for disclosure by Government in all non-strategic areas.

However, it appears that amendments proposed are completely of different nature: The Times of India on June 19 reports:

In a body blow to claims of transparency, the UPA Government has proposed amendments to the RTI Act exempting all file notings except those dealing with social and development issues besides restricting access to pending policy decisions, cabinet documents and examrelated documents. The amendments also envisage increasing RTI fees substantially. The draft amendments proposed by the DoPT signal that the Government is keen to bring in changes in the law that it had been forced to drop in 2006 under pressure from Left parties and RTI activists. In a move aimed at discouraging ‘motivated information-seekers’ the DoPT Ministry has suggested that payment (at present Rs.10)should be hiked. There is a view in the Government that citizens should be made to pay for the pay of the officers working on RTI besides the amount for photocopying or accessing the information sought.

Objecting to the above proposal, Mr. Shailesh Gandhi, earlier RTI activist and presently erc has addressed a letter to the Prime Minis ter.

He states: It would be appropriate if the Government transparently accepts certain boundaries in the exercise of improving transparency.

The minimum requirements for this would  be :

1) No reduction  in the scope of S. 2(0, (h), (i) and (j).

2) No increase or addition in the exemptions u/s.8(1) of the RTI act.

The law has been spread by citizens across the coun-try and they value it very dearly. There are some worries in their minds about losing anything in the exercise of their fundamental right. It would be in the fitness of things if the Government declared the amendments they are proposing to the Act, and gave the reasons for the amendments publicly. I request you to clarify these matters soon so that citizens feel reassured.

•  File notings  :

Probably, as noted above, the proposed amendment for non-disclosure of file notings is caused by the serious battle going on between CIC and DoPT since years. CIC has often ruled (including under the Full Bench decision) that file notings are information as defined u/s.2(f). On the other hand, DoPT continues to hold the view that it is not an information. In FAQs as appearing on www.persmin.nic.in the Ministry, on interpretation of ‘what does information mean ?’ answers:

Information means any material in any form including records, documents, memos, emails, opinions, advices, press releases, circulars, orders, log books, contracts, reports, papers, samples, models, data material held in any electronic form and information relating to any private body which can be accessed by a public authority under any other law for the time being in force but does not include file notings’.

In an unprecedented move, CIC chief Wajahat Habibullah in early June issued summons to Joint Secretary S. K. Sarkar and Deputy Secretary Anuradha Chagti to appear on June 17 to explain why they should not be prosecuted under the IPC and penalised under the RTI for their failure to correct the misleading claim made on the DoPT website about file notings.

The provocation was the DoPT’s refusal, despite repeated directions to correct the misleading claim made on its website, that file notings were not part of the information that could be disclosed under the RTI. While other public authorities, including the Law Ministry and the Sc, have long accepted the CIC’s ruling that file notings are not exempt from disclosure, the DOPT has maintained otherwise on its website, much to the CIC’s chagrin. Habibullah found it. ‘appalling’ that the nodal department of RTI had ‘sought to emasculate the mandate’ of S. 19(7) which stipulates that the CIC’s decisions are ‘binding’.

RTI rescues Chembur residents from illegal garages:

For over five years, around 20,000 families in Chembur, Mumbai faced cronic problems of noise and air pollution coming from nearby illegal commercial garages and workshops. Their repeated complaints to the civic authorities failed to bring any relief. Irked by the indifference from the authorities, the residents filed a Right to Information plea and have now got their way. The RTI application clearly stated that these establishments were operating without licences. Not only that, they had encroached upon the footpaths violating more rules.

The civic officials have admitted that the RTI information will help them to come strongly against the illegal garages. The residents have more than one reason to cheer now, as not only their action will ensure less pollution, but it will also stop water-logging during the monsoons.

•  RTI and  e-governance :

Citizens across the country can now exercise their Right to Information on the phone and Internet. Inspired by the success of [aankari, a Bihar State Government initiative to accept RTI applications through phone calls, the Centre is all set to replicate the model across the nation.

Listing his priorities after taking over as the Min-ister of State for Personnel and Public Grievances, Mr. Prithviraj Chavan said that the Government of India would soon facilitate RTI queries through the phone and Internet by adopting the Jaankari model, albeit with more refinements in technology.

The Bihar Government’s citizen-centric Jaankari project had earned it the national e-governance award last year. Using the effective tools of voice communication, thus enabling even the poor and uneducated to file RTI queries. The Jaankari initiative only involves making a phone call by dialing 155311 and communicating details of the desired information to a call-centre person. The call-centre executive then drafts an RTI application and sends it to the public authority concerned.

•  Electricity  Consumption bills (ECb) in Mumbai:

You may be shocked with these figures but they are as obtained under RTI application:

We pay taxes to meet above bills!

Right To Information

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r2iPart A : CIC’s decisions

Guidelines on scrutiny
of income-tax returns by CBDT :


A very interesting and important issue regarding scrutiny
policy for non-corporate assessees and disclosure of instructions, directions
and clarifications issued by the CBDT on the scrutiny policy came up before CIC.
The same is decided by a Bench of 3 Commissioners.

Shri Kamal Anand of People for Transparency of Sangrur was
the appellant. He had sought for a number of information, some were furnished by
PIO and AA, and some were denied by holding that the same are exempt u/s.8(1)(a)
of the RTI Act. Hence, the matter came up before CIC. The issue for
determination before CIC was :

Whether supply of instructions, directions, clarifications
relating to scrutiny policy for non-corporate sector could be held to be
prejudicial to economic interest of the State and hence could be denied
u/s.8(1)(a) of the Right to Information Act, particularly when broad
parameters of the scrutiny guidelines have already been provided to the
appellant ?


It may be noted that initially this appeal was heard by a
Single Member of the Commission and he had directed the Department of Revenue to
have the matter considered by the highest level in the public authority and come
up to the Commission with the Department’s viewpoints.

The Department made detailed submissions
after having been duly considered by the Union Finance Minister and as approved
by him. In the submissions, the Department stated that it is of the view that
disclosure of scrutiny guidelines adversely affects the economic interest of the
State and facilitates committing the offence of tax evasion. Therefore, these
should not be disclosed to the public.

Three Members’ Bench after considering the submissions
received, held as under :

It is certainly within the domain of the concerned public
authority to decide and determine as to whether disclosure would adversely
affect the economic interest of the State or not. The Commission can only look
into as to whether the determination by the Department about the probable effect
of a particular policy disclosure is based on objective criteria or not, or as
to whether the Department has arrived at a particular conclusion in a reasoned,
or in a mechanical or arbitrary manner. Here is a case where a public authority
at the highest level has analysed the whole issue at our behest and has given
its considered opinion to this Commission about the possible effect of the
disclosure on economic interest of the State. We must conclude that the
implications of disclosure have been put to the closest scrutiny.

The Commission cannot, therefore, enter into the adequacy or
otherwise of the criteria taken into account by the concerned public authority.
It cannot surpass an objective consideration and place its own subjective
consideration thereon. When a denial is covered by an exemption clause u/s.8 of
the Right to Information Act, so long as such application of exemption is based
on objective criteria and is not arrived at in a mechanical or arbitrary manner,
this Commission does not intend to interfere in such issues.

Based on the above, the Commission held that denial of
information is justified u/s.8(1)(a) of the RTI Act.

[No. CIC/AT/A/2007/00617 : Shri Kamal Anand v. Central
Board of Direct Taxes,
11-2-2008]


For the information of the readers, S. 8(1)(a) reads as
under :

8. 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.





RTI Act v.
S. 138 of the Income-tax Act :


Three issues for determination before the Bench of 3 Members
of the Central Information Commission were :

1. Whether certain information can be provided to the
appellant under the RTI Act when S. 138 of the Income-tax Act prohibits
disclosure of such information ?

2. Whether in such a situation the overriding provision as
contained in S. 22 of the RTI Act comes into play ?

3. Whether S. 8(1)(j) of the RTI Act is applicable to the
case of the appellant ?

The application was made by Shri G. A. Rawal of Ahmedabad,
who is an informant to get information on ‘Tax payable as per the decision of
Settlement Commission in the case of Winprolene Plastics and tax paid by the
said company.’ Information sought was denied by holding that the same is
prohibited u/s.8(1)(j) of the RTI Act.

Decision and reasons :

l
Both the Right to Information Act, 2005 and S. 138 of the Income-tax Act, 1961
deal with disclosure of information. While the Right to Information Act is a
general law concerning the disclosure of information by public authorities, S.
138 of the Income-tax Act is a special legislation dealing with disclosure of
information concerning assessees. This Commission in Rakesh Kumar Gupta v.
ITAT
, of 18th September, 2007 decided by a Full Bench, has dealt with the
issue of applicability of special law to the exclusion of the general law. (Note
: This decision was extensively covered in this feature in the BCAJ of November
2007.)


  Crucial two terms u/s.8(1)(j) are ‘personal information’ and ‘invasion of the
privacy’. In the decision, the Commission has analysed the ambit and scope of
both the terms.


•    The interpretation of S. 8(1)(j) has been the subject of some dispute. The Section deals with excluding from the purview of the RTI Act (a) in-formation of a personal nature which has no relationship to a public activity or interest, and (b) whose disclosure would lead to unwarranted invasion of privacy.

•    Insofar as (b) is concerned, there is very little doubt that there could be a set of information which may  be said  to belong to the  exclusive private domain and hence not be liable to be disclosed. This variety of information can also be included as ‘sensitive and personal’ information as in the U.K. Data Protection Act, 1998. Broadly speaking, these may include religious and ideological ideas, personal preferences, tastes, political beliefs, physical and mental health, family details and so on.

•    But when the matter is about personal information unrelated to public activity, laying down absolute normative standards as touchstones will be difficult. This is also so because the personal domain of an individual or a group of individuals is never absolute and can be widely divergent given the circumstances. It is not possible to define ‘personal information’ as a category, which could be positively delineated; nevertheless it should be possible to define this category of information negatively by describing all information relating to or originating in a person as ‘personal’ when such information has no public interface. That is to say, in case the information relates to a person which in ordinary circumstances would never be disclosed to anyone else; such information may acquire a pub-lie face due to circumstances specific to that information and thereby cease to be personal. It is safer that what is personal information should be determined by testing such information against the touchstones of public purpose. All information which is unrelated to a public activity or interest and if that information be related to or originated in person, such information should qualify to be personal information u/s.8(1)(j).

•    Insofar as the assessment details are concerned, they are definitely personal information concerning some individual or legal entity. The assessment details if disclosed may result in an undue invasion to the privacy of an individual. Disclosure of such details, therefore, cannot be permitted unless there is an overriding public interest justifying disclosure. But in the instant case, what has been asked for by the appellant in his RTI application is as follows:

“Tax payable as per the decision of the Settlement Commission in the case of Winprolene Plastics and tax paid by said company.”

•    Based on above, the Commission directed the CPIO to provide the information within a period of two weeks from the date of the order.

[No. CIC/ AT/ A/2007 /00490, dated  5-3-2008 in the matter of Shri G. R. Rawal v. Director General of Income Tax (investigation), Ahmedabad]

Note: S. 24 of the RTI Act provides that the Act shall not apply to certain organisations. The Second Schedule lists such organisations. Ss.(2) of S. 24 empowers the Central Government to amend the Schedule by including therein any further organisation. It is understood that on 28-3-2008, (may be to undo such decision in future) the Notification is issued, under which the Directorate General of Income-tax (Investigation) is included in the Second Schedule.


Part B : The RTI Act

Chapter 6 of the Annual Report 2005-06 as published by the Central Information Commission (CIq deals with suggestions to reform by the CIC.

•    All stakeholders – citizens, civil society organisations, public authorities and the Information Commissions – have felt that the implementation of the RTI Act has been a mixed experience.

•    CIC is of the view that though S. 4, requiring the Government to publish all information except that which  the law permits  to be kept  a secret, is the key to the RTI Act, unfortunately,   public  authorities  neglected  it the most  in 2005-06. Public authorities  find  themselves  too overwhelmed   by information  seekers to focus their energies  on furnishing  or even  expanding  the scope  of suo moto disclosures  of information.  For this exercise to be fruitful,  there has to be an attitudinal change.

Based on the above, CIC suggests that Citizen’s Charters adopted by most public authorities should be made an integral part of S. 4(1)(b) disclosures, so that the public is aware of the commitments of a public authority towards it.

