BCAJ | Bombay Chartered Accountant Journal

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

BCAJ Admin

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.

BCAJ Admin

Tech update

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.

BCAJ Admin

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,

(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) ,

(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)

BCAJ Admin

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.

BCAJ Admin

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

levitra

BCAJ Admin

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

levitra

BCAJ Admin

ICAI And Its Members

ICAI and Its Members

1. ICAI News :

(Note : Page Nos. given below are from C.A. Journal
for 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]

BCAJ Admin

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)

BCAJ Admin

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.

BCAJ Admin

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!

BCAJ Admin

Right To Information

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).

BCAJ Admin

Some Recent Judgments

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.

BCAJ Admin

Direct Taxes

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.

(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.

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

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BCAJ Admin

FROM THE PRESIDENT

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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BCAJ Admin

From published accounts

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

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

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

BCAJ Admin

PART A: Orders of CIC

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.

BCAJ Admin

PART D: good governance

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

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.

BCAJ Admin

PART B: RTI Act, 2005

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

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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BCAJ Admin

From the President

Hope and expectation

Dear Members,

The months of June and July are months of hope and expectation. The entire nation is hoping for a good monsoon, students who appeared for their CA examinations are hoping for a good result, and there is both hope and expectation that the change of guard in the Finance Ministry will bring cheer to a beleaguered economy.

As far as the rains are concerned, they have a knack of playing truant. In fact they defy the Meteorological Department with such unfailing regularity that when a near normal monsoon was predicted, one started worrying. The month of June has passed without much rain and as usual, Prophets of doom have started predicting a severe drought.

While it is true that no one has any control over the weather gods, very little seems to have been done in reducing the dependence on the monsoon for water requirements of both agriculture as well as domestic consumption. While one appreciates that increasing the area of land under irrigation is a long-term measure, developing water storage facilities for human consumption, conserving and ensuring minimum use of water are measures that will avert a crisis.

While there is uncertainty over the way the monsoon will behave, it appears certain that the former Finance Minister Mr Pranab Mukherjee will assume office as the President of India. As he prepares for the presidential election the charge of the Finance Ministry has been taken by the Prime Minister Mr Manmohan Singh. One only hopes that as Finance Minister we will see a decisive Mr Singh and not a person bullied by his allies. He is credited with ushering in major reforms, which brought India back from the brink in 1992. Though the situation is not as grave there is need for certain urgent policy measures. The business community has huge expectations from him. In his new innings we expect him to introduce some long overdue economic reforms even at the cost of forcing the nation into an early general election. This is an opportunity for him to change public perception of being a weak Prime Minister to a true leader.

A leader needs to take responsibility for his acts of commission and omission as well as those of his juniors. In the recent fire that gutted three floors of Mantralaya, we saw the blame game in full swing. No Minister was willing to take responsibility for the unfortunate event. While the enquiry into what caused the fire will progress at its own pace and come to some conclusions, what one needs to see is whether the powers that be will learn from the mistakes of the past. This is one characteristic that we need to learn immediately. It is not as if one cannot learn from past mistakes and tragedies. Post 9/11 the U.S. tightened its security to an extent that it did not spare any individual.

It is this sense of adherence to rules and accountability that makes the difference between, a small fire being doused immediately and the disaster we witnessed. One hopes that the government will mend its ways and avoid the recurrence of such events. This issue of the BCAJ is a special issue on professions. We belong to the profession , members of which ,Society expects to have integrity and discipline. Sadly these two qualities are on the wane, among the public in general and our profession is no exception.

I believe that we may acquire all the technical skills, update our knowledge but if our members, do not imbibe these two qualities success will be short lived. As I had said at the outset this is a month of hope and expectation. My tenure as the President of this august institution will end on 6th July 2012 when I will be handing over the baton to the President elect Mr Deepak Shah. Post 6th July I expect some respite from the hectic schedule which I have had for the past one year.

From the month of August of last year I have had the opportunity of communicating with you through this page. I have enjoyed this monthly endeavour. I hope my readers have found the effort worthwhile. In my innings as the President I made a sincere attempt to ensure that the prestige of this Institution was maintained. In my small way I have tried to add some new programs.

I am conscious that I have left substantial unfinished agenda for my successor. I am sure that he will be able to complete them with support from his enthusiastic team. It is now time to bid adieu. It is said that that one should not feel sad about saying good bye, for it is the interregnum between two meetings and with friends meeting is a certainty irrespective of the interval.

Therefore bye till we meet again in person!

With warm regards,
Pradip K. Thanawala

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BCAJ Admin

ICAI News

(i) In CA students Journal for June, 2012 (Page 19) the following announcement by ICAI is published.

“All members of ICAI are hereby informed that the Council of ICAI has prescribed Regulation 47 of the CA Regulations which reads as ‘No amount shall be charged from, or payable by, an article assistant or any other person on his behalf, directly or indirectly, whether by way of premium or as loan or deposit or in any other form in connection with his engagement as an article assistant’.”

“In view of the above, charging of premium form article assistants is misconduct under the provision of clause (1) of Part II of the Second Schedule to the C.A. Act and punishable u/s. 21B(3) of the C.A. Act.”

(ii) In CA students Journal for June, 2012 (page 19) the following announcement is published. “It has been decided to henceforth (w.e.f. 23-5-2012) charge a sum of Rs.500 per person as the education verification fee from the companies/agencies seeking such verification of qualification. The fee shall be payable by D.D. in favour of the Secretary, ICAI, payable at New Delhi.”

It is clarified that this fee is not payable by the Central/State Government, PSUs, Concerned Member/Student.

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BCAJ Admin

Code of ethics

The Ethical Standards Board of ICAI has given answers to some of the ethical issues raised by our members. These are published on page 1794 of C.A. Journal for June, 2012. Some of these issues are as under.

(i) Issue: Can a Chartered Accountant in practice share his fees with the Government in respect of Government Audit? The Institute came across certain Circulars/Orders issued by the Registrar of various State Co-operative Societies, wherein it has been mentioned that certain amount of audit fee is payable to the concerned State Government and the auditor has to deposit a percentage of his audit fee in the State Treasury by a prescribed challan within a prescribed time of the receipt of audit fee. In view of the above, the Council considered the issue and while noting that the Government is asking auditors to deposit such percentage of their audit fee for recovering the administrative and other expenses incurred in the process, the Council decided that as such there is no bar in the Code of Ethics to accept such assignment wherein a percentage of professional fees is deducted by the Government to meet the administrative and other expenditure.

(ii) Issue: Can a goodwill of a Chartered Accountants’ firm be purchased? The Council of the Institute considered the issue whether the goodwill of a proprietary firm of Chartered Accountant can be sold/transferred to another eligible member of the Institute, after the death of the proprietor concerned and came to the view that the same is permissible. Accordingly, the Council passed the Resolution that the sale/transfer of goodwill in the case of a proprietary firm of Chartered Accountants to another eligible member of the Institute, shall be permitted, subject to the provisions appearing at pages 129-130 of the Code of Ethics 2009 edition.

(iii) Can a practising Chartered Accountant solicit clients or professional work by advertisement? Clause (6) of Part-1 of the First Schedule to the Act prohibits a practising Chartered Accountant from soliciting clients or professional work either directly or indirectly by circular, advertisement, personal communication or interview or by any other means.

However, there are the following exceptions to it:

(i) A member can respond to tenders or enquiries issued by various users of professional services or organisations from time to time and securing professional work as a consequence.

(ii) A member may advertise changes in partnerships or dissolution of a firm, or of any change in the address of practice and telephone numbers, the advertisement being limited to a bare statement of facts and consideration given to the appropriateness of the area of distribution of newspaper or magazine and number of insertions.

(iii) A member is permitted to issue a classified advertisement in the Journal/Newspaper of the Institute intended to give information for sharing professional work on assignment basis or for seeking professional work on partnership basis or salaried employment in the field of accounting profession, provided it only contains the accountant’s name, address, telephone, fax number and e-mail address.

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BCAJ Admin

FROM THE PRESIDENT

Dear Valued Reader,

It is invariably difficult to pen the first and the last messages. In the first message, one is a bit nervous as how to start, where to start from etc. whereas in the last message one is baffled as where to end, since one has a lot to share with. The year passed by in a jiffy. And today, I communicate with you for the last time as a President of this august body. One learned judge said: “Language is at best an imperfect instrument for human expressions and feelings”. I, too, find “language” grossly inadequate to express my feelings at this moment, yet let me venture out to convey some of my thoughts for whatever they are worth.

It is said, “This life is a gift of God to us and how we live is a return gift from us to God”. Likewise, the BCAS Presidentship was a boon to me and I hope, I have been able to make some difference, which may be regarded as a return gift from me to the membership. All good things come to an end, and for me, the BCAS Presidentship has come to an end. “One year” may be a small period in the life span of an organisation; but it would certainly leave some lasting imprints in my life. I enjoyed every moment of my tenure. Blessings from elders/seniors, good wishes from peers and colleagues, unstinted support from the Core Group members and the BCAS staff have filled my life with positive emotions of love and gratitude. Encouraging feedback from members about various events, President’s messages and new initiatives; memories of working as a team with core group members; togetherness and brotherhood amongst office-bearers are permanent treasures which I shall cherish throughout my life. I thank one and all for contributing so much to enrich my life.

The month of June 2011 was an eventful month for the Society in many respects. An Education Tour to Europe, from 30th May to 12th June 2011, received an overwhelming response from overseas Universities and Educational Institutions. In all 21 delegates participated. Personally, I learnt many lessons from this tour. Punctuality, importance of time, cleanliness and commitment, are some of the qualities that I learnt from the Europeans, whereas team spirit, adjustments, crisis management and brotherhood etc. are some of the other qualities I learnt from my fellow delegates. Humility and warm reception from great personages such as Prof. Dr. Lehner of Munich University, Prof. Dr. Reimer of Heidelberg University and Prof. Dr. Kees Van Raad of Leiden University touched the cockles of my heart. I learnt an important lesson which is, one should be like a Mango tree which bends as it bears more and more fruits or like a Banyan tree which allows many more trees to grow within and around its periphery in such a manner that no one can identify the originating roots.

Back home, the Government bounced upon Baba Ramdev and his disciples who were on fast to pressurise the Government for effective steps to curb rampant corruption, with the result that, the agitation had to be withdrawn.

It is indeed unfortunate that there are no visual proofs of concrete steps from the Government to eradicate deep rooted corruption. The law and order situation is worsening day by day and attacks on whistle blowers and/or activists of “Right to Information”, who try to unearth scams or corrupt practices are on the rise. It is learnt that all important files pertaining to the scam tainted “Adarash Co-operative Housing Society” have gone missing. Day light murder of journalist, Mr. Dey, on the streets of Mumbai, reveals the precarious law and order situation in the financial capital of India. The less said, the better it is for the State of Uttar Pradesh, where violence against women is a daily feature. Some drastic steps are called for, to restore the waning confidence of masses in the political system or law and order machinery.

A group of about ten members from BCAS visited the tribal areas of Dharampur, Kaparada and Vansda in south Gujarat on 19th and 20th June 2011 for tree plantation and “lokarpan” of the Faco Machine at the Sant Ranchoddasji Bapu Eye Hospital at Vansda where at least 50 patients are operated for cataract every Sunday. Even after 63 years of independence, most of the tribals live in abject poverty. They are still deprived of basic necessities of life, such as food, shelter and clothes. Many of them live in sub-human conditions.

India is a land of contrasts. On the one hand, we find modern cities, with latest malls and fashion shops, five star hotels and lavish apartments, whilst on the other; we find abject poverty and slums. The recent hike in the diesel, LPG and kerosene prices can only worsen the economic conditions of the poor.

The latest available report (2010) on the India’s high net worth individuals reveal that it had only about 1,27,000 people comprising 0.01% of the population whose combined net worth was close to one-third of India’s Gross National Income. The gap between “haves” and “haves not” is widening by the day which may lead to civil unrest and increase in crime unless the Government puts in place an effective policy for inclusive growth. That is why Gandhiji coined the word “Antyodaya” i.e. upliftment of the poorest of the poor. Our aim should be the betterment of those who are at the bottom of the pyramid. The BCAS is involved in some projects for the wellbeing of destitute/nomadic/tribal people who are at the lowest stratum of society. Those of you interested may write to the Society at bca@bcasonline.org.

The rest of the month was eventful with lecture meetings on XBRL and filing of income tax returns. A full day seminar on 18th June 2011 on “Laws Impacting Financial Services” elicited good response from the industry and the practicing members alike. On the same day, in the evening a much awaited “BCAS Referencer 2011-12” was released at the hands of the Vice Chancellor of the University of Mumbai Dr. Rajan Welukar. The theme of this year’s reference is “Gandhi Governance” and to suit the occasion a musical concert titled “Jago Hindustani”, comprising patriotic songs was organised which was very well received. Gandhiji’s teachings are perhaps more relevant in this century than the earlier one. Dr. Raghunath Mashelkar, in his celebrated book entitled “Timeless Inspirator-Reliving Gandhi”, has captured kaleidoscope of experiences of 45 distinguished personalities from different walks of life, (such as scientist, industrialist, sports person, social worker, bureaucrat etc.) about Gandhiji’s philosophy and relevance in their lives. According to Dr. Mashelkar what is relevant today is Gandhian Engineering (More from, Less for More) anchored on the two important tenets – affordability and sustainability. When governance as such in public offices is at its low, Gandhian Governance holds the key for betterment and hope. In this context the theme selected by the Membership and Public Relation Committee deserves handsome compliments.

CA. Mohandas Pai speaking on the occasion of the Dilip Dalal Oration Lecture at the Patkar Hall on 29th June 2011 on the subject of “India @ 2030” echoed the necessity of inclusive growth, need for change in the paradigm to accept change and use of technology for growth and development of India. He said that India is poised for the most challenging and exciting times ahead with opportunities galore for youngsters.

Well, friends its time for me to bid adieu. I have experienced tremendous growth, writing to you month after month. I am extremely thankful to you for your encouraging feedback and I shall be missing my monthly communion with you all. Well, I must say that I have had a very satisfying year with support from learned readers.

May God guide you all!

So be it!

Regards,
Mayur Nayak

BCAJ Admin

ICAI and its members

1. Attendance by Directors at Board Meetings through video conference:

By a General Circular No. 28/2011, dated 20-5-2011, the Ministry of Corporate Affairs has now permitted directors of companies to attend meetings of the Board of Directors or Committee thereof through electronic mode. Some of the procedural requirements are as under:

(i) Electronic mode means video conference facility i.e., audio-visual electronic communication facility employed which enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate effectively in the meeting.

(ii) Every director of the company must attend the meeting of Board/Committee of directors personally at least one meeting in a financial year of the company.

(iii) The chairman of the meeting and secretary have to ensure to (a) safeguard the integrity of the meeting via video conferencing, (b) ensure proper video conference equipment/facilities, (c) prepare the minutes of the meeting, and (d) ensure that no one other than concerned director or other authorised participants are attending the meeting through electronic mode.

(iv) The notice of the meeting must inform directors regarding availability of participation through video conference, and provide necessary information to enable directors to access the available facility of video conferencing.

(v) The notice of the meeting shall also seek confirmation from the director as to whether he will attend the meeting physically or through electronic mode and shall also contain the contact number(s)/e-mail addresses of the secretary/designated officer to whom the director shall confirm in this regard.

(vi) In the absence of any confirmation from the director, it will be presumed that he will physically attend the Board meeting.

(vii) There are some other procedural requirements which are of a routine nature.

2. Appointment of Cost Auditors by companies:

By a General Circular No. 15/2011, dated 11-4-2011 the Ministry of Corporate Affairs has changed the procedure for appointment of Cost Auditors u/s. 233B of the Companies Act. At present, such appointment requires prior approval of the Central Government. Now the revised procedure, briefly stated, is as under:

(i) The Audit Committee will have recommend to the Board the name of the Cost Auditors for such appointment and for their remuneration.

(ii) The Company has to file its application in Form 23C for such appointment with Board resolution proposing such appointment and other prescribed annexures within 90 days of commencement of the financial year.

(iii) If the Government does not object within 30 days of filing Form 23C, the company can issue formal letter of appointment to the Cost Auditors. In other words, specific order of the Central Government is not required for appointment of Cost Auditors.

3. Scope of Cost Audit enlarged:

By a Notification dated 3-6-2011, the Ministry of Corporate Affairs has enlarged the requirement for maintenance of Cost Records and Cost Audit to all large companies. The earlier Cost Accounting Rules have been now superseded by this Notification. Briefly stated the Notification provides as under:

(i) The new (Cost Accounting Records) Rules, 2011, shall come into force on the date of its publication in the Official Gazette.

(ii) These Rules apply to every company (including a foreign company) engaged in production, processing, manufacturing or mining activities if the net worth of the company as on the last day of the immediately preceding financial year exceed Rs.5 crore or if the total turnover of the company in the immediately preceeding financial year exceed Rs.20 crore. Further, if the company is a listed company or is in the process of listing, either in India or outside India, these Rules will apply irrespective of its net worth or turnover limits, if it is engaged in the manufacturing, production, processing or mining activities.

(iii) These Rules will not apply to a company engaged in manufacturing, production, etc. of (a) bulk drugs, (b) formulations, (c) fertilisers, (d) sugar, (e) industrial alcohol, (f) electricity industry, (g) petroleum industry and (h) telecommunications. The existing Rules for each of these industries will continue to apply to them.

(iv) The companies to which these Rules apply will have to maintain cost records as stated in this new Rule.

(v) These companies will have to appoint Cost Auditors and file Cost Audit Report with the Government for each year commencing on or after 1-4-2011 in the prescribed form within 180 days of the close of the financial year.

From the above it will be noticed that statutory Auditors of all such companies will have to ensure that these requirements of maintenance of Cost Accounting Records and Cost Audit are complied with in all such companies.

4. EAC Opinion

Revenue recognition in high-sea sale contracts:

Facts:
A public sector undertaking in the field of telecommunications is engaged in manufacturing and supply of various telecom products, providing network solution, manufacturing of mobile infrastructure equipment, etc. The company is having manufacturing facilities at various locations. The supplies and services of the company are mainly to customers such as public sector telecommunication enterprises, defence, railways, etc. All the supplies and services to them are executed through purchase orders, which are generally based on tenders. Most of the tenders call for quotes which are all inclusive (inclusive of freight, insurance, etc.)

The company has stated that it received a Purchase Order (P.O.) from a public sector telecommunication enterprise for supply and installation, testing and commissioning of cellular mobile phone network. Customer P.O. price is inclusive of all levies and taxes, packing, forwarding, freight and insurance, etc. The scope of P.O. includes supply of equipment (which shall be imported and supplied on high-sea sales basis), installation and commissioning of the equipment, maintenance during warranty period and Annual Maintenance Contracts (AMC) after warranty period. Customer’s P.O. contains itemised rates for supply, testing, installation, etc.

The company has further stated that before the materials reached Indian territory, high-sea sales agreement was entered into with the customer and the sale is effected in favour of the customer’s designated sites. Based on the high-sea sales agreement, the documents during the course of transit are endorsed in favour of the customer.

According to the company, as soon as the highsea sales agreement is entered into, the company recognises revenue for the sale value of the equipment (as per separate value given in the customer’s P.O.) During the financial year 2008- 09, the company made supplies and revenue was recognised in the accounts to that extent. However, this accounting treatment was not acceptable to the Government Auditors on account of the following:

(i) Materials which were supplied on high-sea sales basis on March 30, 2009 were received by customer after the accounting year 2008- 09.

(ii) As per P.O., delivery to the ultimate site in satisfactory condition will remain supplier’s responsibility.

(iii) Delivery of materials and services, its instal- lation and commissioning shall be made by the supplier in accordance with the terms and conditions specified in schedule of requirements and special conditions of the contract and the goods shall remain at the risk of the supplier until delivery of the network as a turnkey job has been completed even if there is a transfer of title of the goods earlier on account of high-sea sales.

Query:

In view of the above, the company has sought the opinion of the Expert Advisory Committee (EAC) as to whether accounting for the sale value of equipment immediately on entering into high-sea sales agreement and endorsement of the documents of title without linking to the date of receipt of equipment by customer and also before completion of activity of installation and commissioning of the equipment is in order and in accordance with Accounting Standard (AS) 9, ‘Revenue Recognition’.

Opinion:
The Committee is of the view, after considering the Accounting Standard (AS) 9, ‘Revenue Recognition’, that the company recognises revenue for the sale value of the equipment immediately on entering into the high-sea sales agreement and endorsement of the documents of title. It is also noted that as per clause 16.2 of the customer’s P.O. “Delivery of the goods and services, its installation and commissioning shall be made by the supplier in accordance with the terms and conditions specified in the schedule of requirements and special conditions of the contract and the goods shall remain at the risk of the supplier until delivery of the network as a turn-key job has been completed even if there is a transfer of title of the goods/materials earlier on account of high-sea sales”. Thus, the Committee is of the view that risks and rewards of ownership of the goods under high-sea sales are not transferred at the time of entering into such an agreement or endorsement of the documents of title. Accordingly, the accounting policy followed by the company in this respect is not appropriate.

5. Transfer/Termination of articleship:
Articled assistants are allowed to seek transfer/ termination of articleship only on permissible grounds and the articled assistants are advised to get the consent of the Institute before getting Form 109 signed by the principal in their own interest. ICAI has noticed that some articled assistants are submitting Form 109 signed by the principal along with the application for transfer/ termination of articleship. It is now decided that issuance of Form 109 prior to formal approval of the Institute for transfer will not be taken on record. Therefore, the principal and articled assistant should now forward Form 109 duly signed by both only after obtaining prior permission of the Institute for such Transfer/Termination. (CA Journal for June 2011 P. 1889)

6. ICAI News:

(Note: Page Nos. given below are from C.A. Journal for June, 2011)

(i) Recommended fees structure for C.A. Professionals:

In the last issue of BCA Journal for May, 2011 (Page 360) reference was made to the fees structure recommended by ICAI. Some figures were given in that issue. Now C.A. Journal for June, 2011, contains complete details about the fees structure on pages 1894 to 1898.

(ii) Amendment to Accounting Standard (AS-11):

The Ministry of Corporate Affairs (MCA) has issued a Notification on 11-5-2011. By this Notification the MCA has extended option for the enterprises to capitalise the exchange differences arising on reporting of long-term foreign currency monetary items till 31-3-2012 instead of 31-3-2011. (CA Student’s Journal, June 2011, P. 26)

(iii) NBFC cannot join partnership firms as a partner:

RBI has issued a Circular on 31-3-2011 clarifying that no NBFC can join any partnership firm as a partner. This restriction will apply if any NBFC wants to join any LLP as a partner. (Page 1788)

BCAJ Admin

Company Law

1. Companies (Amendment) Act 2015

The Ministry of Law and Justice (Legislative Department) has on 26th May 2015 issued the Companies (Amendment) Act 2015. Further vide notification dated 29th May 2015 provisions of the Companies (Amendment) Act 2015 other than those stated in paragraph (d) and (e) below which are yet to be notified shall come into force from 29th May 2015. Some of the important amendments include:

a) Insertion of Clause 76A – Punishment for contravention of Section 73 or Section 76 relating to acceptance of Deposits:—

“76A. Where a company accepts or invites or allows or causes any other person to accept or invite on its behalf any deposit in contravention of the manner or the conditions prescribed under section 73 or section 76 or rules made thereunder or if a company fails to repay the deposit or part thereof or any interest due thereon within the time specified under section 73 or section 76 or rules made thereunder or such further time as may be allowed by the Tribunal under section 73,— (a) the company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than one crore rupees but which may extend to ten crore rupees; and (b) every officer of the company who is in default shall be punishable with imprisonment which may extend to seven years or with fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both: Provided that if it is proved that the officer of the company who is in default, has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors or tax authorities, he shall be liable for action under section 447.”.

b) Insertion of 4th Proviso to Section 123(1) pertaining to declaration of Dividends:-

“Provided also that no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year.”

c) Insertion of Clause (ca) to Clause 134(3) (c ) for reporting of frauds:

“(ca) details in respect of frauds reported by auditors under sub-section (12) of Section 143 other than those which are reportable to the Central Government;”

d) Section 143 (12) is to be substituted with:

“(12) Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed:

Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed:

Provided further that the companies, whose auditors have reported frauds under this sub-section to the audit committee or the Board but not reported to the Central Government, shall disclose the details about such frauds in the Board’s report in such manner as may be prescribed.”

e) Proviso to Section 177 (4) (iv) is to be inserted:

“Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as may be prescribed;”.

The Amendment Act can be accessed at http://www. mca.gov.in/Ministry/pdf/AmendmentAct_2015.pdf and the notification can be accessed at http://www. mca.gov.in/Ministry/pdf/Notification_31052015.pdf

2. Copies of resolution passed u/s 117 (3) (g) are not open for inspection

The Ministry of Corporate Affairs has vide Notification dated 29th May 2015, inserted the following proviso to the Companies ( Registration Offices and Fees ) Rules 2014, to Rule 15:

“Provided that no person shall be entitled under section 399 to inspect or obtain copies of resolutions referred to in clause (g) of sub-section (3) of section 117 of the Act.”

Notification can be accessed at http://www.mca.gov. in/Ministry/pdf/Rules_31052015_5.pdf

3. Companies ( Incorporation ) Second Amendment Rules 2015

The Ministry of Corporate Affairs has notified further amendments to the Companies (Incorporation) Rules 2014 on 29th May 2015 as follows:

a) In Rule 12, the following proviso is inserted:

“Provided that in case pursuing of any of the objects of a Company requires registration or approval from sectorial regulators like Reserve Bank of India, Securities and Exchange Board, registration or approval, as the case may be, from such regulator shall be obtained by the Company before pursuing such objects and a declaration in this behalf shall be submitted at the stage off incorporation of the Company. “

b) Rule 24 pertaining to the Declaration at the time of commencement of business or exercising its borrowing powers to be filed by a director in Form No.INC.21 along with the fee is omitted

c) Form INC-13 pertaining to the Memorandum of Association and Form INC-16 for License under Section 8(1) of the Companies Act, 2013 have been modified

Full notification can be accessed at http://www.mca. gov.in/Ministry/pdf/Rules_31052015_3.pdf

4. Companies (Declaration and Payment of Dividend) Second Amendment Rules, 2015.

As per the Amendment dated 29th May 2015, the Rule 3, sub Rule – 5 to the Companies (Declaration and Payment of Dividend) Rules 2015 which pertains to “No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year are set off against profit of the company of the current year the loss or depreciation, whichever is less, in previous years is set off against the profit of the company for the year for which dividend is declared or paid.” – is omitted.

Full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/Rules_31052015_2.pdf

5. Clarification on repayment of deposits accepted by the companies before the commencement of the Companies Act, 2013 under section 74 of the said Act

Vide General Circular No 09/2015, the Ministry of Corporate Affairs has clarified regarding processing of the deposits related complaints received from investors under section 74 of the Companies Act, 2013 (the said Act) in respect of defaults made by companies in repayment of deposits accepted by them before the commencement of the said Act i.e. before 1st April, 2014 and filing of prosecutions against defaulting companies by the Registrars of Companies/Regional Directors. As per the notification, a depositor is free to file an application under section 73(4) of the said Act, with the Company Law Board if the company fails to make repayment of deposits accepted by it. Further the company may also file application under section 74(2) of the said Act with the Company Law Board seeking extension of time in making the repayment of deposits accepted by it before the commencement of the provisions of the said Act.

Further, attention is also drawn to Explanation appearing below Rule 19 of the Companies (Acceptance of Deposits) Rules, 2014 which clarifies the conditions subject to which a company would be deemed to have complied with the requirements laid down in Section 74(1)(b) of the Companies Act, 2013 Companies can repay deposits accepted prior to 1st April, 2014 in accordance with terms and conditions for which the deposits had been accepted.

It is also clarified that there is no bar on the Registrar of Companies for filing of prosecution against a com- pany if such company fails to make repayment of de- posits accepted by it under the provisions of the Com- panies Act, 1956 or Companies Act, 2013, subject to the contents of para 3 above.

Full circular can be accessed at http://www.mca.gov. in/Ministry/pdf/General_Circular_9-2015.pdf

6. Exemptions for Section 8 Companies with Charitable Objects etc

Notification dated 5th June 2015, directs that certain provisions of the Companies Act, 2013, shall not apply or shall apply with exceptions/modifications:

Exemption from Application of certain Provisions to Section 8 Companies

Provision
of the act

Pertains to

Exceptions,
Modifications and Adaptations

Section 2(24)

Definition of Company Secretary

shall not apply.

Section 2(68)

Private Company

The requirement of having minimum paid-up share
capital shall not apply.

Section 2(71)

Public
Company

The
requirement of having minimum paid-up share capital shall not apply.

Section 96(2)

Annual
General Meetings

After the
proviso and before the explanation, the following proviso shall be inserted,
namely:-

Provided
further that the time, date and place of each annual general meeting are
decided upon before-hand by the board of directors having regard to the
direc- tions, if any, given in this regard by the company in its general
meeting.

Section
101 (1)

Notice
of Meeting

For
the words “twenty one days”, the words “fourteen days” shall be substituted.

Section
118

Minutes of
general Body Meetings, Board meeting etc

The section
shall not apply as a whole except that minutes may be recorded within thirty
days of the conclusion of every meeting in case of companies where the articles of
association provide for
confirmation of minutes by circulation.

Section
136(1)

Right of member to copies
of

audited
financial statements

for
the words “twenty one days”, the words “fourteen days” shall be substituted.

Section 149 (1)
– the first

proviso to
sub-section (1)

To appoint
more than fifteen directors after passing a special resolution

shall
not apply

Provision
of the act

Pertains to

Exceptions,
Modifications and Adaptations

Sub-sections (4), (5), (6),

(7), (8),
(9), (10), (11),

clause (i)
of sub-section

(12) and
sub-section (13) of section 149

For Board
of Directors of Company

Shall
not apply.

Section 150

Selection
of Independent

Shall
not apply

Proviso to
sub-section (5) of section 152

Explanatory
statement for appoint- ment of Independent Director

Shall
not apply

Section 160
for Director- ship

Right of
persons other than the retiring Directors to stand

Shall not
apply to companies whose articles provide for election of directors by ballot

Section 165 (1)

Number
of Directorships

Shall
not apply

Section 173(1)

Meetings
of Board

Shall apply
only to the extent that the Board of Directors, of such Companies shall hold
at least one meeting within every six calendar months.

Section 174(1)

Quorum
for Board Meetings

In
sub-section (1) – for the words “one-third of its total strength or two
directors, whichever is higher”, the words “either eight members or twenty five
per cent of its total strength whichever is
less” shall be substituted;

(b) the following proviso shall be inserted, namely:-

“Provided
that the quorum shall not be less than two members”.

section 177 (2)

Audit
Committee

The
words “with independent directors forming a majority” shall be omitted.

Section 178.

Nomination
and Remuneration Committee and Stakeholders Relationship Committee.

Shall
not apply

Section 179.

Powers
of Board

Matters
referred to in clauses (d), (e) and (f) of sub-section (3) may be decided by
the Board by circulation instead of at a meeting.

Section 184 (2)

Disclosure
of interest by Director.

Shall apply
only if the transaction with reference to section 188 on the basis of terms
and conditions of the contract or arrangement exceeds one lakh rupees.

7. Exemptions to Private Companies
Notification dated 5th June 2015 in the interest of pub- lic directed that certain provisions of the Companies

Act 2013 shall not apply or shall apply with such ex- ceptions, modifications and adaptations as follows:

Provision of Companies act 2013

Pertains to

Exceptions,
Modifications and Adaptations

Section 2(76) (viii)

Related party definition

i.e (vii)
any person on whose advice, directions or instructions a director or manager
is accustomed to act – Shall not apply with respect to Section 188

Section 43 and 47

Kinds of
Share Capital and Voting Rights

Shall not apply where MOA and AOA of private
company so provides

Section
62(1) (a) (i) and 62(2)

Further
Issue of Share Capital

shall apply
with following modifications:-

In clause
(a), in sub-clause (i), the following proviso shall be inserted, namely:-
Provided that notwithstanding anything contained in this sub-clause and sub-
section (2) of this section, in case ninety per cent of the members of a
private company have given their consent in writing or in electronic mode,
the periods lesser than
those specified in the said sub-clause or sub-section shall apply.

Section
62(1) (b)

Issue of
share capital under ESOP to employees

In clause
(b), for the words “special resolution”, the words “ordinary resolution”
shall be substituted

Provision of Companies act 2013

Pertains to

Exceptions,
Modifications and Adaptations

Section 67

Restrictions

on purchase by company or giving of loans by it for purchase
of its shares

Shall not apply to private companies –

(a)in whose share
capital no other
body corporate has invested any
money;

(b)if the borrowings of such a company from banks or financial institutions or anybody corporate is less than
twice its paid
up share capital
or fifty crore rupees,
whichever is lower; and

(c)
such a company is not in default in repayment of such
borrowings subsist- ing at the time of making transactions under this section

Section
73(2) clause

(a) to (e)

Prohibition of

Shall not
apply to a private company which accepts from its members monies not
exceeding one hundred per cent.

Acceptance
of Deposits from Public

of
aggregate of the paid up share capital and free reserves, and such company shall
file the details
of monies so accepted to the Registrar in such manner as may be specified

Section 117(3) (g)

Resolutions
passed in pursu- ance of sub-section (3) of section 179 wrt Powers of the
Board of Directors

Shall not Apply

Section 141(3) (g)

Limit on
the number of audits per partner

Shall apply with the modification that the words
“other than one person com– panies,
dormant companies, small companies and private companies having paid-up share
capital less than one hundred crore rupees” shall be inserted after the words
“twenty companies”

Section 160

Rights of persons other than retiring Directors to stand for
Directorship

Shall not Apply

Section 162

Appointment
of Directors to be voted individually

Shall not apply

Section 180

Restrictions
on Powers of Board

Shall not apply

Section 184(2)

Disclosure
of Interest by Director

Shall apply
with the exception that the interested director may participate in such
meeting after disclosure of his interest.

Section 185

Loan to Director, etc

Shall not apply to a private company –

(a)in whose
share capital no other body corporate has invested any money;

(b)if the borrowings of such a company from banks or financial institutions or any body corporate is less than
twice of its
paid up share
capital or fifty
crore rupees whichever is lower; and

(c)
such a company has no default in repayment of such
borrowings subsist- ing at the time of making transactions under this section

Section 188
(1) second proviso

Voting by related party

Shall not apply

Section 196 (4) and (5)

Appointment
of managing Director, Whole time Director or Manager

Shall not apply

The private companies, while complying with such ex- ceptions, modifications and adaptations, of the aforesaid Table, shall ensure that the interests of the shareholders are protected.

8. Exemptions to Nidhi Companies

Notification dated 5th June 2015 has directed that certain provisions of the Companies Act 2013 shall not apply or shall apply with certain exceptions, modifications and ad- aptations to Government Companies. The Government companies, while complying with such exceptions, modi- fications and adaptations, shall ensure that the interests of’ their shareholders are protected.

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Indirect Taxes

MVAT UPDATE

MVAT Notification

LA BILL XIX OF 2014

By this Bill, the State has introduced Maharashtra Tax Laws [Levy, Amendment and Validation] Act, 2014, pro-posing amendments to the Maharashtra Stamp Act, Maharashtra Purchase Tax on Sugarcane Act,1962, Maharashtra State Tax on Professions, Trades, Callings and Employment Act,1975, Maharashtra Tax on Luxuries Act,1987 Maharashtra Value Added Tax Act, 2002.

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ICAI and its members

1. CPE Credit

Under the existing regulation of the ICAI members in practice have to obtain CPE credit for 90 hours in a block of three years (including 60 Hours of structured CPE credit). Members not in practice have to obtain CPE credit for 45 hours (unstructured CPE credit). For structured CPE Credit members have to attend seminars/conferences/ workshops organised by the ICAI, Regional councils, Branches of the ICAI, CPE study circles etc. Attendance at Courses Organised by other reputed C.A. Societies, C.A. Associations, Chambers etc., are not recognised for structured CPE Hours. One, Shri Arun Anandagiri, has filed an application before Competition Commission of India alleging abuse of dominant position by ICAI u/s. 4 of the competition Act, 2002, by imposing unfair and discriminatory conditions with respect to its CPE scheme.

The Commission has passed an order dated 28-02-2014 stating that there seems to be force in the allegations of the applicant that the restriction put by the ICAI in not allowing any other organisation to conduct the CPE seminars for CPE credits, creates an entry barrier for the other players in the relevant market. The commission has also noted that the ICAI is not conducting the CPE seminars and conferences on not-for-profit basis as in the accounts of ICAI for F.Y. 2012 – 13 the gross revenue from such activity was Rs. 45 crore.(i.e., 8% of its total revenue).

Accordingly, the Commission has directed the Director General (D.G.) to investigate the matter further and report to the Commission within 60 days. After receipt of the report from the D.G. the Commission will pass the final order.

2. Disciplinary Cases:

The Disciplinary Committee (DC) of ICAI has decided some cases about professional or other misconduct of members. These are reported in the publication “Disciplinary Cases VOI – I.” Page Nos. given below are from this book. Names of members are not given in order to maintain confidentiality.

(i). Case of SCS:

In this case, the complainant had alleged that (a) the member submitted wrong Income-tax Return prepared by him to the tax authorities without approval of the Company, (b) he charged fees for preparing financial reports and tax return and also charged for filing revised return of income, (c) in spite of repeated requests, the member did not give copies of the tax returns to the company, (d) he was paid Rs. 25,000/- for formation of a new company. He did not do anything in this respect and was absconding, (e) he was in possession of the Books, Vouchers, PAN Cards and Digital Signatures of Directors, copies of Tax Returns, Company’s Seal etc., and was not returning these Books, Vouchers, documents etc.

The DC noted that both the complainant and the Member did not appear at the time of hearing. They did not cooperate in the inquiry and did not furnish any statements apart from the complaint and the annexures. Further, the name of the member was removed from the Register of Members for non-payment of Fees to the ICAI. Yet, the member used to practice in two different firm names without being a partner in the firm. From the facts stated in the complaint and annexures, the committee came to the conclusion that the member was guilty of professional and other misconduct under Clause (2) of Part IV of First Schedule, CIause (7) of Part I and CIause (1) of part II of the Second Schedule to the C.A. Act. On this basis, the DC directed for removal of the name of the member from the Register of Members for a period of five years. (P. 135 to 142 – Part I)

(ii) Case of MJD:

In this case, the complainant had alleged that the member was maintaining accounts of the Firm and also acted as its Tax Auditor. Further, the member was also in active business association with the firm and the company which had taken development rights from the Firm. He was also in possession of the accounting records of the complainant but was denying the same.He refused to audit the accounts of the firm and represent the firm in subsequent years which caused huge financial loss to the Firm.

The DC observed that the member was engaged in carrying out the day-to-day business affairs of the company, being a director of the company while he was holding COP without obtaining permission of the ICAI. Further, he was maintaining accounts of the firm and acting as Tax Auditor of the Firm. It was pointed out that as per the Guidance Note on Independence of Auditors, “members are not permitted to write the books of their auditee clients.” After hearing the parties and examining the evidence on record, the DC held that the member was guilty of professional misconduct under Clause (11) of Part I of the First schedule and Clause (4) of Part I of the second schedule to the C.A. Act.

The DC noted that there were two complaints filed against the member. In the first complaint the Board of Discipline had already held the member guilty under Clause (11) of Part 1 of First schedule and directed to remove the name of the member for seven days. In view of this, in the present complaint the DC decided to “Reprimand” the member (P. 1-7 of Part I).

(iii) Case of Ms. BKD:

In this case, the member had audited accounts of a Cooperative Housing Society. In the complaint by some members of the society it was alleged that (a) the member had secured the audit through her father who was paid Accountant/Consultant of the society and (b) the member had done other illegal audits of other Housing Societies with the help of her father.

During the hearing before the DC, the member pleaded guilty and requested the DC to take a lenient view. The member submitted that she had conducted the internal audit on verbal communication from the Management Committee. However, the audit report was given in the same format as the statutory audit report. Further, she had not conducted audits of any other Housing Society as she was not on the panel of Auditors for co-operative societies. The Managing Committee had signed the annual accounts of the society and no discrepancy was pointed out by the Complainant.

The DC noted that there were certain disputes amongst the members of the society which led to the filing of this complaint. There was no resolution of the Managing Committee for the appointment of the member as statutory or internal auditor and the member had not verified this fact. On verification of the financial statements, it was noticed that they appeared to have been drawn up for statutory purposes and not for Internal Audit. However, the DC noted that there were no irregularities or deficiencies in the Financial Statements and the member had carried out her duties in a diligent manner. The present complaint was due to disputes between the members and not due to any negligence in discharging audit function by the member. On this basis, the DC held that the member was not guilty of any professional misconduct. (P. 139-143 of Part II )

3. Some Ethical Issues:

The Ethical Standards Board has given answers to some Ethical Issues on Pages 1762 – 1764 of C.A Journal for June, 2014. Some of these issues are as under:

(i) What are the measures available to a Professional Accountant in case a conflict of interest arises?

A professional accountant in public practice should take reasonable steps to identify circumstances that could pose a conflict of interest. Such circumstances may give rise to threats to compliance with the fundamental principles.

A professional Accountant should evaluate the significance of any threats. Depending upon the circumstances giving rise to the conflict, he should ordinarily notify the client/all known relevant parties.

The additional safeguards would be the use of separate engagement teams, clear guidelines for members of the engagement team on issues of security and confidentiality. Regular review of the application of safeguards by a senior individual not involved with relevant client engagements should also be considered.

(ii) What is independence?
Independence requires:

Independence of Mind – The state of mind that permits the expression of a conclusion without being affected by influences that compromise professional judgment, allow- ing an individual to act with integrity, and exercise objectivity and professional skepticism.

Independence in Appearance – The avoidance of facts and circumstances that are so significant that a reasonable and informed third party, having knowledge of all relevant information, including safeguards applied, would reasonably conclude that firm’s or a member of the assurance team’s integrity, objectivity or professional skepticism had been compromised.

(iii) What is the Conceptual Framework to Independence?

It is to be applied to specific circumstances and relationships. It gives various examples about the threats to independence that may be created by specific circumstances and relationships and also provides how professional judgment is used to determine the appropriate safeguards to eliminate threats to independence or to reduce them to an acceptable level depending on the characteristic of the individual assurance engagement.

4. EAC Opinion:

Treatment of Commission Cost Paid to Agent in Relation to Projects

FACTS:
A company is involved in the business of designing, engineering and erection of ethanol, brewery, water and wastewater treatment plants. The company caters to both domestic and international markets. The revenue recognition of the company is governed by Accounting Standard (AS) -7, ‘Construction Contracts’ for the above mentioned line of business.

The company executes projects in international and do- mestic markets for the above mentioned business. In certain cases, the company appoints agents to undertake certain activities. The services rendered by the agent form an integral part of the project right from inception of project till the timely execution and completion of the project. The agent provides various services in the nature of procurement support, vendor short listing, and technical services etc., which are an integral part in the execution work of the project and as such. The costs towards sales commission are specific for that contract and essential for smooth execution of the project. These costs would be incurred only where the project activity is carried out for that particular contract.These are specificially identified for each project and considered in the total estimated cost of the project.

The company further stated that it presently pays compensation to these agents for the services rendered in the form of ‘sales commission’ by entering into individual agreements with them. The sales commission is decided as a percentage of contract value and the same is accrued in the books of account in proportion to the contract revenue of the respective project.

The company has also informed the committee that although the commission costs are not explicitly charged to the customer as a separate cost, these form part of the total project cost and are considered while deciding the order value. As such they are not specifically reimbursable from the customer on one to one basis.

The commission paid to the agent is treated as direct cost of the project and included in the total estimated cost of the project as sales commission cost.

QUERY:
The Company has sought the opinion of the EAC on thefollowing issues:
(i) Whether the treatment adopted by the company, of including the commission cost as part of project cost, as explained above is correct; (ii) If the treatment adopted is correct, whether the cost would be classified as direct cost of the project or cost allocable to the project; (iii) If the treatment adopted is not correct, under what head these costs can be classified under indirect expenses; and (iv) Whether the treatment adopted by the company to calculate percentage of completion including the sales commission cost comply with the revenue recognition principle as envisaged under AS7?

EAC OPINION :
The Committee after considering paragraphs 15, 19 and 20 of Accounting Standard (AS) 7, ‘Construction Contracts,’ notes that contract costs include the costs directly related to a specific contract as well as the costs that are attributable to contract activity in general and can be al- located to the specific contract.

The Committee notes from the Facts of the Case that so far as the activities of the agent related to execution of the contract activity, such as procurement support, project coordination and other technical services are concerned, the Committee is of the view that these activities are directly related to the construction contract and therefore, costs pertaining to these activities should be treated as costs that relate directly to the specific contract. Similarly, activities of the agent related to finding the prospective customer and obtaining the contract, etc can also be treated as directly related to the contract as in the case of the Company, the costs pertaining to these activities are payable only on obtaining the contract.

The Committee notes from the Facts of the Case that the agent, in the case of the Company, not only provides services in relation to securing of the contact, procurement support and other technical services relating to the execution of the project, but also facilitates and arrange ad- vance payments from the customer and ensures timely collections from them. The Committee is of the view that activities relating to the facilitation and arrangement of advance payments and final collections from the customer and other similar activities are of the nature of administration costs, which cannot be considered as attributable to construction activity and accordingly, cost of these activities should not be treated as the cost directly related or that attributable to a construction contract Therefore, the Committee is of the view that if the commission cost paid to the agents is a composite commission, the company should assess whether the latter activities and the cost in respect thereof are material and if it is so, attempt should be made to estimate the cost pertaining to these activities considering the factors such as, the cost that would have been incurred had the agent performed only these activities, etc. Accordingly, the cost incurred on selling and administration activities should not be included in contract cost.

As regards to including the commission cost for determining the stage of completion, the Committee notes from paragraph 30 of AS 7, that only those contract costs that reflect work performed should be included in costs incurred upto the reporting date. However, as per the Facts of the Case, related commission is accrued in proportion to contract revenue. In other words, such costs are not being recognised considering the performance of related services rather than the same is being recognised on the basis of contract revenue. Accordingly, the Committee is the view that inclusion of commission on this basis is not correct; rather, it should be recognised considering the performance of related service provided the commission so determined is ‘contract cost’.

[Page Nos. 1792 to 1795 of C. A. Journal – June, 2014]

5. ICAI News:

Following announcement is made by ICAI at P.1873 of C.A. Journal for June, 2014.

It has come to the knowledge of some members that certain entities, while inviting tenders for services of chartered accountants for the assignment of statutory audit, are mentioning accounting and book keeping related works in the scope of works required to done by the auditor.

Members are hereby advised not to undertake such assignment since it is violative of the provisions of ‘Code of Ethics’ and ‘Guidance Note on Independence of Auditors’ for auditor of an entity to do book keeping work of the entity. The said prohibition in the case of Companies is further also mentioned in section 144 of the Companies Act, 2013.

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PART C: Information on & Around

BMC Loses Rs. 100 Crore:
The BMC may have lost around Rs.100 Crore because developers weren’t being charged extra taxes for water and sewage disposal at under construction sites.

Following an RT I query from a city based activist, municipal commissioner Sitaram Kunte has now ordered an enquiry. Officials began collecting the levy from builders three months ago, but they were supposed to start collections in June, 2012.

For most of the past two years, the BMC didn’t ask builders for these taxes, even though water was supplied for projects, according to responses to activist Anil Galagali’s RT I query. BMC sources said around Rs. 100 crore may have been lost because these taxes weren’t collected. Meanwhile, officials recently began recovering the charges from builders, and in three months have collected Rs.19.6 crore from ongoing projects.

Sheila Dikshit’s appointment as Governor:
Files moved at breakneck speed for the appointment of the former Delhi CM Sheila Dikshit as Kerala governor. In a bid to beat the election code of conduct, sitting Kerala governor Nikhil Kumar resigned, Karnataka governor HR Bharadwaj was handed interim charge and finally Dikshit appointed as Kumar’s successor all in the space of few hours on March 4. The code of conduct was to come into effect a day later.

The information disclosed by the home ministry was in response to an RTI plea filed by activist SC Agarwal. According to the documents made public, home minister Sushil Kumar Shine recommended appointment of Dikshit as Kerala governor following a one line resignation from Kumar. In his letter dated March 4 to President Pranab Mukherjee, Kumar said, “I resign as governor of Kerala with immediate effect.” He did not ascribe any reason for his resignation.

Not only was Kumar’s resignation accepted the same day but in the next few hours, President’s secretary Omita Paul shot off a letter and warrant to Bharadwaj asking him to take additional charge. A few hours later, Paul issued a warrant under the hand and seal of the president and a letter appointing Dikshit as Kerala Governor.

Thane Badlapur CR Stretch has Just two ambulances:
Central Railway (CR) authorities are under the spotlight for failing to provide basic transport facility to ferry the injured to the hospitals. Responding to a Right To Information (RT I) query by city advocate Suyash Pradhan about the availability of ambulance services outside each station on the CR line, the authorities said that private ambulances are parked round-the clock only at Thane and Dombivali stations between the Thane-Badlapur stretch. “At other stations, ambulances are on call basis and the list of private ambulances service providers is circulated to all stations to be summoned as and when required,” said senior divisional commercial manager Narendra Patil. “Commuters between Thane-Kalyan contribute in crores to the CR from the purchase of season tickets and monthly pass. The safety of the commuter should ideally be paramount. In the last one year alone 546 accidents were reported close to Kalyan station. The frequency of the fatalities due to commuters falling off trains between Diva and Thane is scary and there is a direct need to have a 24/7 ambulance outside these stations,” Said Pradhan.

