March Archives

Lecture Meeting

Topic : I mportant Income-tax decisions of 2014
Speaker : H iro Rai, Advocate
Date : 29th January 2015
Venue : Walchand Hirachand Hall, Indian
Merchants Chamberr

The Speaker started with Supreme Court decisions, dealing first with the case of Sanjeev Lal vs. CIT 365 ITR 389 wherein exemption u/s. 54F was denied by the AO on the grounds that the final sale was delayed and purchase of new house was more than one year prior to date of actual sale. The Court held that certain rights passed even on agreement for sale, and on a liberal interpretation of the exemption provision, the sale could have been regarded as having taken place at the time of agreement to sell. The circumstances of litigation which caused the delay in completion of sale were beyond the assessee’s control, and could not be the basis for denying the eligibility of exemption u/s. 54F to the assessee if the assessee fulfilled the other conditions specified in section 54F. This principle can also be applied for claiming benefit u/s. 54.

The speaker then threw light on a wealth tax decision in Amrit Banaspati Co. Ltd. vs. CWT 365 ITR 515 (SC). The Assessing Officer (AO) found that the valuation declared by the assessee on the basis of capitalisation of municipal rateable value was very low compared to the market value of the property; so also the sale value as per agreement was much higher than value as per municipal rateable value. The Supreme Court held that it was a case where it was not practicable to apply rule 3, due to the very low valuation as compared to the fair market value. The valuation of property was, therefore, held proper under rule 8(a) i.e. as per fair market value.

In the case of CIT vs. Tip Top Typography 368 ITR 330 (Bom HC) the Assessing Officer (AO) noticed that the rent received by the assessee on letting out commercial premises along with car parking was nominal and the circumstantial evidence indicated that the fair market value was higher. Therefore, AO obtained instances of the rental amount prevailing in the market in the area and confirmed that the property was not covered by the Rent Control Act. On the basis of such comparable instances, the annual letting value as provided u/s. 23(1)(a) was determined at a much higher figure.

The Bombay High Court held that the market rate in the locality is an approved method for determining the fair rental value but it is only when the Assessing Officer is convinced that the case before him is suspicious, determination by the parties is doubtful, that he can resort to enquire about the prevailing rate in the locality. The municipal rateable value may not be binding on the Assessing Officer but that is only in cases of afore-referred nature. AO cannot brush aside the rent control legislation if it is applicable to the premises in question. Accordingly, the AO had to undertake the exercise contemplated by the rent control legislation for fixation of standard rent. Further the court held that if AO desires to undertake the determination himself, he would have to go by the Maharashtra Rent Control Act, 1999. Merely because the rent has not been fixed under that Act does not mean that any other determination and contrary thereto can be made by the AO.

Due to the above two decisions of Amrit Banaspati Co. Ltd. and Tip Top Typography, assessees owning more than one house could face problems in assessment if the assessing officer has reason to believe that the value adopted by assessee is very low or absurd, resulting in the assessing officer adopt the fair market value of the property for the wealth tax or of the rent for income tax purpose.

The Supreme Court in the case of Himatsingka Seide Ltd.,(2014) 266 CTR 141 gave a four liner decision affirming the decision of Karnataka High Court [CIT vs. Himatsingka Seide Ltd. (2006) 286 ITR 255] wherein the High Court held that unabsorbed depreciation should be adjusted against income of export oriented business, and the taxpayer cannot adjust unabsorbed depreciation against other income, so as to take exemption from payment of tax even for other income, as section 10B is an exemption section and not a deduction section.

On a similar issue, the Bombay High Court in the case of CIT vs. Black & Veatch Consulting (P.) Ltd. (2012)348 ITR 72 held that the brought forward unabsorbed depreciation and losses of the unit, the income of which is not eligible for deduction u/s. 10A, cannot be set off against the current profit of the eligible unit for computing the deduction u/s. 10A. It may be noted that the said decision of the Bombay High Court was cited before the apex court in the case of Himatsingka Seide Ltd.,(2014) 266 CTR 141.

However, the department has started taking the view that deduction u/s. 10A or 10B should be availed by the assessee only after setting off unabsorbed depreciation and unabsorbed business loss, if any, incurred by assessee.

In Vodafone India Services Private Limited vs. UOI & Others 368 ITR 1, the Bombay High Court held that issue of shares at a premium by Vodafone India in favour of its AE did not give rise to any “income” from an International Transaction, as income would not include capital receipts unless specifically stated in the income tax act, and therefore, there was no need to invoke Transfer Pricing provisions. A decision has been taken by the Government not to challenge this decision further before the Supreme Court, and this decision has therefore attained finality.

In the case of CIT vs. Nayan Builders 368 ITR 722, Bombay High Court upheld the decision of tribunal wherein tribunal held that since the High Court admitted the appeal filed by assessee, substantial questions of law were involved. Accordingly penalty u/s. 271(1)(c) of the Incometax Act, 1961 imposed by the Assessing Officer was cancelled. Based on the said decision, if an assessee finds any appeal admitted by the high court covering similar issue as that of assessee, then relying on the decision of Nayan Builders, the assessee can plead that penalty u/s. 271(1)(c) cannot be levied.

The next issue was whether a foreign company deductee can claim that since tax was deductible at source, even though no tax was actually deducted at source, no interest u/s 234B can be levied. In the case of DIT (IT) vs. Alcatel Lucent USA, Inc (264 CTR 240), the Delhi High Court held that it seems inequitable that an assessee, who accepted the tax liability at first appellate stage after initially denying it, should be permitted to shift the responsibility to the Indian payers for not deducting the tax at source from the remittances, after leading them to believe that no tax was deductible. Further, it held that the assessee must take responsibility for its volte face and once the liability to tax is accepted, all consequences follow and same cannot be avoided. It also held that the present case is one where equitable considerations should prevail in the interpretation of section 234B otherwise, it would not merely result in injustice and the purpose of the provision would also not have been achieved.

However, in the case of DIT (IT) vs. NGC Network Asia LLC [2009] 313 ITR 187, where the revenue preferred an appeal contending that the assessee was liable to pay advance tax even on the amount which had not been deducted at source u/s. 195. The Bombay High Court relying on the decision of CIT vs. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320 (Uttaranchal) held that where the deductor has failed to deduct tax, the shortfall attributable to non-deduction of tax at source cannot be the deductee’s fault, so as to be the subject matter of interest u/s. 234B.

Given both opposite decisions i.e. favourable and unfa- vourable to assessee, in case the Supreme Court upholds the decision of delhi high Court in case of alcatel Lucent, USA, which was unfavorable to the assessee, then this would result into a large number of litigations, as there are many cases pending with huge amounts involved in similar matters.

The next interesting issue discussed by the speaker was whether there could be disallowance of payments u/s. 40(a)(ia) of the income-tax act on account of short deduction of TDS. In such cases, there are different views, one being that the deduction not being in accordance with law, the entire payment could be disallowed. The second view is that disallowance should be proportionate to short deduction. The third view is that there need be no disallowance when there is short deduction. It was this third view, which was adopted by the high Court in CIT vs. S. K. Tekriwal [2014] 361 ITR 432 (Calcutta high Court). The high Court had not given its detailed reasoning, but reproduced the tribunal order, which took the view that though the short deduction may attract proceedings under section 201, disallowance u/s. 40(a)(ia) is not possible, when there is a bona fide short deduction. However the matter is not free from doubt, and one should probably await finality either from the Supreme Court or by way of clarification on the disallowance in such situations.

In the case of Mitsubishi Corporation India Pvt. Ltd vs. DCIT 166 TTJ 385 (2014), the assessee made certain payments to its associated enterprise. Such payments were disallowed by the ao u/s. 40(a)(i). the delhi tribunal, applying the non-discrimination clause, held that Second proviso to section 40(a)(ia) is also required to be read into section 40(a)(i), in cases where related payments are made to the tax residents of japan, as long as the japanese tax residents have taken into account the payments made to them by indian residents without deduction of tax at source in their computation of income, paid interest thereon and have filed the related income tax returns u/s. 139(1) in india, the payments so made by the indian enterprise cannot be disallowed in the hands of indian enterprise.

W.e.f. a.y. 2015-16, disallowance u/s. 40a(ia) is reduced to only 30% instead of previous 100% disallowance. according to the Speaker, since section 40a(i) has not been amended on similar lines, the non discrimination clause could be invoked as in the case of mitsubishi Corporation.

Dealing with a few tribunal decisions, in the case of Zaveri & Co. (P.) Ltd. vs. CIT 32 ITR (T) 50, ITAT Ahmedabad held that fixed deposit receipts taken for obtaining Letter of Credit for purchases, on which interest was earned by the assessee, an SEZ unit, were business assets of the assessee acquired in the course and for the purposes of its business. Hence, interest income earned on fixed deposit had to be assessed as business income of the assessee while calculating benefit u/s. 10AA of the Income tax act.

The last decision quoted by the speaker was on the current issue of bogus purchases. itat mumbai, in the case of Shri Rajeev G. Kalathil vs. DCIT 67 SOT 52, held that Purchases cannot be termed as bogus by the ao merely because the supplier was listed as a hawala dealer by the VAT authorities. In the said case, CIT(A) held that the transactions were supported by proper documentary evi- dences, that the payments made to the parties by the assessee were in confirmation with bank certificate, and the mere fact that the supplier was shown as defaulter under the Maharashtra VAT Act could not be sufficient evidence to hold that the purchases were non-genuine. The ao had not brought any independent and reliable evidence against the assessee to prove the non-genuineness of the purchases, and there was no evidence regarding cash received back from the suppliers. The addition made by the ao was deleted by the CIT(a). On further appeal by department, hon’ble mumbai tribunal upheld the order of CIT(a).

The meeting ended with a vote of thanks to the Speaker.

BCAJ Admin

Cancerous Corruption

The world over, it is now realised that containing
Corruption in the business practices enhances the value of the business
enterprise and its business activities.

UN Global Compact
Network, India is the top rank NGO spreading the above findings.
Hereunder is the article printed in their publication released in Mumbai
on 6th February, 2015 (Where BCAS was a business partners and
incidentally, Nitin Shingala was one of the panelists on session on
discussion) titled:

BUSINESS CASE FOR ANTI-CORRUP TION

Section 1
Foreword
Dinesh K. Sarraf
President, Governing Council,
UN Global Compact Network India,
Chairman & Managing Director,
Oil and Natural Gas Corporation Ltd. (ONGC)

The
idea of anti-corruption entered into international development
discourse in the 1990s, defining corruption as a major global problem,
being “sand for the wheels of commerce” and affecting development
negatively. On one level, it can refer to the risk of taxpayers’ money
in Government’s projects being fraudulently spent or stolen. On another
level, it can refer to corruption within a country’s financial structure
and institutions including that in the private sector, with the
negative impact that this has on economic growth of the country.

Corruption
retards the pace of development and impedes developmental activities.
It not only suppresses the economic growth by driving up costs, but also
undermines the sustainable management of the environment and natural
resources and results in criminal activity, malfunctioning state
institutions and weak governance.

With the evolution of
economies, mandate of the businesses have moved from being profit-making
entities to socially responsible organisations. Over the past few
years, clean business has emerged as one of the primary objectives of
the organisations. One of the most efficacious recommendations for
business practice to tackle corruption has been found within the ambit
of Collective Action. The idea is simple – get companies working
together with their competitors and other stakeholders to create
decisions that are driven by economic considerations and not by corrupt
transactions.

Global Compact Network India (GCNI), in furthering
the UNGC’s 10th principle on Anti-Corruption, implemented the
Collective Action Project (CAP) from 2011-2014. This project, in a
phased manner, took up pressing corruption issues in the Indian context,
in the spheres of public procurement, bribery and fraud, supply chain
transparency and sustainability, transparency in sports and sports
related hospitality, and facilitated businessacademia dialogue in the
country.

Over the past few years, clean business has emerged as
one of the primary objectives of the organisations. One of the most
efficacious recommendations for business practice to tackle corruption
has been found within the ambit of Collective Action.

In its
first series of Pan-India consultation conducted during 2011-2012 titled
‘Ethical Business for Profitability’, CAP partnered with academicians,
civil society, chambers of commerce, and international business councils
to share their best practices which were being followed in various
sectors. This consultation resulted in CAP India’s first publication
“Raising the Bar through Collective Action: Anti-corruption Efforts in
Action in India”.

CAP conducted its second series of pan-India consultation in the second half of 2012 titled Turning Down the Demand: Cutting off the Supply – Collective Efforts to reduce Corruption in India.
The main aim of the consultations was to examine innovative ways in
which corruption could be tackled and explore ground realities that are
not factored in while constructing Anticorruption policies. The
consultations provided recommendations that became part of the second
CAP India publication – a study that showcased trends of private sector
fraud and bribery in the last fifteen years in India. This third and
final publication of CAP Project presents the Business Case for
Anticorruption in India. Many companies and business entities have
shared their practical experiences in this publication as to how they
have been investing in getting their processes and procedures in order,
so that businesses could be graftfree; and to ensure transparency in
their supply chain and procurement mechanism, irrespective of the size
of the business. I am sure this publication will be a very useful
reference for many new as well as existing business entities.

UN GLOBAL COMPAC T 10TH PRINCIPLE:

Olajobi Makinwa
Head, Transparency and Anticorruption Initiatives, United Nation Global Compact

The journey so far and the way ahead

The
world is now a global village. While the world is shrinking,
traditional roles and responsibilities of business and governments are
shifting and merging. The interconnectedness of roles and
responsibilities are much more pronounced than ever before. Private
investment, thriving entrepreneurship and vocational training are more
needed today. In a globalised world, the private sector is expected to
do much more in areas that used to be the exclusive domain of the public
sector. away from the public relations realm to a strategic one handled
at the highest levels of the company. Longterm financial success is now
seen to go hand-in-hand with environmental stewardship, social
engagement and effective governance for sustainable development. Bribery
and corruption is no longer accepted as a way to conduct business. The
current demand for transparency, integrity and accountability is
consistent all over the world. Businesses and governments, more than
ever before, are daily asked to conduct business with integrity,
openness, accountability and transparency. It is a just call. The costs
of doing business otherwise are known and such costs are no longer
accepted; it is a task that has to be embraced and a task that has to be
done. There is definitely a business case for anti-corruption and all
businesses, big or small, global or local, have to come together to set a
new path for all to take. The stage is set and is irreversible. It is a
global movement of creating a sustainable and inclusive global economy.
We therefore need to join hands to work towards reducing, if not
eliminating bribery and corruption in conducting business. There is no
other way.

Long-term financial success is now seen to go
hand-inhand with environmental stewardship, social engagement and
effective governance for sustainable development. Bribery and corruption
is no longer accepted as a way to conduct business. The current demand
for transparency, integrity and accountability is consistent all over
the world.

The United Nations Global Compact (Global Compact)
was launched in the year 2000 amidst the emerging debate on
globalisation. Business was and continues to be recognised as a key
stakeholder and driver in the international sustainable development
framework. The Global Compact, a multi-stakeholder initiative is the
world’s largest voluntary corporate sustainability initiative with more
than 8,000 business participants from developed, emerging and developing
countries. It has 80 local networks. With its ten universal principles
related to human rights, labor, environment and anti-corruption and
other platforms, the Global Compact calls on business to make
environmental, social and governance issues as important as financial
bottom lines. The adoption of the UN Convention against Corruption
(UNCAC) in 2003 led to the addition of the 10th Principle against
Corruption to stem the tide against corruption.

The year 2014 was a watershed as it marked ten years of business working collectively with the Global Compact, to work against corruption in all its forms including extortion and bribery.

Since its inception, the Global Compact’s role has been that of a facilitator and a convener. It convenes international actors – government, business, investors, civil society and academia – at a common platform to devise and discuss ways to further the corporate sustainability agenda and take concrete action. It is a platform for continuous improvement. Activities of the 10th Principle against Corruption manifest this convening role as well as action platform of the Global Compact in a most comprehensive manner. The 10th Principle globally advances its objectives through a working group comprising of anti-corruption champions from business, civil society, academia and international organisations, including the UN office on Drugs and Crime (UNODC), transparency international, the World economic Forum’s Partnering against Corruption initiative, and Global Compact local networks. With the crucial interplay between global and local, the 10th Principle working group provides continuous guidance to the Global Compact’s anti-corruption related activities. The working group meets regularly to identify priority work and discuss topics of relevance as well as issues that will help companies to embrace and embed anticorruption in their operations.

Over the years, various task forces comprising of members of the working group have developed a number of important generic tools and resources to guide companies in the fight corruption. Companies adopt the tools and resources taking into account their own specificities. the Global Compact tools and resources include Global Compact- transparency international reporting Guidance on the 10th principle against corruption, a Guide for anti-Corruption risk assessment and Fighting Corruption in Sports Sponsorship and hospitality. others are un Global Compact/UNODC e-learning tool on the unCaC and the upcoming guidance on Whistle-Blower policies and Collective action in Practice, to name a few.

Corruption is one of the biggest impediments to any economic or social development. the evil impacts of corruption are widely known. Private to private corruption is indeed a challenge. Small and medium enterprises bear the brunt of corruption with no leverage to fight back. The private sector can be a victim and can be a perpetrator of corruption. It is therefore of utmost importance for every effort to eliminate corruption to be done collectively. A company’s lone action, while important, may not be sufficient to fully deal with the challenges of bribery and corruption especially where it persists. That is why an african adage that says “if you want to go fast, go alone. If you want to go far, go together” is apt. One can do a lot by oneself but one can do the impossible with a great team. It is with this realisation and to multiply the effects of individual corporate action against corruption, companies are joining hands with like-minded companies and organisations to improve the way they conduct business and promote transparency. This type of partnership among multiple interested parties with common challenges and common objectives to turn the tide against a common foe, in this case bribery and corruption, is referred to as Collective action.

“If you want to go fast, go alone. if you want to go far, go together” Collective action can create a more stable business climate by enhancing access to markets and allowing companies to save revenue and profits that would otherwise be lost to bribery. Collective action-led solutions arrived at by multiple stakeholders have more credibility, ownership, acceptance and their implementation is more sustainable. But collective action is indeed not easy. It requires many things, the most important is trust among companies, which is difficult to secure. This is the dilemma. Global Compact Collective action projects in 5 countries are bold initiatives that have taken the bull by its horn by laying the foundation for solid collective efforts to address corruption challenges in the 5 countries.

The 5 countries collective action projects were launched in january 2011 to engage critical stakeholders in concerted efforts to eliminate corporate corruption. the 5 collective action projects were launched in Brazil, Egypt, india, nigeria and South africa with support from the Siemens Integrity Initiative. The 5 projects have been working with local businesses, governments, civil society and academia in these countries to create an enabling environment for dialogue, discussion and action against corruption. By facilitating ongoing dialogue between the private and public sector, the projects set the stage and offered an opportunity for a wide range of stakeholders to explore how collective action can create incentives for ethical business performance, and to discuss areas for further improvement. the Global Compact has proved to be the best incubator for these collective action initiatives.

Global Compact has leveraged these projects worldwide by disseminating information, raising awareness, calling for partnerships and collaborations through all possible mediums. These 5 collective action projects conclude in january 2015. however, the spark of action that has been ignited has the potential to shine brightly and incessantly with the commitment from business – whether local or global – and all key players in the international arena.

Brazil
Egypt
India
Nigeria
South africa

Collective action provides a framework for a coalition of like-minded stakeholders (industry peers, committed government officials & policy makers, civil society academics, and business associations) to act together for a common cause.

Business case For anti- corruption in India

Ms. Shabnam Siddiqui
Project Director,
UN Global Compact network india

According to World Bank estimates 0.5% of india’s Gross domestic Product (GdP) is lost due to corruption every year. in 2014 india ranked 134 on ease for Business index and 179 in terms of ease of Starting a Business amongst 189 nations in the world, the ranking being based on parameters such as dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Correspondingly efforts on anti-corruption have taken a front seat since the past couple of years. The beginning of 1990s saw several international organisations introducing anti-corruption instruments to make the functioning of businesses clean. With globalisation and business opportunities spread across the globe, companies have to follow norms of several countries. Some of the strong global anticorruption convention and legislation, mentioned below, have led businesses to introduce anti- graft initiatives in their working across the world. however india still lags behind.

OCED Anti-Bribery Convention (officially Convention on Combating Bribery of Foreign Public Officials in international Business transactions) adopted in 1997, prohibits bribery of foreign officials, enhanced collaboration between law enforcement authorities of signatory countries and ban on tax deductibility of bribes to foreign public officials. These elements were borrowed by the other international legal instruments which were introduced after this convention namely united nations Convention against Corruption and UK Bribery act. Though india is yet to ratify the OECD anti-Bribery Convention, similar to the features of the convention, india has drafted Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill, 2011 which is pending in Parliament.

the UK Bribery act on the other hand came into force in 2011 and is applicable to all companies registered in uK, its subsidiaries, as well as all non-uK companies trading in uK stock exchange. the Bribery act criminalises both the payment and receipt of a bribe and in the first of its kind of initiative the dealings with funds received as a result of bribery, could constitute a separate money laundering offense. The uniqueness of the act comes from the fact that it outlaws the facilitation payments that are permitted by several european countries.2 in the indian context, as yet, no case has been registered under the U K Bribery Act or any action taken to cater to its requirements. However, a large number of big indian conglomerates come under the purview of this new act which has all essential features of united nations Convention against Corruption (UNCAC) which India ratified in May 2011.

Finally, the tough global act, which has reaped the maximum gains vis-à-vis penalties, is the Foreign Corrupt Practices act (FCPA), a US legislation which prohibits United States companies and their employees, officers, directors and agents from paying or promising to pay bribes to foreign officials, political parties, candidates or their conduits to obtain or retain Business. The provisions of FCPA demand a comprehensive Compliance Program, along with a due diligence process for companies. In the last five years, the top ten cases of financial penalties under FCPA have fetched penalties to the tune of USD
4.4 billion4. FCPA, in the recent times, had incidence on the business operations in india wherein in march 2011, Wal-Mart, US Retail giant signed a joint venture with Bharti enterprises, an indian conglomerate to set up its stores in india. However, cases of bribery were reported. if charged guilty Wal-mart could have been penalized under the FCPA. Finding issues with the joint venture, Wal-mart in april 2014, decided to enter in the indian market alone5 and suspended its joint venture, loosing around 150 million in the course of three years.

The Bribery act criminalises both the payment and receipt of a bribe and in the first of its kind of initiative the dealings with funds received as a result of bribery, could constitute a separate money laundering offense.

Thus with the increasing extra territorial reach of the Foreign Corrupt Practices act of the US and the UK Bribery act, UNCAC compliance and reporting, OECD anti-Bribery Convention, Partnering against Corruption initiative of World economic Forum, and anticorruption Working groups of un Global Compact and Business 20, there is a larger emphasis on corporate governance, transparency, responsibility and accountability.

Even as companies are exposed to multi-jurisdictional laws and regulations, compliance and its monitoring have become an existential issue for most companies. India is trying to address the issue of corruption by making legislative changes, ratifying international conventions and adopting technology in its administrative functioning. However, merely rules and regulations will not address the issue. It is important that the business stakeholders are committed and come together to participate in the fight against corruption.

Business case for anti-corruption

the indian general election of 2014, fought on the plank of good governance and transparency, gave Mr. Narendra modi, the current Prime minister of india, a mandate for ensuring a clean and transparent governance agenda, a mandate that has triggered a new-found urgency in the efforts of corporate india to curb corruption in their operations.

Hong Kong-based mini vandePol, who heads the global compliance practice at international law firm Baker & Mckenzie observes that “Over the past five years, Indian companies politely listened when we spoke of tackling bribery and other compliance risks and told us that we don’t understand how things get done with the indian bureaucracy….Since the recent elections won on the premise of being corruption-free, a lot of companies are interested in starting afresh on building robust compliance systems to tap more markets and rope in new foreign investors.”6mini vandePol, has received advisory mandates from over a dozen Indian firms in the last six months from sectors such as defence, manufacturing and it.

Within the changing national and global scenario Global Compact network india proposes the Business Case for anticorruption in india. A business case for anticorruption assists in four ways: reduces legal liability, increases business opportunity, enhances company reputation and boosts the morale and trust of company personnel.

With the increasing extra territorial reach of the Foreign Corrupt Practices act of the US and the UK Bribery act, UNCAC Compliance and reporting, OECD anti-Bribery Convention, Partnering against Corruption initiative of World economic Forum, and anticorruption Working groups of un Global Compact and Business 20, there is a larger emphasis on corporate governance, transparency, responsibility and accountability.

Printed with the permission of Shabnam Siddiqui, Project director of UN Global Compact network india.

BCAJ Admin

ICAI and its members

1. Disciplinary Cases

(i) Case of RA
(Reported in Disciplinary Cases Vol-II – Part II published by ICAI – P.39)

The CIT (DR) made a complaint against the member that the company of which he was the Auditor had not made provision of wealth tax payable by the company. According to the complainant, the vacant land belonging to the company was valued by the valuer at Rs. 111 crore and the wealth tax liability worked out to a figure which was more than the net profit disclosed in the accounts. The auditor had not qualified the Audit Report on this issue.

The defence of the member was that the valuation report was neither obtained by him or by the company. It was obtained by a sister concern of the company and the member was not aware of the same when he gave the Audit Report. The book value of the land was only Rs. 11.74 lakh and the valuer had valued the land at Rs. 111 crore without giving any basis. Further, the member had relied on the management representation to the effect that the land was subject to numerous litigations and there were restrictions for construction. Therefore, the management was of the view that no wealth tax was payable.

The Disciplinary Committee (DC), after consideration of the facts of the case, has taken the view that there could be difference of opinion on the question of valuation of an asset and the same in no way can be construed to be a lack of due diligence or gross negligence. On this basis the member was held to be Not Guilty of Professional or other Misconduct.

(ii) Case of SSR
(Reported on Page 1 of Disciplinary cases published by ICAI Vol – II, BoD – Part II)

In this case the complaint was that the Member had accepted Tax Audit assignment of the company in which the complainant was the Auditor in earlier years without communicating with the complainant. The defence of the Member was as under:

(i) T he complainant who had conducted Tax Audit in earlier years had declined to continue Tax Audit for the year under complain.

(ii) The company had informed the complainant that they were searching a new firm of auditors for Tax Audit. The management informed the member that they had taken consent of the outgoing auditors for appointment of the Member as Tax Auditor.

(iii) The member had taken oral consent of the complainant for his appointment as Tax Auditor. He was informed that no fees of complainant were outstanding. He also submitted that he was not aware that written consent of the complainant was required to be taken.

The Board of Discipline (Board) noted that during the course of proceedings the complainant had made a request for withdrawal of the complaint. The Board also noted that the member had accepted his mistake with respect to non–communication with previous auditor in writing due to ignorance of the relevant provisions of C.A. Act. The Board held that although there was a technical flaw on the part of the member, yet considering the fact that the member had taken oral consent of the complainant, which fact was accepted by the complainant, and the complainant had made a request to withdraw the complaint, the benefit should be given to the member. On this ground it was held that the member was not guilty of professional or other misconduct.

(iii) Case of JCD.
(Reported on P.150 of Disciplinary cases published by ICAI VoL – II – BoD – Part II)

In this case the complainant firm was statutory auditors of the company for last 10 years. The complainant was also Tax Auditors of the company for all these years. For the year 2010-11 the complainant firm had completed Tax Audit and the same was not finalised because some points were pending compliance by the company. Since there was no compliance up to 25-09-2011, the complainant contacted the company when he was informed that the company had obtained the Tax Audit Report from another auditor. The complaint was that the member had accepted the Tax Audit assignment without prior communication with the complainant.

During the course of hearing before the Board, the complainant submitted that he had discussed the matter with the Member and as a good gesture, he wanted to withdraw the complaint. The Board noted that there was some miscommunication regarding the receipt of communication by the complainant from the Member which appears to have been sorted out. On this basis the Board held that the member was not guilty of professional or other misconduct.

2. Financial Report Review Board (FRRB)

In the publication of ICAI “Study on Compliance of Finance Reporting Requirements” following observations have been made by FRRB.

(i) Para 29 of AS-6 (Depreciation Accounting) (P.49)
In one case the accounting policy regarding depreciate was stated as under:

“In case of ‘X’ unit and ‘Y’ unit depreciation is calculated at straight line method and in all other units the WDV method has been followed.”

FRRB has referred to Para 29 of AS – 6 and observed that although the company has disclosed the depreciation methods adopted by it but the rates of useful life of such units are not disclosed. Being silent on this aspect cannot be construed that depreciation is charged at specified rates. Hence the above disclosure was not in accordance with the requirements of AS-6

(ii) Para 1 and 3.2 of AS-6 (P.50)
In the published accounts of some companies FRRB noticed that no depreciation on “Leasehold Land” was provided.

FRRB has taken the view, relying on Para 1 and 3.2 of AS-6, that Leasehold Land has limited useful life and, as such, it should be amortised as required by AS-6. In the above cases, this was not done and therefore the Depreciation Accounting was not in compliance with AS-6.

(iii) Para 28 of AS-6 (P.52)
In the case of a company, while accumulated depreciation for each class of assets was disclosed, the depreciation provided for the year against each item of asset has not been separately disclosed.

Referring to Para 28 (ii) of AS-6, FRRB has observed that under AS-6 “total depreciation for the period for each class of assets” should be disclosed. In this case, although accumulated depreciation was disclosed, no disclosure of depreciation for the year for each class of asset was not made. Thus the mandatory requirement of AS-6 was not complied with.

3. Applicability of Tax Rate in Quarterly Financial Results.

Facts:
A Central Public Sector Undertaking Company (Listed Company) is engaged in mining of bauxite, manufacturing of alumina and aluminium, generation of power in captive power plant for use in smelter plant and selling alumina and aluminium both in domestic and international market. Paid up share capital of the company is Rs.1,288.62 crore out of which 81.06% shares are held by the Government of India and 18.94% are held by the Public. As per the provisions of clause 41 of the Listing Agreement, the quarterly un-audited financial results are to be furnished to stock exchanges and be published in newspapers.

While computing the quarterly financial results, the company considers provision for tax expense by considering the computed taxable income upto that period based on the applicable tax rate for the said financial year.

The principles for recognition and measurement of tax expense are laid down in paragraph 29 (c) of AS 25 which states that the tax expense in each interim period is to be recognised based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

As per the practice followed by the company consistently, at every quarter ending day, actual tax expense is provided based on the financials/ performance upto that period.

Query
In the above background, the Company has sought opinion of the EAC on the following issues:

(i) Whether the principles mentioned in AS 25, particularly, the principles for recognition and measurement of tax expense as laid down in paragraph 29(c) of AS 25 would apply to unaudited quarterly financial results prepared to comply with clause 41 of Listing agreement which are subject to limited review by the statutory auditors.

(ii) Whether the existing practice of recognising provision for tax expense by considering the computed taxable income for the relevant period based on applicable tax rate is in contravention of the provisions of AS 25.

EAC opinion:
After considering, clause 41(IV)(f) of the Listing Agreement and paragraphs 1, 2, 27 and 29 of aS 25, the Com- mittee noted that clause 41 of the Listing agreement specifically requires that quarterly and year to date results should be prepared in accordance with the recognition and measurement principles laid down in AS 25. The Committee also noted that the Guidance note on applicability of aS 25 to interim Financial results, issued by the ICAI does not lay down any new accounting principle and is only providing guidance on the application of a mandatory Standard (viz. AS 25). Therefore, the Committee is of the view that the company should follow the requirements of aS 25 as explained in the Guidance note and should apply the recognition and measurement requirements as contained in paragraph 29 (c) of AS 25 to the interim financial results presented under clause 41 of the Listing agreement. Thus, whether or not the Guidance note is binding or is recommendatory in nature is not relevant as the relevant requirements of the Standard are binding on the company. The Committee further noted that paragraph 29(c) of AS 25 requires that income tax expense should be recognised in each interim period based on the best estimate of the weighted average annual income tax rate expected for the full financial year.

The Committee also noted from the Facts of the case that while computing the quarterly financial results, the company considers provision for tax expense by considering the computed taxable income upto that period based on the applicable tax rate for the said financial year. On the basis of the above, the Committee is of the view that the accounting practice of the company to provide for tax expenses at the quarterly/interim period results based on the applicable tax rate for the said financial year would be correct provided such tax rate is the rate that would be applicable to the expected total annual earnings of the company for the whole year, that is, the estimated average annual effective income tax rate. In this regard, the Committee has pointed out that the tax expense for each interim period is not to be determined on the basis of average of estimated annual tax expense rather it is to be determined on the basis of estimated average annual effective income tax rate applied to the portion of income earned in the interim period. Thus, if in an interim period, there is a profit but in other interim periods, there are losses resulting into nil taxable income for the financial year, tax expense in each interim period will be provided for by applying estimated average annual effective income tax rate to the income (profit or loss) of those interim periods. In other words, if there are profits in the first quarter, the company has to provide tax liability in the first quarter at the appropriate estimated average annual effective income tax rate, which would get reversed in subsequent quarters if there are losses. For the purpose of calculating the estimated average annual effective income tax rate, guidance may also be taken from the Guidance note on measurement of income tax expense for interim Financial reporting in the Context of AS 25, issued by the ICAI.

The existing practice of recognising provision for tax expense by considering the computed taxable income for the relevant period based on applicable tax rate for the said financial year would be correct provided such tax rate is the rate applicable to the expected total annual earnings of the company for the whole year, that is the estimated average annual effective income tax rate.
[Pl. refer page nos. 1092 to 1095 of the C.A. journal – February, 2015]

4. ICAI News
(Note: Page Nos. given below are from CA Journal for February 2015

Group

no. of
candidates appeared

no. of
candidates Passed

Percentage
of Pass

Both

36,254

2,983

8.23

Gr. I

64,972

15,208

23.41

Gr. II

66,552

6,830

10.26

(i) November, 2014 Final examination results (P.1158)

First Rank : Vijendra Aggarwal, Gurgaon (69.75%)
Second Rank : Ms. Pooja R. Parekh,ahmedabad (69.50%)
Third Rank : Santosh P. Nankani, nandubar(69.13%)
Ms. nikita Goel, howrah (69.13%)

(ii) November, 2014 iPCC Examination

Group

no. of
candidates appeared

no. of
candidates Passed

Percentage
of Pass

Both

47,795

2,963

6.20

Gr. I

1,23,488

17,603

14.25

Gr. II

1,04,435

15,982

15.30

(iii) CPT Examination – december 2014 (P.1157)

Gender

appeared

Passed

Percentage

Male

63,541

9,060

14.26

Female

37,416

5,820

15.55

Total

1,00,957

14,880

14.74

(iv) late Shri rameshwarji Thakur

One of our former Presidents, Shri Rameshwarji Thakur, passed away on 15th january 2015 at the age of 86. He was our President in 1966-67. He was also a Freedom Fighter and an active member of our profession. He held the prestigious positions as union minister of State and later as Governor of madhya Pradesh, odisha, andhra Pradesh and Karnataka. We all condole his death and pay our respectful homage to the departed soul. We pray that the departed soul may rest in peace.

(v) New chapters of ICAI (P.1043)
Following new oversees chapters of iCai have been established in February, 2015.

(a)    24th Chapter at Vancouver (Canada)
(b)    25th Chapter at Bangkok (thailand)
(c)    26th Chapter at dar es Salam (tanzania)

(vi)    revision in rates of Stipend to Articled assistants:

By notification dated 23-01-2015 issued by ICAI the rates for stipend payable by Chartered accountants to their articled Assistants have been revised as under:-

normal Place of Service of
articled assistants

Stipend
payable p.m

First Year (`)

Second

Year (`)

remaining

Period (`)

(a)

Cities/Towns
with Population of above 20 Lacs

2,000

2,500

3,000

(b)

Population
be- tween 4 Lacs

and 20 Lacs

1,500

2,000

2,500

(c)

Population
below 4 Lacs

1,000

1,500

2,000

(vii) Our New President and Vice-President:

ICAI Council has elected Shri Manoj Fadnis (Indore) as President and Shri Devaraja Reddy M (Hyderabad) as Vice-President for the year 2015-16. Our greetings and best wishes to both for a successful term of office.

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Part C Information on & Around

Mumbai VC Rajan Welukar spent without sanction:
Rajan Welukar has used over Rs. 12 lakh of Mumbai University’s funds to pay lawyers defending his appointment as the varsity’s vice-chancellor in the Bombay High Court, a Right to Information (RTI) request has revealed. Activist Anil Galgali, who obtained the details, alleged that Welukar has roped in lawyers who were not part of the university-approved panel of legal experts, and used varsity funds to pay their fees without official sanction.

“The university’s funds are meant to be used for the benefit of students. In fact, there are so many issues that require financial consideration,” Senate member Sudhakar Tamboli said. “The case against Rajan Welukar questions his appointment as the vice-chancellor, and not the decisions he has taken. Why is the university then bearing his legal expenses?”

Registrar Khan, however, said that the varsity was also a party to the legal challenge. “The case is also against the University of Mumbai. We have taken the management council’s approval for legal expenses,” he said.

An RTI enquiry revealed 165 pilots were found to have high blood alcohol levels between Jan 2009 and Feb 2014:
According to a Right to Information (RTI) enquiry filed by a serving Jet Airways pilot, between January 2009 and February 2014, 165 pilots in the country were found to have high blood alcohol levels.

“It is important to take post-flight breath analyser test because a pilot will be considered as having tested positive on skipping the test. It will not be possible to explain that the test was missed inadvertently,” the Jet Airways pilot said. He added that the airlines was currently hiring additional doctors to carryout the checks.

Twelve crew members of an Air India flight from London to Mumbai have been sent on compulsory leave for 15 days as punishment for not undergoing post-flight alcohol check implemented by Directorate General of Civil Aviation (DGCA) recently.

As required under tougher rules for alcohol tests with effect from July 2014, the 12 crew members, including six air hostesses, fails to report for the post-flight breath analyser checks on their return to Mumbai from London last month. Not reporting for tests as per the modified rules is considered as being alcohol-positive.

Centre spent Rs. 320 cr on R-Day last year:
Ever wondered how much the Republic Day ceremony at Rajpath, with all its smart marches, colorful tableaus and performing artists, costs to put together? A query under the RTI Act has elicited a response from the Central Public Works Department (CPWD) that says the Centre spent Rs. 320 crore in the four-hour parade in 2014.

Over the years, the expenses on Republic Day celebrations have risen quite substantially. In 2001, the expenditure was Rs. 145 crore.

The Rs. 145 crore that was incurred by the Centre in the financial year 2000-01 rose to Rs. 226 crore in 2003-04. For the next three years, though, expenditure decreased somewhat, in step with a not-so-healthy economy. In 2006- 07, the government spent Rs. 149 crore on the celebrations.

The budget for the R-day function was then increased by 34.16% in 2007-08, and the Centre spent Rs. 227 crore that year. In 2009-10, it went up to Rs 285 crore.

There were slight decrease in the budget in 2011 and 2013, but the Centre ended up spending robust Rs. 320 crore in 2014. In comparison to the amount spent in 2001, the budget for the parade last year shot up by 54.51%.

Man refuses to stay standing, arrested:
The Tamil Nadu State Information Commission (TNSIC) had an RTI applicant arrested for taking a chair in front of a two-member bench hearing his appeal. There is no rule preventing an RTI applicant from sitting during an appeal.

Chief information commissioner K. S. Sripathi and commissioner S. F. Akbar had NGO Legal Panchayat Movement president Siva Elango arrested as he sat even as they refused to accede to his request for a chair during the hearing of his appeal against rejection of an RTI application.

Elango was booked under IPC Section 353 (preventing a government servant from discharging his duty), 294 (b) (obscenity) and 506 (1) (criminal intimidation).

Police presented Elango before a magistrate, which remanded him in judicial custody for 15 days.

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Part A DECISION OF H.C. & CIC

Information, Section (2):
The Appellant, Shri Ramesh Kumar, submitted RTI application dated 20th September 2012 before the Central Public Information Officer (CPIO), Punjab National Bank, Lucknow; seeking information regarding challans through which Income Tax had been deducted from his salary and was deposited with the Income-Tax Department through wrong PAN number etc., through a total of 5 points.

The appellant preferred an appeal dated 10th November 2012 to the first appellate authority (FAA) when he did not receive any information from the CPIO concerned within stipulated time period. Vide reply dated 27th November 2012, CPIO furnished information on point no. 1 and informed on point nos. 2 to 5 that the requested information was 5 to 6 years old, due to which they were facing problems in retrieving the same, and they will furnish the same one they retrieve it. Vide order dated 17th December 2012, FAA held that CPIO has already furnished the information vide letter dated 27-11-2012 and also upheld the CPIO’s decision.

The appellant submitted that he is an ex-employee of the public authority and he retired on 31-3-2012. The Incometax Department had contacted the appellant information him that the public authority had failed to deposit his Income-tax for the years 2006-2011, as they had quoted wrong PAN number in the Form 16 of the appellant. Hence, he sought information under the RTI Act, about the details of the income tax deductions and deposit challan copy for the years 2006-2011. However, the CPIO had only provided information pertaining to years 2009-2011. The information for the year 2006-2009 had not been provided. The appellant submitted that the information would help in settling up the tax issues with the Income Tax Department.

In the second appeal before CIC, the appellant did not inform the bank about the wrong PAN number when the matter came to their notice they corrected the PAN number and submitted revised I.T. return. The tax deducted was not deposited on an individual basis but in consolidated manner (branch wise) by the public authority, hence information sought is not held by the office in the format sought in the RTI application. The copies of month wise bank certificates can be provided to the appellant for the years 2006-2011. They have provided all Form 16 asked for by the appellant. The challan copies for depositing the tax were not available so they provided the copies of acknowledgement for that period.

The CPIO’s submissions are accepted by the Commission that information as held has been provided. However, the CPIO is directed to provide additional information to the appellant regarding the copies of month wise certificate of Income-Tax deducted for the years 2006-2011 within one week of the receipt of the order of the Commission.

[Shri Ramesh Kumar vs. Punjab National Bank, Lucknow & Ors. in CIC/VS/A/2013/001377/MP, in CIC of Delhi dated 23rd July 2014]

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Ethics and U

Procedure of Enquiry (Continued) Arjun

(A) — Where is this Lord Shrikrishna gone? He says he is omnipresent. But often makes me wait! Shrikrishna

(S) — Arey, Arjun. You have already reached! Sorry, I was held up.

A — Don’t worry. We are quite used to such waiting in the tax department. Anyway, you were explaining to me the procedure for enquiry of disciplinary cases.

S — Yes. Your friend was to apply for extension of time to send a reply. Did he do that?

A — Yes, he did. But there is no response from the Institute.

S — That does not mean that he should just wait for reply and do nothing till then. Usually, they do grant additional time of 15 to 20 days.

A — Ok. He has prepared some reply. He is alleging that the complainant himself is a bad person and the complaint is frivolous.

S — Y our friend must be feeling that he had helped the complainant in the past, and now the complainant is acting vindictively! Right?

A — Yes, precisely. How can he complain when he is himself a defaulter? One should come with clean hands before the Court for justice.

S — You are right. But that is in general jurisprudence. Here, your Council has no jurisdiction over nonmember.

A — So, anybody can complain? The Council cannot do anything to outsiders? They will catch hold of only the members?

S — Unfortunately, yes. There are other fora where you can seek justice by retaliating. But your Council is concerned only with the good behaviour of members.

A — Why so?

S — Because the Council has to uphold the reputation of the whole profession. Misconduct of any member adversely affects the image of the profession and it is harmful to all other members.

A — I appreciate what you mean. Then what should my friend do?

S — He should write a proper reply to the point. Each and every point alleged by the complainant should be tackled systematically. One should write objectively and not emotionally. All paragraphs should be serially numbered.

A — So, a counter-attack on the complainant will not help?

S — Exactly. You may point out in a decent language as to how the complainant himself is a wrong-doer. But emphasise that you have acted properly. That is what the Council wants to see.

A — So his errors do not justify mine, right?

S — Obviously. Otherwise, how will the profession have credibility?

A — OK. What happens after he sends the explanation?

S — That explanation is simply forwarded to the complainant. He gets an opportunity to send a rejoinder.

A — Why? Even if my reply is convincing, it has to go to him?

S — Yes. They cannot close it merely on your explanation.

A — Ok. Then to his rejoinder, I can send sur-rejoinder? S — N o. You have no second inning.

A — Ah! This is unfair.

S — Under the new system, you have no further opportunity at this stage. Once these three documents are received, that is, the complaint, your reply and rejoinder, then only the Directorate examines the case.

A — Oh. Nothing till then!

S — But while scrutinising, if they want any further information or document, they will write to either party and get it.

A — After examining the case, they give the final verdict?

S — No. The Director forms what is called as a prima facie opinion; as to whether you are ‘prima facie’ guilty; or not guilty.

A — So, it is the Director who decides this? That means, the justice is left to the bureaucrats?

S — No. The Director has to present the prima facie opinion before the Board of Discipline if it is Schedule I offence.

A — And to Disciplinary Committee if it is 2nd Schedule. Correct?

S — Yes. And if mixed one, then also to DC. BOD or DC may concur or not concur with the prima facie opinion. Or even partly agree or disagree on certain items.

A — What I have understood at this stage is that your first reply itself should be as exhaustive as possible.

S — It should be supported by documentary evidence also.

A — Then what?

S — If you are not prima facie guilty, you receive an intimation that your case is closed. Otherwise, they inform you that there will be a detailed enquiry.

A — I think, this much is enough for the time being. I will explain to my friend all that you have told me. But I need to know more. Next time, you please explain to me how the enquiry is conducted. But please give your blessings to my friend so that he will not be held even prima facie guilty.
S — Tathaastu!

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 February 28, 2007 (‘Enquiry Rules’).

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ICAI and its members

1. Disciplinary Cases Disciplinary Committee (DC) of ICAI has decided the following cases which are reported in ICAI publication viz., “Disciplinary Cases” Vol. I Part – I and II

(i) Case of G.K.

In this case, Mr. G.K. used to audit the accounts of certain group companies and give statutory audit reports from 01-10-2005 to 26-09-2009. He did not reveal to the company management that his name was removed from Register of Members maintained by ICAI. It was further alleged that he had connived with one of the Directors of the company to defraud the other Directors.

The D.C. found that the name of Mr. G. K. was removed from the Register of Members for non payment of Fees and therefore he was not entitled to audit or give statutory audit reports. Therefore, Mr. G.K. had contravened the provisions of sections 8 and 24 of the C.A. Act. Section 24 provides for prosecution of such person and court can levy fine upto Rs. 5,000/- and under certain circumstances award punishment by way of imprisonment upto 6 months.

However, under the present proceeding, Mr. G.K. was held to have committed other misconduct under Clause (2) of Part IV of First Schedule and Clause (1) of part II of second schedule of C.A. Act on the first charge. As regards the second charge the D.C. held that this was not proved. The D.C. awarded punishment of removal of the name of Mr. G.K. from membership for 3 months (Reported on Pages 20 – 27 of Part I of Vol.I)

(ii) Case of V.K.

In this case, the member advised his client that capital gains tax of Rs. 6.91 lakh was payable as Advance Tax for A.Y. 2007-08. The member undertook to deposit Advance Tax on behalf of his client. The client paid Rs. 6.91 lakh to the member who deposited the cheque in his account. The member deposited only Rs. 0.91 lakh as Advance tax on behalf of his client. He, however, added the figure of Rs. 6 lakh in the Bank Challan to defraud the I.T. Dept. In other words, the member had misappropriated Rs. 6 lakh and cheated his client. When this fact came to the knowledge of his client, the member refunded the amount to his client with interest. He has also paid interest charged by the I.T. Dept.

The D.C. has found the member guilty of professional misconduct under Clause (10) of part I of second schedule of C.A. Act. The D.C. has held that amount collected from client for payment of Advance Tax was used by the member for his personal purpose in violation of the above clause. The fact that the member has returned the amount with interest can not absolve the member from his guilt.

On the consideration of the facts of this case, the D.C. has awarded punishment to the member and directed that his name be removed from the Register of Members for a period of 2 years. Further, the D.C. has imposed a fine of Rs. 50,000/- to be deposited within 90 days. (Reported on pages 28 – 36 of Part I of Vol.1).

(iii) Case of Mr. V. K. D.

In this case, the Reserve Bank of India (RBI) reported to ICAI that the member (Statutory Auditor of NBFC Company) has submitted a certificate on 12-04-2007 stating that the company continues to undertake the business of NBFC requiring it to hold the certificate of registration u/s. 45-IA of the RBI Act. The RBI has stated that according to company’s letter dated 26- 03-2007 it had informed RBI that it had yet to start the commercial business. Hence, according RBI the Certificate of the Member was wrong. The charge against the Member was about gross negligence under Clause (7) of Part I of second schedule of CA Act.

The defence of the member was that he issued the certificate dated 12-04-2007 in response to the request letter from Company, whereby, he was requested to certify whether the company continues to carry on principal business of NBFC as on 31-03-2007. As per RBI press release No. 1998-99/1269 dated 08-04-1999, the Company’s financial assets should be more than 50% of its total assets and income from financial assets should be more than 50% of gross income. Both these tests are required to be satisfied as the determinant factor. It may be appreciated that the Respondent was not required or intended to verify and certify generally whether the Company has commenced the commercial business of which Respondent denies any knowledge or involvement.

The D.C., after hearing the Member and after verifying the documents produced by him, held that the company was meeting with criteria of NBFC as prescribed by RBI. It was also noted that the company was a private company and did not require to obtain business commencement certificate. Therefore, when the criteria of investment in Financial Assets and income from such assets was met and the Member gave the certificate keeping in mind the going concern concept. No mala fide intention was established. Therefore, giving benefit of doubt to the member, it was held that he was not guilty of professional misconduct. (Reported on Pages 6-12 of Part II of VoL-1).

2. Some Ethical Issues

The Ethical Standards Board of ICAI has given answers to some Ethical Issues. These are published on Pages 1171 – 1172 of CA Journal for February, 2014.

(i) Issue No.1

Whether an auditor is required to provide to the client or to main auditor of the Head Office of the same enterprise access to his audit working papers?

Working papers are the property of an auditor. An auditor is not required to provide the client access to his audit working papers. The main auditors of an enterprise do not have right of access to the audit working papers of the branch auditors, except in case it is required by the Regulatory norms.

(ii) Issue No.2

Whether Joint Auditors can demand the working papers of one another?

The working papers are the property of an auditor. Therefore, no joint Auditors can demand the working papers of the other Joint auditor.

(iii) Issue No.3

Whether a joint auditor will be responsible for the work done by other joint auditor?

Council direction under Clause (2) of Part 1 of the Second Schedule to the C.A. Act prescribes that in respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work allocated to him, whether or not he has prepared a separate report on the work performed by him. However, on the other hand, all the joint auditors are jointly and severely responsible for the work which is not inter se divided among the auditors.

(iv) Issue No.4

Whether the statutory auditor can accept the system audit of same entity?

The statutory auditor can accept the assignment of a system audit of the same entity, provided it did not involve any scrutiny/review of financial data and information.

3. EAC Opinion:

Treatment of Mark to Market Losses on Principal only Currency Swap:

Facts:

A company is engaged in providing port and related infrastructure services (including SEZ) to various port and SEZ users.

The company has stated that when it approaches banks for long term loans to fund the capital expenditure for port project, it has the option of seeking a foreign currency loan (FCL) or a Rupee loan. In case FCL is not readily available, the company agrees to borrow Rupee loan. The sanction letter of bank could also provide the company the option to convert the undrawn portion of Rupee loan into FCL at a later date. Further, along with the sanction of Rupee loan, banks also sanction derivative limits so that the company could utilise the same for swapping drawn and outstanding Rupee loan amount into foreign currency facility. According to the company, it enters into derivative transaction by way of Principal Only Swap (POS) to the extent of outstanding Rupee loan in its balance sheet. As per the company, though POS transaction is an off balance sheet item, the same cannot be entered into unless there is an underlying outstanding loan in the balance sheet. Hence, it is clearly inter-linked to a balance sheet item.

The company has further stated that POS transaction with bank involves notional swap of the company’s Rupee loan with USD. As a result, the company has USD exposure through POS. The tenor of underlying Rupee loan of POS contract is same and notionally, the company swaps the Rupee loan with the USD loans. The bank which enters into the POS actually buys Rupee from the company and sells it USD. However, no cash flow takes place, no entries are passed in books and details of outstanding transaction are disclosed in the financial statements. Thus, effectively, what was a Rupee obligation of the company becomes a USD obligation with the POS.