•    There has been a lot of demand to expand the modes of depositing the fee of making an RTI application. In an effort to do so, the Government recently decided to accept Indian Postal Orders as a mode of payment. The Commission would recom-mend that even a Rs.lO postal stamp affixed to the application should be considered as valid payment of fee for registration of an RTI application. There is also a case for ensuring that rates of fees across the country are made uniform.

•    One complaint has been that the beneficiaries of the Act have largely been public officials and the educated urban people, and the benefits have not percolated to the poor and the people from the rural areas. This indicates that there is a need on the part of Government to fulfil its obligations u/ s.26 of the Act. Public authorities must set aside a specific budget for dissemination of knowledge amongst citizens, so that the provisions of the Act can be utilised at all levels of society, through heightened public awareness.

•    The Commission feels handicapped about not being able to hold Central PIOs and public authorities accountable for non-implementation of its orders/ decisions. To give teeth to its powers, it is essential that the Commission be given powers of contempt of Court.

•    Provision will need to be made to apply the CIC’s decisions to States with all attendant penalty provisions; to allow State Commissions to refer a matter to the CIC; and to empower the CIC to withdraw a case, which may be before it or a State Commission for appeal.

•    The Commission should be empowered, financially and administratively, to allocate funds and undertake suitable research and development activities for the promotion of relevant programmes that are critical for strengthening the information regime, as envisaged in the Act. The Government may set up a Centre for Accountability and Transparency for undertaking activities relating to research in best practices in creating an open access regime and other such related activities that would effectively strengthen the Commission in pursuing its mandate.


Part C : Other News

•  BCAS appreciated in Loksatta:

CA Prof. Suresh Mehta has sent a cutting of an article in the Marathi daily ‘Loksatta’ in which appreciation is made of the contribution of BCAS in spreading of RTI movement.

•    No provisions for flats for differently abled citizens:

Vijaya Kalan (37) is partially paralysed and she is a heart patient. But what makes her situation worse is the fact that she has to drag herself up and down seven floors from her apartment, whenever there is load shedding in her complex at Kharghar.

From the reply received in response to RTI application, it is gathered that CIDCO, that developed the housing complex, has blatantly over-looked the rights of handicapped people. They have not reserved any apartments for them in the housing societies developed since 1995.

•  Is the RTI effective in curtailing corruption?

Ms. Aruna Roy, the mother of the RTI movement in India, is of the view that response of the people has been better than expected. The existing statistics on RTI are based on appeals made to Commissioners and do not reflect the real picture. Actually, a much larger number of people ask for information and get it. Media coverage has focussed on the use of RTI by urban activists or the controversies that have arisen by denial of information in some cases. On the other hand, in rural areas, in a more routine manner, a lot of information is being sought and obtained regularly to serve very useful purposes such as improving the public distribution system.

•  Suppression of information:

Justice Chandrachud, talking about his experience as a Judge, said that each time he heard a matter he asked himself “Do I make a difference ?” because he did not see the orders being implemented. “We must contemplate the need to incorporate citizens as stakeholders and increase the participation of citizens in governance as well as allow experimentation”. One of the greatest problems faced by the judiciary was access to information. There is a deliberate act of suppression of information and the Right to Information.Act is performing a valuable function.

•  PIO seeking bribe!

In the first case of its kind after the Right to Information Act was enacted nearly three years ago, the Anti-Corruption Bureau (ACB) has trapped an Ulhasnagar Information Officer and his assistant while they were accepting a bribe.

Ulhasnagar resident Gulshan Anand Sachdeo had submitted an RTI application for information on certain plots of land. While the Public Information Officer (PIO) gave him the documents, they were not attested. The PIO and his assistant told Sachdeo that he would have to first pay Rs. 12,000 for things to move.

Sachdeo went straight to the Thane ACB Deputy Commissioner Kishore Jadhav. He named the officer, Raosaheb Govind Bhalerao, and senior clerk Ramchandra Gavit. The ACB told Sachdeo to go back and pretend to hand over the money, which he did. Bhalerao and Gavit were caught in the act.

This is the first time an Information Officer has been caught for asking for a bribe to provide certified documents.

•  Power  bills of the  President of India:

The whole country suffers from power shortage. However, Rashtrapati Bhavan is always kept brightly lit ! Rashtrapati Bhavan has incurred power bills of Rs.16.71 crore over the past five years, almost doubling from Rs.2.4 crore in 2003 to Rs.4.39 crore in 2007.

The information on electricity usage in the President of India’s official residence was revealed in a recent RTI reply. In the five-year period from January 2003 to December 2007, Rashtrapati Bhavan consumed 2.69 crore units of electricity. Its usage rose from 37 lakh units of power in 2003 to 68 lakh in 2007. Last year’s bill of Rs.4.39 crore was higher than the Rs.4.02 crore spent in 2006.

•    UNDP report, just released, has found that corruption continues to be a crippling problem in countries in the Asia-Pacific region:

The report has published three sets of ranking produced by Transparency International, the World Bank and the International Country Risk Guide. While India has improved slightly on Transparency International’s corruption index for 2007, it has done worse or remained static in the other two rankings. This is a worrying trend which shows that India’s rapid growth over the past few years hasn’t contributed to a decline  in corruption.

Under’ A Thought for Today’ (june 16) “It is difficult, though not impossible, to stop government officials from hiding their corrupt take.” Editorial in The Times of India writes:

“However, the picture is not entirely gloomy. There are encouraging signs of success in tack-ling corruption. Right to Information (RTI) laws have had the effect of making governments more accountable. In 1990, there were only 13 countries in the Asia-Pacific with RTI laws. By 2007, the number had risen to 70. In India, RTI, which is considered to be one of the most progressive such legislations in the developing world, has forced government officials to become more transparent.”

•  Fight for your Rights:

A new programme on Right to Information is being telecast every Saturday at 9 p.m. on NDTV Metro Nation (not NDTV India or Profit or Imagine or other associated channels). It is a one-hour long programme called ‘Fight for your Rights’. Arvind Kejriwal is the anchor. The first episode was telecast on Saturday, May 17th. Repeat telecasts can be viewed on Sundays (it is available on the regular cable channel and on Tata Sky DTH, you can access it on NDTV  24 x 7 channel).

Some Recent Judgments

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Service Tax

Part B : Some Recent Judgments




I.
SUPREME COURT :




1.
Ranking of creditor and tax arrears :


Whether realisation of Central Excise duty has priority over
secured creditors :


Union of India v. SICOM Ltd., 2010 (18) STR 673
(SC) :

The respondents are State Financial Corporation and secured
creditor and the appellant, the Excise Department intended to recover arrears of
excise from the respondents. The matter involved in the case was whether
realisation of Central Excise duty has priority over secured creditors.

The appellants placed reliance on Mascon Marbles Pvt. Ltd. v.
Union of India, 2003 (158) ELT 424 (SC) wherein it was held that arrears of tax
have priority over all the other debts.

The respondents contended that Article 372 of the
Constitution of India on strict interpretation gives priority to arrears of tax
revenue above the unsecured debts only and the secured debts would prevail over
the tax arrears.

The respondents relied on cases like M/s. Builders Supply
Corporation v. Union of India & Others, [AIR 1965 SC 1061] and Bank of Bihar v.
State of Bihar & Others, [AIR 1971 SC 1210], where the Apex Court held that
arrears of tax revenue have priority over other debts but not over secured
debts.

Further reliance was placed on Sitani Textiles & Fabrics (P)
Ltd. v. Asstt. Commissioner of Customs & Central Excise, Hyderabad-I, [1999
(106) ELT 296 (AP)], where the AP High Court held that right of lien of a
secured creditor being statutory has a higher claim over tax dues even though
the property involved may have been attached or seized under other law.

The Apex Court opined that even recovery of Central Excise
duty is treated at par with recovery of arrears of land revenue. It held that on
perusal of S. 11 of the Central Excise Act, 1944 it appears that dues of Central
Excise can be treated as land revenue only when the dues are not fully recovered
from sale of excisable goods. The land revenues have priority over the dues of
unsecured creditors. However, the dues of secured creditors are in priority when
compared to arrears of land revenue. At length, decision in the case of Dena
Bank v. Bhikabhai Prabhudas Parekh & Co., 2000 (5) SCC 694 was discussed and
relied upon by the Court which observed — “It seems a Government debt in India
is not entitled to procedure and a prior security debt.”

Further relying on Periyar & Pareekanni Rubber Ltd. v. State
of Kerala, 2008 (4) SCALE 125, the Court held that non obstante clause under a
State Financial Act being statutory would not only prevail over any of the
signed contract but also over any other laws.

II. HIGH COURT :


2. Adjudication :


Can issue for determination of amount in SCN be considered in
writ proceedings ? :


Creative Infospace Pvt. Ltd. v. Additional Commissioner,
Chennai
2010 (18) STR 553 (Mad.) :

The writ petition was filed to quash a show-cause notice
issued by the Revenue as to why service tax and interest could not be demanded.
It was argued on grounds of principles of natural justice and that the authority
had already pre-decided the issue and that the tax was quantified.

The appellant relied on the case of Siemens Ltd. v. State of
Maharashtra and Others wherein it was held that writ petition is maintainable
against a show-cause notice if the respondent has already determined the
liability of the assessee.

The High Court held that quantification of tax in the
show-cause notice is a statutory requirement and cannot be stated that the
authority has pre-decided the issue. Therefore the decision cited by the
petitioner is not applicable to the present case. It was further held that the
question invoking extended period of limitation should be left to the
adjudicating authority and it could not be decided by filing a writ petition.
The appeal was dismissed.



3.
Classification :


(i) Whether del credere agent can be classified as
Clearing and Forwarding Agent :



Commissioner of Service Tax, Bangalore v. Sreenidhi
Polymers (P) Ltd., 2010 (18) STR 385 (Kar.) :


The assessee contented that it was an agent of M/s. IPCL, as
a del credere agent and not C & F agent.

A substantial question of law was raised before the High
Court whether service rendered can be classified as C & F agent.

Del credere agent is a mere surety and is liable to principal
only when purchaser defaults. Service rendered is in nature of indemnifier as
the assessee has to indemnify to the value of goods sold by the principal to its
customers and that the assessee shall ensure proper repayment of value of goods
sold.

Service rendered by del credere agent was included under
‘Business Auxiliary Service’ by way of amendment in the year 2005. By
introducing del credere agent as business auxiliary service provider, it is
implied that prior to amendment Del credere agent was not liable to pay service
tax. Therefore, service rendered by del credere agent cannot fall under
‘Clearing and Forwarding Agent service’.


Bangalore v. Raj Rajeshwari International Polymers (P) Ltd.,
2010 (18) STR 390 (Kar.) :

Following the decision in the above case of Sreenidhi
Polymers (supra), the Revenue’s appeal was dismissed in this case also holding
that Del credere agents were not C & F agents and not liable for service tax
before 16-6-2005.

(ii) If an amount is taxed under one category for an
assessee, can the same be taxed in the hands of another under another category ?


Speed and Safe Courier Service v. Commissioner, 2010 (18) STR
550 (Ker.) :

The assessee is engaged in rendering courier service which involves collection of letters, par-cels, etc. from customers and delivering to the addresses. In order to carry on this business, the assessee appointed several agents named as franchisees. The franchisees collect service charges from customers along with service tax for delivery of parcels, articles, letters, etc. The entire charges collected are passed on to the assessee and the assessee makes payment to franchisees at agreed rates. It implies that courier service operation leads to sharing substantial amount with the franchisee and assessee gets only the balance amount.

The Department assessed the net amount retained by the assessee towards value of taxable service un-der ‘Franchisee service’. In other words, the Depart-ment levied tax twice on the same amount — under courier service and under Franchisee service. The assessee had filed appeal against the Commissioner’s order, which was rejected by the Tribunal, so the assessee preferred an appeal to the High Court.

The High Court held that if a service falls under two heads, there is no provision in the Finance Act, 1994 to tax the same twice under two heads. Having regard to the definition of ‘franchise’ it is clear that under franchise agreement, franchiser gives a right to the franchisee to do business in a representative manner by using its trade mark or trade name. It was further held that agents were doing business on behalf of the assessee and as such, assessee was not rendering any service apart from accepting parcels for courier. The demand under another category being untenable the ap-peal was allowed.