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PART B: RTI Act, 2005

WESTERN INDIA RTI CONVENTION 2014 DECLARATION:

As citizens and activists committed to building a transparent and accountable democracy we have gathered together from more than 15 States and Union Territories across the country in the city of Mumbai to celebrate our victories, and to discuss and strategies to squarely face current challenges. In this Western India RT I Convention, we pledge our commitment to protect our constitutionally guaranteed fundamental rights and particularly emphasising the freedom of speech and expression which is the bed rock of a free and democratic society in the absence of which our right to information would lose much of its meaning and value. On this day the 8th of June, 2014, we express our solidarity with all RT I users, activists and their families who have suffered attacks on them and resolve to defend our right to access information and express our opinions without fear and pledge in particular to struggle to achieve our collective vision as follows-

WE, TH E PART ICIPANTS OF TH E WESTERN INDIA RT I CONVENTION, HEREBY DECLARE TH AT:

1. E ven after nine years of the enactment of the Right to Information Act (RT I Act), governments have failed to implement this law to our expectations. Governments must take immediate and effective steps to establish a regime of transparency at all levels of the administration.

2. It is a matter of great concern that even after nine years of the enactment of the RT I Act, several states and competent authorities have rules which are contrary to the letter and spirit of the RT I Act and curb people’s right to seek information in many ways. We demand that the governments and competent authorities work towards installing a uniform regime of Rules under the RT I Act across the country.

3. A large number of public authorities have failed in fulfilling their obligation to proactively provide information to people u/s. 4 of the RT I Act. All public authorities must urgently fulfill this responsibility. We demand that the Government of India, all state governments and public authorities immediately implement the guidelines framed by the Task Force on section 4 implementation set up by the DoPT in 2013, including the adoption of all the templates developed by the Task Force.

4. T he government must undertake steps to create awareness about the RT I Act among people, especially amongst the disadvantaged segments of society such as women, dalits, adivasis, all kinds of minorities and differently-abled persons. Even after more than nine years of enactment of the RT I law, awareness levels among people and a functional knowledge of the RT I Act, is low. A Peoples’ Monitoring Study of the RT I Regime In India, undertaken by RAAG, NCPRI and other groups, based on an analysis of 4000 RT I applications filed between 2005 and 2008, has found that only 6% of RTI applications were filed by women. RT I must be introduced in the educational curriculum to spread awareness amongst the youth.

5. A ll six national Political Parties must immediately comply with the June 2013 order of the Central Information Commission, which had declared them ‘public authorities’ under the RT I Act and therefore, must implement the provisions of the RT I Act, including section 4, also appoint public information officers and appellate authorities to dispose RT I applications and appeals received from the people. All other political parties registered with and recognised by the Election Commission of India must proactively take steps to implement the RTI Act within their offices.

6. T he Central and State Governments must ensure that the Whistle Blowers Protection Act (WBP Act), enacted in May 2014, is operationalised immediately. Model WBP Rules for implementing this law must be made in a transparent, consultative and participatory manner, to establish a comprehensive framework for protecting whistleblowers across the country. It is the moral responsibility of the Government to protect RT I activists and users who are attacked, and take swift legal action against those responsible for these attacks. Protection must be provided to their families and adequate compensation must be paid in such cases. It is also the obligation of governments and information commissions to ensure that, whenever an RT I applicant is attacked, the information that was being sought by him or her is put in the public domain on and any pending appeal followed up on a priority basis. All persons demanding transparency in public interest who are attacked must be treated as human rights defenders. Instances of murders, physical attacks on RT I users must be investigated and the accused prosecuted under the law in a timely manner.

7. We demand that Parliament immediately enact an effective grievance redress law which provides a timebound, decentralized and comprehensive framework across the country, for addressing day-to-day complaints of people about the non-delivery of rights and entitlements against public authorities based on best practices developed in various States and Union Territories across the country that are implementing similar laws.

8. In order to move from transparency to accountability, the government must ensure that the rules of the Lokpal and Lokayuktas Act, are framed in a transparent manner and the Lokpal is operationalised to function in an independent and empowered manner to tackle corruption. We also call upon our elected representatives in Parliament to enact all pending anti-corruption Bills in order to make India compliant with the provisions of the United Nations Convention against Corruption (UNCAC).

9. We are deeply concerned about the increasing influence of the corporate sector over governments in decision making processes relating to developmental issues. All public authorities must take immediate steps to ensure transparency in the functioning of private entities that utilise or control public resources or public assets or provide public services. Information about all public-private-partnership projects (PPPs) must be accessible under the RT I Act at every stage of the project. Explanations about cost inflation of PPP projects must be disclosed proactively in terms of section 4(1)(c) of the RT I Act. Further, the government must frame appropriate guidelines and rules to ensure a practical framework for accessing information about the private sector bodies u/s. 2(f) of the RT I Act.

[Out of 21 items, in the Declaration, 9 are reported herein above, balance will be reported in the next month’s article.]

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BCAJ Admin

From published accounts

Section A:
• Qualification regarding significant financial exposure to subsidiaries

United Breweries (Holdings) Ltd: 31-3-2013
From Notes to Accounts
32 Investments:

a) The Company has pledged 2,24,51,587 shares of United Spirits Limited,1,49,61,610 shares of Mangalore Chemicals & Fertilizers Limited, 62,69,728 shares of UB Engineering Limited, 19,46,33,555 shares of Kingfisher Airlines Limited and 34,20,239 shares of McDowell Holdings Limited to secure the borrowings of the company along with the borrowings of subsidiary companies and an associate company.

b) Investment as on 31st March, 2013, includes 21,870,156 shares of Kingfisher Airlines Limited, 7,196 shares of McDowell Holdings Limited,1,00,00,000 shares of Mangalore Chemicals & Fertilizers Limited and 24,46,352 shares of United Spirits Limited held in custody of lenders after they have invoked the pledge of these shares.

c) 2,18,70,156 shares of Kingfisher Airlines Limited, 2,15,000 shares of McDowell Holdings Limited, 1,00,00,000 shares of Mangalore Chemicals & Fertilizers Limited, 24,46,155 shares of United Spirits Limited held by the Company and pledged with banks for credit facilities extended to Kingfisher Airlines Limited have been sold by them, subsequent to Balance Sheet date.

d) T he Company’s investment of Rs. 26.512 million with IDFC Mutual Fund is given as a lien to secure the borrowings of an associate company.

e) The investment in subsidiaries (including step down subsidiaries) have been considered as long term strategic investments and diminution in their market value/net worth, though significant is considered temporary and hence no provision is considered necessary.

36.The Company, over the years has advanced significant amounts to subsidiaries including overseas subsidiaries aggregating to Rs. 1,709.556 million (Per year Rs.1,627.300 million) which have not yet been repaid. Even though there is erosion in the net worth of these subsidiaries, the Management is of the view that all the amounts are ultimately recoverable, taking into consideration their business plans and growth strategies.

40. Events occurring after the date of the Balance sheet

a) Kingfisher Airlines Limited (KFA) lenders have sold the following investments belonging to the company:

i) 24,46,155 equity shares in United Spirits Limited
ii) 2,15,000 equity shares in McDowell Holdings Limited
iii) 1,00,00,000 equity shares in Mangalore Chemicals & Fertilizers Limited
iv) 2,18,70,156 equity shares in Kingfisher Airlines Limited

b) KFA lenders have invoked company’s Corporate Guarantee and demanded payment of dues, due from KFA amounting to Rs. 64,932.900 million

c) The Company and others have filed a suit in the Hon’ ble Bombay High Court against the Consortium of Lenders who have advanced loans to Kingfisher Airlines Ltd., inter alia seeking the following reliefs:

i) for a declaration that the corporate guarantee agreement and pledge agreement, both dated 21st December, 2010 and executed by the Company are void ab-initio and non-est;

ii) for a permanent order and injunction, restraining Consortium of Bankers, their servants, agents or assigns, or any other person claiming by, through or under them or any of them, from acting upon, in furtherance or in any manner giving effect to the impugned notices dated 16th March, 2013, or from taking any other or further steps to act upon or in furtherance of the Pledge Agreement dated 21st December, 2010 save and except in accordance with the procedure set out in Clause 8.1 of the MDRA, including issuing a notice thereunder.

iii) for a permanent order and injunction restraining Consortium of Bankers, their servants, agents or assigns, or any other person claiming by or through or under or any of them, from acting upon or in furtherance of the Corporate Guarantee dated 21st December, 2010 given by the company and Pledge Agreement dated 21st December, 2010.

iv) that an order and decree for damages of sum of Rs. 31,996.800 million as set out in the particulars of claim be awarded to the plaintiffs.

v) that the maximum limit under the Companys’ Corporate Guarantees be Rs.16,014.300 million for reasons set out in the Suit.

43. The Company along with its subsidiaries has significant financial exposure on various counts to Kingfisher Airlines Limited (KFA). Although KFA’s license has expired on 31st December, 2012, under Civil Aviation Regulations, KFA has period of 24 months to reinstate the same. As at 31st March, 2013, the financial exposure includes equity investment of Rs. 20,953.043 million, loans and advances Rs. 23,592.484 million and other receivables Rs. 3,104.505 million and corporate guarantees to banks/ aircraft lessors, some of which have been invoked. Such invocations are being contested in court. The Management is reasonably confident that none of the guarantees would eventually devolve upon the Company. The ultimate diminution of investments and non-recovery of loans and advances are not presently quantifiable and hence no provision has been considered in the accounts.

From Auditors’ Report
Basis for Qualified Opinion
a) The company has significant financial exposure to Kingfisher Airlines Limited (KFA). These exposures are in the form of investments in equity of Rs. 20,953.043 million, loans and advances of Rs. 23,592.484 million, other receivables of Rs. 3,104.505 million and corporate guarantee of Rs. 89,643.800 million. KFA’s licence to operate the airline business stands suspended (refer note 43 to financial statements). Its net worth is completely eroded. It is under severe financial stress and has defaulted in honouring its financial obligations on several counts. Having regard to the financial condition of KFA, the company has discontinued charging it interest, guarantee/ security commission and logo fee.

Consortium of Lenders of KFA led by State Bank-of India have recalled’ their loans. They have invoked the corporate guarantee of Rs. 64,932.900 million and demanded the company to honour its obligation under its guarantee agreements (refer note 40 to financial statements). Certain aircraft lessors of KFA have invoked the corporate guarantee given by the company and have also instituted-proceedings u/s. 433/434 of the Companies Act, 1956 before the Honourable High Court of Karnataka (refer note 42 to financial statements). Above factors have resulted in substantial erosion in carrying value of company’s investments in KFA and significantly impaired the recovery of loans and advances made to them. Similar losses may also arise on account of invocation of corporate guarantee given by the company. The management has not quantified and provided for erosion in the value of investments and the probable losses. Had the company made such provisions, the loss disclosed in the Statement of Profit and Loss would have been higher by such amount and the carrying amount of investments and loans and advances would have been lower by that amount

b) Company carries Investments in certain subsidiaries. The carrying value of such investments is Rs. 700.610 million. There are significant declines in the carrying value of these investments but the company has not quantified and provided for such declines. Had the company provided for such decline, the loss stated in the Statement of Profit and Loss would have been higher by such amount and the carrying value of those investments would have been lower by an equal amount (refer note 32(e) to financial statements).

a) Certain subsidiaries owe to the company Rs. 1,709.556 millions. Net worth of these companies are eroded, significantly impairing the recovery of such loans and advances. Company has not quantified and provided for the probable loss. Had the company provided for such loss, the loss stated in the Statement of Profit and Loss would have been higher by such amount and the loans and advances stated in the Balance Sheet would have been lower by that amount (refer note 36 to financial statements).

QUALIFIED OPINION
In our opinion and to the best of our information and according to the explanations given to us, except for the effects of the matter described in the “Basis for Qualified Opinion” paragraph, the financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India:
….

EMPHASIS OF MATTER
Attention is invited to the following;
a) Note 40 (a) to financial statements dealing with sale of pledged investments by lenders of Kingfisher Airlines Limited.
(b) to financial statements dealing with invocation of corporate guarantee by lenders of Kingfisher Airlines Limited.

FROM DIRECTORS’ REPORT
With reference to observations in the Auditors Report regarding accrual of guarantee/security commission from an Associate Company (erstwhile subsidiary), inclusion of interest from Subsidiaries and Associates, non-provision for loans and advances to certain Subsidiaries and an Associate Company and for decline in value of investment in certain Subsidiaries and an Associate Company, the relevant notes to the accounts comprehensively explain the management’s views on such matters.

BCAJ Admin

Part C Information on & Around

Education Cess:
I had filed an RTI application on the subject of Education cess. Surprisingly, I received two replies – one: CPIO and under secretary; two: CPIO and Sr. Account Officer (LCS). Both give different figures

I am following it by writing to both of them to find out how the figures differ.

RTI quarrel between Arvind Kejriwal and Prashant Bhushan/ Yogendra Yadav:
One of the five conditions put forth by Prashant Bhushan and Yogendra Yadav before Arvind Kejriwal was the adoption of RTI. While Kejriwal said he had agreed to this demand, questions have been raised about why it had to be made at all as AAP has always been a vociferous advocate for all political parties to be brought under the ambit of the RTI Act.

Kejriwal, who made a mark as an RTI Activist before floating the party, asked Yadav why he made this demand as he had failed to implement it in Haryana for over a year while he had been the state convener.

“At this point it is also imperative for the party to do some soul searching. It cannot be denied that after making such a big deal about the CIC order in 2013, which said the six major national parties should be brought under RTI, AAP failed to implement it on itself,” said a party member.

Heart Attacks:
Data given out by BMC in response to an RTI query showed that 29,393 deaths due to heart attacks were registered in the city between March 2014 and March 2015. In the corresponding period of the previous year, 24, 603 Mumbaikars had succumbed to heart attacks.

The seriousness of the problem can be gauged from the fact that heart attacks account for a third of annual deaths in the city. For instance, 31% of the 93, 254 deaths recorded in Mumbai in 2014-15 were due to heart attacks. The other big killers are TB (19 each day) and cancer (18 a day).

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BCAJ Admin

Part B RTI Act, 2005

PMO not disclosing foreign travel expenses: CIC panel

New Delhi, May 24 (Agencies): The PMO not disclosing information about expenses incurred on foreign visits of the Prime Minister notwithstanding, a CIC-constituted committee has recommended not only putting out such details proactively by all ministries but regular updating as well.

The committee of former Chief Information Commissioner A N Tiwari and Information Commissioner M. N. Ansari, constituted by the CIC gave its report on “Transparency Audit: Towards An Open and Accountable Government”.

It referred to the circular issued by the ministry dated September 11, 2012 where it asked all departments to proactively disclose expenses incurred on the foreign and domestic visits of their respective ministers.

“These disclosures should be updated once every quarter”, the committee said in its report asking the government to also disclose other details such as places visited and the institutions/individual interacted, period, number and the names of the members in the official delegation, mode of conveyance, travel expenses and source of funding and outcome of the visit.

It said a democratic government keen on empowering the people and delivering to them goods and services speedily and efficiently, cannot allow walls of secrecy to separate them from the very people they serve.

“Transparency brings the government closer to its people –a closeness which underpins good governance. In spite of repeated directions to the public authorities, the results on account of voluntary disclosures have been below par,” the committee observed.

It said quite large numbers of wholly avoidable RTI petitions by citizens for information, which should even otherwise be openly available, are still being filed.

“One cardinal aspect of the RTI i. e. Timely furnishing of quality information to the citizen, became difficult to be adhered to, while the cost for disclosing information, at well levels, kept increasing,” it said.

The Prime Minister’s Office has been refusing to disclose information related to expenses incurred on the abroad visits of Prime Minister Narendra Modi citing various excuses such as the records sought for being “vague”.

These refusals to part with the information are being made even though Central Information Commission, in an order,, had directed the Cabinet Secretariat to make public expenses incurred on the travel of ministers and VVIPs because of large public interest in the matter.

“We have been noticing a lot of public interest in the visit of such high dignitaries as the President, the Vice-President and the Prime Minister of India. Quite often, one comes across RTI applications seeking similar information about these visits,” Chief Information Commissioner Satyananda Mishra had said.

Following the orders of the CIC, the then Prime Minister Manmohan Singh had started the practice of making public on the official website details of expenses incurred on his visits as well as on the visits undertaken by the Ministers.

Even DoPT had issued the circular asking all ministries to proactively disclose these details.

Complying with the mandatory provisions of sou-motu disclosure under the transparency law, the PMO under Manmohan Singh has placed in public that a sum of over Rs. 642 crore was incurred on his air travels abroad between 2004 and 2013.

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BCAJ Admin

Part A Decision of High Court

Disclosure of Income Tax Returns

Issue before the Hon. Court was whether income-tax returns of Ajit Pawar can be disclosed to the Petitioner, Mr. Shailesh Gandhi.

Mr. Gandhi’s attempt to get such IT return and balance sheets had failed before PIO, FAA & Central Information Commission (CIC), even though he pleaded for it stating:

“There is a larger public interest in disclosing this information to compare his affidavit given to the Election with his Income Tax returns”.

CIC referred to the judgement of the Apex court in Girish Ramchandra Deshpande’s case (see “Right o Information – a route to good Governance” published by PCGT and BCAS Foundation, Page 241) (2013, 1 Supreme Court Cases 212) holding that the details disclosed by a person in his Income Tax Returns is personal information which has been exempted from disclosure under clause (j) of section 8(1) of the said Act, unless it involved a larger public interest and the CPIO and or State Public Information Officer or the Appellate Authority is satisfied that the larger public interest justifies the disclosure of such information. The Central Information Commissioner had observed that in the present Appeal the Petitioner has not been able to prove any larger public interest with corroborative evidence and therefore upheld the decisions of the Central Public Information Officer and the First Appellate Authority and disposed of the said Second Appeal.

Mr. Gandhi’s counsel made numerous submissions to justify as to why such disclosure is not to be denied. The same included:

a) That the Judgement in Girish Ramchandra Deshpande’s case (supra) does not lay down any preposition of law and therefore cannot be applied.

b) That the disclosure of the information sought for by the Applicant would be in larger public interest which outweighs the breach of privacy if any of the Respondent No. 3.

c) That a Division Bench of this court in the case of Surup Singh Naik vs. State of Maharashtra had dealt with the proviso to Section 8(1) (j) and has held in the said case that the information which cannot be denied to the Parliament or the State Legislature cannot be denied to the citizen.

d) That the disclosure of the information is in larger public interest has been demonstrated by the Petitioner by making out a case in the Appeal namely that the same would amount to reducing corruption and increasing the faith in the elected representatives.

e) That it has been held in the matter of PUCL vs. Union of India as also in the matter of R. Rajgopal alias R. R. Gopal & Anr. vs. State of T. N. & Anr. and in case of ADR vs. PUCL that the public interest element involved in divulging information relating to public servants, MP’s and Ministers outweighs the right to privacy.

“Since the right to privacy has been recognized as a fundamental right to which a citizen is entitled to, therefore unless the condition mentioned in Section 8(1) (j) is justified, the information cannot be provided. Hence the burden on the Applicant is much more onerous than may be in a routine case. As indicated in the earlier part of this judgement the reason mentioned in the original application as supplemented by the grounds in the First Appeal hardly make out a case of public interest. Hence in the instant case, the said burden cannot said to have been discharged by the Petitioner. Hence, the finding of the First Appellate Authority as well as the CIC that the Petitioner has not made out any case for disclosure of the information on the ground of public interest cannot be faulted with.”

The Petitioner had sought to place reliance on the proviso to section 8(1) (j) of the said Act and had sought to contend that the authorities below have not considered the application of the Petitioner on the touchstone of the said Proviso.

The Court noted:
“In my view therefore, the proviso cannot be sought to be interpreted in the manner which the Learned Counsel for the Petitioner seeks to do. There is also a basic fallacy in the contention raised on behalf of the Petitioner. The Petitioner wants to proceed on the hypothesis that the information sought by him cannot be denied to the Parliament. In so far as the Parliament is concerned, the Parliament has its own rules of business and it therefore cannot be presumed that the information in respect of Income Tax Returns of a Member of Legislature would be sought. The same would undoubtedly be in the discretion of the Honorable Speaker. In the said context, it is also relevant to refer to section 75A of the Representation of the People Act under which every elected candidate for a House of Parliament has to furnish information relating to the movable and immovable property, his liabilities to any public financial institution, his liabilities to the Central Government or the State Government to the Chairman of the Council of States or the Speaker of the House of the People i.e. Loksabha or the Chairman of the Council of the State i.e. Rajyasabha. Hence there are adequate provisions in the Representation of the People Act under which the information sought is to be provided to the Parliament to the extent mentioned in the said provisions and therefore reliance cannot be placed on the proviso to section 8(1) (j) to contend that the exemption provided in the said section would not operate.”

For the reasons afore stated, the court held that the impugned order dated 15-5-2013 passed by the Central Information Commissioner, confirming the orders passed by the First Appellate Authority and the CPIO did not suffer from any illegality or infirmity.

Mr. Shailesh Gandhi’s reaction to above judgement:

” Key points which I feel the judgement has not addressed:

1. There is a proviso to the exemption in section 8(1) (j) which states: “Provided that the information, which cannot be denied to the Parliament or a State Legislature, shall not be denied to any person.” This proviso was accepted by a division bench of Bombay High Court in the Surup Singh Naik case where I had said that there is a perception that powerful people escape prison and spend their prison term in Hospital. The Court ordered the medical records should be given. In the Ajit Pawar case I had said: “There is a general belief that politicians and elected representatives are corrupt and amass wealth at the expense of the public. There is also a common belief that Income Tax authorities do not check that IT returns of those who are elected and their affidavits filed at the time of standing for elections. If this is true, citizens will act as monitors and help correct such practices. On the other hand if citizens’ apprehensions are not true, it would enhance the trust and respect for the elected representative, which is necessary for a healthy democracy. Besides it would also improve the Citizen’s trust in the Income Tax department.’ This has not been held to be in the larger public interest and the proviso has been treated as if it is irrelevant.

In the ADR-PUCL judgement, the Supreme Court has ordered that those who want to be public servants, – get elected, – must declare their wealth. If the affidavits match the IT returns what harm would come to them? The citizen’s right to know about his elected representative cannot become less after he has become a public servant.
2. In the Rajgopal judgement the Supreme Court has said that for matters of public record there can be no claim for privacy and the claim for privacy of a public servant is still lower.
3. Filing an ITR is a statutory duty and hence it is a public activity.
4. Since the ratio of the ADR-PUCL and Rajgopal judgement has not been dealt with in Girish Ramchandra Deshpande judgement, it is per incuriam.
5. The SC in Girish Deshpande judgement mentions section 8(1) (j) without the proviso.
6. I have given an explanation of the larger public interest and hence this would fulfill the conditions of the Deshpande order.
7. No reasoning has been given for the comments in the Deshpande order and it does not become precedent. It only says that the Court agrees with the CIC. The CIC order again refers to an earlier five member’s order in which the issue did not even concern a public servant.”

He further notes:

“I had felt that the Girish Ramchandra Deshpande judgement by the Supreme Court had constricted RTI by expanding the scope of Section 8(1) (j) far beyond the law. As expected it was rejected by the PIO, FAA and the CIC. I then approached Bombay High Court in a writ. I expected just a 5% chance of my contentions being accepted by the Court. The Court has dismissed my petition yesterday. I am thinking of challenging this decision before the Supreme Court.

The Girish Deshpande judgement is being used everywhere to deny most information regarding public servants which could expose wrongdoing, arbitrariness or corruption.

Yes, I feel the pain of not being able to reverse the Girish Ramchandra Deshpande judgement of the Supreme Court. I think the High Court has not given reasons for not accepting most of my contentions; they are just statements that it does not agree with me.”

[Shailesh Gandhi vs. CIC, CPIO and Shri Ajit Pawar: Writ Petition No. 8753 of 2013, judgement pronounced on 11.06.2015].

BCAJ Admin

Ethics and You

Procedure of Enquiry (Continued) – Part VI

Shrikrishna (S) —
Arjun, you are looking tired today. Actually, your deadline for
tax-returns is postponed to 31st August. Isn’t it?

Arjun (A) —Yes.

S — Then you should be relaxing. The CAs don’t take any tensions except at the11th hour!

A — Bhagawan, I am tired of these rains. It came after a long wait. And it is not stopping at all!.

S
— Ha!Ha!Ha! These are the blessings of Lord Varuna. You CAs are
expected to plan and phase out your work over the available period. But
you also accumulate and do it in only few days; And then complain of
pressure!

A — What you say is true. Anyway, you were to explain to me the final part of disciplinary proceedings.

S — Yes. Upto where we had come?

A
— A separate order is passed awarding the punishment. That is on a
fresh hearing given after the first report holding you guilty is issued.

S — Right! You are a brilliant ‘shishya’; and hence so dear to me.

A — Now tell me, once the order is received – say for one month’s suspension, do we have any remedy? Or it is final?

S — No, it is not final. You can prefer an appeal.

A — To the court?

S — There is an Appellate Authority constituted under your CA Act. It is presided over by a High Court judge.

A — Is he the single judge?

S — No, there are four other members. Two ex-Central Council Members and two Government nominees.

A — But how to go about it?

S
— There is a prescribed form. One has to pay a fee of Rs. 5,500/-.
Remember, it is to be submitted within 90 days from the date of receipt
of the order.

A — How do they decide?

S — The
proceedings are like that of your Income Tax Appellate Tribunal. Just as
in ITAT, even the IT Department is represented by a counsel, and here
also, there is a counsel from the side of Disciplinary Directorate.

A — Oh, my God! And what do they argue?

S
— See, the Respondent will try to plead ‘Not guilty’ or to lessen the
punishment. On the other hand, the DD will try to defend the order of
the BOD or DC.

A — That is alright. But can DD also prefer an appeal?

S — Yes. Section 22G states that the member aggrieved by the order of BOD/DC; or the DD can prefer an appeal.

A — And what about the complainant?

S — The section is silent about it. It is like prosecution of a criminal matter where the Government pursues the matter.

A — And where is the Appellate Authority located?

S
— Strictly, it is located at Delhi – in your ICAI’s Headquarters. But
occasionally, the hearings are held in cities like Mumbai.

A — And if AA’s verdict goes against us, what to do? Can we approach the High Court?

S — The CA Act does not contain any provision permitting you to approach the High Court; unlike in the Incometax Act.

A — That means, the AA is the end of it!

S — In a sense, yes. But you can always go in for a writ if you are so aggrieved.

A — OK. Now tell me, once such order is passed, the punishment is immediately effective?

S
— Not necessarily. Once the order of BOD/DC is received or the order of
AA is received, the DD after a few weeks may formally write to you
about reprimand or suspension.

A — And if it comes exactly around the time we sign maximum number of audits, then we are doomed!

S — Yes. And your name is published in your CA journal. That is a stigma.

A — After the suspension period is over, what is our status?

S
— You have to apply afresh for restoration of membership. And then your
seniority is lost. It is as if you were a new member. Back to square
one!

A — That means, it will matter in terms of getting bank audits, training articles and so on.

S
— But the real punishment is the mental agony and stress that you have
to carry from the date of receiving the complaint till the conclusion of
the proceedings.

A — But why do they disqualify us for bank and government audit even before we are held finally guilty? That is unjust.

S
— Actually, that is not your Council’s rule. It is the policy of C
& AG and RBI that they don’t want to allot audits to someone who is
held prima facie guilty.

A — Oh! And depriving of audit
assignments for so many years is also a punishment. I agree; that rather
than the prescribed punishments, the other consequences are much more
grave.

S — So, prevention is better than cure. Follow the code
scrupulously. Don’t resort to short-cuts, cultivate discipline and
professional habits.

A — He Bhagawan, please bless me so that I am not caught in this trap of disciplinary proceedings.

S — You are always Blessed, Arjun! Om shanti !!!!

Note:
This dialogue is based on the procedural rules contained in Chartered
Accountants (Procedure of Investigations of Professional and other
misconduct and conduct of cases) Rules, 2007 published in official
Gazette of India dated 28th February, 2007 (‘Enquiry Rules’).

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BCAJ Admin

From the President

Dear members,

As said by Martin Luther King, Jr., “Intelligence plus character – that is the goal of true education.” This goal seems to be one of the most important challenges faced by today’s education system.

The recent arrest of now ex-Minister of Law of Delhi for allegedly obtaining fake degrees aptly highlights some of the ills plaguing India’s education. This incident also bring to fore the massive challenge of improving the education system in India. The lauded goal of “Sabka Saath, Sabka Vikas” will remain a dream otherwise.

The UNESCO in its Education Strategy 2014-2021 document states: “We live in a rapidly changing and increasingly interdependent world where knowledge and innovation are major drivers of development. This means good quality education and learning are becoming even more important determinants of the well-being of individuals, the progress of countries and the quality of humanity’s common future.”

As stated on the website of the Department of Higher Education, Ministry of Human Resource Development of India (MHRD), the number of Universities increased 34 times from 20 in 1950 to 677 in 2014. The number of colleges also registered a manifold increase of 74 times with just 500 in 1950 growing to 37,204, as on 31st March 2013. The public expenditure on education as a percentage of GDP too has increased from 0.64% in 1951-52 to 4.29% in 2012-13.

This massive increase in the number of Universities and Colleges has helped improve the Gross Enrolment Ratio (GER) in higher education to 21.1% in 2013. However, it still falls short of the global benchmarks required to join the league of developed nations. The worldwide average GER is 30% with China at 27%, Germany and the UK at 62% and the US at 94%.

Even as India has managed to achieve this significant quantitative expansion, the quality of education has been deteriorating. The Committee to Advise on Renovation and Rejuvenation of Higher Education chaired by eminent academician Prof. Yash Pal deliberated on these issues. Its report submitted in June 2009 acknowledges that mushrooming engineering and management colleges having largely become mere business entities, dispensing very poor quality education.

Various quality issues faced by India’s education sector are well-known and include:

Outdated and theoretical curriculum disconnected devoid of practical experiences, lack of vocational training
Poor quality of teachers and their continuing education
Archaic examination system that does not test required skills to be successful
Inadequate infrastructure and learning resources
Lack of student support and progression
Poor governance, management and leadership of educational institutions

The poor quality of education is aptly reflected in the Unemployment Rate of 28% for the persons aged 18-29 years and holding a degree in graduation and above as per the Report on Fourth Annual Employment & Unemployment Survey 2013-14 released in January 2015. This alarming rate of unemployment amongst the graduates is compounded further by unreported under-employment. It is reported that a large group of educated young people are becoming alienated, unable to become part of the growing middle class and frustrated by unfulfilled aspirations.

The increasing demand for quality education with supply not matching up is also triggering a rapid rise in outbound student mobility from India and resulting in the brain drain. As per “Indian Students Mobility Report 2015: Latest Trends from India and globally”, India has overtaken China in terms of growth rate in the number of students studying in foreign countries.

Ironically, it appears that no significant steps have been taken to implement the roadmap worked out by Prof. Yash Pal Committee to achieve renovation and rejuvenation of higher education. Various other initiatives such as the National Knowledge Commission set up in 2005 seems to have mostly come a cropper. It is disheartening but not surprising to note that our country, once known for world’s finest educational institutions such as Nalanda and Takshashila, does not have a single educational institution in top 200 rankings in the 11th annual Times Higher Education World University Ranking 2014.

The MHRD proclaims the following as some of the major initiatives to improve the education in India:

Right to Education (RTE)
Sarva Shiksha Abhiyan
Initiatives for girls and women
Teacher education
Mid-day meals
Vocational education
Various measures taken by the University Grants Commission including issuance of “the Mandatory Assessment and Accreditation of Higher Educational Institutions Regulations, 2012”

However, numerous news reports raise many questions about the efficacy of the above measures. The apprehensions of large-scale systemic corruption in respect of one of the most debated measures of the RTE seem to be unfortunately coming true.

In an otherwise dismal scenario of higher education, the IITs and IIMs appear to be the only bright spots and their claim to quality and excellence is globally accepted. Of late, even these institutions have been surrounded by avoidable controversies and the Government must take steps to protect and strengthen them.

The Education Strategy 2014-2021 document of the UNESCO referred above puts significant emphasis on technology to support cost-effective delivery of both basic and higher education, widens access, improves quality and aids in teacher training and professional development. It refers to the growth in open educational resources (OER) and free online courses by universities and institutions of technical and vocational education and training dramatically changing education. The massive success of the free online platform of the Khan Academy’s channel on YouTube is a case in point. Salman ‘Sal’ Khan, the Founder of the Khan Academy, has been named as the most influential person in education technology by the Forbes magazine.

The education system in India is in dire need of such cost-effective solution to bring quality education within everyone’s reach. Let us hope the policymakers will deliberate on how to exploit better the potential of the Information and Communication Technology in bringing significant improvements in this field.

In our profession, it has been a matter of pride that the CA education lays a considerable emphasis on practical training. Unfortunately, the evolving structure of the CA examinations with an excessive emphasis on rote learning through intensive coaching classes seems to have eroded the importance of the practical training. The exams are perceived to be more a test of memory than a test of the student’s understanding of fundamental principles.

In recently concluded IPCC exam in May 2015, I was astounded to see an example of the test of memory. Here, the students were asked to explain the conditions and the manner in which a company may issue depository in a foreign country under the Companies (Issue of GDR) Rules, 2014! I could not understand the objective behind asking such a question about a detailed procedure in respect of a completely new law to a student not yet exposed to any practical training. I believe even a qualified CA could not have answered such a question without reference material.

Let us hope the ICAI takes into consideration various comments and suggestions, including from the BCAS, in respect of the New Proposed Scheme of Education & Training announced in February 2015 and its reported move towards open book exam from 2017 brings about a much-needed improvement in the CA education as well.
Friends, this is my last communication with you as President of this august organisation. It has been an honour, privilege and labour of love to have been able to communicate my ideas, thoughts and views with all of you. I hope that I have done justice to the responsibility bestowed upon me. As always, I do look forward to your frank feedback and comments.

By the time this issue of the BCAJ reaches you, my friend Raman Jokhakar will have taken over reins as the next President of the BCAS. With young and energetic Raman at the helm, I am sure various initiatives to rejuvenate the BCAS will gain further momentum. I wish him, the new team of the office bearers and other members of the managing committee for 2015-16 all the very best for a fulfilling and successful year.

BCAJ Admin

From Published Accounts

Section A: Depreciation provision as per Schedule II of Companies Act, 2013

Compilers’ Note:
Schedule II to the Companies Act, 2013 lays down the recommended useful lives and residual value to compute depreciation for tangible assets. It also provides that if a company adopts a useful life different from what is specified in Schedule II or uses a different residual value, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice. Schedule II also requires that where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately (component approach).

Following Schedule II as against the erstwhile Schedule XIV to the Companies Act, 1956 will, in most cases, result in changes in the amount of depreciation provision from the minimum rates prescribed by the erstwhile Schedule XIV. ICAI has issued an Application Guide to the provisions of Schedule II to the Companies Act, 2013.

Given below are some illustrative disclosures on adoption of Schedule II.

Sobha Limited (31-3-2015)

From Significant Accounting Policies
Till the year ended March 31, 2014, Schedule XIV to the Companies Act, 1956, prescribed requirements concerning depreciation of fixed assets. From the current year, Schedule XIV has been replaced by schedule II to the Companies Act, 2013. The applicability of Schedule II has resulted in the following changes related to depreciation of fixed assets.

i. Useful lives/depreciation rates
Till the year ended March 31, 2014, depreciation rates prescribed under Schedule XIV were treated as minimum rates and the Company was not allowed charge depreciation at lower rates even if such lower rates were justified by the estimated useful life of the asset. Schedule II to the Companies Act, 2013 prescribes useful lives for fixed assets which, in many cases, are different from lives prescribed under the erstwhile Schedule XIV. However, Schedule II allows companies to use higher/lower useful lives and residual values if such useful lives and residual values can be technically supported and justification for difference is disclosed in the financial statements.

Considering the applicability of Schedule II, the management has re-estimated useful lives and residual values of all its fixed assets. The management believes that depreciation rates currently used fairly reflect its estimate of the useful lives and residual values of fixed assets, though these rates in certain cases are different from lives prescribed under Schedule II. Accordingly, the carrying amount as at April 01, 2014 is being depreciated over the revised remaining useful life of the asset. The carrying value of Rs.16.66 million, in case of assets with Nil revised remaining useful life as at April 01, 2014, is reduced after tax adjustment from the retained earnings as at such date. Further, had the Company continued with the previously assessed useful lives, charge for depreciation for the year ended March 31, 2015 would have been lower by Rs. 96 million and the profit before tax for the year ended March 31, 2015 would have been higher by such amount, with a corresponding impact on net block of fixed assets as at March 31, 2015.

ii. Depreciation on assets costing less than Rs.5,000/-
Till year ended March 31, 2014, to comply with the requirements of Schedule XIV to the Companies Act, 1956, the Company was charging 100% depreciation on assets costing less than Rs.5,000/- in the year of purchase. However, Schedule II to the Companies Act 2013, applicable from the current year, does not recognise such practice. Hence, to comply with the requirement of Schedule II to the Companies Act, 2013, the Company has changed its accounting policy for depreciations of assets costing less than Rs. 5,000/-. As per the revised policy, the Company is depreciating such assets over their useful life as assessed by the management. The management has decided to apply the revised accounting policy prospectively from accounting periods commencing on or after April 1, 2014.

The change in accounting for depreciation of assets costing less than Rs. 5,000/- did not have any material impact on financial statements of the Company for the current year.

Depreciation on tangible fixed assets
Depreciation on fixed assets is calculated on written down value basis using the following useful lives prescribed under Schedule II, except where specified.

Steel scaffolding items are depreciated using straight line method over a period of 6 years, which is estimated to be the useful life of the asset by the management based on planned usage and technical advice thereon. These lives are higher than those indicated in Schedule II.

Leasehold land where title does not pass to the Company and leasehold improvements are amortised over the remaining primary period of lease or their estimated useful life, whichever is shorter, on a straight-line basis.

TCS Limited (31-3-2015)

From Significant Accounting Policies

Fixed assets
Fixed assets are stated at cost, less accumulated depreciation/amortisation. Costs include all expenses incurred to bring the asset to its present location and condition. Fixed assets exclude computers and other assets individually costing Rs. 50,000 or less which are not capitalised except when they are part of a larger capital investment programme.

Depreciation/amortisation
In respect of fixed assets (other than freehold land and capital work-in-progress) acquired during the year, depreciation/amortisation is charged on a straight line basis so as to write-off the cost of the assets over the useful lives and for the assets acquired prior to April 1, 2014, the carrying amount as on April 1, 2014 is depreciated over the remaining useful life based on an evaluation.

Fixed assets purchased for specific projects are depreciated over the period of the project or the useful life stated above, whichever is shorter.

From Notes to Financial Statements

The Company has revised its policy of providing depreciation on fixed assets effective April 1, 2014. Depreciation is now provided on a straight line basis for all assets as against the policy of providing on written down value basis on some assets and straight line basis on others. Further the remaining useful life has also been revised wherever appropriate based on an evaluation. The carrying amount as on April 1, 2014 is depreciated over the revised remaining useful life. As a result of these changes, the depreciation charge for the year ended March 31, 2015 is higher by Rs.131.16 crore and the effect relating to the period prior to April 1, 2014 is a net credit of Rs.528.38 crore (excluding deferred tax of Rs.129.62 crore) which has been shown as an ‘Exceptional Item’ in the statement of profit and loss.

Reliance Industries Limited (31-03-2015)

From Significant Accounting Policies

Tangible Assets
Depreciation on Fixed Assets is provided to the extent of depreciable amount on the Written Down Value (WDV) Method except in case of assets pertaining to Refining segment and SEZ units/developer where depreciation is provided on Straight Line Method (SLM). Depreciation is provided based on useful life of the assets as prescribed in Schedule II to the Companies Act, 2013 except in respect of the following assets, where useful life is different than those prescribed in Schedule II are used;

In respect of additions or extensions forming an integral part of existing assets and insurance spares, including incremental cost arising on account of translation of foreign currency liabilities for acquisition of Fixed Assets, depreciation is provided as aforesaid over the residual life of the respective assets.

From Note on Fixed Assets (EXTRACTS)
Pursuant to the enactment of Companies Act 2013, the company has applied the estimated useful lives as specified in Schedule II, except in respect of certain assets as disclosed in Accounting Policy on Depreciation, Amortisation and Depletion. Accordingly the unamortised carrying value is being depreciated / amortised over the revised/ remaining useful lives. The written down value of Fixed Assets whose lives have expired as at 1st April 2014 have been adjusted net of tax, in the opening balance of Profit and Loss Account amounting to Rs.318 crore.

Raymond Limited (31-05-2015)

From Significant Accounting Policies

Method of Depreciation/ Amortisation:

i.   Depreciation on Factory buildings, Plant and machinery, Aircrafts, Electrical installations, and Equipment is provided on a Straight Line Method and in case of other assets on Written Down Value Method, over the estimated useful life of assets.
ii.   Effective 1st April 2014, the Company depreciates its fixed assets over the useful life in the manner prescribed in Schedule II of the Act, as against the earlier practice of depreciating at the rates prescribed in Schedule XIV of the Companies Act, 1956.
iii.   Based on independent technical evaluation, the useful life of Plant and Machinery has been estimated as 24 years (on shift basis), which is different from that prescribed in Schedule Ii of the Act.
iv.   In case of pre-owned assets, the useful life is estimated on a case to case basis.
v.   Cost of Technical Know-how capitalised is amortised over a period of six years thereof.
vi.   Cost of Software capitalised is amortised over a period of three years.
vii.   Cost of Leasehold land is amortised over the period of lease.
viii.   Depreciation on additions to assets or on sale/ discardment of assets, is calculated on pro rata from the month of such addition or upto the month of such sale/discardment, as the case may be.

From Note on Fixed Assets (EXTRACTS)
In accordance with the provisions of Schedule II of the Act, in case of fixed assets which have completed their useful life as at 1st April, 2014, the carrying value (net of residual value) amounting to Rs.441.10 lakh (net of deferred tax at Rs.227.13 lakh) as a transitional provision has been recognized in the Retained Earnings.

– Further in case of assets acquired prior to 1st April, 2014, the carrying value of assets (net of residual value) is depreciated over the remaining useful life of as determined effective 1st April, 2014.
– Depreciation and amortisation expenses for the year would have been higher by Rs.1,380.60 lakh, had the Company continued with the previous assessment of useful life of such assets.

Hindustan Unilever Limited (31-03-2015)

Significant Accounting Policies

Tangible Assets

Tangible assets are stated at acquisition cost, net of accumulated depreciation and accumulated impairment losses, if any. Subsequent expenditures related to an item of tangible asset are added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.

Items of tangible assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements under “Other current assets”. Any expected loss is recognised immediately in the Statement of Profit and Loss.

Tangible assets not ready for the intended use on the date of Balance Sheet are disclosed as “Capital work-in- progress”.

Losses arising from the retirement of, and gains or losses arising from disposal of tangible assets which are carried at cost are recognised in the Statement of Profit and Loss.

Depreciation is provided on a pro-rata basis on the straight line method at the rates prescribed under Schedule II to the Companies Act, 2013 with the exception of the following:
–   plant and equipment is depreciated over 2 to 21 years based on the technical evaluation of useful life done by the management.
–   certain assets lying at salons and training centre, included in plant and equipment, furniture and fixtures and office equipment, are depreciated over five to nine years.
–   assets costing Rs. 5,000 or less are fully depreciated in the year of purchase.

From Note on Fixed Assets (EXTRACTS)
Depreciation of Rs. 11.97 crore on account of assets whose useful life is already exhausted on April 01, 2014 has been adjusted against General Reserve pursuant to adoption of estimated useful life of fixed assets as stipulated by Schedule II of Companies Act, 2013.

asian paints (31-05-2015)

Significant Accounting Policies

Depreciation and Amortisation

Depreciation on tangible fixed assets is provided using the Straight Line Method based on the useful life of the assets as estimated by the management and is charged to the Statement of Profit and Loss as per the requirement of Schedule II of the Companies Act, 2013. The estimate of the useful life of the assets has been assessed based on technical advice which considered the nature of the asset, the usage of the asset, expected physical wear and tear, the operating conditions of the asset, anticipated technological changes, manufacturers warranties and maintenance support, etc.

The estimated useful life of Tangible Fixed Assets is mentioned below:

years

Factory
building

Buildings
(Other than factory buildings)

Plant and
Equipment (including continuous process plants)

10-20

Furniture
and fixtures

Office
equipment and vehicles

Information
Technology Hardware

Scientific
Research and Equipment

Depreciation on tinting systems leased to dealers, is provided under Straight Line Method over the estimated useful life of nine years as per technical evaluation.

From Note on fixed assets (Extracts)
In accordance with Schedule II of the Companies Act, 2013, the Company has reassessed the estimated useful life of certain class of assets through technical evaluation during the year. The reassessed estimated useful life is in line with existing useful life of the assets used by the Company for the purpose of depreciation. This reassessment does not materially impact the financials of the Company.

BCAJ Admin

Direct Taxes

New tax returns forms notified – Notification no- 28/2014 [S.O. 1418(E) dated 30th May, 2014 – Income tax (Sixth amendment) Rules, 2014

New forms ITR 3, ITR 4 , ITR 5, ITR 6 and ITR 7 have been notified.

Further Rule 12 has been amended with effect from 1st April, 2014 to provide mandatory electronic filing of audit report u/s.10AA, 44DA, 50B and 115VW from A.Y. 2014- 15.

Agreement for Exchange of information for collection of taxes between the Government of India and the Government of the Principality of Liechtenstein to have effect for all requests made in respect of taxable periods beginning on or after 1st April, 2013 – Notification No. 30 /2014 dated 6th June 2014

Cost inflation index for F.Y. 2014-15 is 1024 – Notification No. 31 /2014/ [F.No. 142/3/2014- TPL] dated 11th June, 2014

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BCAJ Admin

FROM THE PRESIDENT

Dear members of THE BCAS family,

As I sit down to write my last communication with you as the President of the Society, I have only one feeling – a feeling of utmost satisfaction. I have thoroughly enjoyed the privilege of communicating with you. Your response, feedback and critique have motivated me to air my views freely and frankly. On my part, it was a conscious decision to not reproduce ‘society news’ and more importantly, not to try and sound like an expert on a host of topics, most of which I know precious little about. Instead, I have used this medium of communication by sharing with you my thoughts in, what I would like to believe, a responsible manner. I thank the Publisher, Mr. Narayan Varma and the Editor, Mr. Anil Sathe for giving me a freehand.

You may wonder why I need to thank someone for the ‘freedom of expression’ accorded to me. Isn’t this my fundamental right? What’s the necessity to be thankful for something I was born with? But certain events of the recent times have left me wondering if this freedom of speech and expression could really be taken for granted.

For lack of any other index or benchmark, consider this – as per the 2013 World Press Freedom Index, India ranks a miserable 140th, out of the 179 countries on the list. Going by the number of books banned in India (example: The Satanic Verses), the number of art galleries vandalised (example: M F Husain’s paintings), the number of scholars condemned (example: Ashis Nandy) and the number of films censored (example: Ram Leela), it seems to me that the freedom of expression is not as much a right but a rare and precious privilege. In today’s times, when even the posts, likes and sharing on Facebook has met with dire consequences (example: Pune incidents), responsibility in using this privilege is the need of the hour.

I have often been plagued by questions on this fundamental right. What about you? Have these incidents irked you? What views have you formed from this? Is freedom of expression an absolute right? What does the law on this say? Is it a right that must be used at all times? Must one exercise every right just because it exists? Should one be tolerant to another’s views? My views have evolved over time and the evolution still continues.

We all know that Article 19(1)(a) of the Constitution of India, 1949 guarantees the freedom of speech and expression. But how many of us know that there are exceptions to this freedom? Anything that affects the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order or decency and morality or relates to contempt of court, defamation or incitement to an offence, is prohibited. While most of these are unambiguous enough, there are a few grey areas, viz., public order, decency and morality.

The standards of decency and morality vary from time to time, place-to-place and person-to-person. At times, the greatest of issues go unnoticed while in other cases, the slightest provocation is enough to create a law and order crisis. I will admit, I am sometimes tempted to shout out to get heard, if only to vent frustration. Giving up my fundamental right of freedom of speech looks like a big thing then. But then, I wonder about the possible consequences. By speaking my mind, am I spreading hatred, creating animosity, causing harm to life and property and general mayhem? If so, then must I exercise restraint?

What wouldn’t we give for people to be tolerant and respectful of our right to say what we feel! But for that to be possible, we must first educate ourselves. If we want the right to speak, then we must also fulfill our duty to hear views which are divergent from ours. If we don’t agree with an ideology, let us learn to fight back with reason and not power. Let’s learn to attack the ideology and not the person. Alas, this isn’t the situation presently. Till the society matures, we will have to use our judgement and discretion on what we say out loud.

If I were to do a cost-benefit analysis of exercising my freedom of expression, here’s what I will ask: What do I achieve by speaking my mind? If my saying something wouldn’t impact the situation, will it affect anyone else? Will that effect be positive or negative? If it wouldn’t affect anyone else, will it help me in any way? If the good coming out, using my freedom of expression outweighs the bad, nothing in the world could, or should, stop me from saying what I feel. But if not, then I need to step back. As they say in Gujarati “Na bole nav gunn”.

Like me, all of us would be coming across such situations daily. What we forward or like on Twitter, WhatsApp and Facebook, all in the name of humor, has so much potential to cause discord. We ridicule communities by labeling them dumb, stingy and what not. We involve religious leaders/figures in our jokes. We forward half truths, unconfirmed ‘news’ and help spread fear and falsehood. What’s the good that is achieved?

Before I start sounding too preachy, let me however highlight that this phenomenon is not peculiar to just our country. Almost all democracies face this dilemma. Boycotts, fatwas and excommunications are rampant all around. Let us work towards creating an environment where all are free to speak their minds. Let’s educate ourselves so that we can identify and distinguish a mischief monger from amongst us and either let law take its course or ignore him completely as a non-serious person. Let’s abhor violence or taking law in our hands.

Over the last year, I have tried to air my views. I have tried to cover a wide range of topics, all with the intent of promoting a debate and hearing views different from mine. Fortunately, I have the satisfaction of succeeding in that. Your responses to my communiqué have been overwhelming. To those who encouraged me, thank you. To those who disagreed, I respect your views. As Voltaire said, “I disapprove of what you say, but I will defend to the death your right to say it.” And If I have ,despite having no intention to do so, hurt anyone’s sentiments or sensibilities, I offer my apologies.