According to the company, all POSs are monitored on a regular basis and, periodically, the company has interest inflow on account of differential interest rate on Rupee and USD borrowings. As per RBI directives, POS contracts are cancellable but once cancelled, cannot be renewed during tenure of the term loan and, hence, it is possible to have POS till the maturity of Rupee loan.

The company has also stated that for such transactions, bank pays Rupee interest rate of, say 11% and the company pays USD interest rate of, say, 5%. The difference is called ‘carry’. This means that if Rupee interest rate goes below 11% the company gets benefited as ‘carry’ remains same and vice versa, but the company has exposure on account of variation in INR/USD exchange rate. Effect of USD increase is still exchange rate difference and is still to be accounted for by way of Mark to Market (MTM) loss/gain. But, this is, again, only a memorandum (notional), because, just as the exchange rate differences on External Commercial Borrowings (ECBs), this also does not actually materialise till the loan is actually paid off.

The question arises about accounting for MTM losses/gains on such POS transaction along with receipt of ‘carry’ income at regular intervals in accordance with the Ministry of Corporate Affairs (MCA). Notification dated 7th December, 2006 and subsequent extension vide Notifications dated 31st March, 2009 and 29TH December, 2011.

Query:

On these facts, the company has sought the opinion of the Expert Advisory Committee as to whether the mark to market losses on POS can be treated as exchange rate difference and, accordingly, can be recognised as per paragraphs 46 and 46A of AS11, notified by the Central Government.

EAC Opinion:

The Committee is of the view that the issue raised by the Company requires examination from two angles – firstly, whether the Rupee loan taken by the company becomes a foreign currency liability by the existence of POS transaction or whether it should, in substance, be treated as a foreign currency loan by the existence of POS transaction and, secondly, whether the POS transaction can be considered to be a foreign currency transaction within the scope of AS11.

A reading of AS11 indicatesthataccountingtreatment for only those forward exchange contracts which are entered into for hedging foreign currency risk where the underlying transaction is denominated in a foreign currency, or for trading or speculation purpose. The Committee notes from the Facts of the Case that the underlying transaction is a Rupee loan that does not give rise to any foreign currency risk. It is the POS transaction in the Company’s case that exposes the company to foreign currency risk rather than mitigating the same. Thus, the purpose of the POS is not hedging any foreign currency risk. The POS is not held for trading because the company is not a trader in foreign exchange. There may be speculation, if there is no underling transaction or if there is an underlying transaction but the intention is to speculate the movement in foreign exchange rate and to cancel the POS for booking profit at the opportune time. In the Company’s case, the POS has an underlying transaction viz., Rupee loan. But, the company’s intention is not to speculate the movement in foreign exchange rate and to cancel the POS at the opportune time for profit booking. This basic purpose of the POS transaction in the Company’s case is to take advantage of the difference between Rupee interest rate and USD interest rate. Its purpose is saving in interest cost though it exposes the company to foreign risk. The mere fact that the company might have considered likely foreign exchange loss in making the decision to enter into the POS transaction, in itself, does not make the POS as held for speculation purposes. Thus, the POS is not held for hedging any foreign currency risk or trading or speculation purposes. Hence, the POS is not a forward exchange contract within the scope of AS11 and therefore, is not a foreign currency transaction within the scope of AS 11,

Examination

Group I

Group II

Both Groups

(a) FINAL

Appeared

Passed

Appeared

Passed

Appeared

Passed

Nov.2013

51728

2932

5.67

54,786

4,026

7.35

32536

1013

3.11

May 2013

45822

6319

13.79

50,354

9,389

18.65

27,556

2764

10.3

Nov.2012

48320

13193

27.30

51,906

11,341

21.85

29,339

3804

12.9

(b) IPCC

Nov 2013

122253

23,342

19.09

117834

21076

17.88

62033

5038

8.12

May 2013

124310

24,161

19.44

112465

16675

14.83

70504

8428

11.73

Nov.2012

100494

25269

25.14

96,181

20326

21.13

52531

5835

11.15

4. ICAI News

(Note: Page Nos. given below are from C.A. Journal of February, 2014).

(i) Extension of Last date for complying with CPE Hours

ICAI has notified that the last date for complying with requirement of CPE hours for the Block Period of 2011-2013 has been extended from 31-12-2013 to 31-03-2014 (ICAI Website).

(ii) C A Examination Results

The Results of CA examination which have been recently declared are very strict. This will be noticed from the following comparative figures. (ICAI Website).

(iii) New Branches of ICAI

Following New Branches of ICAI have been opened on 3rd January, 2014 (P.1280-1282).

(a)    Dibrugah (EIRC)
(b)    Tinsukia (EIRC)
(c)    Karimnagar (SIRC)
(d)    Warangal (SIRC)
(e)    Ongole (SIRC)

(iv) Get CA Journal on Mobile

CA Journal will be available on ios (I pad/I Phone etc) and Android Devices from 01-03-2013 (Refer P.1279).

BCAJ Admin

Ethics and u

Certification of projections:

Arjuna (A) – Oh God! I am really fed up. I feel I should not sign any document at all.

Shrikrishna (S) – What happened? You have been signing so many things – reports, certificates and what not!

A – Yes. But that is inviting trouble for myself.

S – If you sign diligently and carefully, why should there be any trouble. That is your very profession. That is your bread and butter.

A – I know. But people expect us to sign anything and everything under the sun! Regulators, Bankers make us sign any kind of certificate.

S – If you are not comfortable, don’t sign it. Who is forcing you to do so?

A – The relationship, Bhagwan, our relationship with client creates pressure on us.

S – Don’t make general statements. What exactly is your worry?

A – Now see, many of our clients apply for bank loans. They submit project reports. Quite often, it is prepared by us only.

S – Nothing wrong about it. Then?

A – Bankers insist that we should sign the projections.

S – How can you certify the projections? You should refuse.

A – That’s the difficulty. We CAs have not been taught to say ‘No’ at all. We try to help the client anyhow.

S – True. But client also should appreciate your difficulty.

A – That does not happen. It is a one-way traffic. They always expect us to compromise and oblige.

S – But they never reciprocate! Is it not?

A – You said it! The client sits on our head because he is impatient for the loan. The Banker also pressurises us. And many of us succumb to it.

S – Client takes the loan and in due course, becomes an NPA. Right?

A – Yes. And then the first scapegoat is the chartered accountant! Banks routinely file complaint to our Institute. We are trapped!

S – So clients emotionally blackmail you that they are not getting the loan because of your unwillingness to sign. In such a case, you should clearly tell them that your Institute does not permit you to sign any projections.

A – But I don’t understand why bankers insist on our doing irregular things?

S – Because that helps them save their skin. If anything goes wrong, they can pass the blame on you people.

A – But why can’t we sign the projections?

S – You are asking an elementary question. Paarth, you can certify only what is factual. That is the very meaning of ‘certificate’. Projections are essentially based on assumptions; and are always uncertain. If you venture to do that, you will be a ‘fortuneteller’ and not a chartered accountant.

A – Tell me, is there is no way out at all? Because if I refuse to sign, client says he can obtain signature from hundreds of other CAs.

S – You people lack unity. That is why people take you for a ride. The quacks bring disrepute to your profession. They can sign anything.

A – And that spoils our relationship with the client. He feels unhappy with us!

S – You should read and understand AAS-35 – now SAE 3400. It does permit you to sign projections if you fulfil certain conditions.

A – What are those conditions?

S – I can’t explain all the details. But broadly, the assumptions should be realistic and reasonable. They should be clearly stated. Even hypothetical assumptions should be consistent with the purpose of the information.

A – What other things should we see?

S – If any study or survey is done by some agency, you should obtain the report. You should also study the track record and history of the entity. Moreover, projections should be restricted to a reasonable time period in future. Further, you should also judge the management’s competence to prepare proper projections.

A – I think I should also read that SAE 3400 and show it to the client.

S – Most important, you should ensure a clear engagement letter and also insist that all the representations of the management are in writing and signed by them.

A – My friends at district level areas find it all the more difficult to tackle such situations. They have very limited work opportunities and have to compromise on many things.

S – And there is often an unhealthy rivalry.

A – I feel the Council or its Committee should take up the matter with the managements of the Banks and ask them not to insist on such things.

S – Yes. And your local associations and study circles also can make representations to the Banks.

A – There is yet another problem. One bank asked a CA to give a certificate that all statutory dues have been paid. How can one certify that? In our country, there are hundreds of laws. It is impossible to visualise all of them.

S – Very true. In such cases, you should specify the various laws that are commonly applicable to such entities and restrict your certificate to only those statutes. There cannot be a generalised certificate. Even under CARO, only specific laws are covered.

A – But tell me. If one gives such certificate, who is going to see that? Banks say it is just for their record.

S – So long as everything is smooth, there is no problem. But once the unit starts defaulting in servicing the loans, banks will take out all these certificates. And it is a serious misconduct. It is gross negligence as well as lack of due diligence. Many disciplinary cases are coming up on this count! And not following the accounting and auditing standards is clearly a misconduct.

A – I will take up this issue in our study circle and do something concrete to save our fellow-members.

S – Good. That is why you are so dear to me!

Om Shanti!

NOTE :

The above dialogue between Shrikrishna and Arjun deals with the Clause (3) of Part 1 of the Second Schedule which are often invoked alongwith Clause (7). It states that:

A chartered accountant in practice shall be deemed to be guilty of professional misconduct, if he-

Clause (3): permits his name or the name of his firm to be used in connection with an estimate of earnings contingents upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast.

levitra

BCAJ Admin

Glimpses Of Supreme Court Rulings

17. Deemed dividend – Section 2(22)(e) – Decision of the Supreme Court in C.I.T., Delhi-II vs. Madhur Housing and Development Company (2018) 401 ITR 152 (SC)

National Travel Services vs. CIT (2018) 401 ITR 154 (SC)

The Assessee, a partnership firm consisted of three partners, namely, Mr. Naresh Goyal, Mr. Surinder Goyal and M/s. Jet Enterprises Private Limited having a profit sharing ratio of 35%, 15% and 50% respectively. The Assessee firm had taken a loan of Rs. 28,52,41,516/- from M/s Jetair Private Limited, New Delhi. In this Company, the Assessee subscribed to the equity capital of the aforesaid Company in the name of two of its partners, namely, Mr. Naresh Goyal and Mr. Surinder Goyal totaling 48.19 per cent of the total shareholding. Thus, Mr. Naresh Goyal and Mr. Surinder Goyal were shareholders on the Company’s register as members of the Company. They held the aforesaid shares for and on behalf of the firm, which happened to be the beneficial shareholder.

The question that arose before the Supreme Court in this appeal was, as to whether section 2(22)(e) of the Act was attracted inasmuch as a loan had been made to a shareholder, who was a person who was the beneficial owner of shares holding not less than 10% of the voting power in the Company, and whether the loan was made to any concern in which such shareholder was a partner and in which he had a substantial interest, which is defined as being an interest of 20% or more of the share of the profits of the firm.

Before the Supreme Court, the assessee relied upon the judgement of the Delhi High Court in CIT vs. Ankitech Private Limited (2012) 340 ITR 14 (Del) in which it was held that the expression “shareholder” would mean a registered shareholder and also placed on an order dated 05.10.2017 passed by the Supreme Court in Civil Appeal No. 3961 of 2013 [C.I.T., Delhi-II vs. Madhur Housing and Development Company] in which the Supreme Court had expressly affirmed the reasoning of the Delhi High Court and contended that it was clear that the firm, not being a registered shareholder, could not possibly be a person to whom section 2(22)(e) would apply.

The Supreme Court, after hearing the parties was of the view that Ankitech’s case was wrongly decided. According to the Supreme Court, “shareholder”, post amendment, had only to be a person who is the beneficial owner of shares. One cannot be a registered owner and beneficial owner in the sense of a beneficiary of a trust or otherwise at the same time. It was clear therefore that the moment there is a shareholder, who need not necessarily be a member of the Company on its register, who is the beneficial owner of shares, the section gets attracted without more. To state, therefore, that two conditions have to be satisfied, namely, that the shareholder must first be a registered shareholder and thereafter, also be a beneficial owner was not only mutually contradictory but was plainly incorrect.

The Supreme Court was prima facie of the view that the Ankitech judgement (supra) required to be reconsidered, and therefore, directed that the matter be placed before the Hon’ble Chief Justice of India in order to constitute an appropriate Bench of three learned Judges in order to have a relook at the entire question.

Note: This issue had been discussed in Closements in the BCAJ published in December, 2017 and January, 2018.

18. Wealth-tax – Valuation of asset – Section 7(2)(a) is discretionary and enabling provision to Wealth Tax Officer to adopt the method as laid down in section 7(2)(a) for a running business, but the above enabling power cannot be held as obligation or shackles on right of Assessing Officer to adopt an appropriate method

Bimal Kishore Paliwal and Ors. vs. Commissioner of Wealth Tax (2017) 398 ITR 553 (SC)

G.D. & Sons of which firm the Appellants were partners, purchased land and building in semi-constructed condition on 04.06.1965 for a sum of Rs. 8,00,000/-. The construction was completed and Cinema Theatre, Alpana started running in the premises. The Alpana Cinema property was valued by assessment books of accounts. On pending assessment of Wealth Tax of one of the partners, the Wealth Tax Officer made a reference for valuation of the Alpana Cinema to Department Valuation Officer, New Delhi by Reference dated 29.04.1976. Valuation Officer after inspecting the site submitted its report dated 26.04.1977 valuing the property for assessment year 1970-71, 1971-72, 1972-73, 1973-74 and 1974-75. Notices u/s. 17 of the Wealth Tax Act, 1957 were issued to the Appellants on 30.03.1979. Assessees got the property valued by an approved Valuer adopting income capitalisation method. The assessment order was passed by the Wealth Tax Officer in March, 1983 making assessment for the period from 1970-71 to 1974-75. The assessment was completed as per percentage of the right of different Assessees which they had in the Firm. The Assessing Officer relied on the Valuation Report submitted by the Departmental Valuer. The Assessee, aggrieved by the assessment order, filed appeal before the Appellate Assistant Commissioner of Wealth Tax. The Appellate Authority by its detailed order dated 23.01.1986 affirmed the assessment made by the Assessing Officer on the basis of valuation by land and building method. The income capitalisation method as was relied on by the Assessee was not approved.

Being aggrieved by the different assessment orders the Assessees filed Wealth Tax Appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench, Delhi. The ITAT accepted the case of the Assessee to the effect that the proper basis for valuing the Cinema building would be capitalisation of the income. The ITAT held that since the building could be used only for film exhibition and it cannot be used for any other purpose, the method of its valuation has to be necessarily different from the one normally adopted in the case of buildings which are capable of being used as commercial buildings. The Revenue, aggrieved by the Tribunal’s order filed reference application through Department. Although, initially the same was rejected by the Tribunal, on the direction of the High Court two questions were referred to the High Court for decision.

The High Court vide its judgment and order dated 21.10.2005 answered the questions in favour of Revenue and against the Assessee. The High Court held that Wealth Tax Officer was justified in adopting the land and building method. The High Court held that yield/rent capitalisation method would not be correct method of valuation of the property in question.

The Supreme Court noted that sub-section (2) of section 7 begins with non obstante Clause which enables the Wealth Tax Officer to determine the net value of the assets of the business as a whole instead of determining separately the value of each asset held by the Assessee in such business. The language of s/s. (2) provides overriding power to the Wealth Tax Officer to adopt and determine the net value of the business having regard to the balance-sheet of such business. The enabling power has been given to Wealth Tax Officer to override the normal Rule of valuation of the properties, that is the value which it may fetch in open market, Wealth Tax Officer can adopt in a case where he may think it fit to adopt such methodology.

The Supreme Court noted that the Appellants’ submission was that the provision of section 7(2)(a) is a stand alone provision and is to be applied in all cases where Assessee is carrying on a business.

The Supreme Court however, did agree with the above submission.

The Supreme Court held that overriding power has been provided to override the normal method of valuation of property as given by s/s. 7(1) to arm the Wealth Tax Officer to adopt the method of valuation as given in s/s. (2)(a). The purpose and object of giving overriding power is not to fetter the discretion. The Wealth Tax Officer is not obliged to mandatorily adopt the method provided in section 7(2)(a) in all cases where Assessee is carrying on a business. The language of s/s. (2)(a) does not indicate that the provisions mandate the Wealth Tax Officer to adopt the method in all cases of running business.

The Supreme Court pointed out in Juggilal Kamlapat Bankers vs. ITO (1984) 145 ITR 485 (SC), it had categorically laid down that resort to section 7(2)(a) is discretionary and enabling provision to Wealth Tax Officer to adopt the method as laid down in section 7(2)(a) for a running business, but the above enabling power cannot be held as obligation or shackles on right of Assessing Officer to adopt an appropriate method.

According to the Supreme Court, in the present case reference was made to the Departmental Valuer by Assessing Officer u/s. 7(3). Thus, there was a conscious decision of the Assessing Officer to obtain the report from the Departmental Valuer. The above conscious decision itself contained the decision of Assessing Officer not to resort to section 7(2)(a). The Valuation report of Departmental Valuer had been received, which has been relied on by the Assessing Officer for assessing the Assessee in the relevant year. The Supreme Court therefore did not find any error in the order of the Assessing Officer in adopting the land and building method by making a reference to Departmental Valuer to value the property on the said method.

The Supreme Court further held that the proposition that if two reasonable constructions of taxing statute are possible, that construction which favours the assessee must be adopted, could not be read to mean that under two methods of valuation the value which is favourable to the assessee should be adopted.

19. Industrial Undertaking – Deduction u/s. 80IA – The quantum of deduction allowable u/s. 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable Under sections 30 to 43D of the Act irrespective of the fact as to whether the Assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not

Plastiblends India Limited vs. Addl. Commissioner of Income Tax, Mumbai and Ors. (2017) 398 ITR 568 (SC)

The Assessment Years involved in the appeals before the Supreme Court were 1997-98 to 2000-01. The Assessee was engaged in the business of manufacture of master batches and compounds. For this purpose, it had manufacturing undertakings at Daman Units I and II. Units I and II began to manufacture Article or things in the previous years relevant to Assessment Years 1994-95 and 1995-96 respectively. Accordingly, for the year under consideration i.e. Assessment Year 1997-98, profits of the business of both the undertakings were eligible for 100% deduction u/s. 80-IA of the Act. The Assessee did not claim depreciation while computing its income under the head profits and gains of business. Consequently, deduction u/s. 80-IA was also claimed on the basis of such profits i.e. without reducing the same by depreciation allowance. This position was accepted by the Assessing Officer (AO) in an intimation made u/s. 143(1)(a) of the Act. Likewise, for the Assessment Year 1996-97, the Assessee did not claim deduction on account of depreciation. Though this position was not accepted by the AO, the claim of the Assessee was upheld by the Tribunal.

In the Assessment Year 1997-98, from which Assessment Year the dispute had arisen, the annual accounts prepared by the Assessee for the year disclosed that it earned a net profit of Rs. 1,80,85,409/-. This was arrived at after charging depreciation of Rs. 64,98,968/- in accordance with the Companies Act, 1956. The Assessee filed its return of income for Assessment Year 1997-98 determining the gross total income at Rs. 2,46,04,962/-. The gross total income included profits and gains derived from business of undertakings I and II at Daman aggregating to Rs. 2,46,04,962/-, which profits were eligible for deduction u/s. 80-IA of the Act. After reducing the gross total income by the deductions available u/s. 80-IA, the total income was computed at Rs. Nil. The AO initiated reassessment proceedings and passed an assessment order u/s.143(3) read with section 147 computing the gross total income at Rs. 34,15,583/. Though the Assessee had disclaimed deduction in respect of depreciation, the AO allowed deduction on this account as well in respect of the same in the sum of Rs. 2,13,89,379/- while computing the profit and gains of business. After reducing the gross total income by the brought forward loss of Rs. 98,47,170/-, he determined the business loss to be carried forward to Assessment Year 1998-99 at Rs. 66,25,587/-.

Aggrieved by the said assessment order, the Assessee filed the appeal before the Commissioner of Income Tax (Appeals) {CIT(A)} urging that the AO erred in not considering the Tribunal’s decision in the Assessee’s own case for the Assessment Year 1996-97 wherein it had been held that depreciation could not be thrust on it. The CIT(A) upheld the Assessee’s submission that claim for depreciation was optional, based on the Tribunal’s order in its own case for Assessment Year 1996-97 and hence, allowed the appeal.

Aggrieved by the appellate order of the CIT(A), the AO filed an appeal before the Tribunal with the plea that CIT(A) erred in directing him to work out business profit and deduction u/s. 80-IA of the Act without taking into account the corresponding depreciation amount. The Tribunal reversed the appellate order of the CIT(A) following the decision of the High Court of Bombay in Scoop Industries P. Ltd. vs. Income-Tax Officer (2007) 289 ITR 195. Aggrieved by the Tribunal’s order, the Assessee filed the appeal thereagainst before the High Court of Bombay u/s. 260A of the Act on the basis that a substantial question of law arose for consideration. The High Court was pleased to admit the appeal.

The Division Bench of the High Court at Bombay in the Assessee’s case noticed that there was a conflict of opinion in two earlier decisions viz. Grasim Industries Ltd. vs. Assistant Commissioner of Income-Tax and Ors. (2000) 245 ITR 677, wherein it was held that the profits and gains eligible for deduction under Chapter VI-A shall be the same as profits and gains computed in accordance with the provisions of the Act and included in the gross total income and the decision in Scoop Industries P. Ltd., where it was held that depreciation whether claimed or not has to be reduced for arriving at the profits eligible for deduction under Chapter VI-A. Noticing this conflict of opinion, the matter was referred to the Full Bench, to resolve the conflict.

The Full Bench of the High Court of Bombay has upheld the stand of the Revenue, that, whilst computing a deduction under Chapter VI-A, it was mandatory to grant deduction by way of depreciation. The High Court proceeded on the basis that the computation of profits and gains for the purposes of Chapter VI-A is different from computation of profits under the head ‘profits and gains of business’. It has, therefore, concluded that, even assuming that the Assessee had an option to disclaim current depreciation in computing the business income, depreciation had to be reduced for computing the profits eligible for deduction u/s. 80-IA of the Act. The High Court concluded that section 80-IA provides for a special deduction linked with profits and is a code by itself and in so doing relied on the decisions of this Court in the case of Liberty India vs. Commissioner of Income Tax (2009) 317 ITR 218, Commissioner of Income Tax vs. Williamson Financial Services and Ors. (2008) 297 ITR 17 and Commissioner of Income Tax, Dibrugarh vs. Doom Dooma India Ltd. (2009) 310 ITR 392. The High Court proceeded on the basis that this Court in the aforementioned decisions has held that for computing such special deduction, any device adopted by an Assessee to reduce or inflate the profits of such eligible business has to be rejected. The High Court ultimately held that the quantum of deduction eligible u/s. 80-IA has to be determined by computing the gross total income from business after taking into consideration all the deductions allowable under Sections 30 to 43D including depreciation u/s. 32.

After the Full Bench answered the reference in the aforesaid manner, the appeal of the Assessee was disposed of by the Division Bench vide order dated November 03, 2009 following the aforesaid opinion of the Full Bench.

According to the Supreme Court, the singular issue which was required to be considered in these appeals pertained to claim of depreciation while allowing deduction u/s. 80-IA.
The Supreme Court noted that interpreting the provisions of section 32 of the Act (which prevailed in the relevant Assessment Years) it had in CIT vs. Mahendra Mills (2000) 243 ITR 56, held that it is a choice of an Assessee whether to claim or not to claim depreciation.

The Supreme Court observed that section 32 deals with depreciation and allows the deductions enumerated therein from the profits and gains of business or profession. Section 80-IA of the Act, on the other hand, contains a special provision for assessment of industrial undertakings or enterprises which are engaged in infrastructure development etc. The issue was as to whether claim for deduction on account of depreciation u/s. 80-IA is the choice of the Assessees or it has to be necessarily taken into consideration while computing the income under this provision.

The Supreme Court held that firstly, the Apex Court decision in the case of Mahendra Mills (supra) could not be construed to mean that by disclaiming depreciation, the Assessee can claim enhanced quantum of deduction u/s. 80IA. Secondly, the Apex Court in the case of Distributors (Baroda) P. Ltd. (supra) and in the case of Liberty India (supra) had clearly held that the special deduction under Chapter VIA has to be computed on the gross total income determined after deducting all deductions allowable under sections 30 to 43D of the Act and any device adopted to reduce or inflate the profits of eligible business has got to be rejected.

Thirdly, the Apex Court in the case of Albright Morarji and Pandit Ltd. (supra), Grasim Industries Ltd. (supra) and Asian Cable Corporation Ltd. (supra) had only followed the decisions of the Apex Court in the case of Distributors Baroda (supra). According to the Supreme Court, the quantum of deduction allowable u/s. 80-IA of the Act has to be determined by computing the gross total income from business, after taking into consideration all the deductions allowable under sections 30 to 43D of the Act.

Therefore, whether the Assessee has claimed the deductions allowable under sections 30 to 43D of the Act or not, the quantum of deduction u/s. 80IA has to be determined on the total income computed after deducting all deductions allowable under sections 30 to 43D of the Act. _

BCAJ Admin

Indirect Taxes

Service Tax Updates

110. Withdrawal of exemption – online information and
database access or retrieval services

Notification No. 5/2017-ST dated 30. 01. 2017

CBEC has withdrawn the exemption
for services by way of online information database access or retrieval services
which is being provided by a person located in a non-taxable territory and
received by an entity providing charitable activities and registered u/s. 12AA of the Income-tax
Act,1961.

111. Relaxation for deposit of tax – services provided by way
online information and database access or retrieval services

Notification No. 6/2017-ST dated 30. 01. 2017

CBEC has provided relaxation on
due date for payment of service tax payable on services provided by any person
located in a non-taxable territory and received by non-assessee online
recipient, for the month of December, 2016 & January 2017, so as to deposit
the same by the 6^thday of March, 2017 to the credit of Central
Government.

112. Budget Notification enabling various changes under the
present exemption structure

Notification No. 7/2017-ST dated 02 02 2017

Manufacturing related
exemption:

– Hitherto,
manufacturing related activities are
excluded from the scope of service tax. However, the proposed amendment
omits the same from negative list and the exemption to the same is being placed
here. The amendment provides categorical exemption to any intermediate
production process as job work not amounting to manufacture or production in
relation to agriculture, printing or textile processing etc. [Effective from date of enactment of Finance Bill,
2017]

– The term
“process amounting to manufacture or production of goods” has been defined in
Notification 25/2012 dated 20.06.2012 to mean a process on which duties of
excise are leviable u/s. 3 of the Central Excise Act, 1944 (1 of 1944), or the
Medicinal and Toilet Preparation (Excise Duties) Act, 1955(16 of 1955) or any
process amounting to manufacture of opium, Indian hemp and other narcotic drugs
and narcotics on which duties of excise are leviable under any State Act for
the time being in force.

Transport related exemptions:

– Exemption
scope widened under the said sector to provide relief to Government employees.
Accordingly, services of transport of passengers, with or without accompanied
belongings, by air embarking from or terminating at Regional Connectivity
Scheme and consideration received in form of Viability Gap Funding is exempted
from payment of service tax. [Applicable from 02.02.2017]

Education related exemptions:

– Education
being a primary role for country’s development, broadens the scope of exemption
which is as under:

• Services provided by the Indian
Institutes of Management, as per the guidelines of the Central Government, to
their students, by way of the following educational programmes, except
Executive Development Programme –

(a) two year full time Post
Graduate Programmes in Management for the Post Graduate Diploma in Management,
to which admissions are made on the basis of Common Admission Test (CAT),
conducted by Indian Institute of Management;

(b) fellow programme in
Management;

[Applicable from 02.02.2017]

• The word “residential” is
deleted from the above mentioned exemption entry which substantiates that fees
collected for both residential and non-residential or online Post Graduate
Programmes in Management for the Post Graduate Diploma in Management, to which
admissions are made on the basis of Common Admission Test (CAT), conducted by
Indian Institute of Management are exempted from payment of service tax.

Insurance related exemption:

• Services of life insurance
business provided or agreed to be provided by the Army, Naval and Air Force
Group Insurance Funds to members of the Army, Navy and Air Force, respectively,
under the Group Insurance Schemes of the Central Government are exempted from payment of service tax.
[Applicable from 02.02.2017]

113. Exemption –
services provided by operators of Common Effluent Treatment Plant

Notification No. 8/2017-ST dated 20. 02. 2017

CBEC has provided relaxation by
way of exemption on services provided by operators of Common Effluent Treatment
Plant by way of treatment of effluent for the period from 1^stJuly,
2012 to 31^st March 2015.

114. Introduction of
Minor head code for accounting of Refund

Circular No: 203/1/2017 – Service Tax dated 02.02.2017

CBEC has introduced minor head
code for accounting of refund to identify the appropriate head of account under
which the service wise refunds are to accounted for eventually leading to
better compliance with respect to accounting of refunds.

115. Clarification on
applicability of service tax on services by way of transportation of goods by a
vessel from a place outside India to the customs station in India w.r.t. goods
intended for transhipment to any country outside India

Circular No: 204/1/2017 – Service Tax dated 16.02.2017

CBEC has clarified the long
lasting issue w.r.t. applicability of service tax on services provided to goods
intended for transhipment to any country outside India. Thus, the said
clarification is in line with position under the Customs Act, 1962 which states
that no customs duty is payable in cases where the goods entered into
territorial waters for transhipment and the destination of goods which is other
than India is mentioned in the import manifest/import report.

Accordingly, in case of
transhipped goods, services by way of transportation of goods by a vessel from
a place outside India to the customs station in India are not taxable in India
as the destination of such goods is a country other than India.

MVAT UPDATE

116. Go live of : 1)
Improved functionality of new registration with integrated payment gateways. 2)
Functionality of amendment and cancellation of registration certificate.

Trade Circular 4T of 2017 dated 02.02.2017

The SAP based system for online
registration has been upgraded with effect from 19.12.2016 with additional
features of Integration of Payment Gateways for payment of fee or Deposit or
both along with application for new registration as well as online facility of
application for amendment or
cancellation of registration certificate.

Detailed Instructions given in the circular
regarding applicants who have already paid deposit and fee prior to this new
system but not able to obtain registration certificate.

BCAJ Admin

Direct Taxes

106. CBDT issues clarification on implementation of GAAR
provisions under the Income-tax Act

Circular No. 7/2017 dated 27^th January 2017.

107. Circular No. 1/2017 on TDS on salaries contained mistake
in the table of due dates for furnishing of the e-TDS statements for the last
quarter of the year

CBDT has issued a corrigendum on 24^thJanuary 2017
to rectify the mistake.

108. Explanatory Notes to the Provisions of the Finance Act,
2016

Circular No. 3/2017, dated 20^th January, 2017

109. Instructions laying down standard operating procedures
to investigate the cash deposits above prescribed limits post demonetization
period-

Instruction no. 03/2017 dated 21.02.2017

BCAJ Admin

Glimpses of Supreme Court Rulings

14. Question of Law –
Whether the trading activity in the nature of re-export of imported goods
carried on by the SEZ unit of the assessee is to be considered as ‘services’
eligible for exemption u/s. 10AA of the Income-tax Act in view of the
definition of ‘services’ in Special Economic Zones Rules, 2006 though there is
no such provision in section 10AA of the Act, is a question of law.

CIT vs. Bommidala Enterprises Pvt. Ltd. (2016) 389 ITR 1
(SC)

In an appeal filed before the Andhra Pradesh High Court, the
Department had raised the following questions of law:

1. In the facts and circumstances of the case,
whether the Tribunal was correct in upholding the finding of the Commissioner
of Income-tax (Appeals) that the trading activity carried on by the SEZ unit of
the assessee was to be considered as ‘services’ eligible for exemption u/s.
10AA of the Income-tax Act by relying on the definition of “services” as per
Special Economic Zone Rules, 2006 when there was no such provision in section
10AA of the Act?

2. In the facts and circumstances of the case,
whether the Tribunal was justified in relying on the instructions issued by the
Ministry of Commerce regarding the applicability of exemption u/s. 10AA of the
Income-tax Act to the trading activity in the nature of re-export of imported
goods though there was no subsequent amendment made to the provisions of the
Income-tax Act to give effect to the clarification contained in the
instructions in spite of the mention in the said instructions that appropriate amendments are being issued?

3. In the facts and circumstances of the case,
whether the Tribunal was correct in law in upholding the exemption claimed u/s.
10AA of the Income-tax Act when the respondent assessee was not involved either
in manufacture or production of article/or/thing or provide any services as
required in the said statutory provision but was engaged in trading activity
only?

The Revenue’s Counsel contended before the High Court that
the assessee was carrying on trading business and not the manufacturing
business. The High Court however held that this was a factual aspect and it had
been taken care of by the authorities below (both CIT(A) and ITAT held that the
assessee was entitled to exemption u/s. 10AA) and that the fact finding could
not be interfered with, unless it was found perverse. The High Court dismissed
the appeal of the Revenue.

On further appeal, the Supreme Court observed that the
question of law that was raised by the Appellant-Revenue herein before the High
Court was as to whether trading activity carried on by the SEZ unit of the
Respondent-Assessee was to be considered as ‘service’ eligible for exemption u/s.
10AA of the Income-tax Act. The Supreme Court noted the submission of the
Appellant that for this purpose, the Income-tax Appellate Tribunal could not
have relied upon the definition of ‘services’ as per SEZ Rules when there was
no such provision u/s. 10AA of the Act.

The Supreme Court observed that a perusal of the order of the
High Court showed that this aspect was not considered and brushed aside by
merely saying that the Tribunal had held it to be a ‘service’ and that it was a
question of fact. The Supreme Court held that no doubt, insofar as activity
carried on by the Respondent-Assessee was concerned, factual aspects were not
in dispute.

However, whether that would constitute ‘service’ within the
meaning of section 10AA of the Act would be a question of law and not a
question of fact. The High Court was, therefore, in error in not entertaining
the said plea and dismissing the appeal of the Revenue by labelling it as a
question of fact. The Supreme Court, therefore, set aside the order of the High
Court and remanded the case to the High Court to decide the aforesaid question
of law.

15. Deduction of tax at source – Assessee not heard by the
High Court and the review petition also dismissed – Supreme Court set aside the
orders and remanded the matter for decision afresh

Novo Nordisk Pharma India Ltd. vs. CIT (2016) 389 ITR 134
(SC)

The High Court allowed the appeal filed by the Revenue. The
question was as to whether the transaction between the assessee and the person
to whom certain payments were made was one attracting the provisions of section
194C of the Act.

The assessee sought review because: (i) the Counsel of the
assessee was unable to appear on the day of hearing and argue the case as he
was engaged in other court; (ii) the Court had not examined the relevant board
circular, (iii) that the deductee having paid the tax, there was no loss to the
Revenue, and as such the situation did not warrant levy of interest.

The High Court dismissed the review petition holding that:
(i) inability to appear due to other engagement could hardly constitute a
ground for review; (ii) the Board Circular was not relevant as the matter was
decided considering the three inter-linking agreements; and (iii) whether the
deductee had paid its tax or not was not a relevant question in so far the
provisions of section 194C was concerned as section 201 was only consequential.

On appeal, the Supreme Court noted that it was a fact that
the assessee was not heard when the impugned judgment was delivered. Even the
review petition filed by the Appellant before the High Court was also rejected.

In the circumstances, the Supreme Court set
aside the impugned judgment and the matters were remitted to the High Court for
hearing afresh.

BCAJ Admin

From The President

Dear Members,

Open
any newspaper today, and you are bound to be bombarded by news about the
elections. Five states in India: Goa, Uttarakhand, Punjab, Manipur and Uttar
Pradesh are gripped by the fever of assembly elections, and it has spread
across the country. Slated to conclude on 8^thMarch, the nation has
its fingers crossed, tensely awaiting the results.

Ballot ‘box offices’

This
is more so since this election has witnessed record crowds at the ballot ‘box
offices’. Goa tops with 83% polling, Punjab follows with 75% turnout and
Uttarakhand finishes with 65%. The elections are on in UP where the turnout is
over 60% and is yet to start in Manipur. With huge implications at the centre,
parties seem to have gone all out with alliances, rallies, advertising and
social media to sway the masses.

Mumbai
had been dragged into the election maelstrom too. BMC — Asia’s largest and
richest municipal corporation with 91.8 lakh voters decided the fate of 2,275
candidates from 7 political parties as they battled for 227 wards. Alliance
partners BJP and Shiv Sena, now bitter rivals both won voters’ confidence with
82 and 84 seats respectively. With no clear majority, horsetrading is in full
‘gallop.’ Meanwhile, a cartoonist has aptly depicted two potholes celebrating
their existence for another five years… I HOPE NOT!

But
the big question today is that after being urged to cast our vote…what next?
The politicians that come into power more often than not continue to do their
own thing. Five years are seen as an opportunity to indulge in practices which
are ideal examples of ‘form over substance’. From ill-spent public money to
both overt and covert corruption, from being not accountable for promises to
breaking commitments made to voters and from covering up the stream of reason
with that of allegations and excuses. After all, as Jonathan Swift once said, “Promises
and pie-crust are made to be broken.” I believe unless there are some
serious and periodic accountability and appraisal mechanism, we can expect
another five-year ride!

Economic health barometer – Are we really healthy?

On
the last day of January, the finance minister tabled the economic state of the
Union through the Economic Survey. Authored by India’s Chief Economic Advisor,
Arvind Subramanian, the survey has been hailed as a magnum opus on development.
This economic report card is a reservoir of the key statistics of various
elements of the economy and also contains some interesting ideas to make India
better…a lot faster!

The
survey addressed the impact of demonetization claiming that it will be
transitional, with real GDP expected to be from 6.75 to 7.5% in 2017-18. It
also stressed on the importance of quick monetization along with a slew of
initiatives like pushing digitization, bringing land and real estate under GST,
reducing taxes and stamp duties and improving the tax administration system.

In
fact, three exclusions from GST viz. electricity, real estate and petroleum
products reflects the re-thinking on the part of GST Council. It has been
agreed to bring petroleum products into GST ambit after 5 years. A similar
agreement is necessary for electricity and real estate. In fact, by bringing
real estate into GST fold would encourage investment, since real estate
development is a critical part of fixed capital formation.

The
survey, however, was strong in its criticism of the excessive regulation that
continues to plague the agricultural sector. It expressed disapproval that
farmers in many states were forced by an Act to sell only to specified
intermediaries in authorized mandis – thus depriving them of better returns.

Non
Performing Assets in PSU Banks is another cause for concern. At 12% of the
gross advances, this level has choked the credit flow to industry especially
the MSME. This dismal situation calls for some urgent corrective action, like
setting up of a central public sector asset rehabilitation agency to tackle
this growing challenge.

The
survey also proposed a new idea of Universal Basic Income (UBI) for all, in place
of existing welfare schemes and subsidies. In essence, an amount of Rs.7,620/-
would be deposited into Aadhaar linked bank accounts annually which would
drastically cut absolute poverty from 22% to less than 0.5%. The funding for
this UBI would come from recycling funds from around 950 existing welfare
schemes; which add up to roughly 5% of GDP. The survey believes that “UBI is
a powerful idea whose time even if not ripe for implementation, is ripe for
serious discussion.”

Budget 2017-18

This
year’s Budget can be termed as a TRULY UNION Budget – one BUDGET for the entire
Union – as after decades someone thought of discarding Railway Budget as a
separate element of parliamentary business. The Budget gives a DISHA, that will
determine the DASHA of the country in the year ahead. Having said that, we do
acknowledge the problems with the government, politicians and tax laws. It is
always possible to do more and some of it is of urgent necessity. But that
applies to our society too and perhaps to each one of us here. If
transformation and innovation can touch the core of all four – citizens,
government, politicians and tax laws, the positive impact of change could be so
much more that it can be miraculous in its effect. BCAS has the benefit of
Senior Advocate Shri S. E. Dastur for last 28 years for unraveling the hidden
amendments in the Finance Bill. This year was special due to the sheer size of
people taking advantage of his spectacular analysis, in person and virtually.
Rumours are that even the Finance Ministry was tuned in when Shri Dastur was
delivering his speech. I only hope that the Ministry takes into cognizance the
various anomalies pointed out by Mr. Dastur and takes appropriate action. BCAS
had advocated strongly for scrapping the Income Computation and Disclosure
Standards, but was grossly disappointed that the bureaucracy has again won over
advocacy. So we have one more legislation to understand, implement and
litigate. All the best!

The
Finance Minister has announced a new programme consisting of ten distinct
themes which would “Transform, Energize and Clean India” (TEC). This
broad agenda is to be executed through several welfare initiatives concerning
farmers, the rural population, youth and the underprivileged.

To
project India as an attractive investment destination, the budget abolished the
Foreign Investment Promotion Board, exempted FPI investors from indirect
transfer provision and lowered corporate tax for MSME to 25%. Personal income
tax rates have been rationalized and digitization promoted with a ban on cash
transactions above Rs. 3 lakh while cash donations have been capped at
Rs.2,000.

Much
is expected to be achieved while containing the fiscal deficit at 3.2% of the
GDP in FY18, which would be further curtailed to 3% by FY19. This fiscal prudence is aptly reflected in the
pragmatic budget which is bereft of any populist largesse.

Change is welcome

After
a span of 7 years, we again have the President of our alma mater, from Western
Region. My heartiest congratulations to CA. Nilesh Vikamsey and CA. Naveen N.
D. Gupta for their ascension to the coveted post of President and Vice
President of the ICAI. It is all the more proud moment for BCAS that one of our
core group members is now the torch bearer of this esteemed profession. CA.
Nilesh Vikamsey, as we at BCAS know him can be described as a person committed
to excellence, massively innovative and wears passion for the profession on his
sleeve. I am reminded of a quote which CA. Nilesh Vikamsey aptly follows; “Leadership
is action, not position.”

Through
this message, I would also like to convey to the torch bearers of the
profession that we at BCAS are always at the forefront to take up the cause of
the profession and ICAI can very well bank upon us to further the cause of our
profession.

Warm
Regards,

Chetan Shah

BCAJ Admin

Ethics and U

Shrikrishna (S) — Arjun, you are looking very much tensed up today. Any problem?

Arjun (A) —Yes. Already having a tough time facing scrutiny assessments. Plus advance tax work is on. Again, after the Union Budget, some urgent study and action will be required.

S — But that is normal in this part of the year. You should be quite used to such pressure!

A — I agree. But suddenly my friend is insisting that I should accompany him to Delhi.

S — Delhi? What for? To meet the PM or FM? Ha Ha Ha!

A — No Bhagwan. He is a very low profile CA. Poor fellow was held guilty of misconduct in a very trivial matter. Probably, he was not represented properly.

S — So, what is there at Delhi now?

A — When he consulted a senior member, he advised him to approach the Appellate Authority of our Institute.

S — I know. It is presided over by a High Court Judge.

A — Unfortunately, Appellate Authority does not have camps in regional offices! One has to attend at Delhi only.

S — Oh! It would be very expensive. Travel, counsel’s fee, and so on!

A — True. He is very much afraid of all this. He has engaged a counsel; but he is insisting that I should also accompany him.

S — He may be a little diffident.

A — Yes. Actually, he is from a rural area. Does not have the exposure and smartness to organise all this.

S — Then better rethink as to whether it is worthwhile contesting the issue. What is the punishment by the way?

A — Actually, the punishment is a mere reprimand. But he feels it is a stigma.

S — I know of another CA who was awarded one week’s suspension of membership. But he did not find it worth contesting, though his case had a lot of merit.

A — Why? One should always fight for justice.

S — I agree. But justice at what cost? And what is the guarantee of result? Are you aware of the procedure of Appellate Authority?

A — No. I will be attending for the first time.

S — See, in the notice, they must have mentioned as ‘preliminary hearing’.

A — Yes. What does that mean? .

S— It means, they will only hear your side and ascertain whether there is any substance in your appeal.

A — And then what?

S — Then, sometime later, they will hear the other side – that means the Council’s side. And they will decide whether the appeal is to be admitted! You also will be called for that hearing.

A — Oh! That means like the regular High Court. But both sides are not heard together?

S — Only after the preliminary hearing!

A — Very strange!

S — Yes. And if the appeal is admitted, then only they will fix up a date for hearing both sides.

A — Oh, my God! So the poor respondent will have to travel to Delhi thrice – with the Counsel?

S — Yes, my dear!

A — Then double the cost! And again so much of time! Doesn’t seem worth the trouble.

S — To avoid all this, the best thing is not to commit any misconduct even inadvertently! Not even in your dream!

A — What you say is absolutely correct! Prevention is better than cure. I must tell all this to my friend. One should really do the cost-benefit analysis of the whole thing.

S — Unfortunately in our system, justice is becoming more and more costly; and illusory.

A — Bhagwan, after all, this is your ‘leela’. You alone can save us from disaster!

Om shanti !!!!!

Note
The above dialogue intends to introduce our readers to the procedure followed by the Appellate Authority. The readers can go through section 22A of the Chartered Accountants Act, 1949 for their self study.

BCAJ Admin

Company Law

1. Companies (incorporation) amendment rues 2016

The Ministry of Corporate Affairs has issued an Amendment to the Companies (Incorporation) Rules, 2014 which are in force w.e.f 26th January 2016. Following are the changes in Rule 8 pertaining to “Undesirable names”: The name of the Company need not be in consonance with the principal objects as set out in the Memorandum of Association. However, when there is some indication of objects in the name, then it shall be in conformity with the objects mentioned in the memorandum.

a) Abbreviated names based on the first initial of the promoters would not be allowed.

b) If the name is misleading with regard to the scope of the activities which are beyond the resources at its disposal, such names are not allowed.

c) A time limit of 6 months has been given for changing the name of the Company, in case there has been a change in the activities of the Company and this is not reflected in the name.

The No Objection of a person who has been named in the key word of the proposed name for the Company, proof of the relationship and proof that the coined word is made out of the names of the promoters or their relatives, is not mandatory to be attached.

Further, after the resubmission of the documents and on completion of second opportunity, if the Registrar still finds that the documents are defective or incomplete, he shall give third opportunity to remove such defects or deficiencies;

Provided that the total period for re-submission of documents shall not exceed a total period of thirty days.

2. Companies (accounts) amendment rules, 2015

The Ministry Of Corporate Affairs has vide Notification dated 16th January, 2015 amended the Companies (Accounts) Rules, 2014 with the Companies (Accounts) Amendment Rules, 2015.

After Rule 2 the following is inserted –
“2A. Notice of address at which books of account are to be maintained.—For the purposes of the first proviso to sub-section (1) of section 128, the notice regarding address at which books of account shall be in Form AOC-5” and

Note by the author : Form AOC-5 is similar to eForm 23AA as per section 209(1) of the Companies Act, 1956 and is required to be filed when the Board of Directors decides by passing the resolution to keep all or any of the books of account at any other place in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.

In rule 6, after the third proviso, the following proviso shall be inserted, namely:—

“Provided also that nothing in this rule shall apply in respect of consolidation of financial statement by a company having subsidiary or subsidiaries incorporated outside India only for the financial year commencing on or after 1st April, 2014.”

3. Companies (cost records and audit) amendment rules 2014

The Ministry of Corporate Affairs has vide Notification dated 31st December, 2014 made the Companies (Cost Records and Audit) Amendment Rules, 2014 to amend the Companies (Cost Records and Audit) Rules, 2014.

Rule 2 (aa) ‘Central Excise Tariff Act Heading” means the heading as referred to in Additional notes in First Schedule to Central Excise Tariff Act 1985.

Companies are required to maintain Cost Records if turnover exceeds Rs. 35 crores or more during immediately preceding Financial Year in respect of the products and services specified;

Applicability of Cost Records: The Rules has categorized the Entities into:

Regulated Sector (namely Telecommunication services; Power generation, Transmission, Distribution and Supply; Petroleum products; Drugs and Pharmaceuticals; Fertilisers; Sugar and Industrial alcohol) and

Unregulated Sectors ( i.e steel, minerals oil, electrical, education services, health services, textiles, milk powder, medical devices etc. businesses);

Applicability of Cost Audit : Applicable for entities under as follows :

Regulated sectors having overall annual turnover of Rs. 50 crores or more and the aggregate turnover of the individual products or services of Rs. 25 crore

Unregulated Sector having annual turnover of Rs. 100 crores or more and the aggregate turnover of the individual products or services of Rs. 35 crore or more.

The applicability for their Cost Records Audit is for financial years commencing from 1st April 2015.

Exemptions are provided to Companies whose revenue from exports, in foreign exchange, exceeds 75% of total revenue and Companies operating from Special Economic Zones.

4. Whether huf/its karta can be a partner/ designated partner ( dp) in an llp

The Ministry of Corporate Affairs has vide notification dated 15th January 2016 clarified that a HUF or its Karta cannot be a designated Partner in an LLP since the Section 5 of LLP Act, 2008 mentions that only an individual or a body corporate can be a partner in a LLP. HUF not being a body corporate, neither the HUF nor through its Karta can it be a Partner.

5. Frequently asked questions (faqs) with regard to corporate social responsibility under section 135 of the Companies Act, 2013

The Ministry of Corporate Affairs has vide Notification dated 12th January 2016 issued an FA Q on Corporate Social responsibility.

BCAJ Admin

Book Review

Title : ?Emerging Issues in International Taxation‘

Author : H. Padamchand Khincha

International tax law is recognised as a
critical pillar in supporting the growth of the global economy. In an
increasingly connected world driven by the forces of globalisation and
technology, governments are finding the old structure of international tax laws
to be inadequate to cope with increasing legal arbitrage opportunities and
aggressive tax planning. This has resulted in a coordinated and comprehensive
action plan thereby triggering a flurry of developments in the field of
international tax. This book endeavours to deliberate upon critical
international tax aspects under the following six topics.

1. Cross-Border Outsourcing

In respect to cross-border
outsourcing, the discussion is restricted to generic issues arising in the
service sector and seeks to provide a tertiary view of both inbound and
outbound outsourcing.

2. Structuring of EPC Contracts

EPC contracts are in trend
and newness in its operation has been the integration of multiple fields making
it an (in) divisible complex, matrix. These aspects have been articulated in the
backdrop of tax, commercial and statutory aspects. The nuances in tax treaty
applications and tax withholding have been discussed along with some case
studies.

3. Inbound and Outbound
Investment Structuring – Impact of specific anti
avoidance rules including indirect transfer and Place of Effective Management
(POEM)

The book focuses on two amendments, mainly
indirect transfer as introduced in Finance Act, 2012 and POEM amendment brought
out by Finance Act, 2015 to determine the residential status.

This chapter is more of a ‘return to basics’
and deals with certain important and relevant terms such as through, transfer,
value, directly and indirectly.

The second part of this chapter dives into
the realm of POEM theorem with a lucid explanation of its intent. The author
discusses that a meeting that typically involves discussion, debate, approval,
supervision and execution can have a significant impact in reckoning the
residence of the company itself. The segment closes by demonstrating the
transition of the residence rule from ‘control and management’ to ‘POEM’ and
the interplay (nay friction) with the tax treaties.

A flashback to the ‘Direct Tax Code’ that
sought to bring in this concept helps to understand the Indian perspective for
the purpose of residence determination.

4. Equalisation levy

This chapter provides a
detailed commentary on various provisions governing the equalisation levy,
certain nitty-gritty and finer aspects that remain unanswered. The author
highlights that such legislation has raised more questions than answers. It
ends with a tertiary view of digital economy taxation across the globe and
covers flavours of 21 countries.

5. Inbound Investment, General
Anti Avoidance Rule (GAAR) & Treaty Anti-Abuse Provisions

This chapter has dealt
with the intent behind the legislation of GAAR that gives statutory recognition
to the philosophy of ‘Substance over Form’. It is divided into (i)
applicability, (ii) consequences, (iii) power of the statute; and (iv)
compliance and other aspects.

6. Permanent Establishment
(PE) & Attribution of Profits – Issues & Recent Developments

In this chapter, the
author has focussed on the Hon’ble Supreme Court’s decision in the case of
Formula One. The impermanence in a Permanent Establishment is the highlight of
this ruling. In the second part, the author discusses the interplay of
bilateral tax treaties, the multilateral instruments and a brief perspective on
PE in digital commerce.