    4. Penalty :

Whether penalty leviable, if amount involved is meager :
Commissioner of C.Ex., Jalandhar v. Ess Ess Kay Engg. Co. Ltd., 2010 (18) STR 393 (P & H) :

Penalty was imposed by the Commissioner for failure to deposit service tax within prescribed time limit. Appeal was filed in this regard by the assessee, which was partly allowed whereby period of payment of interest was modified and penalty order was set aside.

The amount of tax was not more than Rs.30,000. As the amount of penalty was meager, appeal of the Revenue was dismissed.

    5. Service tax applicability :

i) Whether service tax applicable as consulting en-gineer’s services for works contract prior to June 01, 2007 :

Commissioner of Service Tax, Bangalore v. Turbotech Precision Engineering Pvt. Ltd., 2010 (18) STR 545 (Kar.) :

The assessee was rendering services like design development, design review, installation and commissioning, technology transfer for study and design of oil-free compressor systems.

The Department contended that the above services were covered within ‘Consulting Engineer Services’ as per S. 65(13) of the Finance Act, 1994 and de-manded service tax, interest and penalty thereon and confirmed the same. The Commissioner of Central (Appeals) rejected the plea, but the CESTAT decided the case in favour of the assessee. There-fore, the revenue filed appeal in the High Court.

The High Court observed that prior to amendment in the definition of ‘Consulting Engineer’ by the Finance Act, 2006, the companies were not liable to pay service tax. Therefore, for the period prior to 1-5-2006, the assessee could not be considered as a consulting engineer.

The agreement entered into between the assessee and its employer falls under the definition of works contract. However, since the contract was for the period from 1997 to 2001, and works contract was introduced under service tax net with effect from 1-6-2007, it was held that the assessee cannot be compelled to pay service tax under the category of ‘Works Contract’.

[Note : Readers may note that the finding that the definition of consulting engineer did not cover ‘company’ prior to 1-5-2006 is in deviation from the law laid down by M. N. Dastur & Co. Ltd. v. UOI, 2002 (140) ELT 341 (Cal.) and Tata Consultancy Service v. UOI, 2001 (130) ELT 726 (Kar). The final conclusion that the contract is covered by works contract service and therefore no service tax can be demanded being on a different premise, does not give rise to much issue. However, the conclusion about the company’s exclusion cannot be relied upon, in our opinion.]

    6. Valuation :

i) Whether the value of materials consumed during provision of photography services be exempted under Notification No. 12/2003 :

Commissioner of C.Ex. v. Yahoo Colour Lab, 2010 (18) STR 548 (P&H) :

The assessee was engaged in services of photo-graphy developing and printing. The Revenue contended that the assessee has not sold the material/goods to the recipient of service and therefore, it cannot claim benefit of Notification No. 12/2003–ST, dated 20-6-2003.

The respondent explained that the photography films, printing papers, chemicals, etc. consumed during provision of photography services are the essential ingredients of their developing/printing job and without their use, the photography ser-vices cannot be provided. They further claimed that the material brought and sold was liable to Sales Tax which is a State levy and Central Gov-ernment does not have any power to levy tax on purchase or sale of goods under service tax, unless the same is in the course of inter-State trade.

The Adjudicating Authority relying on clarifica-tion dated 7-4-2004, dropped the proceedings. However, the Revisional Authority reviewed the order and confirmed the demand. However, the Appellate Tribunal restored the original order of the Adjudicating Authority and therefore, the Revenue filed the present appeal.

The High Court relying on the judgment delivered in BSNL v. UOI, 2006 (2) STR 161 (SC) held that in case of composite contract where both, service and sales components are discernible, service tax could not be levied on sale portion. Therefore, the impugned order of the Tribunal was maintained and the Revenue’s appeal was rejected.

    III. Tribunal :

    7. Adjudication :

    i) Unjust enrichment — Whether applicable when amount paid did not represent service tax :

Commissioner of Service Tax, Delhi v. Avery India Ltd., 2010 (18) STR 428 (Tri-Del.) :

The revenue demanded service tax under ‘Consult-ing Engineer Service’ for receiving services from overseas company and confirmed the same. Com-missioner (Appeals) set aside the order which was upheld by the Tribunal.

The assessee filed claim for refund of service tax and interest paid. The original authority passed an order for refund claim, but ordered to be depos-ited to Consumer Welfare Fund under principles of unjust enrichment. The Commissioner (Appeals) held that unjust enrichment did not apply and or-dered for cash refund. The Department preferred an appeal against the order of the Commissioner (Appeals).

The Department argued that the assessee availed credit and service tax factor was added to cost of goods manufactured and thus burden of tax was passed on to the customers.

The assessee contended that he being a recipient of service, paid service tax out of his own pocket and the credit taken was also reversed before is-sue of show-cause notice. It was argued that as a recipient of service, the question of passing the burden of service tax did not arise.

The Commissioner (Appeals) found that the prin-ciple of unjust enrichment and the burden of proving that service tax has not been passed does not arise as the service tax was not payable on technical know-how and the assessee paid service tax out of its own pocket. Further, after taking the credit on payment of tax, the assessee reversed the same, so it can be said that no unjust enrich-ment took place.

The Tribunal held that service tax was not appli-cable, therefore whatever amount was collected did not represent service tax. Therefore, provi-sions relating to refund of service tax, and unjust enrichment could not be made applicable and the refund was held admissible.

    ii) Delay in filing appeal : Whether condonable ?

Indo Colochem Ltd. v. Commissioner of Service Tax, Ahmedabad, 2010 (18) STR 615 (Tri-Ahmd.) :

The application for condonation for delay of 84 days was filed with the Commissioner (Appeals) was rejected. The application was delayed as the manager of the company was on leave and later he left the organisation, and therefore the appeal was filed by the Director of the company. The as-sessee filed stay application against this order.

The counsel of the assessee submitted that the Commissioner (Appeals) did not pass the order on merit but rejected the appeal as the delay was not condoned.

The Tribunal held that there being genuine reason for the delay, the Commissioner (Appeals) was directed to consider the appeal and stay applica-tion and pass the order on merit.

   iii) Extended period of limitation — Whether invokable in absence of suppression ?

Commissioner of C.Ex., Surat -II v. Haryana Sheet Glass Ltd., 2010 (18) STR 640 (Tri-Ahmd.) :

The assessee paid service tax on outdoor catering service. The Commissioner (Appeals) held that the assessee was eligible for credit by relying on the judgment of M/s. GTC Industries 2008 (12) STR 468 (Tri-Lb.) and that extended period of limitation was not invokable when there was no suppression of fact with intent to evade payment of duty.

According to the Department, in the case of GTC Industries (supra) it was held that credit of service tax would be admissible if cost of such service is included in assessable value of final product, whereas in the present case there was no evidence to show that value of catering service was included in assessable value of final product.

The assessee submitted chartered accountant’s certificate to prove that the value of cater-ing service was included in assessable value of the final product. The Tribunal agreed with the documents submitted by the assessee that the value of catering service was included in the value of the final product and held that since two views were possible, extended period of limitation could not be invoked.

    8. CENVAT Credit :

    i) Whether credit of additional tax paid by input service provider admissible :

L. G. Balakrishnan & Bros. Ltd. v. Commission-er of Central Excise, Trichy, 2010 (18) STR 432 (Tri- Chennai) :

The assessee took credit of additional tax paid by input service provider and subsequently recovered from the input service provider. Further, the al-legation of suppression of facts was established on input service provider. The credit of tax to the assessee was disallowed under Rule 9(1)(b) of the CENVAT Credit Rules, 2004.

The Tribunal held that Rule 9(1)(b) which relates to supplementary invoices, there is no mention of additional amount of service tax and there being no provisions to invoke provisions of Rule 9(1)(b), the demand was held unsustainable.

    ii) Whether credit admissible on plant housekeep-ing, factory garden maintenance, insurance and tours and travels expenses :

Balkrishna Industries Ltd. v. Commissioner of C.Ex., Aurangabad, 2010 (18) STR 600 (Tri-Mumbai) :

The assessee filed appeal to the Tribunal on denial of credit by lower authority on factory garden maintenance, plant housekeeping services. As regards insurance and tours and travels credit, it was denied on the grounds of non-availability of records.

The assessee pleaded that the case was covered by the decision of ISMT Ltd. v. CCE & Cus., Aurangabad (Tri-Mum.) with regard to plant house-keeping and garden maintenance service, where it was held that credit of such expenses was admissible. With regard to other two services, copies of invoices and records which were not placed before the lower authority were submitted and plea was made to remand the case to the adjudicating authority.

Based on the case of Chemplast Sanmar Ltd. v. CCE, Salem which stated that the definition of input services which includes activities in relation to business cannot be interpreted to include post-manufacturing activity, it was argued by the Revenue that credit was not admissible.

The Tribunal remanded the case back to adjudicat-ing authority in respect of Insurance service and tours and travels service. With regard to garden maintenance service, it was held that the garden creates better environment which increases work-ing efficiency of the factory and therefore credit is admissible.

    iii) Whether refund admissible when input service provider fails to deposit service tax :

Lason India Pvt. Ltd. v. Commissioner of Service Tax, Chennai, 2010 (18) STR 626 (Tri-Chennai) :

The assessee availed several input services which remained unutilised as services were exported. The original authority allowed refund of unutilised CEN-VAT credit. However, revision orders were passed disallowing part of the refund on the ground that input service provider did not deposit the amount to the Government. Rule 4(7) of the CENVAT Credit Rules, 2004 provides that credit in respect of input services shall be allowed on making payment of value of input service and service tax as indicated in the invoice. Based on Rule 4(7) (supra), it was held that credit was admissible.

    9. Classification :

    i) Whether repairs and maintenance done on job work taxable under ‘Management, maintenance, or repairs’ service :

Crimpson Electronics v. Commissioner of Central Excise, Kanpur, 2010 (18) STR 450 (Tri-Del.) :

The assessee registered under the Central Ex-cise Act, 1944 carried on the business as a job worker. The consideration received was towards job work and there were no records to show the consideration was received towards repairs and maintenance. The assessee challenged the order of the first Appellate Authority wherein it was held that assessee was providing service of repairs and maintenance. The Department argued that the activity carried out by the assessee was repairs and maintenance in guise of job work. The Com-missioner (Appeals) held that the activity was job work and not repairs and maintenance. As there was no records to prove the existence of service and in the absence of any contract, it was held that the activity was not liable to service tax.

    ii) Whether freight paid to owners is exigible to service tax under ‘Goods Transport agency service’ :

Bellary Iron & Ores Pvt. Ltd. v. Commissioner of C.Ex., Belgaum, 2010 (18) STR (Tri-Bang.) :

The assessee incurred freight for transportation of iron ore by trucks in private mines during 1-1-2005 to 31-3 -2006 and did not pay service tax under Goods Transport Agency (GTA) service. The Revenue confirmed the demand attracted in such cases and benefit of 75% abatement.

The assessee contended that the owners of trucks were not GTA and movement of iron ore within the mine during the processing or production or iron ore was not by ‘road’ as was commonly understood and hence the movement was not covered by GTA. Reference was made to CBEC Circular No. 232/02/2006–CX. 4 where it was clari-fied that the activity of handling and transportation of iron ore was liable to service tax under ‘Cargo handling service’ and export cargo was excluded from its definition. The supply of trucks by own-ers without transferring legal right of possession was taxable under ‘supply of tangible goods’. The amount paid was less than Rs.1,500 per trip and hence exemption was available.

The Minister of Finance while presenting the budget speech stated that there was no inten-tion to levy service tax on truck owners or truck operators.

The Commissioner held that the definition of GTA taxes only service provided in relation to transport of goods by road, mere transportation was not a taxable service. The owner of the goods carriage could not be said to be ‘goods transport agent of the owner.

In order to constitute service as GTA, there must be transport of goods by road. Here road is in-terpreted to mean as public road. As there were no roads in mines, provision of GTA service was held as not applicable.

    10. Export of Services :

    i) Whether conditions of Export of Services Rules fulfilled, if benefit accrues outside India :

KSH International Pvt. Ltd. v. Commissioner of C.Ex., Belapur, 2010 (18) STR 404 (Tri-Mumbai) :

The assessee procured purchase orders in India for suppliers of goods located abroad and transmit-ted the same by courier or electronic means to the said suppliers. Based on the purchase orders, the suppliers exported goods to buyers in India and directly collected payments from them. On receipt of sales proceeds, commission was paid to the assessee in convertible foreign exchange. Service tax was paid by the assessee on commis-sion income. Subsequently, claim for rebate was filed by the assessee under the Export Rules. The service rendered was classified under ‘Business Auxiliary Service’.