I thank you all and hand over this space to the incoming President, Nitin Shingala. I am sure you will give him as much love and affection as I received from you. Communicating with you has become a habit and I will miss you all.

Here’s wishing everyone happiness and love.

With Warm Regards

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BCAJ Admin

Cancerous Corruption

Modi government & Corruption:
An opinion poll conducted by Times Now to mark one year of the NDA regime has given thumbs down to the Narendra Modi government on price rise and its promise to bring back black money, but has hailed it for curbing corruption while disagreeing with the Congress charge that it was a ‘Suit Boot Ki Sarkaar’.

The poll result: 52.3% say that the Modi Government has curbed the corruption while 40.7% say NO.

BJP President, Amit Shah on Corruption:
Illicit money is a consequence of corruption. Many feel the government is disproportionately focused on the symptoms, neglecting the root cause.

Not a single scam has happened during our tenure. That shows there’s no corruption. Here’s an example: Under the UPA, 229 mines were handed over to corporate houses just on the basis of loyalty. There were big industrialists of their party also. Spectrum was handed out cheaply. Out of those 229 mines, the government auctioned 20, which ensured Rs. 2 lakh crore in government coffers. We auctioned one third spectrum, compared to UPA, and got over Rs. 1 lakh crore. This shows how transparently this government works.

Transparency and Accountability:

Preamble to RTI Act states:
AND WHEREAS democracy requires an informed citizenry and transparency of information which are vital to its functioning and also to contain corruption and to hold Government and their instrumentalities accountable to the governed;

In the above context, an article written by Mr. A. N. Tiwari, former Central Information Commissioner is interesting and relevant. Excerpt therefrom:

Administration has a vital bearing on a country and its people. In ancient India right from Vedic Days, it has been avowed objective of administration to be responsive, transparent, accountable and citizen friendly. These factors could be regarded as the touchstone of any administrative set up.

Transparency makes sure that people know exactly what is going on and what is the rationale of the decisions taken by the Government or its functionaries at different levels. Accountability makes sure that for every action and inaction in government and its consequences, there is a civil servant responsible and accountable to the government, the society and the people.

Different dimensions of Transparency:

Transparency is to be ensured in different dimensions namely,

i. Openness in public dealings.

ii. Right to information relating to service delivery process.

iii. Right to information relating to criteria and their applications.

iv. Right to information to public expenditure/contracts.

v. Enactment relating to Right to information.

vi. Code relating to access to information.

vii. Openness in the cost of the project, quality standard etc.

The growing power of Information Technology has opened up possibilities which did not exist previously. The rapid processing and dissemination of information is allowing closer scrutiny of administrative action.

The question arises as to what are the concomitants of a transparent administration. These could be:

i. Accountability

ii. Effective and speedy public grievances redressal system.

iii. Empowering elected local bodies in rural and urban areas and decentralised delivery of services.

iv. Review of laws, regulations and procedures.

v. Right to information.

vi. Access of the public to information from public offices and creation of facilitation counters.

vii. Code of ethics for public service.

viii.Tracking corruption and cleaning the administration. Governments are in the business of politics and power and some times in the business of diplomacy. However, the primary responsibility for securing transparency in administration lies and will continue to lie on the people themselves. A vigilant and well informed public opinion, people’s participation in administration and development, an honest media are essential for promoting a transparent and efficient administrative system.

Estonia:
Viljar Lubi, Estonia’s envoy, spoke with Indrani Bagchi about why net neutrality is vital for India, how startup strengthen democracy – and how the internet helped Estonia tackle corruption.

Excerpt:
Estonia had a huge corruption problem in the early 1990s – now Estonia is the least corrupt country in Central or Eastern Europe. Technology made a huge difference with e-governance.

My only recommendation is to implement Digital India. Estonia’s working closely with India. We are happy to help. Today’s cutting-edge technology will be ancient in five years. Technology will have to constantly evolve.

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BCAJ Admin

Direct Taxes

Applications for condonation of delay in filing refund claim and claim of carry forward of losses under section 119(2)(b) of the Act : Circular No. 9 dated 9 June , 2015

Clarifications on Roll back provisions of Advance Pricing Agreement scheme : Circular No. 10/2015 dated 10 June, 2015

Revision Application under section 25 of the Wealth tax Act – Circular No. 11 dated 11 June, 2015

Due to the amendment made by Finance Act, 2013 to sub clause (b) of Explanation 1 to Section 2(ea), the term “urban land” does not include land classified as agricultural land in the records of the Government and used for agricultural purposes, with retrospective effect from 1.4.1993. Wealth tax paid on such land needs to be refunded. CBDT has authorised Principal Commissioner/Commissioner of Wealth tax to admit application for revision under section 25 of the Act from assessee seeking refund arising due to the amendment, after the expiry of period specified under section 25.

Draft rules for computation of Arm’s Length Price of an International Transaction or Specified Domestic Transaction undertaken on or after 1.4.2014 released for comments and suggestion of general public– F.No. 134/11/2015-TPL dated 21 May, 2015

Protocol amending the DTAA between India and Denmark signed on the 10 October, 2013 shall enter into force on 1 February, 2015- Notification No. 45 dated 22 May, 2015.

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BCAJ Admin

Direct Taxes

67. Due date for filing E-appeals extended till 15 June 2016 –.

– Circular No. 20 dated 26th May 2016
E-appeals which were due to be filed by 15.05.2016 can be filed up to 15.06.2016. All e-appeals filed within this extended period would be treated as appeals filed in time

68. Due date for making declarations under the Direct Tax Dispute Resolution Scheme, 2016 notified as 31 December 2016

– Notification No. 34 dated 26th May 2016
A person may make a declaration to the designated authority in respect of tax arrear or specified tax under the Direct Tax Dispute Resolution Scheme, 2016 on or before 31 December 2016

69.Direct Tax Dispute Resolution Scheme Rules, 2016 notified –

Notification No. 35 dated 26th May 2016

70. Clarification regarding cancellation of registration u/s. 12AA of the Income-tax Act, 1961 in certain circumstances –

Circular No. 21 dated 27th May 2016
CBDT has clarified that the registration of a charitable institution granted u/s. 12AA shall not be cancelled only because the proviso to section 2(15) is applicable in one year without there being any change in the activities of the charitable insitution. The process for cancellation of registration will be initiated strictly in accordance with sections 12AA(3) and 12AA(4| after carefully examining the applicability of these provisions.

71. Equalisation levy Rules, 2016 notified –

Notification No. 38 dated 27th May 2016
As introduced in the Finance Act, 2016, rules for Equalisation levy have been notified which outline provisions for rounding off, payment of levy, statement of specified services to be submitted, notice of demand, forms of appeal etc.

72. Admissibility of claim of deduction of Bad Debt –

Circular No. 12 dated 30th May 2016
CBDT has clarified that any debt or part thereof , shall be allowed as a deduction u/s. 36(l)(vii) of the Act, if it is written off as irrecoverable in the books of accounts for that previous year and it fulfills the conditions stipulated in sub section (2) of sub-section 36(2) of the Act. CBDT has directed , no appeals may henceforth be filed on this ground and appeals already filed, on this issue before various Courts/Tribunals may be withdrawn or not pressed upon.

73. Amendment to Rule 31A –

Notification No. 39 dated 31st May 2016- Income-tax (13th Amendment) Rules, 2016 applicable w.e.f. 1st June 2016 –
Time period for filing Form 26QB increased from 7 days to 30 days from the end of the month in which the tax is deducted.

74. Amendment to Rule 8D

–Notification No. 43 dated 2nd June 2016- Income-tax (14th Amendment) Rules, 2016
Sub rule 3 to rule 8D dealing with apportionment of indirect expenditure to be disallowed vis-a-vis exempt income has been deleted. Further the limit of 0.5% has been enhanced to 1% and a total cap of disallowance not exceeding the exempt income has been brought in.

75.Cost Inflation Index for F.Y. 2016-17 is 1125
– Notification No. 42 dated 2nd June 2016

76. Clarification on issues relating to TCS as amended u/s 206C(1D) and newly inserted 206(1F) –
Circular no. 22/2016 dated 8th June 2016 and Circular no. 23 dated 24th June 2016

77. CBDT issues clarification to the payers regarding due date of uploading the simplified Form 15G/15H and manner of dealing with the Forms received between transition period of 1.10.15 to 31.3.16 –
Notification no.9 dated 9th June 2016

78. Prospective applicability of GAAR provisions – Income tax (16th Amendment) Rules, 2016

– Notification no. 49 dated 22nd June 2016
Rule 10(U)(1) has been amended to extend the cut off date to 1 April 2017 for application of GAAR rules to income earned/received by any person from transfer of investments made from erstwhile 30 August 2010. Further Rule 10U(2) also has been amended to provide that GAAR will apply to any arrangement, irrespective of the date it has been entered into, if tax benefit is obtained on or after 1st April 2017 instead of 1st April 2015.

BCAJ Admin

Indirect Taxes

SERVICE TAX UPDATES

Exclusion of some services provided by Government to business entity from Mega Exemption Notification Notification No. 26/2016-ST dated 20 05 2016

By this notification CBEC has amended mega exemption notification to provide that that following services provided by Government or local authority to a business entity shall be taxable irrespective of the turnover of business entity:

a. Services by the Department of Posts by way of speed post, express parcel post, life insurance and agency services provided to a person other than Government;

b. Service in relation to aircraft or a vessel, inside or outside the precincts of a port or an airport;

c. Transport of goods or passengers ;

d. Services by way of renting of immovable property.

Clarification on levy of Krishi Kalyan Cess (KKC)

Notification No. 27/2016-ST, 28/2016-ST, 29/2016-ST, 30/2016-ST all dated 26th May 2016

Notification No. 27/2016-ST :
KKC would have to be paid along with Service Tax on services covered under reverse charge or partial reverse charge. Provisions of the Reverse Charge Notification will be applicable mutatis mutandis for the purposes of KKC also.

Notification No. 28/2016-
ST KKC shall not be leviable on services which are exempt from Service tax by a Notification issued u/s. 93(1) or Special Order issued u/s. 93(2) of the Finance Act, 1994 or otherwise not liable to Service tax under Section 66B thereof.

Notification No. 28 further clarifies that KKC will be levied on value of taxable services after availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20,

2012 i.e. KKC would be computed on abated value of taxable services.

Notification No. 28 furthermore clarifies that value of taxable services for the purposes of KKC shall be the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006.

Notification No. 29/2016-ST
Vide this Notificaton, Notification No. 39/2012-ST dated June 20, 2012 (Rebate of the duty paid on excisable inputs or Service tax and cess paid on all input services used in providing service exported) has been amended to insert KKC under the definition of “service tax and cess”, to enable the provider of services to claim rebate of KKC paid on all the input services used in providing services exported in terms of Rule 6A of the Service Tax Rules, 1994.

Notification No. 30/2016-ST
This Notification has amended Notification No. 12/2013- ST dated July 1, 2013 (Exemption on services received by units located in a SEZ or Developer of SEZ and used for their authorised operation) to enable the SEZ Unit or the Developer for refund of the KKC paid on the specified services on which ab-initio exemption is admissible but not claimed.

Notification No. 31/2016-ST
As per sub-rules 7,7A,7B and 7C to Rule 6 of the Service Tax Rules, 1994, there is an optional alternative rate of Service tax for services, namely, air travel agents, insurance premium, purchase & sale of foreign currency and lottery distributor. The Central Government vide this Notification has amended the Service Tax Rules to insert sub-rule (7E) after sub-rule (7D), which prescribes that if Service tax is payable at an alternative rate, KKC would also be computed in proportion to such alternative rate, in similar manner as it was prescribed at the time of introduction of SB Cess, as under :

Service Tax liability calculated as per Rule 6 * Effective rate of KKC i.e. 0.5% / (rate of service tax specified in section 66B i.e. 14%)

Further, in sub-rule (7D), for the figures “0.5” the words “effective rate of Swachh Bharat Cess” and for the words, figures and brackets “14 (fourteen)”, the words and figures “rate of service tax specified in section 66B of the Finance Act, 1994” shall be substituted.

80. Services tax on senior advocates’ servicesimplications :

Notification No. 32/2016-ST, 33-2016-ST & 34- 2016-ST DTD 6th June 2016

The Legal Services provided by Senior Advocates has come under Forward Charge Mechanism with effect from 01-04-2016 against which various petitions were filed in various High Courts. To resolve the problem, the Central Government has partially rolled back in its decision and has issued following three notifications on 06th June 2016 :

1. Notification No. 32/2016-ST : Seeks to amend Notification No. 25/2012-ST, dated 20.6.2012 to exempt services provided by a Senior Advocate by way of legal services to any person other than a business entity; or a business entity with a turnover up to rupees ten lakh in the preceding financial year.

2. Notification No. 33/2016-ST : Seeks to amend Service Tax Rules, 1994 to stipulate reverse charge mechanism for services provided by senior advocates, that is tax is to be paid by the recipient of service and if the senior advocate is engaged by another lawyer, the Service Tax is to be paid by the litigant.

3. Notification No. 34/2016-ST : Seeks to amend Notification No. 30/2012-ST, dated 20.6.2012 to stipulate 100% payment of Service tax by a business entity as the recipient of the service provided by senior advocates.

MVAT UPDATES

NOTIFICATION

81. Increase in rate of tax on petrol wef 1st June 2016

VAT 1516/CR 77/Taxation-1 dated 31st May 2016

This notification amends Schedule D Entry 10 whereby any other kind of motor spirit rate gets increased by one rupees fifty paisa per litre w.e.f. 01.06.2016.

BCAJ Admin

From The President

The month of June has been one of the busiest at BCAS. We had four Lecture meetings this month on ITR Filing, Audit Finalisation, Insolvency and Bankruptcy Code and Model GST Law. The third lecture meeting was webcast live, from the BCAS Hall. Even the weekends were packed with incredible seminars on Practice Management and Fraud Reporting and Data Mining. The 10th Residential Study Course on Service tax and VAT at Lavasa was the largest. TARANG 2k16, the annual student event was also the largest ever till date. For the first time, we did a live webcast of one of the Lecture Meetings out of BCAS hall.

Brexit showed how divided our societies are. A chalk board at a café said it all – 48% Sense and Sensibility and 52% Pride and Prejudice. The iconic Thomas Friedman wrote “The British vote by a narrow majority to leave the European Union is not the end of the world — but it does show us how we can get there.” It shows how a few politicians can create a “binary choice on an incredibly complex issue”. Brexit shows that anxiousness has prevailed over reason. Friedman goes on to say that countries with pluralism will thrive as they will have offer stability, talent retention and collaborative environment to live in. If we couple this with what Trumps talks, we can appreciate the value of pluralism in India offers. In contrast to all this, the recent interview of the PM has been a heartening, especially when it is from a political leader of 1.25 billion people.

Model GST Law
While the ‘model’ GST Law is out this month, reading the GST law gives a feeling similar to arrival of the incoming flight after a six hour wait at the airport. Just as the pent up anguish and expectancy is settling down, one hears a second announcement. The apologetic voice says that they have found a serious technical snag and are not sure if the flight will even depart. Bummer! After 15 years of wait, the model GST law gives you that kind of a feeling – is this model law good enough to take off?

GST is the largest tax reform ever, because it is really an economic integration in a federal democracy like ours. While the state laws taxing goods don’t talk to the central laws on production and services, we can now expect that the UNION will work like one – a union in both letter and spirit. Although it is an achievement to arrive at a consensus, the ‘model’ is nowhere close to being model in every sense of the word. A lot of definitions are picked up from VAT regime and critical definitions lack clarity and completeness. Compliance heavy mechanism of matching invoices will make small traders want to find a ‘way out’ than ‘stay in’. The heart of GST, seamless credit mechanism, is murdered by the condition of actual payment of tax by the seller. Even if a buyer has paid the tax, credit can be denied in case the seller hasn’t deposited that collection.

Going back to the airplane analogy the GST law seems more like a highjack story written by the VAT authorities. In both design and structure, the model law does give a sense of disbelief. Before becoming a Goods and Services Tax, GST needs to meet the test of GOOD and SENSIBLE TA X. A law to be good and sensible at inception is CRITICAL for its success. Success of GST will now depend on the government’s ability to absorb stakeholder comments in the final legislation and the States adopting and enacting the law in its fullest form. I believe, that will truly give us a UNIFIED MARKET and a sense of efficient federal democracy.

Meeting Expectations
Stephan Hawkings wrote, “Intelligence is the ability to adapt to change”. 2.5 Lac CAs are faced with an incredible opportunity and phenomenal challenge like never before. The greatest risk in a world changing at the speed of light is VANISHING MARKETS. Due to changes in technology some markets that we are used to, could cease to exist. For example, considering BIG DATA , a lot of Audit will happen by matching data from various sources. As CAs we will need to watch this closely and carefully and to keep learning new skills and sharpening those that are still relevant. This could be the singular capability we all will need. I leave you with the words I love – If you have learned how to learn then you have learnt enough.

The times ahead will be fascinating. I am sure, as a profession, we will meet the expectations of all our stakeholders and be of service – not lip service, but of service to humanity at large. I hope that as accountants we will remain accountable and remain ‘awake’ in the true sense of the motto our Institute. And therefore, like the BCAS motto says we won’t be bogged down by fear. I wish, hope and pray that the profession holds its pure essence of serving the client above every other consideration and never convert to ‘business of profession’. We will continue to dig, question, counter distortion and take a stand on behalf of what we believe is true and will not need to sacrifice our objectivity. BCAS is a living testament to that and I am sure will remain so.

It is 30th of June as I write From the President for the 12th and the last time! What a delight it has been to talk to you all through this page and receive your responses. For every President, his year at BCAS is tight, pressing, exciting, challenging, exhilarating and satisfying. It was an opportunity to stretch my boundaries, to learn, share and grow. On the technical front, the profession is passing through a stimulating and gainful time – Ind ASs, GST, Companies Act, 2013 with numerous new opportunities before us. To be sharing this time with all of you and lead its leading light – the Bombay Chartered Accountants’ Society – is a special honour and privilege! The highlights of the year are enumerated in the 67th Annual Report uploaded on www.bcasonline.org. I hope you will take a look.

Like all the presidents before me, I will pass on the baton to the next president. Chetan and his able team of Narayan, Manish, Sunil and Suhas will commence their tenure from 7th July. They all have served the Society for years in various capacities and therefore well aware of its ethos. I am sure they will lead with purpose and passion. After a great ride, it is time to hang up the boots. I look forward to continue to serve the BCAS through the Journal and other committees in the years to come. I thank you for your support and trust in BCAS. Let me conclude with an Irish blessings for you – May your troubles be less and your blessings be more, and nothing but happiness come through your door.

BCAJ Admin

Company Law

1. Companies (Authorised to Register) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 31st May 2016 made rules to amend the Companies (Authorised to Registered) Rules, 2014. These Rules are applicable for conversion of a partnership firm into company, and for conversion of an LLP into company. Full text of the Rules can be accessed at
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_ 01062016.pdf

2. Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016.

The Ministry of Corporate Affairs has vide Notification dated 23rd May 2016 notified the rules to amend the Companies (Corporate Social Responsibility Policy) Rules, 2014.

Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, is substituted by, “The Board of a company can decide to undertake its CSR activities approved by the CSR Committee, through
(a) A company established under section 8 of the Act or a registered trust or a registered society, established by the company, either singly or along with any other company, or
(b) A company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature

Provided that if, the Board of a company decides to undertake its CSR activities through a company established under section 8 of the Act or a registered trust or a registered society, other than those specified in this sub-rule, such company or trust or society shall have an established track record of three years in undertaking similar programs or projects; and the company has specified the projects or programs to be undertaken, the modalities of utilization of funds of such projects and programs and the monitoring and reporting mechanism.

Further vide Notification dated 16th May 2016, the Ministry of Corporate Affairs has clarified that while taking CSR activities under the Act, the Company must not contravene any other laws of the land including Cigarette and Other Tobacco Products Act 2003.

The rules can be accessed at
http://www.mca.gov. in/Ministry/pdf/Notification_CSR_30052016.pdf and notification at http://www.mca.gov.in/Ministry/pdf/General_ circular05_16052016.pdf

3. Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Amendment Rules, 2016

The Ministry of Corporate Affairs has vide Notification dated 4th April 2016 made an Amendment to the Companies (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2015.

Rule 3 has been substituted with the following proviso “Provided that the companies in banking, insurance, power sector, non-banking financial companies and housing finance companies need not file financial statements under this rule”.

The rules can be accessed at
http://www.mca.gov.in/ Ministry/pdf/Rules_06042016.pdf

4. Notification constituting the National Company Law Tribunal and National Company Law Appellate Tribunal under Sections 408 and 410 respectively of the Companies Act, 2013

The Central Government has by Notification No S.O. 1933 (E ) dated 1st June 2016 constituted the National Company Law Appellate Tribunal for hearing appeals against the orders of the National Company Law Tribunal with effect from the 1st day of June, 2016

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_II.pdf

5. Commencement Notification under Section 1(3) of the Companies Act, 2013 and Notification constituting the Benches of National Company Law Tribunal
The Ministry of Corporate Affairs has vide Notification S.O. 1934(E) dated 1st June 2016 has notified the various sections of the Companies Act 2013 that have come into force.

The list can be accessed at http://www.mca.gov.in/ Ministry/pdf/Notification_02062016_I.pdf

The Central Government has also constituted the following Benches of the National Company Law Tribunal:

6. Transfer of matters or proceedings or cases pending before the Company Law Board to National Company Law Tribunal

The Ministry of Corporate Affairs has vide Notification S.O. 1936(E) dated 1st June 2016 declared that w.e.f 01st day of June, 2016, all matters or proceedings or cases pending before the Board of Company Law Administration (Company Law Board) shall stand transferred to the National Company Law Tribunal and it shall dispose of such matters or proceedings or cases in accordance with the provisions of the Companies Act, 2013 or the Companies Act, 1956.

The Notification can be accessed at
http://www.mca. gov.in/Ministry/pdf/Notification_02062016_III.pdf

7. Special Courts Under Section 435 Of Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification S.O. 1796(E) dated 18th May 2016 after obtaining the concurrence of the respective Chief Justices of the High Courts, designates the following Courts mentioned in the Table below as Special Courts for the purposes of trial of offences punishable under the Companies Act, 2013 with imprisonment of two years or more in terms of section 435 of the Companies Act, 2013, namely:

The aforesaid Courts shall exercise the jurisdiction as Special Courts in respect of jurisdiction mentioned.

The notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/NotificationOrder_19052016_2.pdf

8. The Companies Amendment Bill 2016
The Companies Amendment Bill 2016 as passed by the Lok Sabha can be accessed at http://www.mca. gov.in/Ministry/pdf/Company_AmendentBill_2016.pdf. The same is not in force as yet.

BCAJ Admin

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

“Ethics has to do with what my feelings tell me is right or wrong.”

“Ethics has to do with my religious beliefs.” “Being ethical is doing what the law requires.”
“Ethics consists of the standards of behavior our society accepts.”
“I don’t know what the word means.”

Don’t you think on similar lines? The meaning of “ethics” is hard to pin down, and the views many people have about ethics are shaky.

What, then, is ethics? At its simplest, ethics is a system of moral principles. They affect how people make decisions and lead their lives. Ethics is concerned with what is good for individuals and society and is also described as moral philosophy. The term is derived from the Greek word ethos which can mean custom, habit, character or disposition.

Ethics covers the following dilemmas:

how to live a good life

our rights and responsibilities

the language of right and wrong

Moral decisions – what is good and bad?

Our concepts of ethics have been derived from religions, philosophies and cultures. They infuse debates on topics like abortion, human rights and professional conduct.

RTI Clinic in July 2016: 2nd, 3rd, 4th Saturday, i.e. 9th, 16th, and 23rd 11.00 to 13.00 at BCAS premises.

BCAJ Admin

Part C Iinformation On & Around

Committee to look into feasibility of special stamps for RTI
The Department of Posts said it has to constitute a fresh committee, with the approval of competent authority, to examine the feasibility of usage of RTI stamps as RTI fee and furnish a report on their recommendations.

A previous committee comprising representatives from postal department, DoPT and Central Information Commission had concluded that the amount charged under RTI is a fee not related to a postal article thus according to the present Indian Postal Act, 1898, postage stamps cannot be used for payment of RTI fee or costs.

RTI gets a memorial in Rajasthan
Ironic though it may sound, a unique memorial celebrating the Right to Information has come up in the Beawar town of Rajasthan — where the RTI movement had started 20 years ago — at a time when the Bhartiya Janata Party government in the State has opted to delete chapters on the evolution of RTI campaign and law from its school textbooks. Hundreds of people from all walks of life, who gathered at Chang Gate in Beawar on Thursday night to commemorate the historic 40-day dharna of 1996 for RTI , witnessed unveiling of the aesthetically-built memorial and demanded restoration of chapters dealing with common people’s contribution to RTI in the textbooks.

RTI plea: It took Govt of India 16 months to disclose report recommending new coastal regulation norms
Sixteen months after a Right to Information (RTI ) application was filed, the Ministry of Environment, Forest and Climate Change (MoEFCC) has disclosed a copy of the “Report of the Committee to Review the Issues relating to the Coastal Regulation Zone, 2011” to Kanchi Kohli, a well-known environmental expert. This disclosure came after an order of Information Commissioner Prof. M Sridhar Acharyulu on May 13, 2016 which stated that the ministry “cannot invent a new defense or exemption such as ‘the report is under submission’, ‘file is pending consideration’ and ‘unless approved it cannot be given’, etc, which are not available under RTI Act, 2005, such an illegal refusal will amount to denial of information which would invite penal proceedings u/s. 20 of RTI Act, 2005.

IGNOU to offer diploma course on Right to Information
In order to encourage people to understand societal relevance of the Right to Information Act and its nuances, the Indira Gandhi National Open University (IGNOU) has decided to introduce certificate and diploma courses in the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

the subject. The Central Information Commission (CIC) has extended its support to the university to work out the courses, which will form compulsory part of the training module for all Central Government employees.

BCAJ Admin

Part B RTI Act, 2005

Delhi High Court criticised the Legislative Department for filing an unnecessary Writ Petition against the Order of Central Information Commission (of M Sridhar Acharyulu, CIC) directing the Government to update and upload all the latest amended bare Acts, to examine the functionality of its e-mail ID and develop an appropriate RTI filing mechanism. Justice Manmohan of Delhi High Court directed Legislative Department to recover Rs.10,000/- which was awarded as compensation by CIC, from the salary of the Government officials who authorized the filing of this unwarranted writ petition and pay the same to the Library. Vansh Sharad Gupta, a student of NLSUI, had filed this RTI application through e-mail, to know the e-mail ID of CPIO, Legislative department. He could not access the text of Indian Christian Marriage Act, 1972 from the website, though he could find the Bare Act. It was impossible to read as that PDF of Bare Act was not formatted and each sentence was intercepted by trash. He appealed to provide the bare Acts (enactments without commentary) in a readable PDF format. The Commission directed the Department to inform the complainant as to what action had been taken including details of the programme of updation, the possible date of its completion, expenditure involved, personnel employed etc. CIC had also directed the petitioner to pay Rs.10,000/- to the library of University, for causing loss of time of several law students, more specifically of the appellant, not providing easy access to email, or not making email ids easily available, delaying the information etc, within one month. The Department chose to challenge this order in Delhi High Court. In the writ petition, Legislation department contended that student never filed an RTI application in the prescribed form with the requisite fee and did not even file first appeal. Rejecting this petition Justice Manmohan held; “This Court is not an appellate Court of the CIC. Technical and procedural arguments cannot be allowed to come in the way of substantial justice. The directions given by the CIC in the impugned order are not only fair and reasonable but also promote the concept of rule of law. It is unfortunate that the petitioner did not take the initiative on its own to upload the latest amended bare Acts. Public can be expected to follow the law only if law is easily accessible ‘at the click of a button’. HC said: “In fact, as rightly pointed out by the CIC, the RTI Act itself mandates the Government to place the texts of enactments in public domain. This Court also took judicial notice of the fact that in challenging the imposition of costs of Rs.10,000/-, the Government of India would have spent more money in filing the present writ petition. Consequently, this Court is of the view that the costs of Rs.10,000/- which was directed to be paid by the CIC, should be recovered from the salary of the Government officials who authorized the filing of the present writ petition”.

Some learning from the case:
1. It is the duty of law ministry to upload updated enactments for people.

2. Department has to change their systems in response to the issues raised in RTI requests.

3. People have right to know law in their own language

4. It is the duty of Law Ministry to disclose the law, which they want people to follow.

5. Public Authority has to pay compensation for violation of sections 4 and 3

6. State should not be a cantankerous litigant

7. There is no routine appeal available from decision of Information Commission

BCAJ Admin

Part A Decision of CIC

CIC judgment: Delhi Lt . Governor reports to Centre can be made available under RTI

The decision by Information Commissioner Sridhar Acharayulu stated that the office of the Delhi Lieutenant Governor (LG) was a “public office” under the RTI Act.

“The Commission agrees with the contention of appellant that Article163(3) of the Constitution does not apply to the Union Territory of Delhi, which could be invoked only in case of a full-fledged state and not to a UT with an assembly like Delhi. Delhi is a union territory and there are specific provisions under the Constitution of India in Article 239AA. There is no mention of any provision like protecting the advice given to LG as available under Article 74 (2) (regarding President) and Article 163 (3) (regarding governors). More over Article 163(3) applies specifically to the ‘advice of a Council of Ministers to the Governor’. The information sought here is a report sent by the UT Administrator to Union Government or President. Article 163 has nothing to do with this communication,” says the order.

Going a step further, the CIC has held that even in case of information given to the President or Governor of a state, the material on the basis of which decisions are taken is not privileged information and is open to scrutiny.

“Even in those cases where Article 163(3) applies, there is no immunity from disclosure,” said the order.

“If the documents pertain to affairs of state, they cannot be withheld by state as privileged documents under Evidence Act, but has to disclose under RTI Act, subject only to section 8 and 9. Privilege for non disclosure of documents in the name of ‘affairs of state’ under Section 123 of Evidence Act is no more available to any public authority with the advent of transparency regime, which overrides the archaic law of privilege as specified in section 22, Right to Information Act 2005. Privilege as an excuse for secrecy of information about affairs of state is antithesis to democracy, and not available,” held the CIC.

“There is no bar against citizen from having a copy of the advice/report of LG to Union government. The Supreme Court has clarified in a landmark case S. R. Bommai case that the material forming basis of advice given to Governor could be subject matter of judicial review, which clearly means information could be disclosed,” said the order.

BCAJ Admin

From The President

Dear Members,

It is that wonderful time of the
year when the sizzling summer sun gets subdued by the dark moisture-laden
clouds. A cool refreshing breeze blows in from over the sea and swirls away
from the sweaty stillness of summer. To the shrill trill of the cuckoo, the
rains pour down in full gusto. The layers of dust and pollution get washed away
from the buildings and trees, and the air smells ‘clean.’ The parched yellow
landscape is now carpeted with lush green foliage.

When you are finished
changing, you are finished

Yes, there is CHANGE all around us
and not only because of the arrival of the monsoon. There have been sweeping
changes on various fronts, and their impact is now being felt in ever widening
circles and in a positive manner. It’s often been said that change is the only
constant in life, yet we are sometimes so averse to change and the hidden risks
that come with it. Let’s face and embrace change with a spirit of challenge and
adventure or else… as Benjamin Franklin once said, “When you are finished changing,
you are finished!”

For the last three years, India
has been experiencing a ‘season’ of change. The NDA government propelled by the
seemingly inexhaustible energy and enthusiasm of the Prime Minister has ushered
in numerous programs and laws. The many initiatives have met with widespread
criticism and appreciation and have in some measure transformed India. Jan Dhan
Yojana, Make in India, Digital India, Stand-Up India, Startup India and Swacch
Bharat Abhiyan have strived to empower Indians and add greater momentum to our
economy and society at large. India’s gift to the world, yoga, was celebrated
throughout the globe on June 21 as International Yoga Day.

We have also seen swift and bold
strikes against the perpetrators of the black money economy and counterfeiting,
with demonetization and income declaration schemes. Consciously indifferent to
the strident calls to defer the implementation of GST, the government has
pushed ahead but has decided to be lenient with procedural non-compliance in
the first few months. Ensuring that GST is properly implemented will be a huge
challenge for the government keeping in mind a large number of small businesses
which are scattered in the rural hinterland that are plagued by infrastructural
constraints and low awareness.

Change before you have to

Jack Welch, who led General
Electric to this scale of success, once said, “Change before you have to.”
This wisdom is visible on the numerous changes that you now see at BCAS.
Keeping pace with geographically scattered and technologically savvy members,
the activities of the society can now be easily accessed in the digital arena.
Investments have been prudently poured into live streaming technology
especially for the many outstation members. YouTube, Facebook, and LinkedIn are
actively used to ensure anytime, anywhere access to the many activities of
BCAS. Online payment facility has been activated for greater convenience, and a
knowledge portal with multi-device connectivity is being set up. Even the
website has been revamped to make it more user-friendly. BCAS is also tying up
with regional institutions to offer more local events to its outstation
members. Even in Mumbai, it is stepping out by having joint programs with other
organizations. With its strong commitment to disseminating knowledge, BCAS is
organizing many more programs by reaching out to fulfill the diverse needs of
its many members.

Publications are the agents of any
knowledge based organization and BCAS publications are always cut above the
rest and much sought after. During the year there was a renewed thrust for
quality publications on diverse topics. BCAS committees brought out sixteen
publications, a record of sorts, on varied subjects of interest to the
profession, industry, and public at large which received an overwhelming
response. It is indeed a matter of pride that some of the publications are
already out of print. This prestigious publication, BCAJ, will be entering its
50^th year and this itself speaks volumes of the quality and
technical contents of the Journal over the years. I am
sure that this Journal (which is also having a change of guard from 6^th July 2017) will
reach many more milestones in terms of quality and its reach.

To improve is to change; to be perfect is
to change often

Now that we have witnessed a
change in India and the BCAS; it’s time to share some thoughts on how we as CAs
can change to effectively capitalize on the changing national and global
scenario.

In the recent past, the government
has come with a wide spectrum of laws and compliances to streamline business
operations and control. The single most game changer GST itself is an ocean of
opportunity as corporates, SME businesses and traders all are looking upon
professionals to navigate them through the fine print and provisions. Clearly,
with the burgeoning of the Indian economy, there is a new paradigm of
sophistication and complexity in our quiver of services. In this newly defined
arena, we are now called to deliver incredible and awesome services.

Small practices will increasingly
find themselves fighting for survival. We will all need to think big and even
bigger! It’s time to scale up! To consolidate operations and boldly venture
into unchartered territories. In addition to up-scaling operations, we will also
need to up-skill human resources to tackle the comprehensive new laws and
compliances with all their intricate details. Mindsets too would need to be
changed so that we are motivated and enabled to deliver consistently to higher
standards with more demanding deadlines.

Chartered Accountants need to
graduate to take up the mantle of trusted business advisors to their clients.
Staffed by committed, enthusiastic professionals with a high level of energy
and integrity, we should be able to suggest constructive ideas within the
realms of the legal framework and meticulous plans that will revitalize our
clients’ business. And at the end, we should get a merciless performance
appraisal from our clients. How did we perform? Are we pushing the limits? Are
our suggestions path-breaking or middle-of-the-road?

I truly believe that we need to
re-invent ourselves as Chartered Accountants. We need to be able to see beyond
today’s horizons and stay one step ahead. We should assimilate and actualize
what Winston Churchill said, “To improve is to change; to be perfect is to
change often.”

Change is a new beginning

When I penned my first thoughts in
this prestigious Journal and took over the reins as the President, I was aware
that my journey would be exciting, invigorating and stimulating. Yet, at the
end of the journey, I can only confess that BCAS has given me much more in
return than what I could possibly do during my tenure. The positive responses
that I have received from my members on the various initiatives taken during
the year are the testament of the committed core group who worked so
dedicatedly as a team. During the year, we have strived to work towards
fulfilling the Vision of the Society. The 69^th Annual Report, which
details the various activities of the Society, is already in your hands, and I
do not intend to reiterate the same. The Report is a testimony to the amazing
level of work done by all sub-committees. In the end, BCAS is a clear winner
because it has been uncompromising in maintaining the quality of its programs.

It has been
an eventful and very pleasant tenure as BCAS President, and before I sign off,
I would like to take this opportunity to express my deep gratitude to the
Chairmen, Past Presidents, Core group members, faculties, authors, BCAS staff,
members and various associations. Thank you all very much for the unstinted
support you have extended to me and all the confidence you have had in me. And
last but not the least my office bearers who untiringly worked alongwith me to
keep the flag of this great institution BCAS flying high. I look forward to
continuing serving you all in the years ahead in different capacities. Let me
end with this very relevant sloka which personifies team BCAS;

Trees
stand in the sun and give shade to others. Their fruits are also for others.
Similarly, good people go through all hardships for the welfare of others.

I had started this message with
stating that change is in the air, at BCAS also there is a change of guard at
the helm and my colleague Narayan Pasari takes up the coveted position as
President of BCAS from 7^th July 2017. I am sure that this change
will also take BCAS to newer heights of excellence and he shall bring the fresh
thoughts to fruition. I convey my best wishes to him and the new team of Office
Bearers for the ensuing year.

Thank You once again

Warm Regards,

Chetan
Shah

BCAJ Admin

From Published Accounts

Section A:
Disclosure in Directors’ Report on Internal Financial Controls for the financial year 2015-16

Compilers’ Note
In all the following cases, the report of the statutory auditors u/s. 143(3)(i) of the Companies Act, 2013 on Internal Financial Controls over Financial Reporting is unmodified.

Tata Consultancy Services Ltd.
The details in respect of internal financial control and their adequacy are included in the Management Discussion & Analysis, which forms part of this report.

Internal Financial Control Systems and their Adequacy

TCS has aligned its current systems of internal financial control with the requirement of Companies Act 2013, on lines of globally accepted risk based framework as issued by the committee of sponsoring organisations (COSO) of the treadway commission. The Internal Control – Integrated Framework (the 2013 framework) is intended to increase transparency and accountability in an organisation’s process of designing and implementing a system of internal control. The framework requires a company to identify and analyse risks and manage appropriate responses. The Company has successfully laid down the framework and ensured its effectiveness.

TCS’s internal controls are commensurate with its size and the nature of its operations. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorised use, executing transactions with proper authorisation and ensuring compliance of corporate policies. TCS has a well-defined delegation of power with authority limits for approving revenue as well as expenditure. Processes for formulating and reviewing annual and long term business plans have been laid down. TCS uses a state-of-the-art enterprise resource planning (ERP) system to record data for accounting, consolidation and management information purposes and connects to different locations for efficient exchange of information. It has continued its efforts to align all its processes and controls with global best practices.

Our management assessed the effectiveness of the Company’s internal control over financial reporting (as defined in Clause 17 of SEBI Regulations 2015) as of March 31, 2016. The assessment involved self-review, peer review and external audit.

Deloitte Haskins & Sells LLP, the statutory auditors of TCS has audited the financial statements included in this annual report and has issued an attestation report on our internal control over financial reporting (as defined in section 143 of Companies Act 2013).

TCS has appointed … to oversee and carry out internal audit of its activities. The audit is based on an internal audit plan, which is reviewed each year in consultation with the statutory auditors … and the audit committee. In line with international practice, the conduct of internal audit is oriented towards the review of internal controls and risks in its operations such as software delivery, accounting and finance, procurement, employee engagement, travel, insurance, IT processes, including most of the subsidiaries and foreign branches.

TCS also undergoes periodic audit by specialised third party consultant and professional for business specific compliance such as quality management, service management, information security, etc.

The audit committee reviews reports submitted by the management and audit reports submitted by internal auditors and statutory auditors. Suggestions for improvement are considered and the audit committee follows up on corrective action. The audit committee also meets TCS’ statutory auditors to ascertain, inter alia, their views on the adequacy of internal control systems and keeps the board of directors informed of its major observations, periodically.

Based on its evaluation (as defined in section 177 of Companies Act 2013 and Clause 18 of SEBI Regulations 2015), our audit committee has concluded that, as of March 31, 2016, our internal financial controls were adequate and operating effectively.

Vedanta Ltd.

Internal financial Controls

The Board of Directors (Board) has devised systems, policies and procedures / frameworks, which are currently operational within the Company for ensuring the orderly and efficient conduct of its business, which includes adherence to Company’s policies, safeguarding assets of the Company, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable financial information. In line with best practices, the Audit Committee and the Board reviews these internal control systems to ensure they remain effective and are achieving their intended purpose. Where weaknesses, if any, are identified as a result of the reviews, new procedures are put in place to strengthen controls. These controls are in turn reviewed at regular intervals.

The systems / frameworks include proper delegation of authority, operating philosophies, policies and procedures, effective IT systems aligned to business requirements, an internal audit framework, an ethics framework, a risk management framework and adequate segregation of duties to ensure an acceptable level of risk. Documented controls are in place for business processes and IT general controls. Key controls are tested by entities to assure that these are operating effectively. Besides, the Company has also adopted an SAP GRC (Governance, Risk and Compliance) framework to strengthen the internal control and segregation of duties/access. It also follows a half-yearly process of management certification through the Control Self-Assessment framework, which includes financial controls/exposures.

The Company has documented Standard Operating Procedures (SOP) for procurement, project / expansion management capital expenditure, human resources, sales and marketing, finance, treasury, compliance, safety, health, and environment (SHE), and manufacturing.

The Group’s internal audit activity is managed through the Management Assurance Services (‘MAS’) function. It is an important element of the overall process by which the Audit Committee and the Board obtains the assurance on the effectiveness of relevant internal controls.

The scope of work, authority, and resources of MAS are regularly reviewed by the Audit Committee. Besides, its work is supported by the services of leading international accountancy firms.

The Company’s system of internal audit includes: covering monthly physical verification of inventory, a monthly review of accounts and a quarterly review of critical business processes. To enhance internal controls, the internal audit follows a stringent grading mechanism, focusing on the implementation of recommendations of internal auditors. The internal auditors make periodic presentations on audit observations, including the status of follow-up to the Audit Committee.

The Company is required to comply with the provisions of the Companies Act, 2013, as regards maintaining adequate internal financial controls over financial reporting (ICOFR). The Company is also required to comply with the Sarbanes Oxley Act section 404, which pertains to ICOFR. Through the SOX 404 compliance programme, which is aligned to the COSO framework, the Audit Committee and the Board also gains assurance from the management on the adequacy and effectiveness of ICOFR.

In addition, as part of their role, the Board and its Committees routinely monitor the Group’s material business risks. Due to the limitations inherent in any risk management system, the process for identifying, evaluating, and managing the material business risks is designed to manage, rather than eliminate risk. Besides it is created to provide reasonable, but not absolute assurance against material misstatement or loss.

Since the Company has strong internal control systems which get further accentuated by review of SEBI Regulations, Companies Act, 2013 & SOX compliance by the Statutory Auditors, the CEO and CFO give their recommendation for strong internal financial control to the Board.

Based on the information provided, nothing has come to the attention of the Directors to indicate that any material breakdown in the function of these controls, procedures or systems occurred during the year under review. There have been no significant changes in the Company’s internal financial controls during the year that have materially affected, or are reasonably likely to materially affect its internal financial controls.

There are inherent limitations to the effectiveness of any system of disclosure, controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their objectives. Moreover, in the design and evaluation of the Company’s disclosure controls and procedures, the management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Asian Paints Ltd .

Details on Internal Financial Controls Related to Financial Statements

Your Company has put in place adequate internal financial controls with reference to the financial statements, some of which are outlined below.

Your Company has adopted accounting policies which are in line with the Accounting Standards prescribed in the Companies (Accounting Standards) Rules, 2006 that continue to apply u/s. 133 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and relevant provisions of the Companies Act, 1956, to the extent applicable. These are in accordance with generally accepted accounting principles in India. Changes in policies, if any, are approved by the Audit Committee in consultation with the Statutory Auditors.

The policies to ensure uniform accounting treatment are prescribed to the subsidiaries of your Company. The accounts of the subsidiary companies are audited and certified by their respective Statutory Auditors for consolidation.

Your Company operates in SAP, an ERP system, and has many of its accounting records stored in an electronic form and backed up periodically. The ERP system is configured to ensure that all transactions are integrated seamlessly with the underlying books of account. Your Company has automated processes to ensure accurate and timely updation of various master data in the underlying ERP system. Your Company has a robust financial closure selfcertification mechanism wherein the line managers certify adherence to various accounting policies, accounting hygiene and accuracy of provisions and other estimates.

Your Company operates a shared service center which handles all payments made by your Company. This center ensures adherence to all policies laid down by the management.

Your Company in preparing its financial statements makes judgments and estimates based on sound policies and uses external agencies to verify/ validate them as and when appropriate. The basis of such judgments and estimates are also approved by the Statutory Auditors and Audit Committee.

The Management periodically reviews the financial performance of your Company against the approved plans across various parameters and takes necessary action, wherever necessary.

Your Company has a code of conduct applicable to all its employees along with a Whistle Blower Policy which requires employees to update accounting information accurately and in a timely manner. Any non-compliance noticed is to be reported and actioned upon in line with the Whistle Blower Policy.

Your Company gets its Standalone accounts audited every quarter by its Statutory Auditors.

BCAJ Admin

Allied Laws

16. Appeal – Condonation of delay –
Mentally disturbed – Prolonged illness and hospitalisation – Sufficient cause
for condonation. [Limitation Act, 1963; Section 5]

Ummer vs. Pottengal Subida
and Ors. AIR 2018 Supreme Court 2025

There was a delay of 554
days in filing an appeal before the High Court. Hence, the Appellant filed an
application u/s. 5 of the Limitation Act praying for condonation of delay in
filing the appeal.

The
High Court dismissed the application for condonation of delay as well as the
appeal. In the opinion of the High Court, the Appellant failed to make out any
sufficient cause for condoning the delay in filing appeal and hence the
application seeking condonation of delay of 554 days in filing the appeal was
not liable to be condoned.

It was
held by the Apex Court that the delay in filing the appeal was to be condoned
because of the reasons that appellant was mentally disturbed due to disputes
going on in his family and was not able to attend to his day-to-day duties due
to his old age, prolonged ailments and hospitalisation due to heart disease.

17. Assignment of rights – Not a
transfer of Immovable property. [Indian
Stamp Act, 1899;

Section 2(10), 2(14), 57; Art. 62 &
23 of schedule 1 of the Indian Stamp Act]

Kotak Mahindra Bank Ltd.
vs. State of U.P. and Ors. AIR 2018 Allahabad 182 Full Bench

The
issue was whether assignment of rights in debt was transfer of immovable
property or movable property?

In the
present case, the Assignor in the course of its business advanced financial
facilities to various borrowers, who in turn executed agreement/instrument (s)
of mortgage in lieu thereof.

The
Assignee agreed to purchase and acquire the debts from the Assignor with all
rights title and interest of the Assignor and underlying financial instruments,
for a consideration agreed to by the parties.

The
High Court observed that debt is purely an intangible property, like,
intellectual property right or goodwill, as against documentary intangibles,
viz., bill of lading, promissory note or bill of exchange, which has to be
claimed or enforced by action and not by taking physical possession thereof, in
contrast to immovable and movable property.

The
Court held that the instrument is an instrument of assignment chargeable with
stamp duty under Article 62(c) of Schedule 1-B of the Stamp Act which stated
that chargeability of stamp duty would be on transfer of an interest secured by
a bond or mortgage deed and not on the stamp duty prescribed for immovable
property.

18.
Limited liability partnership – Jurisdiction – Registrar of Companies –
Only administrative – Cannot adjudicate and resolve issues. [Limited Liability
Partnership Act, 2009; Section 25, 43]

Neeraj Kumarpal Shah vs.
C2R Projects LLP and Ors. AIR 2018 Gujarat 80

In the
present case, ROC had rejected the form filed for the purpose of change in the
partnership agreement. ROC passed an impugned order, inter alia,
informing the LLP that LLP form No. 3 was examined and marked as invalid and
not taken on record mainly on the ground that the original respondent had filed
interim relief application and therefore the said matter is sub-judice and in
this regard the LLP has not submitted satisfactory reply.

The
High Court held that when the prescribed forms are submitted before the ROC for
examination and registration, the ROC is required to consider as to whether the
provisions of the Act of 2008 and the Rules of 2009 are complied with or not.
Thus, the duty of the ROC is of ministerial in nature and he is acting as an
administrative authority. The ROC cannot adjudicate and go into the merits of
the dispute pending between the partners. The ROC has to register the necessary
forms subject to outcome of the proceedings pending before the competent Court
between the concerned partners.

19. Partnership – Suit by an
unregistered firm is not maintainable. [Partnership Act, 1932; S.69(2)]

Arihant Rice Industries, Tumkur vs. Shubha-laxmi Venkateswara
Traders, Gangavathi AIR 2018 (NOC) 478 (Kerala)

A suit
was filed by plaintiff who was a partnership firm, for recovery of money from
third party. The partnership firm was an unregistered one. The only question
which arose was whether the suit filed by the plaintiff in the Court below was
maintainable in view of section 69(2) of the Indian Partnership Act, 1932?

Admittedly,
the plaintiff firm was an unregistered firm, as such, the unregistered firm
cannot maintain a suit in view of section 69 of the Partnership Act. Defendant
further submitted that in order to overcome the said lacuna of non-registration
of the firm, the plaintiff has falsely projected itself as a proprietorship
concern.

However,
there was no evidence regarding the dissolution of the partnership firm and
neither notice nor any paper publication for dissolution of firm was carried
out. As such, the plaintiff was still a partnership firm, but not a
proprietorship concern.

The
Court held that, since it is held that the plaintiff had failed to prove that
it was a proprietorship concern as at the time of institution of the original
suit and that the plaintiff concern was to be taken as partnership firm, thus
the suit was not maintainable.

20. Power of Attorney – genuineness – No
entry is made in the Notary Registrar – Power of attorney is held to be invalid

Veljibhai Mavjibhai Mistry
vs. Joitiben and Ors. AIR 2018 (NOC) 479 (Gujarat)

The
original owner challenged the genuineness of a power of attorney on the ground
of fraud. No documents in original were produced. The Trial court came to the
conclusion that the execution of the Power of Attorney was not done
simultaneously by all parties and therefore the execution was invalid. There is
no evidence brought on record by the defendants to show as to when the Notary
actually signed and stamped the document or made entries in the Notary
Register.