By drawing on contributions from a range of
regimes, the book aims to provide a more balanced international approach. The
book gives elaborate illustrations by providing a diagrammatic flow of
transaction and tax implications thereof in India and outside with updated
judicial precedents.

Further, the issues arising in each of the
above chapters have been elucidated comprehensibly which in turn can help
professionals with practical analysis of real-world situations. However, the
content of the book could have been improvised by providing suitable options
for implementation on the issues raised. Further, the book may not sustain
readers’ interest as tax treaties are given as Annexures between chapters.

In a nutshell, the range of topics in the
book reflect extensively for international tax academics and practitioners. The
book covers more traditional international treaty topics, including chapters on
a static interpretation of treaties. One of the most exciting contributions is
the use of historical materials in interpreting tax treaties. _

BCAJ Admin

Miscellanea

1. Economy

19. India’s richest one percent corner 73
percent of wealth generation: Survey

The richest 1 percent in India cornered 73
percent of the wealth generated in the country last year, a new survey showed
today, presenting a worrying picture of rising income inequality.

Besides,
67 crore Indians comprising the population’s poorest half saw their wealth rise
by just 1 percent, as per the survey released by the international rights group
Oxfam hours before the start of the annual congregation of the rich and
powerful from across the world in this resort town. The situation appears even
grimmer globally, where 82 percent of the wealth generated last year worldwide
went to the 1 percent, while 3.7 billion people that account for the poorest
half of population saw no increase in their wealth.

The annual Oxfam survey is keenly watched
and is discussed in detail at the World Economic Forum Annual Meeting where
rising income and gender inequality is among the key talking points for the
world leaders. Last year’s survey had showed that India’s richest 1 percent
held a huge 58 percent of the country’s total wealth — higher than the global
figure of about 50 percent. This year’s survey also showed that the wealth of
India’s richest 1 percent increased by over Rs 20.9 lakh crore during 2017 —
an amount equivalent to the total budget of the central government in 2017-18,
Oxfam India said.

The report titled ‘Reward Work, Not Wealth’,
Oxfam said, reveals how the global economy enables wealthy elite to accumulate
vast wealth even as hundreds of millions of people struggle to survive on
poverty pay. “2017 saw an unprecedented increase in the number of
billionaires, at a rate of one every two days. Billionaire wealth has risen by
an average of 13 percent a year since 2010 — six times faster than the wages
of ordinary workers, which have risen by a yearly average of just 2
percent,” it said.

In India,
it will take 941 years for a minimum wage worker in rural India to earn what
the top paid executive at a leading Indian garment firm earns in a year, the
study found. In the US, it takes slightly over one working day for a CEO to
earn what an ordinary worker makes in a year, it added.

Citing results of the global survey of
120,000 people surveyed in 10 countries, Oxfam said it demonstrates a
groundswell of support for action on inequality and nearly two-thirds of all
respondents think the gap between the rich and the poor needs to be urgently
addressed. With Prime Minister Narendra Modi attending the WEF meeting in
Davos, Oxfam India urged the Indian government to ensure that the country’s
economy works for everyone and not just the fortunate few.

It also said India’s top 10 percent of
population holds 73 per cent of the wealth and 37 per cent of India’s
billionaires have inherited family wealth. They control 51 per cent of the
total wealth of billionaires in the country.

Oxfam India CEO Nisha Agrawal said it is
alarming that the benefits of economic growth in India continue to concentrate
in fewer hands.

“The billionaire boom is not a sign of
a thriving economy but a symptom of a failing economic system. Those working
hard, growing food for the country, building infrastructure, working in
factories are struggling to fund their child’s education, buy medicines for
family members and manage two meals a day. The growing divide undermines
democracy and promotes corruption and cronyism,” she said.

The survey also showed that women workers
often find themselves at the bottom of the heap and nine out of 10 billionaires
are men. In India, there are only four women billionaires and three of them
inherited family wealth. “It would take around 17.5 days for the best-paid
executive at a top Indian garment company to earn what a minimum wage worker in
rural India will earn in their lifetime (presuming 50 years at work),”
Oxfam said.

(Source: newindianexpress.com dated
22.01.2018)

20. Reward Work, Not Wealth

Last year’s survey had showed that India’s
richest 1 per cent held a huge 58 per cent of the country’s total wealth—higher
than the global figure of about 50 per cent. This year’s survey also showed
that the wealth of India’s richest 1 per cent increased by over Rs 20.9 lakh
crore during 2017, an amount equivalent to total budget of the central government
in 2017–18, Oxfam India said.

“2017 saw an unprecedented increase in the
number of billionaires, at a rate of one every two days. Billionaire wealth has
risen by an average of 13 per cent a year since 2010—six times faster than the
wages of ordinary workers, which have risen by a yearly average of just 2 per
cent,” it said.

In India, it
will take 941 years for a minimum wage worker in rural India to earn what the
top paid executive at a leading Indian garment firm earns in a year, the study
found. In the US, it takes slightly over one working day for a CEO to earn what
an ordinary worker makes in a year, it added.

Citing results of the global survey of
70,000 people surveyed in 10 countries, Oxfam said it demonstrates a
groundswell of support for action on inequality and nearly two-thirds of all
respondents think the gap between the rich and the poor needs to be urgently
addressed.

(Source: newindianexpress.com dated
22.01.2018)

2. Technology

21. BSNL,
NTT AT sign pact for future tech, 5G test

The agreement is in line with the vision of
the Prime Minister Narendra Modi and Japanese Prime Minister Shinzo Abe to
collaborate on the next generation technologies.

(Source: Economic Times dated 20.02.2018)

22. Internet
users in India expected to reach 500 million by June: IAMAI

Rural India, with an estimated population of
918 million as per 2011 census, has only 186 million internet users leaving out
potential 732 million users in rural India.

(Source: Economic Times dated 20.02.2018)

23. Blockchain
tech can reduce transaction Costs: FICCI – PWC

The next generation blockchain technology
can help in reducing cost of transactions in various government schemes, a
joint report by industry chamber FICCI and consultant firm PwC.

“By removing the need for third parties
to manage transactions and keep records, blockchain technology can massively
reduce transaction costs… Leveraging blockchain technology for social benefit
schemes will support the government’s wider policy objectives of
sustainability, thus reducing poverty and generating value for money in public
expenditure,”

Blockchain is a digital, decentralised
(distributed) ledger that keeps a record of all transactions that take place
across a peer-to-peer network.

In the blockchain technology, the data can
be captured at various location or blocks and all the information captured at
various block can be connected with help of a common link or signature in one
set of information.

Additionally, each ‘block’ is uniquely
connected to the previous blocks via a digital signature which means that
making a change to a record without disturbing the previous records in the
chain is not possible, thus rendering the information tamper-proof.

Blockchain solutions, if implemented, may
lead to the elimination of intermediaries or middlemen, thereby leading to
improved pricing, decreased transaction fees, thus eliminate issues of
hoarding.

(Source: Economic Times dated 20.2.2018)

24. A Store of Future – Amazon Go

The technology inside Amazon’s new
convenience store, enables a shopping experience like no other — including
no checkout lines. The first clue that there’s something unusual about
Amazon’s store of the future hits you right at the front door. It feels as if
you are entering a subway station. A row of gates guard the entrance to the
store, known as Amazon Go, allowing in only people with the store’s smartphone
app.

Inside is an 1,800-square foot mini-market
packed with shelves of food that you can find in a lot of other convenience
stores — soda, potato chips, ketchup. It also has some food usually found at
Whole Foods, the supermarket chain that Amazon owns. But the technology that is
also inside, mostly tucked away out of sight, enables a shopping experience
like no other. There are no cashiers or registers anywhere. Shoppers leave the
store through those same gates, without pausing to pull out a credit card.
Their Amazon account automatically gets charged for what they take out the
door.

There are no shopping carts or baskets
inside Amazon Go. Since the checkout process is automated, what would be the
point of them anyway? Instead, customers put items directly into the shopping
bag they’ll walk out with. Every time customers grab an item off a shelf, Amazon
says the product is automatically put into the shopping cart of their online
account. If customers put the item back on the shelf, Amazon removes it from
their virtual basket.

The only sign of the technology that makes
this possible floats above the store shelves — arrays of small cameras,
hundreds of them throughout the store. Amazon won’t say much about how the
system works, other than to say it involves sophisticated computer vision and
machine learning software. Translation: Amazon’s technology can see and
identify every item in the store, without attaching a special chip to every can
of soup and bag of trail mix.

There were a little over 3.5 million
cashiers in the United States in 2016 — and some of their jobs may be in
jeopardy if the technology behind Amazon Go eventually spreads. For now, Amazon
says its technology simply changes the role of employees — the same way it
describes the impact of automation on its warehouse workers.

Most people who spend any time in a
supermarket understand how vexing the checkout process can be, with clogged
lines for cashiers and customers who fumble with self-checkout kiosks. At
Amazon Go, checking out feels like — there’s no other way to put it —
shoplifting. It is only a few minutes after walking out of the store, when
Amazon sends an electronic receipt for purchases, that the feeling goes away.
For now, visitors to Amazon Go may want to watch their purchases: Without a
register staring them in the face at checkout, it’s easy to overspend.

(Source: nytimes.com dated 21.01.2018)

3. World news

25. Future shocks: 10 emerging risks that
threaten our world

In the wake of the 2008 financial crisis, we
asked ourselves one question over and over again: why didn’t we see it coming?
It rocked the global economy and threatened to destroy the financial systems
that we rely on. Ten years on, some countries are still picking up the pieces.
The World Economic Forum’s Global Risks Report 2018 says that, in our
increasingly complex and interconnected world, this type of shock may become
more likely. The report explores 10 potential future shocks, including food
scarcity, the extinction of fish, technological breakdowns and another
financial crisis.

The report explores 10 potential future
shocks, including food scarcity, the extinction of fish, technological
breakdowns and another financial crisis.

26. Not enough food to go around

Extreme weather events are becoming an
all-too-familiar sight. Drought, hurricanes and floods have a major impact on
the global food supply chain. Lower yields in crops lead to rising food prices,
hitting those already struggling to feed themselves.

The report argues that, if an extreme
weather event were to coincide with existing political instability or crop
disease, we could see a major food crisis happen overnight.

This is a
scenario exacerbated by the inherent “choke points” within the global supply
chain. These are the sections within the chain where a large volume of trade
passes through. Disruption to any one of these could cause immediate global
shortages and price hikes, in turn causing political and economic crises, and
ultimately, conflict.

27. The end of trade as we know it

Brexit, Trump, protectionist policies, these
are all undermining globalization as we know it. Institutions designed to
resolve trade disputes have become weaker as a result.

The report argues that the continued march
against globalization could lead to multilateral rules being openly breached.

Those further along the value chain could
then retaliate, and before we know it the world will be grappling with rapidly
spreading trade disputes.

Economic activity, output and employment
could all be adversely affected. But these effects will have a far greater
impact on some people, fuelling further discontent.

“Whatever the settled position on global
trade is to be,” argues the report, “more deliberation and consensus-building
would bolster its legitimacy.”

28. War without rules

21st century warfare will not involve guns
or bombs, but rather cyber-attacks on a massive scale, posits the report.

If a country’s critical infrastructure
systems are compromised by a cyber-attack, leading to disruption of essential
services and loss of life, there would be massive pressure for a government to
retaliate. What if they target the wrong culprit? There is no telling where
this retaliation might lead.

Governments need to establish agreed norms
and protocols for cyber warfare, much like those that exist for conventional
warfare today. This would help to prevent conflict erupting by mistake.

29. The break-up of the internet

If cyberattacks become more likely they
could end up breaking the internet.

Nations might build digital walls as they
seek to protect themselves. But this might not be the only reason. Governments
might also choose to do this on the basis of economic protectionism, regulatory
divergence, or censorship and repression. If governments felt they were losing
power relative to global online companies they might also seek to control the
internet.

There would be a barrier to the flow of
content and transactions. Technological advancements would slow. While some
might welcome this, others would not. It’s likely that there would be plenty of
illegal workarounds.

Perhaps most worryingly, human rights abuses
would likely increase as advances in international monitoring are rolled back.

Ongoing dialogue between governments and
technology companies would help to ensure that internet-based technologies
develop in a politically sustainable context of shared values and agreed
responsibilities, suggests the report.

(Source: weforum.org)

4. Sports

30. Roger
Federer becomes oldest world no.1 in history

Roger Federer added yet another record to
his vast collection when he officially returned to world number one as the latest
ATP rankings were released on 19 February. The 36-year-old beat Andre Agassis
record as the most senior player to reach the summit of the sport.

(Source:
International Business Times dated 20.02.2018)
_

BCAJ Admin

From Published Accounts

Section B:
Illustration of qualified Limited Review Report on Consolidated Financial Results

Ed ucomp Solutions Ltd . (quarter ended 31st December 2015)

From Notes to Consolidated Unaudited Financial Results (extracts)

2. The auditors have qualified their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015, quarter ended September 30, 2015, quarter ended June 30, 2015 and audit report for the year ended March 31, 2015 and limited review report for the quarter ended December 31, 2014 was also qualified in respect of the following matter:

As per the terms of Master Restructuring Agreement and approved Corporate Debt Restructuring Scheme (CDR) of Educomp Infrastructure and School Management Limited (EISML), a subsidiary company, there are certain assets amounting Rs. 32,075.33 lakh (at cost) which have been identified for sale in a time bound manner. The lead bank carried out a valuation of these assets which are indicative in nature. Market valuations have not been carried out by EISML and its step down subsidiaries, as some of these assets are not ready for sale due to pending regulatory approvals/ permissions.

Based on recent firm offers and valuation reports, the Management believes that the market value of these investments is higher than as considered under the indicative valuation reports and differences, if any, are temporary only. Therefore, no adjustment is required to the carrying value of these assets.

3. The auditors have drawn attention in their limited review report on the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015 in respect of the following matters:

a) Due to inadequacy of the profits, managerial remuneration paid/provided, by the Company to one of its whole time director during the quarter ended June 30, 2015 and year ended March 31, 2015 and by one of its subsidiary, Educomp Infrastructure and School Management Limited (EISML) to its wholetime director during the year ended March 31, 2015, is in excess of limits prescribed u/s 197 and section 198 read with Schedule V to the Companies Act, 2013.

Further, due to inadequacy of the profits in the previous financial year, managerial remuneration paid/provided, by the Company to one of its whole time director and by one of its subsidiary EISML to its whole-time director/Managing Directors during financial year ended March 31, 2014, was in excess of limits prescribed under Section 198, Section 269, Section 309 read with Schedule XIII of the Companies Act, 1956.

EISML has submitted an application to the Central Government for waiver/approval of managerial remuneration pertaining to year ended March 31, 2014 and March 31, 2015.

The management of the Company is in the process of making necessary applications to the Central Government to obtain its approval for the waiver/ approval of the remuneration so paid/recorded in year ended March 31, 2014, March 31, 2015 and quarter ended June 30, 2015 in due course.

b) Due to longer than expected gestation period of schools, recoverability of trade receivables amounting Rs.21,255 lakh from Trusts to the subsidiary Company EISML has been slow. The Management of EISML, is regularly monitoring the growth in schools and their future projections, based on which, the Management believes that the trade receivables from the Trusts are fully recoverable.

c) The Group has assessed the business projections of six companies in the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte Ltd. (Formerly known as Educomp Intelprop Ventures Pte Ltd.) and its associate Greycells18 Media Limited., for evaluating the recoverability of Group’s share of net assets and has concluded that their businesses are sustainable on a going concern basis. The Company has evaluated the recoverability of its share of net assets held through these Companies, using business valuations performed by independent experts, according to which the decline in the carrying value of net assets is considered to be temporary. The said evaluation is based on the long term business plans of its subsidiaries/associate as on March 31, 2015 and concluded that no adjustments to the carrying value of its share in net assets is required to be recorded in the consolidated unaudited financial results of the Company for the quarter ended December 31, 2015.

d) During earlier years, EISML, a subsidiary of the Company had given capital advances amounting to Rs. 25,329 lakh to various parties for acquisition of fixed assets. The Management of EISML as part of its regular recoverability evaluation process had identified certain portions of capital advances which were doubtful of recovery or did not have recoverable value equivalent to the book value. Accordingly, on a prudent basis, till March 31, 2015 the Management had recorded a total provision of Rs. 20,175.48 lakh in the books of accounts towards such capital advances or portions thereof, which were doubtful of recovery.

The Management is continuously monitoring the settlement of these balances and is regularly following up with respective parties for recovery of the said capital advances. The Management believes that other capital advances, which have not been provided for, although have been long outstanding but are fully recoverable and hence, existing provision recorded in books is sufficient to cover any possible future losses on account of non recovery of such capital advances.

e) The Group’s management has reviewed business plan of its joint venture, Educomp Raffles Higher Education Limited which had advanced loans amounting to Rs. 5,147 lakh to Jai Radha Raman Education Society (Society) and its subsidiary Millennium Infra Developers Limited which had trade receivables of Rs. 6,021 lakh from the same Society under contractual obligations. The Group’s management has also considered the business plan of the Society and estimated market value of its net assets, based on which no adjustment is required in carrying value of its share of net assets in such joint venture. The Group’s holding in the joint venture is 41.82%. The consolidated financial results of Educomp Raffles Higher Education Limited are not available with the Company, hence there is no update available on the above status.

f) The Group had evaluated the recoverability of intangible assets in form of Brand ‘Universal’ in one of its step down subsidiary, by using valuations performed by an independent valuation expert. The said evaluation was based on long term business plans and underlying assumptions used for the purpose of valuation, which in view of the Management were realistic and achievable by the subsidiary. Based on revised business plans which entailed scaling down the operation of ‘Universal’ brand of schools, the management had recorded an impairment of Rs. 4,527 lakh to this asset in the year ended March 31, 2015.

g) Pursuant to implementation of approved CDR scheme, certain lenders have disbursed fresh corporate loans to the Company and corresponding trade receivables were bought from Edu Smart Services Private Limited (ESSPL) together with future business relating to these customers. Due to this restructuring, the remaining receivables in ESSPL may not yield adequate surplus to discharge its liability towards the Company for trade receivables and redemption of Redeemable non-convertible preference shares. However, the approved CDR scheme has mandated merger of ESSPL with the Company and accordingly, the Company has initiated the process and has taken the approval of the Board of Directors in the board meeting held on 13th January 2015. The impact for the amalgamation shall be given/recorded in the books of accounts upon obtaining approvals and implementation of the Scheme.

h) The Company has incurred substantial losses and its net worth has been significantly eroded. Based on Company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per its CDR package executed with Company’s lenders, the Company intends to monetize its identified investments, receivables and assets to meet the necessary obligations. The Company is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow, discharge its short-term and long term liabilities and recover & recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

i) The Company’s subsidiary, Educomp Infrastructure & School Management Limited has incurred losses and the subsidiary debt related obligation in the form of Funded Interest Term Loan has been converted into 0.1% Cumulative Compulsory Convertible Preference Shares during the earlier quarters. Based on subsidiary company’s projected cash flows, it shall have sufficient funds to run its operations in foreseeable future. As regards availability of requisite funds to meet its debt related obligations including those falling due in the year 2015-16 as per the CDR package executed with subsidiary’s lenders, the subsidiary intends to monetise its assets identified for sale to meet the necessary obligations. The subsidiary is also taking several measures to improve operational efficiencies and other avenues of raising funds.

The management is confident that with the above measures and continuous efforts to improve the business, it would be able to generate sustainable cash flow to discharge its short-term and long term liabilities and recover and recoup the erosion in its net worth through profitable operations and continue as a going concern. Accordingly, these consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

j) The Company’s step down subsidiary, Knowledge Vistas Limited has taken land from Lavasa Corporation Limited on lease vide lease agreement dated June 30, 2009 for a period of 999 years to construct an international residential school. Further, this subsidiary has entered into a sublease agreement with Gyan Kunj Educational Trust (GKET) to sub lease the school building. As per the sub lease agreement, GKET shall be liable to pay lease rental to the subsidiary from the year in which it has cash surplus. GKET has started its operations in the Academic Session 2011-12 but due to certain environmental matters, GKET decided to suspend its operations and is waiting for favourable business opportunities.

On the basis of the valuation reports from an independent valuer, the carrying cost of the said subsidiary’s assets is not less than its net realisable value. Hence, the management doesn’t anticipate any asset impairment. These consolidated unaudited financial results have been prepared on a going concern basis and do not include any adjustments relating to the recoverability and classification of recorded assets, or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern.

6. The Group is in the process of determining and identifying significant components of fixed assets as prescribed under Schedule II to the Companies Act 2013 and the resultant impact, if any, will be considered in due course during the financial year 2015-16.

From Auditors’ Limited Review Report (extracts)
4. As per the terms of Master Restructuring Agreement (MRA) dated December 28, 2013 entered into pursuant to approved Corporate Debt Restructuring Scheme to restructure debt of Educomp Infrastructure and School Management Limited (EISML), a subsidiary of the Company, certain tangible fixed assets of EISML and EISML’s subsidiaries have been Identified for sale in a time bound manner. As per the valuation of such tangible fixed assets as evaluated and disclosed in the approved Corporate Debt Restructuring Package, some of these assets are expected to have lower realizable value than their carrying values. Such tangible fixed assets having total carrying value of Rs. 32,075.33 lakh as at December 31, 2015 (as at December 31, 2014 Rs. 32,196.76 lakh) are included in the tangible fixed assets.

The Management has not carried out any evaluation of impairment of these assets at the close of the quarter and no provision for impairment has been recorded, as required by Accounting Standard 28 ‘Impairment of Assets’.

As we are unable to obtain sufficient appropriate audit evidence about the extent of recoverability of carrying value of these assets, we are unable to determine whether any adjustments to these amounts are necessary.

Our audit opinion on the consolidated financial statements for the year ended March 31, 2015 and our limited review reports for the quarters ended September 30, 2015 and December 31, 2014 were also qualified in respect of the aforesaid matter.

5. Based on our review conducted as above, and on consideration of the reports of the other auditors and subject to the possible effects of the matter described in paragraph 4 above, nothing has come to our attention that causes us to believe that the accompanying Statement, prepared in accordance with applicable accounting standards as specified u/s. 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Account) Rules, 2014 and other recognised accounting practices and policies has not disclosed the information required to be disclosed in terms of Regulation 63 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 including the manner in which it is to be disclosed, or that it contains any material misstatement.

6. We draw attention to the following matters in the notes to the Statement:

a) Note 3(a) regarding managerial remuneration paid/ payable to one of the whole time director of the Holding Company for the quarter ended June 30, 2015, year ended March 31, 2015 and year ended March 31, 2014 and whole time director of one of its subsidiary Company, Educomp Infrastructure and School Management Limited during the year ended March 31, 2015 and the year ended March 31, 2014, in non-compliance with the requirements of section 197 and section 198 read with schedule V to the Companies Act, 2013 and section 198, section 269 and section 309 read with Schedule XIII to the Companies Act, 1956 respectively, for which the Central Government’s approval has not been obtained.

b) Note 3(b) wherein a subsidiary company, Educomp Infrastructure and School Management Limited has considered its long outstanding Trade Receivables due from certain Trusts which are due for more than one year, as good and fully recoverable.

c) Note 3(c) with respect to Management’s assessment of recoverability of Group’s share of net assets as regards investment in six companies of the Group, namely, Educomp Infrastructure and School Management Limited, Educomp Online Supplemental Service Limited, Educomp Child Care Private Limited, Educomp Professional Education Limited, Vidya Mandir Classes Limited, Educomp Intelliprop Ventures Pte. Ltd.(formerly known as Educomp Intelprop Ventures Pte. Ltd.) and its associate, Greycells18 Media Limited.

d) Note 3(d) which explains Management’s view on recoverability of certain significant amount of capital advances given by the Group and which have been outstanding for a long period of time.

e) Note 3(e) which explains Management’s view on recoverability of certain loans advanced to Jai Radha Raman Education Society (the society) by Educomp Raffles Higher Education Limited, a joint venture (JV), and trade receivables due to JV’s subsidiary Millennium Infra Developers Limited from the society under contractual obligations.

f) Note 3(f) with respect to Management’s assessment, based on valuation performed by an independent expert, of recoverability of intangible assets in the form of brand ‘Universal’ in one of its step down subsidiary named, Educomp APAC Services Limited. The recoverability of the intangible assets is significantly dependent on the step down subsidiary’s ability to achieve long term futuristic growth plan envisaged in the related assumptions used for the purpose of valuation.

g) Note 3(g) wherein the Holding Company has not considered impairment/diminution of trade receivables from/investment in Edu Smart Services Private Limited (ESSPL) in the intervening period, in view of proposed merger of ESSPL with the Holding Company.

h) Note 3(h) in respect of the Holding Company, in the opinion of the management, despite incurring net losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

i) Note 3(i) in respect of one of the Holding Company’s subsidiary, Educomp Infrastructure & School Management Limited, in the opinion of the management, despite incurring losses, including during the quarter ended December 31, 2015 and erosion of net worth as at December 31, 2015, the unaudited consolidated financial results have been prepared on a going concern basis in view of matters more fully explained in the said note.

j) Note 3(j) in respect of one of Holding Company’s step down subsidiary, Knowledge Vistas Limited, which indicates that the company has suspended its operation and is waiting for favourable business opportunities. Despite existence of these conditions, along with other matters more fully explained in the said note, the unaudited consolidated financial results have been prepared on going concern basis.

Our report is not modified in respect of these matters

BCAJ Admin

From The President

Dear Members,

By the time you read this, India must have enjoyed and celebrated its most awaited colourful festival of Holi. This year I would like to extend my Holi Greetings, with a prayer for the entire country…that as winter turns into spring, we may all be rejuvenated and allow good to triumph over evil in our lives and the world around us. I also hope that as we splash and frolic in multiple colours, may we accept the diversity of all people and grow together.

Let’s dive into the month that was…beginning with the Budget 2018. It was a witty person who once said, “A budget is what you stay within if you go without.” Our FM Shri Jaitley had to walk a delicate tightrope in allocating adequate resources to only the most compelling issues. The media had a field day in reporting the Budget and all the views and criticism that was generated, but I believe this year’s Budget is an effective and very viable stepping-stone for the economy. It has a very judicious mix of populist initiatives and disciplinary measures that will continue to spur growth in the years ahead. Agriculture, rural development, MSME and the world’s largest healthcare program were the key features of the budget.

With a total expenditure of Rs.24.4 trillion, the fiscal deficit is set to escalate marginally to 3.3% of the GDP in the year ahead. But that was not the big dampener that sent the stock exchanges spiralling downwards. It was the much-anticipated Long Term Capital Gains Tax of 10% without the benefit of indexation. Both individual and institutional investors dumped stocks causing the Sensex to crash over 1100 points wiping around 9.6 lakh crore in just three market days.

This was coincidentally the start of the global mayhem. The US Dow collapsed unexpectedly and dramatically sending ripples across the world. This situation was inexplicable as the World Economic Forum at Davos reported optimism in the growth of the global economy. Trump’s tax reforms were seeing results as corporate earnings and jobs were growing. So, what was spooking the markets? Was it the hardening of US interest rates? Or the expected $1 trillion deficit compounded by dropping tax revenues?

However, a positive aspect was the unanimous agreement of top global leaders at the ET Global Business Summit that India is poised to be a $10 trillion economy by 2030 – that’s four times the current GDP. India could tap into the tailwinds generated by the world economy that’s currently growing at 3.9% to surge ahead at 9% in the years ahead. E-Commerce could also be a key driving force of India’s growth story. With higher internet penetration, e-commerce sales could balloon to $150 billion in 10 years.

India’s meteoric growth will also propel innovation, which will in turn accelerate growth. To achieve all this, India will need to streamline its tax structure, improve digitisation and infrastructure as well as skill its workforce. With international confidence running high, we need to seize the opportunity and reclaim our position as a leading economy in the world.

The talk of the country for the past few weeks has been the PNB scam of Rs. 114 million and growing. This perfectly orchestrated scam has devastated PNB’s share value by 25% and has dragged down several other public-sector banks. In the wake of the PNB scam, some more frauds have been unearthed; raising some very pertinent questions.

Hon. PM Shri Modi expressed his displeasure as he declared, “the system will not tolerate loot of public money”. He also took the regulatory institutions to task saying that they need to discharge their responsibility with utmost sincerity and integrity. FM Jaitley too found fault with RBI, management of PNB and the auditors for being unable to detect the scam. He said that, “If you periodically have frauds of this kind the entire effort of ease-of-doing business goes into the background”. He has asked the supervisory agencies to introspect and deploy additional systems to prevent any further recurrence.

The government has made it clear that CAs cannot get away just by citing red flags. It is exploring measures to fix auditor responsibility in frauds. In response to the alleged lapses on part of auditors, ICAI has been proactive. It has served show-cause notices to the auditors. It has requested RBI to share a list of corporate borrowers with over Rs. 2,000 crore loan outstanding in PSBs so that their accounts can be examined for any violation. It has also requested SEBI and CBI to share their findings to enable it to act against any chartered accountant involved in fraud.

After this spell of not-so-good news…here’s a rainbow. Schools in Delhi are soon to have ‘Happiness Classes’. Experts debate on whether it’s a subject that can be taught, but a Good Life course in Yale on similar lines has achieved unexpected popularity. Here are some details that could help us spark some happiness in our lives too!

The course underlines that a pivotal factor of our happiness is our intentional effort – especially practising gratitude and kind behaviours. It cites research which suggests that changing life circumstances won’t make us happy…to be happy we need to consciously work on it. Students are taught that in making others happy, you can make yourself happy. Students use tools from psychology to live their happiness goals. In addition to readings and assessments, the students are encouraged to ‘rewire’ through a series of exercises that make them happier, healthier and resilient. It’s still a new concept, but I hope it catches on and spreads to schools and colleges across India.

This year, Mr. S. E. Dastur, Senior Advocate addressed his last & the 30th BCAS Public Lecture Meeting on ‘Direct Tax Provisions of the Finance Bill, 2018’. Three decades is a long time in any organisation’s time span. We at BCAS, were fortunate enough all these years to avail of his masterly analysis year after year. This year apart from the 1,000+ personally present, we had more than 11K viewers from 13 different countries who joined us through Live Screening.

As the Society enters its 69th year of existence, we continue to acknowledge your affiliation with us and value the same. Hope you find this platform adding value and nurturing you to groom yourself in the profession. I request to please renew your Membership & Subscription for the coming financial year 2018-19 to avoid any disruption of BCAS membership benefits. Kindly note, the renewal notice along with the form has been sent to your addresses.

The Society has lined up number of programs in the months of March and April. I request members to take benefit of the same.

Wishing you a Happy Gudi Padwa, Ram Navami, Mahavir Jayanti & Good Friday!

Feel free to write to me on president@bcasonline.org

BCAJ Admin

Direct Taxes

76. Procedure, Formats and Standards for ensuring secured transmission of electronic communication for the purpose of Rule 127 r.w.s 282 notified –

Notification No. 2 dated 3rd February 2016

77. Clarification of the term ‘initial assessment year’ in section 80lA (5) of the Income-tax Act, 1961 –

Circular No. 1 dated 15th February 2016

It is clarified that the term ‘initial assessment year’ would mean the first year opted for by the assessee for claiming deduction u/s 80lA out of a slab of fifteen ( or twenty) years, as prescribed under the relevant sub-section.

78.Atal Pension Yojana (APY) notified as a Pension Scheme for the benefit of section 80CCD –

Notification No. 7 dated 19th February 2016

79. Time-limit of six months prescribed under section 154(8) of the Act is to be strictly followed by the Assessing Officer while disposing applications filed by the assessee/ deductor/collector under section 154 of the Act. –

Instruction No. 1 dated 15th February 2016

New form 9A prescribed and Rule 17 and Form 10 amended – Forms to be furnished by the charitable trust to the Income tax authorities before the due date of filing of the return of income-

Notification No. 3 dated 14th January 2016- Income-tax (1st Amendment) Rules, 2016

81. Certain technical glitches solved regarding online issuance of Certificates u/s. 195(2) and 195(3) of the Act –

TDS Instruction no. 51 dated 4.2.16

82. Procedure for adjustment of refunds in case where notice u/s. 245 of the Act has been issued–

Office Memorandum dated 29.01.2016

CBDT has stated that in cases where the tax payer has contested the demand raised by the department, the jurisdictional AO would be issued a reminder to either confirm or make appropriate changes in the demand based on the contention of the assessee. This needs to be responded by the AO within 30 days, post which CPC would issue the refund without adjustment of the demand in absence of any communication from the AO.

BCAJ Admin

Corporate Law Corner

16.
Vivek Vijay Gupta vs. Steel Konnect (India) (P.) Ltd.

[2018] 90 taxmann.com 78 (NCLT – Ahd.)

Date of Order: 15^thJanuary, 2018

Section 31 read with section 30 and 25 of
the Insolvency and Bankruptcy Code, 2016 – NCLT does not have any power or
authority to interfere with the decision of committee of creditors in rejecting
a resolution plan submitted for its consideration.

FACTS

Financial Creditor instituted Insolvency
proceedings against S Co u/s. 7 of the Insolvency and Bankruptcy Code, 2016
(“the Code”). The appeals filed by SCo were dismissed by the National Company
Law Tribunal (“NCLT”) and subsequently by the Supreme Court. Resolution
Professional (“IRP”) was appointed and a valuation report was finalised by him
on 10.11.2017 which pegged the value of S Co at Rs. 39 crore. Promoters of S Co
submitted a resolution plan for Rs. 85 crore on 25.11.2017. In view of the
Ordinance passed by the Central Government amending section 29 of the Code, the
resolution plan submitted by the Promoters was rejected as they were not
eligible to submit a resolution plan and the Committee of Creditors (“COC”) did
not accept the same. Pursuant to an advertisement filed by the IRP an Asset
Reconstruction Company (“ARC”) filed a resolution plan for Rs. 93.42 crore
which was also rejected by the IRP. ARC filed a modified plan which was placed
before the COC and the same was also rejected by the COC.

Present application was filed by the
Promoter / Director of S Co alleging that the plan submitted by the ARC was in
compliance with the provisions of the Code and that COC had simply rejected the
plan with a remark that the same was not in compliance with the Code without
assigning any reasons even though the plan was in the interest of S Co and its
stakeholders. It was prayed that NCLT should intervene and overturn the
decision of COC which rejected the resolution plan.

HELD

NCLT observed that it has two fold powers
granted to it u/s. 31 of the Code, namely:

(i) accept the plan which is
approved by the COC; or

(ii) reject the plan which
though approved by the COC does not meet the requirements of the Code.

In case if no resolution plan is placed before
NCLT before the expiry of the Insolvency Resolution Process period or the
extended period, then NCLT is bound to pass an order for liquidation. Section
33(1)(b) of the Code gives authority to the NCLT to order liquidation in case
it rejects the resolution plan u/s. 31(2) for non-compliance of the
requirements specified therein. Therefore, even at the stage of ordering
liquidation, NCLT has no authority to consider a resolution plan that was
rejected by the COC.

It was observed that NCLT does not have any
power to sit over the judgment on resolution of COC in the rejecting the
resolution plan. The Tribunal held that it had no power to or authority to
interfere with the decision of the COC in rejecting the resolution plan.

When the information is there before the COC
regarding the non-compliance of the requirements of the Code and Regulations,
COC is perfectly justified in rejecting the resolution plan. It was held that
there were no facts and circumstances that warrant interference by NCLT in the
rejection of the resolution plan.

The IRP, in carrying out its duties,
submitted the plan which it received from the ARC before the COC. It also
brought out the fact that the same was not in accordance with the provisions
contained in the Code. The NCLT further observed that in light of the fact
pattern of this case, there was no lapse on part of the IRP in carrying out its
duties enumerated under the Code.

There was a contention raised that the
Promoters and directors of S Co (who filed the application) are persons
aggrieved or not. Since the resolution plan was in the interest of S Co and its
stakeholders, it could be said that its promoters and directors were also
aggrieved persons. However, NCLT observed that although promoters and directors
were invited to be a part of the meeting of COC they did not choose to attend
the same. Without demonstrating how the plan was beneficial to S Co and its
stakeholders it could not be held that the Promoters / directors were aggrieved
persons.

The NCLT, thus rejected the application
filed before it.

17. Bengal Chemists and Druggists Association
vs. Kalyan Chowdhury

[2018] 90 taxmann.com 112 (SC)

Date of Order: 02^ndFebruary, 2018

Section 421 read with section 433 of the
Companies Act, 2013 – Proviso to section 421(3) is peremptory in nature – Any
appeal filed after the period specified therein becomes time barred – Delay
cannot then be condoned by resorting to the provisions of Limitation Act, 1963.

FACTS

B Co being aggrieved by an order passed by
National Company Law Tribunal filed an appeal before the National Company Law
Appellate Tribunal (“NCLAT”). NCLAT dismissed the appeal on the grounds that
the same was filed 9 days after the expiry of period of limitation of 45 days
as well as further period of another 45 days. NCLAT held that the appeals were
not maintainable in lines with section 421(3) of the Companies Act, 2013 (“the
Act”).

B Co filed an application before the Supreme
Court against the order of NCLAT dismissing the appeal.

It was argued before the Supreme Court that
section 421(3) of the Act does not contain the language of section 34(3)
proviso of the Arbitration Act, 1996 which contains the words “but not
thereafter”. It was further argued that in terms of section 433 of the Act,
provisions of the Limitation Act, 1963 shall, as far as may be, apply to
Appeals before the Appellate Tribunal. Section 5 would therefore be applicable
to condone the delay beyond the period of 90 days.

HELD

The Supreme Court considered the provisions
of sections 421 and 433 of the Act. It observed that a cursory reading of
section 421(3) made it clear that the proviso provides a period of limitation
different from that provided in the Limitation Act, and also provides a further
period not exceeding 45 days only if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within that period.

It was observed that section 433 cannot
apply because the provisions of the Limitation Act only apply “as far as may
be”. There is a special provision contained in proviso to section 421(3) and as
a corollary, section 5 of the Limitation Act cannot apply.

The Supreme
Court held that 45 days is the period of limitation, and a further period not
exceeding 45 days is provided only if sufficient cause is made out for filing
the appeal within the extended period. If the Court was to accept the argument
put forth by the Applicant, it would mean that notwithstanding that the further
period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone
the delay. This would be to render otiose the second time limit of 45 days,
which is peremptory in nature.

In coming to this conclusion, the Supreme
Court relied on its own decision in the case of Chhattisgarh SEB vs. Central
Electricity Regulatory Commission, 2010 (5) SCC 23. The Supreme Court also
distinguished the decisions which were relied upon by the counsel for B Co.

The appeal filed by B Co was thus dismissed
by the Supreme Court.

18. Prem Prakash Sethi vs. Union of India

[2018] 89 taxmann.com 234 (Delhi)

Date of Order: 10^th January, 2018

Section 252 of Companies Act, 2013 read
with Condonation of Delays Scheme, 2018 – Name of company was struck-off from
the Register of Companies owing to non-compliances – Petition filed u/s. 252 was still pending before the NCLT – Directors of the
company could avail the benefit of Condonation of Delays Scheme, 2018

FACTS

S Co was in an active business and it
defaulted in making certain statutory compliances under Companies Act, 2013
(“the Act”) and requisite returns were not filed by them. Registrar of
Companies (“ROC”) believed that directors of S Co were disqualified u/s.
164(2)(a) of the Act and that S Co was disqualified u/s. 248(1) of the Act.

ROC
therefore, issued a show cause notice in March 2017 requiring S Co to show
cause as to why it was not liable to be removed from the Register of Companies.
S Co failed to respond to this notice, resulting in passing of an order of
removal of the company from the Register of Companies. S Co then invoked remedy
available u/s. 252(3) of the Act by filing a petition with the National Company
Law Tribunal (“NCLT”) praying for revival of
the company.

Director of S Co filed the present writ
petition before the High Court expressing that it was desirous of availing the
Condonation of Delays Scheme, 2018 (“CODS-2018”) but was unable to do so
because name of S Co had been struck off from the Register of Companies. It was
prayed before the High Court that they be permitted to avail the benefit of
CODS-2018, subject to the outcome of the proceedings initiated u/s. 252 of the
Act.

S Co also conceded that non-filing of
returns was a bonafide mistake on part of the company and it was stated that it
was ready to submit all the relevant documents which were required by the ROC.

HELD

The High
Court observed that S Co deserves to be fairly given an opportunity to avail
the benefit of CODS-2018 given that order striking off its name from the
Register of Companies was itself pending consideration before the NCLT.

The High Court therefore, directed S Co to
file all the requisite returns in relation to the company and submit necessary
application along with requisite charges to the ROC in order to enable it to
avail the benefits provided under the CODS-2018.

The High Court also directed NCLT to dispose
the application expeditiously given that benefit under CODS-2018 is available
only up to 31.03.2018. In the event the NCLT is unable to dispose of the appeal
within the time as requested for the reasons that are not attributable to S Co,
it was directed that the ROC shall ensure that the Scheme under CODS-2018 is
extended in respect of the directors of S Co.

The High Court held that directors of S Co
would not be deprived of the opportunity to avail the CODS-2018 only on account
of pendency of the petition before NCLT.

It was also clarified that if directors of S
Co did not avail of the CODS-2018 or file necessary documents then, in addition
to other consequences, they would also be liable for prosecution for Contempt
of Court.

Petition filed by S Co was thus allowed.

19.
Real time Interactive Media Pvt. Ltd. vs. Metro Mumbai Infradeveloper Pvt. Ltd.

[2018] 90 taxmann.com 89 (Bombay)

Date of Order: 12^th January, 2018

Section 271 read with section 248 of
Companies Act, 2013 – High Court has the power to order winding up of company
although its name has been struck off from the Register of Companies.

FACTS

R Co was engaged in the business of
publishing and managing advertisements on BEST TV LED screens in the BEST buses
(BEST TV) running in Mumbai. R Co was the sole agent of BEST in respect of
airing such advertisements on BEST TV. M Co engaged R Co for displaying
advertisements on BEST TV in 1300 Non AC buses and 250 AC buses for a period of
3 months from 07.10.2011 till 07.01.2012 for a consideration of Rs. 15 lakhs
plus taxes. In terms of the agreement, R Co aired those advertisements and
raised invoices of Rs. 5,16,665 in respect of each of the months for which the
service was provided. Invoices raised also mentioned that interest would be
charged if the same were not paid on or before the due date.

M Co paid in installments a total amount of
Rs. 5 lakhs and as on 16^th April, 2012 after adjusting this Rs. 5
lakhs from the total invoice of Rs. 15,49,995 there was a balance outstanding
of Rs. 10,49,995. As no payments came forth, R Co issued a statutory notice
dated 27.05.2014 to M Co. M Co did not file any reply to the statutory notice
issued to it.

R Co urged before the Court that the
registered address shown in the Company Master Data is the same address to
which notice under Rule 28 of the Companies Court (Rules), 1959 (“the Rules”)
has been sent and that is the same address which reflected even in the cause
title to which statutory notice was also sent. As on date, recent MCA website
extract indicates the status of M Co as “Strike Off”.

The Court was approached to decide whether
winding up proceedings can be initiated against a company which has been struck
off the Register of Companies.

HELD

The High Court observed that in light of the
facts it was possible to hold that the statutory notice was duly served as
required under Rule 28 of the Rules.

The High Court after examining the
provisions of section 248 of Companies Act, 2013 (“the Act”) observed that
there was nothing in section 248 which shall affect the power of the Court to
wind up a company the name of which has been struck off from the register of
companies. The effect of company notified as dissolved was that the company
shall on and from the date mentioned in the notice u/s. 248(5) of the Act cease
to operate as a company and the Certificate of Incorporation issued to it shall
be deemed to have been cancelled from such date except for the purpose of
realising the amount due to the company and for the payment or discharge of the
liabilities or obligations of the company.

The High Court held that just because the
name of the company was struck off the register u/s. 248 of the Act, the same
will not come in the way of the Court to pass an order of winding up of
company.

It was further observed that M Co neither
filed any affidavit opposing the petition nor did it reply to the statutory notice
that was duly served. The High Court had the power to order winding up on the
presumption of inability to pay the amounts claimed and not denied. The High
Court held that where no response has been made to the statutory notice, the
company runs a risk of winding up petition being allowed. By virtue of section
434 of the Companies Act, 1956 a presumption of the indebtedness could be
legitimately drawn by the court where no reply to the statutory notice was
forthcoming.

The High Court thus, ordered winding up of
M Co and proceeded to appoint Official Liquidator who would take charge of the
winding up proceedings to be carried out against M Co. _

BCAJ Admin

Allied Laws

26 Arbitration – Main agreement not registered – Arbitration clause cannot be acted upon.
[Arbitration and Conciliation Act, 1996 Section 7, 11, 37, 38]

Ansal Properties and Infrastructure Limited vs. Jhamru Chandaram and Ors. AIR 2017 RAJASTHAN 52

An application was filed before the court u/s. 11 of the Arbitration and
Conciliation Act, 1996, praying for appointment of the sole Arbitrator
to adjudicate its dispute with the respondents. Applicant signed two
MOUs. However, it was contested that the MOU had been annulled.

It was argued that an arbitral agreement within the MoU/agreement to sale, even if an unregistered document, can be used as evidence for collateral purpose as provided in proviso to section 49 of the Registration Act and is severable from the main contract.

The question which arose was whether any unstamped or insufficiently stamped agreement/MoU for sale containing clause can be acted upon.

It was held that the question as to insufficiency of stamp duty in view of section 16 of the Act should be left to be decided by the Arbitrator, cannot be countenanced and has to be rejected in view of clear law laid down by the Supreme Court in SMS Tea Estates Pvt. Ltd. which mandates that such a issue has to be decided in the application u/s. 11 of the Act itself.

27 Interrogation – Presence of Counsel – Only to avoid coercion, if any. [Customs Act, 1962, Section 108]

Sangit Agarwal vs. The Director General, Directorate of Revenue Intelligence and Ors . 2017 (356) E.L.T. 518 (Del.)

A prayer as to permit the interrogation in presence of the interrogatee’s Advocate who would sit at a visible distance not at audible range, was made by the petitioner.

It was observed that a lawyer has no role to play whatsoever during the interrogation, except to be at a distance beyond hearing range to ensure that no coercive methods were used during the interrogation.

It was accordingly directed that the petitioners’ advocate should be allowed to be present during the interrogation of the petitioners. He/they should be made to sit at a distance beyond hearing range, but within visible distance and the lawyer must be prepared to be present whenever the petitioners are called upon to attend such interrogation.

28 Power of Attorney – Intimation not given after death – Not valid to act as power of attorney. [Mines and Minerals Act, 1957 (Section 13, R.25A)]

State of Odisha vs. Government of India and Ors. AIR 2017 (NOC) 1023 (ORI.)

The question for consideration was whether the intimation of the death of the grantee was given to the State Government immediately after his death, but there was no document to support the said contention, there could be grant of additional time for fulfillment of statutory compliance, to the power of attorney holder, as the period of lease had already expired.

It was observed that Rule 25-A of the Mineral Concession Rules, 1960 provides that where an applicant for grant or renewal of mining lease dies before the order granting him mining lease, the application for grant of mining lease shall be deemed to have been made by his legal representatives. The question of the power of attorney acting on behalf of the grantee as legal representative would arise only when intimation of the death of the grantee is given to the State Government. Without such intimation having been given, it would be presumed that the power of attorney continued to act as power of attorney on behalf of a deceased person. A power of attorney can act on behalf of a living person, be it a natural person or juristic person. Once a person, who has given power of attorney, is no more there, the question of power of attorney continuing to act on behalf of such deceased person, would not arise. Had it been a case of the legal representative of the grantee having informed the State Government of the death of the grantee, and then proceeded with the matter as legal representative of the grantee, then the position would have been different. Such is not the case in hand.

In view of the above, it was held that there was no merit in the case of legal heir of the grantee for grant of additional time for fulfillment of statutory compliance.

29 Nominee – No beneficial ownership over persons entitled to inheritance [Companies Act, 1956, Section 109A]

Shakti Yezdani and Another vs. Jayanand Jayant Salgaonkar and Ors. (2017) 200 Comp case 143
(Bom) (HC)

The questions for consideration was whether a nominee of a holder of shares or securities is entitled to the beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate of the holder as per the law of succession.

It was observed by the Court that as per the consistent view taken by the Apex Court under various provisions held that the nominee does not get an absolute title to the property subject matter of the nomination. The reason is by its very nature when a share holder or a deposit holder or other, makes a nomination during his lifetime, he does not transfer his interest in favour of the nominee. It is always held that the nomination does not override the law in relation to testamentary or intestate succession. The provisions regarding nomination are made with a view to ensure that the estate or the rights of the deceased, subject matter of nomination are protected till the legal representatives of the deceased take appropriate steps. The object of the provisions of the Companies act is not to either provide a mode of succession or to deal with succession. The object of section109A is to ensure that the deceased shareholder is represented by someone.

In view of the same, it was held that the so called vesting u/s.109A does not create a third mode of succession and the nominee does not get a beneficial ownership of such shares or securities to the exclusion of the other persons entitled to inherit the estate.

30 Recovery of tax arrears – No charge on defaulter’s property – Hence no liability of the purchaser of such defaulter’s property. [Tamil Nadu Sales Tax, 1959, Section 24(2)]

Noor M. Saied vs. Commercial Tax Officer, Chennai. 2018 (9) G.S.T.L (Mad.)

A Sale was effected in a public auction, where the petitioner was a successful bidder. Admittedly, there was no charge on the property in question for the alleged sale tax arrears. At a later point in time, the respondent sent a notice to the petitioner that the sales tax arrears was to be paid by the petitioner, which was earlier payable by the Seller or the defaulter.

The issue to be decided was whether the petitioner can be proceeded against for Sales tax arrears payable by the defaulter.

It was held that, since there was no charge on the property and there was no doubt about the purchase made by the Petitioner being bonafide, hence the petitioner cannot be proceeded against for the recovery of the sales tax arrears payable by the defaulter. The court is of the firm view that the writ petition is allowed and that the impugned notice is unsustainable in law and is set aside. _

BCAJ Admin

From Published Accounts

Accounting Policy and disclosures for Leases of
land and other assets as per Ind AS (year ended 31st
March 2017)

ATUL LTD.

Consolidated financial statements

Significant Accounting Policies

As a lessee

Leases in which a significant portion of the risks and
rewards of ownership are not transferred to the Company
as lessee are classified as operating leases. Payments
made under operating leases (net of any incentives
received from the lessor) are charged to profit or loss
on a straight-line basis over the period of the lease
unless the payments are structured to increase in line
with expected general inflation to compensate expected
inflationary cost increases for the lessor.

As a lessor

Lease income from operating leases where the Company
is a lessor is recognised as income on a straightline
basis over the lease term, unless the receipts are
structured to increase in line with expected general
inflation to compensate for the expected inflationary
cost increases. The respective leased assets
are included in the Balance Sheet based on
their nature. Leases of property, plant and
equipment where the Company as a lessor
has substantially transferred all the risks
and rewards are classified as finance lease.
Finance leases are capitalised at the inception
of the lease at the fair value of the leased
property or, if lower, the present value of the
minimum lease payments. The corresponding
rent receivables, net of interest income,
are included in other financial assets. Each
lease receipt is allocated between the asset
and interest income. The interest income
is recognised in the Statement of Profit and
Loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of the asset for each period.

Under combined lease agreements, land and building
are assessed individually. Lease rental attributable to the
operating lease are charged to Statement of Profit and
Loss as lease income, whereas lease income attributable
to finance lease is recognised as finance lease receivable
and recognised on the basis of effective interest rate.

Disclosures

Operating lease

The Company has taken various residential and office
premises under operating lease or leave and licence
Agreements. These are generally cancellable, having
a term between 11 months and 3 years and have no
specific obligation for renewal. Payments are recognised
in the Statement of Profit and Loss under ‘Rent’.