The lower authorities refused to accept the con-tention of the assessee that services provided by them to foreign suppliers were delivered outside India. Thus, the claim for rebate was rejected.

It was held that denial of refund of service tax was contrary to the express provisions of law as clarified in CBEC Circular No. 111/5/2009 where the phrase ‘delivery and use outside India’ is in-terpreted to mean that the benefit of the service should accrue outside India. Accordingly, since all the conditions of Export Rules were satisfied, the claim of rebate was held admissible.

    ii) Whether delivery of report outside India can be construed as part performance of service outside India :

Commissioner of Service Tax, Ahmedabad v. B. A Re-search India Ltd., 2010 (18) STR 439 (Tri-Ahmd.)

The assessee was engaged in the business of conducting clinical trial for clients in India and outside India which are classified under ‘Technical Testing and Analysis’. The assessee claimed exemp-tion under Export of Services Rules, 2005 when the report was delivered to the client outside India. The Department raised demand by issuing show-cause notice as the services were wholly performed in India. The assessee preferred an ap-peal with the Commissioner (Appeals) which set aside the demands and penalties imposed.

The Department argued that testing and analysis were performed wholly within India and report sent outside India is secondary aspect. Thus entire services were performed wholly within India and accordingly such services cannot be termed as ‘export outside India’.

On examining Export Rules, it was found that technical testing and analysis service is classified under Category II, wherein in order to constitute export, the service must be necessarily partly or fully performed outside India. The performance of service is not complete unless report is submitted to foreign clients, so it can be construed that service is partly performed outside India. Further, delivery of report is essential part of service and it is not complete unless report is delivered outside India. Accordingly, it was held that such service is not taxable and benefit under Export Rules is available.

    11. Refund :

Whether the Department was right in recovering refund granted erroneously without initiating re-view proceedings or filing an appeal :

Ogilvy & Mather Pvt. Ltd. v. Commissioner of Service Tax, Bangalore, 2010 (18) STR 502 (Tri-Bang.) :

The appellant paid excess service tax and had issued credit note to clients for extra service tax recovered and then filed a claim for refund. The Assistant Commissioner rejected the claim on the ground of limitation, but held that refund would not entail unjust enrichment. The said order was upheld by the Commissioner (appeals). However, the Tribunal allowed the assessee’s appeal by re-manding it back to the adjudicating authority in de novo proceedings. The Assistant Commissioner found that the refund claim was barred by limita-tion, but held that doctrine of unjust enrichment was not applicable.

The Commissioner (Appeals) held that the refund claim was filed in time. However, to examine the aspect of unjust enrichment the case was directed to the lower authorities who held that there was no unjust enrichment and the refund was granted to the assessee.

Subsequently, the Assistant Commissioner issued a show-cause notice u/s.11A to recover the refund sanctioned erroneously. The said order was confirmed and affirmed by the Commissioner (Appeals) and therefore, the present appeal by the appellant on the following grounds :

  •     The adjudication order was appealable and legal course open to the Department was to file an appeal.

  •     Since no review was undertaken, the order is illegal.

  •     Since refund claims were sanctioned by the Revenue, reopening of matter by issue of a show-cause notice without filing an appeal is not maintainable.

  •     The Commissioner passed such order relying on cases having dissimilar facts.

  •     The Tribunal in the case of Jindal Aluminium Ltd. [Order-In-Appeal No. 160/2002-CE of Com-missioner (Appeals), Bangalore] had held that refund should be granted if credit note was issued to the clients for excess service tax re-covered. The said decision was not challenged and therefore, the Department cannot take a different stand in the present case.

  •     The refund sanctioned could not be demanded as erroneous refund invoking S. 11A of the Central Excise Act without simultaneously invoking S. 35E of the Act. The quasi-judicial authority cannot review its own order, unless the power of review is expressly conferred by the statute.

  •     A refund made pursuant to an Appellate order could not be said to have been made erroneously.

    

  • The High Court judgment relied by the Department was distinguishable and was not squarely applicable to the present case.

The Department’s grounds were as under :

  •     Reliance was placed on the Tribunal’s decision in CCE v. Addison & Co., 1997 (93) ELT 429(T).

  •     Duty erroneously refunded could be validly recovered u/s.11A of the Central Excise Act, 1944 without filing an appeal against such order.

  •     The Apex Court in the case of M/s. Sangam Processors had held that if credit notes issued to customers after collecting excess amounts of duty at the time of clearance of goods, the assessee cannot validly claim refund and doc-trine of unjust enrichment was still attracted.

The Tribunal made the following observations :

  •     S. 73 of the Finance Act, 1994 deals with re-covery of service tax erroneously refunded and S. 11A of the Central Excise Act, 1944 are pari materia and therefore both the parties have relied on cases pertaining to S. 11A.

  •     Relying on the ratio laid by the Supreme Court in Indian Dyestuff Industries Ltd. v. Union of India, recovery of erroneous refund can be made u/s.11A of the Central Excise Act, 1944 without firstly filing an appeal against such an order.

  •     Principle of unjust enrichment is fully appli-cable in the present case as once the duty incidence is passed on to the customers at the time of clearance of goods, the assessee would not be entitled for refund.

  •     S. 11A and S. 11B are independent provisions and their effect cannot be taken away by resorting to the provisions of S. 356A or S. 35E.

  •     There being substantive provisions of S. 11A of the Central Excise Act, 1944, the argument that quasi-judicial authority cannot review its own order does not merit any stand. It was held that the order being in accordance with law, the appeal was dismissed.

    12. Service tax applicability :

i) Whether manufacture of alcohol-based perfumes and pharmaceutical products liable to service tax :

SPA Pharmaceutical Pvt. Ltd. v. Commissioner of C.Ex. & S.T., Aurangabad, 2010 (18) STR 421 (Tri-Mumbai) :

The assessee undertook activity of manufacturing alcohol on job work basis for various input sup-pliers and contended that it was excluded from the purview of ‘business auxiliary service’ as it amounted to manufacture.

The legal position being covered under Circular F. No. 249/1/2006–CX.4, dated 27-10-2008 and also that the issue was decided by the Tribunal in the case of Rubicon Formulations Pvt. Ltd. v. Commis-sioner of Central Excise, Aurangabad Final order No. A/281/2009-WZB/C-II/CSTB of 19/11/2009 wherein it was held that the appellants were not liable to service tax for this activity.

Based on this ratio, it was held that manufactur-ing was excluded from the purview of ‘business auxiliary service’ and as such, demand and penalty were not sustainable.

    ii) Whether Explanation given to a Section to be given retrospective effect :

B. A. Research India Ltd. v. Commissioner of Service Tax, Ahmedabad, 2010 (18) STR 604 (Tri-Ahmd.) :

The assessee was engaged in the activity of clinical research/testing and analysis for various phar-maceutical companies. The category of technical testing and analysis service was made taxable w.e.f. 1-7-2003. Explanation was introduced in the definition on 1-5-2006 by which testing and analysis for the purpose of determination of the nature of diseased condition, identification of disease, prevention of disease or disorder in human beings or animals was included.

    A show-cause notice was issued to the assessee for recovering service tax for the period 1-7-2003 to 1-5-2006. The issue which arose was whether Explanation was to be given retrospective effect. Relying on the case of Sedco Forex International Drill Inc. v. Commissioner of Income-tax, 2005 (12) SCC 717 and several other cases, the assessee contended that it could not be retrospective.

Citing the case of Epco India Pvt. Ltd., 2008 (84) RLT 428 (Tri.), the Department argued that since the explanation starts with ‘For removal of doubts’ it had retrospective effect.

The Tribunal held that the Explanation introduced by way of amendment was to make clear that the definition included testing and analysis undertaken for the purpose of clinical testing of drugs and formulations were earlier excluded in the original definition. The amendment expanded the scope of definition and therefore could not be given retrospective effect.

    iii) Whether turnkey contracts can be vivi-sected and service tax be levied on service portion involved in execution of such turnkey contracts :

Commissioner of Central Excise, Raipur v. BSBK Pvt. Ltd., 2010 (18) STR 555 (Tri-LB) :

The company entered into one single contract involving handing over of the plant in running condition to the principal, after completing vari-ous works including designing and engineering, civil works, steel structures, erection, testing and commissioning of the plant, etc. They contended that the dominant nature test should be applied for determining type of contract and only divis-ibility of contract cannot be a relevant consid-eration for taxing service tax on service part of such contract.

The Referring Bench had the following views :

  •     Daelim case is not in consonance with the BSNL case delivered by the Supreme Court, wherein it was held that a turnkey contract cannot be vivisected. However, the Revenue had filed appeal in the Supreme Court which was dismissed. However, the Bench observed that summary rejection of the SLP or appeal cannot be construed as affirmation of the judg-ment. It only means that the Supreme Court declined to interfere with the judgment.

  •     By 46th amendment to the Constitution of India, Article 366(29A) was inserted, to con-sider the following three kinds of composite contracts to be ‘deemed sale’ :

    Works contract

    Hire purchase contract and

    Catering contract

Of these three, first and third involve service and sale at the same time and splitting is permitted constitutionally. However, there is no other kinds of contract for which splitting is permitted, say, hospital services.

  •     In the case of ‘turnkey contract’, if sale portion is leviable to sales tax, the remaining portion constituting taxable service cannot go untaxed and the same would be liable to service tax.

  •     The test for composite contracts other than those mentioned in Article 366(29A) continues to be as per the ratio elucidated in Gannon Dunkerley’s case. i.e., to say, did the parties have in mind or intend separate rights arising out of the sale of goods ? If there was no such intention, there is no sale even if the contract could be disintegrated.

  •     It would thus follow that the dominant nature test cannot be applied in the case of works contract falling under clause (b) of Article 366(29-A). If ‘works contract’ can be split into sale contract and service contract, a different treatment may not be given to any works contract simply because the contract is on a turnkey basis.

The arguments put forward by the Revenue were as under :

  •     If taxable services are involved in a composite contract and such element can be discerned, then it is liable to service tax. The reason being service is service whether provided independently or in combination with other activities.

  •     After 46th Constitutional amendment, every con-tract whether indivisible, composite or turnkey involving goods and services are made divisible and would be leviable to sales tax on sale element and service tax on service element.

  •     There are no express provisions of law to exclude turnkey contracts from service tax levy and therefore, service tax should be levied on service element of such contracts.

  •     Daelim’s case had not followed the ratio laid down by the Supreme Court in BSNL and 46th amendment to the Constitution of India.

  •     The aspect theory would not apply to enable the value of services to be included in the sale of goods or price of goods in value of the service.

  •     In case of turnkey contracts, irrespective of percentage of service element involved, such element shall be taxable by the provisions of the Finance Act, 1994.

  •     In the judgment of BSNL v. Union of India, 2006 (2) STR-2006 (2) STR 161 (SC), the Supreme Court has held that if there is a composite contract and the transaction in truth represents two distinct and separate contracts and is discernible as such, it has become per-missible to separate agreement to sale from the agreement to render service.

The respondent argued as follows :

  •     Since the original order of the Tribunal was passed ex parte and when the case was referred to Larger Bench, the findings in ex parte order are baseless and the Larger Bench should not rely on the same.

  •     A turnkey contract is a contract which is indivisible and cannot be vivisected to determine the service tax liability due to dominant intention theory.

  •     Works contract is liable to service tax from June 2007 and therefore, prior to that, turnkey contract cannot be divided to determine the value of service if separate consideration is not paid for such service.

  •     The ratio of BSNL case is not practical to severe turnkey contract into supply contract and service contract to levy tax on minor portion of services involved, which is not dominant object.

  •     Fiction of law in Article 366(29-A) of the Constitution is application to only sale of goods and not to service elements involved in such a composite contract.

  •     Execution of turnkey contract is not complete until the assessee carries out its entire obligation imposed upon it under such contract.

  •     Circular No. 334/4/2006-TRU, dated 28-2-2006 has clarified that when a composite service, even if it consists of more than one service, should be treated as a single service based on the main or principal service and accordingly classified. Therefore it is impracticable to classify various services involved in turnkey contract. Accordingly predominant test does not bring services of turnkey contract into tax net.