In
light of the same, the Court held that due to various contributing factors,
individually and collectively, suggested that the exercise of execution of the
Power of Attorney apart from its manner showed that the entire transaction was
founded on fraud.

Having held the
Power of Attorney to be an invalid document, the consequential transaction of
sale is also bad.

BCAJ Admin

Society News

Meetings of Intensive Study Group on GST held
on 9th , 10th , 30th , 31st March, and 20th, 21st, 27th
and 28th April, 2018 at BCAS Conference Hall.

To understand the GST law, Intensive Study Group
conducted eight meetings during the month of March and
April, 2018 at BCAS Conference Hall where the following
topics with relevant sections were discussed by the mentors:

Definitions and Levy: Sections 1, 2, 9, 10 & 11 of CGST
Act, Sections 1, 2, 5, 6, 7, 8, 9 of IGST Act : CA. Naresh
Sheth, CA. A. R. Krishnan, CA. Janak Vaghani.

Supply-1st Session: Section 7 of CGST Act, Schedule I,
II, III & IV (Excl. Sch. 1 Entry 2): CA. Naresh Sheth, CA.
Parind Mehta, CA. S. S. Gupta, CA. Jayraj Sheth.

Supply-2nd Session: Section 8, Principles of Classification-Relevant Notifications, SCH. 1 Entry 2: CA. Naresh Sheth, CA. Deepak Thakkar, CA Sushil Solanki.

Input Tax Credit: Section 16 to 21 of CGST Act: CA.
Naresh Sheth, CA. Parind Mehta, CA. Mandar Telang.

Place of Supply: Section 10 to 14 of IGST Act: CA. A. R.
Krishnan, CA. Deepak Thakkar, CA. Udayan Choksi,
CA. Rajat Talati, CA. Jayraj Sheth.

Time and Value of Supply and RCM: Section 12, 13, 14
and 15 of CGST Act and RCM Notifications: CA. Parind
Mehta, CA. Samir Kapadia, CA. Puloma Dalal.

Select Procedural Provisions: Section 22-25, 31, 34,
35, 54, 73, 74, 75, 107 and 111 of CGST Act: CA. Janak
Vaghani, CA. Udayan Choksi, CA. Rajiv Luthia.

Offences and Penalties: Sections 122-138 of CGST
Act: CA. Samir Kapadia, CA. Sushil Solanki, CA. Sunil
Gabhawalla.

There was an in-depth discussion on all the topics by the
learned and experienced mentors.
It was highly appreciated by the members. Members also
shared their practical experience during discussion which
benefited all present for the meeting.

INDIRECT TAX LAWS STUDY CIRCLE

Study Circle Meeting on GST held on 15th May,
2018 at BCAS Conference Hall

The Indirect Tax Laws Study Circle organized a meeting at
BCAS Conference Hall to discuss certain recent landmark
decisions pertaining to the Service Tax regime, relevant
to GST Law, which was chaired by Advocate Bharat
Raichandani. The Speaker discussed various judgements
quiet relevant in the day to day professional obligations of
the assessees namely Builder Association of Navi Mumbai
vs. UOI (Bom HC), Shri Krishna Chaitanya Enterprises
(Kumar Beheray) (Bom HC), Cellular Operators Association
vs. Union Of India And Another (Del HC), and Coimbatore
Corporation Contractors Welfare Assn. (Mad HC).

Advocate Raichandani provided in depth analysis of
these decisions and also explained his views on possible
implications of these decisions in the GST regime.

The meeting was well appreciated by the participants who
benefitted a lot from the session.

Full day seminar on “Assessments,
Reassessments and Appeals” held on 26th May,
2018 at BCAS Conference Hall

The Taxation Committee organised a full day Seminar
on Assessments, Reassessments and Appeals on 26th
May, 2018 at Indian Merchants Chamber, Mumbai. The
event saw attendance of over 120 participants including
outstation participants. President Narayan Pasari gave
the opening remarks.

Following topics were taken up at the Seminar by the
Speakers:

Assessment / Reassessment /
Penalty Proceedings – The Why,
What and How – Practical aspects
of the art of representation before
tax authorities: CA. Manish Shah
commenced the session with
practical and important aspects of
assessment proceedings. He cited
various examples and case studies to explain and guide the
participants in selecting best approach in a given situation.
He also provided insights on what are the recent changes
and the Do’s and Don’ts one should keep in mind while
attending assessment proceedings. The Speaker also
explained reassessment proceedings with the help of case
studies and the procedure for making an application under
RTI Act and how it can be useful.

Appeals – The art of making a
winning impression before CIT (A)
/ ITAT- Tips on drafting of appeals
and Representation: CA. Rajan
Vora explained about the appellate
mechanism under the Act and practical
aspects about appeals. He also
enlightened on what are the powers of
CIT (A) and ITAT and their limitations. He further covered a
wide range of issues on the subject right from filing fees to
the procedure of appeals before CIT (A) and ITAT.

Appeals – The view from the other
side – First-hand experience of
departmental officers – guidance
to CAs on how to improve their
representation skills: Adv. Girish
Dave (Retired CCIT) spoke on
appeals and also about command
over English language and gave tips
on how one should have effective communication with the
CIT (A) and ITAT members. He discussed on the couple
of landmark judgements and shared his insights on how to
draft grounds of appeal. He also explained the importance
of cross examination and shared his thoughts on Civil
Procedure Code and Miscellaneous Applications.

Search, Seizure and Survey – How to handle the
situation and comply with the law and precautions to
be taken while drafting replies to
the notices: CA. Dilip Lakhani took
the session on Search, Seizure and
Survey and explained how to handle
the situation, how one should comply
with the law and precautions to be
taken while drafting replies to the
notices. He shared his experience on
the subject dealing with various complex cases and issues
and gave insights on penalty, search and release of seized
assets. He also gave practical tips and Do’s and Don’ts one
should keep in mind after the search.

E–Assessments – Understanding
the nuts and bolts: – CA. Ishraq
Contractor took the session on
E-assessments. He spoke about
how the new system of conducting
assessments is grappling with
various serious issues. He discussed
the background, advantages and
challenges regarding E- Assessments and displayed various
screenshots of the interface used for E-Assessments.

ITAT Representation – Expectations
from Representatives and tips
on improving the skills:- Mr. G S
Pannu (ITAT Member) shared his
views on the expectations from the
representatives appearing before the
Appellate Tribunal. He expressed
his views and guidance on the skills
one should possess for representing before the ITAT. He
also shared his experience and his journey from being a
Chartered Accountant in practice to an ITAT member.

Experts Chat – Appeals before CIT(A), ITAT – Preparation,
Submission and Representation:- The final session was an
expert’s chat between Mr. C.S. Gulati and CA. Dilip Lakhani
moderated by CA. Ameet Patel who asked both the esteemed
faculties various questions on the law and procedural part of
assessments and appeals. Both the experts were frank and
shared their views on the questions asked.

The sessions in the Seminar were highly interactive and
the speakers shared their insights on the subjects dealt by
each one of them. The participants benefited immensely
with the guidance and practical views on various issues by
the faculties.

Lecture Meeting organised by BCAS jointly with
IIA Bombay Chapter on “Corporate Governance
– Role of Independent Directors” held on 6th
June 2018 at BCAS Conference Hall

A Lecture Meeting on the topic ‘Corporate Governance
– Role of Independent Directors’ was held at the BCAS
Conference Hall on 6th June, 2018.addressed by CA.
Nawshir Mirza.

BCAS President, CA Narayan Pasari
in his opening remarks underlined
the pivotal role played by a vibrant
corporate governance structure in
bolstering India’s economic growth.
He remarked that while over the last
decade, lawmakers in India have been
extremely cognizant of its importance,
in recent times sadly, even in the most reputed listed Indian
companies, the corporate governance practices have
raised certain concerns and questions.

IIA-BC President, CA. Burzin Dubash presented interesting
statistics relating to directors, independent directors, women
directors, age analysis of directors, etc. in Corporate India.

CA. Nawshir Mirza, in his presentation, spoke candidly on
the topic of Indian boards’ performance and independent
directors. He mentioned that Corporate India has principally
one expectation from its independent directors – to add
value to the board they sit on, and most often than not,
this is measured in terms of the difference that they can
make in furthering growth and business of the corporate. An
independent director, he said, must display wisdom while
balancing the conflict of interests of various stakeholders.

He spoke about the influences on boardroom behaviour,
more specifically, capitalism, human psychology and,
especially Indian culture and business families. He opined
that as people, Indians are highly individualistic, shy away
from openly disagreeing, are respectful of elders, while
being mindful of the need to adjust and accommodate –
all this has an undeniable influence on many boardroom
proceedings. In the Indian boardrooms, to question or offer
an opinion in contrast with that of the majority shareholder,
is often not welcomed, he said. This, he stated, is in sharp
contrast to the western world which encourages team work,
while also respecting an individual’s right to dissent without
being intimidated by elders or others in power.

As an independent director, one must possess the courage
to think, speak and act – and to do that effectively, the
triangle of thoughts, words and actions must be in sync,
he said. He offered that courage is the most important of
all virtues, because without courage you can’t practice any
other virtue consistently.

CA. Nawshir Mirza’s presentation was followed by an
engaging round of Q&A.

In answer to a question relating to performance evaluation,
he confided that an informal way of doing so had yielded
interesting answers; in this, each board member was asked
his/her opinion regarding the others on the following 3
questions –

What did he/she do good?
What could he/she do better?
What should he/she stop doing?

The event witnessed an impressive turnout and benefited
all present.

SUBURBAN STUDY CIRCLE

Suburban Study Circle Meeting on “Changes in
Income Tax return forms – A.Y: 2018-19” held
on 7th June, 2018.

The Suburban Study Circle organized a meeting on
“Changes in Income Tax return forms for the A.Y: 2018-
19 on 7th June, 2018 at Bathiya & Associates, Andheri which
was addressed by CA. Kinjal Bhuta.

The Speaker made a detailed presentation on the following
issues concerning the ITR Forms after the new amendments
namely: a) Applicability of the ITR forms as the assessee
generally makes mistake during selection of ITR form.
b) Major changes and additional details for presumptive
scheme c) General and miscellaneous changes across all
ITR’s. The speaker also discussed how to avoid mistakes
and gave tips for filling ITRs smoothly and shared practical
examples on filling returns.

The session was a good learning experience for the
participants.

ITF STUDY CIRCLE

Study Circle Meeting on “Make Available-
Discussion and Case Laws” held on 8th June,
2018 at BCAS Conference Hall

International Taxation Committee conducted a meeting on
“Make Available concept and related Case Laws” on 8th
June, 2018 at BCAS Conference Hall. The meeting was
led by Group Leaders CA. Nilesh Lilani and CA. Siddharth
Parekh who explained the far reaching impact of Make
Available Concept as it limits the scope of Fees for Technical
Services (‘FTS’) / Fees for Included Services (‘FIS’) clause
in Double Tax Avoidance Agreements (‘DTAA’).
The Group Leaders commenced the meeting by explaining
the possible scenarios in DTAA in relation to FTS Article
along with discussion on FIS under Indo-US treaty. They
also deliberated the significance of word “which” being
relative pronoun, connecting the word “services” with “make
available”, tests for considering whether or not services
“make available”, technical knowledge, experience,
skill, know-how or processes etc, correlating the initial
expression in FTS/FIS Article such as “consideration for”
with subsequent clauses in the Article, comparison of explicit
wording in India- Singapore Treaty with other countries
treaty, implication of most favoured nation clause in protocol
of treaties etc. After deliberation on concept, various judicial
precedents on the subject matter were discussed.
The meeting was very interactive and the participants got
enormously enlightened from the discussion and insights
provided by the learned speakers.

Noble Social Cause Visit – Vadodara – on 14th &
15th June, 2018

The fortunate 14 volunteers from BCAS got an opportunity
of an uplifting and inspiring 2 day visit to two NGOs:
Muni Seva Ashram at Goraj and Ashaktashram Society
at Dakor, both located in Vadodara District. This noble
social visit was organised by the HDTI Committee of BCAS
jointly with BCAS Foundation.

Muni Seva Ashram at Goraj, Dist. Vadodara

This more than 3 decade old Ashram , generates 70%
of its resources in-house and is an impressive model for
sustainable use of technology generating bio-gas, solar
energy besides also into organic farming. The huge campus
of 300 acres operates programs focussed on agriculture,
education and medicine – a nationally renowned Cancer
Hospital, a big Senior Citizen Centre, school from
Kindergarten to Grade 12, Bhagini mandir for the mentally
challenged, huge Gaushala (cow-shed) and many more.
The Ashram has evolved from a small hut set up by founder
Late Anuben Thakkar to a fairly large campus with selfless
efforts of Dr. Vikram Patel who gave up his budding medical
career for a noble cause considering this ashram as his
place of worship. The most striking feature of this institute
is that nothing is free but every service is on pay-what-youcan
basis! The deficits are made up by generous donations
from well-wishers.

Ashaktashram Society at Dakor, Dist. Vadodara

In the year 1982, the protagonist Late Shri Keshavlal R.
Shah was inspired to build a place where elders can live together till their life. They all live here in complete harmony
like an extended family. Special care is been taken to
meet the medical needs of these elderly by having an inhouse
dispensary and physio care centre. The elderly here
joyfully celebrate all the festivals and also go together for an
annual vacation.

The present President of the Trust, Shri Chandravadan
Shantilal Shah is immensely contributing by giving his
valuable time for the upkeep of this institution.
All the volunteers were deeply moved by hospitality of the
Ashramwasis & serene blissful atmosphere of both the
Ashrams. It was indeed an elevating journey for all the
volunteers who were touched by the caretaker’s love &
warmth for the Ashramwasis, as all the girls at the school
for mentally challenged were referred to as Dikri (daughter
in Gujarati) and the elderly were respectfully addressed as
Maa and Dada.

The generous donation collected by the volunteers through
BCAS Foundation were donated in form of 2100 notebooks
to the Muniseva Ashram Schools, 100 bedsheets to
Ashaktashram and balance contribution to the general fund
of these Ashrams.

All the volunteers returned inspired with fond memories of
the soulful trip and a determination to devote more time for
such noble causes.

BCAJ Admin

Representation

5^th
June, 2018

Mr.
Sushil Chandra

The
Chairman,

Central
Board of Direct Taxes,

Ministry
of Finance,

Government
of India,

North
Block,

New Delhi
110 001.

Dear Sir,

Sub: Notification No. 23/2018 dated 24^th
May, 2018 amending Rule 11UA of the Income-tax Rules, 1962

We are voluntary bodies of Chartered
Accountants with membership from across India with a combined membership of
more than 14,000 CAs. We would like to place before you a representation on
behalf of our members in connection with the recent notification issued by the
CBDT amending Rule 11UA of the Income-tax Rules, 1962.

As per the said amendment, the term
“Accountant” has been omitted from clause (c) of sub rule (2) of Rule 11UA.
Thereby, effectively, valuation of unlisted shares and securities can now be
done only by registered merchant bankers.

This amendment is not in the interest of the
tax payers of the country. It is a known fact that the number of registered
merchant bankers (for the purpose of Rule 11UA) is very small. Tax payers have
generally been approaching Chartered Accountants for this purpose. The
Institute of Chartered Accountants of India (ICAI) has taken several
initiatives in the recent past to encourage its members to learn and attain
expertise in the field of valuation. Valuation Standards have been prescribed
by the ICAI to help Chartered Accountants in discharging their duty as valuers.

Apart from this, even under the Companies
Act, 2013, Chartered Accountants have been recognised as being eligible for
registration as valuers as laid down in section 247 of the said Act.

Further, in the various regulations issued
under the Foreign Exchange Management Act, 1999 also, valuation (including
valuation as per DCF method) by Chartered Accountants has been recognised for
long.

The Wealth-tax Rules too recognise Chartered
Accountants as being eligible for providing valuation reports.

In light of the above, it is indeed shocking
for us to note the sudden amendment in Rule 11UA derecognising Chartered
Accountants as valuers. No reasons are forthcoming for this amendment.

Therefore, on behalf of the tax paying
community of India, and on behalf of the tax professionals who assist the tax
payers in honestly complying with the tax laws of the country, we strongly urge
you to withdraw the amendment to Rule 11UA of the Income-tax Rules, 1962 and to
reinstate the position as it existed prior to the amendment.

Assuring you and the Government of India our
fullest support in the massive nation building exercise that is in progress,

We remain,

Yours sincerely

Sd/-

Narayan Pasari Chintan
Doshi

President President

Bombay
Chartered Accountants’ Society Ahmedabad Chartered
Accountants’ Association

Sd/-
Sd/-

Raghavendra
T.N. Gyanesh Verma

President
President

Karnataka
State Chartered Accountants’ Lucknow
Chartered Accountants’

Association
Society

BCAJ Admin

Miscellanea

1. Economy

As a countermeasure, India hikes import duty on 29 US
products

A
Finance Ministry notification said the duty hike would come into effect
immediately for 28 products, while for the marine product, artemia, the
increased duty would be effective from August 4.

In a
retaliatory move against the recent US import duty hikes, India on 21 June 2018
raised customs duty on 29 products, including on iron and steel products
imported from the US.

In
March, US President Donald Trump slapped import tariffs of 25 per cent on steel
and 10 per cent on aluminium, unfolding the prospect of an all-out global trade
war. China retaliated in April, imposing tariffs as high as 25 per cent on 128
American products.

India
has sought an exemption from the US tariffs along the lines the US has allowed
to the European Union, Argentina, Australia, Brazil, Canada, Mexico and South
Korea.

In
Thursday’s hike by India, duty on flat rolled products on iron has been raised
to 27.50 per cent from 15 per cent earlier, while certain flat rolled products
on stainless steel will now attract 22.50 per cent duty as against 15 per cent
earlier.

Import
duty on chickpeas, Bengal gram (chana) and masur dal has been increased to 70
per cent, from 30 per cent earlier, while that on lentils has been raised to 40
per cent from 30 per cent.

Shelled
almonds from the US will now attract import duty at Rs 120 per kg, as compared
to Rs 100 earlier. Almonds in shell will now be levied import duty at Rs 42 per
kg as against Rs 35 earlier.

Shelled
walnut will now attract customs duty at the rate of 120 per cent, as against 30
per cent earlier.

Apples
will attract import duty of 75 per cent as compared to 50 per cent earlier.

Import
duty on American phosphoric acid has been raised to 20 per cent, from 10 per
cent each earlier, while the duty on diagnostic reagents has also been doubled
to 20 per cent.

Customs
duty on artemia, a type of shrimp, has been hiked to 30 per cent with effect
from August 4.

For
automobiles and earth moving equipment, SIM sockets and other metallic
mechanical items for use in manufacture of mobile phones, the duty has been
hiked to 25 per cent, from 15 per cent previously.

During
his official visit to Washington last week, Commerce Minister Suresh Prabhu
said that India and the US had agreed to hold official talks soon to address
the trade and economic irritants between both nations.

This
decision was taken during a series of meetings Prabhu had with US Commerce
Secretary Wilbur Ross and US Trade Representative Robert Lighthizer in
Washington during the Indian Minister’s visit from June 10 to 12.

(Source: International Business Times dated 21.06.2018)

Sistema exits Reliance Communications; sells its 10
percent stake

Russia’s
Sistema JSFC has become the latest foreign operator to exit the troubled Indian
telecom market, by selling its 10 percent stake in Reliance Communications in
multiple tranches over the past few months. The Russian conglomerate has
reportedly lost $ 4 billion on its investments.

Sistema
JSFC is believed to have decided against the idea of buying RCom’s remaining
telecom assets, comprising subsea cables, enterprise business and data centres,
following the divergence of opinion with the Anil Ambani-led telco.

Sistema
JSFC decided to exit RCom after the struggling telco recently got entrapped in
insolvency proceedings. It decided against making ambitious investments in
India’s brutally competitive and fast consolidating telecom market, having
already burnt its fingers.

In
October 2017, Sistema Shyam Teleservices (SSTL) was sold to Reliance
Communications in return for a 10 percent stake. RCom has also since closed
down its wireless business amid plunging revenue and mounting losses due to
intense competition, and operates only an enterprise business, besides running
data centres and sub-sea cables.

At the
time of the merger of RCom-SSTL, RCom shares were hovering at Rs 80 apiece in
early November 2015 but collapsed to around Rs 17 when the deal was finally
completed in late October 2017.

On
Wednesday, it gained over 4.8 percent over the previous close to end at Rs
15.30 apiece on the Bombay Stock Exchange. In past months, Sistema has
gradually reduced its stake in RCom. It lowered its stake to 7.09 percent by
letting minority shareholders swap their shares with those of RCom in March.

In
April and May, it sold off a further 2.1 percent and 0.55 percent respectively
in the open market, lowering its equity holding in RCom to 4.43 percent. The
development was seen on the expected lines as the telecom sector in the country
is witnessing a huge consolidation and stiff competition.

The
entry of Reliance Jio by offering attractive discounts on calls and data has
violently disrupted the entire telecom markets. The competition is expected to
become stiffer in the upcoming days.

(Source: International Business Times dated 21.06.2018)

2.
Regulation

Auditor Exodus: When the regulator does its job, it
cleans the system!

Even
as investment experts are busy totting up the number of auditors that have
resigned this financial year (37 at latest count, according to Prime Database),
the big audit firm that triggered such an exodus, is facing the whiplash of
regulatory action around the world. On 13^th June this year,
PricewaterhouseCoopers (PwC) was fined £6.5 million and severely reprimanded
for admitted misconduct, by the Financial Reporting Council (FRC), UK’s (United
Kingdom’s) accounting regulator.

PwC’s
audit partner, Steven Denison, was fined £325,000 and was banned from audit
work for 15 years. This was over the audit of BHS, a department store chain,
which collapsed a year after the PwC signed off on the audit in 2016. PwC, on
its website, accepts and apologises for “serious shortcomings with this audit
work,” but says that its “failings did not contribute to the collapse of BHS
over one year later…” The regulator has also asked PwC to ensure that all
audits of non-listed or high-profile companies are subject to ‘engagement
quality control review’.

PwC,
as expected, has contested the order and its global chairman, Robert E Moritz,
has complained to the media about our slow legal processes, and how the firm
has moved on after the Satyam scam and made amends. But, it is in for another
long battle, while the damage to its business is immediate. The SEBI action has
been a body blow, because it has come at a time when all major consulting firms
have seen their business boom in the past four years. The impact of SEBI’s
order is so huge that industry sources say some senior partners are looking to
exit the firm. No wonder, getting rid of shady accounts is clearly the first step, for PwC as well as other accounting
firms.

The
lesson from this widespread reaction to SEBI’s action is not unique. It is a
well-accepted principle of law that exemplary financial punishment has a
salutary impact on the entire system. The effect of SEBI’s action across
corporate India only proves this. On the other hand, reputational damage
doesn’t bother large companies as much. They have become adept at countering it
through image and media management. Their large advertising and PR budgets and
ability to sponsor media events makes this a cakewalk. If SEBI sticks to its
tough stand, chairman Ajay Tyagi would have triggered the biggest clean-up of
corporate balance sheets in decades. If he succeeds in his fight to get banks
to report corporate defaults immediately to stock exchanges, he would create
history in terms of improving corporate governance and accounts.

Ironically,
the Ministry of Corporate Affairs (MCA) has, finally, woken up to its own role
in regulating audit firms and has constituted an inquiry into the reasons for
the flood of resignations in June. Meanwhile, media reports attribute the exits
of auditors to three other factors apart from the SEBI’s order against PwC.
They are: 1) the possibility of forensic audits being ordered under the
Insolvency and Bankruptcy Code; 2) auditors having to explain exits following
recommendations of the Kotak Committee on Corporate Governance; and 3) the fear
that the National Financial Authority of India (NFAI), as a brand new
independent auditor, will be much tougher than the Institute of Chartered
Accountants of India (ICAI).

But
these reasons are too vague to even trigger a renunciation of business by any
audit firm. My own feedback from industry experts is that the SEBI order
against PwC is the single biggest reason for the so many auditors ditching
companies that they are not comfortable with. Ameet Patel, a well-known chartered
accountant, points out that many audits were taken up without proper due
diligence and the companies have now started waking up to the risks involved.

R.
Balakrishnan, former fund manager, investment analyst and Moneylife columnist,
also agrees that fear is the key. “Finally there is punishment. Auditors who
were friends with companies and signed first and read the accounts later have
turned cautions,” he says. Nikhil Vadia, another reputed tax expert, has an
additional point. He says, “Rule 9 of the Companies Audit and Auditors Rules
2014 has been dropped on 7 May 2018. Under this rule, the liability for an
audit (including criminal liability) would devolve only on the specific partner
who acted in a fraudulent manner. After the rule has been dropped, the
liability devolves on the entire firm and all partners are liable.” This, along
with the SEBI action in PwC, had triggered the auditor exits.

Top
Auditor Exits: 37 and Counting in 2017-18

– Price
Waterhouse & Company (PwC) resigned from Vakrangee Limited citing
inadequate information on several matters provided by management.

– Deloitte Haskins & Sells resigned as auditor of Manpasand Beverages also
saying ‘significant information’ sought by it was not provided.

– PwC
resigned from Atlanta Ltd, a
construction and infrastructure company.

– Sai
Kanwar and Associates resigned from Fourth Dimension Solutions citing health
reasons.

– V.
Shivkumar and Associates were disqualified by ICAI.

– Ravindra Sharma and Associates quit Hanung Toys due to “preoccupation with
other assignments”.

– Patankar & Associates quit as auditors of Inox Wind on 9 June saying it was
‘logistically difficult’ to continue
the audit.

A top
international consultant says, after SEBI’s action, most big audit firms have
begun to believe that it is best to resign even if there is a whiff of an issue
with a company. He also points out how this is bad for companies because if the
auditor resigns they are “presumed guilty and have to prove their innocence.”
In fact, there is another lesson here.

SEBI’s
order in the PwC-Satyam case has had a bigger impact than all the mindless
red-tape and form-filling that it has introduced after three corporate
governance committee reports that it commissioned over the past two decades. In
fact, SEBI’s corporate governance rules have placed such onerous
responsibilities on independent directors and audit committees (although it is
a open secret that they have no real truck with the actual working and
management of a company) that it has only created more business for more audit
and compliance experts that the board relies on. This imposes additional costs
on listed companies.

Finally,
there is the issue of timing. A new round of discussions on corporate
governance, action against PwC in India and UK, and the changed regulatory
oversight on Indian auditors — all have come in the space of a few months,
leading to a significant impact. It could well be the beginning of a
much-needed strong oversight on companies that statutory auditors get paid to
perform on behalf of shareholders, but have rarely done.

(Source:
Moneylife News & Views dated 15.06.2018)

BCAJ Admin

Statistically Speaking

Vital statistics
pertaining to the
“Report of the Comptroller and Auditor General of India for
the year ended March 2017” published in 2018 are covered below:

1.
Gross Expenditure by sectors of
General, Social and Economic Services and their autonomous bodies/corporations

S.no

Name of Ministry

2014-15

2015-16

2016-17

Agriculture

26,572.32

22,778.34

48,997.61

Ayurveda,
Yoga & Naturopathy, Unani, Siddha and Homoeopathy

685.19

1,112.14

1,292.60

Chemicals
and Fertilizers

75,411.37

77,966.79

70,604.54

Civil
Aviation

6,626.28

4,168.10

3,405.79

Coal

1,572.50

1,669.72

1,338.04

Commerce
and Industry

7,438.02

7,400.47

6,507.48

Consumer
Affairs, Food and Public Distribution

1,29,663.57

1,62,384.89

1,47,333.84

Corporate
Affairs

226.23

404.48

397.28

Culture

2,069.19

2,011.83

2,302.55

10.

Development
of North Eastern Region

1,761.01

2,036.68

2,543.61

2. Delays in submission of
accounts by central autonomous bodies

2.
Status of laying of the audited
accounts in the Parliament

Year of account

Total number of bodies for which audited accounts
were issued but not presented to Parliament

Total number of audited accounts presented after
due date

2013-14

Nil

2014-15

2015-16

4. Utilisation Certificates
Outstanding as on 31 March 2017

As per the General Financial Rules,
certificates of utilisation in respect of grants released to statutory
bodies/organisations are required to be furnished within 12 months from the
closure of the financial year by the bodies/organisations concerned. The
position of outstanding utilisation certificates with significant money value
relating to 10 Ministries/Departments as of March 2017 is given in the table
below:

5. Flow of funds held in
Central Fund during 2012-13 to 2016-17

Audit examination of Central Fund of EIC at
EIA, Kolkata revealed that huge funds were lying idle for years together in the
savings bank account without any effort to ensure their prudent utilisation.
The year-wise position of inflow and outflow of funds held in the Central Fund
during the last five years ended 2016-17 is shown in Graph below:

BCAJ Admin

From Published Accounts

Assumption
of ‘Going Concern’ basis for preparation of financial statements for the year
ended 31^st March
2018 and reporting thereon in independent auditor’s report for SEBI LODR
regulations

Jet Airways (India)
Ltd.

From Notes to financial results

The
Company has incurred a loss during the year and has negative net worth as at 31^st
March, 2018 that may create uncertainties. However, various initiatives
undertaken by the Company in relation to saving cost, optimise revenue
management opportunities and enhance ancillary revenues is expected to result
in improved operating performance. Further, our continued thrust to improve
operational efficiency and initiatives to raise funds are expected to result in
sustainable cash flows addressing any uncertainties, accordingly, the statement
of financial results continues to be prepared on a going concern basis, which
contemplates realisation of assets and settlement of liabilities in the normal
course of business including financial support to its subsidiaries.

From auditor’s report

Emphasis of Matter

We
draw attention to Note 13 of the annual standalone financial results regarding
preparation of the annual standalone financial results on going concern basis
for the reasons stated therein. The appropriateness of assumption of going
concern is dependent upon realisation of the various initiatives undertaken by
the Company and/or the Company’s ability to raise requisite finance/generate
cash flows in future to meet its obligations, including financial support to
its subsidiary companies. Our opinion is not modified in respect of this
matter.

Reliance
Communications Ltd.

From Notes to financial results

The
Company was engaged with Joint Lenders’ Forum (JLF), constituted on June 2,
2017 and under standstill period till December 2017 pursuant to the Strategic
Debt Restructuring Scheme (SDR Scheme) of Reserve Bank of India (RBI).
Consequent to circular of 1 February, 2018 of RBI, the Company continued to
work closely with the Lenders to finalise an overall debt resolution plan.
Pursuant to strategic transformation programme, as a part of debt resolution
plan of the Company under consideration, inter alia of the Lenders, the
Company and its subsidiaries; Reliance Telecom Limited (RTL) and Reliance
lnfratel Limited (RITL), with the permission of and on the basis of suggestions
of the Lenders, had for monetisation of some specified Assets, entered into
definitive binding agreements with Reliance Jio lnfocomm Limited (RJio) on
December 28, 2017 for sale of Wireless Spectrum, Towers, Fiber and Media
Convergence Nodes (MCNs). Further, the Company has also entered into a
definitive binding agreement with Pantel Technologies Private Limited and
Veecon Media and Television Limited for sale of its subsidiary company having
DTH Business. The Company and its said subsidiaries expected to close these
transactions in a phased manner. In the meanwhile, Hon’ble National Company Law
Tribunal (NCLT), Mumbai has, overruling the objections of the Company as also
its lenders represented by State Bank of India, the lead member, vide its order
dated May 15, 2018 admitted applications filed by an operational creditor for
its claims against the Company and its subsidiaries; RTL and RITL and thereby
admitted the companies to debt resolution process under the Insolvency and
Bankruptcy Code, 2016 (IBC). As a consequence, Interim Resolution Professionals
(IRPs) were appointed vide NCLT’s order dated May 18, 2018. The Company along
with the support of the lenders filed an appeal with Hon’ble National Company
Law Appellate Tribunal (NCLAT) challenging the order of NCLT admitting the Company
to IBC proceedings. The Hon’ble NCLAT, vide its order dated May 30, 2018,
stayed the order passed by NCLT and consequently, the Board stands reinstated.
Further, Minority Shareholders holding 4.26% stake in RITL had accused the
management of RITL of “Oppression of minority shareholders and
mismanagement” and filed a petition in NCLT. Based on an amendment to the
Petition, the NCLT stayed RITL’s proposed asset sale (Tower and Fibre). The
parties have subsequently settled the dispute and the restriction on sale
stands vacated pursuant to order admitting RITL to the IBC proceeding is
vacated. The Company is confident that a suitable debt resolution plan would be
formulated along with its lenders as per the strategic transformation
programme. Considering these developments, the financial results continue to be
prepared on going concern basis. This matter has been referred to by the
Auditors in their Audit Report.

From auditor’s report

We
draw attention to Note 7 of the standalone Ind AS financial results, regarding
the Definitive Binding Agreement for monetisation of assets of the company
& its two subsidiaries and National Company Law Appellate Tribunal (NCLAT)
order dated 30^th May 2018 staying the NCLT order dated 15^th
May 2018 admitting the Company under Insolvency and Bankruptcy Code (IBC),
2016. The Company is confident that a suitable resolution plan would be
formulated by lenders in view of order admitting the Company under IBC
proceedings is vacated/stayed, accordingly financial results of the Company have
been prepared on going concern basis. Our opinion is not modified in respect of
the above matters.

Tata Teleservices
(Maharashtra) Ltd

From Notes to financial results

The
accumulated losses of the company as of March 31, 2018 have exceeded its
paid-up capital and reserves. The company has incurred net loss during the year
ended March 31, 2018 and the company’s current liabilities exceeded its current
assets as on that date. The company is in discussion for monetisation of
certain assets, proceeds of which will be used to meet its financial
obligations as and when they fall due. Further, the company has obtained a
support letter from its promoter indicating that the promoter will take
necessary actions to organise for any shortfall in liquidity in the company
that may arise to meet its financial obligations   and
timely   repayment of
debt   during the 12 months from balance sheet date.

From auditor’s report

No
remarks

Sri Adhikari
Brothers Television Network Ltd.

From Notes to financial results

During
the year ended 31^st March 2018, the company’s loan facilities from
banks has turned Non performing. Management of the company has submitted its
resolution plan, which is under consideration with the banks. The management of
the company is focussing on growth in cash flow and is quite confident to reach
some workable solution to resolve the financial position of the company.

From auditor’s report

We
draw attention to Note 6 regarding preparation of results on going concern
basis notwithstanding the fact that loans have been recalled back by secured
lenders, current liabilities are substantially higher than the current assets
and substantial losses incurred by the company during the financial year ending
31^st March 2018. The appropriateness of assumption of going concern
is mainly dependent on approval of company’s resolution plan with the secured
lenders, company’s ability to generate growth in cash flows in future, to meet
its obligations.

Our
opinion is not modified in respect of the matter stated in the above paragraph.

Spice Jet Ltd.

From Notes to financial results

The
Company has been consistently profitable for the last three financial years, as
a result of which the negative net worth of Rs. 14,852 million as on March 31,
2015 has substantially improved, and is only Rs. 429.7 million as on March 31,
2018. The Company’s net current liabilities have also reduced by similar
amounts. The earlier position of negative net worth and net current liabilities
was the result of historical market factors.

As a
result of various operational, commercial and financial measures implemented
over the last three years, the Company has significantly improved its liquidity
position, and generated operating cash flows during that period.

In
view of the foregoing and having regard to industry outlook in the markets in
which the Company operates, management is of the view that the Company will be
able to maintain profitable operations and raise funds as necessary, in order
to meet its liabilities as they fall due. Accordingly, these financial results
have been prepared on the basis that the Company will continue as a going
concern for the foreseeable future.

From auditor’s report

No remarks

BCAJ Admin

OECD – Recent Developments – An Update

In this issue, we have
covered major developments in the field of International Taxation in the
Calendar year 2018 till date and work being done at OECD in various other
related fields. It is in continuation of our endeavour to update the readers on
major developments at OECD at regular intervals. Various news items included
here are sourced from various OECD Newsletters as available on its website.

In this write-up, we have
classified the developments into 6 major categories viz.:

1) Tax Treaties

2) BEPS Action Plans

3) Transfer Pricing

4) Common Reporting Standard (CRS)

5) Multilateral Convention on Mutual
Administrative Assistance in Tax Matters

6) Others

1) Tax Treaties

(i) Major step forward in international tax
co-operation as additional countries sign landmark agreement to strengthen tax
treaties

24/01/2018 – Ministers and
high-level officials from Barbados, Jamaica, Malaysia, Panama and Tunisia have
today signed the BEPS Multilateral Convention bringing the total number
of signatories to 78.

In addition to those
signing today, Algeria, Kazakhstan, Oman and Swaziland have expressed their
intent to sign the Convention, and a number of other jurisdictions are actively
working towards signature by June 2018. So far, four jurisdictions – Austria,
the Isle of Man, Jersey and Poland – have ratified the Convention, which will
enter into force three months after a fifth jurisdiction deposits its
instrument of ratification.

The text of the Convention,
the explanatory statement, background information, database, and position of
each signatory are available at http://oe.cd/mli.

2)
BEPS Action Plans

(i) OECD releases decisions on 11 preferential
regimes of BEPS Inclusive Framework Members

17/05/2018 – Governments
are continuing to make swift progress in bringing their preferential tax
regimes in compliance with the OECD/G20 BEPS standards to improve the
international tax framework.

Today, the Inclusive
Framework released the updates to the results for preferential regime reviews
conducted by the Forum on Harmful Tax Practices (FHTP) in connection with BEPS
Action 5:

– Four new regimes were
designed to comply with FHTP standards, meeting all aspects of transparency, exchange of information, ring fencing and
substantial activities and are found to be not harmful (Lithuania, Luxembourg,
Singapore, Slovak Republic).

– Four regimes were abolished or amended to remove harmful features
(Chile, Malaysia, Turkey and Uruguay).

– A further three regimes do not relate to geographically mobile
income and/or are not concerned with business taxation, as such posing no BEPS
Action 5 risks and have therefore been found to be out of scope (Kenya and two
Viet Nam regimes).

Eleven new preferential
regimes are identified since the last update, bringing the total to 175 regimes
in over 50 jurisdictions considered by the FHTP since the creation of the
Inclusive Framework. Of the 175, 31 regimes have been changed; 81 regimes
require legislative changes which are in progress; 47 regimes have been
determined to not pose a BEPS risk; 4 have harmful or potentially harmful
features and 12 regimes are still under review.

This update shows the
determination of the Inclusive Framework to comply with the international
standards. For the updated table of regime results, see www.oecd.org/tax/beps/update-harmful-tax-practices-2017-progress-report-on-preferential-regimes.pdf.

(ii) The United Arab Emirates and Bahrain joins the
Inclusive Framework on BEPS.

(iii) OECD releases additional guidance on the
attribution of profits to a permanent establishment under BEPS Action 7

22/03/2018 – Today, the
OECD released the report Additional Guidance on the Attribution of
Profits to Permanent Establishments (BEPS Action 7).

In October 2015, as part of
the final BEPS package, the OECD/G20 published the report on Preventing
the Artificial Avoidance of Permanent Establishment Status. The Report
recommended changes to the definition of permanent establishment (PE) in
Article 5 of the OECD Model Tax Convention, which is crucial in determining whether
a non-resident enterprise must pay income tax in another State. In particular,
the Report recommended changes aimed at preventing the use of certain common
tax avoidance strategies that have been used to circumvent the existing PE
definition.

(iv) OECD and IGF invite comments on a draft
practice note that will help developing countries address profit shifting from
their mining sectors via excessive interest deductions

18/04/2018 – For many
resource-rich developing countries, mineral resources present an unparalleled
economic opportunity to increase government revenue. Tax base erosion and
profit shifting (BEPS), combined with gaps in the capabilities of tax
authorities in developing countries, threaten this prospect. One of the avenues
for international profit shifting by multinational enterprises is the use of
excessive interest deductions.

Building on BEPS Action
4, this practice note has been prepared by the OECD Centre for Tax
Policy and Administration under a programme of co-operation with the
Intergovernmental Forum on Mining, Minerals, Metals and Sustainable Development
(IGF), to help guide tax officials on how to strengthen their defences against
BEPS.

It is part of wider efforts
to address some of the challenges developing countries are facing in raising
revenue from their mining sectors. This work also complements action by the Platform
for Collaboration on Tax and others to produce toolkits on top priority tax
issues facing developing countries.

(v) OECD releases third round of peer reviews on
implementation of BEPS minimum standards on improving tax dispute resolution
mechanisms and calls for taxpayer input for the fifth round

12/03/2018 – As the BEPS
Action 14 continues its efforts to make dispute resolution more timely,
effective and efficient, eight more peer review reports have been released
today. These eight reports highlight how well jurisdictions are implementing
the Action 14 minimum standard as agreed to in the OECD/G20 BEPS Project.

The third round reports
released today relate to implementation by the Czech Republic, Denmark,
Finland, Korea, Norway, Poland, Singapore and Spain. A document addressing
the implementation of best practices is also available on each jurisdiction
that chose to opt to have such best practices assessed. These eight reports
contain over 215 specific recommendations relating to the minimum standard. In
stage 2 of the peer review process, each jurisdiction’s effort to address the
recommendations identified in its stage 1 peer review report will be assessed.

3) Transfer Pricing

(i) OECD
and Brazil launch project to examine differences in cross-border tax rules

28/02/2018 – The OECD and Brazil today
launched a joint project to examine the similarities and gaps between the
Brazilian and OECD approaches to valuing cross-border transactions between
associated firms for tax purposes. The project will also assess the potential
for Brazil to move closer to the OECD’s transfer pricing rules, which are a
critical benchmark for OECD member countries and followed by countries around
the world.

(ii) OECD invites public comments on the scope of
the future revision of Chapter IV (administrative approaches) and Chapter VII
(intra-group services) of the Transfer Pricing Guidelines

09/05/2018 – The OECD is
considering starting two new projects to revise the guidance in Chapter IV
(administrative approaches) and Chapter VII (intra-group services) of the
Transfer Pricing Guidelines.

Public comments are invited
on:

– the future revision of Chapter IV, “Administrative Approaches to
Avoiding and Resolving Transfer Pricing Disputes” of the Transfer Pricing
Guidelines, and

– the future revision of Chapter VII, “Special Considerations for
Intra-Group Services”, of the Transfer Pricing Guidelines.

(iii) OECD releases 14 additional country profiles
containing key aspects of transfer pricing legislation

09/04/2018 – The OECD has published
new transfer pricing country profiles for Australia, China (People’s
Republic of), Estonia, France, Georgia, Hungary, India, Israel, Liechtenstein,
Norway, Poland, Portugal, Sweden and Uruguay respectively. These new
profiles reflect the current transfer pricing legislation and practices of each
country. The profiles of Belgium and the Russian Federation have also been
updated. The country profiles are now available for 45 countries.

4) Common Reporting Standard (CRS)

(i) OECD addresses the misuse of
residence/citizenship by investment schemes

19/04/2018 – Today’s
revelations from the “Daphne Project” on the Maltese residence and
citizenship by investment schemes underline the crucial importance of the
OECD’s work to ensure that the integrity of the OECD/G20 Common Reporting
Standard (CRS) is preserved and that any circumvention is detected and
addressed.

Over the last months, the
OECD has been taking a set of actions to ensure that all taxpayers maintaining
financial assets abroad are effectively reported under the CRS, including by:

– issuing new model disclosure rules that require lawyers,
accountants, financial advisors, banks and other service providers to inform
tax authorities of any schemes they put in place for their clients to avoid
reporting under the CRS. The adoption of such model mandatory disclosure rules
will have a deterrent effect on the promotion of CBI/RBI schemes for
circumventing the CRS and provide tax authorities with intelligence on the
misuse of such schemes as CRS avoidance arrangements. The EU Member States have
already agreed to implement these rules as part of a wider directive on
mandatory disclosures;

– reaching out to individual jurisdictions, including Malta, to
make them aware of the risk of abuse of their CBI/RBI schemes and offer
assistance in adopting mitigating measures; and

– establishing a list of high risk schemes in order to further
raise awareness amongst stakeholders of the potential of such schemes to
undermine the CRS due diligence and reporting requirements.

In addition, on 19^th
February 2018, the OECD issued a consultation document, outlining potential
situations where the misuse of CBI/RBI schemes poses a high risk to accurate
CRS reporting and seeking public input both to obtain evidence on the misuse of
CBI/RBI schemes and on effective ways for preventing such abuse.

The substantial amount of
input received in response to the consultation further underlines the
importance of the OECD’s actions in this field. It also contains a wide range
of proposals for further addressing the misuse of RBI/CBI schemes, including:
1) comprehensive due diligence checks to be carried out as part of the RBI/CBI
application process, 2) the spontaneous exchange of information about
individuals that have obtained residence/citizenship through such a CBI/RBI
scheme with their original jurisdiction(s) of tax residence; and 3)
strengthened CRS due diligence procedures on financial institutions with
respect to high risk accounts.

(ii) Global
network for the automatic exchange of offshore account information continues to
grow; OECD releases new edition of the CRS Implementation Handbook

05/04/2018 – Today, the
OECD published a new set of bilateral exchange relationships established under
the Common Reporting Standard Multilateral Competent Authority Agreement (CRS
MCAA) which for the first time includes activations by Panama.

In total, there are now
over 2700 bilateral relationships for the automatic exchange of offshore
financial account information under the CRS in place across the globe. The full
list of automatic exchange relationships that are currently in place under the CRS
MCAA is available online.

The OECD today also
released the second edition of the Common Reporting Standard Implementation
Handbook.

The Handbook provides
practical guidance to assist government officials and financial institutions in
the implementation of the CRS and to provide a practical overview of the CRS to
both the financial sector and the public at-large.

(iii) Game
over for CRS avoidance! OECD adopts tax disclosure rules for advisors

09/03/2018 – Responding to
a request of the G7, today, the OECD has issued new model disclosure rules
that require lawyers, accountants, financial advisors, banks and other service
providers to inform tax authorities of any schemes they put in place for their
clients to avoid reporting under the OECD/G20 Common Reporting Standard (CRS)
or prevent the identification of the beneficial owners of entities or trusts.

As the reporting and
automatic exchange on offshore financial accounts pursuant to the CRS becomes a
reality in over 100 jurisdictions this year, many taxpayers that held
undeclared financial assets offshore have come clean to their tax authorities
in recent years, which has already led to over 85 billion of additional tax
revenue.

At the same time, there are
still persons that, often with the help of advisors and financial
intermediaries, continue to try hiding their offshore assets and fly under the
radar of CRS reporting. The new rules released today target these persons and
their advisers, by introducing an obligation on a wide range of intermediaries
to disclose the schemes to circumvent CRS reporting to the tax authorities. The
new rules also require the reporting of structures that hide beneficial owners
of offshore assets, companies and trusts.

These model disclosure
rules will be submitted to the G7 presidency and are part of a wider strategy
of the OECD to monitor and act upon tendencies in the market that try to avoid
CRS reporting and hide assets offshore. As part of this work the OECD is also
addressing cases of abuse of golden visas and similar schemes to circumvent CRS
reporting.

(iv) OECD releases consultation document on misuse
of residence by investment schemes to circumvent the Common Reporting Standard

19/02/2018 – More and more
jurisdictions are offering “residence by investment” (RBI)
or “citizenship by investment” (CBI) schemes, which
allow foreign individuals to obtain citizenship or temporary or permanent
residence rights in exchange for local investments or against a flat fee.
Individuals may be interested in these schemes for a number of legitimate
reasons, including greater mobility thanks to visa-free travel, better
education and job opportunities for children, or the right to live in a country
with political stability. At the same time, information released in the market
place and obtained through the OECD’s CRS public disclosure facility,
highlights the misuse of RBI and CBI schemes to circumvent reporting under the
Common Reporting Standard (CRS).

As part of its CRS loophole strategy, the OECD
is releasing a consultation document that (1) assesses how these schemes are
used in an attempt to circumvent the CRS; (2) identifies the types of schemes
that present a high risk of abuse; (3) reminds stakeholders of the importance
of correctly applying relevant CRS due diligence procedures in order to help
prevent such abuse; and (4) explains next steps the OECD will undertake to
further address the issue, assisted by public input.

(v) Panama joins international tax co-operation
efforts to end bank secrecy

15/01/2018 – Today, at the
OECD Headquarters in Paris, the Director-General of Revenue and the delegated
Competent Authority of Panama, Publio Ricardo Cortés, has signed the CRS Multilateral Competent Authority Agreement?
(CRS MCAA), in presence of OECD Deputy Secretary-General Masamichi Kono. Panama
is the 98^thjurisdiction to join the CRS MCAA, which is the prime
international agreement for implementing the automatic exchange of financial
account information under the Multilateral Convention on Mutual Administrative
Assistance.

5) Convention on Mutual Administrative
Assistance in Tax Matters

The Convention on Mutual
Administrative Assistance in Tax Matters (“the Convention”) was
developed jointly by the OECD and the Council of Europe in 1988 and amended by
Protocol in 2010. The Convention is the most comprehensive multilateral
instrument available for all forms of tax co-operation to tackle tax evasion
and avoidance, a top priority for all countries.

The Convention was amended
to respond to the call of the G20 at its 2009 London Summit to align it to the
international standard on exchange of information on request and to open it to
all countries, in particular to ensure that developing countries could benefit
from the new more transparent environment. The amended Convention was opened
for signature on 1^st June 2011.

122 jurisdictions currently
participate in the Convention, including 17 jurisdictions covered by territorial
extension*. This represents a wide range of countries including all G20
countries, all BRIICS, all OECD countries, major financial centres and an
increasing number of developing countries.

* In May 2018, the People’s
Republic of China extended the territorial scope of the Convention to the Hong
Kong and Macau Special Administrative Regions pursuant to Article 29. As such,
The Convention will enter into force for
both Hong Kong (China) and
Macau (China) on 1^stSeptember
2018.