Finance lease

The Company has given a building on finance lease for a
term of 30 years.
Future minimum lease payments receivable under finance
leases together with the present value of the net minimum
lease payments (MLP) are as under:

Particulars	As at March 31, 2017		As at March 31, 2016		As at April 1, 2015
	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP
Not later than one year	0.20	0.20	–	–	0.20	0.20
Later than one year and not later than five years	0.40	0.34	0.40	0.35	0.40	0.33
Later than five years	2.00	0.84	2.20	0.94	2.20	0.88
Total minimum lease payments receivable	2.60	1.38	2.60	1.29	2.80	–
Less: Unearned finance Income	1.22	–	1.31	–	1.38	–

Particulars	As at March 31, 2017		As at March 31, 2016		As at April 1, 2015
	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP	Minimum lease payments	Present value of MLP
Present value of minimum lease payments receivable	1.38	1.38	1.29	1.29	1.42	–
Less: Allowance for uncollectible lease payments	–	–	–	–	–	–
	1.38	1.38	1.29	1.29	1.42	–

The Company has taken on lease a parcel of land from
Gujarat Industrial Development Corporation for a period
of 99 years with an option to extend the lease by another
99 years on expiry of lease at a rental that is 100% higher
than the current rental. However, the Company has no
specific obligation for renewal. The Company believes
and has considered that such a lease of land transfers
substantially all of the risks and rewards incidental to
ownership of land, and has thus accounted for the same
as finance lease.

IDEA CELLULAR LTD.

Consolidated Financial Statements

Significant Accounting Policies

Leases

The Company evaluates whether an arrangement is
(or contains) a lease based on the substance of the
arrangement at the inception of the lease. An arrangement
which is dependent on the use of a specific asset or
assets and conveys a right to use the asset or assets,
even if it is not explicitly specified in an arrangement is (or
contains) a lease.

Leases are classified as finance lease whenever the
terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are
classified as operating leases.

Company as a lessee Finance lease

Assets held under finance leases are initially recognised
as assets at the commencement of the lease at their fair
value or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between
finance charges and reduction of the lease liability so as to achieve a constant rate of interest on
the remaining balance of the liability. Finance
charges are recognised in the Statement
of Profit and Loss, unless they are directly
attributable to qualifying assets, in which case
they are capitalised in accordance with the
Company’s general policy on borrowing costs.
Such assets are depreciated/amortised over
the period of lease or estimated useful life
of the assets whichever is less. Contingent
rentals are recognised as expenses in the
periods in which they are incurred.

Operating lease

Operating lease payments are recognised as an expense
in the statement of profit and loss on a straight-line basis
unless payments to the lessor are structured to increase
in line with expected general inflation to compensate for
the lessor’s expected inflationary cost increase; such
increases are recognised in the year in which such
benefits accrue. Contingent rentals arising, if any, under
operating leases are recognised as an expense in the
period in which they are incurred.

In the event that lease incentives are received to enter
into operating leases, such incentives are recognised
as a liability. The aggregate benefit of incentives is
recognised as a reduction of rental expense on a straightline
basis, except where another systematic basis is more
representative of the time pattern in which economic
benefits from the leased asset are consumed.

Company as a lessor Finance lease

Amounts due from lessees under finance leases are
recognised as receivables at the amount of the Company’s
net investment in the leases. Finance lease income is
allocated to accounting period so as to reflect a constant
periodic rate of return on the net investment outstanding
in respect of the lease.

Operating lease

Rental income from operating lease is recognised on a
straight-line basis over the lease term unless payments
to the Company are structured to increase in line
with expected general inflation to compensate for the
Company’s expected inflationary cost increase; such
increases are recognised in the year in which such
benefits accrue. Initial direct costs incurred in negotiating
and arranging an operating lease are added to the
carrying amount of the leased asset and recognised on
a straight-line basis over the lease term. Contingent rents are recognised as revenue in the period in which they are
earned.

Estimates and Judgments

Operating lease commitments – Company as lessee

The Company has entered into lease agreements for
properties and cell sites, where it has, on the basis of
evaluation of the terms and conditions of the arrangement
determined that the significant risks and rewards related
to the assets and properties are retained with the lessors.
Accordingly, such lease agreements are accounted for as
operating leases. Further details about operating lease
are given in Note 45.

Disclosures

Operating Lease

Company as lessee

The Company has entered into non-cancellable operating
leases for offices, switches and cell sites for periods
ranging from 36 months to 240 months.
Lease payments amounting to ₹52,522.45 million
(Previous year: ₹44,973.69 million) are included in rental
and passive infrastructure expenses in the statement of
profit and loss during the current year.

Future minimum lease rentals payable under noncancellable
operating leases are as follows:

Particulars	As at March 31, 2017	As at March 31, 2016	As at April 1, 2015
Within one year	48,254.95	42,264.91	36,965.54
After one year but not more than five years	140,612.85	122,015.51	120,216.08
More than five years	75,755.79	48,364.15	47,163.75

Company as lessor

The Company has leased certain Optical Fibre Cables
pairs (OFC) on Indefeasible Rights of Use (“IRU”) basis
and certain cell sites under operating lease arrangements.
The gross block, accumulated depreciation and
depreciation expense of the assets given on lease are
not separately identifiable and hence not disclosed.
Future minimum lease rentals receivable under
non-cancellable operating leases are as follows:

₹million
Particulars	As at March 31, 2017	As at March 31, 2016	As at April 1, 2015
Within one year	402.76	1,404.54	757.18
After one year but not more than five years	–	5,257.19	2,108.17
More than five years	–	5,140.92	2,136.62

The Company has composite IT outsourcing agreements
where in property, plant and equipment, computer
software and services related to IT has been supplied
by the vendor. Such property, plant and equipment
received have been accounted for as finance lease.
Correspondingly, such assets are recorded at fair value
at the time of receipt and depreciated on the stated useful
life applicable to similar IT assets of the company.

PVR LTD.

Consolidated financial statements

Significant accounting policies

The determination of whether an arrangement is
(or contains) a lease is based on the substance of
the arrangement at the inception of the lease. The
arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset
or assets and the arrangement conveys a right to use the
asset or assets, even if that right is not explicitly specified
in an arrangement.

Where the Company is the lessee Finance leases, which
effectively transfer to the Company substantially all the
risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease term at the
lower of the fair value of the leased property and present
value of minimum lease payments. Lease payments are
apportioned between the finance charges and reduction
of the lease liability so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance
charges are recognised as finance costs in the Statement
of Profit and Loss. A leased asset is depreciated on a
straight-line basis over the useful life of the asset.

Leases where the lessor effectively retains substantially
all the risks and benefits of ownership of the leased
items are classified as operating leases. Operating lease
payments are recognised as an expense in the statement
of profit and loss on an ongoing basis.

Where the Company is the lessor

Leases in which the Company does not transfer
substantially all risks and benefits of ownership of the
assets are classified as operating lease.

Assets subject to operating leases are included in fixed
assets. Lease income is recognised in the Statement
of Profit and Loss on ongoing basis. Costs, including
depreciation are recognised as an expense in the
Statement of Profit and Loss. Initial direct costs such
as legal costs, brokerage costs, etc. are recognised
immediately in the Statement of Profit and Loss.

Disclosures

i. Rental expenses in respect of operating leases are
recognised as an expense in the Statement of Profit
and Loss and pre-operative expenditure (pending
allocation), as the case may be.

Operating Lease (for assets taken on lease)

Disclosure for assets taken under non-cancellable leases,
where the Company is presently carrying commercial
operations is as under, which reflects the outstanding
amount for non-cancellable period:

(₹ in crore)
Particulars	2016-17	2015-16
Lease payments for the year recognised in Statement of Profit and Loss (including deferred rent portion)	38,312	32,626
Lease payments for the year included in Capital work-in-progress	71	227
Minimum lease payments:
Within one year	23,106	19,162
After one year but not more than five years	67,950	54,163
More than five years	40,560	24,690

ii. Rental income/Sub-Lease income in respect of
operating leases are recognised as an income in the
Statement of Profit and Loss or netted off from rent
expense, as the case may be.

Operating Lease (for assets given on lease)

The Company has given various spaces under operating
lease agreements. These are generally cancellable on
mutual consent and the lessee can vacate the rented
property at any time. There is no escalation clause in the
lease agreement. There are no restrictions imposed by
lease arrangements.

(₹ in crore)
Particulars	2016-17	2015-16
Sub-lease rent receipts	1,015	1,061

The Company has given spaces of cinemas/food courts
under operating lease arrangements taken on lease or
being operated under revenue sharing arrangements.
The Company has common fixed assets for operating
multiplex/giving on rent. Hence, separate figures for the
fixed assets given on rent are not ascertainable.

iii. Finance lease: Company as lessee

The Company has finance leases contracts for plant and
machinery (Projectors). These leases involve significant
upfront lease payment, have terms of renewal and bargain
purchase option. However, there is no escalation clause.
Each renewal is at the option of lessee. Future minimum
lease payments (MLP) under finance leases together with
the present value of the net MLP are as follows:

₹ In lakhs
Particulars	March 31, 2017		March 31, 2016
	Minimum payments	Present value of MLP	Minimum payments	Present value of MLP
Within one year	899	524	813	433
After one year but not more than five years	3,259	2,537	3,145	2,282
More than five years	352	332	642	599
Total minimum lease payments	4,510	3,393	4,600	3,314
Less: amounts representing finance charges	(1,117)	–	(1,286)	–
Present value of minimum lease payments	3,393	3,393	3,314	3,314

There was no finance lease arrangement for the year
ended March 31, 2015.

THE INDIAN HOTELS COMPANY LTD.

Consolidated Financial statements

Significant accounting policies

Operating Lease

A Lease in which a significant portion of the risks and rewards of ownership are not transferred to the Company
is classified as operating lease. Payments made under
operating lease are charged to the Statement of Profit
and Loss on a straight line basis over the period of the
lease, unless the payments are structured to increase in
line with the expected general inflation to compensate for
the lessor’s expected inflationary cost increases.

For leases which include both land and building elements,
basis of classification of each element is assessed on the
date of transition, April 1, 2015, in accordance with Ind AS
101 First-time Adoption of Indian Accounting Standard.

Disclosures

In respect of a plot of land provided to the Company
under a licence agreement, on which the Company has
constructed a hotel, the licensor has made a claim of
₹ 344.50 crore to date, (13 times the previous annual
rental) for increase in the rentals with effect from 2006-
07. The Company believes these claims to be untenable.
The Company has contested the claim based upon
legal advice, by filing a suit in the Hon’ble High Court
of Judicature at Bombay on grounds of the licensor’s
inconsistent stand on automatic renewal of lease, levy
of lease rentals and method of computing such lease
rent, within the terms of the existing license agreement
as also a Supreme Court judgement on related matters.
Even taking recent enactments into consideration, in the
opinion of the Company, the computation cannot stretch
more than ₹ 86.36 crore (excluding interest/penalty), and
this too is being contested by the Company on merit.
Further, a “Notice of Motion” has been issued by the
Hon’ble High Court of Judicature at Bombay, inter alia,
for a stay against any further proceedings by the licensor,
pending a resolution of this dispute by the Hon’ble Bombay
High Court. In view of this, and based on legal advice,
the Company regards the likelihood of sustainability of
the lessor’s claim to be remote and the amount of any
potential liability, if at all, is indeterminate.

Note 32: Operating lease

The Company has taken certain vehicles, land and
immovable properties on operating lease. The leases of
hotel properties are generally long-term in nature with
varying terms and renewal rights expiring within five
years to one hundred & ninety eight years. On renewal,
the terms of the leases are renegotiated. The total lease
rent paid on the same is included under Rent and Licence
Fees forming part of Other Expenses (Refer Note No. 26,
Footnote (iv), Page 144).

The minimum future lease rentals payable in respect of
non-cancellable leases entered into by the Company to
the extent of minimum guarantee amount are as follows:—

Particulars	March 31, 2017	March 31, 2016	April 1, 2015
	₹ crore	₹ crore	₹ crore
Not later than one year	54.69	54.84	48.22
Later than one year but not later than five years	201.18	213.30	204.10
Later than five years	1,178.37	1,215.02	1,221.50
	1,434.24	1,483.16	1,473.82

In addition, in certain circumstances, the Company is
committed to making additional lease payments that
are contingent on the performance viz. gross operating
profits, revenues etc. of the hotels that are being leased.

Expenses Recognised in the statement of profit and loss:

Particulars	March 31, 2017	March 31, 2016
	₹ crore	₹ crore
Minimum Lease Payments/ Fixed Rentals	39.19	37.14
Contingent rents *	88.69	89.50
	127.88	126.64
* contingent on the performance viz. gross operating profits, revenues etc. of the hotels that are being leased.

WIPRO LTD.

Consolidated financial statements

Significant accounting policies

The determination of whether an arrangement is, or
contains, a lease is based on the substance of the
arrangement at the inception date. The arrangement
is, or contains a lease if, fulfilment of the arrangement
is dependent on the use of a specific asset or assets
or the arrangement conveys a right to use the asset or
assets, even if that right is not explicitly specified in an
arrangement.

Arrangements where the Company is the
lessee

Leases of property, plant and equipment, where the
Company assumes substantially all the risks and rewards
of ownership are classified as finance leases. Finance
leases are capitalised at lower of the fair value of the
leased property and the present value of the minimum lease payments. Lease payments are apportioned
between the finance charge and the outstanding liability.
The finance charge is allocated to periods during the
lease term at a constant periodic rate of interest on the
remaining balance of the liability.

Leases where the lessor retains substantially all the risks
and rewards of ownership are classified as operating
leases. Payments made under operating leases are
recognised in the Statement of Profit and Loss on a
straight-line basis over the lease term.

Arrangements where the Company is the lessor
In certain arrangements, the Company recognises
revenue from the sale of products given under finance
leases. The Company records gross finance receivables,
unearned income and the estimated residual value of
the leased equipment on consummation of such leases.
Unearned income represents the excess of the gross
finance lease receivable plus the estimated residual value
over the sales price of the equipment. The Company
recognises unearned income as finance income over the
lease term using the effective interest method.

Disclosures

Finance lease receivables

Finance lease receivables consist of assets that are
leased to customers for a contract term ranging from 1 to
7 years, with lease payments due in monthly or quarterly
installments. Details of finance lease receivables are
given below:

	March 31, 2017	March 31, 2016	April 1, 2015
Gross investment in lease
Not later than one year	₹2,060	₹2,222	₹3,685
Later than one year and not later than five years	2,725	3,127	3,108
Later than five years	–	–	73
Unguaranteed residual values	62	62	63
Unearned finance income	4,847 (319)	5,411 (413)	6,929 (569)
Net investment in finance receivable	₹4,528	₹4,998	₹6,360

Present value of minimum lease receivables are as
follows:

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Present value of investment in lease
Payments receivables	₹ 4,528	₹ 4,998	₹ 6,360
Not later than one year	1,854	2,034	3,419
Later than one year and not later than five years	2,616	2,906	2,826
Later than five years	–	–	57
Unguaranteed residual values	58	58	58

Included in the consolidated balance sheet as follows:

March 31,

2017

March 31,

2016

April 1,

2015

Non-current

₹ 1,854

₹ 2,034

₹ 3,461

Current

₹ 2,674

₹ 2,964

₹ 2,899

Assets taken on lease

Finance leases:

The following is a schedule of present
value of minimum lease payments under finance leases,
together with the value of the future minimum lease
payments as of March 31, 2017, March 31, 2016 and April
1, 2015.

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Present value of minimum lease payments
Not later than one year	₹ 3,623	₹ 3,133	₹ 1,660
Later than one year and not later than five years	4,657	5,830	3,218
Total present value of minimum lease payments	8,280	8,963	4,878
Add: Amount representing interest	437	578	345
Total value of minimum lease payments	₹ 8,717	₹ 9,541	₹ 5,223

Operating leases

The Company has taken office, vehicle and IT equipment
under cancellable and non-cancellable operating lease
agreements that are renewable on a periodic basis at the
option of both the lessor and the lessee. The operating
lease agreements extend up a maximum of fifteen years
from their respective dates of inception and some of these
lease agreements have price escalation clause. Rental
payments under such leases were ₹5,953, ₹5,184 and
₹4,727 during the years ended March 31, 2017, March
31, 2016 and April 1, 2015.

Details of contractual payments under non-cancellable
leases are given below:

	*March 31,* *2017*	*March 31,* *2016*	*April 1,* *2015*
Not later than one year	₹ 5,040	₹ 4,246	₹ 3,351
Later than one year and not later than five years	12,976	9,900	6,385
Later than five years	2,760	2,713	2,206
Total	₹ 20,776	₹ 16,859	₹11,942

Finance lease receivables

Leasing arrangements

Finance lease receivables consist of assets that are
leased to customers for contract terms ranging from 1 to
7 years, with lease payments due in monthly or quarterly
installments.

Finance leases

Obligation under finance lease is secured by underlying
assets leased. The legal title of these assets vests with
the lessors. These obligations are repayable in monthly,
quarterly and yearly installments up to year ending March
31, 2021. The interest rate for these obligations ranges
from 1.82% to 17.19%.

Operating leases

The Company leases office and residential facilities
under cancellable and non-cancellable operating lease
agreements that are renewable on a periodic basis at the
option of both the lessor and the lessee. Rental payments
under such leases are ₹2,878, ₹2,905 and ₹2,682 during
the years ended March 31, 2017, March 31, 2016 and
April 1, 2015.

BCAJ Admin

From Published Accounts

Section B:

Jindal Stainless Steel Ltd.

(31-3-2016)

– Composite scheme of Arrangement: Revision of
Financial Statements pursuant to section III and IV of the scheme becoming
effective (section I and II given effect earlier in same FY)

From Notes to Financial
Statements

27. Composite Scheme of Arrangement

1. A Composite
Scheme of Arrangement
(hereinafter referred to as “Scheme”) amongst Jindal Stainless Limited (the
Company/Transferor Company) and its three wholly owned subsidiaries namely
Jindal Stainless (Hisar) Limited (JSHL), Jindal United Steel Limited (JUSL) and
Jindal Coke Limited (JCL) under the provision of section 391-394 read with
section 100-103 of the Companies Act, 1956 and other relevant provision of
Companies Act, 1956 and/or Companies Act, 2013 has been sanctioned by the
Hon’ble High Court of Punjab & Haryana, Chandigarh vide its Order
dated 21^stSeptember, 2015, as amended vide order dated 12^thOctober, 2015.

Section
I and Section II of the Scheme became effective on 1^st November,
2015, operative from the appointed date i.e. close of business hours before
midnight of 31^stMarch, 2014.

Section
III of the scheme comprising Transfer of the Business undertaking 2 (as defined
in the scheme) of the Company comprising, inter-alia, of the Hot Strip
Plant of the Company located at Odisha and vesting of the same in Jindal United
Steel Limited (JUSL) on Going Concern basis by way of Slump Sale w.e.f.
appointed date i.e. close of business hours before midnight of 31^stMarch,
2015 and section IV of the Scheme comprising Transfer of the Business Undertaking
3 (as defined in the Scheme) of the Company comprising, inter-alia, of
the Coke Oven Plant of the Company Located at Odisha and vesting of the same
with Jindal Coke Limited (JCL) on Going Concern basis by way of Slump Sale
w.e.f. appointed date i.e close of business hours before midnight of 31^st
March, 2015. Section III and section IV of the Scheme has become effective on
24^th September, 2016 [i.e. on receipt of approvals from the Orissa
Industrial Infrastructure Development Corporation (OIIDCO) for the
transfer/grant of the right to use in the land on which Hot Strip (HSM Plant)
& Coke Oven Plants are located to JUSL & JCL respectively as specified
in the Scheme].

2. Pursuant
to the section I and section II of the Scheme becoming effective:

a) Against
amount of Rs. 36,618.67 lakh, the company is required to issue and allot
equity shares to JSHL at a price to be determined in accordance with chapter
VII of SEBI (ICDR) regulations 2009, with the record date jointly to be decided
by the board of directors of the Company and JSHL being considered as relevant
date as specified in the Scheme. The board of the Company and JSHL have, in
their respective meetings held on 6^th November, 2015, fixed 21^st
November, 2015 as the record date. However, since the price worked out for
issue of equity shares by the Company to JSHL, in terms of the provisions of
chapter VII SEBI (ICDR) was not reflective of the actual price of the equity
shares of the Company on EX-JSHL basis, therefore the allotment of equity shares
based on the aforesaid record date has not been pursued. Hence, pending
allotment by the Company of the aforesaid equity shares to JSHL as on 31^st
March, 2016, the same has been shown as “Share Capital Suspense Account”.
Subsequent to the Balance Sheet date, the company has allotted 16,82,84,309
nos. fully paid up equity shares of Rs. 2/- each @ 21.76 per share (including
premium of Rs.19.76 per share) on 3^rd July, 2016.

b) Out of Rs.
2,60,000.00 lakh payable by JSHL, Rs. 1,18,493.00 lakh
has been received upto 31^st March, 2016 and also balance amount of Rs.1,41,507.00
lakh has been received subsequent to balance sheet date.

c) In terms
of the Scheme, all the business and activities of Demerged Undertakings and
Business Undertaking 1 carried on by the Company on and after the appointed
date, as stated above, are deemed to have been carried on behalf of JSHL.
Accordingly, necessary effects had been given in the previous year accounts and
in these accounts on the Scheme becoming effective (read with note no.5 below).

3. Pursuant
to the section III and section IV of the Scheme becoming effective:

a) Business
undertaking 2 & Business undertaking 3 have been transferred to and vested
in JUSL & JCL respectively with effect from the Appointed Date i.e. close
of business hours before midnight of March 31, 2015 and the same has been given
effect to in these accounts.

b) (i) Business Undertaking 2 has been transferred at
a lump sum consideration of Rs. 2,41,267.33 lakh; out of this Rs.
2,15,000.00 lakh shall be paid by JUSL and against the balance amount of Rs.
26,267.33 lakh, the JUSL is to issue & allot to the Company
17,50,00,000 nos. 0.01% non-cumulative compulsorily convertible preference
shares having face value of Rs.10 each and 8,76,73,311 nos. 10%
non-cumulative non-convertible redeemable preference shares having face value
of Rs.10 each as specified in the Scheme, AND

(ii) Business undertaking 3 has been transferred at
a lump sum consideration of Rs. 49,264.71 lakh; out of this Rs. 37,500.00
lakh shall be paid by JCL and against the balance amount of Rs.
11,764.71 lakh, the JCL is to issue & allot to the Company 2,60,00,000
nos. 0.01% non-cumulative compulsorily convertible preference shares having
face value of Rs. 10 each and 9,16,47,073 nos. 10% non-cumulative non-convertible
redeemable preference shares having face value of Rs. 10 each as
specified in the Scheme. Pending allotment as stated above the same have been
shown as “Investment-pending Allotment”

c) On transfer of Business Undertaking 2 &
Business Undertaking 3, the differential between the book values of assets
& liabilities transferred and the lump sum consideration received as stated
above amounting to Rs. 36,259.75 lakh has been credited in the Statement
of Profit & Loss and included under Exceptional Item (Note no.30).

d) In terms of the Scheme, all the business and
activities of Business Undertaking 2 & Business Undertaking 3 carried on by
the company on and after the appointed date, as stated above, are deemed to have
been carried for and on behalf of JUSL & JCL respectively. Accordingly,
necessary effects have been given in these accounts on the Scheme becoming
effective.

4. The
necessary steps and formalities in respect of transfer of the properties,
licenses, approvals and investments in favour of JSHL, JUSL & JCL and
modification of charges etc. are under implementation.

5. While
according its approval for transfer/right to use of the land in the name of
JUSL & JCL Government of Odisha, Department of Steel & Mines vide
letter dated 16^th August, 2016, had put a condition that sections I
& II of the Scheme will not be carried out in so far as the mining lease of
the Company is concerned; accordingly transfer of the Mining Rights to Demerged
Undertakings (as referred in the Scheme) (Demerged undertaking transferred to
JSHL) is not been given effect, consequently:- (i) all mining activities in
relation to the Mining Rights continue to be carried out by the company (JSL);
and (ii) all assets (excluding fixed assets) and liabilities (including
contingent liabilities) in relation to the Mining Rights continue to be
recorded in the books of JSL; and (iii) all revenue and net profit: post 1^st
November 2015 on sections I & II of the scheme becoming effective are
recorded in the books of the company.

6. Post
Section III of the Scheme becoming effective, the Company has entered into an
agreement for Trolling of slabs got done from JUSL (Business Undertaking 2)
effective from 1^st April 2015, accordingly impact of the same amounting
to Rs. 35,262.50 lakh has been given under manufacturing expenses in
these accounts.

7. (A) Pursuant to the Scheme the effects on the
financial statements of operations carried out by the company for on behalf of
JUSL & JCL post the said appointed date have been given in these accounts
from the effective date (for the close of business hours before midnight of 31^st
March, 2015) are as summarised below:

Revenue items

Particulars (Post Appointed Period)

(Rs. in lakh)

2014-2015

Revenue

Nil

Expenses

Nil

Profit (Loss) before exceptional and
extraordinary items and tax

Nil

Exceptional Items – Gain/(Loss)

36,259.75

Profit before Tax

36,259.75

Tax Expenses (including deferred tax)

Nil

Profit after Tax

36,259.75

(B) As stated
in note no.1 above, the section III and section IV of the Scheme became
effective on 24^th September 2016, accordingly interest on amount
receivable will be accounted for.

8. The
financial statement of the Company for the year ended 31^st March,
2016 were earlier approved by the Board of Directors at their meeting held on
28^th May, 2016 on which the Statutory Auditors of the Company had
issued their report dated 28^th May, 2016. These financial statements
have been reopened and revised to give effect to the Scheme as stated in note
no.1 & 3 herein above.

From Auditors’ Report

Report
on the Standalone Financial Statements

We
have audited the accompanying REVISED standalone financial statements of JINDAL
STAINLESS LIMITED (“the Company”), which comprise the REVISED Balance Sheet as
at 31^stMarch, 2016, the REVISED Statement of Profit and Loss, the
REVISED Cash Flow Statement for the year then ended, and a summary of the
significant accounting policies and other explanatory information in which
impact of the Scheme (as stated in Note No.27) have been incorporated.

From Directors’ Report

Asset
Monetisation and Business Reorganisation Plan (AMP) and Composite Scheme of
Arrangement

The
Company, after having various rounds of discussions with the CDR Lenders, had
finalised a comprehensive plan of Asset Monetisation cum Business
Reorganisation Plan (“AMP”), which entailed monetisation of identified
business undertaking(s) of the Company through demerger/slump sale(s) and
utilisation of the proceeds of the slump sale(s) in reduction of debt of the
Company.

As
a part of the above said AMP, a Composite Scheme of Arrangement among the
Company and its three wholly owned subsidiary companies viz. Jindal Stainless
(Hisar) Limited (“JSHL”), Jindal United Steel Limited (“JUSL”)
and Jindal Coke Limited (“JCL”) and their respective creditors and
shareholders was undertaken which was approved by the Hon’ble High Court of
Punjab and Haryana at Chandigarh, vide its order dated 21^stSeptember,
2015 (as modified on 12^thOctober, 2015), Certified true copy of the
said Order was filed on 1^st November, 2015, with the office of
Registrar of Companies, NCT of Delhi and Haryana. Consequently, Section I
(pertaining to demerger of Mining Division and Ferro Alloys Division and
vesting the same in JSHL) and section II (pertaining to slump sale of
manufacturing facility at Hisar from the Company to JSHL) of the Scheme became
operative from the Appointed Date 1 i.e. close of business hours before
midnight of 31^st March, 2014. The Scheme envisaged demerger of
Mining Division including the Chromite Mines located at Sukinda and vesting the
same in JSHL, however, the Company did not receive approval from the Ministry
of Mines, Government of Odisha for transfer of the said Mines to JSHL,
therefore, the Board of Directors of the Company in its meeting held on 23^rd
November, 2016, in terms of clause 1.10 of section V of the Scheme, decided not to transfer the Mines of JSHL.

Section
III and IV of the Scheme with respect to JUSL and JCL respectively became
operative from Appointed Date 2 i.e. close of business hours before midnight of
31^st March, 2015, upon receipt of approval from Orissa Industrial
and Infrastructure Development Corporation Limited (OIIDCO), on 24^th
September, 2016, with respect to the transfer/right to use the land on which
Hot Strip Mill and Coke Oven Plant is located, from the Company to JUSL and JCL
respectively.

Post implementation of the
Scheme, the Company has already received an amount of Rs. 2,600 crore as
consideration for slump sale from JSHL, which has been utilised to prepay the
debts of the Company and accordingly the debt of the Company as on date has
been reduced to that extent. The Company will further receive an amount of Rs.
2,400 crore from JUSL and `Rs. 500 crore from JCL towards consideration of
slump sale and interest free security deposit for sharing infrastructure
facilities in due course and that amount shall also be utilised to prepay the
debts of the Company.

BCAJ Admin

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

117. A. P. (DIR
Series) Circular No. 23 dated 27^th December, 2016

Purchase and sale of securities
other than shares or convertible debentures of an Indian company by a person
resident outside India

This circular permits Foreign
Portfolio Investors to undertake transactions of non-convertible debentures /
bonds issued by Indian companies either directly or in any manner as per the
prevalent / approved market practice.

118. A. P. (DIR
Series) Circular No. 24 dated 3^rd January, 2017

Exchange facility to foreign
citizens

This circular provides that the
facility for exchange of foreign exchange for Indian currency, available to
foreign citizens (i.e. foreign passport holders) whereby they were permitted to
exchange foreign exchange for Indian currency notes up to a limit of Rs.
5,000/- per week will continue up to 31^stJanuary, 2017. The foreign
tourist will have to give, at the time of exchange, a self-declaration that he
/ she has not availed of this facility during the week and also provide a copy
of their passport.

119. Notification No.
FEMA. 377/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Fifteenth
Amendment) Regulations, 2016

This
notification has made the following two changes Notification No. FEMA.
20/2000-RB dated 3^rdMay 2000): –

1. A new definition ‘convertible
note’ has been inserted vide clause (iiA), as under, in Regulation 2: –

“(iiA) ‘convertible note’ means an
instrument issued by a startup company evidencing receipt of money initially as
debt, which is repayable at the option of the holder, or which is convertible
into such number of equity shares of such startup company, within a period not
exceeding five years from the date of issue of the convertible note, upon
occurrence of specified events as per the other terms and conditions agreed to
and indicated in the instrument;”

2. A new Regulation 6D which deals
with Issue of Convertible Notes by startup companies has been added.

120. Notification No.
FEMA. 383/2016-RB dated 10^th January, 2017

Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside India) (Amendment)
Regulations, 2017

This notification has made the
following changes in Schedule 1, in Annex B of Notification No. FEMA.
20/2000-RB dated 3^rd May 2000): –

A. The existing Paragraph F.4 shall
be substituted by the following namely: –

F.4

Infrastructure Company in the Securities Market

F.4.1

Infrastructure companies in Securities Markets,
namely, stock exchanges, commodity derivative exchanges, depositories and
clearing corporations, in compliance with SEBI Regulations.

49%

Automatic

F.4.2

Other Conditions:

(i) Foreign
investment, including investment by FPIs, will be subject to the Guidelines/
Regulations issued by the Central Government, SEBI and the Reserve Bank from
time to time.

(ii) Words
and expressions used herein and not defined in these regulations but defined
in the Companies Act, 2013 (18 of 2013) or the Securities Contracts
(Regulation) Act, 1956 (42 of 1956) or the Securities and Exchange Board of
India Act, 1992 (15 of 1992) or the Depositories Act, 1996 (22 of 1996) or in
the concerned Regulations issued by SEBI shall have the same meanings
respectively assigned to them in those Acts / Regulations.

B. The existing Paragraph F.6 shall be deleted.

C. The existing Paragraphs F.7, F.8, F.9 and F.10
shall be re-numbered as F.6, F.7, F.8 and F.9
respectively.

121. A. P. (DIR
Series) Circular No. 27 dated 12^thJanuary, 2017

Evidence of Import under Import Data Processing and
Monitoring System (IDPMS)

This circular: –

1. States that the procedure for submission of
hardcopy of Evidence of Import documents i.e. Bill of Entry, has been
discontinued with effect from 1^st December, 2016, as the same is
available in IDPMS.

2. Lays
down the revised procedure to be followed by Banks with respect to evidence of
import under IDPMS.

122. A. P. (DIR
Series) Circular No. 28 dated 25^th
January, 2017

Notification No. FEMA 382/2016-RB dated 2^nd
January, 2017

Prohibition on Indian Party
from making direct investment in countries identified by the Financial Action
Task Force (FATF) as “Non Co-operative countries and territories”

Presently, an Indian Party, in terms of FEMA Notification No.
FEMA.120/RB-2004 dated 7^th July, 2004, can undertake investment in
any country.

This circular prohibits an Indian Party from undertaking ODI,
in terms of FEMA Notification No. FEMA.120/RB-2004, in an entity, either
directly by setting up or acquiring a JV/ WOS or indirectly by way of a step
down subsidiary, which is located in countries identified as “non co-operative
countries and territories” by the FATF.

The list is available on the FATF website –
www.fatf-gafi.org.

123. A. P. (DIR
Series) Circular No. 29 dated 2^nd February, 2017

Foreign Exchange Management Act, 1999 (FEMA) Foreign
Exchange (Compounding Proceedings) Rules, 2000 (the Rules) – Compounding of
Contraventions under FEMA, 1999

This circular states that the powers to compound the
contraventions pertaining to delay in filing the Annual Return on Foreign
Liabilities and Assets (FLA return), by all Indian companies which have received
Foreign Direct Investment in the previous year(s) including the current year,
have been delegated to the Regional Offices of RBI.

All Regional Offices except the Regional Offices at Kochi and
Panaji can compound the contraventions without any limit as to the amount of
contravention.

The Regional Offices at Kochi and Panaji can compound the
contraventions up to Rs. 10,000,000. Contraventions in excess of Rs. 10,000,000
will be compounded by the Central Office at Mumbai.

124. A. P. (DIR
Series) Circular No. 30 dated 2^ndFebruary, 2017

Notification No. FEMA 378/2016-RB dated 25^th
October, 2016

Risk Management and
Inter-bank Dealings: Permitting Non Resident Indians (NRIs) access to Exchange
Traded Currency Derivatives (ETCD) market

This circular now permits NRI, subject to certain terms and
conditions, to hedge their currency risk arising out of their investments in
India by using the products available on the exchange traded currency
derivatives market in India. This facility is in addition to the existing
hedging facilities that are available to NRI.

125. A. P. (DIR
Series) Circular No. 31 dated 17^thFebruary, 2017

Issuance of Rupee denominated bonds overseas – Multilateral
and Regional Financial Institutions as Investors

Presently, Rupee denominated bonds can be issued only in a
country and to a person resident in a country: –

1. That is a member of Financial Action Task
Force (FATF) or a member of a FATF Style Regional Body; and

2. Whose securities market regulator is a
signatory to the International Organization of Securities Commission’s
(IOSCO’s) Multilateral Memorandum of Understanding (Appendix A Signatories) or
a signatory to bilateral Memorandum of Understanding with the Securities and
Exchange Board of India (SEBI) for information sharing arrangements; and

3. That should not be a country identified in the
public statement of the FATF as: –

(i) A jurisdiction having a strategic Anti-Money
Laundering or Combating the Financing of Terrorism deficiencies to which
counter measures apply; or

(ii) A jurisdiction that has not made sufficient
progress in addressing the deficiencies or has not committed to an action plan
developed with the Financial Action Task Force to address the deficiencies.

This circular now, in addition to the above, now
permits Indian entities to issues Rupee denominated bonds to Multilateral and
Regional Financial Institutions in which India is a member country.

BCAJ Admin

Allied Laws

24. Family & Personal Laws –
Family arrangement /settlement in respect of immovable property worth more than
Rs. 100, when orally made, no registration is required and is admissible in
evidence but when reduced in writing same has to be registered- but even if
unregisterd, same can be used as corroborative evidence. [Sections 17 & 49
of the Registration Act, 1908.]

Subraya M.N. vs. Vittala M.N. And Others (2016) 8 scc 705 (sc).

The Appellant-Defendant and the Respondents- Plaintiffs are
the sons of one late Narayana. The suit scheduled property comprises of item
No. 1 measuring 1.00 acre; item No. 2 measuring 0.25 acre. Appellant-Defendant
claimed that so far as item Nos. 1 and 2 are concerned, Plaintiffs have sold
their shares – 0.50 acre of land to the Defendant and the third Plaintiff as
per sale deed dated 28.04.1976 and Plaintiffs have no right to claim partition
in respect of item Nos. 1 and 2. It is further averred that there was a
panchayat in the village on 18.03.1995 wherein Plaintiff Nos. 3 and 4 and Defendant
participated and it was agreed between the parties that the Defendant will give
Rs. 50,000/- to the Plaintiff Nos. 3 and 4 and Defendant will have all rights
over item Nos. 1 and 2. The trial court as well as the High Court held that in
the absence of any conveyance deed, it cannot be established that Plaintiff
Nos. 3 and 4 have forfeited their rights in respect of item Nos. 1 and 2 of the
suit scheduled property. The Supreme court reversing the order of trial court
and high court held that in the facts and circumstances of this case and the
conduct of the parties, Panchayat resolution appears to record the family
settlement already arrived at between the parties. There is no provision of law
requiring family settlements to be reduced to writing and registered, though
when reduced to writing the question of registration may arise. Binding family
arrangements dealing with immovable property worth more than rupees hundred can
be made orally and when so made, no question of registration arises. If,
however, it is reduced to the form of writing with the purpose that the terms
should be evidenced by it, it required registration and without registration it
is inadmissible; but the said family arrangement can be used as corroborative
piece of evidence for showing or explaining the conduct of the parties. In the
present case, panchayat resolution reduced into writing, though not registered
can be used as a piece of evidence explaining the settlement arrived at and the
conduct of the parties in receiving the money from the Defendant in lieu of
relinquishing their interest in item Nos. 1 and 2.

25. Nomination under Companies Act,
1956 will not override succession [Sections 109A and 109B of Companies Act,
1956].

Shakti Yezdani & Ors vs. Jayanand Jayant Salgaonkar and
Ors. Appeal No. 313 Of 2015 & Appeal No. 311 of 2015 dtd 1.12.2016
(Bom,)(HC)

The questions to be decided by the division bench of the
Bombay High Court were as under:

(i) Whether a nominee of a holder of shares or
securities appointed u/s. 109A of the Companies Act, 1956 read with the
Bye-laws under the Depositories Act, 1996 is entitled to the beneficial
ownership of such shares or securities to the exclusion of all other persons
who are entitled to inherit the estate of the holder as per the law of succession?

(ii) Whether a nominee of a holder of shares or
securities on the basis of the nomination made under the provisions of the
Companies Act, 1956 read with the Bye-laws under the Depositories Act, 1996 is
entitled to all rights in respect of such shares or securities to the exclusion
of all other persons or whether he continues to hold the securities in trust
and in a capacity as a beneficiary for the legal representatives who are
entitled to inherit securities or shares under the law of inheritance ?

(iii) Whether a bequest made in a Will executed in
accordance with the Indian Succession Act, 1925 in respect of shares or
securities of the deceased supersedes the nomination made under the provisions
of Sections 109A and Bye-Law No. 9.11 framed under the Depositories Act,
1996?.”

The Bombay High court held as under:

(i) The Apex Court in the case of Indrani
Wahi vs. Registrar of Co-op. Societies and Others (2016) 6 SCC 440
considered the provisions of nomination under Sections 69 and 70 of the West
Bengal Co-operative Societies Act, 1983 and came to the conclusion that where a
member of a Co-operative Society nominates a person in consonance with the
provisions of the Rules framed under the West Bengal Act of 1983, the
Co-operative Society is mandated to transfer all the shares or interest of such
member in the name of the nominee. This view was taken by the Apex Court in the
light of the express provisions of section 80 of the said Act of 1983 read with
Rule 127 of the Rules of 1987 framed under the West Bengal Act of 1983.
Sections 79 and 80 of the said Act of 1983 appear to be different from the
provisions relating to the nomination in the Maharashtra Cooperative Societies
Act, 1960. After issuing the directions to the Co-operative Society to transfer
the shares of the deceased member in the name of the Appellant who was a
nominee, the Apex Court specifically observed that it will be open for other
members of the family of the deceased member to pursue their case of succession
or inheritance in consonance with law. Thus, the conclusion drawn by the Apex
Court was that a Cooperative Society is bound by the nomination made by the
member. In case of such nomination, the Society has no option except to
transfer the shares in the name of the nominee after the death of the member.

However, those who are claiming
inheritance will be entitled to pursue their remedies and claim title in the
shares on the basis of inheritance. Thus, the conclusion drawn by the Apex
Court was not that the nomination binds the legal representatives of the
deceased shareholder or a member of the Society or that it overrides the law of
succession.

(ii) Even assuming that the format of the
nomination requires attestation as required by a will under the Indian
Succession Act, 1925, the nomination does not become a testamentary
disposition.

(iii) The provisions relating to nominations under
the various enactments have been consistently interpreted by the Apex Court by
holding that the nominee does not get absolute title to the property subject
matter of the nomination.

The reason is by its very nature, when a
shareholder or a deposit holder or an insurance policy holder or a member of a
Co-operative Society makes a nomination during his life time, he does not
transfer his interest in favour of the nominee. It is always held that the
nomination does not override the law in relation to testamentary or intestate
succession. The provisions regarding nomination are made with a view to ensure
that the estate or the rights of the deceased subject matter of the nomination
are protected till thelegal representatives of the deceased take appropriate
steps.

None of the provisions of the aforesaid Statutes providing
for nominations deal with the succession, testamentary or non-testamentary.

(iv) The object of the provisions of the Companies
Act is not to either provide a mode of succession or to deal with succession.
The object of the Section 109A is to ensure that the deceased shareholder is
represented by someone as the value of the shares is subject to market forces.

Various advantages keep on accruing to
shareholders. For example, allotment of bonus shares. There are general
meetings held of the companies in which a shareholder is required to be
represented. The provision is enacted to ensure that the commerce does not
suffer due to delay on the part of the legal heirs in establishing their rights
of succession and claiming the shares of a company.

(v) The so called vesting u/s. 109A does not
create a third mode of succession. It is not intended to create a third mode of
succession. The Companies Act has nothing to do with the law of succession.

(vi) The
first question is answered in the negative and the third question in the
affirmative. The second question is answered accordingly.

Editor’s Note – A reference may be made to the Feature Laws
and Business published in the May 2015 issue of the BCAJ in which this subject
is analysed.

26. Sales Tax – Minor admitted to
benefits of partnership not liable for dues of the firm. [Sections 25, 30 of Indian Partnership Act, Section 21
of Kerala General Sales Tax Act, 1963]

J. Rajmohan Pillai vs. District Collector, Kollam &
Ors (2016) 93 vst 397(ker)

The petitioner, while he was a minor was inducted as a
partner of the firm M/s. Malabar Cashew and Allied Products with effect from
01/01/1975. The partnership was reconstituted on 01/01/1976 by which the
petitioner and three other minors were excluded from the partnership. The firm
was liable to pay sales tax dues and accordingly, revenue recovery proceedings
were initiated by the 1^st respondent. The 1^st respondent
proceeded on the basis that the petitioner, being a partner, was also liable
for the arrears of sales tax dues and accordingly, steps were taken against the
petitioner u/s. 65 of the Revenue Recovery Act.

The Kerala High Court held that when a firm is liable, each
of the partners in the firm are jointly and severally liable for the amount due
until he retires. It is very clear from the provisions of the Act, that a minor
can only be admitted to the benefits of the partnership and cannot become
liable to the debts or the loss of the partnership. It is trite, that a minor
cannot be made liable for the liability of the firm. The District Collector had
referred to sections 30(7), 35 and 25 of the Partnership Act to impose a
liability on the petitioner. Section 30 of the Partnership Act, relates to
admitting a minor to the benefits of partnership. The Statute indicates that
though a minor may not be a partner of the firm, he may be admitted to the
benefits of the partnership. Though the minor’s share is liable for the acts of
the firm, but the minor is not personally liable for any such act.

27. Investigation and Enquiry –
Summons under Customs Act – Presence of counsel during interrogation of
Petitioner – To be within visible range but beyond hearing range – Counsel must
be prepared to be present for every summons made. [Customs Act, 1971; Section
108]

Vijay Sajnani vs. Union
Of India 2017 (345) E.L.T. 323 (S.C.)

Section 108 of the Custom’s Act gives the power
to summon any person to give any evidence or produce documents. The section
also states, that the person so summoned, is bound to state the truth upon any
subject, on inquiry. The section had no mention of whether the counsel of the
person so summoned would be able to witness such inquiry/interrogation.
However, in the present case, the Supreme Court had allowed the Counsel of the
petitioners to be present during the interrogation of the petitioners. But this
allowance was subject to the counsel being present at a reasonable and visible
distance, beyond hearing range, during such interrogation It was also directed
that the petitioner’s counsel should always be prepared to be present whenever
the petitioners are called upon to attend such interrogation.

BCAJ Admin

Light Elements

Mr. Optimist and Mr. Skeptic were good friends. Optimist was very happy
with the policies of the new Government. He felt that now the things would be
better. The new Government has promised clean governance, minimum intervention
of administration, healthy external policies, ease of doing business,
transparency, financial inclusion, and what not! He started day dreaming for a
happy and peaceful life for the common man.

One day after the Union Budget, Mr.
Optimist met Mr. Skeptic.

Optimist : Hello. What do you feel about the budget?

Skeptic : Well. It is same as every year’s. Nothing
new!

Optimist : Are you not happy with the policies announced
by the FM?

Skeptic : Practically all FMs so far have been
promising the same thing.

Optimist : But the implementation was bad. Bureaucrats
were not allowing good things to happen.
There was corruption.

Skeptic : Do you think bureaucracy has changed? Do you
think corruption will stop?

Optimist : Well; we should always hope for the better.
They are taking good steps in that direction. Everything is becoming ‘on-line’.

Skeptic : So, what you feel will happen now?

Optimist : I am sure, there will be stability and
growth!

Skeptic : Ha! Ha! Ha! I will tell you a story.

There was a very poor country. It was faced with the menace from rats.
All fields and other places were infested with rats. They were causing lot of
damage to the crop, to the properties and everything. The Government was
helpless. People didn’t know how to tackle this problem.

Once, they convened a conference in which international experts were
invited to solve this monstrous problem. They made their presentations which
were very impressive.

A few experts suggested electronic
devices; but the host country said – “we are too poor to afford such expensive
gadgets”. A few others came out with chemical solutions. Again there was
helplessness due to cost factor.

Chemicals would also spoil the fertility of the soil. It seemed the conference
would be futile. Nothing was working out.

Finally, one Indian expert stood up. He said –‘I can suggest a simple
remedy’. All listened to him very intently.

“Look here”, he said; “Take a knife and keep it horizontal on the floor;
or on the table. Take two small plates and keep one on each end of the knife.
Put some gud (Jaggery) in one plate and some kopra (coconut) in
the other.

“How will it
help?” – People wondered.

“Rat will come;
stand before the knife and have a dilemma. What to eat first? ‘Gud’ or ‘kopra’.
He will move his neck violently. In the process, his neck will get cut! And
your jaggery and coconut will remain intact”!

People applauded
very loudly. They were all extremely happy. Same night, there was a cabinet
meeting of the ministers. The mood was very joyous. Suddenly, somebody pointed
out – The remedy is alright. But how can we afford so much gud and kopra?
We are so poor! There was a long and deep silence. Finally, they rang up the
expert again and explained to him the problem.

“Don’t worry”,
assured the expert. I will think of a solution. Let’s meet tomorrow morning.

Next day, there
was again an assembly of selected persons. The expert said, “ I have found the
solution. Keep the same arrangement, horizontal knife and two dishes; but let
them be empty’.

People got
puzzled. “How will it help?”

Expert – “See,
the rat will come, look at both the dishes; and will wonder “Arey! Gud bhi
nahi aur kopra bhi nahi! (Neither jaggery nor coconut). He will again shake
his neck in despair! Result, you know. Cutting of his neck!”

Optimist
realised the fate of ‘stability’ and ‘growth’! And also that the citizens of
our country are like rats._

BCAJ Admin

Indirect Taxes

83. Refund of Swachh Bharat Cess to Exporters and SEZ units :

Notification No. 03/2016 dated 03.02.2016

CBEC vide this Notification allows refund/rebate of Swachh Bharat Cess to exporters and SEZ units. By this notification CBEC seeks to amend Notification No. 39/2012- ST, dated 20th June, 2012 so as to provide for rebate of Swachh Bharat Cess paid on all services, used in providing services exported in terms of rule 6A of the Service Tax Rules.

84. Refund of Service Tax paid on Services used beyond factory for export of goods :

Notification No. 01/2016 dated 03.02.2016
The Board has issued this Notification, amending the Notification No. 41/2012-ST substituting “place of removal” with “factory or any other place or premises of production or manufacture of the said goods” effective from 3rd February, 2016. The impact of such amendment would be allowing refund of service tax paid on expenses incurred post factory gate which hitherto was considered ineligible for refund.

Further Notification No. 41/2012-ST also grants option for claiming refund based on fixed percentage of FOB value of export. The rate of refund as specified in the said notification was fixed when the rate of service tax was 12.36%, the said schedules of rates is now being amended by this Notification No. 01/2016 to give effect of current service tax rate of 14.5 %.

85. Refund of Swachh Bharat Cess paid on Specified Services used in SEZ units :

Notification No. 02/2016 dated 03.02.2016

CBEC vide this Notification seeks to amend Notification No. 12/2013- ST, dated the 1st July, 2013 so as to allow SEZ units, the refund of Swachh Bharat Cess paid on specified services on which ab-initio exemption is admissible but not claimed.

BCAJ Admin

from the president

Dear Members,

Greetings!

We had a wonderful 6th Residential Study Course (RSC) on IFRS and Ind ASs. Three papers for discussion and two papers for presentation took the participants through a number of facets of Ind ASs implementation. One key takeaway for me was an analysis where the speaker proved the impact of Ind ASs will be minimum and manageable. He demonstrated that in terms of number of adjustments and impact on Revenue Statement and Balance Sheet will not be substantial for most businesses. The excessive hype generally around implementation issues, impact and requisite changes should therefore largely prove to be just that.

It was also heartening to find people from non audit disciplines at the Ind ASs RSC. In recent times, we have seen a tilt towards specialisation and hyper specialisation. However the business universe is far more interconnected and dynamic than ever before. Often specialisation works in compliance arena, but when it comes to giving advice, the approach calls for sound knowledge of a number of facets of the issue. Perhaps there will be some balancing in the profession, and CAs will function as advisors who give comprehensive solutions and direction. Such turnaround, stepping out of compliance practice, would bring a larger part of the profession in a superior trajectory. A speaker did point out that out of what a CFO typically requires; only 9 % relates to tax and accounting which we CAs deal with. I hope as CAs we will step up to deliver the other 91% that market requires.

Make in India – Manufacturing and Job Creation
Global demand remains sluggish and seems to stay that way. Manufacturing in India does have serious disadvantages, from poor infrastructure to terrible regulatory mechanism. The simplest of things could be painful and the obvious could be crammed with unimaginable hurdles. Our advantage is the market. But whether serious value addition can happen in India or not is still a question. Unfortunately, we need urgently a whole ecosystem where an Industry can come, along with all its paraphernalia of suppliers and others and set up a base. The Make in India week seemed to have brought this in focus and now the Rs. 15 lac crores of investment commitment need to translate into actual investments.

What we need today is jobs, more jobs and better jobs. Statistically the correlation between Manufacturing and job creation has weakened. Between 2004-05 and 2009- 10, the employment in manufacturing fell by around 5 million. Presently the chances of high job creation look steep. Automation and artificial intelligence (AI) pose strong challenge to the man who created them. Industrial robots sold increased by 56% in the last year, driven by emerging markets. I heard that AI is being developed to an extent that even call centres will be driven by AI where you will be able to get responses by machines which are faster and in the right tone. Our government has been talking about all the right things, and bringing initiatives such as Digital India, Start up India, Skill India and so on. However, the level of urgency cannot be over emphasized and therefore the scale and pace will need a greater push.

New Leadership at ICAI
Our parent body, ICAI has a new leadership in place with the President Mr. Devaraja Reddy and Vice President Mr. Nilesh S. Vikamsey at the helm. It so happens that both are BCAS members and Mr Vikamsey has been an integral part of the accounting and auditing committee for many years. The Society conveys its best wishes and continued commitment to partner with ICAI in its endeavour of Nation building.