  •     In case of Larsen & Toubro Ltd., 2006 (4) STR 63 (Tri-Mumbai) it was held that rendering of engineering and designing service in a turnkey contract is not covered under the category of ‘consulting engineering services’.

The observations of the Larger Bench are summarised hereunder :

  •     The validity of levy of service tax constitutionally may be decided only on the basis of laws laid down by the Apex Court in various decisions. Accordingly, it was observed that a new Entry 92C was introduced in the Union List for the levy of service tax.

  •     As held by the Apex Court in All India Federa-tion of Tax Practitioners, there is no difference between production or manufacture of sale-able goods and production of marketable/ saleable services.

  •     According to the aspect theory, there might be overlapping of taxes, but such overlapping must be in law and it is open to a Legislature or more than one Legislature to impose a tax on that particular ‘aspect’ of the transaction which is within its legislative competence.

  •     In case of divisible contract, after 46th amend-ment, it is possible to levy Sales Tax on goods price.

  •     Rule 2A of Service Tax (Determination of Val-ue) Rules, 2006 was introduced w.e.f. 1-6-2007 to precisely value service elements involved in contracts involving goods and services.

  •     For the purpose of interpretation of a taxing statute, principle of purposive construction should be applied to find out object of the Act and to seek reasonable result and it should not to be interpreted in a manner to defeat its spirit.

  •     Severability of composite and turnkey contract permitted by Article 366(29-A)(b) cannot be said to have been for the mere purpose of levy of sales tax.

  •     Turnkey contracts can be vivisected and dis-cernible service elements involved therein can be segregated and classifiable as well as valued for levy service tax under the Finance Act, 1994.

[Note : Since this decision overrules Daelim’s decision 2006 (4) STR 63 (Tribunal), there would be widespread implications on litigation process as Daelim’s decision (supra) has been followed by Tribunals in several cases.]

    iv) Whether once designs and drawings are imported and considered goods for customs purposes, can they be treated as service ? :

Mitsui & Co. Ltd. v. Commissioner of Central Excise, Jamshedpur, 2010 (18) STR 632 (Tri-Kolkata) :

The appellant entered into contract for supply of imported designs and drawings, provision of foreign technician’s services for supervision of detailed engineering in India, manufacture of indigenous equipment, erection, start-up, commissioning, demonstration of performance guarantee tests and training at supplier’s works.

The appellant contended that at the time of im-port, designs and drawings were assessed to the Customs Act as goods and therefore, the value of these cannot be taken into consideration for the purpose of service tax. Similarly, the drawings and designs originating in India are also considered as goods under the Central Excise Tariff and with respect to commissioning and erection services, it was introduced under the scope of service tax w.e.f. 1-7-2003. However, the present contract was for the period from April 1999 to November 2001.

The Department contended that supply of designs and drawings was a service liable to service tax under the category of ‘Consulting Engineering Services’ and though erection and commissioning service was made taxable w.e.f. 2004, the same was to be treated as part of consulting engineering service as this service included not only advisory consultative assistance but also implementation of such advice.

Finding that the designs and drawings as services not sustainable, the order was set aside and the matter was remanded to the adjudicating authority for de novo adjudication.

    v) Whether service tax could be levied on a works contract after 46th amendment but prior to introduction of ‘works contract’ under service tax net :

Commissioner of Central Excise, Raigad v. Indian Oil Tanking Ltd., 2010 (18) STR 577 (Tri-Mumbai) :

The assessee claimed refund of service tax paid under the category of ‘commissioning and instal-lation’ services for the month of September and October, 2003 on the ground that lump sum turn-key works contract could not be vivisected and part of it subjected to tax, the decision of which was delivered by the Tribunal in Daelim Industrial Company v. CCE, 2006 (3) STR 124 and upheld by the Apex Court and also in Larsen & Toubro Ltd. v. CCE, 2006 (3) STR 223 (Tri.-Del.).

On scrutiny, it was observed by the Department that the prices were separately quoted on ac-ceptance letter for detailed engineering, supply portion and construction and erection portion. However, the assessee claimed that the separation was made only for breaking up billing schedules and hardly 3% of the total contract value may be considered as price for detailed engineering and the assessee had carried out only certain residual process designs.

The Tribunal observed :

  •     The Daelim’s case held that the contract en-tered was a works contract on turnkey basis and not a consultancy contract and that the works contract could not be vivisected for a part of it to be subjected to service tax.

  •     The Tribunal consistently held as above.

  •     The Daelim’s case is not per incuriam and is binding on the Tribunal as the Apex Court while dismissing the Special Leave Petition (SLP) passed the order that ‘we see no reason to interfere the SLP is dismissed’. This order indicates that the merits of the Tribunal’s judg-ment were examined by the Supreme Court.

  •     In the case of Diebold Systems (P) Ltd., 2008 (9) STR 546 (T), it was held that there was no taxable event defined under the Finance Act, 1994 for levy of service tax in respect of indivisible works contract prior to 1-6-2007. The same was approved by the High Court and therefore, such decision has a binding effect on this Bench of the Tribunal.

  •     The Tribunal’s decision in BSBK Pvt. Ltd. v. CCE, 2007 (5) STR 124 has been set aside by the Apex Court on the ground that it was an ex parte order.

  •     The 46th amendment, in respect of Entry 54 of List II of the Seventh Schedule to the Constitution, is for levy of Sales Tax. However, there was no provision of law during the period in dispute for levy of service tax on deeming fiction since such a provision is introduced only w.e.f. 1-6-2007 under ‘works contract’ service.

  •     The High Court in the case of Indian National Shipowners Association (INSA) has held that the introduction of new Entry and inclusion of certain services in that Entry would pre-suppose that there was no earlier Entry covering the said services.

  •     The Builders’ Association case delivered by the Apex Court has been considered by the Tribunal. However, the same being in the context of sales tax, does not have any effect on the present case.

    

  • The Apex Court in the case of Associated Cement Companies Ltd. v. CC, 2001 (128) ELT 21 (SC) has held that subsequent to 46th amendment, the State would be empowered to levy sales tax on materials used in a contract of designs, drawings, manuals, etc.

  •     In the case of BSNL v. UOI, 2006 (2) STR 161(SC), it was held that the ratio of decision delivered in Associated Cement would not be applicable in respect of a composite contract and that the 46th amendment was to over-come the earlier decision of the Apex Court for transactions relating to deemed sales only.

  •     The intention of the Legislature was to tax only the labour portion under ‘Works Contract’ Service as envisaged under Rule 2A of the Service Tax (Determination of Valuation) Rules, 2006 and therefore, service tax cannot be levied on entire contract value.

  •     The Revenue’s contention that the activities are akin to ‘consulting engineering’ services does not hold good as it was clarified that charges for erection, installation and commissioning are not covered under the category of consulting engineering services and the same would be taxed separately.

It was held that there was no direct decision in favour of the Revenue for levy of service tax on service component of a works contract prior to 1-6-2007. On the contrary, the High Court decision in the case of Indian National Shipowners Associa-tion (supra) is directly against the Revenue and it has a binding effect on the Bench of the Tribunal, therefore, the appeal of the Revenue is rejected.

[Note : This decision and the above-cited reported Larger Bench decision in the case of BSBK at 12(iii) being contradictory would make the litigation process murkier on the subject matter].

    13. Valuation :

Whether value of free supplies is includible ?

Jaihind Projects Ltd. v. Commissioner of Service Tax, Ahmedabad, 2010 (18) STR 650 (Tri- Ahmd.)

The appellant, engaged in laying of pipelines, is covered by ‘Commercial or Industrial Construction Service’ availed abatement of 67% vide Notifica-tion No. 15/2004 and paid service tax on balance amount excluding value of free supplies. The abate-ment was denied on the ground of non-inclusion of value of free supplies of pipes by the service recipient used in construction services. Penalty also was levied u/s.76 and u/s.78. The appellant contested that the value of free supplies is not includible in gross amount charged, as appellants have not charged anything for free supplies.

Based on the decision in the case of Oblum Electri-cal Industries Private Limited v. CC, Bombay, 1997 ELT 449 (SC), the appellant contended that explanation cannot expand the scope of main operative part of Notification. The main operative part of Notification No. 15/2004 provides that tax will be charged on 33% of gross amount charged and its explanation reads ‘gross amount charged shall include the value of goods and services sup-plied or provided or used by the service provider for providing such service’. As such, the words, ‘supplied or provided’ given in the notification are to be read in context with supply of goods by service provider and not the service receiver. They also referred the decision of P. Chandran v. CCE, 2008 (12) STR 33 where CESTAT has held that the word ‘used’ is to be read as supplied and used by service provider and so the value of free supplies is to be excluded from gross amount charged. They also referred to Notification No. 12/2003 stating that it applied to goods sold to service recipient and did not cover free supplies by service recipient.

The CESTAT opined that the case was covered by Rule 3 of the Service Tax (Determination of Value Rules), 2006 providing for valuation of services. The said Rule provides that value of consideration would be the gross amount charged inclusive of monetary and non-monetary consideration and where such valuation is not possible, the gross amount charged would be money equivalent to consider-ation charged and in no case it would be less than the cost of provision of service. It also states that proviso to the Notification only explains when and how the benefit of this Notification can be taken. The explanation in current case is only explaining actual meaning of ‘gross amount charged’ and does not expand the scope of main operative part of Notification. So, the value of free supplies is to be included in the gross amount charged.

The Tribunal held that the case of P. Chandran (referred supra) was only a stay order and the matter would not have been considered in depth. So for the interpretation of word ‘used’, the case cannot be relied upon and the value of all supplies is to be included in the gross amount charged, irrespective of the source of supply if the goods are used in providing the service.

The Tribunal waived the penalty u/s.78 stating that the matter involved was of interpretation of law. However, the matter was remanded back to the adjudicating authority to revise the duty demanded and the penalty u/s.76 was also left to be decided by him.

Direct Taxes

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Income tax (third amendment) Rules, 2013 – amendment in Rule 12 and substitution of forms SAHAJ (ITR 1), ITR 2, ITR 3, SUGAM (ITR 4S), ITR 4 and ITR V – Notification no- 34/2013 [S.O.1111(E)] dated May 1, 2013 –

The important amendments are as under :

(a) Form SAHAJ (ITR 1) cannot be used if the assessee has incurred a loss under the head ‘Income from other sources’ or if the assessee wants to claim tax relief u/s. 90/90A or has any income exceeding Rs. 5,000 exempt from tax.

(b) Form SUGAM (ITR 4S) cannot be used if the assessee wants to claim tax relief u/s. 90/90A or has any income exceeding Rs. 5,000 exempt from tax.

(c) Mandatory e-filing of audit reports issued u/s. 44AB, 92E and 115JB

(d) Mandatory e-filing of return of income, if income exceeds Rs. 5,00,000 or if the assessee wants to claim tax relief u/s. 90/90A.

Procedure for deduction and payment of tax u/s 194 IA, issue of certificate of tax deducted etc.– Notification No. 39/2013 dated May 31, 2013

• Any sum deducted u/s. 194IA of the Act shall be paid electronically to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made.

• TDS payment u/s. 194IA shall be accompanied by a challan-cum-statement in Form No. 26QB.

• Since tax deducted is to be deposited accompanied by a challan-cum-statement in Form No.26QB, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically into the Reserve Bank of India or the State Bank of India or any authorised bank.

• Every person responsible for deduction of tax u/s. 194IA of the Act shall furnish the certificate of deduction of tax at source in Form No. 16B to the payee within 15 days from the due date for furnishing the challan-cum-statement in Form No. 26QB.

• Form 16B is to be generated online from the web portal within 15 days from the due date of deposit and must be downloaded from the TDSCPC website. Once the certificate is downloaded, it must be signed and stamped and then sent to the payee.

Cost Inflation Index for the financial year 2013-14 is 939 – Notification No. 40/2013 dated June 6, 2013

Income tax (Sixth amendment) Rules, 2013 – amendment in Rules 10A to 10E and substitution of Form 3CEB. Notification no- 41/2013 [S.O.1491(E) ] dated June 10, 2013

Income tax (Seventh amendment) Rules, 2013 – amendment in Rule 12 and substitution of forms ITR 2, ITR 3, ITR 4, ITR 5, ITR 6 and ITR 7 – Notification no- 42/2013 [S.O.1513(E)] dated June 11, 2013 – The important amendments are as under :

(a) No attachments to be filed alongwith the return filed in ITR 7.