6) Others

(i) Global Forum issues tax transparency compliance
ratings for nine jurisdictions as membership rises to 150

04/04/2018 – The Global
Forum on Transparency and Exchange of Information for Tax Purposes (the Global
Forum) published today nine peer review reports assessing compliance with international
standards on tax transparency.

Eight of these reports
assess countries against the updated standards which incorporate beneficial
ownership information of all legal entities and arrangements, in line with the
Financial Action Task Force international definition.

Four jurisdictions – Estonia,
France, Monaco and New Zealand – received an overall rating of “Compliant.”
Three others – The Bahamas, Belgium and Hungary were rated “Largely
Compliant.” Ghana was rated “Partially Compliant.”

Progress for Jamaica
were recognised through a Supplementary Report
which attributes a “Largely Compliant” rating.

The Global Forum now
includes 150 members on an equal footing as Montenegro has just joined the
international fight against tax evasion. Members of the Global Forum already
include all G20 and OECD countries, all international financial centres and
many developing countries.

The Global Forum also runs
an extensive technical assistance programme to provide support to its members
in implementing the standards and helping tax authorities to make the best use
of cross-border information sharing channels.

(ii) Governments should make better use of energy
taxation to address climate change

14/02/2018 – Taxing
Energy Use 2018 describes patterns of energy taxation in 42 OECD and G20
countries (representing approximately 80% of global energy use), by fuels and
sectors over the 2012-2015 period.

New data shows that energy
taxes remain poorly aligned with the negative side effects of energy use. Taxes
provide only limited incentives to reduce energy use, improve energy efficiency
and drive a shift towards less harmful forms of energy. Emissions trading
systems, which are not discussed in this publication, but are included in the
OECD’s Effective Carbon Rates, are having little impact on this broad picture.

Meaningful tax rate
increases have largely been limited to the road sector. Fuel tax reforms in
some large low-to-middle income economies have increased the share of emissions
taxed above climate costs from 46% in 2012 to 50% in 2015. Encouragingly, some
countries are removing lower tax rates on diesel compared to gasoline. However,
fuel tax rates remain well below the levels needed to cover non-climate
external costs in nearly all countries.

Coal, characterised by high
levels of harmful emissions and accounting for almost half of carbon emissions
from energy use in the 42 countries, is taxed at the lowest rates or fully
untaxed in almost all countries.

While
the intense debate on carbon taxation has sparked action in some countries,
actual carbon tax rates remain low. Carbon tax coverage increased from 1% to 6%
in 2015, but carbon taxes reflect climate costs for just 0.3% of emissions.
Excise taxes dominate overall tax rates by far.

Note:
The reader may visit the OECD website and download various reports referred to
in this article for his further studies.

BCAJ Admin

Service Tax

i Supreme
Court

26. 2018 (10) GSTL 118 (SC)
Commissioner of

Service Tax vs. Bhayana Builders Pvt. Ltd.

Date of Order: 19^th February, 2018

Value of materials
supplied free of cost by service recipient would not be includible in the value
of taxable services.

Facts

Respondent assessee was
engaged in the business of construction and was providing “Commercial or
Industrial Construction Service”. Revenue demanded to include value of goods
supplied by service recipient free while calculating “gross amount charged” and
33% thereof be treated as value for levying service tax vide Notification No.
15/2004-ST dated September 10, 2004. Later, Notification was amended vide
another Notification No. 4/2005-ST dated March 01, 2005 adding an explanation
stating that the “gross amount charged” shall include the value of goods and
material supplied and provided or used by the provider of construction services
for providing such service. The Larger Bench decided that value of free
goods/materials supplied by service recipient cannot be added for valuation of
service provided by service provider. Correctness of the said Larger Bench
decision was challenged in present appeals. Revenue argued that Explanation (c)
to section 67 (4) of Finance Act, 1994 provided that payment received in “any
form” and “any amount credited or debited’ was to be included in gross amount
charged. Department also argued that 33% rate was prescribed by Government
keeping in view the entire construction project which roughly comprises of 67%
of cost of material and 33% is value of services.

Held

Hon’ble Supreme Court noted
that the Phrase “gross amount” in section 67 only referred to the entire
contract value without deduction of any expenses. Further, the word ‘charged’
used in section 67 referred to the amount billed by service provider to service
receiver. By using further words “for such service provided”, the Act required
a nexus between the amount charged and services provided. Therefore, amount
having no nexus with taxable service cannot be part of taxable value u/s. 67.
Though section 67 (4) states that the value shall be determined in such manner
as may be prescribed, however, it is subject to the provisions of sub-sections
(1), (2) and (3). Moreover, no such
manner was prescribed which included the value of free goods/ material supplied
by the service recipient for determination of the gross value. Explanation (c)
to section 67 only provided for mode of payment or book adjustment and did not
expand the meaning of the term “gross amount charged”. Further it was held that
value of taxable services cannot be dependent on value of goods supplied free
of cost by service recipient since service recipient can use any quality of
material and value of such goods can vary significantly. Firstly, no material
was produced before Hon’ble Supreme Court to justify the basis of formula
adopted while issuing notification. Secondly, the language of notification also
provided for “33% of gross amount charged for providing taxable services”.
Further, even vide section 93 of the Finance Act, 1994, exemption from levy of
service tax leviable on “taxable service” only can be provided by Government.
Therefore, since value of goods provided by service provider free of cost was
not specifically included by legislature, the same cannot form part of taxable
value of services.

27. 2018 (10) GSTL 401 (SC)
Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd. Date of Order: 07^th March, 2018

No Service Tax is leviable
on reimbursement of expenses prior to May 14, 2015.

Facts

Respondents were receiving
reimbursement of expenses incurred such as air travel, hotel stay, etc.
Writ petition was filed by assessees challenging the vires of Rule 5 of
Service Tax (Determination of Value) Rules, 2005 as unconstitutional and ultra
vires section 66 and 67 of the Finance Act, 1994. Contention of the
assessee was that section 67 was amended from May 14, 2015 to include
reimbursement of expenses through insertion of an explanation. Prior to such
amendment, ‘consideration’ in respect of taxable services provided or to be
provided was only leviable to service tax. Assessee relied on
Circular/Instruction F. No. B-43/5/97-TRU dated June 06, 1997. Section 67
provided for gross amount charged for providing ‘such’ taxable service and
therefore, any amount collected which was not for providing such taxable
service cannot be covered within tax net.

Held

Hon’ble
Supreme Court observed that the expression ‘such’ used in section 67 provided
for charging service tax only on gross amount charged for providing ‘such’
taxable services and value cannot be more or less than consideration paid as quid
pro quo for rendering such service. Therefore, any other amount cannot form
part of value of services. Though section 67 (4) was provided for making rules
to lay down manner of valuation, the same was subject to section 67 (1) and
therefore, cannot travel beyond section 67 (1). Consequently, noting the
amendment to section 67 vide the Finance Act, 2015, it was held that reimbursable expenditure or
cost will not form part of value of taxable services prior to May 14, 2015.

28. 2018 (9) GSTL 337
(SC) Commissioner of

Central Excise and S.T. vs. Ultra Tech Cement Ltd. Date of Order :
01^st February, 2018

No Cenvat Credit
admissible on outward transportation services from factory to buyer’s premises.

Facts

Assessee availed Cenvat
credit of service tax paid on outward transportation of goods through a
transport agency from their premises to the customer’s premises from January,
2010 to June, 2010. Revenue alleged that such transfer cannot be considered to
be used directly or indirectly in relation to clearance of goods from the
factory viz. place of removal and therefore, disallowed Cenvat credit
considering it not to be an input service within the ambit of Rule 2(l)(ii) of
the CENVAT Credit Rules, 2004. Considering the provisions of the Rules,
adjudicating authority held that post clearance transportation services cannot
be considered to be “input services”. Further, in absence of any documentary
evidence relating to prove conditions provided in Circular 97/8/2007-Service
Tax dated August 23, 2007 clarifying the definition of “place of removal”, OIO
was passed confirming demand. After rounds of litigation, Revenue filed an
appeal to Hon’ble Supreme Court.

Held

As per the definition of
“input service” contained in Rule 2(l) of Cenvat Credit Rules, 2004, Hon’ble
Supreme Court observed that such outward transportation is not covered under
Rule 2 (l)(i). Further, Rule 2 (l) (ii) covers only those services, which are
used by the manufacturer, whether directly or indirectly, in or in relation to
the manufacture of final products and clearance of final products upto the place of removal. The two clauses in
the definition should be read harmoniously and there should not be any
conflict, which defeats the scheme of the Law. Therefore, after the amendment
made from 01 March, 2008, wherein the word ‘from’ was replaced by the word
‘upto’, goods transport agency service used for the purpose of outward
transportation from place of removal i.e. factory to customer’s premises,
cannot be considered as “input service” for availment of Cenvat credit.
Circular was held to be inapplicable in the present case since it was issued
prior to the amendment in the definition of “input service”. If said circular
is made applicable even in respect of post amendment cases, it would be
violative of Rule 2(l) of the CENVAT Credit Rules.

II
High Court

29. 2018 (11) GSTL 341
(All.) Astt.. Commr. of
Central Excise vs. Advance Steel Tubes Ltd. Date of Order: 06^th
March, 2018

Doctrine of unjust
enrichment not applicable in case of pre-deposit of duty by the assessee at the
time of filing of appeal.

Facts

The officers of Central
Excise visited the factory premises of the assessee and found variation in the
finished good as compared to the balance shown in RG-1. The stock of finished
products was also found short. The stock of inputs was found excess as compared
to the stock register. An investigation was made and the party debited an
amount of 18.75 lakh under protest on account of the said discrepancies. The
assessee made pre-deposit of INR 18.75 lakh before filing of appeal. On account
of conclusion of proceedings before Tribunal and the Settlement Commission,
amount of INR 10,34,000 was claimed as refund out of
the pre-deposit made.

The refund claim was
rejected by the Adjudicating Officer by holding that the party had accounted
for the duty paid under protest as expenditure in the balance sheet and costing
of the products were finalised by taking into account the cost of raw materials
along with manufacturing and other expenses and hence, the presumption was that
the same has been passed on to the buyer in the form of incurred/enhanced
costing for current and further supplies of the party’s products. The assessee
filed an appeal with the Commissioner (Appeals) which was rejected. Appeal was
filed before the Tribunal.

Tribunal was of the view
that this was not the case of the unjust enrichment because the duty involved
in refund was not paid at the time of clearance of goods but subsequently
during the course of investigation for the past period. The goods had already
been cleared earlier. It was emphasised that the confirmed duty was adjusted
from the pre-deposit by treating it as a sanctioned refund. In so far as the
amount which had been taken by the department during investigation that is a
sum of Rs.8,40,120/-, the same had also been taken without considering the cost
structure of the goods and despite that the department was invoking the bar of
unjust enrichment to the balance amount for which the refund has been claimed
and this would not be tenable. Accordingly, order passed by the Hon’ble Tribunal
was in favour of assessee. The Revenue went on to file an appeal with the High
Court.

Held

The Hon’ble High Court has
accepted the final decision taken by Tribunal and held that that the bar of
section 11B of the Act did not apply in the present case, is correct and
justified.

30. [2018-TIOL-1058-HC-DEL-ST] Santani Sales Organization vs.
CESTAT, Delhi and Others Date of Order: 31^st May, 2018

Pre-deposit of 10% while
filing second Appeal u/s. 35F of the Central Excise Act, 1944 is inclusive of 7.5% deposit made
for the first appeal.

Facts

The question before the
Court is whether as per section 35F of the Central Excise Act, 1944, the
petitioner is required to make an additional pre-deposit of 10% of the
duty and penalty in dispute over and
above 7.5% deposit made for filing of first appeal before the Commissioner
(Appeals) while filing second appeal before the Tribunal. Circular No.
984/08/2014-CX dated 16^th September, 2014 clarifies that “in the
event of appeal against the order of Commissioner (Appeal) before the Tribunal,
10% is to be paid on the amount of duty demanded or penalty imposed by the
Commissioner (Appeal).

Held

The Court noted that the
section should not be construed by adding or substituting words. The intent is
that the assessee should pre-deposit 10% of the total tax or penalty, which is
the subject matter of the Appeal. It is not to ignore the pre-deposit of 7.5%
already made to file first appeal. There is logic in increasing pre-deposit by
2.5% when second appeal is filed, but adding words to the plain and unambiguous
provision that 10% pre-deposit will be
over and above 7.5% pre-deposit made at the time of the first appeal is
uncalled for. Therefore the writ petition is allowed and it is directed that
the petitioners and others on filing second appeal is required to deposit 10%
of the amount of duty/penalty as
confirmed by the first appellate authority inclusive of 7.5% pre-deposit
made for the first appeal.

III
Tribunal

31. [2018] 93 taxmann.com 338 (Mumbai-CESTAT) Ipca Laboratories
Ltd. vs. CCE & ST

Date of Order: 26^th April, 2018

Tribunal held that
reimbursements of salaries paid by distributors to sales representatives
appointed by them in foreign countries would not be taxed under “business auxiliary
services”. Service tax demand under
“scientific and technical consultancy services” was held to be unsustainable in
respect of payments made to foreign regulatory authorities for
registration/approval of products. Tribunal held that in absence of online
access, data storage services provided by foreign service provider would not be
liable to service tax under “online database access and retrieval services”

Facts

Appellant manufacturer of
medicaments engaged various distributors for distribution of medicaments in
various countries. These distributors appointed sale representatives for
promotion of products supplied by appellant and salaries of such sales
representatives are reimbursed by appellant to the distributors under a cover
of debit note. Revenue demanded service tax on such reimbursements under
category of “business auxiliary services.” As regards appellant receiving
services of registration of its therapeutic products in foreign company,
revenue alleged that such services are liable to service tax as “scientific and
technical consultancy services”. Further, service tax was demanded under
category of “online access and database retrieval services” in respect of
invoices raised by foreign company for alert storage charges, internet charges
etc.

Held

As regards demand under
category of “business auxiliary services”, Hon’ble Tribunal noted that the
agreement between appellant and distributors provides that promotional
activities will be directly under supervision of the appellant. The invoices
raised by distributors for such expenses describe the same as ‘”amounts towards
marketing survey and promotional expenses”/ “marketing expenses” etc. and
neither the invoices nor the debit notes contain any breakup of expenses.
Tribunal held that demand under “business auxiliary services” would not sustain
on reimbursements made by appellant. For this purpose, it relied on the
decision in case of Genom Biotech (P) Ltd. vs. CCE&C [2016] 71
taxmann.com 123 (Mum.-CESTAT), wherein Tribunal categorically held that
services rendered in connection with business and commerce outside India were
not intended to be taxed in India in terms of erstwhile service tax rules. As
regards next issue of demand under “scientific and technical consultancy
services”, Tribunal noted that such services are in the nature of regulatory
services obtained for registration/approval of appellant’s products in other
countries. Reference was made to the decision in Administrative Staff
College of India vs. CC & CE [2009] 18 STT 78 (Bang. – CESTAT), also
affirmed by Hon’ble Supreme Court in 2010 (20) STR J117, wherein it was
held that in order to assert that an organisation is providing scientific or
technical consultancy, two basic ingredients have to be established. The
organisation must be a science or technology institution and the consultancy
must relate to one or more disciplines of science or technology. In present
case Tribunal noted that the service provider merely executes registration
process without rendering any advise, consultancy or technical assistance in
the science. Also, the said service provider is not a scientist or a technocrat
or any science or technology institutions or organisations. Thus, Tribunal held
that as these regulatory services are not in the nature of “Scientific and
Technical Consultancy Services”, impugned demand is liable to be set
aside. Further, as regards demand under “online database and access retrieval
services”, it was observed that the services were used by appellant for data
storage. The foreign service provider neither has website where data can be
accessed nor any information is accessed by appellant from any database of said foreign company. Since no
online service is provided and also, there is no online service provider,
Tribunal set aside impugned demand.

32. [2018] 93 taxmann.com 482 (New Delhi-CESTAT) Deputy
Conservator of Forest and Deputy Field Director vs. CCE.

Date of Order: 11^thApril, 2018

Tribunal held that fees
collected by state forest department for making available vehicles on rent for
safari tour into forests, are fees for discharge of statutory functions and
hence cannot be said to be taxable as consideration for supplying “tour operator
services”.

Facts

Appellant comes under
Department of Forests, Govt. of Rajasthan and exercised the jurisdiction and
control over the Tiger Projects in Rajasthan. The Revenue noticed that the
appellant was collecting certain amounts from the tourists and making available
vehicles on rent for safari tour into the Ranthambore Park. Out of the amounts
so collected, a certain portion was paid to the vehicle owners towards rent of
the vehicle and the balance was retained and deposited with the State Government
in appropriate head of account. Revenue alleged that State Forest Department
had made arrangements for supply of vehicles to tourists for going around the
National Park and has recovered amounts towards the same, thereby liable to pay
service tax under “tour operator services”.

Held

Hon’ble Tribunal noted that
the Forest Department performs the sovereign function of protecting and
improving the environment and to safeguard the forests and wild life of the
country as mandated under Article 48A of the Constitution of India. The Wild
Life (Protection) Act, 1972, which provides for Notification and Management of
National Parks for conservation of wild life, empowers the State Government, to
notify the forests as National Park as well as to restrict the entry of
visitors as well as vehicles into the National Park. Tribunal noted that the
primary objective of such restriction is to protect wild life and tourism is
permitted only to the extent circumscribed by the above objectives. It was also
observed that the amount recovered from the tourists are credited to the
account of the State Government after reimbursing the vehicle owners towards
the rent payable for such vehicles. Tribunal noted that the Forest Department
has the mandatory duty to protect the environment and to safeguard forests and
wild life. Therefore, it was held that amounts recovered by appellant towards
issue of entry permits as well as vehicles which have also been credited to the
State Treasury are to be considered in the nature of fee or amount collected as
per the provisions of relevant statute for performance of statutory functions
and cannot be considered as consideration for purposes of organizing tour.
Accordingly, present appeal was allowed by setting aside impugned demand.

33. [2018] 93 taxmann.com 162 (New Delhi-CESTAT) Vijay Kumar
Kataria vs. CCE.

Date of Order: 30^thJanuary, 2018

Activities of replacing
old damaged water line, improvement of water supply in various villages etc.
falls under category of “commercial and industrial construction service” and as
the said services were provided to Government organisation, which is
non-commercial, no service tax liability would arise.

Facts

Appellant executed
contracts with Delhi Jal Board, in which nature of work involved replacing of
old damaged water line, for improvement of water supply in various villages as
well as replacement of badly silted and damaged sewer lines. Revenue alleged
that services provided by appellant are classifiable under Management,
Maintenance or Repair Service as such services are provided under maintenance
contract. On the other hand, appellant contends that services in question are
more appropriately classifiable under “commercial and industrial construction
services”. Appellant further submitted that since the services have been
rendered to Delhi Jal Board, such services are not indented for Commerce or
Industry and accordingly, no service tax would be liable to be paid.

Held

Hon’ble Tribunal noted that
contracts between appellant and Delhi Jal Board are for replacement of
pipelines in specified segments. It is neither in the nature of an ongoing
maintenance contract nor in the nature of construction or laying of
pipelines/conduit. Accordingly, Tribunal concurred with appellant’s submission
that the service in question is more specifically covered under the category of
Commercial and Industrial Construction. It was held that classification under
Management, Maintenance or Repair would not cover the activities of the
appellant since these are not in the nature of Maintenance Contract. Further, recording a finding that Delhi Jal
Board is not a commercial organisation, Tribunal held that appellant would not
be liable to pay any service tax demand and thereby, set aside impugned order.

34. 2018 (11) GSTL 104 (Tri. – Chennai) Prasad Corporation Ltd.
vs. Commissioner of Service Tax, Chennai.
Date of Order: 30^th Oct., 2017

Statutory provisions
relating to taxation to be construed literally without engraving any additional
meaning thereto.

Facts

Appellant assessee offered
services like Computer graphics, digital restoration and reverse telecine to
customers abroad, seeking to cover the services under Business Auxiliary
Services. Department initiated proceedings alleging that the services provided
are in the nature of “Video Tape Production Services” defined u/s. 65 (105)
(zi), hence falling within the ambit of Rule 3 (1) (ii) of Export of services
Rules, 2005, therefore will not be treated as export of service. Later,
confirmed the allegation and service tax liability along with interest and
penalty. Appellant appealed to Tribunal against the impugned order stating that
services provided by Appellant are post-production film activities rendered for
services to recipients outside India as per their requirements and for which it
received payment in free convertible foreign exchange. Whereas Respondent
department contested that Video Tape Production services include the services
relating to editing, cutting, colouring, imparting special effects, processing,
adding etc. Appellant thus performs such services of addition, modifying etc.
in respect of the work undertaken by them; hence their services should
justifiably fall within “Video Tape Production Services”.

Held

Hon’ble CESTAT held that
services performed by Appellant definitely do not involve recording of any
programme, event or function. In fact services of Computer Graphics, Digital
Restoration, and Reverse Telecine, all involving activities on old feature
films are post-production film activities rendered for service recipients’ as
per their requirements. The definitions have to be read in totality and part
thereof cannot be picked up to justify that the activities performed in the
instant case will come under “Video Tape Production Services”. The
statutory provisions relating to taxation have to be construed literally
without engraving any additional meaning thereto except in very rare cases
where, the maxim of casus omissus would apply. Thus, services of restoration,
giving special effects etc. in respect of old films would not be covered under
Video Tape Production service. Appeal allowed setting aside the Impugned Order.

35. 2018 (11) GSTL 427 (Tri. – Del.) Sir Ganga Ram Hospital,
Versus Commissioner of Central Excise Delhi-I. Date of Order:06^thDecember,
2017

Collection
charges/facilitation fees paid to doctors is not consideration for business
support services. It is exempt by virtue of Notification No. 25/ 2012 – ST
dated 20^th June 2012.

Facts

The appellants are engaged
in providing health care services to the patients. The appellants have engaged
professionals and doctors on contractual basis. The doctors are provided space
in the hospitals with required facilities to attend to the patients coming to
the hospitals, run by the appellants. These doctors engaged on contract basis
are paid professional fee on a predetermined ratio on the amount received by
the appellants from the patients. The Revenue contended that doctors are in
business and the “collection charges/facilitation fee” retained by the
appellants are liable to service tax under the category of Business Support
Service for the period prior to 01.07.2012 and are a taxable service post
negative list also. The Revenue held a view that such charges/fee retained by
the appellants formed a taxable consideration for the service of
infrastructural support provided by the appellants to the doctors to enable the
doctors to carry out their work in the hospital.

Held

Hon’ble Tribunal held that
for providing healthcare services, the appellants entered into agreements with
various consulting doctors and that it does not find any business support
services in such arrangement. Further, reliance is placed on Dr. Devender
Surtis AIR 1962 SC 63 and it has been held that the doctors are not in
business or commerce but are engaged in medical profession. Further,
Notification No. 25/2011-ST exempted levy of service tax on health care
services rendered by clinical establishments. Hon’ble Tribunal held that the
view of the Revenue that in spite of such exemption available to health care
services, a part of the consideration received for such health care services
from the patients shall be taxed as business support service/taxable service is
not tenable. Accordingly, it was held that the impugned orders against which
appellants’ hospital filed appeal are devoid of merit, the same were set–aside.

36. 2018 (11) GSTL 309 (Tri. – Bang) Sundaram Finance Limited vs.
Commissioner of C. EX. & S.T., LTU Chennai.

Date of Order: 14^th September, 2017

Charges levied by on
account of Fleet Card issued by the assessee to the customers who availed
vehicle loan facilities from them is for facilitating the customers to procure
is not in the nature of interest on loans – Chargeable to service tax.

Facts

The assessee is engaged in
finance operations as a Non-Banking Financial Company. During the verification
of accounts maintained by appellant-assessee, the officers noted that service
tax has not been paid on income shown under the heading “Fleet Card Income”
from their customers. The Fleet Card issued by the assessee to the customer,
who availed vehicle loan facilities from them is for facilitating the customers
to procure fuel from the outlets of petroleum companies, with whom the assessee
had prior arrangement. These cards carry pre-paid facility as well as credit
facility. The creditworthiness of the customers was verified and cards were
issued by the appellant in their trademark as well as that of oil companies.
The cards provide credit facilities for purchasing fuel for the vehicle of the
customer.

The Revenue entertained a
view that the assessee is liable to tax under the head “Banking and Other
Financial Services”, Credit Card Services” in respect of fleet card
income. The assessee contended that the “additional finance charge”
is nothing but interest. Circular issued by CBEC dated 17^th
September 2004 clearly specifies that interest on loans is excluded for payment
of service tax. Notification No. 12/2006-ST, dated 19^th April 2006
stipulates that Interest on Loans is not to be included in the assessable
value. Further, as per Black’s Dictionary, “finance charge” is
nothing but an additional payment in the form of interest paid by a retail
buyer with the privilege of purchasing goods or services in instalments.

Held

Hon’ble CESTAT relying on
the findings of original authority held that the arrangement of fleet card
cannot be treated as repayment of loan but only a payment against credit card
utilisation. A loan is a prearranged specific amount given at one-time or in
instalments. However, in “Fleet Card System”, the same credit limit
is extended every fortnight and sometimes even remains unutilised. Fleet Card
function cannot therefore, be treated at par with a loan transaction. Further,
the amount charged by the assessee is exclusive of interest and other charges.
Interest for the month is also shown separately. Hence, the claim that
“finance charge” and “additional finance charge” are
interest is not correct.

37. [2018-TIOL-1888-CESTAT-MUM] Holtech Asia P. Ltd vs. Commissioner of Central Excise,
GST-Pune-I. Date of Order: 20^th April, 2018

Registration
of Project office of a foreign company in India is not sufficient to conclude
that the services provided to the foreign company are
received in India, unless the project office is concerned with the
services provided

Facts

The Appellant rendered
services to its parent company in USA. A refund claim was filed under Rule 5 of
the CENVAT Credit Rules, 2004 read with Rule 6A of the Service Tax Rules, 1994
towards CENVAT credit paid on input services used in providing output services.
The refund was rejected on the ground that the parent company has a project
office which is registered in India. Therefore as the service provider and
service receiver are in India, Rule 8 of the Place of Provision of Service
Rules, 2012 is applicable and accordingly condition (b) i.e. recipient located
outside India and (d) i.e. place of provision outside India of Rule 6A is not
satisfied and therefore there is no export. It was argued that the person who
has contracted is the company in USA and payment is also received in foreign exchange.

Held

The Tribunal noted that it
is undisputed that the services are received by the parent company in USA and
the amount is received in foreign exchange. Further, the project office in
India was set up with an intention to provide services to the customer in
India. Accordingly, such office in India had no connection with the services
rendered by the Appellants. Accordingly, it was held that the project office
registered in India, having no connection with the services rendered cannot be
considered as a recipient. Further in terms of Explanation 3 to section 65B
(44) different establishment located
in non-taxable territory and
taxable territory are to be treated as establishment of different persons thus
clear that the office outside India is different establishment from its project
office in India. Thus, the recipient being outside India, place of supply being
outside India, refund is admissible.

38. [2018-TIOL-1700-CESTAT-MUM] Suzlon Energy Limited vs.
Commissioner of Central Excise & Service Tax, Pune-III. Date of Order: 02^ndMay, 2018. Period: June 2007 to September 2010

Taxation of Goods and that
of services are mutually and explicitly conceived levies

Facts

The Appellant entered into
an agreement with three subsidiary companies situated in Germany and Netherland
with whom product development and purchase agreement had been entered into. In
terms thereof, subsidiaries provided technical know-how used by the appellant
for manufacture of wind turbine generators. The technical know-how/engineering
designs and drawings were imported against the bill of entry. The supply was an
outright sale with full ownership vested with the appellant. The Revenue raised
a demand to bring such imports within the framework of design service and
confirmed the service tax demand. It was argued that outright transfer or
purchase of technical know-how being excluded from the definition of intellectual
property in service, it is not legal to bring in the coverage of design
service.

Held

The Tribunal relying on
several judgments noted that taxation of goods and that of services are mutually and explicitly
conceived levies, it is clear that the same activity cannot be taxed as goods and as services.

BCAJ Admin

Corporate Law Corner

10. JAK
Builders (P.) Ltd., In re

[2018] 93 taxmann.com 467 (NCLAT)

Date of Order: 24^th April, 2018

Section 419 read with 232 of Companies Act,
2013 – Transferor and Transferee companies effecting an amalgamation belonged
to two separate territorial jurisdictions of two NCLTs– Application under
sections 230-232 were filed before both the benches of NCLT – President of NCLT
has the power to transfer the case from either one of the jurisdictions to the
other where the matter was pending

FACTS

JBPL and JIPL (together referred to as
“transferors”) intended to amalgamate with JGPL (“transferee”). The transferors
had their registered office at Gurgaon, Haryana and transferee had its
registered office at Nehru Place, New Delhi. As they intended to get their
scheme approved for merger, they filed two separate applications both under
sections 230-232 of the Companies Act, 2013, one before the National Company
Law Tribunal, New Delhi Bench (‘NCLT, New Delhi’) and another before the
National Company Law Tribunal, Chandigarh Bench, Chandigarh (‘NCLT,
Chandigarh’).

The NCLT, New Delhi Bench by order dated 17^thNovember, 2017 dismissed the application as not maintainable in view of
the lack of territorial jurisdiction. Other matter was pending before the NCLT,
Chandigarh.

The question before NCLAT was where an
application under sections 230 to 232 could be filed if the registered office
of two companies are situated within the territorial jurisdiction of two
different NCLT Benches.

HELD

NCLAT considered the facts of the case and
examined the provisions of Rule 16 of National Company Law Tribunal Rules, 2016
(“the Rules”) which lays down the powers and functions of the President of
Tribunal.

It was observed that President of the NCLT
had power to transfer any case from one Bench to other Bench when the
circumstances are so warranted. In view of such provision, and considering the
facts of the case, it was held that circumstances warranted that the President
exercises his power under Rule 16(d) to transfer one of the case from one Bench
to other Bench where other matter is pending including the cases where
transferor and transferee companies are at different places of the country.

Order passed by NCLT Delhi was set aside and
NCLAT held that parties had liberty to file application before the Hon’ble
President of the NCLT to transfer one of the case either to Chandigarh Bench or
the Bench at New Delhi for hearing of both the cases by one of the Benches.

11. Quantum Limited vs. Indus Finance
Corporation Limited

[2018] 144 CLA 157 (NCLAT)

Date of Order: 20^th February, 2018

Section 12(2) of the Insolvency and
Bankruptcy Code, 2016 – Application for extension of Corporate Insolvency
Resolution Process can be filed even after the period of 180 days is over as
long as the resolution permitting the extension has been duly approved by the
Committee of Creditors within the time frame of 180 days (including the last
day)

FACTS

Time to complete the Corporate Insolvency
Resolution Process (“CIRP”) of 180 days on Q Limited was over on 25.11.2017. On
24.11.2017, Committee of Creditors (“COC”) passed a resolution seeking
extension of time. The Resolution Professional filed the application under
section 12(2) of the Insolvency and Bankruptcy Code, 2016 (“Code”) before the
National Company Law Tribunal (“NCLT”) on 30.11.2017.

NCLT dismissed the said petition on the
grounds that there was no provision to file such application after expiry of
180 days of CIRP.

Aggrieved by the order of NCLT, Corporate
debtor preferred an appeal to the NCLAT.

HELD

NCLAT examined the provisions of section
12(2) of the Code. It was observed that as per provision of section 12(2),
resolution professional can file an application for extension of the period of
the CIRP, only if instructed to do so by a resolution passed at a meeting of
the COC by a vote of 75% of the voting shares. The provision does not stipulate
that such application is to be filed before the Adjudicating Authority within
180 days.

It was further held that If within 180 days
including the last day i.e. 180^thday, a resolution is passed by the
COC by a majority vote of 75% of the voting shares, instructing the resolution
professional to file an application for extension of period in such case, in
the interest of justice and to ensure that the resolution process is completed
following all the procedures time should be allowed by the Adjudicating
Authority who is empowered to extend such period up to 90 days beyond 180^th
day.

The NCLAT accordingly, set aside the order
of NCLT and ordered for extension of the period by 90 days from the date of
passing of the order. It was further held that period from 181st day to the
date of passing this order would not be counted for any purpose.

12.
Three Star Properties Private Limited vs. ROC

[2018] 144 CLA 80 (NCLT – New Del)

Date of Order: 25^th April, 2018

Section 252 of the Companies Act, 2013 –
Name of the company was struck off the register of companies due to non-filing
of returns – NCLT may restore the name of company which has been struck-off
from the register of companies for a “just” cause – Non-filing of returns owing
to existence of ongoing litigation in respect of immovable property proposed to
be acquired by the company constituted a
“just” cause

FACTS

TCo was a private company incorporated on
08.10.2010 with the objective of acquiring and dealing with immovable
properties. In pursuance of the said object, it commenced acquisition of a
valuable property at New Okhla Industrial Development Authority (‘NOIDA’). In
order to facilitate the purchase, TCo entered into an agreement to sell with
the owners of the said property on 15.11.2010 and even paid a part of the sale
consideration towards purchase of the property. Subsequently, TCO learned that
the said property is subject matter of dispute before Civil Judge, Gautam Buddh
Nagar, Uttar Pradesh.

In the intervening period, due to the
pendency of litigation in respect of the property being acquired, operations of
TCo came to a standstill. It however, regularly held the AGM, finalized its
accounts and filed its income-tax returns even though there were no business
operations.

Name of TCo was however, struck off from the
register of companies by the ROC due to alleged non-filing of financial
statements or annual returns for a continuous period of three financial years.
TCo filed an appeal with NCLT for the restoration of the name consequent to the
directions by the Hon’ble High Court of Delhi issued in Writ Petition(C) No.
9933 of 2017 titled “Kanwar Pal Singh v. Union of India and Others“.

TCo submitted
that it has been regular in filing returns with income-tax authorities,
regularly held the AGM since its inception. It was further submitted that TCo
continued to be in operation of business and the agreement dated 15.11.2010 was
still in force, although the same was subject matter of dispute, the outcome of
which was pending.

ROC contended that TCo should be declared a
dormant company owing to inactivity in the operations. Income-tax department
confirmed that there were no pending proceedings against TCo and it had no
objections if the name of the company was to be restored.

HELD

NCLT observed that section 252(3) of the
Companies Act, 2013 (“the Act”) empowered it to restore the name of the company
which had no business operations if the circumstances justify the existence of
“just” cause.

The Tribunal relying on decision of Delhi
High Court in CP No. 174/2013 [M.A. Panjwani ] observed that use of the word
“just” in section 252(3) of the Act has to be understood in the background of
the specific language of the sub-section and not on the basis of the principle
of ejusdem generis. Further, it was observed that where litigations were
pending and where immovable property rights were involved [as held in CP No.
406 of 2009 by the Hon’ble Delhi High Court] it was only proper that the name
of the company be restored to the register.

In the facts of the present case, land
proposed to be acquired by TCo was subject matter of civil dispute.

NCLT, in light of the ratio of the decisions
and facts of the present case, thus held that there existed a ‘just’ ground for
the restoration of the name of the TCo in the register of RoC. It order for
restoration of the name to the register of ROC but, however, the restoration
would be subject to certain terms and conditions with respect to payment of
fees, costs, non-disposal of valuable assets, restoration of names of
disqualified directors to be in accordance with law and power to ROC being
available for conduct of proceedings for late-filing, etc.

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

SOCIETY NEWS

BEPS STUDY CIRCLE

Study Circle meetings held on 2^nd May, 2019 and 11^th
May, 2019 at BCAS Conference Hall

The BEPS Study Circle
meeting was held on 2^nd May, 2019 to discuss “Article 7 of MLI with
reference to Principal Purpose Test – Analysis of provisions using case
studies”. The discussion was led by Ms Sonia Agarwal and Mr. Rutvik Sanghvi.
They gave a well-prepared analytical presentation which was followed by an
interesting discussion between members.

Meanwhile, CBDT has come
out with a draft report for public consultation on amendments to the Rules for
Profit Attribution to Permanent Establishment. The report outlined the formula
for calculating “profits attributable to operations in India” giving weightage
to sales revenue, employees, wages paid and assets deployed. To understand the
implication of the draft report at a very short notice, a study meeting was
held on 11^th May, 2019 at the BCAS Conference Hall. Mr. Ganesh
Rajgopalan analysed the report in his masterly way. Thereafter, Mr. Rashminbhai
Sanghvi explained the background and implications of the draft report. The
meeting was very interactive and the participants benefited tremendously from the
discussion.

ITF STUDY CIRCLE

Meeting on Taxation of
Agency PE in the light of OECD Commentary (BEPS Action Plan) – Part II &
III held on 9^th May, 2019 and 23^rd May, 2019 at BCAS
Conference Hall

The discussion was led by
Mr. Kartik Badiani.

At the Part II meeting on 9^th
May, 2019 a brief recap of the earlier session was given to summarise the
discussions. The group leader took the members through the various provisions
of article 12 of the Multilateral Instrument relating to the measures for
preventing avoidance of a permanent establishment. He explained the
commissionaire arrangement and why it is not very relevant in the Indian
context. He also described the expanded scope of the Agency PE arising out of
the new provisions, especially regarding activities of dependent agents in
respect of contracts for the transfer of the ownership of, or for the granting
of the right to use, property owned by that enterprise, or that the enterprise
has the right to use for the provision of services by it.

Then, he compared the MLI
provisions with the newly-substituted Explanation 2(a) to section 9(1)(i) of
the Income-tax Act. The scope of the substituted Explanation and its
applicability to purchasing activities for export or otherwise was also
discussed.

Mr. Badiani explained
Articles 5(4), 5(5) and 5(6) of the existing treaty along with the OECD
commentary. He also took the gathering through the proposed changes vis-a-vis
the existing treaty provisions.

In Part III, which was held
on 23^rd May, 2019 the group leader, after giving a recap of the
previous sessions, deliberated on nuances of the MLI and BEPS action plan on
Agency PE. Apart from a case study on low risk distributor, treaty shopping and
liaison office, an in-depth deliberation on the latest judicial precedence in
the case of General Electric and Daikin was also taken up by the Speaker, Mr.
Badiani.

DIRECT TAX STUDY CIRCLE

Discussion on ‘Issues
relating to Re-assessment’ held on 21^stMay, 2019 at BCAS Conference
Hall

The Chairman of the
session, CA Sanjeev Pandit, in his
opening remarks pointed out that the number of notices issued u/s. 148 by the
Income-tax department had been increasing over the years due to various
reasons.

Later, Group Leader CA
Navin Gandhi analysed section 147 along with provisos and the explanation to
the section. The group discussed concepts such as “Reasons to believe”, “Income
chargeable to tax”, “May assess or re-assess” which are crucial for the
application of section 147. He then referred to the conditions to be fulfilled
by the AO for issuance of notice u/s. 148 after four years from the end of the
relevant assessment year and the distinguishing factors about issuance within a
period of four years from the end of the relevant assessment year. The Supreme
Court decision in GKN Driveshafts (India) Ltd vs. ITO (2003) 259 ITR 19
(SC), a landmark ruling on the issue, was also briefly touched upon by
CA Navin Gandhi.

Thereafter, the group
discussed the following issues along with relevant case laws relating to
reassessment proceedings:

Issuance of notice u/s. 143(2) during
the course of reassessment proceedings;

Reopening of proceedings based on
change of opinion;

Reopening on ground of
“oversight, inadvertence or mistake”;

Before issuing notice u/s. 148, the AO
must have reasons to believe that the income has escaped the assessment;

Time limit u/s. 149(1)(a) / (c);

Retraction of the statement on which
reassessment is based;

Right to make inquiry of unrelated
issues;

Sharing of evidence during the course
of proceedings;

Right to cross-examination; and

Notice issued u/s. 148 on a deceased
person.

Lastly, the decision of the
Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331
ITR 236 was discussed wherein it was held that where the ground on
which reassessment notice u/s. 148 was issued was dropped while passing
reassessment order, the AO could not reassess or assess any other income which
had escaped assessment.

Lecture meeting on ‘AI,
ML and Future of Internal Auditing’ held on 24^th May, 2019 at BCAS
Conference Hall

BCAS and IIA Bombay Chapter jointly organised a lecture
meeting on “AI, ML and Future of Internal Auditing”. The speaker was Mr.
Shailesh Haribhakti who said that in today’s hyper-connected world, the
expectation from internal audit had undergone a sea change. The new rules of
the game were: More from less, Faster, No waste, No damage to Environment,
Continuous auditing and Continuous improvement for process excellence.

Mr. Haribhakti insisted
that internal auditors need to have pride in what they are doing; they need to
be determined and have integrity and ambition, too. Today, data flows were
creating and generating accounting. Everything and everyone was working through
portals, such as tax portals, legal portals, operations portals, etc. By
integrating accounting at the time of data generation, errors and wastages
could be avoided.

Internal audit had to be
ready 24×7 and with due diligence. It had to be ready to do and face forensic
audit.

They needed to be online
with all their documentation every day; offer solutions and not ideas; stay on
course every single day; demand more from themselves and others and make
winning a habit; establish morality of processes; make themselves relevant;
contribute and promote values continuously; have a dashboard to monitor
themselves and the organisation, continuously upskill themselves. Transparency,
trust and technology had to be the key drivers.

Internal auditors also had
to get themselves upgraded with the latest trends such as Robotic Process
Automation, Artificial Intelligence and Data Science. Today, an internal
auditor had to be a data scientist as well. This was because expectation had
moved from insight to foresight. Data was all about pattern and trends; for example,
can the past data be back-tested to check the current findings?

Mr. Haribhakti said that in
today’s world, primarily, financial risks were being assessed, but technology
risks, environment, social and governance (ESG) risks were ignored. The
approach wherein one just ticked a box would not do. AI tools could help assess
every component in the audit and risk universe. They could also help find
patterns.

His key takeaways were as
follows: Create a vigil mechanism; power it with AI / ML; create dashboards to
monitor the pulse of the organisation, including KPIs / KRIs; continuously
challenge the status quo; evolve rapidly and be ahead of the trends.

INTERNATIONAL ECONOMICS STUDY GROUP

Meeting on ‘Economic
Impact of Modi 2.0’ held on 28^th May, 2019 at BCAS Conference Hall

The International Economics
Study Group held its meeting on 28^th May, 2019 to discuss “Economic
Impact of Modi 2.0“. CA Shalin Divetia led the discussion presenting
key differences between the mandates of 2014 and 2019, such as enhanced moral
authority due to the stronger second mandate, better grip over administration,
better relationship with the RBI, key challenges identified and fundamental
changes implemented – GST and IBC. Prime Minister Modi is facing challenges
such as past excesses of the financial / banking sector, creation of jobs
amidst automation / protectionism, the aspirational burgeoning population,
farm-sector woes, judicial activism and NGO-led foreign interference.

CA Shalin Divetia also
threw light on the “circle” of national economy – ultimate objectives of
welfare state and national security funded mostly by tax revenues which will
generate consumption – which should come from domestic production – which
ideally requires increased capex and efficient infrastructure – which, in turn,
will impact monetary liquidity – which results from low-cost funding arising
out of low inflation – which is impacted by low CAD and low fiscal deficit
impacted by tax revenues!

Therefore, he highlighted
the Modi government’s focus on increasing tax revenues for which he presented
data of buoyancy in tax collection over the last three years which had been
showing in an improved tax-to-GDP ratio. He also presented data on fiscal
deficit, inflation, cost of funds for businesses, monetary liquidity,
government spending on infrastructure and encouragement to domestic
manufacturing which would result in control of CAD and fiscal deficit.

Members also discussed “Modi
Sarkar 2.0: What Should We Look Forward to?” wherein they analysed the
reasons for the stupendous success registered by him. They also dwelt on his
long-term vision and the most important aspect of taking India’s current $2.5
trillion economy to a $5 trillion economy by the year 2025 and $10 trillion by
2032. They noted that the BJP’s “Sankalp Patra” (election manifesto) had
indicated investments of $1.44 trillion. The election results in key states in
the Hindi heartland and in Bengal were also discussed.

Indirect Tax Study
Circle meeting held on 30^th May, 2019 at BCAS Conference Hall

CA Janak Vaghani played the
perfect mentor when the Indirect Tax Study Circle held an interesting meeting
on the important topic of “Real Estate-Related Recent Notifications – GST” This
was the second part (Part II) of the series highlighting the crucial issue.

Thanks to Group Leader CA
Adit Shah, who conducted the proceedings admirably well, the members took part
in a detailed interaction at which they exchanged views on the case studies and
issues that had been forwarded to all the participants in advance. As a result, most of them
came well prepared for the meeting and were able to make their reasoned points
in detail.

Apart from this, a few
other points were identified and set aside for future representation to the
government bodies concerned.

Mentor Janak Vaghani and
Group Leader Adit Shah formed a very good team as they steered the discussions
adeptly and kept the proceedings on track.

The meeting concluded with
a vote of thanks to the duo of Janak and Adit.

Training Session for CA
article students on ‘GST Audit from Article’s Perspective’ and ‘Filing of
Annual Return’ held on 31^st May, 2019 at BCAS Conference Hall

The Students Forum under
the auspices of the HRD Committee organised this training session for CA
article students on the above-mentioned topics.

The first session on GST
Annual Return was conducted by CA Jigar Shah; it was followed by the session on
GST Audit by CA Raj Khona. Ms Devyani Choksi, the student co-ordinator,
introduced the speakers and described the upcoming events for students. CA
Anand Kothari, Convener of the HRD Committee, welcomed both speakers with a
memento.

CA Jigar Shah explained the
entire Form GSTR-9 clause by clause and dealt with the various issues /
complexities involved in the annual return form by giving practical examples.
He highlighted a few key areas which article students should keep in mind while
filing the annual returns.

In the second session, CA
Raj Khona gave a brief insight into various aspects of GST Audit and thoroughly
explained the entire form GSTR-9C. He also gave useful tips to the article
students on how to effectively conduct GST Audit and highlighted the key
challenges. Both the sessions were highly interactive and the speakers answered
all the queries raised by the participants.

With the due dates for GST
Audit fast approaching and every CA firm wanting its articles to be well
equipped with the nitty-gritty’s of GST Annual return and GST Audit, the
training session saw a record participation by over 100 students. The session
ended with the Convener, CA Anand
Kothari, proposing the vote of thanks to the speakers for sparing their
valuable time and to the audience for participating in huge numbers.

Training Session for CA
Article Students on ‘Preparation and Filing of Income Tax Returns for July,
2019’ held on 07^th June, 2019 at BCAS Conference Hall

The Students’ Forum, under
the auspices of the HRD Committee, organised this training session for CA
Article Students from 6 pm on 7^th June at the BCAS Conference Hall.

The session was conducted
by CA Divya Jokhakar. The Student Co-ordinator, Mr. Aniruddh Parthsarthy,
introduced the speaker for the session and spoke about the upcoming events for
students.

CA Divya Jokhakar first
highlighted the new amendments pertaining to A.Y. 2019-20. She then spoke
briefly about the applicability of various forms to certain categories of
assessees. She also gave useful tips to the article students on how to
effectively prepare and fill the ITR Forms and highlighted the key challenges.
The session was highly interactive.

With the due dates for
Income-tax returns fast approaching and every CA firm wanting its articles to
be well-informed and well–equipped, the training session saw eager
participation by more than 70 students. The session ended with Convener CA
Anand Kothari proposing the vote of thanks to the speakers and to the audience
for their participation.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

25 2019 [23] G.S.T.L. 162 (All) DM Advertisers
Agency vs. State of U.P.

Date of order: 14^th
February, 2019

If States do
not have power to levy tax on any particular activity, municipal corporations
cannot enjoy such power – No taxes can be levied without power

FACTS

A writ petition was filed by
the petitioner, an advertising company, challenging the vires of the
Mathura Vrindavan Nagar Nigam (Vigyapan Kar Ka Nirdharan and Wasuli Viniyaman)
Upvidhi, 2017 which enforced bye-laws with effect from 6^th January,
2018 by virtue of section 172(2)(h) of the U.P. Municipal Corporation Act
whereby advertisement tax was levied. However, the said provision had stood
deleted vide section 173 of the U.P. GST Act enforced on 1^st July,
2017. Moreover, the power to impose advertisement tax by the state was divested
through section 17 of the Constitution 101st (Amendment) Act with effect from
16^th September, 2016 which deleted Entry 55 of List-II of the VIIth
Schedule of the Constitution of India by which the state legislature was
invested with the power to make laws in respect of taxes on advertisement.

HELD

The
Hon’ble Court held that when the state legislature was deprived of power to
levy tax on advertisement, clearly the municipal corporations also ceased to
have the power to impose any tax on advertisement. Therefore, Mathura Vrindavan
Nagar Nigam had no legislative competence on 6^th January, 2018 to
promulgate the aforesaid bye-laws. Accordingly, the writ petition was allowed,
striking down the aforesaid bye-laws as ultra vires.

26 2019 [23] G.S.T.L. 164 (All) Mandeep Dhiman
vs. Dy. Dir., Directorate-General of GST Intelligence

Date of order: 6^th
March, 2019

A writ of habeas corpus shall not be maintainable when a
person is in custody on the basis of orders passed by a court of competent
jurisdiction

FACTS

A writ of habeas corpus
was filed directing the respondents to produce the detainee before the Court.
The detainee was arrested u/s. 69 of the Central Goods and Services Tax Act,
2017 for the offences specified in section 132(1) of the said Act. The detainee
had also filed a bail application before the Chief Judicial Magistrate which
was subsequently rejected, in response to which the aforementioned writ was
filed.

HELD

The
Hon’ble High Court dismissed the writ petition stating that writ of habeas
corpus shall not be maintainable since the person detained was in custody
on the basis of the orders passed by a Court of competent jurisdiction.

27 2019 [23] G.S.T.L. 178 (Mad) TVL. R.K. Motors
vs. State Tax Officer, Virudhunagar

Date of order: 24^th
January, 2019

Goods seized
as they were not offloaded at designated place but taken further to another
delivery point. But tax was duly paid on said goods, thus seizure order was
held to be grossly unreasonable

FACTS

A writ petition was filed
challenging the vindictive and drastic order levying penalty and detention of
goods and vehicle. E-way bill was generated by the petitioner having separate
billing and shipping addresses. The goods under transit were not offloaded at
the designated place; instead, they were taken further towards the billing
address. The said goods were also covered under appropriate documents and the
tax was remitted. There was no attempt of evasion. The vehicle in transit was
intercepted by the respondent Department when it was en route to the
billing address. The vehicle was seized and the driver of the vehicle was asked
to co-operate. It appeared that he did not co-operate with the authorities.
Therefore, owing to the circumstances, the impugned order was passed by the
respondent. Hence, writ petition was filed questioning the detention order.