Parliament Functioning
Today, the parliament’s fascination to remain focussed on one or two issues at the detriment of larger problems faced by the nation is becoming rampant and serious. Where farmers commit suicide, where people cannot find meaningful and gainful employment, where investment proposals in industrial sector in value terms are at an 11 years low, where rupee is weakening, companies are over leveraged, banks are ridden with NPAs, should the parliament not focus on matters that have enduring positive effect on the lives of our people? Could we have more deliberations than accusations, can we expect normal functioning rather than pandemonium, will adjournments be replaced by extended hours of working to clear pending business?

Tax Policy
The FM announced the creation of Tax Policy Council (TPC) and Tax Policy Research Unit (TPRU) to make coherent tax policies and ensure independent, multidisciplinary analysis before decisions are made. This is a welcome move arising from the TAR C report. TPRU will carry out impact analysis of new tax measures on immediate state revenues and also the medium and long term impact on behaviour of economic agents and the economy as a whole. We can now hope that this unit will bring out the baneful consequences of issues such as retroactive amendments, and point out side effects of sudden changes, reversals, negation of lawful judgements, that discourage investments. The actions of bureaucracy to collect more taxes, has resulted in creating a perception of Indian tax system as predatory and unfair. Having a bad tax policy and administration is akin to killing the geese that lays golden eggs. We hope that TPRU will be fair, independent and vociferous and brings out projections that will inform formulation of tax laws.

Finance Bill
The Society started a new initiative to have short videos of about 2 minutes by some of our members practicing in tax laws and young professionals speaking about their Budget expectations under specific areas. We received good feedback and therefore we will post more videos after the 29th February on our You Tube channel, Social Media and also circulated via email.

As you read this page, the FM would have presented a Union Budget that we all were looking forward to. No one knows better than the FM that behind good looking macro indicators, lies over capacity, high debt, rancid bank loans, and slackening demand and much more. In the spirit of Holi, let us hope that the FM will sprinkle the colours of structural reform, controlled spending, and big bang tax reforms, if not more. Time is running out and destinies of a billion plus people are involved!

BCAJ Admin

LETTERS FROM THE READERS

Dear Mr President,

I read with lot of interest
“Pelting Pessimism”, so well written editorial, hats off to him….I
had posted this on my facebook wall, despite there are not many who really
read, I received the following appreciating words….Please pass it to him….

“Yatendra Goyal Excellent. I have gone
through the whole text. The views expressed are a result of deep study of
present day scenario. Congrats for the nice thought provoking views.”

Yatendra Goyal.

Dear Raman,

Your editorial titled “
Pelting Pessimism” in the BCAS Journal of February 2019 is simply superb!

It is definitely an
eye-opener for the negative thinkers. Not only the choice of subject is very
good, the article is also excellently articulated. Congratulations!

Such thoughts should be
widely shared to beat the pessimism. In case you are not doing so yet, suggest
you send such editorials to a couple of conscious newspapers.

These are my personal
thoughts.

Swati Kapadia

BCAJ Admin

SOCIETY NEWS

Full day Seminar on “Capital Gains and Income from Other Sources” held on 18th January 2019 at BCAS Conference Hall

The Taxation Committee organised a full day Seminar on Capital gains and Income from other Sources on 18th January, 2019 at BCAS Conference Hall, with distinguished speakers sharing their in-depth knowledge on the subject. The event garnered overwhelming response and saw an attendance of 104 participants which also included outstation participants from 6 cities. President CA. Sunil Gabhawalla gave the opening remarks.

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

Certain Fundamental Concepts Governing Capital Gain on Immovable Property	Adv. Vipul Joshi
Overview of provisions of capital gains from transfer of shares and securities – issues in long term capital gains on listed shares – applicability of grand fathering clause – derivatives – business income v/s capital gains	CA. Gautam Nayak
Income from Other sources – transfer of shares between relatives and non-relatives including minor – issues in section 56(2) – sale of shares of distressed companies – intergroup transfer and restructuring – recent judicial decisions.	CA. (Dr.) Anup Shah
Brain Trust Questions – Capital Gains Issues Short term – long term – sections 45 & 48 – sections 54, 54EC and 54F – section 47: transfers not liable to tax – clubbing of income – exempt income – winnings from lotteries, prizes etc.	CA. Rajan Vora, CA. Anil Sathe & CA. Radhakishan Rawal

Adv. Vipul Joshi started the first session highlighting the fundamental concepts on taxation of Income from Capital gains. He concentrated on various issues arising from Capital Gains on Immovable Property and cited relevant case laws on various issues.

CA. Gautam Nayak explained to the participants about Taxability on Transfer of Shares & Securities. He discussed and explained the basis on which the income should be categorised as Capital Gains or Business income. He gave his insights on taxation of transactions in derivatives. Participants also had the benefit of knowing Mr Nayaks’ views on Capital Gains on listed Equity Shares and EOMFs as amended vide the Finance Act 2018.

CA. (Dr.) Anup Shah spoke on issues under section 56(2) and business restructuring. He covered almost all the issues and gave the recent jurisprudence on the said issues. He also gave his insights on newly inserted section 56(2)(x) and the controversy surrounding Angel Tax. He explained business restructuring in detail including merger, demerger, takeover, slump sale etc.

CA. Rajan Vora, CA. Anil Sathe and CA. Radhakishan Rawal were the trustees for the last session of Brains Trust. All of them were given six questions each to address. CA. Rajan Vora gave his views and answers to questions relating to sections 45(3), 50C, 56 (2) (x), 68, 54, 54F etc. CA Anil Sathe answered questions largely concerning Capital Gains and Income from other sources from transfer of Immovable Property. He also addressed participants on issues concerning joint development agreements between landowners and the developer. CA. Radhakishan Rawal gave his insights on questions relating to taxability from transfer of securities and ESOPs with examples.
The sessions were interactive and the speakers shared their insights on the subject. The participants benefited immensely from the guidance and practical views on various issues by the faculties.

Suburban Study Circle Meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” held on 24th January, 2019

The Suburban Study Circle organised a meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” on 24th January, 2019 at Bathiya & Associates, LLP, Andheri East, which was addressed by CA. Rutvik Sanghvi.

The speaker made a detailed presentation on (i) FEMA vs. FERA (ii) Liberalised Remittance Scheme (iii) Overseas Direct Investment (iv) Investment in Real Estate outside India and (v) FEMA Compliance related to LRS and ODI. He further presented the brief about the FEMA law and how FEMA replaced FERA and also lucidly explained the rules and regulations related to LRS and ODI provisions citing practical examples that helped the participants in understanding the FEMA regulations. The participants benefited from the presentation shared by the speaker.

DIRECT TAX LAWS STUDY CIRCLE

Study Circle Meeting on “Issues under section 56(2) (x) of the Income-tax Act, 1961” held on 31st January 2019 at BCAS Conference Hall

Direct Tax Laws Study Circle organised the captioned meeting on 31st January, 2019 at BCAS Conference Hall. The Chairman of the session, CA. Anil Sathe gave his opening remarks. The Group leader, CA. Navin Gandhi gave a brief overview of the gift tax regime and its back door entry into the Income-tax Act, 1961. Thereafter, the group leader briefly explained the underlying principle and the scope of section 56(2)(x) of the Act. Subsequently, the group leader discussed in detail various issues relating to consideration, exception of ‘relatives’, valuation requirements for the said section and transfer of immovable property being covered under the ambit of section 56(2)(x). Also, the interplay between gift tax provisions and the Act was discussed. The session was quite interactive and participants got highly enriched with the rich experience of the Group Leader.

FEMA STUDY CIRCLE

Meeting on “External Commercial Borrowing- Recent Amendments” held on 5th February 2019 at BCAS Conference Hall

A FEMA Study Circle Meeting was held on 5th February, 2019 at BCAS Conference Hall where CA. Niki Shah led the discussion on the topic of “External Commercial Borrowing – Recent Amendments”. The Group leader discussed a new ECB framework which is divided into two parts now viz. foreign currency denominated ECB and Indian Rupees Denominated ECB. He also deliberated on the expanded list of eligible borrowers, recognised lenders, end use restriction, ECB Liability Equity Ratio, Limit and Leverages, Hedging provision, procedure and reporting requirements etc. The Speaker further elaborated as to whether LLP can take ECB and whether late submission fees is to be paid for each form and under what circumstances. The participants appreciated and benefitted immensely from the efforts put in by the group leaders who made the discussion very live.

“17th Residential Retreat” held on 8th, 9th and 10th February, 2019

Human Resource Development Committee organised 17th Residential Retreat on 8th, 9th and 10th February 2019 which was attended by 28 delegates including 8 couples. The theme of the Programme was ‘Principle Centred Leadership Spectrum’ at picturesque, serene and beautiful Rambhau Mhalgi Prabodhini, Keshav Shrushti, Bhayander West. Senior Mentor Mr. Gopal Sehjpal, ACC (ICF), an International Trainer in Behavioural and Leadership/Management facilitated as trainer.

President CA. Sunil Gabhawalla shared his views on leadership in his inaugural address. He touched upon the important qualities of a good leader i.e. Integrity, Positivity, Understanding, Listening and Smile. He also emphasized the significance of Clarity of purpose, building and grooming the team.
CA. Rajesh Muni, Chairman of HRD Committee, briefed the participants about various activities of the committee and shared details of the past 16 Residential Retreat Programs.

1) Trainer Mr. Gopal Sehjpal had various interactive sessions with the participants and shared the key points such as Principle, Centre and Leadership as under:
(a) Principles are Natural Laws that govern us. They are, never changing, operating everywhere at all time and virtues are personal choices. (b) Important qualities of a leader are passion, courage, humility and love. Love is treating others more than self. (c) Spiritual Quotient is more important than Intellectual and Emotional Quotient. (d) People live their life keeping in centre money, work, pleasure, health, self-image, friend, family, spouse, enemy, religion, etc. The right way is to have “Principles” as centre. (e) Success is optimization of efficiency (speed) and effectiveness (direction).

2) The Speaker also discussed that Spectrum signifies acronym VIBGYOR. (Vision, Introspection, Blue Print for success, Governance, Y Factor, Organisation, Relationship) and explained each characteristic of VIBGYOR as under:

Vision and mission

Organisation or family must evaluate its Strengths and Opportunities. Vision helps to visualise the unknown future and identify the potential obstacles and therefore enables one to come up with possible solutions to overcome them. It also brings enthusiasm in attaining the Goal and to move forward despite obstacles. It provides focus, clarity and a sense of purpose. It should be made in the context of Strength, Weakness, Opportunities and Threats. One must be aware of 35 time wasters categorised in seven areas (Planning, organising, staffing, Leading, Controlling, Communicating and decision making), introspect and overcome such obstacles.

Blue print for success:
It is a process of setting Goals and drawing action plans aligned with the Vision and Mission Statements.

Governance:
Governance relates to the tone at the top. It provides clarity on important parameters like Time, Cost and Resource Allocation, Statutory Compliance, Corporate Social Responsibility, Ethics and Values.

Y Factor: On a graph, Y axis represent results and X axis is for input and resources. It is an exercise of plotting inputs to evaluate productivity, proficiency and efficiency.

Organisation: Structure of reporting relationships vertically and horizontally to provide clarity on accountability.
Relationship: Intrapersonal and Interpersonal relationships have to be appropriate and conducive for synergy.

3) Important 8 Quality Management Principles are:

(i) Customer Focus (ii) Leadership (iii) Involvement of People (iv) Process Approach (v) System approach to management (vi) Continuous improvement (vii) Factual approach to decision making and (viii) Mutual beneficial supplier relationship.

4) Guide to break 12 Ineffective Habits

(i) Reluctance to claim your achievements (ii) Expecting others to spontaneously notice and reward your contribution (iii) Overvaluing expertise (iv) Building rather than leveraging relationship (v) Failing to enlist allies from day one (vi) Putting your Job before your carrier (vii) The Perfection Gap (viii) The Disease to Please (ix) Minimizing (x) Too Much (xi) Ruminating and (xii) Letting your radar distract you.

In the concluding session, on 8th February, a small clip of 10 minutes titled ‘Down the memory lane’, was screened. It took the participants down the memory lane, recounting the experiences of previous camps. It was a tribute to Late Shri Pradeepbhai. The regular participants who were emotionally connected with him were moved as they reminisced the experiences shared with Pradeepbhai. New participants had a very heart-warming experience too. On 9th February, participants enjoyed a campfire in the late evening with some dancing and singing. On 10th February, participants returned with some beautiful memories of the camp. The participants got highly enlightened and refreshed their memories of the past Residential Retreats.

International Taxation Committee

Half Day Seminar on “Selective Issue under FEMA” held on 9th February 2019 at BCAS Conference Hall

A half day seminar was organised by the International taxation committee on 9th February 2019 in the form of a panel discussion. The focus of the seminar was to discuss difficulties being faced in FEMA regulations.

The panellists comprised of senior ex-RBI executives – Mr. G Padmanabhan (Ex-Executive Director), Mr. Himansu Mohanty (ex-General Manager) and Dr. M. K. Singh (ex-Assistant General Manager, New Delhi). The session was chaired and moderated by CA. Rashmin Sanghvi. It was discussed that administration has been delegated to the banks. Different banks take different views. One is not able to clarify matters with RBI as it insists on approaching the banks first. This is causing tremendous difficulties. There were several interpretation issues. Panellists gave the background of the issues and agreed that these issues need to be resolved. One should make representations to RBI so as to bring about clarity. Some of the issues are explained below:

One was the need to have clarity on family Trusts. Today there are rich families with members in India and abroad. They wish to form trusts for succession planning. There is no clarity in case of trusts which is required. It was discussed that people also misuse the laws. In case of Trusts, it should not amount to a situation where non-resident beneficiaries can remit more funds out of India than what they can do without a family trust. The panellists suggested that one may write to RBI and request for a clarification by way of FAQ. As long as remittance of funds does not exceed that which is possible without a trust, it should be all right to create a trust.

Another issue was that there are several proposals from non-residents to purchase real estate and lease the same. RBI has permitted lease of the premises. However, is it possible for Indian entities with FDI to “buy and lease the premises”, or should the Indian entity “construct and lease the premises”? It was discussed that it is safer to take a conservative view. If the entity constructs the premises, it can lease it.

Overall the seminar brought out the issues under FEMA and that one should err on the safer side. Aggressive views can cause difficulties. The Seminar was a huge takeaway for the participants.

HRD STUDY CIRCLE

Study Circle meeting on “Management and Life Lessons from Mt. Everest” held on 12th February, 2019 at BCAS Conference Hall

HRD Study Circle of BCAS organised a meeting on 12th February, 2019 at BCAS Conference Hall which was addressed by Mr. Venkatesh Maheshwari. The Speaker spoke about the mountains calling him. It was his childhood dream to climb the mountain and reach the top. He followed the dream by research, intensive physical and climbing training, educating himself, getting physically and mentally fit etc. It was a tremendous effort.

He had to face fears and prepared himself that there are no short cuts to the top. When you do not prepare well, you will never get the mental strength. Self Belief, patience, commitment, effort, perseverance, honesty were among the many needed traits that helped him achieve his target of being on top of Mt. Everest.

He learnt many lessons in the process like in-resource management and planning every move, facing fear, do not do what you think you cannot do, need to stop and rest when you cannot make it. There is no need to push yourself to do something when you cannot. You have to be focussed and stay focussed to achieve, ask help when you need, team work, to name a few. The Speaker also mentioned that there are passions in life which we need to pursue and achieve satisfaction and fulfilment in life. The participants found the session very inspiring and interesting to emulate the achievers.

Suburban Study Circle Meeting on “GST – Recent Amendments, Notifications and Circulars” held on 15th February, 2019

The Suburban Study Circle had organised a meeting on “GST – Recent Amendments, Notifications and Circulars” on 15th February, 2019 at Bathiya & Associates, Andheri East which was addressed by CA. Jignesh Kansara. The speaker made a detailed presentation on the following amendments and notifications on Goods & Service Tax Act:

(a) GST Amendment Act 2018 (b) 31st GST Council Meeting (c) 32nd GST Council Meeting (d) Removal of Difficulties Orders (e) Recent Circulars and Notifications. The speaker had presented all the amendments highlighting the provisions applicable before the amendments. The practical examples and tabular formats helped the participants in understanding the impact of the changes. The participants benefited from the presentation shared by the speaker.

BCAS IN THE PRINT MEDIA

As always, the Bombay Chartered Accountants’ Society was in the news this last month with its Presidents, both present and past, being sought and quoted on several key issues.

It all started with the report in a leading city newspaper which said that tax officials, with a view to meet steep revenue targets, had started issuing prosecution notices to the directors of several multinationals (Economic Times, January 16, 2019). Among the MNCs issued such notices were Google, Facebook, Samsonite and KraftHeinz.

The report stated that the use of prosecution notices was tantamount to making these cases equivalent to criminal offences and gave the IT officers additional powers just like those with the police. As a result, relief in such cases would only be available from a magistrate’s court.

BCAS President CA. Sunil Gabhawalla was quoted in the report as saying, “Last year and this year, several notices have been issued across the board to several individuals and Indian and multinational companies, which is creating a lot of legal issues for them”.

For its part, the Indian Merchants’ Chamber told the Central Board of Direct Taxes (CBDT) that “these notices project a wrong image of the Indian government… It is driving them (MNCs) away by initiating criminal proceedings on a mechanical basis…” Such notices had previously been used only when concealment of black money or similar wrongdoing was suspected.

However, some prosecution notices had been issued even for cases involving small amounts. Besides, notices had been issued to two directors in each MNC; even directors not based in India had not been spared; in some cases, even companies that had failed to deduct paltry sums like Rs. 1,000 on an employee’s salary had received notices.

Apart from the BCAS and the IMC, the Chartered Accountants’ Association of Ahmedabad (CAA) had also questioned these developments, with the BCAS and the CAA sending a representation to the CBDT in the matter.

The newspaper stated that this development had stemmed from a “quota” that the CBDT had given to the tax officials because of a shortfall in collections. “CBDT imposing a ‘quota’ for assessing officers to file prosecution leads to such a grave situation, said Dilip Lakhani, a senior Chartered Accountant, who added that the attempt to raise revenue by forcing assessees to opt for payment of compounding fees to avoid criminal proceedings could only be termed as arm-twisting.

According to a statement by a senior official, tax officers had been asked to issue about 2,00,000 notices during the financial year. While the actual number of notices could not be confirmed, some sources said that in the case of MNCs at least 500 had been served notice.

In another report published in The Times of India on January 20, 2019, Mr. Sushil Chandra, CBDT Chairman, was said to have issued a circular on January 6 asking his cadre to send prosecution notices to those wilfully evading payment of outstanding taxes and also for substantial defaults in remitting TDS to the government.

The report quoted Mr. Ameet Patel, CA and Chairperson of the Taxation Committee and Past President of the BCAS, as saying that “for the smallest defaults like late payment of TDS; of self-assessment tax; delayed or non-filing of tax returns (including TDS); taxpayers are issued show-cause notices asking why prosecution proceedings should not be launched against them. Even a mere non-filing of appeal against any addition to income or disallowance of expenditure made during assessment is a ground for launching prosecution. Further, tax-payers are given a very short period within which to respond.” The BCAS, the IMC, the CAA and other associations of CAs all over India had filed a representation with Revenue Secretary Ajay Bhushan Pandey protesting against the use of prosecution provisions in a mechanical manner, with minor mistakes being treated as major offences at par with large-scale evasion.

The representation pointed out that such action (prosecution notices) vitiated the promise of a non-adversarial tax regime. Even as many other steps (e-assessment and speedy refunds) had been taken to benefit tax-payers, the spate of prosecution notices sent a bad signal, it added.

BCAJ Admin

MISCELLANEA

Miscellanea was started by Narayan Varma
and Ajay Thakkar in 1984. A number of people compiled it for few years
including Rashmin Sanghvi, Uday Chitale, Ashutosh Pednekar, etc. Rajesh Muni
and Raman Jokhakar manned it between 1999-2000 to 2004-05. Tarun Singhal joined
in 2005 and continued with Raman till 2017. Present contributors Jhankhana
Thakkar joined in
2016-17 and Chirag Chauhan in January, 2018.

The
aim of this column was to bring out relevant and useful news and views ‘in
short’.

1. Technology

11. Apple’s
AirPower wireless charger may already be in production – and shipping soon

In September 2017, Apple
announced it would ship its AirPower product by the end of 2018. Expectations
grew with each passing quarter last year that the charging pad would finally
arrive. But Apple missed its own deadline and pundits surmised the company was
struggling with technical issues, such as how to regulate different charging
requirements on a single pad using the Qi wireless charging specification.

After failing to meet its
own shipping timeline in 2018, Apple is now thought to have two manufacturers
ramping up production of its AirPower wireless charging pad, according to a
Hong Kong-based website that specialises in device charging news. While there
may be more than a dozen multi-device wireless chargers technically available
now, but none have introduced a product that can handle all three of Apple’s
products: smartphone, watch and earbuds.

(Source:
www.itworld.com)

12. Facebook
testing stories feature that will encourage your friends to join you at parties

Facebook
wants to make invitation a simpler process. The social media company is
bringing a new Stories feature that will encourage your friends to join you at
events. The company announced that it will test a new feature that lets users
share events that they are interested in attending in to their Story and then
plan meet ups with friends who are also interested in attending the same.

So how
will the feature work? You will see a new option “Share to your
story” when you visit any event’s page on Facebook. Tech Crunch explains
that your friends will see a tappable sticker when you share the event to your
story. The sticker would include details of the event and your friends can
directly reply from the Story if they are “interested” in going.

Facebook
announces the new feature at the time when the company is losing its young
users at a faster pace. The eMarketer’s report from 2018 shows reveals that
last year less than half internet users in the US aged between 12- 7 used
Facebook at least once a month. The feature aims to attract younger users as
many of them have now moved to Instagram and prefer the app over Facebook for
posting photos and Stories.

(Source:
www.indiatoday.in)

13. Google
removes thousands of malicious Android apps and millions of fake reviews on
Play store

It’s high time, Google
scales up the security to ensure shady apps don’t enter Play store.

In the past few years,
Google, despite taking stringent measure to screen malicious apps creeping into
the Play, has been unable to control them. Now, the company in a massive
cleanup drive has removed millions of fake reviews and thousands of bad apps.

Recently, Google received
complaints from concerned app developers that the Play store rating systems are
being rigged with fake reviews affecting their rankings, which apparently
driving the consumers away. Taking the cognisance of the issue, Google studied
the pattern and found several targeted false reviews, the presence of profane
language to downgrade an app and also incentivised (paid) top ratings to
boosting rankings of the app.

During the screen, the
company unearthed thousands of shady apps with malicious features and has
removed them in addition to weeding out millions of fake reviews from the Play
store in just one week.

The
company has also urged Android app developers not to indulge in shady review
tactics by offering incentives such as free in-app purchases or gifts to lure
their users to write fake ratings or else risk getting banned from Play store.

Over the last one month,
Google has weeded out close to 35 apps from the Play store over fake ads.
Detailed investigations revealed that the apps were riddled with malicious
codes to create fake click impressions via users to generate ad revenue. Also,
some were found to steal financial information from the Android phone.

There were just two of the
techniques, app developers had several other methods and did them without
obtaining the user consent

(Source:
International Business Times)

2. Environment

14. Antarctica ice melting increased by 280% in
last 16 years, study says

Yearly loss of ice from
Antarctica has increased by an alarming rate of 280 per cent between 2001 and
2017, according to a study which showed that accelerated melting caused global
sea levels to rise more than half an inch in the last four decades.

The researchers,
including those from Nasa’s Jet Propulsion Laboratory (JPL) and Utrecht
University in the Netherlands, were able to discern that between 1979 and 1990,
Antarctica shed an average of 40 gigatonnes of ice mass annually From 2009 to
2017, about 252 gigatonnes per year were lost. The pace of melting rose
dramatically over the four-decade period. From 1979 to 2001, it was an average
of 48 gigatonnes annually per decade. The rate jumped 280 per cent to 134
gigatonnes for 2001 to 2017.

For
the study published in journal Proceedings of the National Academy of Sciences,
researchers conducted the longest-ever assessment of remaining Antarctic ice
mass. Spanning four decades, the project was also geographically comprehensive;
the research team examined 18 regions encompassing 176 basins, as well as
surrounding islands. As climate warming and ozone depletion send more ocean
heat toward those sectors, they will continue to contribute to sea level rise
from Antarctica in decades to come

(Source: www.economictimes.com)

3. World News

15. China
to cut taxes, keep policy flexible to counter slowdown

China plans to slash taxes,
step up spending and provide ample financing to private and small enterprises
to help counter the country’s worst slowdown since the global financial crisis
and the impact of a bruising trade war with the U.S. The People’s Bank of China
is confident it can keep the value of China’s currency, the yuan, steady while
maintaining a stable but flexible monetary policy

The plans for 2019 outlined
included specific measures such as raising the maximum income levels for tax
exempt companies and individuals and reducing the tax rate. The government
plans to begin construction of major projects and promote settlement of rural
migrants in cities, slash bureaucratic and anti-competitive red tape, cut
energy consumption and open more business areas to foreign investment, said
Lian Weiliang, vice chairman of the National Development and Reform Commission,
China’s planning agency.

(Source: economictimes.com)

16. Big
Four face major overhaul in U.K.

The Big
Four accounting firms may have to split their operations into separate U.K.
business units as part of a sweeping overhaul of the industry proposed by
regulators that stopped short of the measures sought by some critics. The
Competition and Markets Authority (CMA) said audit work should be split from
the much larger consulting business at an operational level, but held off on
recommending a full structural breakup or a cap on auditor’s market share. A
further report said the U.K. needed a tough new watchdog to prevent the
failings of the past.

Stung by a
string of scandals at prominent British firms including Carillion Plc, the
government demanded regulators set out reforms to roll back the dominance of
the largest accounting firms. The industry has had a turbulent year, with
record fines and reprimands in the U.K.

Separately
the U.K. government said it agreed with a new report that the country’s heavily
criticised Financial Reporting Council should be abolished and replaced with a
new accounting regulator. The new watchdog, the Audit, Reporting and Governance
Authority, would have powers to investigate companies, their accounts and
governance.

The FRC
was accused of being to be too close to the firms it oversaw, especially
Deloitte, KPMG, EY and PricewaterhouseCoopers. “I have sympathy with the
view that the FRC has tended overall to take too consensual an approach to its
work,” said John Kingman, who led a review of the regulator.

To
encourage more competition, the CMA said it currently preferred to have the
largest companies require joint reviews with two audit firms signing off on the
accounts rather than a market share cap on the auditors.

(Source:
www.accountingtoday.com)

4. Startups

17. Kochi
gets the biggest startup incubator in India

Kerala Chief Minister Pinarayi Vijayan on Sunday inaugurated India’s
biggest startup incubator at Kochi. The startup incubator- the Integrated
Startup Complex– which is housed inside a 1.8-lakh square-feet facility at the
Technology Innovation Zone (TIZ) in Kochi, is the home to host of segments that
cater to the modern technology.

The startup incubator, which has been setup under the watchful guidance
of the Kerala Startup Mission (KSUM), houses a number of modern facilities such
as the Maker Village that promotes hardware startups, the Bionest that promotes
medical technologies, BRINC which is India’s first international accelerator
for hardware startups, BRIC which aids developing solutions for cancer
diagnosis and care, and a Centre of Excellence, that has been backed by some of
the prominent tech companies that operate in India. Apart from boosting the
startup ecosystem, the state government is also planning to give 2.5 lakh
direct jobs in IT with an aim of fostering social development in Kerala.

(Source:
www.indiatoday.in)

18. Books
to help a busy entrepreneur like you avoid burnout this year

Books are
wisdom in refined, concentrated form. In that spirit, I’d can recommend several
books to buoy busy, frenetic or otherwise on-the-verge-of-burning-out
entrepreneurs. Some are new. Some are old. Some tackle the problem of burnout
head on, while others do so indirectly. Either way, I’m confident that each of
the below can increase your inspiration this year, and well beyond.

1. Log
Off: How to Stay Connected After Disconnecting– Blake Snow.

Snow, a
seasoned journalist, gives us this quick-read, which explains how to live large
on low-caloric technology, to increase face time with actual people, outperform
workaholics in half the time and increase our productivity with fewer online
distractions. Snow also does more than just throwing a lot of alarming
statistics and life-changing recommendations at the reader. Rather, he weaves
both into his own decade-long story, making his advice easier to follow and
remember. The concepts he gives names to, like the King Complex, the Rule of
Thirds, Reformed Luddism and the Four Burners Theory, are sure to spike your
productivity. Bonus points for being the shortest book on my list.

2. The
Last Place on Earth — Roland Huntford

Roland
Huntford’s account of this legendary tale of the 1911 South Pole race between
Roald Amundsen and Robert Scott is well researched and full of proven business
insights. While both men were incredibly brave, their individual approaches to
preparedness, forecasting and strategy for reaching the South Pole first were
strikingly different.

This was
so much so that after reading this book, you’ll probably take greater care in
leaving nothing to chance. You’ll also finish this book with a greater
appreciation for early explorers and how you might adopt similar success
strategies in your admittedly less dangerous existence. It’s crazy to think
this story still hasn’t caught Hollywood’s attention.

3. Console
Wars: Sega, Nintendo, and the Battle that Defined a Generation — Blake Harris

Looking
for a fun read? Need a fresh perspective before planning your next marketing
campaign? Look no further than Harris’s riveting account of one of the ‘90s
greatest rivalries. “There was no such thing as a magic touch,” writes Harris.
“The only thing it takes to sell toys, vitamins, magazines (or anything) is the
power of story. That was the secret. That was the whole trick: to recognize
that the world is nothing but chaos, and the only thing holding it (and us)
together are stories.” Console Wars is as good as (if not better than) David
Sheff’s seminal Game Over: How Nintendo Conquered The World.

4. A Short
History of Nearly Everything — Bill Bryson

Bryson is
one of the most beloved non-fiction writers today. And, here, he impressively,
humorously and succinctly summarises how we “big banged” from nothing to get
where we are today as a species. To accomplish this, Bryson spent three years
researching the world’s greatest scientific discoveries and interviewing the
people who know them best.

Simply
put, the result is awe-inspiring. “It has been suggested that there isn’t a
single bit of any of us — not so much as a stray molecule — that was part of
us nine years ago,” Bryson writes. “It may not feel like it, but at the
cellular level we are all youngsters.”

5. Peak
Performance: Elevate Your Game and Avoid Burnout with the New Science of
Success –Brad Stulberg and Steve Magness

What would happen if a successful management consultant and Olympic
coach teamed up to study and distill the secret of top performers? Thankfully,
they have. This new book is the result and covers how anyone can achieve his or
her best. “Whether someone is trying to qualify for the Olympics, break ground
in mathematical theory, or craft an artistic masterpiece, many of the practices
that lead to great success are the same,” the authors assert.

For
example, “stress plus rest equals growth” means you get better
results when you design and live a routine-filled day; and having a greater
purpose keeps you focused and motivated.

6.
Thinking Fast and Slow — Daniel Kahneman

The better you understand the human mind, the wiser you’ll know how to
use, master, and leverage it. That’s why everyone — entrepreneurs very much
included — should read this breakthrough book by Nobel Prize-winning
behavioral scientist Kahneman. After decades of research, Kahneman was the
first to discover that the brain makes decisions in two ways. The first is
“fast thinking,” which makes everyday, mostly involuntary and largely gut-based
decision-making possible. This means decisions like eat this, pick up that,
move out of the way and stay alive.

“Slow
thinking,” on the other hand, means slow to engage and deliberate, even lazy,
because this kind of thinking requires significantly more energy. The trick to
being a better thinker, therefore, lies in knowing and understanding how to
trigger your “slow thinking” more often. This book shows you how.

(Source:
www.entrepreneur.com)

BCAJ Admin

BOOK REVIEW

“CRASH –
Lessons from the entry and exit of CEOs” by Shri R. Gopalkrishnan

Shri R. Gopalkrishnan is a
well known Corporate Leader and Management Author and Advisor and needs no
Introduction. However, a few words of Introduction will be useful to a Young
reader.

He studied physics at
University of Kolkata, Engineering at IIT Kharagpur. He has attended advanced
Management Program at Harvard Business School. He has served as the Chairman of
“Unilever Arabia, M.D. of Brooke Bond Lipton, Vice Chairman of Hindustan Lever,
and as the Executive Director of Tata Sons and several Tata Group Companies.
Presently, he is a Corporate Advisor. He is actively engaged in both
Instructional and Inspirational Speaking. He is the author of bestselling books
such as The Case of the Bonsai Manager, When the Penny Drops: Learning
What’s Not Taught, and A Biography of Innovations: From Birth to Maturity.

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

The book is divided into 2
parts- Part One has 5 chapters and Part 2 has 15 Chapters.

In part One of the book,
the Author explores many pertinent questions: Is company performance a
surrogate for leadership and CEO Performance? If a company falters, is it
purely related to CEO performance? Conversely, if a company does well, is it a
definite credit to the leader?

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

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

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

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

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

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

In part Two of the book,
divided into 15 chapters, it tells similar stories of various well known
business leaders who exited from their CEO positions for one reason or
another : Carly Fiorina HP at HP, Jamie Dimon at Citibank, Vikram Pandit at
Citigroup, John R. Walter at AT&T, Lee Iacocca & Mark Fields at Ford
Motors, Michael Ovitz at Walt Disney Company, G.Richard Thoman at Xerox, Jim
Donald at Starbucks, Travis Kalanick at Uber, Chris Viehbacher at Sanofi,
Ramesh Sarin at Voltas India, Klaus Kleinfeld at Arconic, Anshu Jain at
Deutsche Bank, Vishal Sikka at Infosys. It is pertinent to note that none of
the aforesaid leaders had to exit either due to moral turpitude or financial
misdemeanour.

The Author narrates an
incident involving a heated exchange between J.R.D. Tata and a Senior Director,
A.D. Shroff, who sent his resignation from the Tata Group. The matter was
patched up by J.R.D with a great sense of egalitarianism and humility,
in his letter to A.D. Shroff, dated 23.08.1951:

“I was surprised and
upset at receiving your letter. I do not remember exactly the words I used
during the somewhat heated exchange at the agents’ meeting but my complaint to
you was merely that an argument you used to score a debating point over me was
not an honest one. That is surely a far cry from questioning your honesty and I
am surprised that you interpreted it in that way.

You have a
right to resent my speaking angrily or showing your discourtesy as a result,
and for that I sincerely apologize, but if friends and associates decided to
part every time they had an argument, life would become
very difficult.”

In the
Epilogue, the Author quotes Thomas Middelhoff, a top–notch and famous executive
in Germany, CEO of the German media giant- Bertelsmann, later on found guilty
of misusing corporate funds and sentenced to 3 years in jail on charges of
embezzlement and related tax frauds, after his release from the jail from an
interview by Financial Times in May 2018, “I was out of touch with reality and
thought that certain rules did not apply to me. Ability brings you to the
top, but character keeps you there.” He admitted that a key flaw in his
character was constantly craving public attention and affirmation. Over the
years, he felt that he had been carried away by narcissism and hedonism.

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

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

BCAJ Admin

RIGHT TO INFORMATION (r2i)

The column r2i was started in November,
2005 by Narayan Varma. The feature aimed to cover changes in the Act, RTI
success stories, current developments/issues and RTI decisions. The idea was to
encourage the members to use the power of RTI and become effective citizens.

Narayanbhai
single handedly wrote it for nearly 15 years till he was joined by 2 young
members. Since his passing away, Jinal Sanghvi has been writing it as the sole
author. When we asked her what keeps her going, she said: “The zeal of my
mentor, Varma sir and his dedication and love towards RTI”

PART A DECISION OF SUPREME COURT

? EVM is ‘information’ under
Right to Information Act, rule Central Information Commission

An Electronic Voting Machine (EVM) is “information” under the Right to
Information Act, the Central Information Commission has ruled.

The Commission was hearing the appeal of an RTI applicant who had asked
the Election Commission for an EVM but was denied.

Chief Information Commissioner (CIC) Sudhir Bhargava ruled that “the EVM
which is available with the respondent [ECI] in a material form and also as
samples … is an information under the RTI Act.”

EVMs have been in the spotlight recently as several Opposition leaders
have raised doubts about the credibility of the machines. They have also
demanded that the ECI cross-check 50% of results with voter-verifiable paper
audit trails (VVPAT) in the upcoming Lok Sabha poll.

Mr. Bhargava noted that the definition of information under Section 2(f)
of the RTI Act includes “any material in any form, including records,
documents, memos, e-mails, opinions, advices, press releases, circulars,
orders, logbooks, contracts, reports, papers, samples, models, data material
held in any electronic form…”

The CIC upheld applicant Razaak K. Haidar’s contention that the terms
“models” and “samples” should apply to an EVM.

ECI Under-Secretary Soumyajit Ghosh admitted that “models/samples of EVM
are available with the ECI, but the same are only kept for training purpose by
the ECI, and not saleable to the general public.”

Fresh argument

Mr. Ghosh also argued that the information was exempted from disclosure
under section 8(1)(d) of the RTI Act as “the software installed in the machines
is an intellectual property of a third party, the disclosure of which would
harm the competitive position of the third party concerned.”

Mr. Bhargava noted this fresh argument, but did not rule on it. Instead,
he directed the ECI to file an appropriate response to the appellant within
four weeks, as it had erroneously denied the information sought, using Section
6(1) of the RTI Act, which does not deal with grounds for exemption.

(Source:https://www.thehindu.com/news/national/evm-is-information-under-right-to-information-act-rule-central-information-commission/article26358323.ece
)

PART B RTI ACT, 2005

? BCAS Right To Information
Clinic

• Year of Commencement: 2006

• Total years the Clinic has
been in operation: A little more than 12 years

• Fees charged: No fees charged
/ Services are provided pro-bono

• Days of operation: 2^nd,
3^rdand 4^th Saturday of every month

• Timing: 11:00 am to 1:00 pm at
BCAS premises

• RTI applications made or
advised provided: Average of 5 per week

n Some Matters dealt under RTI by the clinic:

n State Government, Central Government, MCGM
(BMC), Income Tax, Sales Tax, Gifts Tax, Wealth Tax, Service Tax, Value Added
tax (VAT), GST, Professional Tax, MTNL, BEST, Railways, Excise Duty, Police,
Bank, Bond, Co-op Banks, Co-op Societies, Voter ID Cards, Caste Certificates,
PPF, EPF, Pension, Air India, MHADA amongst many others.

• Objective of the Right to
Information Act: The basic object of the Right to Information Act is to empower
the citizens, promote transparency and accountability in the working of the
Government, contain corruption, and make our democracy work for the people in
real sense. It goes without saying that an informed citizen is better equipped
to keep necessary vigil on the instruments of governance and make the
government more accountable to the governed. The Act is a big step towards
making the citizens informed about the activities of the Government.

• The RTI Act empowers Indians
to do the following:

Request any information from any public office, Take copies of the
documents, Inspect those documents, Inspect the progress of works and, Take
samples of materials used at work sites

PART C IINFORMATION
ON & AROUND

Unaided schools, colleges under RTI ambit
now

Students and their parents running from pillar to post for getting
information from unaided privately managed high schools, secondary schools and
colleges have a reason to cheer as the Chief Information Commission (CIC) has
ruled that all recognised unaided high, secondary schools and colleges fall
under the preview of the Right to Information (RTI) Act.

Consequently,
the Director, Higher Education, has designated all District Education Officers
(DEOs) as Public Information Officers (PIOs) of respective districts for
furnishing relevant information, while the Additional Director or Joint
Director (Administration) will be the first appellate authority under the Act.

The question whether purely private high schools and colleges, not
getting any aid from the government be brought under the preview of the RTI
Act, had been there for quite some time. Following an appeal filed by one
Balbir Singh, the state CIC had issued directions to the Education Department
to appoint the PIOs and an appellate authority for these educational
institutions to facilitate people at large to seek information under the RTI
Act, 2005.

Now, the CIC has passed interim orders in appeals filed against a
senior secondary school in Una district and a high school in upper Shimla,
saying: “Given the definition of ‘information and appropriate government’ in
section 2(f) and section 2(a) of the RTI Act, the information available with
the ‘public authority” (Education Department) under the Right to Education
Act-2009, the HP Private Education Institutions (Regulation) Act-1997 or any
other regulatory mechanism related to any private body which can be accessed by
a ‘public authority’ is covered under ‘information’ and the same has to be
provided by the Education Department.

(Source:https://www.tribuneindia.com/news/himachal/unaided-schools-colleges-under-rti-ambit-now/735081.html)

In RTI Reply To Telangana Voter
Deletions, Poll Commission Admits Lapses

The names of a large number of voters in Telangana were deleted from
electoral rolls without due procedure ahead of last year’s assembly elections,
responses to queries under the Right To Information Act has revealed.

Reports of large-scale voter deletions had sparked anger during the
Telangana elections on December 7. It had been reported how a software that
linked voter IDs with Aadhaar may have played a role in the deletions.
Responses to RTI queries now show there were flaws in the verification process.

A letter dated 8^th August 2015, written by then Chief
Electoral Officer of Telangana, Bhanwar Lal, to Sumit Mukherji, Secretary of
the Election Commission, states “door to door verification not conducted
properly” in 24 assembly seats of the Greater Hyderabad Municipal
Corporation Area and there were “many complaints that BLOs (Booth Level
Officers) have not visited houses”.

Between February and August 2015, the Election Commission had carried
out the National Electoral Roll Purification and Authentication Programme or
NERPAP, as part of which, voter IDs were linked with Aadhaar through a software
to weed out duplicates.

But before someone cane be deleted, the name has to be on electoral
rolls first.

Rules say the Election Commission has to go door-to-door issuing a
notice to each voter. If a house is
locked, the official is supposed to visit two more times and even then if the
voter is not available, he has to paste a sticker asking her to contact the EC.

Replies to the RTI indicate this was not done.

Srinivas Kodali, a cybersecurity researcher who filed the RTI, claims
the Commission is hiding a lot more.

“The Election Commission, UIDAI and Chief Electoral Officer of
Telangana have consistently denied the role of Andhaar and state resident data
hub on voter deletions,” he said, accusing them of hiding facts.

“Even now, we don’t know the details of the pilot projects which
have taken place in Telangana. The Election Commission must answer for this.
They need to delete Aadhaar data with them, voter data with government and give
the lists of deleted voters”.

Rajath Kumar, the current Chief Electoral Officer of Telangana, claims
even if some names were deleted, the Commission has solved the issue by giving
ample opportunity to voters.

“The NERPAP exercise was carried out in 2015 and subsequently
there have been not only the annual revisions in 2016, 2017 and 2018, but we
also had the elections in 2018, during which 26 lakh voters were registered,
both new as well as those who got re-enrolled,” Mr Kumar said.

The commission, he said, has carried out a drive now to prepare the
list with effect from 1^stJanuary in which 17.72 lakh voters have
come in, “so we have given maximum amount of opportunity for those whose
names were deleted at that time”.

“The best that I can do as current CEO is to give them maximum
opportunity to re-enroll themselves,” Mr Kumar added.

(Source:https://www.ndtv.com/telangana-news/in-rti-reply-to-telangana-voter-deletions-poll-commission-admits-lapses-1999191
)

Cryptocurrencies in India legal,
regulation in final stages, reveals RTI query

The Indian government is in the final stages of formulating regulations
on cryptocurrencies, according to an RTI response from the Department of
Economic Affairs.

The response was with regard to the RTI filed by Coin Crunch India on
December 13, 2018, asking whether the panel on cryptocurrency has recommended a
ban on Bitcoin and if they have submitted the report to the Ministry of
Finance.

“The report of the Committee is in the finalisation stage, hence,
prohibited under section 8(3) of RTI Act, 2005,” the ministry said in its
response.

(Source:https://www.moneycontrol.com/news/business/cryptocurrency/indias-cryptocurrency-regulation-in-final-stages-3447481.html)

Pune RTI activist found dead

An RTI activist missing since January 30 was found dead in Pune
district, a police officer said on Tuesday.

Police suspect Vinayak Shirsath, 32, was murdered.

The decomposed body was found near a village on Lavasa Road on Monday
evening, the officer said.

Shirsath, a resident of Pune city, was reported missing on January 31.
His family had registered a police complaint.

“We later registered a kidnapping case on February 5 after his
family raised a suspicion that he might have been abducted as he had raised his
voice under the Right to Information (RTI) Act against illegal construction
work in some parts of the city,” the police officer said.

Shirsath’s family pointed fingers at several people linked to the real
estate sector, but during the probe all of them were found to be close friends
of the deceased, he said.

A case has now been registered under IPC sections 302 (murder) and 201
(causing disappearance of evidence of offence) and a probe is under way, the
police said.

(Source:https://www.telegraphindia.com/india/pune-rti-activist-found-dead/cid/1684353)

RTI Clinic in March 2019: 2^nd, 3^rd, 4^th
Saturday, i.e. 9^th, 16^th and 23^rd 11.00 to 13.00 at BCAS premises.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

This
monthly feature was started in August, 1976 and contained the description
“Notes as appeared in printed balance sheet of various companies regarding
maintenance of proper records of Fixed Asset”. It contained only two pages and
notes were taken from seven companies. No author name was stated.

From
1980-81 N H Kishnadwala wrote the feature till 1986-87. Nayan Parikh took over
from him from 1987-88 till 1994-95 along with other co-authors during that
time. In 1995-96 Ashok Dhere and Himanshu Kishnadwala carried it forward.
Himanshu has been contributing for 24 years now. Many others joined him during
that time for few years. Since 2009-10, Himanshu has been the sole contributor
to this 39-year-old feature.

In the early days, physical annual reports
had to be procured and then reviewed. Many people had to be requested to send
annual reports of companies. While earlier version carried abstracts from
Indian companies, the present feature covers reporting done by foreign
companies too. Feature covers new disclosures and notes, conflicting
disclosures by companies for accounting standards, comments in audit report and
other disclosures.

Limited Review
report containing ‘Qualification’ for potential Inventory losses and ‘Emphasis
of Matter’ for managerial remuneration and other pending inquiries on certain
past transactions and litigation

UNITED SPIRITS LTD (quarter ended 31^st
December, 2018)

From Statutory Auditors’ Limited Review
Report

Basis for Qualified Conclusion

4. We draw your attention to Note 11 to the
Statement, which states that the Company has come across differences in the
process losses and potential resultant differences in the inventory of few
categories of work in progress in certain plants, for which the company is
taking appropriate steps as described in the aforesaid Note. At this stage the
Company is not able to determine the related financial impact, if any, and
consequently we are unable to comment on the impact of this matter on the
Company’s results for the quarter ended 31^st December, 2018, as
reported in the Statement.

Qualified Conclusion

5. Based on our review conducted as above,
except for the matter stated in Basis for Qualified Conclusion in paragraph 4
above, nothing has come to our attention that causes us to believe that the
Statement has not been prepared in all material respects in accordance with the
applicable Accounting Standards prescribed u/s. 133 of the Companies Act, 2013
and other recognised accounting practices and policies, and has not disclosed
the information required to be disclosed in terms of Regulation 33 of the
Listing Regulations, 2015, including the manner in which it is to be disclosed,
or that it contains any material misstatement.

Emphasis of Matter

6. We draw attention to the following matters:

a) As explained in Note 6 (a) to the Statement,
the Managerial remuneration for the year ended 31^st March, 2015
included amounts paid to managerial personnel in excess of the limits
prescribed under the provisions of Schedule V to the Companies Act, 2013 by Rs.
134 million to the former Executive Director and Chief Financial Officer (ED
& CFO). The Company has initiated steps, including by way of filing a suit
for recovery before the jurisdictional court, to recover such excess
remuneration from the former ED&CFO.

b) As explained in Note 3 to the Statement, upon
completion of the Initial Inquiry, which identified references to certain
Additional Parties and certain Additional Matters, the MD & CEO, pursuant
to the direction of the Board of Directors, had carried out an Additional
Inquiry that revealed transactions indicating actual and potential diversion of
funds from the Company and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities that appear to be affiliated or associated
with the Company’ erstwhile non-executive Chairman and other potentially
improper transactions. The amounts identified in the Additional Inquiry have
been fully provided for or expensed by the Company or its subsidiaries in
earlier periods. Management is currently unable to estimate the financial
impact on the Company, if any, arising from potential non-compliances with
applicable laws in respect of the above.

c) As explained in Note 4 to the Statement,
pursuant to its strategic objective of divesting non-core assets and
rationalisation of its subsidiaries, the Company has commenced the
rationalisation process and has sought approval of regulatory authorities for
divesting its stake in an overseas subsidiary and liquidating three of its
wholly owned overseas subsidiaries (and three of its wholly owned step-down
overseas subsidiaries). The completion of the above divestment as well as
liquidations by the Company are subject to regulatory and other approvals (in
India and overseas). At this stage, it is not possible for the management to
estimate the financial impact on the Company, if any, arising out of potential
historical non-compliances, if any, with applicable laws, with respect to its
overseas subsidiaries.

d) As explained in Note 8 to the Statement, the
Company is in litigation with a bank (“the Bank”) that continues to
retain the pledge of certain assets of the Company and of the Company’s shares
held by USL Benefit Trust (of which the Company is the sole beneficiary)
despite the Company prepaying the term loan to that bank along with the
prepayment penalty and further depositing an additional sum of Rs. 459 million
demanded by the Bank and as directed by the Hon’ble High Court of Karnataka
(the “Court”). The Court has directed the Bank not to deal with the
pledged assets of the Company (including the shares held by USL Benefit Trust)
as mentioned above till the disposal of the original writ petition filed by the
Company in the Court.

e) Note 7 to the Statement:

i) regarding clarifications sought by
Securities and Exchange Board of India on matters covered by the Company’s
Initial Inquiry and Additional Inquiry and certain aspects of the agreement
entered into by the Company with its erstwhile non-executive Chairman to which
the Company has responded;

ii) regarding various issues raised and show
cause notices issued pursuant to an inspection u/s. 206(5) of the Companies
Act, 2013 by Ministry of Corporate Affairs/ Registrar of Companies, Karnataka,
alleging violation of certain provisions of the Companies Act, 1956 and
Companies Act, 2013, to which the Company had responded. Further, the Company
has received a letter dated 13^th October, 2017 from the Registrar of
Companies, Karnataka (the “Registrar”) inviting the Company’s
attention to the compounding provisions of the Companies Act, 1956 and
Companies Act, 2013 following the aforesaid show cause notices. The Company
thereafter had filed applications for compounding of offences with the
Registrar in relation to three show cause notices, applications for
adjudication with the Registrar in relation to two show cause notices and had
requested the Registrar to drop one show cause notice based on expert legal
advice received, for which response is awaited.

iii) regarding the ongoing investigation by the
Directorate of Enforcement in connection with the agreement entered into by the
Company with its erstwhile nonexecutive Chairman and investigations under the
provisions of Foreign Exchange Management Act, 1999 and Prevention of Money
Laundering Act, 2002 to which the Company had responded; and

iv) regarding clarifications sought by Authorised
Dealer banks in relation to certain queries from the Reserve Bank of India with
regard to remittances made in prior years by the Company to its overseas
subsidiaries, past acquisition of the Whyte and Mackay group, clarifications on
Annual Performance Reports submitted for prior years and clarifications on
compliances relating to the Company’s overseas Branch office, to which the
Company had responded.

Our conclusion is
not modified in respect of the matters described under paragraph 6 above.

From Notes to
Statement of Standalone Unaudited Results

3. Additional Inquiry

As disclosed in the
financial statements for the years ended 31^st March, 2017 and 31^st
March, 2018, upon completion of the Initial Inquiry which identified references
to certain additional parties and certain additional matters, the MD & CEO,
pursuant to the direction of the Board of Directors, had carried out an
additional inquiry into past improper transactions (‘Additional Inquiry’) which
was completed in July 2016 and which, prima facie, identified transactions
indicating actual and potential diversion of funds from the Company and its
Indian and overseas subsidiaries to, in most cases, Indian and overseas
entities that appear to be affiliated or associated with the Company’s former
non-executive Chairman, Dr. Vijay Mallya, and other potentially improper
transactions. All amounts identified in the Additional Inquiry have been
provided for or expensed in the financial statements of the Company or its
subsidiaries in prior periods. At this stage, it is not possible for the
management to estimate the financial impact on the Company, if any, arising out
of potential non-compliances with applicable laws in relation to such fund
diversions.