(b) Mandatory e-filing of audit reports issued u/s 10(23C)(iv), 10(23C)(v), 10(23C)(vi), 10(23C)(via), 10A, 12A(1)(b), 80IA, 80IB, 80IC, 80ID, 80JJAA and 80LA.

(c) Mandatory e-filing of return of income, if the applicable audit report are to be mandatorily e-filed

The Finance Bill 2013, received the Presidential Assent on May 10, 2013

Agreement for Exchange of information relating to tax matters between India and Monaco enters into force – Notification No. 43 /2013 dated June 12, 2013

Commodities Transaction Tax Rules, 2013 – Notification No. 46/2013 [SO 1769(E)] dated June 19, 2013 – These rules to come in force from July 1, 2013

levitra

FROM THE PRESIDENT

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Dear Members,

It’s a matter of great honour to pen a message for a prestigious Journal like BCAJ, and I was fortunate in putting across my thoughts and views on topics or issues related to our profession or developments in the Society, that concern us and to which we seek answers. I have enjoyed communicating with you over such issues, and getting valuable feedback and inputs in these twelve months, and I do hope you enjoyed my communications as much as I enjoyed writing them.

When this issue reaches you, I will have completed my term as the President of a body which prides itself as an institution that provides a foundation of knowledge, skills and professional values that enables CAs and CA students to continue learning and adapt to changes throughout their professional lives.

It is said that :

If you want to walk quick, walk alone

If you want to walk far, walk together.

I have understood the importance of this saying in the last one year. In this issue, I would like to share with you all, some of my learning and feelings in my journey as the President of this august body, which I would cherish for the rest of my life. It is an experience that is useful in one’s day to day life and in carrying out our duty and responsibilities, may it be towards clients, colleagues, family or friends.

The Value of Teamwork : Teamwork is at the heart of great achievements. If you want to reach your potential or strive for the seemingly impossible, you need to become a team player. If you lead a team, then you must convince your teammates to sacrifice their individual goals for the good of the group. And the most important quality you need to practice is the ability to understand how people think and feel. As you work with others, recognise the truth that all people, whether leaders or followers, have something in common. The ability to look at each person, understand and connect with him is a major factor in successful relationships.

A leader needs to figure out which button to push with each individual person on his team. One person will respond well to being challenged; another will want to be nurtured, another will need frequent follow-up. One of the important factors is to inspire others and make them feel good. That is important because people will go further than they thought they could when someone reposes faith and tells them they can. And the fact of life is : Individuals play the game but teams win championships.

To create an atmosphere of teamwork, one should understand the importance of peaceful coexistence. You would agree with me that thoughts, belief, and objects are infinite in their qualities and modes of existence, so we may not be able to see, understand all of them.

Often you have to face the situation when there is a disagreement. And whenever there are disagreements, naturally there are differences which may lead to conflict. Conflict is omnipresent. This conflict happens due to a multiplicity of viewpoints, and that truth and reality are perceived differently from diverse points of view, and that no single point of view is the complete truth. The common example is : A half glass of water can be called either half full or half empty. Both these views are correct. It is important how you look at it. Most of the time we believe that what we know or what we believe is the correct belief and understanding. Therefore, we may not be ready to listen to and understand the other person’s viewpoints and therefore arguments happen. Not only do we start arguments but we also want to win them. In this attempt of winning the argument we may lose friends, or hurt someone or spoil our relations with people. So, the moot question is – How do we overcome such a situation or resolve the conflict? The simplest answer would be – you either convince others or you get convinced by them. If both these things do not happen then we should learn to agree to disagree. Thus, we can coexist with differences.

The other important aspect one should never forget or one should always realise that we are dependent on others till we say goodbye to this world. With gratitude in our hearts, life becomes richer and more joyful. If we are able to return an act of kindness, it enhances our nobility. Many of our troubles could be eliminated if we could focus more on the blessings received and be grateful to others. I for one believe that the culture of saying thanks is slowly vanishing in our day to day humdrum of life. So, let us make a point to foster it consciously in our own personal lives.

In the end I would say that I thoroughly enjoyed each and every moment of this great opportunity which I got to lead, and advance the professional organisation of an immense repute like BCAS, the memories of which I will cherish for the rest of my life. Also during my tenure I have been fortunate to have the support, guidance, blessings and good wishes of a large number of people. I take this opportunity to express my gratitude to all. And above all I am thankful for the continuous and consistent support and cooperation from you all members and the CA fraternity at large. All regular activities of the Society continued to receive full attention during the year, and the attendance at our programmes reaffirms our faith in this continued journey of BCAS vision to be a principle-centered and learning-oriented organisation to promote quality service and excellence in the profession of Chartered Accountancy.

The new Team at BCAS for 2013-14 has been elected. My congratulations to Mr. Naushad Panjwani, and Mr. Nitin Shingala on being elected as the President and Vice-President respectively. Your continued support, suggestions and feedback to the newly elected team at BCAS for 2013-14 will help them offer improved and increased services.

Thank you and goodbye.

With warm regards.

Deepak R. Shah

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From published accounts

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Section A: Goodwill adjusted against Securities Premium pursuant to scheme of arrangement approved by High Court

Cairn India Ltd (31-03-2013)

From Notes to Financial Statements

Scheme of arrangement

The shareholders of the Company had in February 2010 approved a Scheme of Arrangement (‘Scheme’) between the Company and four of its wholly owned subsidiaries, Cairn Energy India Pty Ltd (‘CEIPL’), Cairn Energy India West BV (‘CEIW’), Cairn Energy Cambay BV (‘CEC’), Cairn Energy Gujarat BV (‘CEG’), (collectively the ‘transferor companies’), with an Appointed date of 1 January 2010. The Scheme of Arrangement had been approved by the Hon’ble High Court of Madras and Hon’ble High Court of Bombay and was subsequently approved by other relevant regulatory authorities on 18th October 2012. Accordingly, from 1st January 2010, the Indian undertakings of the transferor companies stood transferred to and vested in the Company on a going concern basis.

In accordance with the provisions of the aforesaid Scheme,

i) The Indian undertakings of the transferor companies relating to exploration, development and production of crude, natural gas and related by-products have been transferred to the Company on a going concern basis. The transfer of assets and liabilities representing the Indian undertakings has been effected from the “Appointed date” of 1st January 2010, as defined in the Scheme.

ii) Assets and liabilities transferred from the transferor companies are as under:

Not reproduced here

The above mentioned deferred tax liabilities (net) have been further reduced by Rs. 4,563 lakh on account of application of tax rate as applicable to the Company and fixed assets have been further decreased by Rs. 530 lakh due to alignment of accounting policy (on depreciation) as consistently followed by the Company, and adjustments in respect of these have been recorded in the Statement of profit and loss.

iii) As a consideration for the transfer of the above mentioned assets and liabilities and consequential expected future cash flows from the transferor companies to the Company, the Company has reduced the value of its investment in its direct subsidiary Cairn India Holdings Limited (‘CIHL’) by Rs. 1,495,278 lakh and consequentially a goodwill of Rs. 1,016,703 lakh, after adjusting the net assets taken over of Rs. 478,575 lakh, has been recorded in the books of accounts in accordance with the provisions of Accounting Standard (AS)-10 of the Companies (Accounting Standard) Rules, 2006 (as amended). The reduction in value of investments in CIHL has been considered on the basis of an independent valuation of the future discounted cash flows from CIHL as at 31st December 2009.

iv) Further, in accordance with the Special Resolution passed by the shareholders of the Company u/s. 78 and 100 to 103 of the Companies Act, 1956, which was an integral part of the aforesaid Scheme approved the Courts, the goodwill of Rs. 1,016,703 lakh as mentioned in (iii) above has been adjusted against the securities premium account and as a result both goodwill and securities premium account are stated lower by Rs. 1,016,703 lakh each. This accounting, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts and has no impact on the profit for the year.

v) Since the Scheme received all the requisite approvals in the current year, operations of the Indian undertakings of the transferor companies from 1st January 2010 to 31st March 2012, as detailed below, have been accounted for in the current year’s statement of profit and loss as a separate line item.

Not reproduced here

Further, net cash flows for the period 1st January 2010 to 31st March 2012 pertaining to the transferor companies on account of operating, investing and financing activities aggregating to Rs. 795,008 lakh, Rs. (441,815) lakh and Rs. (4,778) lakh respectively have been included in the current year’s statement of cash flows as a separate line item under the respective heads.

From Independent Auditors’ Report

Emphasis of Matter
Without qualifying our opinion, we draw attention to note no. 26 of the accompanying financial statements, relating to the accounting treatment adopted by the Company pursuant to a Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities, whereby the Company has adjusted goodwill aggregating to Rs. 1,016,703 lakh, which arose upon implementation of the said scheme, against the securities premium account. This accounting of showing both goodwill and securities premium account lower by Rs. 1,016,703 lakh, although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, as the same has been approved by the Courts.

From Directors’ Report

Auditors’ Report
In the accompanying financial statements, the Company has adjusted goodwill against the securities premium account pursuant to the Scheme of Arrangement approved by the Honorable High Court of Bombay and by the Honorable High Court of Madras and other relevant regulatory authorities. This accounting although different from that prescribed under the Accounting Standards, is in conformity with the accounting principles generally accepted in India, and the same has been approved by the Courts. The same has been reported by the Auditors under “Emphasis of Matter” in their report.

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Indirect Taxes

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MVAT UPDATE

MVAT NOTIFICATION

Notification No. VAT 1512/CR 115/Taxation-1 dated 16.05.2013

By this Notification, Rule 55B is inserted with effect from 15-10-2011 for applicability of set-off to developers and units in Special Economic Zone.

Notification No. VAT 1513/CR 61/Taxation-1 dated 21.05.2013

By this Notification, the Government of Maharashtra has made certain further amendments in the Maharashtra Value Added Tax Rules, 2005.

Amendments to Schedule Entries and Notifications under the Maharashtra Value Added Tax Act 2002 Trade Circular No. 3T of 2013 dated 10.06.2013

In this Circular, Commissioner has briefly discussed the amendments in Schedule entry of the Maharashtra Value Added Tax Act, 2002 & in certain Notifications. These amendments are made to give effect to the budget proposals.

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Lecture Meetings

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Search, Settlement &
Income Tax Issues Arising Out of Purchases from Suspicious Dealers as
Declared by Sales Tax Department, 22nd May 2013, at the Indian
Merchants’ Chamber, Churchgate


L to R: Mr. Samir Kapadia, Mr. Chetan Karia (Speaker), Mr. Deepak Shah (President), Mr. Ankit Shah

Mr.
Chetan Karia, Chartered Accountant, highlighted various issues raised
by the Income Tax authorities Maharashtra VAT based on information from
bogus purchases including tax requirements of law pertaining to
genuineness of purchases and the significance of statements
recorded/affidavits obtained by VAT Dept. The 400 participants included
professionals from industry, senior members & students. The video
recording of the same is available at the www.bcasonline.tv to all
subscribers.

Service Tax Voluntary Compliance Encouragement Scheme, 5th June 2013, at the Indian Merchants’ Chamber, Churchgate


L to R: Mr. Mukesh Trivedi , Mr. Sunil Gabhawalla (Speaker), Mr. Deepak Shah (President), Mr. Suhas Paranjape

Mr.
Sunil Gabhawalla, Chartered Accountant, introduced the Voluntary
Compliance Encouragement Scheme (VCES) to the participants. He explained
the Process, Pivots, and the eligibility of VCES. He also talked about
the Tax Dues & Immunity of VCES under various sections and gave a
bird’s eye view of the newly introduced scheme. The full house audience
consisting of senior and junior members of the profession as well as
students, gained immensely from the knowledge shared by the learned
speaker. The presentation of the Speaker is available at www.bcasonline.
org for members’ benefit and the video recording of the same is
available at the www.bcasonline. tv to all subscribers.