HELD

The Hon’ble High Court held
that the order passed by the respondent was grossly unreasonable and
disproportionate; it said the respondent ought to have taken a sympathetic and
indulgent view. Hearing both the parties, the petitioner was directed to pay a
sum of Rs. 5,000 as fine to the respondent and ordered the release of the goods
and the vehicle, thereby quashing the impugned orders and allowing the
petition.

28 2019 [23] G.S.T.L. 191 (Ker) Chaithanya
Granites and Marbles vs. Assistant State Tax Officer, State Goods and Services
Tax Department, Kasaragod

Date of order: 19^th
September, 2018

E-way bill
expired due to breakdown of the vehicle, goods and vehicle directed to be
released on personal bond without bank guarantee

FACTS

The present writ petition was
filed against the detention order passed by the Department despite reasonable
submissions for interim release. The petitioner had purchased goods from a
company in Maharashtra. These were entrusted to the parcel agency after
generating the E-way bill. En route to the destination, the vehicle
broke down and required repairs in Karnataka. In the meanwhile, the state of
Kerala was caught in unprecedented floods which made it impossible for the transporter
to resume the journey. Thus, the E-way bill expired since it took more time
than usual for the transporter to reach the destination. The vehicle was
intercepted by the respondent and the goods were seized u/s. 129 of the GST
Act, 2017. Hence the writ petition.

HELD

The
Hon’ble High Court of Kerala held that that once the petitioner had explained
the circumstances through submissions, the respondent ought to have taken a
lenient view rather than a practical view. The said writ petition was disposed
by holding that the goods be released under security of personal bond from the
petitioner without insisting on the bank guarantee.

29 2019 [23] G.S.T.L. 3 (Ker) Noushad Allakkat
vs. State Tax Officer (WC), State GST Deptt., Manjeri

Date of order: 4^th
October, 2018

Bank guarantee
submitted with regard to detention of goods cannot be enchased during
limitation period of appeal

FACTS

The petitioner, a dealer in
timber, purchased timber in Tamil Nadu and was transporting it to Kerala. The
said goods were intercepted and detained u/s. 129 of the Kerala GST Act, 2017
for the supplier’s failure to collect IGST. Subsequently, an order was passed
imposing tax and penalty. The petitioner obtained provisional release of goods
after furnishing a bank guarantee for tax and penalty and also tendered bond
and security for the value of the goods.

Later, he
decided to contest the adverse order by filing a statutory appeal u/s. 107 of
the said Act. But before the petitioner’s action on the Department, it
threatened to apprehend him to invoke the bank guarantee on failure to produce
goods at the appointed date and time as laid down under Rule 140(2) of the CGST
Rules, 2017 and confiscate them. Aggrieved by the same, the petitioner
preferred a writ petition before the Hon’ble High Court.

HELD

The
Hon’ble High Court, while deciding the issue, relied on the decision of Commercial
Tax Officer vs. Madhu M.B. 2017 (6) GSTL 150 (Ker.) wherein it was held
that a dealer ought to produce the goods at the time of adjudication, which was
not produced by the petitioner; therefore, he was held liable for penalty. But
the Court also left room for the petitioner to distinguish the judgement and
assert its case before the Appellate Forum. It was further held that pending
the petitioner’s three months’ time to prefer an appeal against the impugned
order, the act of the respondent was inequitable to invoke the bank guarantee.
The writ petition was disposed with a direction to the Department to not invoke
the bank guarantee for three months. In the interim, the petitioner was
directed to make efforts before the appellate authority to get an interim
protection, pending appeal.

30 2019 [23] G.S.T.L. 168 (Kar) Avinash Aradhya
vs. Commissioner of Central Tax, Bengaluru

Date of order: 18^thFebruary,
2019

In case of an
offence punishable under GST Law, anticipatory bail granted on imposing
stringent conditions

FACTS

A group of
petitioner companies along with other companies indulged in continuous issuance
of fake invoices without actual supply of goods with an intention to enable
them to avail the input tax credit fraudulently. Revenue registered a complaint
against these companies upon finding that the invoices which were issued and
circulated among these companies and other companies reached back to the
originating companies without actual movement of goods, thereby transferring
the irregular input tax credit to the originating companies for payment of GST
and Sales Tax; it held that this was offensive and criminal in nature.

Consequently,
the Revenue issued arrest orders against this group of companies. The
petitioner filed an anticipatory bail application before the Hon’ble High Court
contesting the arrest order stating that as per section 137 of the GST Act, the
maximum punishment which can be imposed upon making out of offence and
conviction is five years and as per section 138 of the said Act, offence can be
compounded before the Commissioner on payment (of penalty). It further
contested that there was no irregularity or loss to revenue of Central or State
Governments. The GST was paid by creating invoices. The only allegation against
the petitioner was that it gave only inflated transaction, therefore this
cannot be an offence under the said Act.

The
respondent, however, vehemently objected to the contention of the accused,
stating that the petitioner claimed ITC without any payment of tax and without
there being any movement of goods, due to which the economy of the country
could be affected. Further, the respondent contested that actually no tax was
paid to anybody and rather only paper transactions happened and such acts would
affect trade transactions of the nation. The act of the petitioner appeared to
be a scam and if allowed to be continued it would have its own cumulative
effect on the economy as a whole. And if the accused were released on bail then
the entire investigation would be affected which may hamper the case of the
prosecution.

HELD

The
Hon’ble High Court relied on the Hon’ble Supreme Court decision passed in the
case of Om Prakash & Anr. vs. Union of India & Anr. 2011 (24) STR
257 (SC) and in the case of Siddharam Satlingappa Mhatre vs.
State of Maharashtra and others, reported in (2011) 1 SCC 694 to
understand the parameters to follow while dealing with anticipatory bail. The
Court observed that no material was produced by the Revenue to show the
magnitude of loss likely to be caused and how the said act could affect the
economy of the country.

Thus,
considering the gravity of the offence and punishment which was likely to be
involved, the Court ordered the accused to be released on bail to meet the ends
of justice with imposition of some stringent conditions, that each petitioner
would have to execute a bond of a sum of Rs. 5,00,000 with two sureties for the
like sum to the satisfaction of the authority and to surrender before the
Investigating Officer within 15 days from the date of passing of the High Court
order. Further that they should not tamper with the prosecution evidence or any
documents required for the purpose of investigation and should co-operate with
the investigation and should not leave the country without prior permission of
the Special Court for Economic Offences and refrain from undertaking similar
type of criminal activities covered under the Act.

31 [2019] 104 taxmann.com 31 (AAAR-Maharashtra)
IMS Proschool (P) Ltd., in re

Date of order: 4^th
February, 2019

AAAR held that the scope of
exemption under Entry No. (69) of Notification No. 12/2017-CT(R) is restricted
only to the activities in relation to specific schemes implemented by National
Skill Development Council and not to other skill development training
programmes provided by approved training partners of NSDC under its general
mandate to promote skill development

FACTS

The
appellant offers educational training and skill development courses through
classroom training and virtual coaching for various national and international
certifications. The appellant is an approved training partner of the National
Skill Development Corporation (NSDC) and the courses offered are approved by
NSDC. However, in some cases, the qualification packs (QPs) / National
Occupation Standards (NOS) with reference to certain courses are pending final
approval and hence such courses are conditionally / exceptionally approved by
NSDC. The appellant is offering such courses to corporates and business
institutes. In some cases, the training part is sub-contracted to business
partners of the appellant.

The
appellant sought advance ruling as to whether they would be entitled to
exemption provided under Entry No. (69) of Notification No. 12/2017-CT (R)
dated 28th June, 2017 in respect of
services provided by the training partner approved by NSDC in relation
to any other scheme implemented by NSDC.

AAR held
that the NSDC programme would cover only the actual schemes and programmes of
skill development that are undertaken by government through its various
ministries, departments, directorates, attached offices and organisations and
cannot in any way be construed to include all the courses that enhance skills.

Aggrieved
by this ruling of the AAR, the appellant filed the appeal. Referring to clause
(i) and (iii) of Entry No. 69(d), the appellant submitted that the scope of the
said entry is broad as it covers activities in relation to schemes implemented
by NSDC and hence, once it is established that NSDC is involved in
implementation of the activity of training programmes / courses, the exemption
should be granted to the appellant.

HELD

The
appellate authority observed that NSDC is acting as the nodal implementing
agency for various schemes implemented by the Ministry of Skill Development and
Entrepreneurship. The AAAR held that, as regards various courses run by it,
there is no conclusive evidence that such training programmes are covered under
clauses (i) or (iii) of Entry 69(d). As regards the appellant’s submission that
the scope of the said entry is broad as it covers activities in relation to
schemes implemented by NSDC, the appellate authority noted that NSDC has two
mandates, i.e., to implement specific schemes of government and a general
mandate to encourage and support the private sector and skill development.

Thus, the
appellate authority held that the scope of exemption given under said Entry No.
(69) is restricted to the schemes implemented by Ministries through NSDC acting
as nodal agency and cannot be extended to general initiatives undertaken by
NSDC. For arriving at such a conclusion, the AAAR took a view that the words
“National Skill Development Programme” is very limited in scope and is
restricted only to the efforts that are undertaken through government funding,
government schemes and specially-designed government programmes. Accordingly,
the appellate authority upheld the order of AAR that since the training
provided by the appellant is covered under the general mandate of NSDC and is
not related to specific government-funded schemes implemented by NSDC, the
appellant is not entitled for this exemption.

32 [2019] 104 taxmann.com 422 (AAAR-Maharashtra)
Spaceage Syntex (P.) Ltd., in re

Date of order: 13^th
March, 2019

AAAR held that
duty-free import authorisation (DFIA) are included in duty credit scrips, as
referred under the Foreign Trade Policy. The sale or purchase of DFIA are
exempt from GST in light of Sr. No. 122(a) of Notification No. 02/2017-CT (R)

FACTS

The
appellant sought an advance ruling to decide whether GST is applicable on sales
and / or purchase of DFIA (Duty-Free Import Authorisations) as Sr. No. (122a)
of Notification No. 2/2017-CT (R) exempts duty credit scrip (DCS). The AAR
observed that the DSC are issued under chapter 3 of the Foreign Trade Policy,
whereas DFIA are issued under chapter 4 of FTP; observing other procedural
differences between DSC and DFIA, AAR held that DFIA are liable to GST. Being
aggrieved, the appellant filed the present appeal.

HELD

The appellate authority
observed that DCS are rewards provided to exporters under MEIS / SEIS schemes
and the goods imported / domestically procured against them are freely
transferrable. DCS can be used to offset basic custom duty and additional
custom duty for import of goods. The DFIA is issued to allow duty-free imports
of inputs, i.e., it is an instrument to extend incentive to exporters by
entitling them to import the goods specified under the import authorisation,
without payment of customs duties.

Thus, the appellate authority
found that though the DCS and the DFIA have been envisaged under different
chapters and under different schemes of the export of the FTP followed by DGFT,
the basic nature and functionality of both the instruments is the same, i.e.,
to set off basic customs duty on imports of goods. Further, it was noted that
in Atul Glass Industries Ltd. 1986 (25) ELT 473 (SC), the Supreme
Court had held that the words and expressions must be construed in the sense in
which they are understood in trade, by the dealer and the consumer. The DCS and
DFIA are construed as same in trade parlance and are widely known as
duty-paying scrips or licenses or duty credit scrips due to their common
functionality and nature.

Further,
the appellate authority observed that since the said DCS cannot be used for
payment of GST, the GST rate on sale / purchase of DCS was reduced from 5% to
0% so as to restore the lost incentive on sale of DCS to exporters.
Accordingly, the appellate authority set aside the ruling of AAR by holding
that DFIA is equivalent to DCS and thus chargeable to nil rate of GST on sale or
purchase of DFIA.

33 [2019] 104 taxmann.com 88 (AAR-Madhya Pradesh)
J.C. Genetic India (P.) Ltd., in re

Date of order: 21^stJanuary,
2019

AAR held that
the exemption for healthcare services provided by clinical establishments is
not applicable to entities functioning as sub-contractors of clinical
establishments

FACTS

The
applicant, a healthcare company, is engaged in diagnosis, pre- and
post-counselling therapy and prevention of diseases by providing necessary
sophisticated tests. It also provides genomic information which helps
physicians and wellness professionals in curing diseases and improving human
health. The applicant has a collaboration with diagnostic companies accredited
by NABL (National Accreditation Board for Testing and Calibration Laboratories)
and DSIR (Department of Scientific and Industrial Research) certified to
provide advanced genetic tests that help in prevention and management of cancer
and various health and metabolic disorders. The applicant sought an advance
ruling as to whether it qualifies to be a ‘clinical establishment’ and eligible
for exemption from GST to healthcare services provided by clinical
establishments in terms of Notification No. 12/2017-CT (R).

HELD

AAR noted
that the applicant has a collaboration with diagnostic companies accredited by
NABL and DSIR, which indicates that the applicant does not have their own
authority for giving clear report / opinion of their own for the tests and they
have to get all the tests conducted and certified by the said NABL-accredited
laboratory. Thus, AAR held that the applicant is functioning as sub-contractors
to the said accredited companies and not as an independent clinical
establishment.

Further, AAR observed that
the exemption under said Entry No. (74) is service-specific as well as
service-provider specific. To qualify for the said exemption an establishment
has to satisfy dual conditions of providing healthcare service as well as being
a clinical establishment. Thus, AAR held that while the services provided by
the applicant may be healthcare service, since they do not qualify to be a
clinical establishment the benefit of said exemption would not be available to
them.

BCAJ Admin

SERVICE TAX

I. HIGH COURT

25 2019
[22] G.S.T.L. 21 (Bom) Nirmal Seeds Pvt. Ltd. vs. Commissioner of Central
Excise, Nashik

Date of order: 5^th
December, 2018

Freight
charges paid by dealer and reimbursed by supplier is includible in assessable
value

FACTS

The
appellant sold goods to its dealers at a price inclusive of freight charges
which was later reimbursed by the appellant. During the course of audit it
appeared from some invoices to Revenue that the appellant deducted freight
charges from the total invoice amount, with a note saying ‘consignee to pay’.
Consequently, a show cause notice was issued alleging that service tax was not
paid on the freight element, which was in fact paid by the consignee on behalf
of the appellant. Later, both the appellate authority as well as the Tribunal
confirmed the demand against the appellant holding that the entire arrangement
was made with dealers so as to reduce its service tax liability. Aggrieved, the
appellant preferred an appeal before the Hon’ble High Court, also contesting
the extended period of limitation.

HELD

The
Hon’ble High Court held that all the authorities had concluded that the arrangement
arrived at between the appellant and its dealers was such that the payment of
service tax could be reduced. This factual finding of the authorities was based
on detailed scrutiny of the invoices, ledger accounts, etc., from which the
authorities had held that the freight paid by the dealers was for and on behalf
of the appellant, thus the appellant was rightly held liable for payment of
service tax.

Further,
the High Court held that on the basis of the definition as provided in Rule
2(1)(d)(v) of the Service Tax Rules, 1994 it was correctly held by the lower
authorities that the payment made by the agent would be the liability of the
principal for the purpose of service tax. The extended period of limitation was
also held as rightly invoked. The appeal was thus disallowed, holding the order
of lower authorities correct.

26 [2019
104 taxmann.com 225] (Calcutta HC) Srijan Realty (P) Ltd. vs. Commissioner of
Service Tax

Date of order: 8^th
March, 2019

The Hon’ble
High Court held that in the absence of a license granted under the Electricity
Act, 2003 the activity of receiving high-tension electric supply and
redistribution of the same after its conversion into low-tension supply cannot
be regarded as ‘trading of goods’ so as to be covered u/s. 66D(e) or 66D(k) of
FA, 1994, i.e., negative list, and thus, chargeable to service tax

FACTS

The
petitioner developed and operated a commercial complex and entered into an
arrangement with an electricity company whereby he received high-tension
electric supply in the sub-stations in the commercial premises. The electricity
company raised a single consolidated bill on the petitioner. Thereafter, the
electric supply was converted into low-tension and redistributed to various
occupants of the commercial complex. Sub-meters were installed for the
respective occupants and, based on the readings, the petitioner raised invoices
(bills).

The
Revenue contended that since the petitioner is authorised to sell electricity
in terms of the Electricity Act, 2003 he would not be entitled to avail benefit
of section 66D(e). Revenue opined that conversion of electricity from
high-tension to low-tension and redistribution thereof to the occupiers being a
service, the entire consideration charged by the petitioner to various
occupants would be eligible to service tax

HELD

The
Hon’ble High Court observed that in light of provisions of the Electricity Act,
2003 the petitioner cannot be said to be an electricity-generating company. Nor
could it said that the petitioner engaged in the supply or trading of
electricity because the definition of ‘supply’ and ‘trading’ did not allow him
to come within that definition. The petitioner is not an electricity trader as
defined in section 2(26) of the Electricity Act, 2003. Besides, the petitioner
does not have a license to undertake trading in electricity u/s. 12 of the
Electricity Act, 2003. The petitioner also cannot be said to be engaged in the
business of transmission because he does not have such a license. The
petitioner is not a person authorised to transmit, supply, distribute or
undertake trading in electricity.

Thus, the
Court held that sale, trading and distribution being not applicable, the only
other thing that remains to describe the activity undertaken by the petitioner
is service. Though electricity is regarded as ‘goods’ and capable of being
traded as held in State of Andhra Pradesh vs. National Thermal Power
Corpn. Ltd. 2002 taxmann.com 2376 (SC) and Aluminium Co. vs.
State of Kerala 1996 taxmann.com 1097 (SC), the Court held that the
activity of the petitioner cannot be treated as a trade as it would violate the
provisions of the Electricity Act, 2003. Therefore, it held that the activity
was liable for service tax. The Court dismissed the petition.

II. TRIBUNAL

27 [2019-TIOL-1705-CESTAT-DEL]
BSNL vs. Commissioner of Central Excise and Service Tax

Date of order: 20^th
December, 2018

Reversal of
wrongly availed credit without utilisation is not liable for interest or
penalty

FACTS

During the
course of scrutiny of service tax record, it was observed that the appellant
wrongly availed CENVAT credit during the month of April, 2009 as 50% of duty
paid on capital goods on which 100% credit was already taken in the financial
year 2008-09. Although on being pointed out the said (availed) credit was
reversed from the credit balance, the department issued a show cause notice
stating that the impugned credit availed was not admissible in terms of Rule
4(2a) of CENVAT Credit Rules, 2004 and as such was proposed to be recovered
along with interest and penalty u/s. 78. The Commissioner ordered to
appropriate the impugned amount of wrongly availed CENVAT credit which was
reversed. Recovery of interest on the said amount was also confirmed and a
penalty of same amount was imposed. Being aggrieved, the appellant went before
the Tribunal.

HELD

The
Tribunal primarily observed that the credit wrongly availed in the books was
immediately reversed in the books of accounts when it was pointed out. Further,
Rule 14 of the CENVAT Credit Rules, 2004 in clear terms provides that only when
credit is taken and utilised there is a liability of interest. However, in the
present case the CENVAT credit was not utilised. It therefore becomes a
revenue-neutral situation. Further, even with respect to penalty it was held
that since there is no intention to evade payment of tax, the question of
imposition of penalty is absolutely irrelevant.

28 [2019-TIOL-1650-CESTAT-Ahm]M/s.

Innovate Securities Pvt. Ltd. vs. CCE & ST

Date of order: 27^th November, 2018

Service tax
not applicable on recovery of service tax, stamp duty, etc. by stock brokers
from clients

FACTS

The issue
relates to service tax applicability on transaction charges, SEBI turnover
fees, stamp duty, security transaction tax, etc. paid to National Stock
Exchange (NSE), Bombay Stock Exchange (BSE), etc. and collecting reimbursement
of the same along with brokerage from the clients in the hands of stockbrokers.
Taxability of these facts was dealt with in detail earlier in the case of Span
Caplease Pvt. Ltd. & Others vs. CST, Ahmedabad in a bunch of 28
appeals vide order dated 29^th September, 2017 by the Ahmedabad
Tribunal and by the Delhi Tribunal in Mohak Commodities P. Ltd. vs. CCE,
Jaipur 2018(10) GSTL 316 (Tri.-Del).

HELD

The Tribunal
observed that the issue was dealt with in various judgements whereunder the
Tribunal had consistently held that these charges were statutory in nature and
therefore not liable for service tax. The order contains no discussion but the
extracts from the above judgements are reproduced wherein discussion on
valuation provisions in Rule 67 is taken up in detail. It was observed that no
receipt other than brokerage or commission received by the stock broker was
intended to be brought in the ambit of taxable value. There was no question of
equity in tax and the taxation statute has to be construed strictly. Value is
generally derived from the price. Other charges realised by the appellants not
being commission, could not be included in the assessable value.

Further,
the Revenue had not discharged the burden to bring the above receipts to
charge. A similar view had been expressed in the case of Consortium
Securities Pvt. Ltd. vs. CST 2017-TIOL-232-CESTAT-DEL and the appellant
had succeeded on the fundamental principle of taxation. Based on the
observation made in the above two judgements, the appeal was allowed.

29 [2019-TIOL-1417-CESTAT (Mum)] Popular Caterers
vs. CCGST

Date of
order: 8^th May, 2019

Outdoor
caterers not required to reverse credit, when service tax is paid as per Rule
2C of ST Valuation Rules as balance 40% value is not ‘exempted service’

FACTS

The
appellant, a provider of catering services, paid service tax as per Rule 2C of
Service Tax (Determination of Value) Rules, 2006 on 60% of the gross invoice
amount charged to customers with effect from 1^stJuly, 2012. Prior
to that, he paid service tax on 50% of abated value in accordance with
Notification 1/2006-ST which had a condition of non-availment of CENVAT credit.
Consequent upon EA-2000 audit, the appellant was directed to reverse CENVAT
credit under Rule 6 of CENVAT Credit Rules, 2004 considering the balance 40%
value of invoice as “non-taxable” for the period 2010-11 to 2014-15.

As per the
appellant, Rule 2C of the valuation rules do not exempt any service or portion
of the value and there was no other provision in law to make Rule 6 applicable
to outdoor catering service. Therefore, 40% value cannot be treated as exempt
portion. According to the department, the Commissioner (Appeals) was correct in
finding that Rule 6 was mandatorily applicable.

HELD

The
definition of catering as per section 65(24) would mean a person supplying
directly or indirectly any food, edible preparations, alcoholic / non-alcoholic
beverages, crockery or similar articles for any purpose or occasion. Further,
as per Explanation 1 to Rule 2C of the valuation rules also, it is fair market
value of all goods and services supplied. Therefore, while determining the
aspect of catering service, both sale of food and service for consumption of
food are already included in 60% of the value of invoice.

On the other hand, the definition of service in
section 65B(44) of the Finance Act, 1994 excludes pure sale not associated with
delivery of goods and services together and deemed sale within the meaning of
Article 366(29A) of the Constitution. Therefore, the other component of 40% of
gross value received cannot be considered as ‘exempted service’ to make Rule
6(3) of CCR applicable and to maintain separate record for availment of CENVAT
credit on it, including on processed food purchased as raw material.

BCAJ Admin

MISCELLANEA

1.
Technology

17 Google made $4.7 billion from the news
industry in 2018

It’s more than the
combined ticket sales of the last two “Avengers” movies. It’s more than what
virtually any professional sports team is worth. And it’s the amount that
Google made from the work of news publishers in 2018 via search and Google
News, according to a study by the News Media Alliance.

The journalists who create that content deserve a cut of that
$4.7 billion, said David Chavern, the president and chief executive of the
alliance which represents more than 2,000 newspapers across the country,
including The New York Times. “They make money off this arrangement,” Mr.
Chavern said, “and there needs to be a better outcome for news publishers.”

That $4.7 billion is nearly as much as the $5.1 billion
brought in by the United States news industry as a whole from digital
advertising last year – and the News Media Alliance cautioned that its estimate
for Google’s income was conservative. For one thing, it does not count the
value of the personal data the company collects on consumers every time they
click on an article like this one.

(Source:
www.nytimes.com)

18 Facebook will launch its new
cryptocurrency soon

Facebook is preparing to
launch its own cryptocurrency sooner than you expect. The company plans to hand
over control of the currency system to outside backers as part of a move to
reassure financial regulators. Facebook has reportedly been in discussions with
dozens of financial institutions and tech companies that will oversee the new
cryptocurrency and contribute capital to the programme. The payment system
would be free of transition fees and is designed to be used all over the world,
especially in developed nations.

The digital token is
reportedly designed to serve as a global currency – one that Facebook hopes
will facilitate peer-to-peer payments among its more than two billion users.
Zuckerberg hinted at Facebook’s crypto ambitions during the company’s developer
conference in May. “When I think about all the different ways that people
interact privately, I think payments is one of the areas where we have an
opportunity to make it a lot easier,” Zuckerberg said.

In recent weeks, several
news outlets have reported that Facebook is planning to launch its own
payments-focused cryptocurrency. People will be able to use the currency to
transfer funds and make purchases on Facebook messaging platforms such as
WhatsApp and Messenger.

The news has caused quite
a stir in the crypto world – and on Wall Street. Anthony Pompliano, founder and
partner at blockchain-focused investment firm Morgan Creek Digital, believes
Facebook’s cryptocurrency could quickly become the “most used product in
crypto.”

(Source: www.wsj.com
and www.finance.yahoo.com)

19 Hottest cryptocurrency is up by
360% this year and its name isn’t Bitcoin

Litecoin, which has gained
more than 330% since the beginning of the year, is outpacing all its crypto
peers, including Ether and XRP, as well as the best-known and largest token
Bitcoin. It has a market cap of about $8.4 billion, making it the
seventh-largest digital asset, according to data compiled by Mosaic Research
Ltd.

The rally can partly be
attributed to Litecoin’s upcoming halving (also known as halvening), whereby
the number of coins awarded to so-called miners is slashed by 50%. The idea is
that a cut in supply will not only drive up its price but will also prevent an
erosion of value. Miners currently receive 25 new Litecoins per block, but
following the halving – which is expected to fall on August 6 – they will
receive 12.5.

Halving typically happens
roughly every four years and the run-up to it has, in the past, coincided with
a rally in the underlying tokens. Four years ago, when the last Litecoin
halving occurred, the coin gained about 60% in the three months beforehand
according to data from CoinMarketCap.com. And the phenomenon isn’t isolated to
Litecoin, either – Bitcoin is set to undergo its next halving in May, 2020 and
its biggest proponents are already seizing on the drop in supply as a catalyst
for further gains.

“Every time we’ve seen a
halving event in Bitcoin or Litecoin, the price has risen astronomically,” said
Mati Greenspan, senior market analyst at trading platform eToro, in a phone
interview. “So if that pattern continues, what we’ve seen so far is small
potatoes in comparison,” he said. “This is quite normal for the crypto market.”

These developments, among
others, have pushed up the price of Bitcoin by 120% since the beginning of the
year. Ether, too, has gained close to 100%. Litecoin, which was trading below
$30 at the end of last year, is now worth $130.

(Source:
www.hindustantimes.com)

20 Coding & App-making just a
child’s play for these school kids

Vyom Bagrecha loves to
read, draw and play computer games. Just like any other nine-year-old, albeit
with one exception. Vyom also does software coding and has already created a
health app that is now available on Google Play Store for mobile users on the
Android platform.

“I’m now working on a
parking-related application, and when I’m older I want to be able to code
robots to save the environment,” said the 4th grade student of Nahar
International School in Mumbai. Vyom’s curiosity about how games work made his
mother enrol him for an online coding programme. Very few schools taught
mathematics during the Industrial Revolution and there was widespread
unemployment till schools added it to the curriculum. I see that happening with
coding and think it should be a part of the curriculum, says his mother.

Vyom’s app is a basic
health tool which, for example, converts the number of glasses of water one has
had into litres, and such like. Children are creating all kinds of things
online, including simple drawings to games developed by children as young as
ten.

Schools, too, are starting
to impart coding skills to kids, making the shift from teaching traditional
computer programmes. Some schools are setting up coding clubs, while some are
even adopting such programmes over the traditional computer science textbooks

Manju Rana, Principal at
Seth Anandram Jaipuria School in Ghaziabad, says the school started a coding
club about a year ago to foster logical reasoning and encourage kids to find
their own ways and methods of learning. Since most children are taking to this
as a hobby, it takes away the pressure associated with learning something as
part of their core curriculum. Corporates, too, have started school-level
initiatives to expose kids to coding.

(Source:
tech.economictimes.indiatimes.com)

2. World news

21 PwC’s $5.8 mn UK fine strengthens
demand to break up big-four audit firms

PricewaterhouseCoopers was
fined 4.55 million pounds ($5.8 million) by the U.K.’s accounting watchdog over
failings in its handling of technology firm Redcentric Plc, giving fresh
ammunition to critics calling for a breakup of the so-called “Big-Four”
auditing firms.

The penalty was reduced
from 6.5 million pounds after the company admitted its wrongdoing ahead of a
final decision by the Financial Reporting Council. Two PwC partners, Jaskamal
Sarai and Arif Ahmad, were each fined a reduced 140,000 pounds after admitting
breaches in the standards of their work and were also given a “severe
reprimand.”

The breaches were
“numerous and in certain cases were of a basic and / or fundamental nature,
evidencing a serious lack of competence in conducting the statutory audit
work,” according to an FRC statement.

This latest transgression
adds to the scrutiny of PricewaterhouseCoopers, Deloitte, EY and KPMG, which
together control more than 90% of UK audits for large companies. The
Competition and Markets Authority has urged a split of their operations amid
allegations of conflicts of interest and a failure to spot a series of
high-profile corporate failures, including the wake of building contractor
Carillion Plc.

The FRC’s sanctions follow
an investigation that began more than two years ago into PwC’s handling of
Redcentric’s financial statements for 2015 and 2016 after an initial review
showed that Redcentric had overstated its net assets and profits after tax by
20.8 million pounds.

“We are sorry that our
work fell below the professional standards expected of us,” PwC said in an
emailed statement. The firm said it has taken numerous steps to strengthen
processes and is investing 30 million pounds “to provide greater focus on the
quality and public interest responsibilities of PwC’s statutory audit
services.” An outside spokesman for Redcentric declined to comment.

(Source:
www.business-standard.com)

22 US wants to stall digital tax,
hoping to wear down allies

The Trump administration is deep in talks with 129 other
countries on implementing a new standard for taxing digital companies,
including Alphabet Inc’s Google, Facebook Inc and Amazon.com Inc – but its
heart lies elsewhere in the discussions. Rather than usher in with allies a new
era of technology taxation, the United States’ goal is to fend off foreign
taxes aimed at American companies.

The strategy: String out
the negotiations for as long as possible to delay the pain and hold out for an
agreement with softer edges, say people involved with and briefed on the talks
at the Organization for Economic Cooperation and Development (OECD). By
slow-walking the discussions, American officials hope they can reach a global
agreement that amounts to a small-scale tax increase on global companies, but
averts a massive tax increase by foreign countries that see US companies as
sources of revenue.

It is in the interest of the
US to prevent a proliferation of unilateral digital services taxes, said Jeff
Vander Wolk, an international tax lawyer at Squire Patton Boggs LLP and an OECD
official until last year. The way to get them to back off is to get them into a
multilateral agreement. Any future pact would likely create a whole new set of
rules governing which countries have the right to tax the companies, which
corporate profits were taxable and how to resolve the inevitable disputes that
would arise.

Deciding where profits should
be taxed is no easy feat in a digital economy. Corporations can have their
headquarters in the US, intellectual property stored in Ireland, engineers
developing some of the algorithms in India and users all over the world. The US
is hoping to harness this complexity and use the power of roadblock, according
to lawyers and tax experts who have discussed the project with Treasury
Department officials.

Striking a deal could mean
that American companies pay more in taxes, but the US could lose out on tax
revenue. Yet, the absence of the deal could be even worse. If talks break down,
every country is likely to pass its own laws. That could mean American
companies are taxed multiple times on the same profits from a number of
countries.

The new tax rules would
mean that taxes are paid based on where users are located. That would allocate
tax revenue away from countries containing lots of headquarters – such as the
US, Sweden, Ireland and other European countries – and to populous nations.

(Source: www.thehindubusinessline.com)

3. Health

23 Why spending just two hours a week
in nature is good for you

Anyone who’s watched a
child run free in a forest or play in a stream doesn’t need a research study to
tell them that spending time in nature is good for kids’ health. It’s something
that most parents know intuitively. When kids have the chance to play free in
nature, they’re happier, better behaved and more connected socially.

Most adults know that
nature is good for them, too – that’s why we often leave behind the stress of
work to vacation in beautiful, natural places. But how much time in nature do
we need to be healthier? A group led by researchers in the United Kingdom tried
to answer that question, in what they describe as a first step towards coming up
with a nature version of national physical activity guidelines.

In the study published
recently, researchers surveyed more than 19,000 people in the United Kingdom
about the recreational time they spent in nature during the past week, along
with their self-reported health and well-being. They found that people who
spent at least 120 minutes a week in nature saw a boost in their mental and
physical health, compared to people who didn’t spend any time in nature.

The researchers say the
size of the health benefits was similar to what people would get by meeting the
guidelines for physical activity. However, it didn’t matter how or where people
racked up the 120 minutes – many short walks near home were just as effective
as a longer hike on the weekend at a park. The researchers point out that this
is just a first step towards being able to recommend that people spend a
certain amount of time each week in nature.

(Source:
www.healthline.com)

24 For the third time, WHO declines to
declare the Ebola outbreak an emergency

Even with more than 1,400
dead, the World Health Organization says the risk of the disease spreading
beyond the region remains low and declaring an emergency could have backfired.
For the third time, WHO has declined to declare the Ebola outbreak in the
Democratic Republic of Congo a public health emergency, though the outbreak has
spread into neighbouring Uganda and ranks as the second deadliest in history.

An expert panel advised
WHO against it because the risk of the disease spreading beyond the region
remained low and declaring an emergency could have backfired. Other countries
might have reacted by stopping flights to the region, closing borders or
restricting travel, steps that could have damaged Congo’s economy.

Dr. Preben Aavitsland, a Norwegian
public health expert who served as the acting chairman of the emergency
committee advising WHO, said there was “not much to be gained but potentially a
lot to lose.”

At the same time, the
committee of ten infectious disease experts said in a statement that it was
“deeply disappointed” that donor nations have not given as much money as needed
by WHO and affected nations to battle the outbreak.

But some global health
experts have argued in recent months that WHO should declare an emergency to
bring the world’s attention to the Ebola crisis. Dr. Jeremy Farrar, director of
the Wellcome Trust, a health foundation based in London, said that such a
declaration would have strengthened efforts to control the outbreak. “It would
have raised the levels of international political support and enhanced
diplomatic, public health, security and logistic efforts,” he said. WHO
Director-General Dr. Tedros Adhanom Gebreyesus accepted the committee’s
recommendation, saying that even if the outbreak did not meet the criteria for
an emergency declaration, “for the affected families this is very much an
emergency.”

WHO has requested $98 million for its response and has
received only $44 million so far. In an interview before the announcement, Dr.
Tedros said it had recently received commitments from Britain, the United
States and Germany.

“We’ve never seen an
outbreak like this,” he said. “It happened in a chronic war zone and overlapped
with an election that politicised the whole situation. Militia attacks kept
interrupting the operations, and when that happens, the virus gets a free
ride.”

(Source: www.nytimes.com)

BCAJ Admin

Glimpses Of Supreme Court Rulings

12. Industrial
Infrastructure Development Corporation (Gwalior) M. P. Ltd. vs. CIT (2018) 403
ITR 1 (SC)

Registration
of Trusts – Commissioner of Income-tax had no power to cancel registration till
October 1, 2004 and the power conferred by the amendment was prospective –
Order of Commissioner of Income-tax passed u/s. 12A is quasi judicial in nature
and therefore section 21 of General Clauses Act has no application

The Appellant, a State
Government Undertaking, was established with a view to develop and assist the
State in the development of industrial growth centers/areas, to promote,
encourage and assist the establishment growth and development of industries in
the State of M.P.

On 10.02.1999, the
Appellant filed an application in the format prescribed u/s. 12-A of the Act to
the Commissioner of Income Tax (hereinafter referred to as “the CIT”)
for grant of registration. According to the Appellant, since they were engaged
in public utility activity which, according to them, was for a charitable
purpose u/s. 2(15) of the Act, they were entitled to claim registration as
provided u/s. 12A of the Act. Since the application for registration was
delayed in its filing, the Appellant also made an application for condonation
of delay in filing the application.

By order dated 13.04.1999,
the CIT (Gwalior) condoned the delay and granted the registration certificate
as prayed for by the Appellant. In Clause 3 of the registration certificate, it
was mentioned that the certificate is granted without prejudice to the
examination on merits of the claim of exemption after the return is filed.

On 27.11.2000, the CIT
issued a show cause notice to the Appellant stating therein as to why the
registration certificate granted to the Appellant by order dated 10.02.1999
u/s.12A of the Act be not cancelled/withdrawn. The show cause notice also set
out the factual grounds for the withdrawal of the registration certificate. The
Appellant was asked to reply the show cause notice. The Appellant accordingly
filed their reply and opposed the grounds on which the withdrawal/cancellation
of the certificate was proposed.

By order dated 29.04.2002,
the CIT did not find any substance in the stand taken by the Appellant in their
reply and accordingly cancelled/withdrawn the certificate issued to the
Appellant.

The Appellant felt
aggrieved and filed rectification application u/s.154 of the Act before the CIT
on 04.07.2002 contending therein that the order of the CIT dated 29.04.2002
cancelling/withdrawing the registration certificate contains an error apparent
and, therefore, it is required to be rectified or/and recalled. It was
contended that once the CIT grants the registration certificate u/s. 12A, he
has no power to cancel/recall the certificate granted to the Assessee.

On 20.12.2002, the CIT
rejected the application filed by the Appellant for rectification holding that
there was no error in his order cancelling the registration certificate granted
to the Appellant. In other words, the CIT held that he had the power to cancel
the certificate once granted by him and, therefore, the order for cancelling
the registration certificate is legal and proper.

Aggrieved by the said
order, the Appellant filed an appeal before the Income Tax Appellate Tribunal,
Agra Bench. By order dated 26.08.2004, the ITAT allowed the Appellant’s appeal
and set aside the order dated 29.04.2002 passed by the CIT by which he had
cancelled/withdrawn the registration certificate.

The Revenue felt aggrieved
by the order of the ITAT and filed appeal in the High Court at Gwalior Bench
u/s. 260-A of the Act. The High Court, allowed the appeal filed by the Revenue
and set aside the order passed by the ITAT and restored the order of the CIT.

The Division Bench of the
High Court placed reliance on section 21 of the General Clauses Act and held
that since there is no express power in the Act for cancelling the registration
certificate u/s. 12A of the Act and hence power to cancel can be traced from
section 21 of the General Clauses Act to support such order. In other words, in
the opinion of the High Court, section 21 is the source of power to pass
cancellation of the certification granted by the CIT when there is no express
power available u/s. 12A of the Act.

It is against this order,
the Assessee felt aggrieved and filed the appeal by way of special leave before
the Supreme Court.

According to the Supreme
Court, the main questions, that arose for its consideration in this appeal,
were four:

First, whether the CIT has
express power to cancel/withdraw/recall the registration certificate once
granted by him u/s. 12A of the Act and, if so, under which provision of the
Act?

Second, when the CIT grants
registration certificate u/s.12A of the Act to the Assessee, whether grant of
certificate is his quasi judicial function and, if so, its effect on exercise
of his power of cancellation of such grant of registration certificate?

Third, whether Section 21
of the General Clauses Act can be applied to support the order of cancellation
of the registration certificate granted by the CIT u/s. 12A of the Act, in
case, if it is held that there is no express power of cancellation of
registration certificate available to the CIT u/s. 12A of the Act? and

Fourth, what is the effect
of the amendment made in section 12AA introducing Sub-clause (3) therein by
Finance (No-2) Act 2004 w.e.f. 01.10.2004 conferring express power on the CIT
to cancel the registration certificate granted to the Assessee u/s. 12A of the
Act.

The Supreme Court held
that, the CIT had no express power of cancellation of the registration
certificate once granted by him to the Assessee u/s. 12A till 01.10.2004. It is
for the reasons that, first, there was no express provision in the Act vesting
the CIT with the power to cancel the registration certificate granted u/s. 12A
of the Act. Second, the order passed u/s. 12A by the CIT is a quasi judicial
order and being quasi judicial in nature, it could be withdrawn/recalled by the
CIT only when there was express power vested in him under the Act to do so. In
this case there was no such express power.

Indeed, the functions
exercisable by the CIT u/s. 12A are neither legislative and nor executive but
as mentioned above they are essentially quasi judicial in nature.

Third, an order of the CIT
passed u/s. 12A does not fall in the category of “orders” mentioned
in Section 21 of the General Clauses Act. The expression “order”
employed in section 21 would show that such “order” must be in the
nature of a “notification”, “rules” and “bye
laws” etc. (see – Indian National Congress (I) vs. Institute of
Social Welfare and Ors., 2002 (5) SCC 685).

In other words, the order,
which can be modified or rescinded by applying section 21, has to be either
executive or legislative in nature whereas the order, which the CIT is required
to pass u/s. 12A of the Act, is neither legislative nor an executive order but
it is a “quasi judicial order”. It is for this reason, section 21 has
no application in this case.

The general power, u/s. 21
of the General Clauses Act, to rescind a notification or order has to be
understood in the light of the subject matter, context and the effect of the
relevant provisions of the statute under which the notification or order is
issued and the power is not available after an enforceable right has accrued
under the notification or order. Moreover, section 21 has no application to
vary or amend or review a quasi judicial order. A quasi judicial order can be
generally varied or reviewed when obtained by fraud or when such power is
conferred by the Act or Rules under which it is made. (See Interpretation of
Statutes, Ninth Edition by G.P. Singh page 893).

According to the Supreme
Court, it was not in dispute that an express power was conferred on the CIT to
cancel the registration for the first time by enacting sub-section (3) in
section 12AA only with effect from 01.10.2004 by the Finance (No. 2) Act 2004
(23 of 2004) and hence such power could be exercised by the CIT only on and
after 01.10.2004, i.e., (assessment year 2004-2005), because the amendment in
question was not retrospective but was prospective in nature.

The Supreme Court allowed
the appeal setting aside the order of the High Court and restoring the order of
the ITAT, however clarifying that, the CIT would be free to exercise his power
of cancellation of registration certificate u/s. 12AA(3) of the Act in the case
at hand in accordance with law.

13. The
Director, Prasar Bharati vs. CIT (2018) 403 ITR 161 (SC)

Deduction
of tax at source – Payments made by the Appellant pursuant to the agreement in
question were in the nature of payment made by way of “commission”
and, therefore, the Appellant was under statutory obligation to deduct the
income tax at the time of credit or/and payment to the payee

The Appellant known as
“Prasar Bharati Doordarshan Kendra” functioned under the Ministry of
Information and Broadcasting, Government of India. The dispute in this case
related to the Appellant’s Regional Branch at Trivandrum.

The Appellant, in the
course of their business activities, which included the running of the TV
channel called “Doordarshan”, had been regularly telecasting
advertisements of several consumer companies.

With a view to have a
better regulation of the practice of advertising and to secure the best
advertising services for the advertisers, the Appellant entered into an
agreement with several advertising agencies. The agreement, inter alia,
provided that the Appellant would pay 15% by way of commission to the Agency.

In the assessment year
2002-2003 (01.06.2001 to 31.03.2002) and 2003-2004 (01.04.2002 to 31.03.2003),
the Appellant paid a sum of Rs. 2,56,75,165/- and Rs. 2,29,65,922/- to various
accredited Agencies, with whom they had entered into the aforementioned agreement
for telecasting the advertisements given by these Agencies relating to products
manufactured by several consumer companies. The amount was paid by the
Appellant to the Agencies towards the commission in terms of
the agreement.

The AO was of the view that
the provisions of section 194H of the Act were applicable to the payments made
by the Appellant to the Agencies because the payments were made in the nature
of “commission” as defined in Explanation appended to section 194H of
the Act. The AO held that the Appellant, therefore, committed default thereby
attracting the rigor of section 201(1) of the Act because they failed to deduct
the “tax at source” from the amount paid to various advertising
agencies during the Assessment Years in question as provided u/s.194A of the
Act.

On quantification, the AO
found that during the Assessment Year 2002-2003, the Appellant had paid a sum
of Rs. 2,56,75,165/- towards the commission to the Agencies and on this sum,
they were required to deduct tax amount to Rs. 16,34,283/- and a sum of Rs.
3,80,611/- towards interest for delayed payment u/s. 201(1-A) of the Act and
during the Assessment Year 2003-2004, the Appellant had paid a sum of Rs.
2,29,65,922/- towards the commission to the Agencies and on this sum, they were
required to deduct tax amounting to Rs. 11,15,944/- and a sum of Rs. 1,54,050/-
towards interest for delayed payment u/s. 201(1-A) of the Act.

The Appellant felt
aggrieved and filed appeals before the Commissioner of Income Tax (Appeals)-II,
Thiruvananthapuram. By order dated 04.03.2005, the Commissioner concurred with
the reasoning and conclusion arrived at by AO and accordingly dismissed the
appeals.

The Appellant felt
aggrieved and filed appeals before the Tribunal. By order dated 28.03.2007, the
Tribunal following its earlier order allowed the appeals and set aside the
orders passed by AO and CIT (Appeals).

The Revenue (Income Tax
Department), felt aggrieved by the order passed by the Tribunal, filed appeals
u/s. 260-A of the Act in the High Court. By impugned judgment, the High Court
allowed the appeals and while setting aside the Tribunal’s order restored the order of CIT (Appeals) and AO.

The High Court was of the
opinion that the provisions of section 194H were applicable to the payments made
by the Appellant to the Agencies during the period in question because the
payments made were in the nature of “commission” paid to the Agencies
as defined in Explanation appended to section 194H of the Act and since the
Appellant failed to deduct the “tax at source” while making these
payments to the Agencies in terms of the agreement in question, they committed
default of non-compliance of section 194H resulting in attracting the
provisions of section 201 of the Act.

The Appellant (Assessee)
felt aggrieved and filed appeals by way of special leave in Supreme Court.

According to the Supreme
Court, the High Court was right in holding that the provisions of section 194H
were applicable to the Appellant because the payments made by the Appellant
pursuant to the agreement in question were in the nature of payment made by way
of “commission” and, therefore, the Appellant was under statutory
obligation to deduct the income tax at the time of credit or/and payment to the
payee.

The aforementioned
conclusion of the High Court was clear from the undisputed facts emerging from
the record of the case because we notice that the agreement itself has used the
expression “commission” in all relevant clauses; Second, there is no
ambiguity in any Clause and no complaint was made to this effect by the
Appellant; Third, the terms of the agreement indicate that both the parties
intended that the amount paid by the Appellant to the agencies should be paid
by way of “commission” and it was for this reason, the parties used
the expression “commission” in the agreement; Fourth, keeping in view
the tenure and the nature of transaction, it is clear that the Appellant was
paying 15% to the agencies by way of “commission” but not under any
other head; Fifth, the transaction in question did not show that the
relationship between the Appellant and the accredited agencies was principal to
principal rather it was principal and Agent; Sixth, it was also clear that
payment of 15% was being made by the Appellant to the agencies after collecting
money from them and it was for securing more advertisements for them and to
earn more business from the advertisement agencies; Seventh, there was a Clause
in the agreement that the tax shall be deducted at source on payment of trade
discount; and lastly, the definition of expression “commission” in
the Explanation appended to Section 194H being an inclusive definition giving
wide meaning to the expression “commission”, the transaction in
question did fall under the definition of expression “commission” for
the purpose of attracting rigour of section 194H of the Act.

14. K.
Raveendranathan Nair vs. CIT (2018) 403 ITR 180 (SC)

Appeal to
the High Court – Court fees – Wherever Assessee is in appeal in the High Court
which is filed u/s. 260A of the IT Act, the court fee payable shall be the one
which was payable on the date of such assessment order – In those cases where
the Department files appeal in the High Court u/s. 260A of the IT Act, the date
on which the appellate authority set aside the judgement of the Assessing
Officer would be the relevant date for payment of court fee

The Supreme Court noted
that by amendment in the Income Tax Act, 1961 (hereinafter referred to as the
‘IT Act’) in the year 1998, section 260A was inserted providing for statutory
appeal against the orders passed by the Income Tax Appellate Tribunal. In this
very section, under sub-section (2)(b), court fees on such appeals was also
prescribed which was fixed at Rs. 2,000/-. However, sub-section (2)(b) of
section 260A prescribing the aforesaid fee was omitted by amendment carried out
in the said Act, with effect from June 01, 1999. It was presumably for the
reason that insofar as court fee payable on such appeals are concerned, which
are to be filed in the High Court, it is the State Legislature which is
competent to legislate in this behalf.

In the State of Kerala, the
law of court fee is governed by the Kerala Court Fees and Suits Valuation Act,
1959 (hereinafter referred to as the ‘1959 Act’). Section 52 thereof relates to
the fee payable in appeals. Thus, with the omission of Clause (b) of
sub-section (2) of section 260A of the IT Act, fee became payable on such
appeals as per section 52. The State Legislature thereafter amended the 1959
Act by Amendment Act of 2003 and inserted section 52A therein, which was passed
on March 06, 2003. In fact, before that an Ordinance was promulgated on October
25, 2002 which was replaced by the aforesaid Amendment Act, the Act
categorically provided that section 52A is deemed to have come into force on
October 26, 2002. As per the amended provision, viz. section 52A of the 1959
Act, the fee on memorandum of appeals against the order of the Income Tax
Appellate Tribunal or Wealth Tax Appellate Tribunal is to be paid at the rates
specified in sub-item (c) of item (iii) of Article 3 of Schedule II. This
sub-item (c) reads as under:

(c) Where such income                         One
percent of the assessed income,
     exceeds two lakh rupees                   subject to a maximum of ten
thousand rupees

It is clear from the above
that fee is now payable, where such income exceeds two lakh rupees, at the rate
of 1% of the ‘assessed income’, subject to a maximum of ten thousand rupees.