4. Subsidiaries
Rationalisation

a) In relation to its subsidiaries and pursuant
to its strategic objective of divesting non-core assets which began with the
divestment of Bouvet Ladubay SAS, Chapin Landais SAS and United Spirits Nepal
Pvt Ltd, the Company has reviewed its subsidiaries’ operations, obligations and
compliances, and made plans for their rationalisation through sale, liquidation
or merger (“Rationalisation Process”).

b) During the quarter ended 30^th
September, 2018, the Company entered into an agreement for the sale of its
entire 51% equity holding in Liquidity Inc. and has sought approval of
regulatory authorities for divesting its stake in Liquidity Inc., as well as
for liquidating two of its wholly owned overseas subsidiaries, United Spirits
Trading (Shanghai) Company Limited and Montrose International SA. During the
quarter ended 31^st December, 2018, the Company has also sought
regulatory approval in respect of liquidating its wholly owned subsidiary, USL
Holdings Limited including its three wholly owned step-down overseas
subsidiaries. The completion of the above sale as well as liquidations by the
Company are subject to regulatory and other approvals (in India and overseas).
During this Rationalisation Process, if any historical non-compliances are
established, the Company will consult with its legal advisors, and address any
such issues including, if necessary, considering filing appropriate compounding
applications with the relevant authorities. At this stage, it is not possible
for the management to estimate the financial impact on the Company, if any,
arising out of potential non-compliances if any, with applicable laws.

c) On 16^th January, 2019, the Company
completed the sale of its entire equity shares held by the Company in its
wholly owned subsidiary Four Seasons Wines Limited (FSWL) along with wine
brands and FSWL’s interest in its associate Wine Society of India (WSI), to
Quintella Assets Limited and Grover Zampa Vineyards Limited. The shares were
sold for a total sale consideration of INR 319 million. Following the
completion of this sale, the Company does not hold any shares in FSWL or WSI
and FSWL has ceased to be a subsidiary of the Company. Also refer Note 10.

6. Excess
managerial remuneration

a) The managerial remuneration for the
financial year ended 31^st March, 2015 aggregating Rs. 63 million and
Rs. 153 million to the Managing Director & Chief Executive Officer (‘MD
& CEO’) and the former Executive Director and Chief Financial Officer (‘ED
& CFO’), respectively, was approved by the shareholders at the annual
general meeting of the Company held on 30^th September, 2014. The
aforesaid remuneration includes amounts paid in excess of the limits prescribed
under the provisions of Schedule V to the Companies Act, 2013 by Rs. 51 million
to the MD & CEO and by Rs. 134 million to the former ED & CFO.
Accordingly, the Company applied for the requisite approval from the Central
Government for such excess remuneration. The Central Government, by letters
dated 28^th April, 2016 did not approve the Company’s applications.
On 24^th May, 2016 the Company resubmitted the applications, along
with detailed explanations, requesting the Central Government to reconsider approving
the waiver of excess remuneration paid. In light of the findings from the
Additional Inquiry, by its letter dated 12^th July, 2016, the Company
withdrew its application for approval of excess remuneration paid to the former
ED & CFO and has filed a civil suit before the jurisdictional court to
recover the sums from the former ED & CFO. Consequent to the notification
of section 197(17) of the Companies Act, 2013 effective 12^th
September, 2018, the pending application of MD & CEO resubmitted to the Central
Government seeking approval automatically stands abated. The Company has,
during January 2019, secured the requisite approval from shareholders by way of
postal ballot exercise approving the waiver of excess remuneration paid to MD
& CEO.

b) Certain amendments have been carried out, inter
alia, to section 198 and Schedule V of the Companies Act, 2013
(“Act”) by way of the Companies (Amendment) Act, 2017, which are
effective from 12^th September, 2018 (“Amendments”),
relating to the remuneration payable to directors by a company. The Company has
negative free reserves and accumulated losses of approximately Rs. 26,580
million as of 31^st March, 2018. Pursuant to these Amendments, the
accumulated losses of a company are required to be set off against the profits
in a given financial year while calculating the profit of the Company for such
financial year u/s. 198. Consequent to the aforesaid amendments, the profit of
the Company (calculated in terms of section 198) is expected to be negative for
the financial year ending 31^st March, 2019. As a result,
remuneration paid and payable to Executive Directors may exceed the limits as
per Schedule V read with section 197 of the Act for the year ending 31^st
March, 2019 and remuneration payable to Non-executive Directors is likely to
exceed the limits as per section 197 both read with section 198 as amended.

The Company has,
during January 2019 secured the requisite approval of the shareholders by way
of postal ballot exercise for the remuneration paid/ payable to the Executive
Directors and remuneration payable to Non-executive Directors for the financial
year ending 31^st March, 2019, 31^st March, 2020 and 31^st
March, 2021 or till the end of the Directors tenure of appointment/
reappointment, whichever is earlier, notwithstanding that such remuneration may
exceed the limits specified under section 197 and Schedule V of the Companies
Act, 2013 as amended.

7. Regulatory
notices and communications

The Company has
previously received letters and notices from various regulatory and other
government authorities as follows:

a) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Securities Exchange Board of India (‘SEBI’), in relation
to the Initial Inquiry, Additional Inquiry, and matters arising out of the
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya to which the Company has responded. No further communications
have been received thereafter;

b) as disclosed in the financial
statements for the years ended 31^st March, 2016, 31^st
March, 2017 and 31^st March, 2018, from the Ministry of Corporate
Affairs (‘MCA’) in relation to its inspection conducted u/s. 206(5) of the
Companies Act, 2013 during the year ended 31^st March, 2016 and
subsequent show cause notices alleging violation of certain provisions of the
Companies Act, 1956 and Companies Act, 2013, to which the Company had
responded. The Company had also received a letter dated 13^th
October, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar’)
inviting the Company’s attention to the compounding provisions of the Companies
Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices.
During the year ended 31^st March, 2018, the Company filed
applications for compounding of offences with the Registrar in relation to
three show cause notices, applications for adjudication with the Registrar in
relation to two show cause notices, and requested the Registrar to drop one
show cause notice based on expert legal advice received. The Company is
awaiting a response from the Registrar to the aforesaid applications. The
management is of the view that the financial impact arising out of compounding/adjudication
of these matters will not be material to the Company’s results;

c) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Directorate of Enforcement (‘ED’) in connection with
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya and investigations under the Foreign Exchange Management
Act, 1999 and Prevention of Money Laundering Act, 2002, to which the Company
had responded. No further communications have been received thereafter; and

d) as disclosed in the financial statements for
the year ended 31^st March, 2017 and 31^st March, 2018,
from the Company’s authorised dealer banks in relation to certain queries from
the Reserve Bank of India (‘RBI’) with regard to: (i) remittances made in prior
years by the Company to its overseas subsidiaries; (ii) past acquisition of the
Whyte and Mackay group; (iii) clarifications on Annual Performance Reports
(‘APR’) submitted for prior years; and (iv) compliances relating to the
Company’s overseas Branch office, to all of which the Company had duly
responded.

8. Dispute
with a bank

As disclosed in the
financial statements for the years ended 31^st March, 2015, 31^st
March, 2016, 31^st March, 2017 and 31^st March, 2018,
during the year ended 31^st March, 2014, the Company decided to
prepay a term loan taken from a bank in earlier years under a consortium
arrangement, secured by assets of the Company and pledge of shares of the
Company held by the USL Benefit Trust (of which the Company is the sole
beneficiary). The Company deposited a sum of Rs. 6,280 million, including
prepayment penalty of Rs. 40 million, with the bank and instructed the bank to
debit the amount from its cash credit account towards settlement of the loan
and release the assets and shares pledged by the Company. The bank, however,
disputed the prepayment. The Company has disputed the stand taken by the bank
and its writ petition filed on 6^th November, 2013 is pending before
the Hon’ble High Court of Karnataka. In August 2015, the bank obtained an ex
parte injunction in proceedings between the bank and Kingfisher Airlines
Limited (KFA), before the Debt Recovery Tribunal, Bangalore (‘DRT’),
restraining the USL Benefit Trust from disposing of the pledged shares until
further orders. The Company and USL Benefit Trust, upon receiving notice of the
said order, filed their objections against such ex parte order passed in
proceedings in which neither the Company nor the USL Benefit Trust were
enjoined as parties. In February 2016, the Company received a notice from the
bank seeking to recall the loan and demanding a sum of Rs. 459 million.
Pursuant to an application filed by the Company before the Hon’ble High Court
of Karnataka, in the writ proceedings, the Hon’ble High Court of Karnataka
directed that if the Company deposited the sum of Rs. 459 million with the
bank, the bank should hold the same in a suspense account and should not deal
with any of the secured assets including shares pledged with the bank till
disposal of the original writ petition filed by the Company before the Hon’ble
High Court of Karnataka. During the quarter ended 30^th June, 2016,
the Company deposited the said sum and replied to the bank’s various notices in
light of the above. The aforesaid amount has been accounted as other
non-current financial asset. On 19^th January, 2017, the DRT
dismissed the application filed by the bank seeking the attachment of USL
Benefit Trust shares. During the quarter ended 30^th September, 2017,
the bank filed an ex-parte appeal before the Debt Recovery Appellate Tribunal
(‘DRAT’), Chennai against the order of the DRT. During the quarter ended 31^st
December, 2017, the Company has been impleaded in the proceedings subsequent to
the DRAT’s order. The appeal is pending for final hearing. With regard to the
writ petition filed before the Hon’ble High Court of Karnataka, an early
hearing application was allowed and the hearing of the main matter has
commenced during the quarter ended 31^st December, 2018.

11. During
the quarter, the Company has come across potential differences in process
losses and potential resultant differences in the inventory of a few categories
of work in progress in certain plants. The Company is in the process of
undertaking a review in affected plants, with the help of an independent expert
as required, in order to ascertain the actual quantum of differences, if any.
Should the findings establish any differences, the Company will take
appropriate steps to understand the causes and address the same. At this stage,
the Company is unable to determine the related financial impact, if any,
arising from such potential differences. Accordingly, the results for the
quarter and the nine months ended 31^st December, 2018 do not include
any adjustment in respect of the above.

BCAJ Admin

CORPORATE LAW CORNER

Corporate Law Corner started in May,
1988 with Swati Mayekar as the contributor. Anil J Sathe continued with to man
it for 12 years along with Sunil Kothare (7 years), R K Tanna (3 years) and
Jayant Thakur (3 years). Pooja J Punjabi has been carrying the feature since
May, 2017.

The aim of the feature is to digest
decisions given under the Companies Act that are relevant and useful and those
that lay down principals. Since the advent of Insolvency and Bankruptcy Code,
decisions given thereunder are also being covered.

12. Gaurang Balvantlal Shah vs. Union of India [2019] 101 taxmann.com 261 (Gujarat) R/Special Civil Application Nos. 22435 of 2017 And Others Dated: 18^th December, 2018

Section 164 of Companies Act, 2013 – Section 164 is
prospective in application and would cover defaults committed from financial
year 2014-15 and onwards – The section does not apply to filings required to be
made in respect of financial year 2013-14

Section 154 of Companies Act, 2013 – DIN of a director
cannot be deactivated or cancelled merely because one of the companies in which
he is a director was struck off from the register of companies maintained by
ROC – DIN can be cancelled or deactivated only in circumstances specified in
Rule 11 of Companies (Appointment of Directors) Rules, 2014

FACTS

G was a director of K Co, a
private company along with various other companies. After due notice from
Registrar of Companies (“ROC”), name of K Co was struck off from the register
of companies and it was dissolved on 21.06.2017. Ministry of Corporate Affairs
(“MCA”) on 12.09.2017 published a list of directors associated with struck off
companies u/s. 248 of the Companies Act, 2013 (“the Act”) on its
website which inter alia included the name of G as a “disqualified”
director. As a consequence of publication of the above mentioned list,
Directors Identification Number (“DIN”) of G was deactivated. G accordingly
filed a petition before the High Court as a result of inability to file
documents for other non-defaulting companies.

MCA challenged the petition
by submitting that G was disqualified by operation of law and upon fulfilment
of the criteria contained in section 164(2)(a) read with section 167(1)(a) of
the Act.

G on the other hand
submitted that the list published on the website was in violation of principles
of natural justice. Further, section 164 which came into effect on 01.04.2014
could only apply prospectively. Thus, the three financial years beginning from
1.4.2014 would be financial year 2014-15 to 2016-17 and the date for filing
financial statements for the third financial year (1.4.2016 to 31.3.2017) was
30.10.2017 (with regular fees) and 27.07.2018 (with additional fees u/s. 403
which provides for additional period of 270 days). Hence, no default attracting
disqualification u/s. 164(2) could be said to have taken place before the said
dates. Further, disqualification if any, would not affect the right to continue
as directors in other non-defaulting companies.

MCA on the other hand
argued that section 164(2)(a) would cover in its ambit filing of financial
statements and annual returns falling due after 01.04.2014, which would include
annual returns for the year 2013-14 as well. Further, disqualification happens
pursuant to the operation of law and the section only enumerates the
disqualification as a consequence statutorily provided for non-compliance with
section 164. Thus, the vacation of office is by operation of law where no
hearing is contemplated.

HELD

The High Court analysed the
provisions contained in section 164, 167, 92, 96, 137 and 403 of the Act along
with Companies (Appointment of Directors) Rules, 2014 (“the Rules”). It was
observed that section 164(2) speaks about the ineligibility of the director,
who is already working as a director or has worked as a director in the past,
in the company which has committed defaults as mentioned therein, to be
reappointed as a director of that company or appointed in other company. As
such, there was no procedure required to be followed by the respondent
authorities for declaring any person or Director ineligible or disqualified
under the said provision. The ineligibility was incurred by the person/director
by operation of law and not by any order passed by the MCA / ROC and therefore,
adherence of principles of natural justice by MCA / ROC was not warranted.

Further,
High Court held that section 164(2)(a) being prospective in application and
effective with effect from 01.04.2014, the three financial years contemplated
in the said provision would be 2014-15, 2015-16, and 2016-17 only. Application
of the section to financial year 2013-14 would tantamount to giving effect to
the section retrospectively.

In the facts of the present
case, AGM for financial year 2016-17 could be held up to 30.09.2017, and the
annual returns could be filed within 60 days and financial statements within 30
days of holding of such AGM i.e. up to 30^th of November and 30^th
of October 2017 respectively. Under the circumstances, the Director would incur
disqualification or would become ineligible to be reappointed as a Director of
a company or appointed in other company for a period of five years, for the
defaults u/s. 164(2)(a), only after 30^th of October or 30^th
of November, as the case may be, of the year 2017. Hence, the impugned list
dated 12.9.2017 showing G as disqualified for a period of five years from
1.11.2016 to 31.10.2021, was held to be not only premature, but untenable in
law.

With respect to deactivation
of DIN of G by MCA, it was observed that Central Government or Regional
Director or any authorised officer of Regional Director may, on being satisfied
on verification of particulars of documentary proof attached with an
application from any person, cancel or deactivate the DIN on any of the grounds
mentioned in Rule 11. The said Rule 11 did not contemplate any suo motu powers
either with the Central Government or with the authorised officer or Regional
Director to cancel or deactivate the DIN allotted to the Director, nor any of
the clauses mentioned in the said Rule contemplates cancellation or
deactivation of DIN of the director of the “struck off company” or of
the Director having become ineligible u/s. 164 of the Act.

MCA was directed to restore
the DIN of G.

The High Court also
observed that if the company is struck off and stands dissolved u/s. 248 of the
Act, it could still realise the amount due to the company, as also it is
obliged to discharge the liabilities or obligations of the company.

13. Vijay Kumar Jain vs. Standard Chartered Bank [2019] 102 taxmann.com 14 (SC) Civil Appeal No. 8430 of 2018 Writ Petition (Civil) No. 1266 of
2018 Dated : 31^st January, 2019

Section
25 and 31 of the Insolvency and Bankruptcy Code, 2016 read with Regulations 24
and 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Person) Regulations, 2016 – Members of the suspended
board of directors have a right to attend the meeting of Committee of Creditors
and have access to documents used for deliberations therein including the
resolution plan

FACTS

R Co, the corporate debtor
was incorporated in the year 1986 and was a profitable company engaged in the
business of processing of oil-seeds and refining crude oil for edible use.
Standard Chartered Bank and DBS Bank Ltd. being the financial creditors of R Co
filed company petitions in December 2017 which were admitted by National
Company Law Tribunal (“NCLT”) and Interim Resolution Professional (“IRP”) was
appointed. V was a member of the suspended Board of directors and in his
capacity as such was permitted to attend the first meeting of Committee of
Creditors (“CoC”) held on 12.01.2018.

V was allegedly denied
participation in subsequent meetings and to challenge the same filed an
application before the NCLT in June 2018. By an order dated 01.08.2018, the
NCLT dismissed the application with liberty to the appellant to attend CoC
meetings but not to insist upon being provided information considered
confidential either by the resolution professional or the CoC. Against this
order, V filed an appeal before the Appellate Tribunal which recognised V’s
right to attend and participate in CoC meetings, but denied V’s prayer to
access certain documents, most particularly, the resolution plans. Thereafter,
an application for modification/clarification of the Appellate Tribunal’s order
was also dismissed.

V even executed a
non-disclosure undertaking whereby he agreed to indemnify the resolution
professional and keep information that is received as to the resolution plan
strictly confidential. However, in order to challenge the order of Appellate
Tribunal, present application was filed before the Supreme Court.

V submitted that they are
“participants” in the meetings of the CoC, albeit without voting
rights, yet, they are persons who, in order to participate effectively, must be
given the necessary documents so that their views can also be considered by the
CoC. On behalf of the resolution professional, it was argued that the terms
“committee” and “participant” are differently defined under
the Regulations and that participants are expressly excluded by Regulation 39
of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“Regulations”).

HELD

Supreme
Court analysed and explained the entire statutory scheme laid down by the Code.
It was observed that though the erstwhile Board of Directors are not members of
the CoC, yet, they have a right to participate in each and every meeting held
by the CoC, and also have a right to discuss along with members of the CoC all
resolution plans that are presented at such meetings u/s. 25(2)(i) of the Code.

Supreme Court relying on Regulations
observed that every participant is entitled to a notice of every meeting of the
CoC. Such notice of meeting must contain an agenda of the meeting, together
with the copies of all documents relevant for matters to be discussed and the
issues to be voted upon at the meeting vide Regulation 21(3)(iii). Obviously,
resolution plans are “matters to be discussed” at such meetings, and
the erstwhile Board of Directors are “participants” who will discuss
these issues. The expression “documents” is a wide expression which
would certainly include resolution plans. Supreme Court upon a combined reading
of the Code as well as the Regulations held that members of the erstwhile Board
of Directors, being vitally interested in resolution plans that may be discussed
at meetings of the CoC, must be given a copy of such plans as part of
“documents” that have to be furnished along with the notice of such
meetings. So far as confidential information was concerned, the resolution
professional can take an undertaking from members of the erstwhile Board of
Directors, as has been taken in the facts of the present case, to maintain
confidentiality.

Resolution Professional was
thus directed to hand over a copy of the resolution plan to the members of the
erstwhile Board and convene a meeting of the CoC within two weeks thereafter,
which will include V and others as participants. The ruling of NCLAT was thus
set aside.

BCAJ Admin

ALLIED LAWS

This
feature was started in April, 1996 with K Shivaram, Advocate and Chetan Karia
as seed contributors. Reepal Tralshawala (4 years), K Gopal (3 years), Ajay R
Singh (9 years) also co-authored it along with Dr Shivaram. Since 2016-17,
Rahul K Hakani and Sashank Dundu joined Dr Shivaram as co-contributors.

The idea of behind the column was to bring
out summary of cases other than on tax law. It normally includes judgments that
are useful to professionals and have an impact on matters handled by them.
Cases generally covered are those under Hindu Succession Act, Registration Act,
Transfer of Property Act, Evidence Act, Stamp Act, Contempt of Courts Act,
General Clauses Act, Motor Vehicles Act all the way up to the Constitution of
India.

25. Gift – Oral gift under
Mohammedan Law is valid – Burden of proof is on the donee. [Mohammedan Law]

Jamila
Begum (D) thr. L.Rs. vs. Shami Mohd. (D) thr. L.Rs. and Ors. AIR 2019 Supreme
Court 72

Case of
Respondent-Plaintiff was that Wali Mohd., father of Respondent No. 1 had
purchased two plots and along with Respondent No. 1 got disputed house
constructed which was gifted to Respondent No. 1 through an oral gift and he
was put in possession.

It was
observed that Under the Mohammedan law, no doubt, making oral gift is
permissible. The conditions for making valid oral gift under the Mohammedan law
are: (i) there should be wish or intention on the part of the donor to gift;
(ii) acceptance by the donee; and (iii) taking possession of the subject matter
of the gift by the donee.

The Apex
Court held that Respondent-Plaintiff claimed right to suit property by virtue
of oral gift in favour of Respondent No. 1. Respondent-Plaintiff had not proved
as to how at time of oral gift, possession was delivered to him. Nothing was
brought on record to show that Respondent No. 1-Shami Mohd. had taken any steps
to get property mutated in his name. Likewise, nothing was brought on record to
show that pursuant to oral gift, Respondent-Plaintiff collected rent from
tenants or paid house tax, water tax, etc. Essential conditions to make a valid
gift under Mohammedan law had not been established by Respondent-Plaintiff to
prove oral gift in his favour. In absence of any proof to show that possession
of suit property was delivered to him, oral gift relied upon by
Respondent-Plaintiff ought not to had been accepted by courts below.

26. HUF – Alienation of
Property of HUF allowed if there is a legal necessity [Hindu Law]

Kehar
Singh (D) thr. L.Rs. and Ors. vs. Nachittar Kaur and Ors. (2018) 14 Supreme
Court Cases 445

The
dispute in this appeal is between the son, father and the purchasers of the
suit land from father. One Pritam Singh (Father – Defendant No. 1) was the
owner of the suit land. He sold the suit land by registered sale deed to Tara
Singh (Purchaser – Defendant No. 2) and Ajit Singh (Purchaser – Defendant No.
3). Both purchasers were placed in possession of the suit land.

Kehar
Singh (Son-Plaintiff) s/o. Pritam Singh (Father-Defendant) filed a civil suit
against the purchasers on the ground that the suit land was and continued to be
an ancestral property of the family of which the Plaintiff is one of its
members along with his father, that the Plaintiff’s family is governed by the
custom, which applies to sale of family property inter se family
members, that the Plaintiff has a share in the suit land along with his father
as one of the coparceners, that his father had no right to sell the suit land
without obtaining the Plaintiff’s consent, which he never gave to his father
for sale of the suit land, that there was no legal necessity of the family
which could permit his father to sell the suit land to the purchasers.

The
question before the Supreme Court for consideration was whether the sale made
by the Father in favour of the purchasers was for legal necessity and, if so,
whether it was legal and valid sale.

It was
observed that the father had taken various loans from the department for
purchase of seeds bag. Rs. 500/- for repair of house and Rs. 2,500/- for
purchasing pumping set. The father had further purchased a Rehri for Rs.
1,025/- from him in the year 1961. The Father had also borrowed a sum of Rs.
3,000/- in the year 1959 by executing a pronote. The father had also performed
marriage of his 5 children. This proved that legal necessity existed.

It was
held that once the factum of existence of legal necessity stood proved, then,
no co-coparcener (son) has a right to challenge the sale made by the Karta of
his family. The Plaintiff being a son was one of the co-coparceners along with
his father. He had no right to challenge such sale in the light of findings of
legal necessity being recorded against him. It was more so when the Plaintiff
failed to prove by any evidence that there was no legal necessity for sale of the
suit land or that the evidence adduced by the Defendants to prove the factum
of existence of legal necessity was either insufficient or irrelevant or no
evidence at all.

27. Right to Information –
Delay in providing information in response to Right to information application
– Strictures against CESTAT – To educate the concerned officials for effective
discharge of its duties and responsibilities. [Right to Information Act, 2005;
Section7(1)]

R.K.
Jain vs. CPIO and Accounts Officer, CESTAT, New Delhi 2018 (10) G.S.T.L. 112
(CIC)

The
complainant, vide his RTI application sought information on a few appeals and
required copies of all order sheets and records of proceedings, vakalatnamas,
miscellaneous applications, after Court cause list and copies of Note sheets
put up by Registry etc.

Dissatisfied
by the response of the CPIO, the Complainant approached the FAA. The FAA, vide
its order, directed the CPIO to provide the information within two weeks to
the Complainant.

It was
argued that the RTI application which was filed on 6-8-2013 was transferred on
8-8-2013 to Asst. Registrar, Service Tax. Subsequently, the Complainant had
sent numerous reminders to the CPIO informing him of his duties as deemed CPIO
to provide information u/s. 7(1) of the RTI Act, 2005 within 30 days. The CPIO
had not responded in the matter at all. The Complainant promptly contested on
the ground that the information pertaining to note sheets had not been provided
till date. Moreover, the Complainant submitted that the CPIO should have acted
on the application within the stipulated time period as envisaged in the RTI
Act, 2005 and demanded initiation of penal proceedings against him in the
matter.

The
Commission observed that there is complete negligence and laxity in the public
authority in dealing with the RTI applications. It is abundantly clear that
such matters are being ignored and set aside without application of mind which
reflects disrespect towards the RTI Act, 2005 itself.

It was
held by the Central Information Commission that the Respondent was supposed to
be cautious to exercise due care in future to ensure that correct and complete
information is furnished timely to the RTI applicant(s) as per provisions of
the Act failing which penal proceedings u/s. 20 shall be initiated. The
Commission also instructed the Respondent Public Authority to convene periodic
conferences/seminars to sensitise, familiarise and educate the concerned
officials about the relevant provisions of the RTI Act, 2005 for effective
discharge of its duties and responsibilities.

28. Trust – Deed of Transfer
– Transfer between two Trustees – Liable to stamp duty as per section 62(e) and
not as a conveyance – Sufficiency of stamp value. [Stamp Act, 1899; Section
62(e)]

The
District Registrar, Registration Department, Madurai South and Ors. vs. M.
Shanmugasundaram AIR 2019 Madras 1

A
transfer of Sri Narayana Guru Industrial Training Institute (hereinafter
referred to as ‘institute’), which is a part of Tamil Nadu Sri Narayana Guru
Trust, had taken place between one Trust named ‘Tamil Nadu Sri Narayana Guru
Trust’ and another Trust named ‘Tamil Nadu Illathu Pillaimar Sangam’, where the
latter Trust was one of the trustees of the former Trust.

It was
observed that the said ‘institute’ were to be transferred to another trustee
which is shown as second party, that is, Tamil Nadu Illathu Pillaimar Sangam.
It is also stated that Sri Narayana Guru Industrial Training Institute had a
debt to the tune of Rs. 4,25,000/- and salary arrears for the employees to the tune
of Rs. 65,000/-. The said transfer has taken place only for the purpose of
discharging the above said two amounts. Therefore, the appellants had treated
the same as deed of conveyance and it is argued that the said deed is executed
in favour of an individual and not a trust.

It was contended that the transfer was between
two trustees and hence it was not a conveyance of the properties.

It was
argued that the question of conveyance would not arise and the stamp duty as
per Article 62(e) of Indian Stamp Act, 1899 would apply which states that
transfer whether with or without consideration between two trustees, the amount
specified therein would apply.

It was
held that when the recitals in the deed of transfer explicitly states that the
transfer is from one trustee to another trustee as per the title deed, the deed
of transfer is not a conveyance but a deed of transfer covered by Article 62 (e)
of the Indian Stamp Act, 1899. Hence the stamp duty applicable in the transfer
of the title deed is only Article 62 (e) of the Indian Stamp Act, 1899.

29. Unregistered Document –
Exchange Deed in respect of immovable property – Inadmissible in evidence
[Evidence Act, 1872; Section 91, 61; Registration Act, 1908; Section 49]

Shyam
Narayan Prasad vs. Krishna Prasad and Ors. AIR 2018 Supreme Court 3152

The issue
before the Court was whether the exchange deed was admissible in evidence or
not when the said exchange deed purports to transfer immovable property without
being registered.

There was
an exchange of business where such business also included an RCC building, the
value of which exceeded Rs. 100. Section 118 of the Transfer of Property Act
defined ‘exchange’ to be a situation where two persons mutually transfer the
ownership of one thing for the ownership of another, neither thing or both
things being money only, the transaction is called an “exchange”.

It was
observed that where either of the properties in exchange are immovable or one
of them is immovable and the value of anyone is Rs. 100/- or more, the
provision of section 54 of the TP Act relating to sale of immovable property
would apply. The mode of transfer in case of exchange is the same as in the
case of sale. It is thus clear that in the case of exchange of property of
value of Rs. 100/- and above, it can be made only by a registered instrument.
In the instant case, the exchange deed has not been registered.

Section
49 of the Registration Act, 1908 provides for the effect of non-registration of
the document which states that such document, which is not registered, cannot
be received as evidence. Further, section 17(i)(b) of the Registration Act
mandates that any document which has the effect of creating and taking away the
rights in respect of an immovable property must be registered and section 49 of
the Registration Act imposes bar on the admissibility of an unregistered
document and deals with the documents that are required to be registered u/s.
17 of the Registration Act.

It was
held that any document which is not registered as required under law, would be
inadmissible in evidence and cannot, therefore, be produced and proved u/s. 91
of the Evidence Act, nor any oral evidence can be given to prove its contents.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

“Indirect Taxes –
Recent Decisions” was started in 2009 by Puloma Dalal and Bakul Mody. C B
Thakar, G G Goyal and Janak Vaghani started to contribute to ‘Part B’
consisting VAT decisions a few years later.

Indirect taxes gathered
momentum as a field of practice especially after the advent of Service tax
(1994) and VAT (2005). This column gave the practitioners and others, vital
decisions on both subjects. Post GST regime, and while decisions under Service Tax
and VAT continue to be given, Part C was added recently to include GST rulings
especially advance rulings. Jayesh and Mandar started contributing after a few
years and Ishaan joined from April, 2018.

I.
High Court

28. 2019 [20] G.S.T.L. 3
(Allahabad) Timexo Fasteners India Pvt. Ltd. vs. State of U.P. dated 22^ndNovember, 2018

Seizure
of goods by incorrectly recording the time of interception and allowing E-way
bill to expire after detention is unjustified

Facts

Petitioner’s goods were in
transit from Delhi to Kanpur and were intercepted at Kanpur. Seizure order was
passed on the ground that E-way bill accompanying the goods had expired.
Petition was filed contending that the vehicle entered Kanpur and was
intercepted at much early time before the expiry of the E-way Bill. The fact to
be noted was that the time of interception of the vehicle mentioned in the
instructions of the Assistant Commissioner did not match with the time
mentioned in the documents produced by him. However, the fact that the vehicle
was intercepted and checked much time before the expiry of the E-way Bill
remained unanswered in the instructions.

Further, the Act and the
Rules do not provide any time limit for the Tax Authorities to issue a seizure
memo of the intercepted goods and the vehicle.

Held

It was held that, the goods
seized on the ground that accompanying E-way bill had expired not justified
rather it was deliberately allowed to expire after the detention of the goods
by incorrectly recording the time of interception.

29. 2019 [20] G.S.T.L. 45 (Mad.) Dev
Indus Paints vs. Commissioner (CT), Commercial Taxes
Department, Puducherry dated 9^th July, 2018

Demand
notice or attachment of bank account cannot be done where no assessment order
has been passed.

Facts

Show Cause Notice and
consequential attachment of the bank account for recovery of tax was challenged
by way of writ petition by the Petitioner Assessee contending that assessment
orders for the same were not passed for the periods under dispute i.e. for the
years from 2015-16 to 2017-18.

Held

The Hon’ble High Court held
that there cannot be a demand notice nor there can be any attachment of the
Petitioner’s bank account. Allowing the writ petition, the court directed the
Respondents to return the cheques collected from the Petitioner. It was also
directed to the Respondents to issue pre-revision notices to the Petitioner for
all the periods under dispute, grant reasonable opportunity to submit
objections, opportunity of personal hearing and complete the assessments in
accordance with the law.

30. 2019 [20] G.S.T.L. 193 (Ker.) Panel
Source LLP vs. Assistant State Tax Officer, Kasaragod dated 16^th
October, 2018

Goods
seized for not uploading Part-B of E-way Bill, released on furnishing bank
guarantee for tax and penalty due and a simple bond without sureties.

Facts

Appellant assessee’s
vehicle was detained for reason of Part-B of E-way Bill not uploaded.
Consequently penalty was imposed. Assessee being aggrieved with the mandatory
condition of payment of penalty or furnishing of security u/s. 129(3) of the
CGST Act preferred writ petition to declare Rule 140 of CGST/ SGST Rules as
violative of Article 301 of Constitution of India. Learned Single Judge of the
Hon’ble High Court dismissed the writ petition, against which assessee
preferred Writ Appeal.

Held

Division bench of the
Hon’ble High Court held that the defect found was that the intercepted vehicle
was carrying an invalid E-way bill. The document was categorised as invalid for
reason of Part-B of the bill having not been uploaded and not accompanying the
goods. Though Part-B of E-way Bill was uploaded by Appellant before the notice
and order but that would not remove the defect pointed out by detaining
officer. Thus, it was directed to release the goods of Appellant on furnishing
a bank guarantee for tax and penalty found due and a simple bond without
sureties for the value of the goods in the form as prescribed under Rule 140(1)
of the CGST Rules.

31. 2019 [20] G.S.T.L. 197 (Ker.) Hotel Harisree vs. Assistant
Commissioner (Assessment), SGST Department, Kolam dated 16^th
November, 2018

Directions
to Departmental Authorities to not take coercive steps for recovery until
disposal of stay application by Appellate Authority.

Facts

Petitioner a registered
dealer under KGST Act was served with the assessment order by the state revenue
authorities. Revenue authorities then initiated coercive steps of recovery
before expiry of its right to prefer appeal and before Appellate Authority could
consider the stay petition filed by Assessee. Aggrieved assessee preferred writ
petition.

Held

The Hon’ble High Court on
believing that assessee exercised its statutory remedy of filing appeal on time
and on appearance that stay petition also being filed by assessee held that
procedural fairness demands that authorities must wait, before taking further
steps until the appellate authority decides on stay petition. Thus, disposed
writ petition directing the Respondent Revenue to defer coercive steps until
the Appellate Authority considers the stay petition with hope that the same
will be disposed expeditiously.

32. [2019-TIOL-40-HC-KAR-GST] Global Associates Association of Persons vs.
Union of India dated 24^th January,
2019

A right
to challenge a legislation or a Notification/Circular will not arise unless the
litigant is affected by the action initiated by the executive in furtherance of
such legislation / administrative Circular/Notification.

Facts

Petitioner involved in
construction activity is aggrieved by the Notification 11/2017-Central Tax
(Rate) and clarification dated 09.01.2018 issued by the respondent-authorities
pursuant to Entry 5(b) of Schedule II to the CGST Act, 2017 which envisages
levy of tax on construction activities and deeming the value of the land at
one-third of the total amount charged. It was argued that irrespective of any
action initiated or not by the respondent-authorities, they are entitled to
challenge the same and hence the writ petition is maintainable.

Held

The Court noted that
enacting a legislation or issuing Notification/Circular could not confer a
right to challenge unless the litigant is affected by the action initiated by
the executive in furtherance of such legislation/administrative Circular /
Notification more particularly, in taxing statutes. Cause of action is sine
qua non for challenging such legislation/Notification/Circular. Thus a Writ
Court cannot adjudicate upon such matters in vacuum and without a cause of
action it would be merely academic, consuming public time. The writ was thus
held premature and therefore dismissed.

II
Authority of Advance Ruling (AAR)

33. [2019-TIOL-17-AAR-GST] Ex-Servicemen Resettlement Society dated 28^th January, 2019

Security services and scavenging services provided to
central government and state government not eligible for exemption under the
GST law.

Facts

Applicant a registered
society provided “Security services” and “Scavenging services” to various
hospitals under the State Government as well as the Central Government – they
sought a ruling as to whether exemption from GST is available in terms of
Notification 12/2017-Central Tax (Rate).

Held

The Authority noted that
the Exemption notification makes it clear that exemption is granted under sr.
no. 3 to ‘pure services’ provided to Central Government/State Government or
Union Territory or local authority or a governmental authority by way of any activity
in relation to a function entrusted to a panchayat under Article 243G or in
relation to any function entrusted to a municipality under Article 243W of the
Constitution. The service is classifiable as ‘pure service’ as they are not
supplying any goods while provisioning the services and the recipient is
government or governmental authority. However, before deciding applicability of
Sl. No. 3 of exemption notification, the functions of a Panchayat or
Municipality under the Constitution needs to be discussed. Reading Article
243G, 243W of the Constitution along with a study of the two functional item
lists placed in the Eleventh Schedule and the Twelfth Schedule of the Indian
Constitution makes it clear that “Security Services” provided to government hospitals
and medical colleges as institutions of Central/State/District/local
authorities are clearly not covered under either of the lists, so also, no
entry includes any of the services the applicant has bundled under the
description of “Scavenging services” i.e cleaning of hospital premises is not
classified under ‘sanitation or similar service’. Therefore, supply of security
services and the bundle of service described as scavenging service is not
entitled for the benefit of exemption.

BCAJ Admin

SERVICE TAX

PART A SERVICE TAX

I.
Tribunal

45. 2019 [20] G.S.T.L. 77 (Tri.-All.)
Commissioner of Service Tax, Noida vs. Meroform (India) Pvt. Ltd. Date of Order: 14^th March, 2018

Hiring of
Office furniture on which VAT was discharged cannot be leviable to service tax.

Facts

The Assessee provided
office furniture on hire for visitors in business exhibitions as per
requirements of the organisers. In the course of audit, it was observed that
income was booked under the head “Hiring of office Furniture”. Show Cause
Notice was issued subsequently on the ground that the said transaction was
service of supply of tangible goods. However, the impugned order was set aside
by the Ld. Commissioner (Appeals). Appeal was filed before the Tribunal by the
revenue.

Held

The
Hon’ble Tribunal held that the facts essential for the levy of service tax on
the said transaction were absent and the Show Cause Notice was ambiguous and
not maintainable. Upholding the order of the Ld. Commissioner, the appeal filed
by the revenue was dismissed.

46. 2019 [20] G.S.T.L. 86
(Tri.-Chennai.) Wheels Tourists Operator vs. Commissioner of GST & Central
Excise, Chennai. Date of Order: 6^th March,
2018

Facts

The
Assessee provided tourist transport services to the travel agencies and
corporate entities and collected hire charges on the same. The vehicles were
engaged by other travel agents mostly for the journey of the foreign and
domestic tourists. Pursuant to the investigation at the premises of the assessee,
Show Cause Notice was issued proposing to levy service tax as Rent-a-cab
service along with interest and penalties. The demand was subsequently
confirmed. Hence, the appeal.

Held

The
Hon’ble Tribunal citing the difference between ‘renting’ and ‘hiring’ and
maintaining other relevant decisions which included R. S. Travels 2015 (38)
STR 3 (Uttarakhand), CIT vs. Sachin Malhotra 2015 (37) STR 684 (Uttarakhand)
and considering that they were later than Commissioner vs. Vijay Travels
2014 (36) STR 513 (Guj) and also following this Bench’s own decision in Om
Shakti Travels vide Final order no.42127/2017 dated 18/09/2017, it was held
that the demand was unsustainable and the impugned orders were set aside and
appeals were allowed with consequential relief.

47. 2019 [20] G.S.T.L. 361 (Tri.- All.)
Saya Buildcon Consortium Pvt. Ltd. vs. Commr. Of C. Ex. & S.T., Noida. Date of Order: 22^nd January,
2018

Security
deposit received by builder from flat owners which would be transferred to
Society or Association of flat owners after completion or handing over, not
leviable to service tax.

Facts

Revenue
raised service tax demand on the amount of security deposit received by the
builder appellant. Contesting same builder appellant stated that said amount is
received by way of security deposit as a trustee of the flat owners, which
would be transferred to Society or Association of flat owners after completion
and handing over the flats. Thus, alleged amount was received as pure agent
and/ or trustees and not towards any service provided.

Held

The
Hon’ble Tribunal after being satisfied with the assessee’s contention held that
the amount in dispute was not towards provision of any service and received by
the builder as a pure agent of the owners, therefore cannot be held liable for
service tax and allowed the appeal.

48. [2019] 101 taxmann.com 461
(Ahmedabad CESTAT) Alembic Ltd. vs. Commissioner of Central Excise &
Service Tax, Vadodara Date of Order: 23^rd October,
2018

The
definition of “exempted services” amended w.e.f. 01.04.2016 to include within
its purview those transactions which do not constitute ‘service’ u/s. 65B(44)
of Finance Act, 1994, has no application on CENVAT credit availed for period
prior to 01.04.2016 and hence reversal of past credits is not required.

Facts

Appellants are engaged in
development of real estate projects. They availed CENVAT credit of service tax
paid on input services used for construction of residential complexes. After
receipt of completion certificate in July 2014 for construction of residential
complex, appellants gave intimation to service tax authorities that they
availed proportionate CENVAT credit on input services received by them after
obtaining completion certificates, on basis of square feet area basis, which
suffered the levy of service tax as compared to the area which was converted
into immovable property and on which no service tax would be paid. Meanwhile,
during the course of CERA Audit, department asked appellants to reverse
proportionate CENVAT credit availed by appellants prior to obtaining Completion
Certificate (i.e. credit availed during the period when entire output service
activity was wholly taxable) on the ground that after receipt of Completion
Certificate, the property had become immovable property and in case of future
sale thereof, no service tax would have been payable. Therefore CENVAT credit
in proportion to “area which is outside the purview of service tax”
compared to the entire property area was computed as qualifying for reversal.
The Appellant made such reversal under protest and subsequently claimed refund
of the same. Refund was rejected.

Thereafter the department
issued SCN demanding 6%/8%/10% amount of sale of immovable property after
obtaining Completion Certificate where no service tax was paid by the Appellants
on the ground that they had availed CENVAT credit and provided taxable as well
as exempt services (sale of immovable property) and they had not maintained
separate accounts. Both the matters i.e. rejection of refund and issue of SCN
were before the Tribunal. The demand was raised to regularise the incorrect
availment of CENVAT credit on the entire project, i.e. credits availed prior to
Completion Certificate and thereafter.

The assessee submitted
prior to 01.04.2016, Rule 6 was not applicable to their case. Consequently, no
reversal of CENVAT credit is required. It also submitted that in terms of
amendment carried out in CENVAT Credit Rules (CCR) vide Notification No.
13/2016-CE (NT) dated 01.03.2016, Explanation 3 was inserted to Rule 6 of the CCR,
2004 to provide that for the first time on prospective basis, the exempted
services defined under Rule 2(e) of the CCR shall include an activity which is
not a service as defined u/s. 65B (44). Such explanation clarified that sale of
immovable property was not covered as “exempt services’ till 01.04.2016 and
only by virtue of the said amendment, Rule 6 of CCR includes sale of property
after receipt of completion certificate in “exempted services” from 01.04.2016
onwards. Appellants submitted that the said Rule 6 deals with only the
prospective credits i.e. the credits availed on and after the output activity
becoming exempt under the said notification and not to input services which
were availed at the time when the output service was wholly taxable in the
hands of the Appellants. On the other hand, revenue contended that the
proportionate credit required to be reversed in respect of non-taxable
transaction will necessarily include the whole of credit availed by the
assessee right from the inception of the project and cannot be taken to be
limited only to the credits availed after receiving the Completion Certificate.
Being aggrieved by rejection of refund claim and another SCN requiring
appellants to reverse proportionate credit in terms of Rule 6 of CCR,
appellants filed present appeal.

Held

The Hon’ble Tribunal noted
that upon receipt of Completion Certificate for the projects, the output
activity of sale of residential units becomes “non-service” u/s. 65B
of Finance Act, 1994 read with definition
of “exempt service”. For invocation of Rule 6, the output service must be
primarily exempt service. Since the deeming fiction that “exempted service”
would also include an activity which is not a ‘service’ as defined u/s. 65B(44)
was inserted w.e.f. 01.04.2016 only, the Tribunal held that prior to
01.04.2016, such an activity cannot be considered as “exempted service” and
would not attract reversal under Rule 6 of the CCR, 2004. Further, the Tribunal
relied upon decision of Hon’ble SC in Dai-Ichi Karkaria Ltd. vs. Union of
India2000 taxmann.com 1350 to hold that CENVAT credit is a vested right of
assessee and once the credit is validly and legally availed by assessee, the
same cannot be denied/recovered subsequently unless provided by specific
provision. Therefore, the Tribunal held that in present case, Rule 3 of CCR, 2004 would apply w.e.f.
01.04.2016 and not for period prior to April 2016.

As regards demand for
reversal of proportionate credit 8%/10%, the Tribunal noted that payment of
8%/10% is only an option or rather a mechanism to seek credit reversal on lump
sum basis, where the assessee cannot maintain separate accounts/reverse
proportionate credit on turnover basis or in cases where the assessee himself
so chooses to follow such option. Tribunal held that since the credits availed
when output service was wholly taxable cannot be called into question, it
cannot be said that such 8%/10% amount of sale of immovable property is to
regularize not only credits availed after Completion Certificate but also availed
during 2010 till the time Completion Certificate was obtained. As regards
services availed after completion certificate, Tribunal noted that the
appellants have availed proportionate credit attributed to the taxable output
service only. Accordingly, Tribunal allowed present appeals by setting aside
impugned SCN and allowing Appellants’ refund claim of reversal made under
protest.

49. [2019] 101 taxmann.com 462 (Mumbai –
CESTAT) – Allied Blenders And Distillers (P.) Ltd vs. Commissioner of Central Excise
& Service Tax, Aurangabad Date of Order: 25^th June,
2018.

The
remuneration paid to whole time directors is not liable to pay tax under
Reverse Charge Mechanism as they are employees of the Company.

Facts

The
department raised demand on the Company under reverse charge mechanism in
respect of remuneration paid by it to its whole time directors, treating the
same as ‘service’.

Held

The
Tribunal noted that, the Appellant has treated the remuneration paid to
directors as salary and Forms 16 are accordingly issued to the directors and
records filed with Provident Fund authorities are also on record. Besides,
records filed with Registrar of Companies also indicate the directors as
executive directors indicating that they are employees of the company. The
Tribunal noted that the Appellant does not pay the director’s sitting fee to
any of the directors. The Tribunal also referred to decision of Hon’ble Supreme
Court in the case of Ram Prasad vs. CIT [1972] 86 ITR 192 (SC) and Employees
State Insurance Corpn. vs. Apex Engg. (P.) Ltd. [1998] 1 SCC 86 which laid
down tests for determining employer-employee relationship. Having regard to the
fact that the directors who are concerned with the management of the company,
were declared to all statutory authorities as employees of the company and
complied with the provisions of the respective Acts, Rules and Regulations
indicating the director as an employee of the company and such authorities have
also treated them likewise, the appeal was allowed.

50. [2019] 101 taxmann.com 196 (New
Delhi – CESTAT) Kafila Hospitality & Travels (P) Ltd. vs. Commissioner of
Service Tax, Delhi Date of Order: 16^th November,
2018

Tribunal
referred the matter to larger bench to decide whether performance-based
incentives given by Airlines to the travel agents can be charged to service tax
as consideration for providing ‘business auxiliary services’.

Facts

The appellant a travel
agent was engaged in providing services of booking of tickets for passengers
travelling by air and other travel related services. The Airlines introduced
target based incentive scheme to General Sales Agents (GSA), who are also IATA agents.
GSA in turn pass on certain percentage of incentives received by them from
Airlines. The Appellant purchases tickets by using the said CRS system from any
of the IATA agents or from Airlines and makes payment of the same through
Billing Settlement Plan of IATA.

For
discharging service tax liability on sale of tickets to customers, appellant
opted Rule 6(7) of the Service Tax Rules, 1994, thereby discharging service tax
liability on basic fare. Further, appellant received incentives from Airlines, which
were recorded in its books as ‘commission’. Department alleged that said
commission would be chargeable to service tax under category of ‘business
auxiliary services’, whereas, the Appellant submitted that Since it has opted
to discharge service tax liability on Basic fares i.e. Commissionable fare, the
value of services rendered by it stands fixed and therefore, any other income
received by it is not taxable. Further, appellant also submitted that
Incentives for appreciable performance cannot be subjected to service tax and
in absence of three parties to the contract, no service tax liability would
arise under category of ‘Business Auxiliary Services’(BAS). Meanwhile, during
the pendency of proceedings, in another case dealing with very same issue i.e. D.
PAULS CONSUMER BENEFIT LTD. vs. CCE [Final order No. 50861/2017, dated
15-2-2017], without considering various judicial precedents on said issue,
it was held that ‘incentives’ would be chargeable to service tax under category
of BAS instead of tour operator services. In light of such divergent judgments
on said issue, appellant filed miscellaneous application to the Hon’ble
Tribunal requesting to refer the matter to Larger bench.

Held

The Hon’ble Tribunal noted
that in terms of decisions rendered by various tribunals, the law has been
settled that incentives on account of appreciable performance cannot be
subjected to Service Tax under provisions of the Act. It is settled position of
law that in absence of specific sub-clause of BAS, under which the activity is
proposed to be taxed, no service tax liability would sustain under category of
BAS. Further, tribunal noted that in order to merit the classification of
activity under BAS, there must be three parties i.e. provider of service/owner
of goods, an intermediary providing goods/services on behalf of client and the
targeted audience/parties. Without presence of these three parties, the
activity cannot be said to fall under any of the sub set of services. Further,
tribunal observed that in appellant’s own case Kafila Hospitality &
Travels Ltd. vs. CST [2015] 58 taxmann.com 348/51 GST 646 (New Delhi – CESTAT),
it was held that service tax demand on ‘incentives’ was set aside in view of
the fact of appellant having exercised option under Rule 6(7) and no appeal had
been filed by revenue against said decision.

As
regards decision in D. Pauls Consumer Benefit Ltd. (Supra), the Tribunal
noted that said order has been passed without considering and discussing any of
the judgments of various Benches on non-taxability of incentives and without
specifying the sub clause of BAS and the targeted audience before whom the
services of other service providers were promoted. The Tribunal held that, it
is cardinal principal that co-ordinate Bench of CESTAT could not have taken a
contrary view to the settled judicial precedents and in case of any difference
of opinion the matter should have been referred to Larger Bench, as also held
in CCE Customs vs. KRAPS Chem (P.) Ltd. [2015] 60 taxmann.com 375/51 GST 872
SC and CCE vs. Mahindra & Mahindra Ltd. [2015] 58 taxmann.com 278/51
GST 712 SC – Para – 4. Accordingly, the Tribunal has referred the matter to
Larger Bench to determine (i) Whether the Incentive received by service
receiver from service provider, on appreciable performance, can be subjected to
service tax, (ii) Whether a demand can be confirmed without specifying the sub
clause of BAS under which the activities are covered, (iii) Whether demand can
be confirmed under the taxable category of BAS in absence of three parties –
service provider, service receiver and targeted audience?, (iv) Whether in
cases where value of service is fixed under an option provided under the Rules,
such option having been exercised and not withdrawn, is it open for the
authorities to demand service tax on other consideration or incentive received,
be taxed under another category?, (Vi) Can service tax liability be fastened
without specifying the consideration for service as provided u/s. 67 of FA,
1994 and (vii) Can service tax liability be fastened in absence of the
relationship of service provider and service receiver. Thereby, tribunal
directed the registry to place records before the Hon’ble President for
constitution of larger bench.

51. [2019-TIOL-360-CESTAT-MUM] Lavgan Dockyard Pvt. Ltd vs. Commissioner of
Central Goods and Services Tax, Kolhapur Date of Order: 9^th July, 2018

Ineligible Credit not utilised for payment of service
tax, interest not liable. Similarly, credits availed reflected in the service
tax return, penalties dropped.

Facts

Appellant engaged in
providing various taxable services availed CENVAT Credit of service tax paid on
various input services including personal insurance of employees and security
service of guest house. during the disputed period. This was disputed by the
department considering that they are not input services and also had no nexus
with the output services.