Recent
Important Issues in Corporate Taxation including Domestic Transfer
Pricing, 12th June 2013 at the Indian Merchants’ Chamber, Churchgate

The
lecture by Mr. Rajan Vora, Chartered Accountant, and past president of
the Society began with an overview on the provisions, implications of
the amendment, challenges faced by taxpayers. Initiated & organised
by our International Taxation Committee, the topics deliberated at the
Meeting were based on the developments on Key amendments made by the
Finance Act 2013, covering Implications of increase in tax rate of
royalty and FTS – section 115A, Implications of amendment pertaining to
Real estate transactions – section 43CA, 56(2)(vii) (b), 194LA,
Taxability of buy back of shares of unlisted companies, investment
allowance section 32AC. Also the topic on recent judicial precedents on
various issues –issues arising on taxation of intangibles, Taxability of
lease transactions/ finance transactions/ sale and lease back
transactions, issues on disallowance u/s. 14A, Penalty u/s. 271(1)(c),
reopening u/s. 147, stay of demand. More than 350 people had the
opportunity to be enlightened by the speakers’s in-depth and vast
knowledge on


L to R: Mr. Deepak Shah (President), Mr. Chetan Shah , Mr. Rajan Vora (Speaker), Mr. Jagdish Punjabi

Taxation
provisions, implications, and challenges that a tax payer would face.
The presentation of the Speaker is made available at www.bcasonline. org
for members’ benefit and the video recording of the same is available
at the www.bcasonline.tv to all subscribers.

Other Programs

BCAS
Referencer 2013-14 Release Function with BCAS Variety Performance Show,
7th June 2013, at Navinbhai Thakkar Auditorium, Vile Parle (E)



Inauguration of 7th Residential Study Course on Service & VAT by lighting a lamp

Membership
& Public Relations Committee organised the BCAS Referencer 2013-14
Release function. The launch programme saw an overwhelming response with
above 350 participants including BCAS Members, their families and
Students.The release of the Referencer was at the hands of Padma Bhushan
Dr. Suresh Advani, Oncologist. He also delivered a very encouraging and
motivating speech. The programme included well packed variety show
performed by BCAS members and their families. Talented individuals
presented songs, dances, a skit and played instruments. The host took
the audience on an entertainment spree with one minute games to offer
spot prizes to the participants. The programme concluded with a
sumptuous dinner. The video recording of the same is available at the
www. bcasonline.tv to all subscribers.



L
to R : Mr. Narayan Pasari, Mr. Rajesh Muni, Dr. Suresh Advani (Chief
Guest), Mr. Deepak Shah (President), Mr. Naushad Panjwani, Mr. Ashish
Fafadia

Train the speaker within, 4th, 11th, 18th & 25th May 2013 at Direct-i-plex, Andheri (E)
The
Human Resources Committee organised this workshop under the auspices of
the Amita Memorial Trust. The workshop was inaugurated by Mr. Pradeep
Shah, Past President of BCAS, along with Mr. Mayur Nayak, Chairman HR
Committee. Both motivated the participants through their brief but
effective speeches.

Mr. Vivek Patki in his unique way explained
the theory and practice of the subject and covered a range of
communication situations, giving valuable insight to the participants.

It
was an enjoyable learning time for the 32 participants who benefited
from attending this unique workshop. The learning came through speech
writing, practicing delivery, video recordings, observing replays, and
coach feedback. A request for more such programmes to boost their
knowledge and confidence in Communication and other Personality
Development and Management Skills was voiced. The participants were also
interested in meeting at regular intervals to share their speaking and
communication experience.

7th RSC on Service Tax & VAT, 14th June to 16th June 2013, at Hotel Express INN, Nashik

The
Indirect Taxes and Allied Laws Committee organised this Residential
Study Course which was attended by nearly 150 participants from various
cities like Nashik, Mumbai, Hyderabad, Secunderabad, Chennai, Ahmedabad,
Indore & Pune.

The conference was inaugurated by Shri
Sushil Solanki, Commissioner – Service Tax – I, Mumbai. In the
inauguration speech, he presented his thoughts on VCES, 2013 and other
issues.

The paper writers presented 3 discussion papers and 2 presentation papers on various subjects as mentioned in the Table.

Felicitation of BCAS Past Presidents’, 10th June 2013, at Indian Merchants’ Chamber, Churchgate

The
Society arranged a felicitation programme where Past Presidents who had
or were about to cross 75 years of age, and yet continue to be young at
heart and full of energy when it comes to their association with BCAS
were felicitated as a token of deep sense of gratitude and respect.

The
glorious superstructure of BCAS is built on the pillars of values and
vision that were created by these early leaders of BCAS. On this event
Shri S. E. Dastur, Senior Advocate graced the occasion by delivering his
Key note address and sharing his experience with the fellAAow members. The audience enjoyed the words of wisdom by the Keynote speaker and also the experiences shared by each felicitated past president. The programme ended with a sumptuous dinner.

Table : Papers at RSC on Service and Vat

PART A: Orders of CIC

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  • Political parties: Section 2(h) of the RTI Act:

Three-member-bench of CIC [Satyananda Mishra (Chief IC), Mrs. Annapurna Dixit (IC) & M. L. Sharma (IC)] passed an order dated 03-06-2013 in the case where the Respondents were six political parties:

1. Indian National Congress/All India Congress Committee (AICC);
2. Bhartiya Janata Party (BJP);
3. Communist Party of India (Marxist) (CPM);
4. Communist Party of India (CPI);
5. Nationalist Congress Party (NCP) and
6. Bahujan Samaj Party (BSP).

The main issues raised by the complainants were: Disclosure of accounts and funding of political parties.

Some political parties in response to RTI applications of complainants stated that they were not “public authority” and hence not covered under RTI.

Chief Information Commissioner noted that the matters in hand raised complex issues of law and hence constituted a full bench as noted above.

Before the Commission, the complainants made extensive submissions to contend that Political Parties fall under the ambit of section 2(h) of RTI Act.

Above submissions were supported by various arguments including

(i) That section 80 GGB of the Income-tax Act which provides that contribution made by an individual or a company to a Political Party is deductible from the total income of the assessee. This provision is exclusively applicable to the Political Parties and is suggestive of indirect financing of the Political Parties by the State.

(ii) After various RTI applications were filed with the Central Agencies, it was discovered that Political Parties enjoy a number of “facilities” provided to them by the government. This is a clear instance of being “financed indirectly by funds provided by the appropriate governments” which puts Political Parties squarely under the definition of ‘public authority’ as provided for in section 2(h)(d) (ii) of RTI Act.

(iii) If closely monitored and totalled, the total public funds spent on Political Parties would possibly amount to hundreds of crores.

In its decision, Commission quoted Harold Laski:

“The life of the democratic State is built upon the party-system and it is important at the outset to discuss the part played by party in the arrangement of affairs. Briefly, that part may be best described by saying that parties arrange the issues upon which people are to vote. It is obvious that in the confused welter of the modern State, there must be some selection of problems as more urgent than others. It is necessary to select them as urgent and to present solution of them which may be acceptable to the citizen-body. It is that task of selection, the party undertakes. It acts, in Mr. Lowell’s phrase, as the broker of ideas. From the mass of opinions, sentiments, beliefs, by which the electorate moves, it chooses out those it judges most likely to meet with general acceptance. It organises persons to advocate its own view of their meaning. It states that view as the issue upon which the voter has to make up his mind. Its power enables it to put forward for election candidates who are willing to identity themselves with its view. Since its opponents will do the same, the electorate, thereby, is enabled to vote as a mass and decision that would otherwise be chaotic, assumes some coherency and direction. What, at least, is certain, is that without parties there would be no means available to us of enlisting the popular decision in such a way as to secure solutions capable of being interpreted as politically satisfactory.”

The Commission then notes:

The question before the Commission is whether INC/AICC, BJP, CPI(M), CPI, NCP and BSP can be held to be Public Authorities u/s. 2(h) of the RTI Act. The complainants have adduced the following three principal grounds to persuade the Commission to hold that the aforesaid Political Parties are Public Authorities, viz:-

(i) Indirect substantial financing by the Central Government;

(ii) Performance of public duty by the Political Parties; and

(iii) Constitutional/legal provisions vesting Political Parties with rights and liabilities

Substantial financing of Political Parties by the Central Govt.

After considering various basis of state financing political parties, the Commission concluded, we are of the considered opinion that Central Government has contributed significantly to the indirect financing of Political Parties in-question.

On the issue of “substantially financed” again it noted:

Large tracts of land in prime areas of Delhi have been placed at the disposal of the Political Parties in-question at exceptionally low rates. Besides, huge Government accommodations have been placed at the disposal of Political Parties at hugely cheap rates thereby bestowing financial benefits on them. The Income Tax exemptions granted and the free air time on AIR and Doordarshan at the time of elections also has substantially contributed to the financing of the Political Parties by the Central Government. We have, therefore, no hesitation in concluding that INC/AICC, BJP, CPI(M), CPI, NCP and BSP have been substantially financed by the Central Government and, therefore, they are held to be the public authorities u/s. 2(h) of the RTI Act.

Performance of Public Duty

Political Parties are the unique institution of the modern constitutional State. These are essentially political institutions and are non-governmental. Their uniqueness lies in the fact that inspite of being non-governmental, they come to wield or directly or indirectly influence exercise of governmental power. It would be odd to argue that transparency is good for all State organs but not so good for Political Parties, which, in reality, control all the vital organs of the State.

The people of India must know the source of expenditure incurred by Political Parties and by the candidates in the process of election. These judicial pronouncements unmistakably commend progressively higher level of transparency in the functioning of Political Parties in general and their funding in particular.

We may also add that the preamble to the Constitution of India aims at securing to all its citizens: JUSTICE, social, economic and political; LIBERTY of thought, expression, belief, faith and worship; and EQUALITY of status and of opportunity. Coincidentally, the preamble of the RTI Act also aims to promote these principles in the form of transparency and accountability in the working of the every public authority. It also aims to create an ‘informed citizenry’ and to contain corruption and to hold government and their instrumentalities accountable to the governed. Needless to say, Political Parties are important political institutions and can play a critical role in heralding transparency in public life. Political Parties continuously perform public functions which define parameters of governance and socio-economic development in the country.

In view of the nature of public functions performed by Political Parties, we conclude that Political Parties in question are Public Authorities u/s. 2(h) of the RTI Act.

Constitutional/legal provisions vesting Political Parties with rights and liabilities


The appellants have also contended that Political Parties have constitutional and legal rights and liabilities and therefore, need to be held to be Public Authorities. The argument runs thus. Political parties are required to be registered with the ECI u/s. 29A of R.P. Act, 1951-a Central Legislation. An association or body gets the status of a political party on its registration. ECI awards symbols to Political Parties under the Election Symbols (Reservation and Allotment) Order, 1968, only after registration. The ECI calls for details of expenses made by Political Parties in the elections. Contributions of the value of Rs. 20,000/- and above received from any person or a Company by a Political Party are required to be intimated to ECI u/s. 29C of the R.P. Act. ECI is vested with superintendence, direction and control of elections under Article 324 of the Constitution. ECI is also vested with the authority to suspend or withdraw recognition of a political party in certain contingencies. More importantly, Political Parties can recommend disqualification of Members of the House in certain contingencies under the Tenth Schedule. The contention is that the aforesaid constitutional/statutory powers of Political Parties bring them under the ambit of section 2(h).

We find the above submissions quite compelling and unerringly pointing towards their character as public authority.

It may be recalled that the INC/AICC and the BJP have made a bland assertion that they are not Public Authorities under the RTI Act. CPI(M) has disclosed some information to the Commission regarding allotment of land to it by the Central Government on certain terms and conditions but has not conceded that it is a Public Authority u/s. 2(h) of the RTI Act. The contentions of the above parties have to be rejected in the light of findings recorded herein above.

Based on above discussion, the Commission concluded:

In view of the above discussion, we hold that INC, BJP, CPM, CPI, NCP and BSP have been substantially financed by the Central Government u/s. 2(h) (ii) of the RTI Act. The criticality of the role being played by these Political Parties in our democratic set up and the nature of duties performed by them also point towards their public character, bringing them under the ambit of section 2(h). The constitutional and legal provisions discussed herein above also point towards their character as public authorities.

The Presidents, General/Secretaries of the Political Parties are hereby directed to designate CPIOs and the Appellate Authorities at their headquarters in 6 weeks time. The CPIOs so appointed will respond to the RTI applications extracted in this order in 4 weeks time. Besides, the Presidents/General Secretaries of the above mentioned Political Parties are also directed to comply with the provisions of section 4(1) (b) of the RTI Act by way of making voluntary disclosures on the subjects mentioned in the said clause.