The question that arose for
consideration before the High Court in the impugned judgement, against which
the appeals arose before the Supreme Court, was payment of fee as per the
aforesaid Schedule on the appeals that are filed on or after October 26, 2002.
As per the State of Kerala, on all appeals which are filed against the order of
Income Tax Appellate Tribunal or the Wealth Tax Appellate Tribunal on or after
October 26, 2002, fee is payable as per the aforesaid amended provisions. The
Appellant herein, however, contend that in all those cases which were even
pending before the lower authorities, i.e. the Assessing Officer, Commissioner
of Income Tax (Appeals) or Income Tax Appellate Tribunal and orders were passed
even before October 01, 1998, the right to appeal had accrued with effect from
October 01, 1998 and, therefore, such cases would be governed as on the date
when the orders were passed by the lower authorities and the court fee would be
payable as per the unamended provisions. The High Court has not accepted this
plea of the Appellant and has held that any appeal ‘filed’ on or after October
26, 2002 shall be governed by section 52A of the 1959 Act.

The Supreme Court held as
under:

(i) Wherever Assessee is in
appeal in the High Court which is filed u/s. 260A of the IT Act, if the date of
assessment is prior to March 06, 2003, section 52A of the 1959 Act shall not
apply and the court fee payable shall be the one which was payable on the date
of such assessment order.

(ii) In those cases where
the Department files appeal in the High Court u/s. 260A of the IT Act, the date
on which the appellate authority set aside the judgement of the Assessing
Officer would be the relevant date for payment of court fee. If that happens to
be before March 06, 2003, then the court fee shall not be payable as per
Section 52A of the 1959 Act on such appeals.

15. B. L. Passi vs. CIT (2018) 404 ITR 19 (SC)

Royalty or
fees for technical services – The Appellant was not entitled to deduction u/s.
80-O as there was no material on record to prove the sales effected by Sumitomo
Corporation to its customers in India in respect of any product developed with
the assistance of Appellant’s information and also on as to how the service
charges payable to Appellant were computed

The Appellant filed his
return disclosing income of Rs.
57,40,360/- for the
Assessment Year (AY) 1997-98 while claiming deduction of Rs. 58,87,045/-
under Section 80-O of the Income Tax Act, 1961 (in short ‘the IT Act’) on a
gross foreign exchange receipt of Rs. 1,17,74,090/- received from Sumitomo
Corporation, Japan. Sumitomo Corporation was interested in supplying dies for
manufacturing of body parts to Indian automobile manufacturers and entered into
a contract with the Appellant under which the services of the Appellant herein
were engaged by using his specialised commercial and industrial knowledge about
the Indian automobile industry. Sumitomo Corporation also agreed to pay
remuneration at the rate of 5% of the contractual amount between Sumitomo Corporation
and its Indian customers on sales of its products so developed. The Appellant
claimed to have supplied to Sumitomo Corporation the industrial and commercial
knowledge, information about market conditions and Indian manufacturers of
automobiles and also technical assistance as required by the Corporation.

The case of the Appellant
was selected for scrutiny by the Income Tax Department, Delhi and in response
to notice u/s. 143(2) of the IT Act, the Appellant along with others attended
the assessment proceedings from time to time justifying the claim u/s. 80-O of
the IT Act. The Assessing Officer, vide order dated 27.03.2000 u/s.143(3) of
the IT Act assessed the total income at Rs. 1,18,43,060/- and determined the
sum payable by the Assessee to the tune of Rs. 43,25,960/-. Being aggrieved by
the order dated 27.03.2000, the Appellant preferred an appeal before the
Commissioner of Income Tax (Appeals). The Appellate Authority, vide order dated
20.02.2002, partly allowed the appeal and held that the Appellant is entitled
to deduction u/s. 80-O of the IT Act. Being aggrieved by the order dated
20.02.2002, the Revenue went in appeal before the Tribunal. The Tribunal, vide
order dated 10.10.2005, allowed the appeal filed by the Revenue. The Appellant
approached the High Court by filing an appeal challenging the order of the
Tribunal dated 10.10.2005 which was dismissed on 13.12.2006 by a Division Bench
of the High Court.

Aggrieved by the judgement
and order dated 13.12.2006, the Appellant filed this appeal by way of special
leave before the Supreme Court.

The Supreme Court noted
that, provisions similar to section 80-O of the Act were originally in the
former section 85-C of the Income Tax Act, 1961 which was substituted by
Finance (No. 2) Act, 1971. Section 80-O was inserted in place of section 85C
which was deleted by the Finance (No. 2) Act, 1967. While moving the bill
relevant to the Finance Act No. 2 of 1967, the then Finance Minister highlighted
the fact that fiscal encouragement needs to be given to Indian industries to
encourage them to provide technical know-how and technical services to newly
developing countries. It is also seen that the object was to encourage Indian
companies to develop technical know-how and to make it available to foreign
companies so as to augment the foreign exchange earnings of this country and
establish a reputation of Indian technical know-how for foreign countries. The
objective was to secure that the deduction under the section shall be allowed
with reference to the income which is received in convertible foreign exchange
in India or having been received in convertible foreign exchange outside India,
is brought to India by and on behalf of taxpayers in accordance with the
Foreign Exchange Regulations.

The Supreme Court in
respect to the facts of the case at hand observed that, it was evident from
record that the major information sent by the Appellant to the Sumitomo
Corporation was in the form of blue prints for the manufacture of dies for
stamping of doors. Several letters were exchanged between the parties but there
was nothing on record as to how this blue print was obtained and dispatched to
the aforesaid company. It was also evident on record that the Appellant has not
furnished the copy of the blue print which was sent to the Sumitomo Corporation
neither before the Assessing Officer nor before the Appellate authority nor
before the Tribunal. The provisions of section 80-O of the IT Act mandate the
production of document in respect of which relief has been sought. The Supreme
Court was of the opinion that therefore it had to examine whether the services
rendered in the form of blue prints and information provided by the Appellant
fell within the ambit of section 80-O of the IT Act or any of the conditions
stipulated therein in order to entitle the Assessee to claim deduction.

The blue prints made
available by the Appellant to the Corporation could be considered as technical
assistance provided by the Appellant to the Corporation in the circumstances if
the description of the blue prints was available on record. The said blue
prints were not even produced before the lower authorities. In such scenario,
when the claim of the Appellant was solely relying upon the technical
assistance rendered to the Corporation in the form of blue prints, its
unavailability created a doubt and burden of proof was on the Appellant to
prove that on the basis of those blue prints, the Corporation was able to start
up their business in India and he was paid the amount as service charge.

Further, with regard to the
remuneration to be paid to the Appellant for the services rendered, in terms of
the letter dated 25.01.1995, it had been specifically referred that the
remuneration would be payable for the commercial and industrial information
supplied only if the business plans prepared by the Appellant resulted
positively. Sumitomo Corporation would pay to PASCO International service
charges equivalent to 5% (per cent) of the contractual amount between Sumitomo
and its customers in India on sales of its products so developed. From a
perusal of the above, it was clear to the Supreme Court that the Appellant was
entitled to service charges at the rate of 5% (per cent) of the contractual
amount between Sumitomo Corporation and its customers in India on sales of its
products so developed but there was nothing on record to prove that any product
was so developed by the Sumitomo Corporation on the basis of the blue prints
supplied by the Appellant as also that the Sumitomo Corporation was able to
sell any product developed by it by using the information supplied by the
Appellant. Meaning thereby, there was no material on record to prove the sales
effected by Sumitomo Corporation to its customers in India in respect of any
product developed with the assistance of Appellant’s information and also on as
to how the service charges payable to Appellant were computed.

In view of the foregoing
discussion, the Supreme Court was of the view that in the present facts and
circumstances of the case, the services of managing agent, i.e., the Appellant,
rendered to a foreign company, were not technical services within the meaning
of section 80-O of the IT Act. The Appellant had failed to prove that he
rendered technical services to the Sumitomo Corporation and also the relevant
documents to prove the basis for alleged payment by the Corporation to him. The
letters exchanged between the parties could not be claimed for getting
deduction u/s. 80-O of the IT Act.

The Supreme Court further held
that the Appellant was a managing agent and the High Court was right in holding
the principal agent relationship between the parties and that there was no
basis for grant of deduction to the Appellant u/s. 80-O of the IT Act.

BCAJ Admin

From the President

Dear Members,

The
FIFA World Cup 2018 has taken the globe by storm. Sweeping across continents,
it is the cynosure of the world, commanding the attention of an estimated 4.5
billion people. In football there are 22 players on the field with just one
mission – to score goals! The word ‘goals’ is a short word, but behind it is a
long and rigorous regime of hard work, perseverance, sacrifice and love of what
you are doing. Those seemingly effortless passes and taps that lead to goals
are the result of gallons of sweat and an eternity of mental discipline.

This
is my last communication to you as President of BCAS; and I too would like to
talk about goals…but a different type! In July 2017, at the ‘kickoff’, I
defined four goals that I would like to focus on to keep Team BCAS a consistent
winner and champion. They were Transformation, Yuva Shakti, Digitisation
and Networking. At the end of my tenure, I wish to review those goals
and achievements with you. Details under each goal are only illustrative though
we as a Team could achieve much more. The Managing Committee Report lists all
of them.

With
the accelerating pace of change, Transformation has become a key
goal. By constantly scoring here, one will be well equipped to surge ahead on
the wings of new technologies, systems, ideas. At BCAS, we smoothened the path
to transformation by offering a wider spectrum of contemporary topics that were
effectively covered through events, publications and new media during the year.
These include:

– Experts reviewed topics including new
reforms like GST, BEPS, POEM, benami transactions, strengthening the
profession, NIFTY 10K and beyond among others.

– BCAJ introduced three new features –
Decoding GST, Revisiting FEMA and Statistically Speaking.

– Recorded and provided free access of short
GST videos by experts on 28 topics which got over 39,000 + views.

With
65% of India being under 35 years, India is a young nation with a fantastic
demographic advantage over many nations. And therefore, Yuva Shakti
was made a pivotal priority in our annual plan. It is India’s youth who have to
be empowered to lead the nation in the decades ahead. Here are a few steps we
took at BCAS in this direction.

– Encouraged the youth as speakers at Lecture
Meetings, Conferences, Workshops & others. They also contributed towards
the Journal and the annual Referencer.

– Organised a felicitation program for newly
passed CAs where 100+ participated in the interactive and motivational session.

– Tarang 2K18 – the Jal Erach Dastur CA
Students Annual Day offered youth a platform to showcase their talents and
creativity…it was a great success with over 600+ students attending the
event.

We are
living in a digital generation whether we like it or not, Digitisation
is fast displacing the conventional in most spheres. At BCAS, we made it a
commitment to keep pace. Having harnessed digitisation, we are now better
placed to disseminate knowledge to our members across time and geographical
boundaries with enhanced convenience. Here are some of the fruits of our
efforts.

– BCAS E-Learning Platform – Courseplay was
launched. This intuitive and user-friendly platform offers enhanced learning
through greater interaction and ease.

– The power of social media was explored and today
we have crossed 22K+ followers on our handle @bcasglobal. Successful campaigns
were conducted on the budget and there are always ongoing campaigns.

– YouTube is another avenue through which BCAS
popularity is spreading. There are over 6000+ subscribers who regularly tune in
to the videos to catch up on the many initiatives of the Society which is now
put up after most of the events.

Networking is a
critical goal to sustain the long-term growth of our careers, firms and the
Society. We stepped up our efforts to building and bettering relationships with
the government, government bodies, like minded professional organisations,
institutions and others. To pave the way, we embarked upon a few new roads.

– Organized GST training programs with NACIN
for our members and also retail traders.

– To give an impetus to corporate relations
and networking, we organised a 2 day Start Up Conference at Bengaluru, jointly
with the Karnataka State Chartered Accountants’ Association.

– Joint Programs were conducted with Indore
Management Association, Direct Tax Practitioners Association-Kolkata, Jaipur
Chartered Accountants Group and Chartered Accountants Association, Ahmedabad.

On the
national front the ruling Government scored an amazing goal – with GST becoming
an acknowledged success. It united the national market with a single tax and
most importantly it ensured that the inflation rate did not rise. The other key
benefit of GST is the formalisation of the economy with the adoption of
transparent digital processes. More individuals and firms have now entered the
tax system and collections have gone up considerably. The government hopes to
stabilise GST revenues at collections of Rs.1 lakh crore per month.

Many
improvements have been planned to enhance the GST experience. The compliance
process and registration system are two key steps. Also on the anvil are fewer
slabs, bringing more goods under GST and lowering of tax rates. Undoubtedly,
GST has been a big success and government hopes that bogus bills and other
means of dishonesty will soon disappear.

1^st
July was the CA day of our Institute and BCAS will celebrate its Founding Day
on 6^th July . Both organisations enter their 70^th year of
existence. BCAS has always been a principle-centered and learning-oriented
organisation promoting quality service and excellence in our profession. The
organisation has been a catalyst to bring out better and more effective
Government policies & laws in order to have clean & efficient
administration and governance. We have been reinforcing the importance of
Principles, Values and Ethics which remain the core of the BCAS Vision to
ensure that the flag of CA profession keeps flying high.

It is
with a considerable measure of contentment that I end my tenure as President of
BCAS, one of the finest organisations I have been associated with. I sincerely
believe that this Society with its proven credentials is on a solid foundation
to face the future specially as it approaches its Platinum Jubilee Year.

Before
I sign off, I would like to express my sincere gratitude to the many people who
walked the talk with me. A big ‘Thank You’ to all my office bearers Sunil,
Manish, Suhas and Abhay who worked diligently with me to steer BCAS on the way
to success throughout the year. I also appreciate the earnest efforts of all
the past presidents including the chairmen of the nine sub committees who have
wrestled with tough deadlines and budgets to come up with excellent programmes
during the entire year. Many, many thanks to all the convenors, coordinators,
contributors and speakers …. it is your unflagging efforts that have raised the
standards BCAS is known for.

I
would also like to express my gratitude to the back office of the Society,
Events, Accounts, Knowledge, Communications, IT and Marketing Teams along with
the Office Boys who through their hard work and team spirit have kept the
wheels of BCAS turning smoothly, no matter what ! And lastly, but not the
least, I would like to extend a huge ‘Thank You’ to each and every member of
the over 9,000 strong BCAS family and all the journal subscribers for their
unstinted support and enthusiastic participation in all activities that have
made the Society the respected winner it truly is!

At the
AGM of the Society on 6^th July 2018, I pass on the baton to the
incoming President CA Sunil Gabhawalla. I convey my best wishes to him and the
new team of Office Bearers for the coming year.

I flag
off for the last time from this communication by sincerely wishing that each
one of you target and achieve all your goals in life !

With
kind regards

CA.
Narayan Pasari

President

BCAJ Admin

Namaskaar

Exemplary
Behaviour – Conduct

Ramayana is a treasure
of wisdom. It is full of pearls of thoughts combined with action. There are in
all more than 24,000 shlokas (verses) and to condense them into four
small articles is a big challenge. This is the fourth and the last article in
the present series.

In Ramayana, not only
Shree Ram but many others showed exemplary behaviour. They expressed the
highest level of noble thoughts and brought them into practice.

When Ram lifted the Shivadhanushya
(the divine bow) and Seeta was to marry him, Dasharatha, Ram’s father on
reaching Mithila with his retinue waited outside Janaka’s palace seeking
permission to enter. Janaka was surprised by Dasharatha’s humility. Dasharatha
said, “A giver always has an upper hand”. You are ‘giving’ your daughter
to my son Ram in marriage (Kanyadaan).So, your position is higher. As
a ‘receiver’, I must seek your permission. Compare this with today’s world
of arrogant and audacious attitude.

After the wedding all
came back to Ayodhya. Dasharatha instructs Kausalya that mother-in-law should
take care of daughter-in-law as an eye-lid protects the eye ! Kausalya
implemented the advice.

When Dasharatha wanted
to retire, he called all sages,venerated citizens of Ayodhya, kings of states
under his tutelage for a meeting and sought their concurrence to his proposal
to appoint Ram as ‘Yuvraj’ (king designate).Dasharatha practised
consensus. Presently, the leader’s word is – ‘law’.

When Shravana was
inadvertently and unknowingly killed by Dasharatha’s arrow, Dasharatha himself
went to see Shravana’s old and blind parents with Shravana’s water-pot and
confessed his guilt. He begged their pardon ! As a king, he could have easily
run away from the situation. Today, avoidance and / or denial is the rule.

When Ram, Laxmana and
Seeta were going to exile, Laxmana’s mother Sumitra advised Laxmana to treat
the elder brother and sister-in-law as his parents and serve them faithfully.
Laxmana followed this dictat and discharged this duty throughout his life. In
this context, there is a very poetic episode that is – ‘When Ravana after
abducting was carrying Seeta in his viman, she saw a few monkeys on a
hill. She dropped her ornaments with a hope that the ornaments would reach Ram
and Laxmana when they would come looking for her. Those monkeys were Sugreeva,
Hanuman, etc. When Ram and Laxmana met them and enquired about Seeta, the
monkeys described what they saw and handed over the ornaments. Ram asked
Laxmana to recognise them. Laxmana utters a very poetic thought. He says, ‘I
can only recognise noopura’ (anklet) as due to my respect towards her, I
always bowed before her and never observed any other ornament that she wore.
This is the ultimate of reverence !’

After Bharata failed
to persuade Ram to return to Ayodhya, Bharata shunned all pomp and pleasure and
lived as a hermit at Nandigram outside Ayodhya and ruled the kingdom; as
agent of Ram for 14 years by placing Ram’s padukas (footwear) on the
throne. Bharat believed in the good old concept of: ‘give unto Caesar what
belongs to him’. This is against the modern practice of ‘greed and grab’.

Ram conquered
Kishkindha and Lanka by killing Bali and Ravana. But he was not an imperialist.
He installed Sugreeva and Bibhishana as the kings of the respective States !
Further on reaching Ayodhya, Ram returned the ‘puspak’, viman to Kubera,
the original owner, from whom Ravana had forcibly usurped it.

Finally, when
Bibhishana refused to perform the last rites of Ravana as he felt that Ravana
was a sinner, Ram declared that he had no enmity with Ravana but only abhorred
his wicked attitude. Ram believed in and practised forgiveness. There can be
objection to an action but never hate a person because the same soul is there
in both the sage and the sinner. Ram joined Bibhishana in performing Ravana’s
last rites!

If today’s society
follows even one percent of these principles, we can have a beautiful and happy
world.

Conduct based on
truth, love and ethics is the foundation of a good citizen, parent and leader.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

9 Pr. Commissioner of Income Tax vs. Aarham Softronics (2019) 412 ITR 623 (SC)

Industrial
undertaking – Deduction u/s. 80-IC – Eligible to claim deduction of 100% of the
profits for first five years and thereafter at 25% of profits for next five
years – Carries out substantial expansion within ten-year period – Further
entitled to deduction of 100% of profits from the year of expansion – Total
period of deduction, however, not to exceed ten years – Classic Binding
Industries’ case (407 ITR 429) not a good law

To understand
the question of law that arose before the Supreme Court in clear terms, the
Court noted that sub-section (2) of section 80-IC applies to an undertaking or
enterprise which has, inter alia, begun or begins to manufacture or
produce any article or thing by setting up a new factory in the area specified
therein, which includes the State of Himachal Pradesh. Sub-section (3) of
section 80-IC is in two parts: in certain cases, exemption from income is
provided at the rate of 100% of such profits and gains earned from the
aforesaid undertaking or enterprise for ten assessment years commencing with
the initial assessment year. The other clause relates to another category of
undertakings or enterprises (to which the cases before it belong) where the
exemption is at the rate of 100% of profits and gains for five assessment years
commencing with the initial assessment year and, thereafter, 25% of profits and
gains. The total exemption, thus, is for a period of ten years, namely, @100%
for the first five years and @ 25% for the remaining five years.

In the cases
before the Supreme Court, all the assessees started claiming exemption @ 100%
on profits and gains and availed it for a period of five years. During this
period, these assessees carried out ‘substantial expansion’ and claimed on that
basis that they should be allowed exemption from profits and gains for another
five years @ 100% instead of 25% from the 6th to the 10th year as well. They,
however, admitted that the total period during which they were entitled to
exemption would not exceed ten years as per the mandate of sub-section (6).

In this
backdrop, the question that arose before the Supreme Court was as to whether
the assessees could again start claiming 100% exemption for the next five years
from profits and gains after availing the same for the first five years on the
ground that they had carried out substantial expansion.

The High Court
had answered the question in the affirmative and for this reason it was the
Department that had moved the Supreme Court challenging the said decision by
filing appeals.

These appeals
were heard and decided by a Division Bench of the Supreme Court by its
judgement dated 20^th August, 2018 (407 ITR 429). The judgement of
the High Court was reversed on the aforesaid issue.

But it so
happened that in some of the appeals the respondent assessees were not served
with the notice and hence remained unrepresented. Since the appeals in respect
of these assessees were decided in their absence, they filed miscellaneous
applications for recall of the order, with a prayer to decide the appeals
afresh after giving them a hearing. In view of this, by a separate order their
applications were allowed and their appeals restored. Even the Revenue had
filed a few SLPs against the common judgement of the High Court as these SLPs
were not filed earlier when a batch of appeals was decided on 20^th
August, 2018 by the Supreme Court. The Supreme Court, therefore, heard the
appeals arising out of these SLPs along with the other appeals in which the
earlier judgement rendered had been recalled.

In the judgement
dated 20^th August, 2018 the Court took the view that once ‘initial
assessment year’ starts on fulfilling the conditions laid down in sub-section
(2) of section 80-IC, there cannot be another ‘initial assessment year’ for the
purposes of section 80-IC within the aforesaid period of ten years. While doing
so, the Court referred to section 80-IB(14)(c) of the Act, on the basis of
which an opinion was formed that there cannot be another ‘initial assessment
year’ for the purposes of section 80-IC within the aforesaid period of ten
years. According to the Supreme Court, this was the apparent error which was
committed. Section 80-IB(14) starts with the words ‘for the purpose of this
section’. Thus, ‘initial assessment year’ defined therein was relatable only to
the deductions that were provided under the provisions of section 80-IB,
namely, in respect of profits and gains from certain industrial undertakings
other than infrastructure development undertakings.

Further, clause
(v) of sub-section (8) of section 80-IC provides the definition of ‘initial
assessment year’ for the purpose of section 80-IC, which was not noticed by the
Court while pronouncing the judgement in the Commissioner of Income Tax
vs. M/s Classic Binding Industries case. According to the Supreme
Court, a mistake had occurred in the Classic Binding judgement.

As per this
definition, there could be an ‘initial assessment year’, relevant to the
previous year, in any of the following contingencies: (i) The previous year in
which the undertaking or the enterprise begins to manufacture or produce
articles or things; or (ii) Commences operation; or (iii) Completes substantial
expansion. The first two events are relatable to new units whereas the third
incident would occur in respect of existing units. The benefit of section 80-IC
is, thus, admissible not only when an undertaking or enterprise sets up a new
unit and starts manufacturing or producing articles or things. The advantage of
these provisions also accrues to those existing units, if they carry out
‘substantial expansion’ of their units by investing required capital in the
assessment year relevant to the previous year. ‘Substantial expansion’ is
defined in clause (ix) of sub-section (8) of section 80-IC. As per the
aforesaid definition, an existing unit would be treated as having carried out
substantial expansion when there is an increase in the investment in the plant
and machinery by at least 50% of the book value of the plant and machinery (before
taking depreciation in any year).

The Supreme
Court noted that the assessees had initially set up new industry in the state
of Himachal Pradesh of the nature specified u/s. 80-IC of the Act. As a result,
they became entitled to avail the concession provided in the said provision.
After five years and before the expiry of ten years, the assessees had carried
out substantial expansion of their units in terms of the aforesaid definition.
Considering the definition of ‘initial assessment year’, the Court was inclined
to accept that there could be another ‘initial assessment year’ on the
fulfilment of the condition mentioned in the said definition, namely,
completion of substantial expansion of the existing unit.

According to the
Supreme Court, therefore, the moment substantial expansion takes place, another
‘initial assessment year’ gets triggered. This new event entitles that unit to
start getting deduction @ 100% of the profits and gains. However, at the same
time, a new period of ten years does not start. This is so because the total
period for which deduction could be allowed has been capped at ten years,
inasmuch as sub-section (6) in no uncertain terms stipulates that deduction
shall be not allowed for a period exceeding ten assessment years.

The Supreme
Court, having examined the scheme in the aforesaid manner, came to the
conclusion that the definition of ‘initial assessment year’ contained in clause
(v) of sub-section (8) of section 80-IC could lead to a situation where there
could be more than one ‘initial assessment year’ within the said period of ten
years.

10 Pr. Commissioner of Income Tax vs. Nokia India Pvt. Ltd. (2019) 413 ITR
146 (SC)

Appeal to the
High Court – Substantial question of law – Reassessment – High Court dismissing
the appeal holding that assessment could not be reopened on a mere change of
opinion based on explanation given by an Assessing Officer to an audit
objection in a return processed u/s. 143(1) – High Court could not have
dismissed the appeal in
limine – Question of
law arose

The
respondent-assessee filed its return of income for the assessment year
1999-2000 declaring the taxable income as ‘nil’ after setting off of business
income of Rs. 12,97,86,402 against unabsorbed business losses and depreciation.
Since book profits were nil, the assessee’s case was that no tax was payable
u/s. 115JA of the Act. The assessee filed a revised return reporting a business
income of Rs. 12,97,44,989 but still showing ‘nil’ taxable income after
claiming set-off of unabsorbed business losses. There was no scrutiny of the
return and intimation u/s. 143(1) of the Act was issued to the assessee.

Subsequently, a
notice dated 20^th September, 2004 u/s. 148 of the Act was issued
seeking to reopen the assessment. This notice was dropped on 6^th /
13^thFebruary, 2006 after the assessee raised objections. On 13^th
February, 2006 a second notice u/s. 148 of the Act was issued. The reasons
provided to the assessee on 30^th August, 2006 for the reopening were
that after examination of the records for the assessment year 1999-2000, it was
revealed that during the year the assessee made various provisions in the
return of income for gratuity, doubtful debts, warranty, obsolescence which
were in the nature of ‘unascertained liabilities’ and were not added to the
book profit. This had resulted in underassessment of income for the assessment
year in question.

The assessee
filed its objections which were rejected by the Assessing Officer (AO) by order
dated 8^th November, 2006. Subsequently, by an order dated 30^th
November, 2006 the AO disallowed 20% of foreign travel expenses to the extent
of Rs. 1,71,95,149, provision for warranty to the extent of Rs. 1,77,45,202,
FOC marketing expenses (after depreciation) to the extent of Rs. 18,41,099, as
well as disallowed 25% of provision for obsolescence of inventory to the extent
of Rs. 12,13,037 and made addition to closing stock of Rs. 29,60,347.

By his order
dated 22^nd February, 2010 the Commissioner of Income-tax (Appeals)
rejected the assessee’s arguments u/s. 148 but deleted the disallowance of 20%
of foreign travel expenses and provision for warranty, but sustained the other
issues. Aggrieved by the said order, both the Revenue and the assessee filed
appeals before the Income-tax Appellate Tribunal (ITAT).

By a common
order dated 3^rd June, 2016 the ITAT allowed the assessee’s appeal
after examining the audit objection raised qua the assessment order of
the AO and the AO’s response thereto.

The Revenue
filed an appeal to the High Court only against the allowing of the assessee’s
appeal by the ITAT. It was urged by the Revenue that since the return filed was
processed u/s. 143(1) of the Act and intimation sent, there was no occasion for
the AO to have formed an opinion in the first place. Consequently, there was no
change of opinion when he decided to reopen the assessment. The Revenue further
submitted that the AO’s reply to the audit objection did not constitute the
formation of an opinion either.

The High Court
examined the letter dated 24^thSeptember, 2003 written by the AO in
response to the audit objection and held that not only did he examine the
records but came to the conclusion that ‘there was prima facie no
evidence that the liabilities were not ascertained liabilities’. The ITAT was
therefore right in holding that the reopening was based merely on a change of
opinion. According to the High Court, no question of law arose.

The Revenue
being aggrieved by the order of the High Court dismissing their appeal in
limine, filed the appeal by way of special leave in the Supreme Court.

According to the
Supreme Court, the following substantial questions of law did arise in this
appeal filed by the Revenue (the appellant herein) u/s. 260-A of the Act in the
High Court against the order passed by the ITAT and the same should have been
framed by the High Court for deciding the appeal on merits in accordance with
law:

“1. Whether the
ITAT was justified in holding that the notice issued by the AO u/s. 148 was bad
in law when admittedly the impugned notice was issued in the case where the
assessment was made u/s. 143(1) of the Act but not u/s. 143(3) of the Act.

2. Whether the
ITAT was justified in holding that the notice issued u/s. 148 of the Act was
bad because it was based on mere change of opinion by overlooking the fact that
there was no foundation to form any such opinion.

3. When
admittedly the notice in question satisfied the requirements of section 148 of
the Act as it stood, namely, that first, it contained the facts constituting
the ‘reasons to believe’, and second, it furnished the necessary details for
assessing the escaped income of the assessee, whether the ITAT was still justified
in declaring the notice as being bad in law without taking into consideration
any of these admitted facts.

4. In case, if
the notice is held proper and legal, whether the finding recorded by the ITAT
on the merits of the case on each item, which is subject matter of the notice,
is legally sustainable?”

According to the
Supreme Court, the aforementioned four questions framed needed to be answered
by the High Court on their respective merits while deciding the appeal filed by
the Revenue (the Appellant) u/s. 260-A of the Act.

The Supreme
Court remanded the case to the High Court for answering the aforementioned
questions on merits in accordance with the law.

11 The Commissioner of
Income Tax, New Delhi vs. Ram Kishan Dass (2019) 413 ITR 337 (SC)

Special
Audit – Power of the assessing officer to extend the time for submission of
audit report – The provisions of section 142(2C), as they stood prior to the
amendment which was enacted with effect from 1^st April, 2008 by the
Finance Act, 2008 did not preclude the exercise of jurisdiction and authority
by the assessing officer to extend time for the submission of the audit report
directed under sub-section (2A), without an application by the Assessee – The
amendment was intended to remove an ambiguity and was clarificatory in nature

The Supreme
Court noted that in the batch of cases before it, the submission of the
assessees was that the assessing officer (AO) had no jurisdiction or authority
u/s. 142(2C), as it stood prior to 1^st April, 2008, to extend time
for the submission of the audit report of the auditor appointed under the
provisions of sub-section (2A). The AO, at the relevant time, was authorised to
extend time (not exceeding 180 days) from the date on which a direction under
sub-section (2A) was received by the assessee, only on an application made by
the assessee and for any good and sufficient reason. If the assessee made no
application, the AO would have no jurisdiction to extend time.

The Revenue’s
contention was that even before 1^stApril, 2008 the jurisdiction of
the AO to extend time for the submission of the audit report was not confined
to a situation in which the assessee had made an application for extension.
Consequently, the incorporation of a provision for a suo motu exercise
of power by the AO, with effect from 1^st April, 2008 by the Finance
Act, 2008 was only intended to remove an ambiguity and was clarificatory in
nature.

The Tribunal
had come to the conclusion that prior to the insertion of the expression suo
motu with effect from 1^st April, 2008 in section 142(2C), the AO
had no jurisdiction to extend time for the submission of the report of an
auditor appointed under sub-section (2A) of his own accord. As a consequence,
it was held that the assessment which was made u/s. 153A, in respect of the
assessment years in question, was barred by limitation.

A Division
Bench of the Delhi High Court had dismissed the batch of appeals filed by the
Revenue against the aforesaid order of the Income-tax Appellate Tribunal.

According to
the Supreme Court, there were two ways of looking at the situation. Firstly,
the proviso to sub-section (2C) creates a remedy for an assessee to apply for
extension where, for a good and sufficient reason, the audit report could not
be submitted. Otherwise, the assessee may face a penalty u/s. 271 apart from
being subjected to a best judgement assessment u/s. 144. By extending time at
the behest of the assessee, the AO allows the original order calling for an
audit report to be duly implemented. The creation of a remedy under the proviso
in favour of the assessee cannot be construed to detract from the authority
which vests in the AO, who has specified the time limit for the submission of
an audit report in the first instance, to extend time without an application by
the assessee.

To hold
otherwise, and to construe the proviso to sub-section (2C) as foreclosing the
authority of the AO to extend time without a request by the assessee, would
lead to an absurd consequence. The assessee would then be in control of whether
or not to seek an extension of time where the audit report has not been
finalised. Even if the auditor, for genuine reasons (not bearing on the default
of the assessee), was unable to comply with the time schedule, having regard to
the nature or complexity of the accounts, the assessee would then have a sole
and unrestricted power to determine whether an extension should be sought.

Not seeking an
extension would in effect defeat the underlying purpose and object of directing
the assessee to obtain a report of an auditor under sub-section (2A). The
legislature could not have intended this consequence. An interpretation which
would defeat the purpose underlying sub-section (2A) must be avoided. The AO
who has fixed the time in the first instance must necessarily, as an incident
of the authority to fix time, be entitled to extend time without an application
by the assessee. While extending time, the AO will be subject to the overall
ceiling of time fixed under the proviso to sub-section 2C.

Secondly, the
alternate construction of the proviso is that the expression ‘and for any good
and sufficient reason’ should be read to mean ‘or for any good and sufficient
reason’. As a matter of statutory interpretation, it is well settled that the
expression ‘and’ can, in a given context, be read as ‘or’. The contention of
the assessees opposing this construction by urging that in the context of
sub-section (2A), it has been held by the Supreme Court in Sahara India
(Firm), Lucknow vs. CIT (300 ITR 403) that the word ‘and’ is used in
the conjunctive sense would not necessarily furnish an index to how the
expression ‘and’ in the proviso to sub-section (2C) should be construed. The
interpretation of the expression must be based on the context in which it is
used. In the proviso to sub-section (2C), the expression ‘and’ is used in
connection with the grant of an extension of time and not in the context of the
formation of an opinion for ordering a special audit. The power was of a
procedural nature.

As to the
contention of the assessees that the amendment to the proviso to sub-section
(2C) by the Finance Act would indicate that the amendment was intended to be
prospective with effect from 1^st April, 2008 and, that prior to this
date, the AO had no jurisdiction to grant an extension of time, save on the
application by the assessee, the Supreme Court held that the reason for the
introduction of the amendment arose because of the element of ambiguity
inherent in the erstwhile position as it stood before 1^st April,
2008. The ambiguity was precisely on the question as to whether the AO was
precluded from granting an extension of time of his own accord merely because
the assessee was permitted to apply for an extension. Since the purpose of the
amendment was to remove this ambiguity, the Supreme Court was of the view that
by the Finance Act, Parliament essentially clarified the position as it existed
prior to the amendment.

According to
the Supreme Court, there was no substance in the submission urged on behalf of
the assessees that to adopt an interpretation which we have placed on the
provisions of section 142(2C) would enable the AO to extend the period of
limitation for making an assessment u/s. 153B. Explanation (iii) to section
153B (1), as it stood at the material time, provided for the exclusion of the
period commencing from the date on which the AO had directed the assessee to
get his accounts audited under sub-section (2A) of section 142 and ending on
the day on which the assessee is required to furnish a report under that
sub-section. The day on which the assessee is required to furnish a report of
the audit under sub-section (2A) marks the culmination of the period of
exclusion for the purpose of limitation.

Where the AO
had extended the time, the period, commencing from the date on which the audit
was ordered and ending with the date on which the assessee is required to
furnish a report, would be excluded in computing the period of limitation for
framing the assessment u/s. 153B. The principle governing the exclusion of time
remains the same. The date on which the exclusion culminates is the date which
the AO fixes originally, or on extension for submission of the report.

The Supreme Court concluded that the
provisions of section 142(2C) of the Income-tax Act, 1961 as they stood prior
to the amendment which was enacted with effect from 1^st April, 2008
by the Finance Act, 2008 did not preclude the exercise of jurisdiction and
authority by the AO to extend time for the submission of the audit report
directed under sub-section (2A), without an application by the assessee. The
amendment was intended to remove an ambiguity and was clarificatory in nature.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

As I
sit to write this last communication, my thoughts race back a year in time when
I took over the mantle as the President of this esteemed Society. In the
acceptance speech, I had defined the theme of the annual plan for the BCAS Year
2018-2019 to be that of aligning its priorities to members’ expectations, which
broadly revolved around four key sub-sets – “Re-engineer my Profession”,
“Rekindle my Passion”, “Restore my Pride” and “Rejuvenate my BCAS”.

Reflecting
back over the past year, I feel happy and satisfied that our Society has
undertaken numerous steps and initiatives to ensure that the said expectations
are reasonably met. The Annual Report has already been circulated by email and
significant changes have been made in its presentation to make it more
meaningful. I would request you to download and go through the same. I would
not like to repeat the initiatives since they are listed in it but would only
highlight some major steps taken during the year:

Making dissemination of knowledge crisp,
relevant and participative through the format of panel discussions and expert
chats;

Bringing in multi-domain events and
industry-specific events;

Organising various long-duration courses to
develop skill sets of the members;

Organising more programmes highlighting the
use of technology and its impact on the profession;

Rejuvenating the students’ study circle with
relevant and timely topics;

Revival
of various study circles catering to specific domains;

Meeting various social causes like
tree-plantation, providing flood relief, blood donation camp, etc.;

Regular interaction with government officials
and effective representation of issues faced by the profession and the
industry;

Regular coverage of issues in the media;

Publications being released at regular
intervals.

As my
term draws to a close, I feel a deep sense of satisfaction at having lived a
year with a purpose. It was a special year and many people made it even more
special. As a leader of the Society, I had occasion to interact with many
senior professionals and experts, government officials, members, staff,
students, etc. While the context of such interactions was varied, one thing
which was constant was the warmth and the respect during such interactions. No
phone call went unanswered and no request was turned down. The selfless
dedication of all such volunteers was truly a humbling experience. I would like
to thank all the speakers, authors, compilers, conveners, course coordinators,
chairmen and numerous well-wishers for their continued goodwill and support.

Special
mention is due to my team of office-bearers – Manish, as an able
Vice-President, provided the vital back-end support throughout the year and
also acted as a wise sounding board for any new adventures or misadventures
that came to my mind. With Suhas ably handling the Treasury, I did not have to
worry about finance and accounts. Mihir was the go-to person for all
Information Technology-related initiatives and issues, whereas Abhay was the
strong support for the events, including the Committee meetings. I just cannot
thank them enough. Together, we could divide activities based on our strengths
and generate synergies which helped us achieve what we had dreamt of. If I have
to summarise my journey in a single sentence, it has to be this – the
journey of making new friends for a life-time!

Before
I hang up my boots, I would like to acknowledge the feedback provided by all of
you. Your constructive feedback has helped in evolving my persona. My best
wishes and congratulations to the new team at the BCAS; I would like to wish
Manish all the best for an illustrious year ahead. Having interacted with him
closely, I am fully confident that he will take the Society to even greater
heights during his tenure. It will be my pleasure to interact with you and be
of any service to all of you at any point of time. Abhar – Shukriya –
Thank you.

BCAJ Admin

BOOK REVIEW

“Indian
Accounting Standards (Ind AS) – Interpretation, Issues & Practical
Application” by Dolphy D’Souza, Chartered Accountant

Many years ago
the author had published two small pocket-edition books on accounting
standards. From those days till now, we have seen the ever-widening scope of
accounting standards. These two volumes, and they are voluminous, contain
exhaustive guidance to help understand the principles and practices prescribed
by these ‘principle-based’ accounting standards. It goes without saying that
Ind AS has made accounting not just complex but also complicated and
treacherous.

The author has
been an eminent writer and contributor to the BCAJ on a monthly basis
for more than 16 years. He has been involved in the standard-setting process at
the ICAI as well as at the IASB. Hence his ‘word’, to be fair, carries both
weight and value.

Coming to the
book under review, it is structured to cover all Ind AS’s. Specifically, it
contains a special segment of about 350 pages on the new Ind AS 115/116. It
handles these with illustrations, examples, issues as well as the author’s
response and that, too, industry wise. A section that covers the
differentiation between IFRS and Ind AS is of particular academic interest
especially for first-time users. The book is replete with numerous
illustrations and examples. Some of the examples feature actual working cases
and solutions with comments.

Ind AS’s are
particularly complicated when one comes to Financial Instruments (FI). The book
devotes 250 pages to FIs. Business combination draws particular attention.
Charts, explanations of definitions, accounting, group re-organisation issues
and more offer the clarity that one seeks. The book also covers MAT aspects
under Ind AS.

The book
reproduces the text of both Ind AS and ICDS. A handy illustrative financial
statement blending Schedule III and Ind AS in the accompanying CD makes it
especially beneficial for preparers. The last part of the book consists of some
useful analytical articles on perennial themes such as acquisition date vs.
appointed date, demerger accounting, FAQ on PPE, consolidation of trusts, GST
accounting and more.

Although there
is enormous literature on IFRS and quite a bit on Ind AS, this book carries it
in two volumes and a CD loaded with practical resources. The author deserves a
pat on the back for writing on a subject which is in a constant state of flux
(changing, blurry and ephemeral). I am sure that this book, like Dolphy’s
previous works, will remain a handy tool for both practitioners and preparers.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

STATE
BANK OF INDIA

Key
Audit Matters

Key Audit
Matters are those matters that in our professional judgement were of most
significance in our audit of the Standalone Financial Statements for the year
ended 31^st March, 2019. These matters were addressed in the context
of our audit of the Standalone Financial Statements as a whole and in forming
our opinion thereon and we do not provide a separate opinion on these matters.
We have determined the matters described below to be the Key Audit Matters to
be communicated in our report:

Key audit matter	How the matter was addressed in our audit
i	Classification of advances and identification of and provisioning for non-performing advances in accordance with the RBI guidelines (Refer Schedule 9 read with Note 3 of Schedule 17 to the financial statements). Advances include bills purchased and discounted, cash credits, overdrafts loans repayable on demand and term loans. These are further categorised as secured by tangible assets (including advances against book debts), covered by bank / government guarantees and unsecured advances. Advances constitute 59.38% of the Bank’s total assets. They are, inter alia, governed by income recognition, asset classification and provisioning (IRAC) norms and other circulars and directives issued by the RBI from time to time which provide guidelines related to classification of advances into performing and non-performing advances (NPA). The Bank classifies these advances based on IRAC norms as per its accounting policy No. 3. Identification of performing and non-performing advances involves establishment of proper mechanism. The Bank accounts for all the transactions related to advances in its Information Technology System (IT System), viz., Core Banking Solutions (CBS) which also identifies whether the advances are performing or non-performing. Further, NPA classification and calculation of provision is done through another IT System, viz., Centralised Credit Data Processing (CCDP) Application. The carrying value of these advances (net of provisions) may be materially misstated if, either individually or in aggregate, the IRAC norms are not properly followed.	Our audit approach towards advances with reference to the IRAC norms and other related circulars / directives issued by the RBI and also internal policies and procedures of the Bank includes the testing of the following: – The accuracy of the data input in the system for income recognition, classification into performing and non- performing advances and provisioning in accordance with the IRAC Norms in respect of the branches allotted to us; – Existence and effectiveness of monitoring mechanisms such as internal audit, systems audit, credit audit and concurrent audit as per the policies and procedures of the Bank; We have examined the efficacy of various internal controls over advances to determine the nature, timing and extent of the substantive procedures and compliance with the observations of the various audits conducted as per the monitoring mechanism of the Bank and RBI Inspection. In carrying out substantive procedures at the branches allotted to us, we have examined all large advances / stressed advances while other advances have been examined on a sample basis including review of valuation reports of independent valuers provided by the Bank’s management. Reliance is also placed on audit reports of other statutory branch auditors with whom we have also made specific communication. We have also relied on the reports of external IT System audit experts with respect to the business logics / parameters inbuilt in CBS for tracking, identification and stamping of NPAs and provisioning in respect thereof.
	Considering the nature of the transactions, regulatory requirements, existing business environment, estimation / judgement involved in valuation of securities, it is a matter of high importance for the intended users of the Standalone Financial Statements. Considering these aspects, we have determined this as a Key Audit Matter. Accordingly, our audit was focused on income recognition, asset classification and provisioning pertaining to advances due to the materiality of the balances.
ii	Classification and valuation of investments, identification of and provisioning for Non-Performing Investments (Schedule 8 read with Note 2 of Schedule 17 to the financial statements). Investments include investments made by the Bank in various government securities, bonds, debentures, shares, security receipts and other approved securities. Investments constitute 26.27% of the Bank’s total assets. These are governed by the circulars and directives of the Reserve Bank of India (RBI). These directions of RBI, inter alia, cover valuation of investments, classification of investments, identification of non-performing investments, the corresponding non-recognition of income and provision there against. The valuation of each category (type) of the aforesaid securities is to be done as per the method prescribed in circulars and directives issued by the RBI which involves collection of data / information from various sources such as FIMMDA rates, rates quoted on BSE / NSE, financial statements of unlisted companies etc. Considering the complexities and extent of judgement involved in the valuation, volume of transactions, investments on hand and degree of regulatory focus, this has been determined as a Key Audit Matter. Accordingly, our audit was focused on valuation of investments, classification, identification of non-performing investments and provisioning related to investments.	Our audit approach towards investments with reference to the RBI Circulars / Directives included the review and testing of the design, operating effectiveness of internal controls and substantive audit procedures in relation to valuation, classification, identification of non-performing investments, provisioning / depreciation related to investments. In particular, a. We evaluated and understood the Bank’s internal control system to comply with relevant RBI guidelines regarding valuation, classification, identification of Non-Performing Investments, provisioning / depreciation related to investments; b. We assessed and evaluated the process adopted for collection of information from various sources for determining fair value of these investments; c. For the selected sample of investments in hand, we tested accuracy and compliance with the RBI Master Circulars and directions by re-performing valuation for each category of the security. Samples were selected after ensuring that all the categories of investments (based on nature of security) were covered in the sample; d. We assessed and evaluated the process of identification of NPIs and corresponding reversal of income and creation of provision; e. We carried out substantive audit procedures to re-compute independently the provision to be maintained and depreciation to be provided in accordance with the circulars and directives of the RBI. Accordingly, we selected samples from the investments of each category and tested for NPIs as per the RBI guidelines and re-computed the provision to be maintained in accordance with the RBI Circular for those selected samples of NPIs; f. We tested the mapping of investments between the investment application software and the financial statement preparation software to ensure compliance with the presentation and disclosure requirements as per the aforesaid RBI Circular / directions.
iii	Assessment of provisions and contingent liabilities in respect of certain litigations including direct and indirect taxes, various claims filed by other parties not acknowledged as debt (Schedule 12 read with Note 18.9 of Schedule 18 to the financial statements): There is high level of judgement required in estimating the level of provisioning. The Bank’s assessment is supported by the facts of the matter, their own judgement, past experience and advices from legal and independent tax consultants wherever considered necessary. Accordingly, unexpected adverse outcomes may significantly impact the Bank’s reported profit and the balance sheet.	Our audit approach involved: a. Understanding the current status of the litigations / tax assessments; b. Examining recent orders and / or communication received from various tax authorities / judicial forums and follow-up action thereon; c. Evaluating the merit of the subject matter under consideration with reference to the grounds presented therein and available independent legal / tax advice; and
	We determined the above area as a Key Audit Matter in view of associated uncertainty relating to the outcome of these matters which requires application of judgement in interpretation of law. Accordingly, our audit was focused on analysing the facts of the subject matter under consideration and judgements / interpretation of law involved.	d. Review and analysis of evaluation of the contentions of the Bank through discussions, collection of details of the subject matter under consideration, the likely outcome and consequent potential outflows on those issues.

Key audit matter

How the
matter was addressed in our audit

Sr. No.

Key Audit Matters

Auditors’ Response

Classification of advances and
identification of and provisioning for non-performing advances in accordance
with the RBI guidelines (Refer Schedule 9 read with Note 3 of Schedule 17 to
the financial statements).

Advances include bills purchased and
discounted, cash credits, overdrafts loans repayable on demand and term
loans. These are further categorised as secured by tangible assets (including
advances against book debts), covered by bank / government guarantees and
unsecured advances.

Advances constitute 59.38% of the Bank’s
total assets. They are, inter alia, governed by income recognition,
asset classification and provisioning (IRAC) norms and other circulars and
directives issued by the RBI from time to time which provide guidelines
related to classification of advances into performing and non-performing
advances (NPA). The Bank classifies these advances based on IRAC norms as per
its accounting policy No. 3.

Identification of performing and
non-performing advances involves establishment of proper mechanism. The Bank
accounts for all the transactions related to advances in its Information
Technology System (IT System), viz., Core Banking Solutions (CBS) which also
identifies whether the advances are performing or non-performing. Further,
NPA classification and calculation of provision is done through another IT
System, viz., Centralised Credit Data Processing (CCDP) Application.

The carrying value of these advances (net of
provisions) may be materially misstated if, either individually or in
aggregate, the IRAC norms are not properly followed.

Our audit approach towards advances with reference to the IRAC
norms and other related circulars / directives issued by the RBI and also
internal policies and procedures of the Bank includes the testing of the
following:

– The accuracy of the
data input in the system for income recognition, classification into
performing and non- performing advances and provisioning in accordance with
the IRAC Norms in respect of the branches allotted to us;

– Existence and effectiveness of monitoring mechanisms such as
internal audit, systems audit, credit audit and concurrent audit as per the
policies and procedures of the Bank;

We have examined the efficacy of various internal controls over
advances to determine the nature, timing and extent of the substantive
procedures and compliance with the observations of the various audits
conducted as per the monitoring mechanism of the Bank and RBI Inspection.