Held

The Tribunal noted that the
definition of input service contained in Rule 2 (l) of the Rules specifically
excludes life insurance and health insurance service, which are used primarily
for personal use of any employee. Thus, in view of the embargo created in the
definition itself, service tax paid on insurance service for insuring the
employees should not be considered as input service. With regard to security
service, which is located outside the factory, there is no nexus between such
disputed service with the output service provided. Hence service tax paid on
the security service should not be considered as input service. However, it was
noted that irregularly availed credit was not utilised for payment of service
tax. In absence of utilisation, there was loss of revenue to the Government,
which can be compensated by way of payment of interest. Further, since the
CENVAT credit particulars were reflected in the books of accounts and verified by department, there was no
suppression of any material particulars with regard to availment of CENVAT
benefit, penalties were held not sustainable.

52. [2019-TIOL-272-CESTAT-MUM] Hardesh Ores Pvt. Ltd vs.
Commissioner of Customs, Central Excise and Service Tax, Goa Date of Order: 11^th January, 2019

Consideration-monetary
or non-monetary for a service is an essential requirement for charge of service
tax.

Facts

The Appellants deputed
employees temporarily to a group-company. The salary and other compensation was
settled as inter-company dues since employees continued to be on the rolls of
the appellant while operationally deployed in group company. The demand was
confirmed under manpower recruitment or supply service.

Held

The Tribunal noted the
decision of the Supreme Court in the case of Intercontinental Consultants
and Technocrats Pvt. Ltd [2018-TIOL-76-SC-ST] wherein the court held that
the inclusion of value in section 66 imposing the tax on service restricted the
scope of value to the service itself would leads to a further conclusion that
levy of tax is permitted by law contingent upon there being a value inherent as
consideration for the service and not a provision of service gratis to which a
value could be assigned under the relevant Rules. The Court observed that there
is no allegation in the show cause notice, or in the impugned order, that the
appellant retained any amount from out of the payment received from the group
company, thus, discrediting the receipt of any consideration. There is no
provision in the relevant rules for computing the value in the absence of
consideration even though provisions exist for monetising consideration other
than in money. Absence of consideration is not the same as uncountable
consideration requiring rules for conversion. In absence of any consideration,
there is no taxable service and, in the absence of taxable service, leviability
of duty would not arise.

53. [2019-TIOL-286-CESTAT-BANG] Dell International Services India Pvt. Ltd vs. Commissioner of Central Tax Date of Order: 13^th December, 2018

Mandatory
pre-deposit u/s. 35F of the Central Excise Act, 1944 while filing appeal can be
made through the CGST Credit

Facts

In reply to Registry is objection that the appellant has
required to pay 7.5%/10% of the duty/tax and file proof of the same. The
appellant informed that they had already reversed 7.5% of the duty demanded
through Central Goods and Service Tax Credit and indicated the same in Column
4B(2) of GSTR-3B filed for the month of August 2018. Reliance was placed on
Circular No. 58/32/2018-GST dated 04.09.2018 and also Circular No.
42/16/2018-GST dated 13.04.2018 which clearly states that the arrears of
Central Excise duty, Service Tax or wrongly availed CENVAT credit under the
existing law is permissible to be paid through the utilisation of amounts
available in the electronic credit ledger.

Held

The
Tribunal noted appellant’s reversal of 7.5% of the duty through the CGST Credit
and indication of the same in Column 4B(2) of the GSTR-3B for August 2018.
Department accepted this. Accordingly, the Registry was directed to admit the
appeal.

II
High Court

54. 2019 [20] G.S.T.L. 20 (Del.) South India Krishna Oil and Fats
Pvt. Ltd. vs. Commissioner of S.T. Date of Order: 1^st October, 2018

Validity
and vires of the provisions not to be examined which are no longer in
operation.

Facts

Writ petition was filed
challenging the vires and the validity of
Rule 10 of Place of Provision of Service Rules, 2012 being ultra
vires to section 66B read with section 64 and 65B (52) and 66C(1) of the
Finance Act, 1994. Prayer was also made to strike down the section 66B of the
Finance Act, 1994 and paragraph 4 and 4.1 of the TRU circular No. 206/4/2017-ST
dated 13^th April, 2017. The said writ petition was filed after the
cessation of the provisions relating to service tax. It was also noted that no
proceedings were pending against the petitioner.

Held:

The
Hon’ble High Court held that it would be inappropriate to issue notice to
examine the validity and vires of statutory provisions that have already ceased
and no proceedings pending against the petitioner. The petitioner left with an
option to challenge similar provisions in Central Goods and Services Tax Act,
2017. The writ petition was dismissed.

55. 2019 [20] G.S.T.L. 351 (Bom.)
Commissioner of S.T., Mumbai-VI vs. DBOI Global Services P. Ltd.
Date of Order: 28^th November, 2018

To grant
refund of service tax on input services used for export of goods, test of
necessity
not relevant.

Facts

Appellant Revenue appealed
against the order of the Tribunal vide which it held Respondent assessee being
entitled to refund of tax paid on four input services viz. event management
services, pandal or shamiana contractor’s services, Mandap keeper services and
health and fitness services used in exported services. Revenue’s contention was
that all the 4 input services did not have any relation to the export services
done by Respondent and export could have taken place in absence of the claimed
input services even.

Held

The
Hon’ble High Court while deciding the matter held that Tribunal well examined
all 4 services and then came to conclusion that it had been used in providing
output service and so had nexus with output services. Denied Revenue’s
contention that definition of input services under CENVAT Credit Rules, 2004
(CCR) satisfies only when it is shown to be necessary for providing output
services and held it to be not a legitimate mandate. Further, held that the
only requirement under CCR to satisfy the definition on input service is the
use in providing output service, which the Tribunal has rightly seen.
Therefore, held no interference in the Tribunal’s view and consequently
dismissed Revenue’s appeal.

56. [2019] 101 taxmann.com 251 (Bombay
HC) Commissioner of Central Tax, Pune-1 vs. Oerlikon Blazers Coating India (P)
Ltd. Date of Order: 19^th December,
2018

Prior to
amendment w.e.f. 01.04.2016 in Rule 7 of Cenvat Credit Rules, 2004,
distribution of CENVAT credit of common input services by input service
distributor to all units was not mandatory, as the rule used the expression
“may distribute the CENVAT Credit”.

Facts

For the period October 2009
to March 2014, the respondent assessee imported “intellectual property
services” as well as “information technology services”, paid service tax
liability under reverse charge mechanism and took credit of the same. Revenue
alleged that in terms of Rule 7 of CENVAT Credit Rules, 2004,
respondent-assessee should have distributed said CENVAT credit to its various
units situated across the country and should not have availed CENVAT credit
only at one of its unit because such services were used by all the units of the
respondent assessee and not restricted to one particular unit. During the
appeal proceedings, the Hon’ble Tribunal held that the entire exercise would
have been revenue neutral as other units would have taken the credit of RCM
liability paid by them to discharge output service tax liability and thus, set
aside impugned demand. Being aggrieved, revenue filed present appeal.

Held

The Hon’ble High Court
observed that prior to amendment which is effected from 01.04.2016, having
regard to the wordings of erstwhile Rule 7 of CENVAT Credit Rules i.e. “may
distribute the CENVAT credit“, the assessee had an option to
distribute CENVAT credit of input services available to it amongst its other
units which are providing output services. High Court observed that post
amendment 01.04.2016, said wordings of Rule 7 were substituted as “shall
distribute the CENVAT credit“. Therefore, the High Court held that
prior to 01.04.2016, the respondent assessee was entitled to avail and utilise
said credit at one of its unit only instead of distributing the same to other
units. Further, the High Court noted that even otherwise, the Tribunal has
rightly observed that entire exercise would have been revenue neutral as the
distribution of CENVAT credit to the various units would result lesser service
tax being paid by cash on their output services as they would have utilised the
CENVAT credit available for distribution. Consequently, the High Court upheld
decision of the Hon’ble Tribunal and dismissed present appeal.

Note: Readers may note that
as regards the provisions dealing with Input Service Distributor in GST,
section 20(1) of the CGST Act, uses the expression ‘shall’, and section 20(2)
uses the expression ‘may’. Section 20(1) deals with how the ITC of IGST or as
the case may be CGST can be transferred. Whereas section 20(2) deals with
quantification of distribution qua recipient units. Applicability of
this decision of the Hon’ble Bombay High Court in GST regime may therefore need

further examination.

57. [2019-TIOL-153-HC-KOL-ST] Gitanjali Vacationville Pvt. Ltd & ANR vs. Union of India and ANR Date of Order: 15^th January, 2019

On a prima
facie reading of sections 173 and 174 of the GST Act, 2017, it appears that
an enquiry or an investigation or even a legal proceeding under the Act of 1994
is permissible notwithstanding the coming into effect of the Act of 2017.

Facts

The authorities are proposing
to conduct an audit under the provisions of the Chapter V of the Finance Act,
1994. The Petitioner challenges these communications on the ground that they
were issued without jurisdiction as the Central Goods and Services Tax Act,
2017 repeals Chapter V of the Finance Act, 1994. It is challenged that an audit
contemplated under Chapter V of the Finance Act, 1994 is not saved by the
provisions of section 174 of the Act of 2017.

Held

The Court noted that
Chapter V of the Finance Act, 1994 stands omitted by section 173 of the Act of
2017 save as otherwise provided under the Act of 2017 – Therefore, if any
provision of the Act of 2017 allows the applicability of the Chapter V of the
Finance Act, 1994, then notwithstanding the omissions of the said Chapter V
u/s. 173, the same continues to apply – On a prima facie reading of
sections 173 and 174 of the Act of 2017, it appears that an enquiry or an
investigation or even a legal proceeding under the Act of 1994 is permissible
notwithstanding the coming into effect of the Act of 2017. The authorities are
proposing undertaking an audit for the period when the Act of 1994 was
applicable, the authorities are entitled to do so and it was held that no
interim stay can be granted. The case is posted for hearing in March 2019.

Note: Readers
may note a contrary decision on the same issue in the case of Oil Field
Warehouse and Service Ltd vs. Union of India[2018-TIOL-2195-HC-AHM-ST] digest
provided in BCAJ December 2018 issue wherein the Gujarat
High Court granted an interim stay on the proceedings of audit under the Finance
Act, 1994.

58. 2019 [20] G.S.T.L. 333 (All.) R.K.
Distributors vs. Commissioner of Commercial Tax, U.P. Date of Order: 5^th December,
2018

ITC
admissible on excess tax paid on purchase in comparison to tax payable.

Facts

Assessee paid excess tax on
purchase in comparison to the tax payable. Dispute arose when assessee claimed
ITC on the entire tax payable under Uttar Pradesh Value Added Tax Act, 2008
(the Act in short), resulting in refundable amount to assessee. Assessing
Authorities ordered for reversal of ITC to the extent of excess amount paid.
Aggrieved by the decision of Commercial Tax Tribunal, Allahabad which uphold
the order of Assessing Authority of reversal of ITC, Assessee filed revision
petition before the High Court.

Held

The
Hon’ble High Court while deciding the matter held that the fact is undisputed
that the amount with respect to which the ITC claimed was admittedly the amount
paid by the assessee by way of tax on purchase of goods that have given rise to
the dispute. The language of section 13(1)(a) [table entry 1(1)] read with
section 2(p) of the Act, sufficiently clear and provides that the ITC referred
to the entire amount of tax i.e. the aggregate amount of tax paid or payable,
in respect of the purchase of goods. When legislature itself contemplated that
amount paid, may itself give rise to input tax, there remains no room to enter
into any exercise of interpretation to restrict the plain meaning of the word
‘paid’. When sale was made within state, the reasoning of the authorities on
the excess realisation of tax cannot be sustained. Thus, revision allowed in
favour of the assessee.

59. 2019 [20] G.S.T.L. 346 (Bom.) ACG
Associated Capsules P. Ltd. vs. Commissioner of C. Ex., Thane-III Date of Order: 5^th December,
2018

Guest
House whether situated near factory premise or far eligible of input service
credit, if not used for personal use or consumption of employees.

Facts

Appellant
Assessee had its manufacturing unit located at three place in Maharashtra but
its guest houses were situated at various places of country. Assessee claimed
input credit of services related to guest houses maintained by it, which was
objected and denied by the Department holding that the same were not utilised
for the purpose of its manufacturing activity and therefore liable to be
reversed. On further, appealing the order before the Tribunal, it was held that
the credit of guest houses located next to manufacturing unit would be allowed
and the credit in respect of guest houses located away from manufacturing unit
cannot be allowed and remanded the matter to original authority for
determination of credit on this ground. Aggrieved Appellant preferred appeal
before the High Court.

Held

The Hon’ble High Court
while deciding the matter found Tribunal’s formula of allowing benefit of guest
houses situated next to manufacturing unit and denying for the rest, incorrect.
Further, held that the benefit in respect of guest house not situated close to
manufacturing unit, if not used for personal use or consumption of employees
(the case being excluded from the definition of input service) be allowed.

The Hon’ble Court not interfered with the remand order but leaving
open to Assessee to persuade the Assessing Officer in regard to guest houses in
question were not used for personal use or consumption of the employees.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

This
feature was launched in April, 2002, to summarise the direct taxes judgments of
the highest court of the country. Although Closements carried analysis of
Supreme Court decisions, this column was started as the number of decisions on
tax matters from the Supreme Court kept increasing. Kishor Karia and Atul
Jasani, the first contributors, continue to digest important cases. The feature
covers judgments other than those covered under Closements.

16.
Ravi Agrawal vs. Union of India (UOI) and Anr. (2019) 410 ITR 399 (SC)

Special Deduction u/s. 80DD in respect of
maintenance including medical treatment of a dependant who is a person with
disability – Supreme Court urged to Union of India to have a relook into this
provision considering the hardships faced by the parent/guardian of the
disabled

A Public Interest Litigation was filed by
the Petitioner in the interest of handicapped children whose parents have taken
Jeevan Aadhar Policy from the Life Insurance Corporation of India (for short,
LIC) for the livelihood of their children.

The Petitioner pointed out that even when
the entire subscription is paid under this policy meant for handicapped
persons, this policy does not have maturity claim. The amount is payable to the
dependant only on the demise of the proposer/life assured. This was in
confirmity with the requirement of section 80DD

It was the submission of the Petitioner that
by incorporating such a provision, the Respondents are denying the benefit of
the insurance to the handicapped persons to get annuity or lump sum amount
during the lifetime of the parent/guardian of such a handicapped person,
whereas the beneficiaries of other life insurance policy are getting annuity
during the lifetime of the person who has taken insurance policy. This,
according to the Petitioner, violates the fundamental right of equality of the
handicapped person enshrined in Article 14 of the Constitution.

According to the Supreme Court, in essence,
the grievance of the Petitioner was that benefit of Jeevan Aadhar policy should
not be deferred till the death of the Assessee/life assured and it should be
allowed to be utilised for the benefit of the disabled person even during the
lifetime of the Assessee.

It was the submission of the Respondent No.
1/Union of India that the aforesaid provision was specifically provided for in
the Act keeping in view the fact that the guardians of children with disability
were always faced with the grim reality about the need for maintenance of the
disabled after the death of the primary care giver, i.e. the parent or the
guardian. Many of them would like to deposit some amount during their lifetime
in some special instrument which would ensure payment of a reasonable sum
regularly to the disabled on their death. Thus, a separate deduction from Gross
Total Income of a specified amount deposited in a year in any scheme of LIC or
any other insurer specifically framed for providing recurring or lump sum
payment for the maintenance and upkeep of a handicapped dependant after the
death of the Assessee and approved by the CBDT in this behalf was incorporated
in the statute. As the scheme was designed to, to a great extent, to assuage
the anxiety in the minds of parents/guardians of handicapped dependants about
the destiny of their wards on their death and, therefore, to allow for annuity
payments to the handicapped dependant under Jeevan Aadhar policy to commence
after a certain age of the subscriber was not possible.

Meeting the argument of the Petitioner based
on Article 14 of the Constitution of India, it is argued that the deduction
u/s. 80DD of the Act had been specifically provided for persons with
disability. This was a valid classification for providing specific regime for
this class of persons.

The Supreme Court observed that section 80DD
of the Act was a provision made by the Parliament under the Act in order to
give incentive to the persons whose dependants were persons with disability.
Incentive was to give such persons concessions in income tax by allowing
deductions of the amount specified in section 80DD of the Act in case such
parents/guardians of dependants with disability take insurance policies of the
nature specified in this provision. Purpose was to encourage these
parents/guardians to make regular payments for the benefit of dependants with
disability. In that sense, the Legislature, in its wisdom thought it
appropriate to allow deductions in respect of such contribution made by the
parent/guardian in the form of premium paid in respect of such insurance
policies. This deduction was admissible only when conditions stipulated therein
are satisfied. Insofar as insurance policy was concerned, it incorporated a condition
(which was impugned in the present writ petition) to the effect that the amount
shall not be given to the handicapped persons during the lifetime of the
parent/guardian/life assured. This was in conformity with section 80DD(2)(b) of
the Act.

According to the Supreme Court, to some
extent, the grievance of the Petitioner was justified in this behalf in the
plea that when there was a need to get these funds for the benefit of
handicapped persons, that would not be given to such a person only because of
the reason that the assured who was a parent/guardian was still alive. This
would happen even when the entire premium towards the said policy has been paid
as the policy did not have maturity claim. Thus, after making the entire
premium for number of years, i.e. during the duration of the policy, the amount
would still remain with the LIC.

However, the Supreme Court noted that the
purpose behind such a policy was altogether different. As noted from the
provisions of section 80DD as well as from the explanatory memorandum of the
Finance Bill, 1998, by which this provision was added, the purpose was to
secure the future of the persons suffering from disability, namely, after the
death of the parent/guardian. The presumption was that during his/her lifetime,
the parent/guardian would take care of his/her handicapped child.

Further, the Supreme Court observed that
such a benefit of deduction from income for the purposes of tax was admissible
subject to the conditions mentioned in section 80DD of the Act. The Legislature
had provided the condition that amount/annuity under the policy was to be
released only after the death of the person assured. This was the legislative
mandate. There was no challenge to this provision. The prayer was that section
80DD of the Act be suitably amended.

According to the Supreme Court, it could not
give a direction to the Parliament to amend or make a statutory provision in a
specified manner. The Court can only determine, in exercise of its power of
judicial review, as to whether such a provision passes the muster of the
Constitutional Scheme. Though, there was no specific prayer in this behalf, but
in the body of writ petition, argument of discrimination was raised. However,
according to the Supreme Court, the Respondents were able to successfully
demonstrate that the main provision was based on reasonable classification,
which had a valid rational behind it and there was a specific objective sought
to be achieved thereby.

The Supreme Court noted that the Petitioner
may be justified in pointing out that there could be harsh cases where
handicapped persons may need the payment on annuity or lump sum basis even
during the lifetime of their parents/guardians. For example, where guardian has
become very old but is still alive, though he may not able to earn any longer
or he may be a person who was in service and has retired from the said service
and is not having any source of income. In such cases, it may be difficult for
such a parent/guardian to take care of the medical needs of his/her disabled
child. Even when he/she has paid full premium, the handicapped person is not
able to receive any annuity only because the parent/guardian of such
handicapped person is still alive. There may be many other such situations.

However, it is for the Legislature to take
care of these aspects and to provide suitable provision by making necessary
amendments in section 80DD of the Act. In fact, the Chief Commissioner for
Persons with Disabilities has also felt that like other policy holders, Jeevan
Aadhar policy should also be allowed to mature after 55 years of age of the
proposer and the annuity amount should be disbursed through the LLCs or
National Trust.

In the aforesaid circumstances, the Supreme
Court disposed of this writ petition by urging upon Respondent No. 1 to have a
relook into this provision by taking into consideration all the aspects,
including those highlighted by it in the judgment, and explore the possibility
of making suitable amendments.

17. Commissioner of Income-tax (Exemptions) vs.
Progressive Education Society (2019) 410 ITR 370 (SC)

Appeal to the High Court – Condonation of delay – Delay of 362 days –
Delay owing to difference of opinion between two officers – Appeal filed after
taking legal oinion – Delay condoned subject to payment of costs

The Supreme Court found that the High Court
had dismissed the appeal preferred by the Appellant on the ground of delay. The
delay was of 362 days. As per the High Court, the delay was not satisfactorily
explained. The Supreme Court noted that the main cause of the delay was
difference of opinion between the two Officers and ultimately legal opinion was
taken and it was decided to file the appeal.

According to the Supreme Court, having
regard to the importance of the matter, the High Court should hear the appeal
on merits. The Supreme Court set aside the impugned order condoning the delay
in filing the appeal in the High Court subject to payment of costs of rupees
one lakh to be paid the respondent within a period of four weeks.

The Supreme Court remitted the matter to the
High Court with a direction that it shall decide the appeal on merits.

18. CIT (LTU) vs. Reliance Industries Ltd (2019) 410 ITR 466 (SC)

Business expenditure – Interest on borrowed
capital – The finding that the interest free funds available to the assessee
were sufficient to meet its investment was a finding of fact

The Supreme Court noted that the appeals
before it arose from the judgment of the Bombay High Court dated 22 and 23
August, 2017 for Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07. The
High Court had passed a common order for all the Assessment Years. The appeals
by the Revenue raised the following questions:

1. Whether the High
Court is correct in holding that interest amount being interest referable to
funds given to subsidiaries is allowable as deduction u/s. 36(1)(iii) of the
Income Tax Act, 1961 (for short the Act’) when the interest would not have been
payable to banks, if funds were not provided to subsidiaries;

2. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that prior to insertion of
Explanation-5 to section 32 of the Act, the claim of depreciation was optional
and could not be thrust on the assessee, if it had not claimed it;

3. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that pre-operative expenses incurred
in connection with creation of plant & machinery in units which have not
commenced production, are revenue in nature;

4. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that expenditure on estimated basis
cannot be reduced from dividends for deduction u/s. 80M of the Act; and

5. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view in sustaining the deletion of the
Transfer Pricing adjustment made to consultancy charges, especially when the
TPO had adopted the same mark up in relation to its European associate, what
the assessee itself had adopted in relation to its USA associate.

The Supreme Court held that insofar as the
first question was concerned, the issue raised was a pure question of fact. The
High Court had noted the finding of the Tribunal that the interest free funds
available to the assessee were sufficient to meet its investment. Hence, it
could be presumed that the investments were made from the interest free funds
available with the assessee. The Tribunal has also followed its own order for
Assessment Year 2002-03. In view of the above findings, the Supreme Court found
no reason to interfere with the judgment of the High Court in regard to the
first question. Accordingly, the appeals were dismissed in regard to the first
question.

The Supreme Court held that insofar as the
second question was concerned, the issue, was governed by the decision of this
Court in Plastiblends India Limited vs. Additional Commissioner of Income
Tax, Mumbai and Another (2017) 398 ITR 568 (SC). The High Court did not
have the benefit of this decision. Hence, it was appropriate that the issue be
remanded for fresh decision by the High Court bearing in mind the law laid down
in the above case. The Supreme Court kept open all the rights and contentions
of the Revenue and the assessee in regard to the applicability of the provision
for the relevant Assessment Years.

As regards, the third question pertaining to
pre- operative expenses; the fourth question pertaining to the deduction u/s.
80M of the Act; and the fifth question pertaining to transfer pricing, the
Supreme Court found that the High Court has failed to independently evaluate
the merits of the departmental appeals. Hence, the Supreme Court was of the opinion that it would be appropriate that the aforesaid
questions were considered afresh by the
High Court.

In order to facilitate a fresh exercise
being conducted in relation to the aforesaid four questions (Question Nos.2, 3,
4 and 5), the Supreme Court allowed the appeals and set aside the impugned
judgment of the High Court. The appeals were restored to the file of the High
Court for that purpose.

These appeals were accordingly disposed of.

BCAJ Admin

STATISTICALLY SPEAKING

1. Category and Income Range wise filing count for current financial year (Updated till October 2018)

Source: www.incometaxindiaefiling.gov.in

2. State wise filing count for the current Financial Year

Source: www.incometaxindiaefiling.gov.in

Note: States considered above are the one in which more than 5,00,000 returns have been filed during the period 1st April 2018 to 31st October 2018.

3. ITR wise receipt of e-Return (October 2018)


Source: www.incometaxindiaefiling.gov.in

4. Highlights of e-Filing


Source: www.incometaxindiaefiling.gov.in

5. Cash growth during Diwali week highest ever


Source: Economic times

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

Fifty years, six
hundred editions and countless impact points it is. As BCAJ crosses one more
milestone of completing its Golden Jubilee, my thoughts are full of pride.
Starting with humble beginnings in 1969 with a 40 page bulletin priced at an
annual subscription of Rs. 18/- and covering only direct taxes, the BCAJ has
matured into a 140 page edition containing all relevant laws, regulations and
practice areas for the Chartered Accountant. In essence, the BCAJ represents
the chartered accountancy profession.

The essence of
the Journal, to my mind, is the passion of its volunteers to deliver latest
relevant content, in an easily readable form with impeccable quality of English
and Grammar. The ability to stay relevant in ever changing external landscape is
derived from countless efforts undertaken at the Editorial Board Meetings and
the Ideation meeting popularly called “Marathon Meeting”. Indeed, the annual
event in January is nothing less than a marathon of ideas – some implementable,
many not so. However, to my mind, this Marathon Meeting sets the fertile ground
for the development of the most relevant content.

The task of the
Editor of such a prestigious Journal is very intense. The countless ideas and
suggestions thrown up at the Marathon Meeting need to be garnished with a pinch
of realism and then actioned out. This is where the biggest challenge of the
Editor lies. Identifying potential authors, requesting them to write and making
them actually write is by no means an easy assignment. Doing this month after
month requires tremendous commitment and deserves special acknowledgement.

As we celebrate
the Golden Jubilee of the BCAJ, it is time to step back and reflect and
identify some learnings.

One thing which
strikes me the most is the fact that over the last fifty years, the BCAJ has
never fallen short of content. The ability to disseminate something of extreme
relevance month after month for more than 50 years tells a lot about the ever
changing external environment. Be it the birth and death of taxes like fringe
benefit tax, or the progression of principle centred accounting standards to
rule and disclosure based standards and thereafter to the Ind AS, the
consolidation of various state level indirect taxes into VAT and the ultimate
consolidation of state as well as central indirect taxes into GST, the Journal
has witnessed and reported it all. The learning is evident, the only thing
which is constant is change.

Another important
aspect which I observed during the Editorial Board Meetings is the extreme eye
for detail – not only for the legal and the interpretational aspects but also
the semantics like the consistency of writing style, the acronyms used, the
placement of the nouns, choice of correct words, etc. There is just so much to
learn from these meetings.

One can go on and
on. But it is not the ethos of the BCAJ to rest on past laurels but to move
ahead and scale even larger peaks. Knowing fully well that going digital is the
need of the hour, the BCAJ has its online avatar in the form of www.bcajonline.org.
The Journal also regularly includes articles and features on effectively using
technology in the professional practice. The traditional journal which had
features and articles now caters to multiple needs through multiple formats
like interviews, view and counterview, surveys and the like.

While the BCAJ always evolves to identify new topics, features and
articles, it also nourishes existing features and articles which are relevant
to the readers. The feature “Tribunal News” is the oldest feature in the BCAJ
and is being carried out for more than 30 years. It requires tremendous efforts
on the part of the feature contributors to consistently find out time from
their busy schedules and contribute content month after month for such a long
period.

As the President
of this esteemed Society, I take extreme pride in the BCAJ achieving this very
important milestone and I congratulate the Editor Raman Jokhakar, who has put
in tremendous efforts to constantly “up” the bar every time, month after month.
I wish the BCAJ all the best and would look forward to the 60^th year
as well.

This being the
Special Issue of the BCAJ, I feel it appropriate to only talk about the BCAJ
and not about the other happenings within and outside the profession. I will
cover those thoughts in my subsequent communication. Till then, happy reading.

CA. Sunil Gabhawalla

President

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article
provides (a) key recent updates in the financial reporting global space;
(b) insights into an accounting topic, viz. convenience translation; (c)
compliance aspects of transition disclosure under Ind AS 116 from the
lessee’s perspective; (d) a peek into an international reporting practice in
the Auditor’s report; and concludes with (e) an extract from a
regulator’s speech from the past on MD&A disclosure

KEY RECENT UPDATES

Revised International Standard on Auditing (ISA 315)

On 19^th December, 2019 the IAASB issued ISA 315 (Revised
2019), Identifying and Assessing the Risks of Material Misstatement.
ISA 315 (Revised) sets out enhanced requirements and application material
to support the auditor’s risk assessment process. The revised ISA has enhanced
requirements related to exercise of professional scepticism,
separate focus on understanding the applicable financial reporting
framework, clarifications on which controls need to be identified
for the purposes of evaluating the design of a control, and determining whether
the control has been implemented and also considerations for using automated
tools and techniques incorporated within the application material of the standard.
A new Appendix (Appendix 6) has also been added to provide the auditor with considerations
for understanding general IT controls.

The revised ISA is
effective for audits of financial statements for periods commencing on or after
15^th December, 2021.

SEC Guidance on Reporting KPIs and Metrics in MD&A

On 30^th January, 2020 the US SEC issued a Guidance on
Management Discussion and Analysis (MD&A) related to disclosure of
Key Performance Indicators (KPIs) and metrics. SEC registrants are required to
discuss and analyse statistical data in the MD&A section that in the
company’s judgement enhances a reader’s understanding. Such information could
constitute KPIs and other metrics.

The SEC, based on
the issued guidance, expects the following disclosures to accompany the metric:
(i) a clear definition of the metric and how it is calculated, (ii) a
statement indicating the reasons why the metric provides useful information
to investors, and (iii) a statement indicating how management uses the
metric in managing or monitoring the performance of the business. A company
should also consider whether there are any estimates / assumptions underlying
the metric or its calculation and whether disclosure of such items is necessary
for the metric not to be materially misleading.

It may be noted
that examples of metrics to which the guidance applies include operating
margin, same store sales, sales per square foot, average revenue per user,
active customers, total impressions, traffic growth, employee turnover rate, number
of data breaches, etc.

USGAAP – Simplifying the Accounting for Income Taxes

The FASB issued
Accounting Standards Update (ASU) No. 2019-12 in December, 2019, Simplifying
the Accounting for Income Taxes, amending Topic 740, Income Taxes.
The ASU makes a number of amendments and is part of the FASBs USGAAP
simplification initiative. One such amendment relates to intra-period tax
allocation.

Intra-period tax
allocation is the process of allocating income tax expense (or benefit) to
components of income statement, i.e. continuing and discontinuing operations,
other comprehensive income and equity. Under extant USGAAP, the general
accounting principle is that an entity determines the tax expense / benefit for
continuing operations and then proportionally allocates the remaining tax
expense / benefit to other items. USGAAP made an exception to this general
principle in a situation when there was a loss in continuing operations and a
gain / surplus in OCI / discontinuing operations. The ASU has removed the exception
and the amended position is that ‘the tax effect of pre-tax income or
loss from continuing operations should be determined by a computation that does
not consider the tax effects of items that are not included in continuing
operations’. This has an impact in situations when income from
continuing operations is subject to a tax rate that is different from the tax
rate applicable to chargeable / capital gains on discontinued operations / OCI.

The amendment is
effective for public companies for fiscal years commencing 15^th
December, 2020. It may be noted that IFRS (IAS 12, Income Taxes) does
not explicitly provide guidance on such intra-period tax allocation.

RESEARCH: CONVENIENCE TRANSLATION

Introduction

Convenience
translation is ‘a display of financial statements or selected
portions of financial statements in a currency other than the
presentation currency, as a convenience to some users’.

Setting the
Context

An analysis of a
sample of four companies’ data based on their annual reports filed with the US
Securities Exchange Commission (SEC) is provided below.

It may be noted
that the ‘functional currency’ is the currency of the primary
economic environment in which an entity operates.

The ‘presentation currency’ (or the reporting currency) is the
currency in which the financial statements are presented.

Case Study 1: Baidu Inc. (Listed on NASDAQ)

GAAP for SEC filing

USGAAP

Functional Currency

US $

Reporting Currency

RMB

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stDecember, 2018

(Amount in millions)

2016 (RMB)

2017 (RMB)

2018 (RMB)

2018 (US$)

(Convenience Translation)

Total revenue

70,549

84,809

102,277

14,876

Net income

11,596

18,288

22,582

3,284

Total assets

251,728

297,566

43,279

Total equity

119,350

175,036

25,459

Convenience Translation

Translations of amounts from RMB into US$ for the
convenience of the reader have been calculated at the exchange rate on 31^st
December, 2018, the last business day in fiscal year 2018

Case Study 2: Honda Motor Co. Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Japanese Yen

Presentation Currency

Japanese Yen

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (JPY)

2018 (JPY)

2019 (JPY)

Convenience Translation

Total revenue

13,999,200

15,361,146

15,888,617

Net income

679,394

1,128,639

676,286

Total assets

19,349,164

20,419,122

Total equity

8,234,095

8,565,790

Convenience Translation

Case Study 3: Wipro Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Reporting Currency

Indian Rupees

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (INR)

2018 (INR)

2019 (INR)

2019 (US$)

(Convenience Translation)

Total revenue

550,402

544,871

585,845

8,471

Net income

85,143

80,084

90,173

1,302

Total assets

760,640

833,171

12,045

Total equity

485,346

570,753

8,252

Convenience Translation

The accompanying consolidated financial
statements have been prepared and reported in Indian Rupees, the functional
currency of the parent company. Solely for the convenience of readers, the
consolidated financial statements as at and for the year ended 31^st
March, 2019 have been translated into US$ at the exchange rate on
31^st March, 2019

Case Study 4: Infosys Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Presentation Currency

US Dollar

Extracts from the Income Statement and Balance Sheet
for the Year ended 31^st March, 2019

(Amount in millions)

2017 (US $)

2018 (US $)

2019 (US $)

Convenience Translation

Total revenue

10,208

10,939

11,799

Net income

2,140

2,486

2,200

Total assets

12,255

12,252

Total equity

9,960

9,400

Convenience Translation

As can be seen from
the above table, Company 1 presents its financial statements in RMB although
its functional currency is US$. It also presents US$ figures for the latest
financial year based on a convenience translation converting all balance sheet
and income statement items at the year-end exchange rate.

Company 3 and 4
are India listed entities whose functional currency is the INR. Company 4 presents
its financial statements in US$ (applying IAS 21) while the other company
presents its financial statements in INR with a convenience translation of only
the current period figures in US$ [based on year-end exchange rate (applying
SEC Regulation S-X)].

In the following
sections an attempt is made to address the following questions:

1. What is the current position with respect to
convenience translation under prominent GAAPs?

2. Is there consistency among GAAPs with respect
to convenience translation?

3. Is there a difference between displaying
financial statements in a presentation currency (that is different from an
entity’s functional currency) and convenience translation of financial
statements?

4. Is convenience translation an option or mandatory
for a US listed entity?

5. Why do entities adopt convenience translation
if it is optional?

The position
under prominent GAAPs

US GAAP

USGAAP does not
contain any guidance on convenience translation. Even the SEC
regulations do not permit full-fledged convenience translations for foreign
private issuers (FPIs) with the exception of a ‘limited convenience
translation’.

The Accounting
Standards Codification (ASC 830) that covers the accounting topic Foreign
Currency Matters in USGAAP states that, ‘this topic does not cover
translation of the financial statements of a reporting entity from its
reporting currency into another currency for the convenience of readers
accustomed to that other currency’. (ASC 830-10-15-7).

US-listed
entities that are subject to SEC regulations may
at their option present convenience translation of financial statements.
The salient aspects of the said rule [Regulation S-X, Rule 3-20 (b)] are
summarised below.

a. An FPI shall state amounts in its
primary financial statements in the currency which it deems appropriate.

b. If the reporting currency is not the US
dollar, dollar-equivalent financial statements or convenience translations
shall not be presented, except a translation may be presented of the
most recent fiscal year and any subsequent interim period presented using
the exchange rate as of the most recent balance sheet, except that a rate
as of the most recent practicable date shall be used if materially different.

IFRS and Ind AS

IAS 21 The
Effects of Changes in Foreign Exchange Rates permits an entity to present
its financial statements in any currency or currencies.

IFRS also does not prohibit an entity from providing, as
supplementary information, ‘a convenience translation’. Such a
‘convenience translation’ may display financial statements (or selected
portion of financial statements) in a currency other than the presentation
currency as a convenience to some users. The ‘convenience translation’ may be
prepared using a translation method other than that required by the
Standard. These types of ‘convenience translations’ should be clearly
identified as supplementary information to distinguish them from information
required by IFRSs and translated in accordance with IAS 21 (para 57 and BC14).

The position under IND
AS 21 The Effects of Changes in Foreign Exchange Rates is the same
as under IAS 21.

AS 11 The
Effects of Changes in Foreign Exchange Rates does not contain any explicit
guidance with respect to ‘convenience translation’. It also does not prohibit use
of a currency other than the currency of country of domicile as the reporting
currency:

This standard does not
specify the currency in which an enterprise presents its financial statements.
However, an enterprise normally uses the currency of the country in which it is
domiciled. If it uses a different currency, this standard requires disclosure
of the reason for using that currency (para 3).

Conclusion

At present there is
no consistent principle underlying the preparation and presentation of financial
statements applying convenience translation across GAAPs. USGAAP and AS do not
contain explicit guidance on this topic. IFRS (and Ind AS) does permit
convenience translation, albeit it does not contain the prescriptions
available when financial statements are translated into a presentation currency
(other than the functional currency). The SEC regulations provide the
methodology to be adopted for presenting convenience translation figures that
is very limited in scope.

Presenting
financial statements in a presentation currency (both under IFRS and USGAAP)
requires standard procedures to be adopted (with balance sheet items being
translated at closing rate and income statement figures at average rates and
resultant exchange differences accounted in other comprehensive income).
Convenience translation, on the other hand, under SEC regulations requires all
items in the balance sheet and income statement to be translated at closing
rate (with no comparatives). Some entities that have dual listing status opt for
providing additional information by way of such a translation for the
convenience of their investors. A summary of the case studies is provided in
the table below:

Global Listed Entities

Indian Listed Entities

US SEC reporting

Case Study 1

Case Study 2

Case Study 3

Case Study 4

GAAP adopted

USGAAP

IFRS

Functional currency

US $

JPY

INR

Presentation / reporting currency

RMB

JPY

INR

US$

Whether US$ figures are made available to
investors on face of financial statements?

Yes, with convenience translation

Yes. With convenience translation

Yes. Without convenience translation

GAAP literature adopted for convenience
translation

SEC Regulation S-X and not USGAAP ASC 830

SEC Regulation S-X and IAS 21

NA (IAS 21 adopted for translation to
presentation currency)

GLOBAL ANNUAL REPORT EXTRACTS: ‘APPLICATION OF
MATERIALITY’ IN
AUDIT REPORT

Background

Unlike SA 701 in
the Indian context, International Standard on Auditing (UK) 701 Communicating
Key Audit Matters in the Independent Auditor’s Report issued by the
Financial Reporting Council (FRC), UK also deals with the auditor’s
responsibility to communicate other audit planning and scoping matters
in the auditor’s report (paragraph 1-1).

As per para 16-1 of
ISA (UK) 701, Communicating other Audit Planning and Scoping Matters,
the auditor’s report is required to provide:

1 An explanation of how the auditor applied
the concept of materiality in planning and performing the audit. Such
explanation shall specify the threshold used by the auditor as
being materiality for the financial statements as a whole

2 An overview of the scope of the audit
including an explanation of how such scope: addressed each Key Audit Matter
relating to one of the most significant risks of material misstatement
disclosed and was influenced by the auditor’s application of the materiality
disclosed

It may be noted
that ISA (UK) 701 that was effective 2016 has undergone a revision in November,
2019 (further updated in January, 2020) and amendments require the auditor’s
report to specify the threshold used by the auditor as being materiality
for financial statement as a whole and performance materiality, and
to also provide an explanation of the significant judgements made by the
auditor in determining materiality and performance materiality. The revised ISA
is effective for audits of financial statements for periods commencing on or
after 15^th December, 2019.

Extracts from an
Independent Auditor’s Report

Company:
Whitbread PLC (2018/19 revenues: GBP 2.05 billion, FTSE 100)

Our Application of Materiality

We define
materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work. Based on our
professional judgement, we determined materiality for the financial statements
as a whole as follows (refer to the table below):

We agreed with the Audit Committee that we
would report to the Committee all audit differences in excess of GBP
1.25 m (2018: GBP 1.3 m), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.

Adjusted PBT

GBP 509 m

Group Materiality

GBP 25 m

Component Materiality range

GBP 10 m to 20 m

Audit Committee reporting threshold

GBP 1.25 m

COMPLIANCE: TRANSITION
DISCLOSURE UNDER IND AS 116

Background:

Ind AS 116 Leases became effective from 1^st April,
2019. The ensuing fiscal year ending 31^st March, 2020 financial statements of Ind AS preparers need to
incorporate disclosures mandated
by Appendix C – Effective Date and Transition of Ind AS
116.

The disclosure requirements from the lessee’s perspective is a
function of the transition option elected and a
ready reference to the same is provided in the table given below: (Disclosures – A Referencer)

FROM THE PAST – ‘DISCLOSURES ARE DRIVEN BY WHAT INVESTORS
WANT TO KNOW’

Extracts from a
speech made by Elisse B. Walter (former Commissioner, US SEC) at the
Stanford Directors’ College meeting in June, 2013 are reproduced below:

‘Regulations
are the floor but not the ceiling. They tell
companies what, at a minimum, should be covered, but it’s up to the company to
make sure the story gets told. That’s where MD&A
(Management’s Discussion and Analysis) becomes a real opportunity for
the company to tell shareholders what’s really going on. No MD&A
should be merely a recitation of the financial statements. Give
investors the when, the where, the why and, perhaps most importantly, the what’s
next. You should address your investors like they are your business
partners, and the MD&A should reflect that perspective. Disclosure isn’t driven
by what the company wants to disclose but by what the investors want to know.
That should be front and centre as you review the MD&A.

Group Financial Statements

Parent Company Financial
Statements

Materiality

GBP 25.0 m (2018: GBP 27.3 m)

GBP 10.0 m (2018: GBP 10.9 m)

Basis for determining
materiality

Group materiality was based on 5% of
statutory profit before tax excluding certain items related to the sale
of Costa, being costs associated with the restructure of the continuing
business and non-recurring pension scheme costs. The adjusted profit used in
our determination was GBP 509 m

Materiality was determined on the basis of the
parent company’s net assets. This was then capped at 40% of
group materiality

Rationale for the benchmark
applied

Profit before tax is a key metric for the users
of the financial statements and based on our judgement, we considered
this to be the most appropriate measure for business performance

Profit before tax was used
as the basis for our calculation in the prior year

The entity is non-trading and contains an
investment in all of the Group’s trading components and as a result, in line
with prior year, we have determined materiality on the basis of net assets
for the current year

Group Financial Statements

Parent Company Financial
Statements

The accounting choice to
transition to Ind AS 116

‘Rull Retrospective’ Transition Method (Ind AS 116 applied retrospectively to each
prior reporting period presented applying Ind AS 8)

‘Cumulative Catch-up’ Transition Method1

(New lease standard applied
retrospectively with the cumulative effect of initially applying Ind AS 116
recognised at the date of initial application2)

Para 40A, Ind AS 1

An entity is required to
present a third balance sheet (at the beginning of the preceding period) if
it applies an accounting policy retrospectively that has a material effect on
the balance sheet at the beginning of the preceding period

Para 28(f) of Ind AS 8 and
Para C12 of Ind AS 116

For the current period and
each prior period presented, to the extent practicable, the amount of the
adjustment:

(i) for each financial statement line item affected, and

(ii) if Ind AS 33 Earnings per Share applies to the entity, for basic
and diluted earnings per share.

(Para 28(f), Ind AS 8)

a) The weighted average
lessee’s incremental borrowing rate applied to the lease
liabilities recognised in the balance sheet at the date of initial
application

b) An explanation of any
difference between: (i) operating lease commitments disclosed applying Ind AS
17 at the end of the annual reporting period immediately preceding the date
of initial application, discounted using the incremental borrowing rate at
the date of initial application, and (ii) lease liabilities recognised in the
balance sheet at the date of initial application.

[Para C12, Ind AS 116
instead of para 28(f) of Ind AS 8)]

Para C13 and C10, Ind AS 116

An entity that uses one or
more of specified practical expedients needs to disclose
that fact

Specified practical
expedients (Para C10) include (i) lessee applying a single discount rate to a
portfolio of leases, and (ii) electing not to apply the new lease accounting
model to leases for which the lease term ends within 12 months of the date of
initial application

Disclosures applicable under
both methods w.r.t. change in accounting policy:

Para 28 of Ind AS 8

An entity is required to disclose:

a) The title of the Ind AS,

b) When applicable, that the
change in accounting policy is made in accordance with transitional
provisions,

c) The nature of the change
in accounting policy,

d) When applicable, a description of the transitional provisions,

e) When applicable, the
transitional provisions that might have an effect on future periods.

f) ….

g) The amount of the
adjustment relating to periods before those presented, to the extent
practicable.

h)If retrospective
application is impracticable, the circumstances that led to the existence of
that condition and a description of how and from when the change in
accounting policy has been applied.

Para C4 and C3, Ind AS 116

An entity that chooses the practical
expedient of not reassessing whether a contract is, or contains, a
lease at the date of initial application is required to disclose that fact

Ask yourself, what do I know about the company’s
performance that cannot be reasonably inferred from the financial statements?
You are the investor’s voice and as the company’s stewards, you should also be
their advocate as well. You play such a crucial role in ensuring that the company’s
true story is told, and that’s the story that investors deserve to
hear.’

_________________________________________________________________________

1 Para BC279, IFRS 16

2 The date of initial application is the
beginning of the annual reporting period in which an entity first applies Ind
AS 116. For Ind AS steady-state preparers, 1st April, 2019 is the date of
initial application (FY 2019-20).

BCAJ Admin

ALLIED LAWS

24. HUF – Rights of daughter – Coparcenary property – Partition
deed and settlement deed indicating that defendant’s son is absolute owner of
suit premises – Plaintiff having married prior to enforcement of Hindu
Succession Act – Not entitled to claim share in suit properties [Hindu
Succession Act, 1956, S. 6; Hindu Succession Amendment Act, 2005]

Amsaveni vs.
Viswanathan; AIR 2020 Madras 20

The plaintiff is the daughter and the
second defendant is the son of the first defendant. The plaintiff was married
to one Rajaram in the year 1987 and they had two children. The plaintiff’s
husband began to ill-treat the plaintiff and therefore she left the company of
her husband six years ago and came to her parents’ house along with the male
child. Subsequently, the male child was taken away by the plaintiff’s husband.
The plaintiff was provided a separate residence by the defendants and
accordingly the plaintiff was also enjoying the suit property as a joint family
member of the defendants and therefore, according to the plaintiff, she is
entitled to obtain her share in the suit properties.

The Court held that the plaintiff has
admitted that she was married to one Rajaram in the year 1987. Therefore, as
determined by the first appellate court, the plaintiff having got married prior
to the enactment of the Hindu Succession (Amendment) Act 1989 and the Hindu
Succession (Amendment) Act, 2005, she
would not be entitled to claim share in the suit properties claiming to be a
coparcener of the same.

25. Precedent – Two mutually irreconcilable decisions of co-equal
Benches of the Supreme Court – Earlier decision to prevail – Subsequent view
would be held as per incuriam [Constitution of India, Art. 141]

Vasanthi Shridhar
Bangera vs. Vishala Bokapatna Laxman; AIR 2020 Bom. 31

The plaintiff is the
younger sister of the respondent. She sued her elder sister and brother-in-law
for eviction. The suit was decreed. Vasanthi, the elder sister, and her husband
appealed, but without success. In the meanwhile, her husband died. So, along
with her children, the respondent filed this Civil Revision Application. The
issue No. 3 was pertaining to the retrospective applicability of the Benami
Transaction (Prohibition) Act, 1988.

A three-judge bench of the Hon’ble
Supreme Court in the case of R. Rajagopal Reddy, in principle, accepted that
the Act is prospective. However, the petitioners relied on a three-judge bench
of the Hon’ble Supreme Court in the case of K. Govindraj wherein, in a case
pertaining to Minor Mineral Concession Rules, it was held that the legislature
can legislate prospectively or retrospectively.

It was held that the decision in the
case of K. Govindraj, a co-equal bench of the Supreme Court upsets R. Rajagopal
Reddy’s proposition. However, firstly, a decision that deals with an
issue directly should take precedence over a decision which deals with the same
issue collaterally. Secondly, in the event of the two co-equal bench
decisions, the former prevails and the latter can also be per incuriam
if it is not possible for the Court to reconcile its ratio with that of
a previously pronounced judgment. It was further held that the former case does
not dilute nor overrule the latter case.

26. Registration – Compulsory – Unregistered agreement of mortgage
by conditional sale – No evidentiary value [Registration Act, 1908, S. 17, 49]

Tukaram S/o Shankar
Gondkar vs. Dnyaneshwar S/o Sopanrao; AIR 2020 (NOC) 123 (Bom.)

The petitioner is the original plaintiff
in Regular Civil Suit No. 80/1990. He claims to have purchased the land
admeasuring 40 R. out of Survey No. 167 vide sale deed dated 29^th
April, 1981. The petitioner, by preferring the suit for redemption of mortgage
of 40 R. land from Survey No. 167/5/A, contended that respondent No. 1 had
entered into a mortgage deed dated 30^th July, 1979 with the
petitioner for a period of five years. The said period ended on 30^th
July, 1984 and the mortgage was to be redeemed by respondent No. 1 in favour of
the petitioner. Since he failed to do so, the petitioner was constrained to
prefer the said suit.

It was held that the document at issue
was necessarily required to be registered. Since it was an unregistered
document, it was struck by section 49 of the Registration Act under which no
document required to be registered u/s 17 of the Act would have any evidentiary
value.

27. Website – Order/Judgment from official website has sanctity –
Should not be refused

Ibrahim Sk. Rasool
vs. Mohommad Zahir Mohammad Sharif and Ors.; Civil Application No. 411 of 2018
in Second Appeal No. 157 of 2017; Date of order: 19^th March, 2018
(Bom.)(HC)

The counsel for the applicant had
approached the office of the appellate court in order to deposit the amount of
Rs. 5,000 in terms of the judgment and order dated 4^th September,
2017, relying upon the copy of the said judgment and order obtained from the
official website of the Court. But the office of the Court below refused to
accept the said amount on the ground that it would do so only when an official
copy of the said order was received from the Court.

It was held that
the insistence on an official copy of the order of the Court was absolutely
uncalled for and the applicant / appellant ought to have been permitted to
deposit costs on the basis of the copy of the judgment and order obtained from
the official website of the Court. Further, a printout of the orders of the
Court from the official website has sanctity and the trial Courts are expected
to consider the said orders, if they are cited after taking a printout from the
official website. The said orders are also available before the trial Court
from the official website and there can be a counter verification to find out
whether such an order is actually uploaded to the official website or not.

BCAJ Admin

SOCIETY NEWS

TALK ON ‘ACHIEVING SUCCESS – LIVING VALUES’

The H.R. Committee, along with the RVG Educational Foundation, organised a talk for the benefit of students and young members on 24^th November, 2019 at the RVG Hostel Auditorium. Mr. M.K. Ramanujam addressed the gathering on ‘Achieving Success – Living Values’ in his eloquent style and in an interactive session.

He started his talk by explaining the difference between success and happiness. Success, he said, invariably refers to targets, milestones, goals, etc. But happiness is born out of love, abundance and inspiration. Therefore, one ought to choose to do something out of inspiration and love for a subject, for a career, for one’s dreams and so on. ‘Success’ is a challenge because it is short-lived. One often postpones happiness till one achieves success. Happiness, on the other hand, flows from inspiration during the process of achieving it; and despite the challenges, one remains cheerful.

Mr. Ramanujam explained the acronym ‘PREMA’ and the most important concept of ‘Purpose’.

‘P’ Stands for positive emotions. One must venture out with positive emotions. Negative emotions are like Velcro that gets fixed to us easily. We should not be like Velcro but like a Teflon coating so that we are not stuck to negative emotions. For a daily practice of positive emotions it would be best to remember and note down at least three nice things that happened during the day and objectively assessing why these felt like positive happenings.

‘R’ Stands for Relationships. One must invest time, effort, energy and willingness in building relationships with nature, friends, teachers, seniors, the environment and everything around. They are the best support systems.