[Complaints: (1) Shri Subhash Chandra Aggarwal (2) Shri Anil Bairwal vs. Respondents 6 Political Parties as noted above: CIC/SM/C/2011/00138 &000838 decided on 3rd June 2013]

Note: Many paragraphs as above are reproduction of the order.

PART D: good governance

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  •  E-governance:

E-governance equals good governance for the citizens of a country. The scale and ambition of the National e-Governance Plan (NeGP) is impressive. Some important projects that are at various stages of implementation include Passport Seva, India Post, income tax services, ESIC, setting up 2,50,000 common service centers (CSC) across 6,00,000 and more villages; the National Population Register (NPR) and the Unique Identification (UID) project. A state wide area network (SWAN) and state data centers (SDCs) are being set up to support the implementation of these and other projects. The government has also initiated ‘GI Cloud’ initiative to keep pace with technological advancements.

Making public services conveniently accessible to over 1.2 billion people in India spread across a vast geography is not an easy task, but is nonetheless vital for India’s continued growth. The success of e-governance initiatives is pegged in the timely implementation and smooth running. Technology is not a constant and it is important that policy guidelines and framework give scope for deployment of innovative IT infrastructure, like engineered system that can easily scale and adapt to the changing governance and public needs.

(Mr. Mahadeo P. Jaiswal in Transparency Review, Journal of Transparency Studies)

  • Ms Aruna Roy:

“The crisis in credibility today is at all levels of government. Effective implementation is as important as the legislations themselves. Our solutions do not lie in thoughts between one election and another but in addressing the lack of transparency and accountability in governance structures. My politics has always been to enhance the participation of people with in the democratic frameworks so that their voices are heard not just once in five years but every today.”

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PART C: Information on & Around

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  •  RTI AND & BMC:

The Brihanmumbai Municipal Corporation (BMC), the country’s largest civic body, has been fielding the most Right to Information (RTI) queries of any public institution across the state. Observers said this indicates the desire of Mumbai’s citizens to have greater participation in public affairs.

Following are the number of applications received by various P. As in Maharashtra and at BMC:

Year

State

 

BMC

%

 

 

 

 

 

2008

4.16L

 

46967

11.3%

2009

4.40L

 

59018

13.4%

 

 

 

 

 

2010

5.48L

 

72789

13.3%

2011

6.45L

 

90419

14.0%

2012

6.50L

plus*

1.02L

15.7%

*estimated

Activists said the BMC shouldn’t pride itself on getting such a high number of queries, as this indicates a lack of transparency. “This means that BMC has failed to put up information on its website suo moto. The BMC must understand that Mumbai is an active city, with greater citizens’ participation. So there are bound to be more RTI applications in the absence of data from the BMC,” said Shailesh Gandhi, former Central Information Commissioner and chairman of the Technical Advisory Committee (TAC) on RTI set up by the BMC.

Jinnah’s Speeches:

The Central Information Commission has asked the government to take a view on disclosure of two speeches made by Pakistan founder Mohammad Ali Jinnah during the pre-Independence era, which are in the archives of All India Radio and explain the reasons for withholding them if it intends to do so. Chief Information Commissioner Satyananda Mishra said more than 60 years after the country’s independence, the time has come when all concerned must decide what information relating to the pre-Independence period should be made available to public.

  •     Mr. Robert Vadra:

The PMO has turned down an RTI request seeking records of an affidavit it filled in connection with the probe into the alleged land deals made by Congress chief Sonia Gandhi’s son-in-law Robert Vadra on grounds of “confidentiality”.

Nutan Thakur of Lucknow, through an RTI application, wanted to know all the file notings related to the PMO affidavit placed before the HC. She also wanted to know about the action taken after her petition was received. In its first reply in April, the PMO claimed that since the matter is sub-judice, records cannot be disclosed. Thakur then argued that such details can only be withheld when there is an explicit order from the court.

Later, in a reply on June 6, the PMO said, “The office, keeping in view the SC ruling, has sought exemption as the matter has been treated as confidential.”

It quoted a Supreme Court order which said that exception u/s. 8(1)(e) (of the RTI Act) is available not only in regard to information held by a public authority in a fiduciary capacity, but also to any information given or made available by a public authority to anyone else for being held in a fiduciary capacity.

PART B: RTI Act, 2005

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Maharashtra Government has drafted Information Commission (Appeal Procedure) Rules, 2012. Same are in internal circulation but RTI Activists have managed to get the copy thereof.

These rules are complicated and all RTI Activists (signed by 89 RTI Activists) have opposed them and have made out a detailed letter to the Chief Minister with copies to

1) Shri Jayant Banthia, Chief Secretary, Govt. of Maharashtra

2) Principal Secretary – General Administration Dept.

3) Principal Secretary – Law and Judiciary Dept.

There are 11 sub-rules. Presently, there are no separate rules for appeal procedure. The Maharashtra Right to Information Rules contain one clause for Appeal Procedure (sub-rule 5).

Sub-rule 4 of the draft rules is the most objectionable. The same reads as under:

“Accompaniments to memorandum of appeal: – Every memorandum of appeal made to the Commission shall be accompanied by the following documents namely:-

(i) copy of application made to the State Public Information Officer;
(ii) self-attested copies of the order, letter, documents, or correspondence received from the State Public Information Officer and the first appellate authority;
(iii) copy of the first appeal;
(iv) copy of order if any, given by the first appellate authority against which the appeal is being preferred;
(v) date-wise list (Index) of the documents referred to in the appeal;
(vi) affidavit in the format given in Annexure “B” affixed with Rs. 2 court fee stamp;
(vii) any other document, as deemed fit by the appellant.” Objections raised by RTI Activists read as under:

The affidavit as referred to in rule 4 requires the RTI appellant to include additional personal details e.g. “name of father/husband, age – yrs., service /business”. This rule is a blatant violation of Section 6(2) of RTI Act 2005, which states, “An applicant making request for information shall not be required to give… any other personal details except those that may be necessary for contacting him.” Also, this affidavit only burdens the RTI appellant (who is quite often a common man, and not an experienced RTI activist) with a meaningless, difficult and costly legal procedure. Change needed: Provision for affidavit should be deleted. In compliance with the RTI Act, no extra personal details must be asked, other than the ones needed to contact him.

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ICAI and its members

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1. Conversion of C.A. Firm into LLP

The Ministry of Corporate Affairs has issued a General Circular (F.No.1/10 2012- CL-VI) giving the following clarifications (Refer P.1853 of C.A. Journal for June, 2013).

(i) The provisions of sections 55 and 58 of the LLP Act, 2008 read with Second Schedule thereto, inter-alia provide for requirements in respect of convertion of a single partnership firm into a single LLP. The LLP Act, 2008, does not provide for conversation of two or more firms into a single LLP.

(ii) The provisions of section 58(4) (b) of the LLP Act, 2008 provide that on convertion of a firm into an LLP, as per the provisions of the said Act, all property, assets, interests, rights, privileges, liabilities, obligations relating to the firm and the whole of the undertaking of the firm shall be transferred to and shall vest in the LLP without further assurance, act or deed. Accordingly, if a CA audit firm, being an auditor in a company under the companies Act, 1956, gets converted into an LLP after complying with relevant provisions of the LLP Act, 2008, then such an LLP, in accordance with the provisions of section 58(4)(b) of the LLP Act, 2008 would be deemed to be the auditor of the said company. Reference is also drawn to the notification number SO 1152(E) dated 23rd May, 2011 and General Circular 30A dated 26th May, 2011 of the Ministry in this regard. The relevant appointee company may take note of such change in status of the auditor through a resolution of the Board. The concerned stakeholders, Registrar of Companies, and the appointee companies should take note of the above clarifications and comply accordingly.

In the President’s message to the Members on page 1820 of CA Journal, it is stated that the CA Firms may now convert into LLPs. However, he has not clarified whether under the Companies Act, 1956, a LLP can audit the accounts of a company. In the P. N. Shah H. N. Motiwalla Chartered Accountants icai and its members Companies Bill, 2012, as passed by the Lok Sabha in December, 2012, there is a specific provision in Section 139 that LLP, in which majority of partners are Chartered Accountants, can be appointed as statutory auditor. There is no similar provision in the existing Companies Act.

Further, there is no exemption from Capital Gains Tax if a CA Firm is converted into LLP. Sections 47(xiii) and 47(x iii b) of the Income tax Act provide for exemption in cases of conversion of a Firm into company or conversion of a company into LLP subject to certain conditions. There is no similar provision giving exemption to a Firm converting itself into LLP. Therefore, it is not clear as to how the above notification of MCA can be put into practice.

2. General Management and Communication Skills. ( GMCS)

On page 1821 of CA Journal for June, 2013, ICAI has made the following announcement for students.

ICAI has always been conscious of the fact that the students pursuing CA Course who are potential members of the profession, must undergo the rigorous practical training and also develop an all-round personality so as to meet the contemporary challenges of the economic environment. As a consequence, ICAI had recently implemented the decision to impart GMCS Course in two parts. The Board of Studies has completely revised the syllabus for both the courses and brought out the new training material both for the students and the trainers. A number of programmers are also being organised for the trainers throughout the country. This would also ensure the standardisation in the delivery of the course throughout the country. The GMCS fee has been increased from Rs.4,000/- to Rs.5,500/- per participant per course, to be conducted from 1st July, 2013 onwards.

3. Recognition of Expenditure incurred on Branding and Advertisement.

EAC opinion

Facts :

The company is engaged in the business of news paper publishing and radio broadcasting. The company operates through the different brand names. The company is one of the leading media houses of the country. Being in the media industry, the brand/goodwill of the products of the company is of utmost importance as that is the major driving factor behind the growth. To become successful, it is very important to build the strong goodwill in the market, particularly in the times of slow-down in the economy.

The Company has stated that during the efforts to build the brand/goodwill, the company undertakes various activities. The company incurs substantial amount of expenditure on these activities which are necessary to build the brand in public, which is the key to success in the business. The benefits of such expenses are accrued to the company for a period of more than one year and sometimes, these extend to a longer period. The goodwill/brand developed through these activities also helps the company to attract new customers for long term.

Query :

The company has sought the opinion of the Expert Advisory Committee (EAC) on deferring and amortising the branding expenses over the future years instead of charging the same in the year when these were incurred.

Opinion:

The Committee notes the definition of the term ‘asset’ as contained in paragraph 49 of the ‘Framework for the Preparation and Presentation of Financial Statements’, issued by the Institute of Chartered Accountants of India, and after considering paragraphs 35, 36, 50, 51 and 56 of AS 26, it is of the view that taking into account the specific provisions of the Standard, the said expenditure on branding and advertising cannot be recognised as an asset, though it may be providing future economic benefits to the enterprise. Accordingly, such expenditure should be charged off to the statement of profit and loss of the period in which it is incurred. [Refer Pages 1865 and 1866 of C.A. Journal for June, 2013.]

4. ICAI News

(Note: Page Numbers given below are from CA Journal of June, 2013)

(i) Insurance Protection for Members and CA Fir ms.

ICAI has arranged insurance protection for members in practice/firms in the form of specially designed professional indemnity insurance at a reasonable premium i.e. 85% discount in market rate. The scheme has become effective from 12th March, 2013 for the Members in practice/Firms of the ICAI.

The policy covers all sums which the insured professional becomes legally liable to pay as damages to third party in respect of any error and/or omission on his/her part committed whilst rendering professional service. Legal cost and expenses incurred in defense of the case, with the prior consent of the insurance company, are also payable, subject to the overall limit of indemnity selected.

Only civil liability claims are covered. Any liability arising out of any criminal act or act committed in violation of any law or ordinance is not covered.

(ii) New Branches of ICAI

The following five Branches of ICAI have been established. With this addition, there are 133 Branches of ICAI in India now. (P. 1961-1963)

(a) Kishangarh (Rajasthan) – CIRC.
(b) Jhansi (UP) – CIRC
(c) Chittorgah (Rajasthan) – CIRC
(d) Satara (Maharashtra) – WIRC
(e) Navsari (Maharashtra) – WIRC

(iii) New Publications of ICAI

(a) Guidance Note on Report u/s 92E of the Income tax Act (Revised)
(b) Technical Guide to Audit in a Shared Service Centre Structure (P.1970)
(c) Technical Guide on Internal Audit of Pharmaceutical Industry (P 1971).

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