In carrying out substantive procedures at the branches allotted
to us, we have examined all large advances / stressed advances while other
advances have been examined on a sample basis including review of valuation
reports of independent valuers provided by the Bank’s management.

Reliance is also placed on audit reports of other statutory
branch auditors with whom we have also made specific communication.

We have also relied on the reports of external IT System audit
experts with respect to the business logics / parameters inbuilt in CBS for
tracking, identification and stamping of NPAs and provisioning in respect
thereof.

Considering the nature of the transactions,
regulatory requirements, existing business environment, estimation /
judgement involved in valuation of securities, it is a matter of high
importance for the intended users of the Standalone Financial Statements.
Considering these aspects, we have determined this as a Key Audit Matter.

Accordingly, our audit was focused on income
recognition, asset classification and provisioning pertaining to advances due
to the materiality of the balances.

Classification and valuation of investments,
identification of and provisioning for Non-Performing Investments (Schedule 8
read with Note 2 of Schedule 17 to the financial statements).

Investments include investments made by the
Bank in various government securities, bonds, debentures, shares, security
receipts and other approved securities.

Investments constitute 26.27% of the Bank’s total assets. These
are governed by the circulars and directives of the Reserve Bank of India
(RBI). These directions of RBI, inter alia, cover valuation of investments,
classification of investments, identification of non-performing investments,
the corresponding non-recognition of income and provision there against.

The valuation of each category (type) of the
aforesaid securities is to be done as per the method prescribed in circulars
and directives issued by the RBI which involves collection of data /
information from various sources such as FIMMDA rates, rates quoted on BSE /
NSE, financial statements of unlisted companies etc. Considering the
complexities and extent of judgement involved in the valuation, volume of
transactions, investments on hand and degree of regulatory focus, this has
been determined as a Key Audit Matter.

Accordingly, our audit was focused on
valuation of investments, classification, identification of non-performing
investments and provisioning related to investments.

Our audit approach towards investments with reference to the RBI
Circulars / Directives included the review and testing of the design,
operating effectiveness of internal controls and substantive audit procedures
in relation to valuation, classification, identification of non-performing
investments, provisioning / depreciation related to investments. In
particular,

a. We evaluated and understood the Bank’s internal control
system to comply with relevant RBI guidelines regarding valuation,
classification, identification of Non-Performing Investments, provisioning /
depreciation related to investments;

b. We assessed and evaluated the process adopted for collection
of information from various sources for determining fair value of these
investments;

c. For the selected
sample of investments in hand, we tested accuracy and compliance with the RBI
Master Circulars and directions by re-performing valuation for each category
of the security. Samples were selected after ensuring that all the categories
of investments (based on nature of security) were covered in the sample;

d. We assessed and evaluated the process of identification of
NPIs and corresponding reversal of income and creation of provision;

e. We carried out substantive audit
procedures to re-compute independently the provision to be maintained and
depreciation to be provided in accordance with the circulars and directives
of the RBI. Accordingly, we selected samples from the investments of each
category and tested for NPIs as per the RBI guidelines and re-computed the
provision to be maintained in accordance with the RBI Circular for those
selected samples of NPIs;

f. We tested the mapping of investments between the investment
application software and the financial statement preparation software to ensure
compliance with the presentation and disclosure requirements as per the
aforesaid RBI Circular / directions.

iii

Assessment of provisions and contingent
liabilities in respect of certain litigations including direct and indirect
taxes, various claims filed by other parties not acknowledged as debt
(Schedule 12 read with Note 18.9 of Schedule 18 to the financial statements):

There is high level of judgement required in
estimating the level of provisioning. The Bank’s assessment is supported by
the facts of the matter, their own judgement, past experience and advices
from legal and independent tax consultants wherever considered necessary.
Accordingly, unexpected adverse outcomes may significantly impact the Bank’s
reported profit and the balance sheet.

Our audit approach involved:

a. Understanding the current status of the litigations / tax
assessments;

b. Examining recent
orders and / or communication received from various tax authorities /
judicial forums and follow-up action thereon;

c. Evaluating the merit
of the subject matter under consideration with reference to the grounds
presented therein and available independent legal / tax advice; and

We determined the above area as a Key Audit
Matter in view of associated uncertainty relating to the outcome of these
matters which requires application of judgement in interpretation of law.
Accordingly, our audit was focused on analysing the facts of the subject
matter under consideration and judgements / interpretation of law involved.

d. Review and analysis of evaluation of the contentions of the
Bank through discussions, collection of details of the subject matter under
consideration, the likely outcome and consequent potential outflows on those
issues.

YES
BANK LTD.

Key
Audit Matters

Key audit
matters are those matters that, in our professional judgement, were of most
significance in our audit of the standalone financial statements of the current
period. These matters were addressed in the context of our audit of the
standalone financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.

Key audit matter	How the matter was addressed in our audit
Significant estimates and judgement involved Identification of NPAs and provisions in respect of NPAs and restructured advances are made based on management’s assessment of the degree of impairment of the advances subject to and guided by the minimum provisioning levels prescribed under the RBI guidelines with regard to the prudential norms on income recognition, asset classification & provisioning, prescribed from time to time. The provisions on NPA are also based on the valuation of the security available. In case of restructured accounts, provision is made for erosion / diminution in fair value of restructured loans, in accordance with the RBI guidelines. In addition, the contingency provision that the Bank has established in the current year on assets currently not classified as NPAs is based on management’s judgement. We identified identification of NPAs and provision on advances as a Key Audit Matter because of the level of management judgement involved in determining the provision (including the provisions on assets which are not classified as NPAs) and the valuation of the security of the NPA loans and on account of the significance of these estimates to the financial statements of the Bank.	Our key audit procedures included: Design / Controls Assessing the design, implementation and operating effectiveness of key internal controls over approval, recording and monitoring of loans, monitoring process of overdue loans (including those which became overdue subsequent to the reporting date), measurement of provisions, identification of NPA accounts and assessing the reliability of management information (including overdue reports). In addition, for corporate loans we tested controls over the internal ratings process, monitoring of stressed accounts, including credit file review processes and review controls over the approval of significant individual impairment provisions. Evaluated the design, implementation and operating effectiveness of key internal controls over the valuation of security for NPAs and the key controls over determination of the contingency provision including documentation of the relevant approvals along with basis and rationale of the provision. Testing of management review controls over measurement of provisions and disclosures in financial statements. Involving our information system specialists in the audit of this area to gain comfort over data integrity and calculations, including system reconciliations. Substantive tests Test of details for a selection of exposures over calculation of NPA provisions including valuation of collaterals for NPAs as at 31^st March, 2019; the borrower-wise NPA identification and provisioning determined by the Bank and also testing related disclosures by assessing the completeness, accuracy and relevance of data and to ensure that the same is in compliance with the RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification & Provisioning.

Key audit
matter

How the
matter was addressed in our audit

Identification of Non-Performing Assets
(NPAs) and provisions on advances

Charge: Rs. 20,836 million for year ended 31^stMarch, 2019

Provision: Rs. 33,977 million as at 31^st
March, 2019

Refer to the accounting policies in the Financial Statements:
Significant Accounting Policies – use of estimates and “Note 18.4.3 to the Financial
Statements: Advances”

Significant estimates and judgement involved

Identification of NPAs and provisions in respect of NPAs and
restructured advances are made based on management’s assessment of the degree
of impairment of the advances subject to and guided by the minimum
provisioning levels prescribed under the RBI guidelines with regard to the
prudential norms on income recognition, asset classification &
provisioning, prescribed from time to time.

The provisions on NPA are also based on the valuation of the
security available. In case of restructured accounts, provision is made for
erosion / diminution in fair value of restructured loans, in accordance with
the RBI guidelines. In addition, the contingency provision that the Bank has
established in the current year on assets currently not classified as NPAs is
based on management’s judgement.

We identified identification of NPAs and provision on advances
as a Key Audit Matter because of the level of management judgement involved
in determining the provision (including the provisions on assets which are
not classified as NPAs) and the valuation of the security of the NPA loans
and on account of the significance of these estimates to the financial
statements of the Bank.

Our key audit procedures included:

Design / Controls

Assessing the design, implementation and operating effectiveness
of key internal controls over approval, recording and monitoring of loans,
monitoring process of overdue loans (including those which became overdue
subsequent to the reporting date), measurement of provisions, identification
of NPA accounts and assessing the reliability of management information (including overdue reports). In addition, for
corporate loans we tested controls over the internal ratings process, monitoring
of stressed accounts, including credit file review processes and review
controls over the approval of significant individual impairment provisions.

Evaluated the design, implementation and operating effectiveness
of key internal controls over the valuation of security for NPAs and the key
controls over determination of the contingency provision including
documentation of the relevant approvals along with basis and rationale of the
provision.

Testing of management review controls over measurement of provisions
and disclosures in financial statements.

Involving our information system specialists in the audit of
this area to gain comfort over data integrity and calculations, including
system reconciliations.

Substantive tests

Test of details for a selection of exposures over calculation of
NPA provisions including valuation of collaterals for NPAs as at 31^st
March, 2019; the borrower-wise NPA identification and provisioning determined
by the Bank and also testing related disclosures by assessing the
completeness, accuracy and relevance of data and to ensure that the same is
in compliance with the RBI guidelines with regard to the Prudential Norms on
Income Recognition, Asset Classification & Provisioning.

Key audit matter	How the matter was addressed in our audit
	We also selected a number of loans to test potential cases of loans repaid by a customer during the period by fresh disbursement(s) to these higher risk loans. We selected a sample (based on quantitative and qualitative thresholds) of larger corporate clients where impairment indicators had been identified by management. We obtained management’s assessment of the recoverability of these exposures (including individual provisions calculations) and challenged whether individual impairment provisions, or lack of these, were appropriate. This included the following procedures: Reviewing the statement of accounts, approval process, board minutes, credit review of customer, review of Special Mention Accounts reports and other related documents to assess recoverability and the classification of the facility; and For a risk-based sample of corporate loans not identified as displaying indicators of impairment by management, challenged this assessment by reviewing the historical performance of the customer and assessing whether any impairment indicators were present.
Information technology
IT systems and controls The Bank’s key financial accounting and reporting processes are highly dependent on information systems including automated controls in systems, such that there exists a risk that gaps in the IT control environment could result in the financial accounting and reporting records being misstated. Amongst its multiple IT systems, five systems are key for its overall financial reporting. In addition, large transaction volumes and the increasing challenges to protect the integrity of the bank’s systems and data, cyber security has become a more significant risk in recent periods. We have identified ‘IT Systems and Controls’ as Key Audit Matter because of the high level automation, significant number of systems being used by the management and the complexity of the IT architecture.	Our key IT audit procedures included: We focused on user access management, change management, segregation of duties, system reconciliation controls and system application controls over key financial accounting and reporting systems. We tested a sample of key controls operating over the information technology in relation to financial accounting and reporting systems, including system access and system change management, programme development and computer operations. We tested the design and operating effectiveness of key controls over user access management, which includes granting access right, new user creation, removal of user rights and preventive controls designed to enforce segregation of duties. For a selected group of key controls over financial and reporting systems, we independently performed procedures to determine that these controls remained unchanged during the year or were changed following the standard change management process, Other areas that were assessed included password policies, security configurations, system interface controls, controls over changes to applications and databases and that business users and controls to ensure that developers and production support did not have access to change applications, the operating system or databases in the production environment. Security configuration review and related. Tests on certain critical aspects of cyber security on network security management mechanism, operational security of key information infrastructure, data and client information management, monitoring and emergency management.
Valuation of Financial Instruments (Investments and Derivatives)
Refer to the accounting policies in the financial statements: ‘Significant Accounting Policies – use of estimate,’ ‘Note 18.4.2 to the Financial Statements: Investments’ and ‘Note 18.4.6 to the Financial Statements: Accounting for derivative transactions’.
Subjective estimates and judgement involved Investments Investments are classified into ‘Held for Trading’ (‘HFT’), ‘Available for Sale’ (‘AFS’) and ‘Held to Maturity’ (‘HTM’) categories at the time of purchase. Investments, which the Bank intends to hold till maturity are classified as HTM investments. Investments classified as HTM are carried at amortised cost. Where, in the opinion of management, a diminution other than temporary, in the value of investments has taken place, appropriate provisions are required to be made. Investments classified as AFS and HFT are marked-to-market on a periodic basis as per the relevant RBI guidelines. We identified valuation of investments as a Key Audit Matter because of the management judgement involved in determining the value of certain investments (bonds and debentures, commercial papers and certificate of deposits, security receipts) based on the policy and model developed by the bank, impairment assessment for HTM book and the overall significant investments to the financial statements of the Bank.	Our key audit procedures included: Design/controls Assessing the design, implementation and operating effectiveness of management’s key internal controls over classification, valuation and valuation models. Reading investment agreements / term sheets entered into during the current year, on a sample basis, to understand the relevant investment terms and identify any conditions that were relevant to the valuation of financial instruments. Engaging our valuation specialists to assist us in evaluating the valuation models used by the bank to value certain instruments and to perform, on a sample basis, independent valuations of the instruments and comparing these valuations with the Bank’s valuations. Assessed the appropriateness of the valuation methodology and challenging the valuation model by testing the key inputs used such as pricing inputs, measure of volatility and discount factors. Compared the valuation methodology to criteria in the accounting standards / RBI guidelines.
Derivatives The Bank has exposure to derivative products which are accounted for on fair value (mark-to-market) in the books of account. The valuation of the Bank’s derivatives, held at fair value, is based on a combination of market data and valuation models which often require a considerable number of inputs. Many of these inputs are obtained from readily available data, the valuation techniques for which use quoted market prices and observable inputs. Where such observable data is not readily available, then estimates are developed which can involve significant management judgement. We identified assessing the fair value of derivatives as a Key Audit Matter because of the degree of complexity involved in valuing certain financial instruments and the degree of judgement exercised by management in identifying the valuation models and determining the inputs used in the valuation models.	Substantive tests For sample of instruments we re-performed independent valuation where no direct observable inputs were used. We examined and challenged the assumptions used by considering the alternate valuation method and sensitivity of other key factors; Assessing whether the financial statement disclosures appropriately reflect the Bank’s exposure to investments and derivatives valuation risks with reference to the requirements of the prevailing accounting standards and RBI guidelines.

Key audit matter

How the
matter was addressed in our audit

We also selected a number of loans to test potential cases of
loans repaid by a customer during the period by fresh disbursement(s) to
these higher risk loans.

We selected a sample (based on quantitative and qualitative
thresholds) of larger corporate clients where impairment indicators had been
identified by management. We obtained management’s assessment of the
recoverability of these exposures (including individual provisions
calculations) and challenged whether individual impairment provisions, or
lack of these, were appropriate.

This included the following procedures:

Reviewing the statement of accounts, approval process, board
minutes, credit review of customer, review of Special Mention Accounts
reports and other related documents to assess recoverability and the
classification of the facility; and

For a risk-based sample of corporate loans not identified as
displaying indicators of impairment by management, challenged this assessment
by reviewing the historical performance of the customer and assessing whether
any impairment indicators were present.

Information technology

IT systems and controls

The Bank’s key financial accounting and
reporting processes are highly dependent on information systems including
automated controls in systems, such that there exists a risk that gaps in the
IT control environment could result in the financial accounting and reporting
records being misstated. Amongst its multiple IT systems, five systems are
key for its overall financial reporting.

In addition, large transaction volumes and
the increasing challenges to protect the integrity of the bank’s systems and
data, cyber security has become a more significant risk in recent periods.

We have identified ‘IT Systems and Controls’
as Key Audit Matter because of the high level automation, significant number
of systems being used by the management and the complexity of the IT
architecture.

Our key IT audit procedures included:

We focused
on user access management, change management, segregation of duties, system
reconciliation controls and system application controls over key financial
accounting and reporting systems.

We tested a sample of key controls operating over the
information technology in relation to financial accounting and reporting
systems, including system access and system change management, programme development and
computer operations.

We tested the design and operating effectiveness of key controls
over user access management, which includes granting access right, new user
creation, removal of user rights and preventive controls designed to enforce
segregation of duties.

For a selected group of key controls over financial and
reporting systems, we independently performed procedures to determine that
these controls remained unchanged during the year or were changed following
the standard change management process,

Other areas that were assessed included password policies,
security configurations, system interface controls, controls over changes to
applications and databases and that business users and controls to ensure
that developers and production support did not have access to change
applications, the operating system or databases in the production
environment.

Security configuration review and related. Tests on certain
critical aspects of cyber security on network security management mechanism,
operational security of key information infrastructure, data and client
information management, monitoring and emergency management.

Valuation of Financial Instruments
(Investments and Derivatives)

Refer to the accounting policies in the
financial statements: ‘Significant Accounting Policies – use of estimate,’
‘Note 18.4.2 to the Financial Statements: Investments’ and ‘Note 18.4.6 to
the Financial Statements: Accounting for derivative transactions’.

Subjective estimates and
judgement involved

Investments

Investments
are classified into ‘Held for Trading’ (‘HFT’), ‘Available for Sale’ (‘AFS’)
and ‘Held to Maturity’ (‘HTM’) categories at the time of purchase. Investments, which the Bank intends to hold till
maturity are classified as HTM investments.

Investments classified as HTM are carried at
amortised cost. Where, in the opinion of management, a diminution other than
temporary, in the value of investments has taken place, appropriate
provisions are required to be made.

Investments classified as AFS and HFT are
marked-to-market on a periodic basis as per the relevant RBI guidelines.

We identified valuation of investments as a
Key Audit Matter because of the management judgement involved in determining
the value of certain investments (bonds and debentures, commercial papers and
certificate of deposits, security receipts) based on the policy and model
developed by the bank, impairment assessment for HTM book and the overall
significant investments to the financial statements of the Bank.

Our key audit procedures included:

Design/controls

Assessing the design, implementation and operating effectiveness
of management’s key internal controls over classification, valuation and
valuation models.

Reading investment agreements / term sheets entered into during
the current year, on a sample basis, to understand the relevant investment
terms and identify any conditions that were relevant to the valuation of
financial instruments.

Engaging our valuation specialists to assist us in evaluating
the valuation models used by the bank to value certain instruments and to
perform, on a sample basis, independent valuations of the instruments and
comparing these valuations with the Bank’s valuations.

Assessed the appropriateness of the valuation methodology and
challenging the valuation model by testing the key inputs used such as
pricing inputs, measure of volatility and discount factors. Compared the
valuation methodology to criteria in the accounting standards / RBI
guidelines.

Derivatives

The Bank has exposure to derivative products
which are accounted for on fair value (mark-to-market) in the books of
account.

The valuation of the Bank’s derivatives,
held at fair value, is based on a combination of market data and valuation
models which often require a considerable number of inputs. Many of these
inputs are obtained from readily available data, the valuation techniques for
which use quoted market prices and observable inputs. Where such observable
data is not readily available, then estimates are developed which can involve
significant management judgement.

We identified assessing the fair value of
derivatives as a Key Audit Matter because of the degree of complexity
involved in valuing certain financial instruments and the degree of judgement
exercised by management in identifying the valuation models and determining
the inputs used in the valuation models.

Substantive tests

For sample of instruments we re-performed independent valuation
where no direct observable inputs were
used. We examined and challenged the assumptions used by considering the
alternate valuation method and sensitivity of other key factors;

Assessing whether the financial statement disclosures
appropriately reflect the Bank’s exposure to investments and derivatives
valuation risks with reference to the requirements of the prevailing
accounting standards and RBI guidelines.

BANDHAN
BANK LTD.

Key
Audit Matters

Key Audit
Matters are those matters that, in our professional judgement, were of most
significance in our audit of the financial statements for the financial year
ended 31^st March, 2019. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion
thereon, we do not provide a separate opinion on these matters. For each
matter, below our description of how our audit addressed the matter is provided
in that context.

We have
determined the matters described below to be the Key Audit Matters to be
communicated in our report. We have fulfilled the responsibilities described in
the auditor’s responsibilities for the audit of the financial statements
section of our report, including in relation to these matters. Accordingly, our
audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial statements.
The results of our audit procedures, including the procedures performed to
address the matters below, provide the basis for our audit opinion on the
accompanying financial statements.

Key audit matter	How the matter was addressed in our audit
Identification of Non-Performing Advances and provisioning for advances (refer Schedule 17.4.3 to the financial statements)
Loans and advances constitute a major portion of the Bank’s assets and the quality of the Bank’s loan portfolio is measured in terms of the proportion of non-performing assets (NPAs) to the total loans and advances. As at 31^st March, 2019, the Bank has	We considered the Bank’s accounting policies for NPA identification and provisioning and assessing compliance with the prudential norms prescribed by the RBI (IRAC Norms);
reported total gross loans and advances of Rs. 4,023,463.28 lakhs (31^st March, 2018: Rs. 2,991,327.29 lakhs), gross nonperforming advances of Rs. 81,955.65 lakhs (31^stMarch, 2018: Rs. 37,314.06 lakhs) and a corresponding provision for nonperforming advances of Rs. 59,123.91 lakhs (31^st March, 2018: Rs. 20,023.68 lakhs). Identification and provisioning of NPAs is governed by the prudential norms prescribed by the Reserve Bank of India (RBI). These norms prescribe several criteria for a loan to be classified as a NPA including overdue aging.	Tested the operating effectiveness of the controls (including application and IT dependent controls) for classification of loans in the respective asset classes, viz., standard, sub-standard, doubtful and loss with reference to IRAC norms; Performed test of details to test whether the provisioning rates applied for respective asset classes were in accordance with the Bank’s accounting policies and assessed the rates used by the management wherever such rates were higher than the minimum rates prescribed by RBI; Performed inquiries with the credit and risk departments to ascertain if there were indicators of stress or an occurrence of an event of default in a particular loan account or any product category which need to be considered as NPA.
Given the volume and variety of loans, judgement is involved in the application of RBI norms for classification of loans as NPA and in view of the significance of this area to the overall audit of financial statements, it has been considered as a Key Audit Matter.	Considered the special mention accounts (SMA) reports submitted by the Bank to the RBI’s central repository of information on large credits (CRILC) to assess whether any accounts from such reporting need to be considered as non-performing; Tested the Bank’s controls to identify loan accounts of a common borrower to ensure all facilities availed by a delinquent customer are classified as NPA; Reviewed the fraud listing and the fraud returns submitted by the Bank during the year to Reserve Bank of India (RBI) and verified that provisions are as per IRAC norms; Performed analytical procedures on various financial and non-financial parameters to test accounts identified as NPA; Tested the arithmetical accuracy of computation of provision for advances.
IT systems and controls As a Scheduled Commercial Bank that operates on core banking solution across its branches, the reliability and security of IT systems plays a key role in the business operations. The Bank continued to be highly dependent on third party service providers for its core IT infrastructure. Since large volume of transactions are processed daily, the IT controls are required to ensure that applications process data as expected and that changes are made in an appropriate manner. The IT infrastructure is critical for smooth functioning of the Bank’s business operations as well as for timely and accurate financial accounting and reporting. Due to the pervasive nature and complexity of the IT environment we have ascertained IT systems and controls as a key audit matter.	For testing the IT general controls and application controls, we included specialised IT auditors as part of our audit team. The specialised team also assisted in testing the accuracy of the information produced by the Bank’s IT systems; We tested the design and operating effectiveness of the Bank’s IT access controls over the information systems that are critical to financial reporting; We tested IT general controls (logical access, changes management and aspects of IT operational controls). This included testing that requests for access to systems were reviewed and authorised; We inspected requests of changes to systems for approval and authorisation. We considered the control environment relating to various interfaces, configuration and other application controls identified as key to our audit; In addition to the above, we tested the design and operating effectiveness of certain automated controls that were considered as key internal controls over financial reporting; If deficiencies were identified, we tested compensating controls or performed alternate procedures.

Key audit
matter

How the
matter was addressed in our audit

Identification of Non-Performing Advances and provisioning for
advances (refer Schedule 17.4.3 to the financial statements)

Loans and advances constitute a major
portion of the Bank’s assets and the quality of the Bank’s loan portfolio is
measured in terms of the proportion of non-performing assets (NPAs) to the
total loans and advances. As at 31^st March, 2019, the Bank has

We considered the Bank’s accounting policies for NPA
identification and provisioning and assessing compliance with the prudential
norms prescribed by the RBI (IRAC Norms);

reported total gross loans and advances of
Rs. 4,023,463.28 lakhs (31^st March, 2018: Rs. 2,991,327.29 lakhs),
gross nonperforming advances of Rs. 81,955.65 lakhs (31^stMarch,
2018:

Rs. 37,314.06 lakhs) and a corresponding
provision for nonperforming advances of Rs. 59,123.91 lakhs (31^st
March, 2018: Rs. 20,023.68 lakhs).

Identification and provisioning of NPAs is
governed by the prudential norms prescribed by the Reserve Bank of India (RBI).
These norms prescribe several criteria for a loan to be classified as a NPA
including overdue aging.

Tested the operating effectiveness of the controls (including
application and IT dependent controls) for classification of loans in the
respective asset classes, viz., standard, sub-standard, doubtful and loss
with reference to IRAC norms;

Performed test of details to test whether the provisioning rates
applied for respective asset classes were in accordance with the Bank’s
accounting policies and assessed the rates used by the management wherever
such rates were higher than the minimum rates prescribed by RBI;

Performed inquiries with the credit and risk departments to
ascertain if there were indicators of stress or an occurrence of an event of
default in a particular loan account or any product category which need to be
considered as NPA.

Given the volume and variety of loans,
judgement is involved in the application of RBI norms for classification of
loans as NPA and in view of the significance of this area to the overall
audit of financial statements, it has been considered as a Key Audit Matter.

Considered the special mention accounts (SMA) reports submitted
by the Bank to the RBI’s central repository of information on large credits
(CRILC) to assess whether any accounts from such reporting need to be
considered as non-performing;

Tested the Bank’s controls to identify loan accounts of a common
borrower to ensure all facilities availed by a delinquent customer are
classified as NPA;

Reviewed the fraud listing and the fraud returns submitted by
the Bank during the year to Reserve Bank of India (RBI) and verified that
provisions are as per IRAC norms;

Performed analytical procedures on various financial and
non-financial parameters to test accounts identified as NPA;

Tested the arithmetical accuracy of computation of provision for
advances.

IT systems and controls

As a Scheduled Commercial Bank that operates
on core banking solution across its branches, the reliability and security of
IT systems plays a key role in the business operations. The Bank continued to
be highly dependent on third party service providers for its core IT
infrastructure. Since large volume of transactions are processed daily, the
IT controls are required to ensure that applications process data as expected
and that changes are made in an appropriate manner.

The IT infrastructure is critical for smooth
functioning of the Bank’s business operations as well as for timely and
accurate financial accounting and reporting.

Due to the pervasive nature and complexity
of the IT environment we have ascertained IT systems and controls as a key
audit matter.

For testing the IT general controls and application controls, we
included specialised IT auditors as part of our audit team. The specialised
team also assisted in testing the accuracy of the information produced by the
Bank’s IT systems;

We tested the design and operating effectiveness of the Bank’s
IT access controls over the information systems that are critical to
financial reporting;

We tested IT general controls (logical access, changes
management and aspects of IT operational controls). This included testing
that requests for access to systems were reviewed and authorised;

We inspected requests of changes to systems for approval and
authorisation. We considered the control environment relating to various
interfaces, configuration and other application controls identified as key to
our audit;

In addition to the above, we tested the design and operating
effectiveness of certain automated controls that were considered as key
internal controls over financial reporting;

If deficiencies were identified, we tested compensating controls
or performed alternate procedures.

HDFC
BANK LTD.

Key
Audit Matters

Key Audit
Matters are those matters that, in our professional judgement, were of most
significance in our audit of the standalone financial statements for the
financial year ended 31^st March, 2019. These matters were addressed
in the context of our audit of the standalone financial statements as a whole
and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.

We have
determined the matters described below to be the Key Audit Matters to be
communicated in our report. We have fulfilled the responsibilities described in
the ‘Auditor’s Responsibilities for the Audit of the Standalone Financial
Statements’ section of our report, including in relation to these matters.
Accordingly, our audit included the performance of procedures designed to
respond to our assessment of the risks of material misstatement of the
standalone financial statements. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for
our audit opinion on the accompanying standalone financial statements.

Key
audit matter

How the
matter was addressed in our audit

Identification of Non-Performing Advances
and provisioning of advances:

Advances
constitute a significant portion of the Bank’s assets and the quality of
these advances is measured in terms of the ratio of Non-Performing Advances
(NPA) to the gross advances of the Bank. The Bank’s net advances constitute
65.84 % of the total assets and the gross NPA ratio of the Bank is 1.36% as
at 31^stMarch, 2019.

The Reserve
Bank of India’s (RBI) guidelines on Income Recognition and Asset
Classification (IRAC) prescribe the prudential norms for identification and
classification of NPAs and the minimum provision required for such assets.
The Bank is also required to apply its judgement to determine the
identification and provision required against NPAs by applying quantitative
as well as qualitative factors. The risk of identification of NPAs is
affected by factors like stress and liquidity concerns in certain sectors.

The
provisioning for identified NPAs is estimated based on ageing and
classification of NPAs, recovery estimates, value of security and other
qualitative factors and is subject to the minimum provisioning norms specified
by RBI.

Additionally,
the Bank makes provisions on exposures that are not classified as NPAs,
including advances in certain sectors and identified advances or group
advances that can potentially slip into NPA. These are classified as
contingency provisions.

The Bank
has detailed its accounting policy in this regard in Schedule 17 –
Significant Accounting Policies under Note C – 2 Advances.

Since the
identification of NPAs and provisioning for advances require significant
level of estimation and given its significance to the overall audit, we have
ascertained identification and provisioning for NPAs as a key audit matter.

The audit
procedures performed, among others, included:

Considering
the Bank’s policies for NPA identification and provisioning and assessing
compliance with the IRAC norms;

Understanding, evaluating and
testing the design and operating effectiveness of key controls (including
application controls) around identification of impaired accounts based on the
extant guidelines on IRAC.

Performing
other procedures including substantive audit procedures covering the
identification of NPAs by the Bank. These procedures included:

Considering
testing of the exception reports generated from the application systems where
the advances have been recorded;

Considering
the accounts reported by the Bank and other Banks as Special Mention Accounts
(SMA) in RBI’s central repository of information on large credits (CRILC) to
identify stress;

Reiewing
account statements and other related information of the borrowers selected
based on quantitative and qualitative risk factors;

Performing
inquiries with the credit and risk departments to ascertain if there were
indicators of stress or an occurrence of an event of default in a particular
loan account or any product category which need to be considered as NPA.
Examining the early warning reports generated by the Bank to identify
stressed loan accounts;

Holding
specific discussions with the management of the Bank on sectors where there
is perceived credit risk and the steps taken to mitigate the risks to
identified sectors.

With
respect to provisioning of advances, we performed the following procedures:

Gained an
understanding of the Bank’s process for provisioning of advances;

Tested on
a sample basis the calculation performed by the management for compliance
with RBI regulations and internally laid down policies for provisioning;

For loan accounts, where the
Bank made provisions which were not classified as NPA, we reviewed the Bank’s
assessment for these provisions.

Evaluation
of open tax litigations (Direct and Indirect Tax)

The Bank has material open tax litigations
including matters under dispute which involve significant judgement to
determine the possible outcome of these disputes.

Since the assessment of these open tax
litigations requires significant level of judgement, we have included this as
a Key Audit Matter.

Gained an
understanding of the Bank’s process for determining tax liabilities and the
tax provisions

Involved
direct and indirect tax specialists to understand the evaluation of
likelihood and level of liability for significant tax risks after considering
legal precedence, other rulings and new information in respect of open tax
positions as at reporting date;

Agreed
underlying tax balances to supporting documentation, including correspondence
with tax authorities;

Assessed
the disclosures within the standalone financial statements in this regard.

Information
Technology (‘IT’) Systems and Controls

The reliability and security of IT systems
plays a key role in the business operations of the Bank. Since large volumes
of transactions are processed daily, the IT controls are required to ensure
that applications process data as expected and that changes are made in an
appropriate manner. These systems also play a key role in the financial
accounting and reporting process of the Bank.

Due to the pervasive nature and complexity
of the IT environment we have ascertained IT systems and controls as a Key
Audit Matter.

For
testing the IT general controls, application controls and IT dependent manual
controls, we involved IT specialists as part of the audit. The team also
assisted in testing the accuracy of the information produced by the Bank’s IT
systems;

Tested
the design and operating effectiveness of the Bank’s IT access controls over
the information systems that are critical to financial reporting. We tested
IT general controls (logical access, change management and aspects of IT
operational controls). This included testing that requests for access to
systems were appropriately reviewed and authorised;

Tested
the Bank’s periodic review of access rights. We inspected requests of changes
to systems for appropriate approval and authorisation. We considered the
control environment relating to various interfaces, configurations and other
application layer controls identified as key to the audit;

In
addition to the above, the design and operating effectiveness of certain
automated controls that were considered as key internal controls over
financial reporting were tested;

Tested
compensating controls and performed alternate procedures where necessary. In
addition, understood where relevant, changes made to the IT landscape during
the audit period and tested those changes that had a significant impact on
financial reporting.

BCAJ Admin

CORPORATE LAW CORNER

9 Amira Pure Foods Pvt. Ltd. vs. Canara Bank
Ltd.

[2019] 105 taxmann.com 326
(Delhi)

W.P. (C) No. 5467/2019

Date of order: 20^th
May, 2019

Section 18 of the
Insolvency and Bankruptcy Code, 2016 – Debt Recovery Appellate Tribunal should
have recalled its order of taking control and possession of assets of corporate
debtor and handing over the same to the Insolvency Resolution Professional in
exercise of its mandate u/s. 18 of the Code – DRAT should have modified its
order as it has adequate powers to do the same

FACTS

CB (“Financial Creditor”)
had approached the Debt Recovery Tribunal (“DRT”) for recovering its dues from
A Co under the Recovery of Debts Due to Banks & Financial Institutions Act,
1993; arising from these proceedings, the matter reached the Debt Recovery
Appellate Tribunal (“DRAT”). DRAT, vide its order dated 15^th
November, 2018 appointed Joint Court Commissioners to take over the assets of A
Co including its perishable assets. Soon thereafter, CB also initiated
proceedings against A Co under the Insolvency and Bankruptcy Code, 2016 (“the
Code”) and pursuant to the same, an Interim Resolution Professional (“IRP /
RP”) was appointed on 11^th December, 2018.

Upon appointment, the IRP
approached DRAT for taking over the properties and assets of A Co and prayed
for an early hearing. CB also accorded its consent to the said application
being allowed. But DRAT did not consider the application for early hearing and
the matter was adjourned. IRP then filed a writ petition with the High Court
where an order was passed instructing DRAT to hear and dispose of the matter
within a week. Consequently, DRAT passed an order on 22^nd April,
2019 dismissing the petition filed by IRP on the grounds that as a moratorium
u/s. 14 of the Code was operational, all proceedings against A Co were to be
stalled. The IRP challenged this order of DRAT before the High Court.

HELD

It was submitted by A Co /
IRP that section 14 of the Code imposes a restriction of proceedings which are
against the corporate debtor. It does not bar undertaking of proceedings which
are not considered as being “against the corporate debtor”. Further, since IRP
is required to act in a time-bound and efficient manner, appointment and continuation
of Court Commissioners with vesting of assets was detrimental to the interest
of IRP. Since CB did not object to continuation of proceedings under IBC, the
order of DRAT was bad in law.

The High Court heard the parties and held that DRAT was not powerless
to modify its own order whereby the two Court Commissioners had been appointed
to take over control of the assets of A Co. DRAT should have recalled its order
so that the IRP / RP could take over the assets of A Co in the exercise of its
mandate under the Code. The order of DRAT was accordingly set aside and IRP was
permitted to exercise its powers in terms of the Code. The costs of
Commissioner were to be paid by the IRP.

10 Pranatpal Tradelink (P.) Ltd., In re

[2019] 105 taxmann.com 308
(NCLT – Ahd)

C.P. No.
32/441/NCLT/AHM/2018

Date of order: 28^th
March, 2019

CL: Where a company
contravened provisions of section 217 by not attaching board report with its
balance sheet while filing e-form 23AC with MCA portal, in view of fact that
alleged offence was made compoundable and could be compounded because it was
punishable with imprisonment up to six months or with fine alone or both,
application for compounding of said offence was to be allowed

FACTS

In the instant case, during
the course of technical scrutiny of the balance sheet of P-Company Pvt. Ltd.
(the applicant), the Registrar of Companies observed that the applicant
company’s Board report was not attached with the balance sheet in e-form 23AC
filed with the MCA portal for the financial year 2010-11; thus, P-Company Pvt.
Ltd. had violated provisions of section 217(1) of the Companies Act, 1956
[Section 134 of The Companies Act, 2013].

The directors of P-Company
Pvt. Ltd. admitted that such violation was unintentional and with no mala fide
intention. However, they had later on attached the Board report along with
their compounding application and, thus, they had made good the alleged lapses.

HELD

The NCLT observed as
under:

P-Company Pvt. Ltd. (applicant) in the compounding
application submitted that the violation of not attaching the Board report
along with the balance sheet for the financial year 2010-11 was totally
erroneous and there was no wrongful intention on the part of the directors;

P-Company Pvt. Ltd. admitted the default and filed
a compounding application for compounding of the offence committed u/s. 217(1)
of the Companies Act, 1956;

The provisions of section 217(5) of the Companies
Act, 1956 read as under:

If any person, being a
director of a company, fails to take all reasonable steps to comply with the
provisions of sub-sections (1) to (3), or being the chairman, signs the Board’s
report otherwise than in conformity with the provisions of sub-section (4), he
shall, in respect of each offence, be punishable with imprisonment for a
term which may extend to six months, or with fine which may extend to twenty
thousand rupees, or with both.

The Central Government has declared that matters
transferred from the Company Law Board to the National Company Law Tribunal
shall be disposed of by NCLT in accordance with the provisions of the Companies
Act, 2013 or the Companies Act, 1956;

The provisions of Section 441 of the Companies
Act, 2013 also confer necessary power to NCLT for compounding of certain
offences. Such violations / offences are made punishable u/s. 217(5) of the
Companies Act, 1956 but are also made compoundable u/s. 621A of the same
Companies Act, 1956;

On perusal of the material available on record,
the NCLT observed that the alleged contravention seems to be technical in
nature and due to some procedural lapses on the part of its directors of not
enclosing the Board’s report along with the company’s balance sheet as on 31^st
March, 2011. However, P-Company Pvt. Ltd. has attached the Board’s report for
the financial year 2010-2011 along with a compounding application. Thus, they
have made good the alleged lapses. P-Company Pvt. Ltd. has further explained
that non-attaching of the Board’s report with the balance sheet was erroneous,
and without any wrongful intention on the part of its Directors. Thus, it was
observed that P-Company Pvt. Ltd. has admitted the default, but has sought
compounding of offence;

The NCLT held that the compounding application for
the offence was to be allowed as the alleged offence could be compounded
because it was punishablewith imprisonment up to six months or with fine alone or both.

BCAJ Admin

ALLIED LAWS

15 Deficiency of service – Delay in obtaining
occupation certificate – Reasonable cause for termination of agreement –
Eligible for refund with interest [Consumer Protection Act, 1986, S. 2(1)(g)]

Pioneer Urban Land and
Infrastructure Ltd. vs. Govindan Raghavan and Ors. AIR 2019 Supreme Court 1779

A builder entered into an
agreement with a purchaser to deliver the possession of the flat along with the
occupancy certificate within 39 months from the date of excavation, with a
grace period of 180 days. The builder, however, failed to apply for the
occupancy certificate as per the stipulations in the agreement.

The purchaser filed a
consumer complaint before the National Commission alleging deficiency of
service on the part of the builder for failure to obtain the occupancy
certificate and hand over possession of the flat. Admittedly, the
appellant-builder offered possession after an inordinate delay of almost three
years (on 28^th August, 2018). On account of the inordinate delay,
the respondent (flat purchaser) had no option but to arrange for alternate
accommodation in Gurugram. Hence, he could not be compelled to take possession
of the apartment after such a long delay.

It was observed that the
builder had obtained the occupancy certificate almost two years after the date
stipulated in the agreement with the purchaser. As a consequence, there was a
failure to hand over possession of the flat within a reasonable period. The
purchaser has made out a clear case of deficiency of service on the part of the
builder. The purchaser was justified in terminating the agreement by filing the
consumer complaint and cannot be compelled to accept the possession whenever it is offered by the builder. The purchaser was
legally entitled to seek refund of the money deposited by him along with
appropriate compensation.

It was held that the
builder failed to fulfil his contractual obligation of obtaining the occupancy
certificate and offering possession of the flat to the purchaser within the
time stipulated in the agreement or within a reasonable time thereafter. The
purchaser could not be compelled to take possession of the flat, even though it
was offered almost two years after the grace period under the agreement
expired. During this period, the purchaser had to service a loan that he had
obtained for purchasing the flat by paying interest @ 10% to the bank. In the
meanwhile, the purchaser also located an alternate property in Gurugram. In
these circumstances, the purchaser was entitled to be granted the relief prayed
for, i.e., refund of the entire amount deposited by him with interest.

16 Dishonour of cheques – Cheques issued
in pursuance of agreement to sell is also a duly enforceable debt or liability
[Negotiable Instruments Act, 1881, S.138]

Ripudaman Singh vs.
Balkrishna AIR 2019 Supreme Court 1625

The issue pertained to
dishonour of cheques for part payment of sale consideration. Two people sold
their agricultural land to one Mr. X (respondent). Part payment was already
done by Mr. X. Two post-dated cheques were issued to the sellers. However, on
the due date the cheques were returned unpaid with the remark ‘insufficient
funds’. Legal notices were issued and complaints were initiated u/s. 138 of the
Negotiable Instruments Act, 1881 before the judicial magistrate. The magistrate
dismissed the applications seeking discharge of the complaint cases and charges
were framed u/s. 138. The respondent then filed a petition u/s. 482 before the
High Court.

The High Court held that
the cheques had not been issued for creating any liability or debt but for the
payment of balance consideration and hence the respondent did not owe any money
to the complainants. Accordingly, the complaint u/s. 138 was quashed.

On appeal, the Supreme
Court held that the cheques were issued under and in pursuance of the agreement
to sell. Though it is well settled that an agreement to sell does not create
any interest in immovable property, it nonetheless constitutes a legally enforceable
contract between the parties to it. A payment which is made in pursuance of
such an agreement is hence a payment made in pursuance of a duly enforceable
debt or liability for the purposes of section 138. Hence, the order quashing
the complaint was set aside.

17 Hindu Law – Right of daughter to
coparcenery property – Amendment not applicable to cases where the transfer of
such property had already taken place [Hindu Succession Act, 1956, S.6]

Jayaraman Kounder vs.
Malathi and Ors. AIR 2019 Madras 113

A property which was
inherited from the parents was sold by the son and grandchildren on 2^nd
June, 1994. All the children were male. Thereafter, the Hindu Succession Act
got amended wherein section 6 brought the daughters on par with the sons as
coparceners.

After the amendment in the
Hindu Succession Act, the daughters filed a suit against the father / brothers
in connection with the sale of property which was done 18 years prior to the
amendment.

The High Court while
answering the question whether the sale deed dated 2^nd June, 1994
executed in favour of the appellant by the father and brothers of the first and
second respondents / sisters is valid or whether, by virtue of becoming
coparceners, they are entitled to set aside the same even after getting a
decree of partition; the Court held that the proviso to sub-section 4 of
section 6 of the Hindu Succession Act made it clear that the properties which
have been alienated, including through partition, will be affected by virtue of
the amendment which came into force on 20^th December, 2004.
Admittedly, the properties were sold by the father and brothers as early as on
2^nd June, 1994. De hors the theory of the Will, the property
was already alienated on 2^nd June, 1994. Therefore, the properties,
which had been sold to the appellant are exempted from the amendment.

18 Power of Attorney
holder – Only a right to appear but not plead [Advocates Act 1961; S.29; High
Court (Original Rules) 1914, Ch.1 R.5]

Usha Kanta Das and Ors. vs. Sefalika Ash AIR 2019 Calcutta 145

The issue before the Court
was whether appearance, application or acting by a recognised agent of a party
would include within such scope the right to plead and argue before a court of
law as defined in rule 2 of order III?

In the present case, Mr. N
admittedly was a power of attorney holder on behalf of the caveatrix and claims
a right to argue the case of the caveatrix, including examining witnesses in
the proceedings on the basis of the authorisation arising from the power of
attorney.

It was observed that three
propositions emerge: first, order III rule 1 specifically excludes the
expression ‘plead’ from the purview of ‘appearing’ or ‘acting’. The expression
‘plead’, on the other hand, arises from the definition of ‘pleader’ u/s. 2(15)
of the CPC. Second, advocates, vakils and attorneys of a High Court have
been specifically included in the class of those who are entitled to plead for another before a court. Third, ‘pleading’ as an
exclusive domain has been formalised under chapter I rule 1(i)(a) of the
Original Side Rules which has specifically excluded ‘pleading’ from ‘acting’.

It was held that only a
special class of persons, namely, advocates enrolled under the Advocates Act,
1961, have been authorised to plead and argue before a court of law. It should
further be noted that the ‘special reason’ of permitting ‘any other person’
under rule 5 of chapter 1 of the Original Side Rules relates only to appearance
and not pleading.

19 Surety /
Guarantor – Liability co-extensive with original borrower [Contract Act, 1872;
S.128]

Bharatbhai Sagalchand
Thakkar vs. State of Gujarat AIR 2019 Gujarat 81

A co-operative society had
advanced money to one of its members where two guarantors had also given surety
for the same. Later, the original borrower defaulted in payment of the loan. A
question for consideration was that since the loan was disbursed in favour of
the original borrower, whether there is a duty cast upon the co-operative
society or the bank, as the case may be, first to recover the loan advanced to
the borrower and then to take steps against the guarantor or steps may be taken
against anyone?

It was held that the
liability of a guarantor is co-extensive with that of the original borrower. It
is always open for the co-operative society to first proceed against the guarantor for
the recovery of the loan amount. It is not necessary that the co-operative
society should first go after the original borrower and only thereafter proceed
against the guarantor.

BCAJ Admin

FROM THE PRESIDENT

My Dear Members,

I feel
very proud and satisfied as I write to you for the last time as President of
our illustrious Society. It is an honour and a privilege to have led the
Bombay Chartered Accountants’ Society during a memorable and
unprecedented year. We continue to march ahead and strive to achieve greater
heights of performance year after year by building on the excellent work done
by all previous Presidents. The last three months have been challenging and unmatched
for us in terms of conducting our normal activities of education, training and
spreading knowledge. But we converted all the challenges that came our way into
opportunities and continued with our endeavour of spreading knowledge with even
more vigour and zeal.

I am
happy to inform you that we quickly transited to an online platform and were
able to reach a much wider audience and get high profile and knowledgeable
speakers for the BCAS platform. All this was possible since there were
no geographical restrictions. To our immense satisfaction, our internal
assessment actually shows that we have been successful in delivering more
man-hours of training by way of live attendance and follow-up hits on our
YouTube channel. We managed to clock almost half of the man-hours of training
(during the three months of lockdown) that we were usually clocking in an
entire year through physical meetings. Things worked out best for us because we
made the best of how things worked out. I expect this trend to continue for
some more time yet and I thank all of you for supporting BCAS during
these testing times. This success is only because of the faith and the
patronage of all of you.

A balanced approach is required

It has
been more than three months into the national lockdown and work from home (WFH)
has caught the fancy of many, including some marquee IT and multinational
companies. However, according to a reported survey, some of the employees want
to get back to office. ‘The lack of human interaction is a problem – there’s
something about face-to-face interaction that can’t be replaced.’ According to
some HR professionals, there are groups of employees who enjoy working from the
office and want to get back there. At the same time, there are several
companies mulling the possibility of shifting to a complete WFH mode on a
permanent basis. According to them, productivity has gone up and a lot of
travel time is saved. But the question remains: does work from home really
work? According to the survey, it is premature to conclude whether WFH has
succeeded. The survey adds that social capital is missing and this is built by
social interactions while working together and knowing co-workers well enough
to establish a bond of human relationships and emotions.

Success
is achieved by teamwork and because co-workers have known and have intimately
interacted with each other for years. Banter over a cup of coffee during a
break is very much part of team-building and camaraderie and this social
capital is missing while working remotely from home. People will continue to
work from home, but in my view if a balanced view is not taken, they will
become robots lacking the all-important human touch. In time, fatigue will set
in and productivity may actually come down in the longer run. So, at least till
normalcy returns, we will have to adopt a hybrid or mixed model of WFH by
allowing some people to choose their preferred option. However, follow-up with
physical interactions (with all required safety norms) at regular intervals
should be integrated into the work culture.

Final Good-Bye!

On 6^thJuly, 2020 I complete my term as President of this esteemed institution
and I bid farewell to all of you with a great sense of happiness, satisfaction
and achievement. In the past twelve months I have tried to deliver my best to
the Society and tried to strengthen its existing goodwill, brand value
and reputation built over the years. During the year gone by, we strove to
increase our reach by reaching out to a much wider range of constituents beyond
our traditional cycle of influence. We tried out new formats for our
educational events, invited trainers from across fields and from a
cross-section of professional backgrounds and tried out new mediums of
dissimilating knowledge. We also had focused events on specific sectors,
emerging areas of practice and various non-technical but important areas of
personal and professional development. Besides serving our members,
organisationally also, the Society consolidated its position by various
measures of financial prudence, cost savings and infrastructure building. We
also worked earnestly to harness talent and build future leaders. At a personal
level, this tenure as President helped me further to develop leadership skills
and I have learnt how to handle different people and different situations more
efficiently.

Finally,
I wish incoming President Suhas Paranjpe and the new team all the very
best for the coming year. I have no doubt that it will be full of events and
innovative programmes.I am sure under his leadership our Society will
successfully venture into uncharted territory while continuing to flourish in
its traditional areas.

I started
this journey with anxiety, not knowing how the year will pan out but I created
some beautiful memories, made wonderful friends on the way and now I say good-bye
and a big THANK YOU for all your love, support and affection.

With Best
Regards,

CA Manish
Sampat

President

BCAJ Admin

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