‘E’ stands for Engagement. Give your best. Introspect and ask yourself, why are you doing what you are doing? Put all your energy into whatever you are doing. Even if you are compelled to do certain things that you do not want to do (e.g., due to parents’ pressure), put in your best. Love what you do and do what you love. Put your 100% and think beyond your own self. Think what contributes to your happiness… Expand your horizon.

‘M’ stands for Meaning. In all that you do, you ought to have meaning for the self and for all those concerned
with it.

‘A’ stands for Achieving. You must complete what
you have begun. There is joy in finishing and
achieving things.

Purpose: Everything in the universe is driven by purpose. Align your work with the purpose. Clarity of ‘Why’ lightens the burden of ‘How’ and ‘What’. Purpose can be understood with deep introspection with ’Why’ and values can be understood by questioning ‘How’. Success is what others measure in you and happiness is what you measure in yourself.

One hundred and ten participants, including more than 80 students, attended and enjoyed the talk.

President Manish Sampat welcomed the participants and gave information about the Society and also shared its vision. Chairman Rajesh Muni provided a broad outline of the activities of the H.R. Committee, especially those carried out for the benefit of students. He invited and encouraged students to register and participate in the Study Circle and the Students’ annual programmes which enable students to showcase their talents.

Mr. Lalchand Chaudhari, President of the RVG Foundation, shared information about the number of chartered accountants who had benefited as alumni of the hostel. He also shared the ‘Vision 2024’ plan set out for RVG. Mukesh Trivedi proposed the vote of thanks.

WORKSHOP ON NBFCS

The NBFC sector has been facing several challenges of late. Apart from business and regulatory challenges, it is also confronted with challenges in Ind AS implementation and other compliances of ECL provisioning and disclosure, etc. Further, regulatory norms are also being notified on a frequent basis.

The Accounting and Auditing Committee of the BCAS has always been at the forefront in planning programmes for NBFCs in order to bolster them and to equip professionals to deal with challenges. Accordingly, the Committee conducted a ‘Workshop on NBFCs’ on 13^th December, 2019 at Hotel Orchid, Mumbai to have an in-depth discussion on the current developments in the field from the regulatory perspective and various issues arising from first-time Ind AS implementation.

It was structured into five sessions followed by a panel discussion. The technical sessions dealt with a variety of topics such as Key regulatory updates in the NBFC Sector, Financial Instruments, Applying the ECL Model and related disclosure requirements, Disclosure requirements under Schedule III of the Companies Act, 2013, Statutory audit aspects, followed by an interesting panel discussion on Challenges of first-time adoption of Ind AS.

The Workshop was attended by more than 80 persons, with increased participation from the industry.

The Workshop started with an inaugural address by Samir Kapadia, BCAS Hon. Joint Secretary, who stressed the importance of NBFCs in the overall development of the financial sector in India. Himanshu Kishnadwala, Chairman of the Committee, introduced the structure of the Workshop to the participants, the thought process behind its design and the need for such a Workshop.

The first session was conducted by Bhavesh Vora who dealt with the important aspects of key regulations surrounding NBFCs and the recent changes therein. While dealing with these, he also took participants on a journey of the NBFC sector over a period of time and gave valuable insights into the regulatory impact on various categories of NBFCs.

In the second session, Santosh Maller dealt with Financial Instruments, Classification of Financial Instruments based on the business models and the measurement of various Financial Instruments with several examples for ease of understanding.

Rukshad Daruvala, who conducted the third session, took up the key issues and requirements in applying the Expected Credit Loss (ECL) model dealing with the provisioning requirements of Advances of NBFCs.

Post lunch, Rukshad Daruvala was once again at the helm, at the session on Disclosure Requirements under Schedule III, including various critical disclosures required under the Ind AS regime.

The subject of Statutory Audit aspects was dealt with in the fifth session by Jayesh Gandhi. He discussed in detail the requirements while conducting audit of NBFCs and shared his vast experience with the participants as
he explained the importance of Audit in the current economic scenario.

In the final session, the challenges of first-time adoption of Ind AS were discussed by a panel comprising Govind Jain, Jayesh Gandhi and Haren Parekh. The discussion was ably moderated by Ashutosh Pednekar. It revolved around the first-time adoption challenges faced by the NBFC industry and the auditors’ perspective on the same. The panellists shared their practical experience on the subject for the benefit of all participants.

TRAINING SESSION FOR CA ARTICLE STUDENTS

The Students’ Forum under the auspices of the H.R.D. Committee organised a training session for CA article students on ‘Recent Developments in Income Tax’ on 10^thJanuary, 2020 at the BCAS Hall.

It was conducted by Jayna Shah. Ms Dhristhti Bajaj, the student coordinator, introduced the speakers and described the upcoming events for students.
Anand Kothari, Convener of the H.R.D. Committee, welcomed the speakers and presented them with a memento each.

Jayna Shah explained the various amendments in income tax such as the change in the corporate tax rate, introduction of faceless assessment, changes to boost cashless economy, new provisions and amendments in TDS provisions and so on. It was an interactive session and the speakers answered all the queries raised by the participants.

The training session ended with Student Study Circle Coordinator Dnyanesh Patade proposing the vote of thanks to the speakers and also to the participants.

NANI PALKHIWALA MEMORIAL LECTURE

The Nani Palkhiwala Memorial lecture meeting was organised jointly with the Forum of Free Enterprises at NCPA Tata Theatre on 16^th January, 2020.
Mr. N. Chandrasekaran, Chairman of Tata Sons Ltd., who was the guest speaker, dwelt on the subject ‘Building India for the Future’. Mr. Y.H. Malegam presided over the proceedings.

A documentary film, ‘Nani the Crusader’, was screened at the start of the meeting. It was based on the life of the late Mr. Nani Palkhiwala and showed glimpses of his life, his rise in the legal fraternity and the accolades that he won from all quarters on account of his brilliance. It also threw light on some of the major cases on Constitutional matters that he had won and that saved India’s democracy and shaped the country’s future.

The film screening was followed by the release of a book, ‘Essays & Reminiscences’ in honour of Mr. Palkhiwala. Mr. Arvind P. Datar, the general editor of the book, fondly recalled his vivid memories of the late stalwart.

Mr. Chandrasekaran spoke of suspicions and ‘micro-management’ of the economy as the impediments faced by businesses in India. He stressed on the need for creating a harmonious atmosphere by trusting and treating business as an essential pillar for
nation-building. The Tata group was an excellent example of how business can contribute to nation-building. Mr. Palkhiwala had set an example of how businesses, by maintaining their core values, could co-exist in a competitive economy and had helped government to build the present-day India. This happened because even his strictest criticism was taken in a positive spirit and with implicit trust by the government.

The core thrust of Mr. Chandrasekaran’s speech was how, with the co-operation of business and government, the vast potential of India could be tapped and the benefits of growth could reach the poorest segment of people to build a strong India, making its future
extremely bright.

Mr. Deepak Parekh, HDFC Bank Chairman, while proposing the vote of thanks, called for maintaining the values of the Indian Constitution. Pointing out that ‘while times and circumstances change, strong values and principles do not’, he said that while we should hold on to the learnings that Mr. Palkhiwala had left behind, it was important not to be consumed by ‘pessimism and doom-mongering’. Admitting that he was an optimist, he said he was confident about the future of India and that ‘our youth will see India’s best days’.

SEMINAR ON PRESUMPTIVE TAXATION

The Taxation Committee organised a seminar on ‘Presumptive Taxation’ with several distinguished speakers sharing their deep knowledge on the subject. It was held at the Walchand Hirachand Hall of the IMC on 18^th January, 2020. The event attracted overwhelming response and saw an attendance of 111 participants, including outstation participants from five different cities / towns. President Manish Sampat welcomed the attendees and gave the opening remarks.

The following topics were taken up for discussion by the speakers:

Sections 44AD and 44ADA: – • Purpose of the provision • How is it different from section 28 – 43CA • Assessee to offer business income under this section • Assessees who cannot offer income under presumptive taxation • Maintenance of books of accounts• Calculations of gross receipts• Determination of GR without BOA and case studies	Bhadresh Doshi
Sections 44AE, 44AF, 44BB, 44BBA, 44BBB – Purpose of the sections, applicabiltity, issues, recent jurisprudence – Interplay of tax audit – Case studies	Mehul Shah
Brain trust questions – Presumptive taxation issues –Issues concerning return of income, books of accounts, tax audit, assessments, penalties, ICDS, etc.	Gautam Nayak, Anil Sathe and Kinjal Bhuta

In the first session, Bhadresh Doshi highlighted the technical aspects of sections 44AD and 44ADA. He concentrated on various issues arising right from the time of the introduction of the presumptive taxation scheme under these two sections. He gave his views and insights on multiple issues and explained the jurisprudence affecting them. He advised participants to read and understand the section and scheme and not to rely on general perceptions.

On his part, Mehul Shah dwelt on the presumptive basis of taxation under sections 44AE, 44AF, 44BB, 44BBA and 44BBB. He explained sections with the help of case studies. It was a highly interactive session and the speaker answered all the questions posed by the participants.

Gautam Nayak, Anil Sathe and Kinjal Bhuta were the ‘brain trustees’ for the last session that was moderated by Ameet Patel. The ‘brain trustees’ were allotted specific questions based on various issues raised by BCAS members from time to time.

Starting the session, Gautam Nayak gave his views on whether presumptive taxation provisions under sections 44AD and 44ADA are qua assessee or qua income. He also responded to various issues raised by the participants pertaining to sections 44AD and 44ADA.

Anil Sathe gave his views on fundamental issues concerning the presumptive basis of taxation and responded to questions based on real examples. He also gave his views on issues concerning sections 44AE and 44BB.

Finally, Kinjal Bhuta shared her insights while addressing questions relating to important definitions such as eligible business, etc. under the presumptive basis of taxation. She also elaborated on the overall scheme and answered queries related to return of income for assessees adopting the presumptive basis of taxation.

All the sessions were interactive and the speakers shared their insightful views. The participants benefited immensely from the guidance and practical views on various issues offered by the faculties.

NFRA AND PCAOB – DISSECTING

PERFORMANCE EVALUATION OF AUDITS

A lecture meeting was organised on 22^nd January, 2020 in the BCAS Conference Hall to deal with the above topic. It was addressed by Chirag Doshi who went through the process of inspection by the Public Company Accounting Oversight Board (PCAOB) of a firm’s quality controls and review of audit assignments carried out by that firm.

He provided an overview of the functioning of the PCAOB with its top areas of focus during the exercise of a firm’s quality review process. The major focus areas were:

(i) System of quality control in firms;

(ii) Independence;

(iii) Recurring audit deficiencies relating to ICFR, Revenue Recognition, Allowance for loan losses, Other Accounting Estimates and ROMMs.

The review process is split into two parts, viz., Quality Control Review and Audit Engagement Review. The major focus is on compliance with auditing standards and not the accounting standards.

Chirag Doshi dwelt on the on-field procedure for review as well as the procedure after field reviews and highlighted the thorough professionalism and independence involved in the whole review process.

He then dealt with the National Financial Reporting Authority (NFRA) which has been constituted on the lines of the PCAOB with the objective of monitoring and enforcing compliance with auditing standards. For achieving this objective, the NFRA would be reviewing the working papers of the audit firms and other communication related to the audits to evaluate the sufficiency of the quality control system of the auditor.

Chirag Doshi went on to deal with the first report of NFRA in the form of an Audit Quality Review (AQR) Report in the case of the auditee, ‘IL&FS Financial Services Limited’ for the F.Y. 2017-18. The purpose of discussing the findings was to make the members aware of the necessity to document and to put on record the findings during the audit process in such a manner that it goes on to prove the independence of the auditor as well as displaying adequate professional scepticism during the conduct of the audit process.

He provided inputs for creating an in-house audit manual by small and medium-size firms for the efficient conduct of audit.

The meeting was well attended and attracted a full house.

FEMA STUDY CIRCLE

Here is a brief report on the FEMA Study Circle meeting held at the BCAS Conference Hall on 23^rd January, 2020.

Ms Mitali Pakle’s presentation was comprehensive and lucid in nature and covered a variety of case laws that made it easy for everyone to grasp the subject matter being discussed. In the course of her brief talk, the speaker managed to cover various aspects of the ECB Guidelines and made it quite interesting.

The discussion was further enriched by some thought-provoking questions that the participants posed and the answers provided by the speaker.

DTAA COURSE 2019-20

The 20^th Study Course on Double Taxation Avoidance Agreement was conducted at the BCAS Hall over nine days – 13^th, 14^th, 20^th and 21^st December, 2019 and 4^th, 5^th, 11^th, 12^th and 25^th January, 2020.

Thanks to regular feedback and continuous refinement, the Study Course was re-designed and covered all BEPS and MLIs along with the Articles of DTAA, FEMA / GAAR, Transfer Pricing, Source Rules under the Income-tax Act, 1961, TDS u/s 195, Substance vs. Form and other relevant provisions.

All the lectures delivered by 31 eminent faculties were very well received. The faculties were generous in sharing their experience by way of case studies on critical topics such as residence and PE, as well as the amendments sought to be made through the MLI.

The Study Course was attended by 73 participants from diverse backgrounds such as senior professionals, practising CAs, young professionals associated with big and SME accounting firms and so on. Apart from Mumbai, there were registrations from other cities such as Ahmedabad, Baroda, Chennai, Jaipur and Delhi. All of them contributed to making the course a huge success.

For those who came in late, the Study Course is an eagerly-awaited event amongst the practitioners of international taxation from all over the country and was well received and appreciated. It was coordinated by Maitri Ahuja and Mahesh Nayak.

‘INDIAN PRIVATE TRUSTS – TAX AND FEMA ASPECTS’

The International Taxation Committee arranged a meeting on ‘Indian Private Trusts – Tax and FEMA Aspects’ on 28^th January, 2020 at the BCAS Conference Hall. The meeting was led by Group Leader Naresh Ajwani who explained the far-reaching income tax and FEMA implications in case of trusts.

The speaker walked the audience through the provisions of income tax and FEMA on trusts and explained various basic terms, the genesis of trusts, kinds of trusts, ownership of trust property, AOP / BOI taxation, beneficial interest, beneficial ownership and other provisions. With the help of some simple illustrations, he explained various concepts and particulars – including terms that do not exist in Indian law such as ‘Trust is not a person’, ‘Grantor Trust’, ‘Trustee taxable as Representative Assessee’ and so on.

Naresh Ajwani also dealt with and answered queries raised by members of the audience. The meeting was interactive and the participants received enormous benefit from the discussion and the insights provided.

Acknowledging the importance of the subject, the Committee plans to host another meeting on trust provisions, details of which will be shared with members very soon.

FELICITATION OF YOUNG CAS AND ‘VISION 2020 – SHAPING THE FUTURE’ FOR NEWLY-QUALIFIED CAS

A special programme was organised for the newly-qualified Chartered Accountants (emerging successful from the November, 2019 examination) under the aegis of the Seminar, Public Relations and Membership Development (SPR&MD) Committee. But within a few days of the announcement, the online enrolments crossed the record figure of 300, forcing BCAS to close registrations!

The event was held at the BCAS Hall on Friday, 31^stJanuary, 2020. It attracted a full house of over 190 participants, including some walk-ins. They were greeted at the registration desk with a few BCAS publications – ‘Changing Paradigms for CSR in India’, a ‘Monograph Series’ containing five booklets on various laws, a copy of the BCAJ Journal of the last two months and BCAS membership forms.

The evening started with a one-on-one interactive session focussed on mentoring with eminent mentors, Nandita Parekh and Robin Banerjee. The participants were divided into two groups between the speakers so that they could interact and take help from them on all their queries, including guidance for future careers. These sessions were appreciated by all the newly-qualified CAs.

This was followed by an address by President Manish Sampat who talked about his early days as a qualified Chartered Accountant, the sound advice that he had received from his seniors to associate himself with the BCAS, the positive impact that the Society had had on his career as a CA – and to the present day when he heads the Society as President. He also briefed the new CAs on the various initiatives of the Society.

Narayan Pasari, Chairman of the SPR&MD Committee, pointed out that the youth or ‘yuva shakti’ is an integral part of the numerous activities organised by the BCAS. He appealed to the new CAs to become members of BCAS, benefit from it and play an active role in its innumerable activities. He pointed to the BCAS Referencer, the Annual RRC and the other programmes conducted in the last few months and said that youth had contributed significantly in all these events.

He proudly revealed that the BCAS is very active on social media and its handle @BCASGlobal has recently crossed the 33K mark; it also has 11K followers each on LinkedIn and YouTube.

The ‘Thought Leader’ for the evening, Nilesh Vikamsey, then took the floor and offered valuable advice to young CAs from the variegated learnings of his own life. He spoke at length on upcoming fields for CAs and stated that he believes ‘ABCD is the future’ – that is, Artificial Intelligence, Block Chains, Cyber Security and Data Analytics.

He also answered all the questions posed to him by the newly-minted CAs. He advised them to join the nearest Study Circles and pointed out that at an association like BCAS, the process of learning never stopped.

This was followed by a felicitation ceremony, with all the participants being presented with a memento by ‘Team BCAS’. The event showcased the vibrancy of the participants, many of whom showed great interest in signing up to become members of the Society.

Interestingly, some of the participants were eager to ask even more questions to their Mentors. The proceedings ended with a vote of thanks proposed by the coordinator, Rimple Dedhia.

18^TH RESIDENTIAL LEADERSHIP RETREAT

The 18^th Residential Retreat programme was held on 7^th and 8^thFebruary, 2020 on the theme ‘Future Begins Now’. Twenty-nine participants, including ten newcomers, had registered for the programme. The trainer, Mr. Deepak Shinde (a disciple of Shri Mahatria), had flown in from Bengaluru for the event.

A cool winter breeze flowing over the green, serene and spacious campus, amidst the shade of swaying trees and the chirping of birds, set the perfect tone for the Retreat, which was held at the Rambhau Mhalgi Prabodhini, Essel World Road, Uttan.

The programme commenced with the invocation prayer. President Manish Sampat welcomed the participants and shared information about the activities of the BCAS. He proudly narrated his journey at the Society which had begun many years ago as Convener of the Human Resource Committee. He complimented the participants and the organising team for devising such an interesting workshop.

Trainer Deepak Shinde discussed several important concepts and pointers of life with the participants over the two-day Retreat.

He opened with the story of Alexander the Great King and the Saint Diogene, driving home the point that to become king or to achieve something, one has to put in huge efforts. But to be like Saint Diogene (and in permanent bliss) one need not depend on external things. One can be in that state quite naturally. To be happy, one must adhere to right values. One can be an achiever, become successful and also remain blissful like a saint.

His advice was to always begin the day with the greeting ‘Happy Morning’. Doing this all 365 days of the year would turn it into a habit. And one would not need to depend on people, places, objects, time, or seasons to be happy. If one was dependent on such external factors, the happiness would be temporary and external factors would make one subservient and vulnerable to them.

‘We have a tendency to judge people with our own biased and limited vision. In doing so we miss to be in touch with people and miss happiness. One’s life must be full of happiness and love, such that the epithet on one’s grave describes one’s life with apt, inspiring and happy words.’

In the second session, Trainer Deepak Shinde spoke about perfect balance and alignment of the laws of nature and man’s tendency to interfere. He used the simile of a Rubik’s Cube. At the beginning it is perfectly balanced with each of six sides uniformly reflecting one colour. The moment one turns, twists and revolves the cube, the entire symmetry of colour and pattern gets disturbed. The learning from this is not to interfere with the well-aligned laws of nature.

He then moved to thoughts and words. One becomes as one thinks; similarly, as one feels, so one attracts. He discussed at length the power of positive words and prayers and said that cheerfulness, abundance, gratitude, appreciation, encouragement and inspiration bring happiness and energy.

The third, evening session, was conducted in the open amphitheatre area, in the lap of nature, and the Trainer discussed peace vs. prosperity. He emphasised that one must clearly define what one wants in life. To earn peace and goodwill, one may come under pressure to sacrifice one’s own space. On the other hand, to enjoy material wealth one may have to compromise with values, goodwill and peace. The question was how to balance both, peace and prosperity? By using positive words and feelings, one can be in harmony and have perfect balance, he stressed.

Practising grace. Grace is one’s ability to carry out an act without disturbing the environment. ‘With grace, accept the outcome of action, inaction and efforts as a gift of the Lord (prasad buddhi).’

Late in the evening on the first day, the participants enjoyed a brilliant campfire. Some of them took to singing and dancing to music. The relaxed participants appeared charged up for the next morning’s session.

The first session on the second day began quite early, at 7 o’clock, in an open area witnessing the rising sun and its golden glow. The discussion turned to ‘Faith’ and ‘Energy’. Faith is something invisible with strong conviction of its presence. Trainer Deepak Shinde called faith the thread of a kite flying high in the sky. It is the connection with the thread that keeps the kite (symbolising life) flying high in the sky.

He explained the ‘God concept’ with cause and effect principles. One draws energy from the effulgence of the sun and knowledge; exercise and sattvik food for the body, positive words and prayer for the mind; and reflection, contemplation and meditation for the intellect. Energy charges the sub-conscious mind. ‘Therefore, live with grace and align with nature with faith and receive energy’.

Narrating a conversation between Lord Rama and Hanuman, he shared the view that our faith in the Lord is much more powerful than the Lord. ‘God is the symbol of love. One need not have fear of the Lord.’

In the third session, the discussion focused on relations, expectations and situations. In life sometimes one may need to take a U-turn from one’s position. One ought to understand the people around, understand that man expects happiness and woman, love. But both love and happiness are complementary. Learn to say no without guilt and not to please others.

The two-day programme concluded with a vote of thanks.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. SUPREME COURT

32. [2020 113 taxmann.com 422 (SC)] Nirmal Kumar Parsan vs. Commissioner of

Commercial Taxes Date of order: 21^st January, 2020

When the assessee imported the goods,
stored the same in a custom bonded warehouse and sold them to foreign-going
vessels for consumption on board, the State in which such warehouse is situated
shall have a right to levy sales tax on the same and the transaction does not
amount to sale in the course of import

FACTS

The principal question involved in
these appeals is whether the subject sales (of goods imported from a foreign
country and after unloading the same on the landmass of the State of West
Bengal, kept in the bonded warehouse without payment of customs duty) to
foreign-bound ships as ‘ship stores’ can be regarded as sale within the
territory of the State and therefore liable for sales tax under the West Bengal
Sales Tax Act, 1954 (‘the 1954 Act’).

After importing foreign-made
cigarettes, the appellants stored the same in the customs bonded warehouse
within the landmass of the State of West Bengal and some of those articles were
sold to the Master of a foreign-going ship as ship stores, without payment of customs
duty. The assessee contended that the process of import was not complete at the
time of sale to the foreign-going ship and the transaction was a sale in the
course of import. It further contended that there was no sale within the
State of West Bengal or even in India because the buyer had no right to consume
the goods before the ship crossed the territorial waters of India. According to
the authority, it was not a sale in the course of import. The High Court upheld
the decision of the Tribunal that the sales were within the territory of the
State of West Bengal and amenable to sales tax.

HELD

The Supreme Court referred to various
judgments and held that it is clear that the sale to be in the course of import
must be a sale of goods and, as a consequence of such sale, the goods must
actually be imported within the territory of India and further that the sale must be part and parcel of the
import so as to occasion import thereof. Indeed, for the purposes of the
Customs Act, only upon payment of customs duty are the goods cleared by the
customs authorities when import thereof can be regarded as complete. However,
that would be no impediment for levy of sales tax by the State concerned in
whose territory the goods had already landed / been unloaded and kept in the
bonded warehouse.

The Court further explained that for
seeking exemption it is necessary that the goods must be in the process of
being imported when the sale occurs, or the sale must occasion the import
thereof within the territory of India. The word ‘occasion’ is used to mean ‘to
cause’ or ‘to be the immediate cause of’. Thus, the sale which is to be
regarded as exempt from payment of sales tax is a sale that causes the import
to take place, or is the immediate cause of the import of goods. The Court
observed that in the present case the stated sales in no way occasioned import
of the goods into the territory of India. Moreover, there is no direct linkage
between the import of the goods and the sale in question to qualify as having
been made in the process or progress of the import.

In order to decide whether the stated
sales can be deemed to have taken place in the course of import of the goods
into the territory of India before the goods had crossed the customs
frontiers of India, which is the core requirement of section 5(2) of the
CST Act, the Court examined the expression ‘crossing the customs frontiers of
India’ as has been defined in section 2(ab) of the CST Act. The Court held that
going by the definition of ‘customs port’ or ‘land customs station’ as
applicable in the present case, it is the customs port or the land customs
station area appointed by the Central Government in terms of notification u/s
7.

The Court observed that the bonded
warehouses, where the goods were kept and the stated sales took place by
appropriation of the goods thereat, were not within the area notified as
customs port and / or land customs station u/s 7 of the Customs Act. The Court
also noted that there is nothing to indicate that the bonded warehouse, where
the stated goods were kept by the appellants and eventually sold, formed part
of the customs port / land customs station. Therefore, it held that as the
stated goods had travelled beyond the customs port / land customs station at
the relevant time, in law, it would mean that the goods had crossed the customs
frontiers of India for the purposes of the CST Act.

II. HIGH COURT

33. [2020 114 taxmann.com 122 (Delhi)] Pitambra Books (P) Ltd. vs. UOI Date of order: 21^stJanuary, 2020

High Court stayed
the operation of paragraph 8 of Circular No. 125/44/19-GST dated 18^th
November, 2019 which mandated periodicity in the filing of the refund claim
with a restriction that refund claim to be filed cannot spread across different
financial years

FACTS

The petitioner engaged in the business
of manufacturing and trading of books also exports its products, which is
categorised as zero-rated supplies as per section 16(1)(a) of the Integrated
Goods and Services Tax Act, 2017. The petitioner challenged Circular No.
37/11/2018-GST dated 15^th March, 2018 and Circular No. 125/44/19-GST
dated 18^th November, 2019 to the extent they provide that the period
for which refund claim is filed cannot spread across different financial years.
The petitioner submitted that the said clause restricts the claim of refund in
case it relates to different financial years causing serious financial hardship
as more than Rs. 30 crores of accrued and unutilised input tax credit that is
eligible for refund is now lying stuck. The petitioner submitted that as per
section 54(3) of the CGST Act, a person making zero-rated supplies can claim
refund of unutilised input tax credit at the end of any tax period by making a
refund application before the expiry of two years from the relevant date.
Hence, the aforesaid restriction is ultra vires the Act and the
provisions contained under it.

It was also argued that Rule 89(4) of
the CGST Rules containing the formula for calculating input tax for refund is
in contravention of section 16 of the IGST Act read with section 54 of the CGST
Act as the said Rule restricts the computation of the refund taking the basis
of ITC ‘availed during the relevant period’. The ‘relevant period’ has been
defined in Rule 89(4)(F) as the period for which the claim has been filed. It
was argued that the said circular to the extent it restricts the refund claims
only on monthly basis is contrary to the rights conferred by the Act.

The Revenue submitted that the refund
is subject to conditions and therefore the Government is well within its
jurisdiction to impose conditions by way of the impugned circular. Further, it
was submitted that u/s 2(106) of the GST Act, the ‘tax period’ has been defined
to mean a period for which a return is required to be filed. The return under
the Act has to be filed on a month-to-month basis and, therefore, the
petitioner does not have any right to claim refund for one financial year in
another year.

HELD

The Court called upon the Government to
file a detailed affidavit in reply; however, it gave a prima facie view
that the restriction pertaining to the spread of refund claim across different
financial years is arbitrary and that there is no rationale for such a
constraint. It further held that the entire concept of refund of ITC relating
to zero-rated supply would be obliterated in case the respondents are permitted
to put any limitation and condition that takes away the petitioner’s right to
claim a refund of all the taxes paid on the domestic purchases used for the
purpose of zero-rated supplies. The incentive given to the exporters would lose
its meaning and this would cause grave hardship to the exporters who are
earning valuable foreign exchange for the country. The respondents cannot,
artificially, act contrary to the fundamental spirit and object of the law and
contrive ways to deny the benefit which the substantive provisions of the law
confer on the taxpayers.

Thus, the Court held that the
petitioner has a strong prima facie case and it cannot be denied its
right to claim a refund which is visible from the mechanism provided under the
Act. Further, referring to the case of Pioneer India Electronics (P) Ltd.
vs. Union of India & Anr. ILR (2014) II DELHI 791, the Court observed
that circulars might mitigate rigors of law by granting administrative relief
beyond relevant provisions of the statute; however, the Central Government is
not empowered to withdraw benefits or impose stricter conditions than
postulated by the law. The High Court accordingly stayed paragraph 8 of Circular No. 125/44/2019-GST dated 18^th November,
2019 and also directed the respondents to either open the online portal so as
to enable the petitioner to file the tax refund electronically, or to accept the
same manually.

BCAJ Admin

SERVICE TAX

I.
HIGH COURT

26. [2020-TIOL-397-HC-AP-ST] Vasudha
Bommireddy vs. Assistant Commissioner
of Service Tax, Hyderabad Date of
order: 20^th December, 2019

Tax collected without
authority of law is liable to be refunded with interest

FACTS

A writ petition was filed for refund of
service tax consequent upon the decision of the Delhi High Court in Suresh
Kumar Bansal’s case, 2016-TIOL-1077-HC-DEL-ST, wherein it was
held that in respect of the composite contracts for purchase of immovable
property along with goods used therein and also a part of the undivided land,
service tax cannot be levied on the composite price as per the provisions of
the Act as the statute did not contain any mechanism to segregate / bifurcate
the value of goods and the cost of the land from the gross value for
determining the value of the service.

HELD

The Court noted that the refund (plea)
is filed within two months of the decision of the Delhi High Court. Article 265
of the Constitution of India provides that ‘no tax shall be levied or collected
except by authority of law’. Therefore, refund was sanctioned with interest of
9% per annum from the date of payment.

II. TRIBUNAL

27. [2020-TIOL-249-CESTAT-Ahm.] Surya
Shipping vs. Commissioner of Central Excise and Service Tax Date of
order: 22^nd August, 2019

The difference
between freight received and freight paid is not a service liable to service
tax

FACTS

The assessee is engaged in purchasing
space on ocean-going vessels from shipping companies and selling the same to
various exporters. The shipping companies raise invoices on the assessee for
freight and the assessee in turn raises its own invoices on the exporters for
the freight. The difference in freight represents the profit or loss, as the
case may be, in respect of the said activity of buying and selling space on the
ocean-going vessels. The Revenue claimed that the profit or excess freight is
taxable under Business Support Service. The demand was confirmed by the
Commissioner (Appeals). Hence, the present appeal was filed.

HELD

The Tribunal noted that there is no
service involved in such transaction as the purchase and sale of the space is
an activity of sale and purchase and hence not liable to service tax. Further,
relying on several judgments it is held that any amount charged for space on
ocean-going vessels, over and above the purchase price, is not liable to
service tax.

28. [2020-TIOL-324-CESTAT-Mad.] M/s
Broekman Logistics India Private Limited vs. Commissioner of GST and Central
Excise Date of
order: 31^stJanuary, 2020

The intention of
creating a Free Trade Zone is to give exemption from levy of all duties and
taxes and therefore by application of service tax rules, place of provision of
service rules, the activities undertaken by such units cannot be made taxable

FACTS

The appellants are engaged in the
business of logistics supply, chain management, clearing and forwarding,
licensed CHA, etc. They did not pay any service tax on the services provided by
them from the Free Trade Warehousing Zone (FTWZ) exclusively to foreign-based
clients. It was contended by the Revenue that the service does not qualify as
export of services, therefore tax is payable.

HELD

The Tribunal primarily noted that the
Special Economic Zone Act, 2005 provides for exemption from service tax.
Section 51 states that the Act will have overriding effect notwithstanding
anything inconsistent in any other law. The Act, therefore, overrides the
Finance Act, 1994. Accordingly, it was held that the Department cannot press
the application of service tax rules, place of provision of service rules or
other rules to hold that the appellant has not exported any service. The
meaning of service and export contained in the special legislation by which SEZ
or FTWZ has been created has to be given effect. Thus, the demand was set
aside.

29. [2020-TIOL-209-CESTAT-All.] M/s Radhey
Krishna Technobuild Pvt. Ltd. vs. Commissioner of Central Excise Date of
order: 17^th December, 2019

Electric meter
charges collected along with the sale of residential units is a bundled service
u/s 66F of the Finance Act, 1994; therefore, the electric charges collected is
also admissible for abatement

FACTS

During the time of sale of residential
units the assessee was also collecting some charges from the buyers under the
head ‘electric meter main load supply charges’ and was discharging service tax
by claiming an abatement. The Revenue opined that such charges collected were
other than the construction of residential complex service and therefore
abatement was inadmissible.

HELD

The Tribunal noted
that section 66F(3) of the Finance Act, 1994 provides that taxability of a
bundled service shall be determined if various elements of such services are
naturally bundled in the ordinary course of business. The charges for electric
meter main load supply were collected along with the consideration for sale of
residential unit and they were collected from every person to whom the
residential unit was sold; further, as explained, the same was for providing
electricity supply during power failure/s to the residents of the complex.
Therefore, such service is bundled service u/s 66F of the Finance Act, 1994.
Accordingly, the abatement is admissible and the demand is set aside.

BCAJ Admin

MISCELLANEA

I.
Technology

18. Amazon, Flipkart
challenge new Indian tax on online sellers

Amazon and Walmart’s Flipkart are among
online retailers demanding that India scale back a proposed tax on third-party
sellers on their platforms, saying the burden of compliance will hurt the
fledgling industry. The online retail industry is braced for a possible 1% tax
on each sale made by sellers on their platforms from April if the proposal is
approved by Parliament next month.

The move is part of a broader plan by
the government to increase tax revenues and counter a sharp economic slowdown
due to weakening consumer demand. But the tax will hurt the country’s fledgling
e-commerce sector, according to a presentation prepared by the Federation of
Indian Chambers of Commerce and Industry (FICCI) for the government.

The Finance Ministry declined to
comment. Some third-party sellers are also pushing back against the tax,
arguing that it would negatively impact their working capital, adding that they
already contribute to a nationwide sales tax.

This tax will be ‘extremely detrimental
to the growth and sustenance’ of small online sellers and make the model
‘unviable’, Unexo Life Sciences, a seller of healthcare products on Amazon’s
India website, said in an email to the Central Board of Direct Taxes. Online
vendors, or sellers with revenue of less than half a million rupees in the previous
year, as well as brick-and-mortar retailers, will be exempted from the new tax,
although they are subject to the nationwide sales tax.

The tax would apply to the income of
drivers on ride hailing firms, such Uber and Ola, as well as sales on restaurant
aggregators, including Zomato and Swiggy.

(Source:
in.reuters.com)

II. World News

19. Coronavirus could
damage global growth in 2020: IMF

The coronavirus epidemic could damage
global economic growth this year, the IMF Head said on Sunday, but a sharp and
rapid economic rebound could follow. ‘There may be a cut that we are still
hoping would be in the 0.1-0.2 percentage space,’ the MD of the International Monetary
Fund, Kristalina Georgieva, told the Global Women’s Forum in Dubai.

The full impact of the spreading disease
that has already killed more than 1,700 people would depend on how quickly it
was contained. ‘I advise everybody not to jump to premature conclusions. There
is still a great deal of uncertainty. We operate with scenarios, not yet with
projections, ask me in 10 days,’ Georgieva said.

In its January update to the World
Economic Outlook, the IMF lowered the global economic growth forecast in 2020
by 0.1 percentage point to 3.3%, following a 2.9% growth the previous year, the
lowest in a decade. The MD said it was ‘too early’ to assess the full impact of
the epidemic but acknowledged that it had already affected sectors such as
tourism and transportation.

‘It is too early to say because we don’t
yet quite know the nature of this virus. We don’t know how quickly China will
be able to contain it. We don’t know whether it will spread to the rest of the
world.’ If the disease is ‘contained rapidly, there can be a sharp drop and a
very rapid rebound’, in what is known as a V-shaped impact, she said.

Compared to the impact of the Severe
Acute Respiratory Syndrome (SARS) in 2002, she pointed out that China’s economy
then made up just 8.0% of the global economy. Now, that figure was 19%. The
trade agreement between the United States and China, the world’s first and
second economies, had reduced the disease’s impact on the global economy.

But the world should be concerned ‘about
sluggish growth’ impacted by uncertainty.
‘We are now stuck with low productivity growth, low economic growth, low
interest rates and low inflation,’ the IMF chief told the Dubai forum.

(Source:
www.business-standard.com)

III. Health

20. Coronavirus
disease advice for the public – Basic protective measures suggested by WHO

Wash your hands
frequently

Wash your hands frequently with soap and
water or use an alcohol-based hand-rub if your hands are not visibly dirty.

Why? Washing your hands with soap and
water or using alcohol-based hand-rub eliminates the virus if it is on your
hands.

Practice respiratory
hygiene

When coughing and sneezing, cover mouth
and nose with flexed elbow or tissue – discard tissue immediately into a closed
bin and clean your hands with alcohol-based hand-rub or soap and water.

Why? Covering your mouth and nose when
coughing and sneezing prevent the spread of germs and viruses. If you sneeze or
cough into your hands, you may contaminate objects or people that you touch.

Maintain social distancing

Maintain at least 1 metre (3 feet)
distance between yourself and other people, particularly those who are
coughing, sneezing and have a fever.

Why? When someone who is infected with a
respiratory disease like 2019-nCoV coughs or sneezes, that person projects
(ejects) small droplets containing the virus. If you are too close, you may
breathe in the virus.

Avoid touching eyes,
nose and mouth

Why? Your hands touch many surfaces
which may be contaminated with the virus. If you touch your eyes, nose or mouth
with your contaminated hands, you may transfer the virus from the surface to
yourself.

If you have fever,
cough and difficulty breathing, seek medical care early

Tell your health care provider if you
have travelled in an area in China where 2019-nCoV has been reported, or if you
have been in close contact with someone who has travelled from China and has
respiratory symptoms.

Why? Whenever you have fever, cough and
difficulty in breathing, it’s important to seek medical attention promptly as
this may be due to a respiratory infection, or any other serious condition.
Respiratory symptoms with fever can have a range of causes, and depending on
your personal travel history and circumstances, 2019-nCoV could be one of them.

If you have mild
respiratory symptoms and no travel history to or within China

In such a case, carefully practice basic
respiratory and hand hygiene and stay at home until you have recovered.

Practice general
hygiene measures when visiting live animal markets, wet markets or animal
product markets

Ensure regular hand washing with soap
and potable water after touching animals and animal products; avoid touching
eyes, nose or mouth with hands; and avoid contact with sick animals or spoiled
animal products. Strictly avoid any contact with other animals in the market
(such as stray cats and dogs, rodents, birds, bats). Avoid contact with
potentially contaminated animal waste or fluids on the soil or structures of
shops and market facilities.

Avoid consumption of
raw or undercooked animal products

Handle raw meat, milk or animal organs
with care to avoid cross-contamination with uncooked foods, as per good food
safety practices.

(Source: www.who.int)

21. Over 1 lakh
deaths in 29 cities due to air pollution: Study

While Environment Minister Prakash
Javadekar is often heard claiming that there is no correlation between air
pollution levels and premature deaths, the latest Indian study published in a
leading international journal suggests a close correlation.

In fact, over one lakh deaths in 29
Indian cities may be attributed to the rising PM 2.5 levels. According to a
study by two IIT Kanpur experts, published in the latest edition of the
environmental journal ‘Science of the Total Environment’, the national capital heads
the pack. Kolkata, Mumbai, Chennai and Ahmedabad are not far behind. Delhi tops
the list of 29 cities with a million plus population.

The study adds that Ischemic Heart
Disease (IHD) is the leading cause of death accounting for 58% of the PM
2.5-related premature deaths. The most affected are children under the age of
five and the ‘productive age group’ of 25-50 years, suggests the study titled
‘Cause and Age, Specific Premature Mortality Attributable to PM 2.5 Exposure:
An Analysis for Million Plus Cities’. This paper has used the 2016 data for the
29 cities as that is the latest year for which the registered all-cause death
data is available from the Civil Registration System. It is modelled on the
basis of the 2015 Global Burden of Disease report.

The study has been authored by air
pollution expert Mukesh Kumar of IIT Kanpur along with Prateik Saini. Kumar
also authored the 2015 report on sources of air pollution in Delhi. ‘While
studies have also been done earlier, this one is based on Ischemic Heart
Disease and actual measured data on PM 2.5-related mortality. The data is
age-specific and cause-specific and therefore helps us interpret and show the
clear correlation between pollution levels and death rate,” Kumar stated.

(Source: www.economictimes.com)

BCAJ Admin

LETTER TO THE EDITOR

12th February, 2020

The Editor

The Bombay
Chartered Accountant Journal

Jolly Bhavan
No. 2

New Marine
Lines

Mumbai 400
020

Dear Sir,

Re:
Article titled “Case study: Section 36(1)(iii) of the I.T. Act, 1961 with special reference to Proviso” in the January 2020
issue of the BCAJ

This has
reference to the above article published in your January, 2020 issue on page
Nos. 15 to 18.

I am not on the
subject of the article nor am I on the correctness or otherwise of the
conclusion of the article. I am writing this letter only on the narrow issue of
interpretation of the term “acquisition” discussed in this article on page 16
since it could be of general importance. If I am not mistaken, it is tried to
canvass in the article that the word “acquisition” used in the proviso
to clause (iii) of sub-section (1) of section 36 of the Income-tax Act, 1961
connotes acquisition of an asset from a third party and it does not
include an asset which is “self-created” or “self-constructed” or
“self-acquired”. This interpretation would apply irrespective of whether the
asset is work-in-progress (which is the subject of this article) or a capital asset, because the word employed in the proviso is “asset”.

If this interpretation
is applied to a capital asset like, say, a plant, it would lead to a strange
situation. For example, if a power generation company erects on its own a power
plant by buying various components, machines, spares, etc. from various third
parties and by utilising the services of outside technical consultants as well
as its own technicians, workers and employees, going by the interpretation
placed on the term “acquisition” in this article, the plant as a whole cannot
be called “acquired”, because the plant as a whole did not already exist (as is
stated in this article) over which the power generation company gains
possession; the plant is its own creation. It is therefore submitted that the
word “acquisition” used in the proviso would mean not merely a thing
acquired from a third party, but also a thing which is “self-created”,
“self-constructed” or “self-acquired”. The following observations of the
Gujarat High Court on the interpretation of the term “acquire” [though in the
context of the term “acquisition” used in section 48(ii)] in CIT vs.
Mohanbhai Pamabhai [1973] 91 ITR 393, 408-409 (Guj.) [later affirmed by
the Supreme Court in [1987] 165 ITR 166 (SC)] would throw light
on this issue:

“The word
‘acquire’, according to its plain natural meaning, is a word of very wide
import. It is not confined to obtaining of a thing from a third party.
When an assessee gains a thing by his own exertions or comes to own it or have
it by any recognised mode which would doubtless include the mode of
creation, he can be said to have acquired the thing. There
are various modes of acquisition by which a thing may be acquired by an
assessee and creation is one of them. When an assessee creates a
painting, sculpture or a building, he gains it, he comes to have
it or own it. He acquires the painting, sculpture or building
by creating it. When a capital asset is created by an assessee, it becomes his
property, he comes to own it and, therefore, he acquires it the moment it is
created. Creation or production of a capital asset is not foreign to the
concept of acquisition…” (Emphasis supplied)

Before making
the above observations, the Court took cognisance of the following meaning of
the term “acquire” given in Black’s Law Dictionary:

“To gain
by any means, usually by one’s own exertions; to get as one’s own; to obtain by search,
endeavour, practice, or purchase; receive or gain in whatever manner; come to
have.”¹ (Emphasis supplied)

With regards,

Yours truly,

Jignesh R. Shah

Advocate, High
Court

____________________________________________________

1 See also Advanced Law Lexicon by P. Ramanatha
Aiyar, 3^rd edition, 2005, page 73.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

9. Purshottam
Khatri vs. Commissioner of Income Tax, Bhopal (2019)
419 ITR 475 (SC)

Appeal
to the High Court – Substantial question of law – The only entry on facts for
the High Court exercising its appellate jurisdiction u/s 260A of the Income-tax
Act, 1961 is in a case where the Tribunal’s judgment and findings therein are
perverse – The High Court otherwise cannot interfere with the Tribunal’s
judgment on facts

The assessee left
India in 1968 and was employed in Muscat and Dubai till the previous year
relevant to the assessment year 1992-93 and thereafter returned to India.

A
search was carried out u/s 132 of the Act in the premises of the assessee at
Bhopal for a period of 13 days from 18^th to 30^th October,
1996. Thereafter, an assessment was made u/s 158BC r/w/s 143(3) of the Act by
the A.O. on 29^thOctober, 1997 determining the total undisclosed
income for the block period 1^st April, 1986 to 18^th
October, 1996 at Rs. 2,10,48,043. One of the additions was of Rs. 1,03,50,020
in respect of an alleged unexplained part of the deposits in the NRE accounts.

The assessee filed an
appeal before the Income Tax Appellate Tribunal, Indore Bench (the Tribunal).
By an order dated 7^th July, 2000, the Tribunal deleted some of the
additions (including the aforesaid addition of Rs. 1,03,50,020) made by the
A.O. to the undisclosed income of the assessee and allowed the appeal in part.

The
Revenue filed an appeal before the High Court which, by a judgment dated 25^th
January, 2006, set aside the order of the Tribunal in which the Tribunal, after
looking at the exchange vouchers and other evidence produced by the assessee,
had held that the entire sum of $7,55,534 was explained, as a result of which
the sum of $3,14,534, equivalent to Rs. 1,03,49,720, could not be held to be
unexplained deposits.

Aggrieved, the
assessee filed an appeal before the Supreme Court.

The Supreme Court
noted that the impugned judgment had added as unexplained income a sum of Rs.
1.03 crores, basically on the ground that the assessee had been unable to
present declaration forms that had been filled by him at the time of his visits
to India from abroad. According to the Supreme Court, keeping in mind the fact
that these declaration forms were asked for long after such expenditure had
been incurred, it could not possibly be said that the Tribunal’s judgment and
findings therein were perverse, which was the only entry on facts for the High
Court exercising its appellate jurisdiction u/s 260A of the Income-tax Act,
1961.

The Supreme Court
held that the High Court ought not to have interfered with the Tribunal’s
judgment as no substantial question of law arose therefrom.

Accordingly, the
Supreme Court allowed the appeal and set aside the judgment of the High Court
and reinstated that of the appellate Tribunal.

10. H.S.
Ramchandra RA.O. vs. Commissioner of Income Tax and Ors. (2019)
419 ITR 480 (SC)

Capital
or revenue receipt – Amount received by the assessee for relinquishing
secretaryship could not be treated as a capital receipt – It might have been a
different matter had it been a case of life-time appointment

On 14^th
July, 2000 a search was conducted in the residential premises of the assessee.
During the course of the search proceedings the assessee had admitted that he
had received from Dr. K. R. Paramahamsa, Chairman of Paramahamsa Foundation
& Trust, Bangalore, a sum of Rs. 42 lakhs for relinquishing his life
membership and secretaryship in Jayanagar Education Society. The assessee,
pursuant to the said search, filed return for the block period 1^st
April, 1990 to 14^th July, 2000 on 24^th April, 2001
declaring undisclosed income as nil. In the said block return in the statement
enclosed to part III of the return pertaining to ‘total income and loss for the
A.Y. 1997-98’, the assessee had mentioned that he had treated Rs. 35,00,000
received from Dr. K.R. Paramahamsa for relinquishing two posts held by him in
Jayanagar Education Society as a capital receipt. The A.O., after calling upon
the assessee to justify the said claim and after considering the reply thereof,
held the amount of Rs. 37,54,266 as exigible to tax under the Act by treating
the same as income under the head ‘Income from other sources’ and raised the
demand accordingly by treating the said income as undisclosed income.

Aggrieved by this,
the assessee filed an appeal before the CIT(A) contending that the receipt of
Rs. 37,54,266 was for relinquishing life membership and secretaryship of the Jayanagar
Education Society by enclosing the copy of the proceedings of the executive
committee meetings held on 15^th September, 1996 and 2^nd
October, 1996 regarding change in management and his resignation to the
abovesaid two posts, and thus claimed the said amount received as capital
receipt and so not exigible to tax. The appellate authority, after considering
the contentions raised by the assessee, rejected the same and held that it is
to be treated as revenue receipt.

The assessee filed a
further appeal before the Tribunal which, after considering the contentions
raised by the assessee and the case law relied thereunder, came to the
conclusion that the amount of Rs. 37,54,266 was capital in nature and
accordingly allowed the appeal and reversed the findings of the first appellate
authority who had confirmed the finding of the A.O..

The Revenue had then
filed an appeal before the High Court which held that the amount received by
the assessee could not be treated as a capital receipt since to forego life
membership or secretaryship, there was no capital asset which had been
transferred by the assessee in favour of Dr. Paramahamsa. Further, the assessee
was not earning any income or making profit out of the said posts and, by
virtue of relinquishing the same, the assessee did not lose monetarily and as
such the amount received from Dr. Paramahamsa by the assessee could not be
termed or construed as capital receipt.

The assessee filed an
appeal before the Supreme Court. The Supreme Court observed that the issue
involved in the appeal was essentially questioning the finding of fact recorded
by the authorities below whether the amount received by the appellant in the
sum of Rs. 37,54,266 was a capital receipt or a revenue receipt in the hands of
the appellant.

The Supreme Court
noted that the authorities below had found that going by the admission of the
appellant, the amount received could not be treated as capital receipt but only
as revenue receipt. For that, the authorities had relied on the statement given
by the appellant. The substance of the admission was that the appellant was
holding the post of secretary of the institution [Paramahamsa Foundation (R)
Trust] until 1996 but he left the institution after new members were elected to
the managing committee. That being the case, according to the Supreme Court,
the question of the appellant invoking the principle of capital asset did not
arise. It may have been a different matter if it was a case of life-time
appointment of the appellant as secretary of the institution concerned. No such
evidence was produced by the appellant before the A.O. or before it (the
Supreme Court).

Taking an overall
view of the matter, the Supreme Court upheld the conclusion reached by the High
Court that the amount received in the hands of the appellant could not be
treated as capital receipt. Thus, the order of the A.O. was affirmed and the
appeal was dismissed.

11. Senior Bhosale Estate (HUF) vs.
Assistant Commissioner of Income Tax (2019)
419 ITR 732 (SC)

Appeal to the High Court – Limitation – Condonation of
delay of 1,754 days – Appellant(s) had asserted that they had no knowledge
about passing of order dated 29^th December, 2003 until they were
confronted with the auction notices in June, 2008 issued by the competent
authority – Unless that fact is refuted, the question of disbelieving the stand
taken by the appellant(s) on affidavit does not arise

The High Court had
dismissed the application of the appellant(s), a Hindu Undivided Family which
was under control of the Court of Wards, for condonation of delay of 1,754 days
in filing the appeal u/s 260A of the Act for the reason that the appellant(s) had
not monitored the actions of the Court of Wards, Nagpur who was managing the
properties of the appellant.

On an appeal before
it, the Supreme Court observed that the appellant(s) had asserted that they had
no knowledge about the passing of the order dated 29^th December,
2003 until they were confronted with the auction notices in June, 2008 issued
by the competent authority.

The
Supreme Court noted that soon thereafter, the appellant(s) filed appeal(s)
accompanied by the subject application(s) on 19^th July, 2008.
Notably, the respondent(s) did not expressly refute the stand taken by the
appellant(s) that they had no knowledge about the passing of the order dated 29^th
December, 2003 until June, 2008. According to the Supreme Court, unless that
fact is refuted, the question of disbelieving the stand taken by the
appellant(s) on affidavit does not arise and for which reason the High Court
should have shown indulgence to the appellant(s) by condoning the delay in
filing the concerned appeal(s). This aspect had been glossed over by the High
Court.

The
Supreme Court, therefore, allowed the appeals setting aside the impugned order
of the High Court and relegated the parties before the High Court by allowing
the civil application(s) filed by the appellant(s) for condonation of delay in
filing the appeal(s) concerned. As a result, the appeal(s) concerned stood
restored to the file of the High Court to be proceeded with in accordance with
the law.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

In my
message for the previous month, I had reached out to you, inviting suggestions
for initiatives which you would like BCAS to carry out. I am overwhelmed
by the response. I’m sure your feedback will go a long way in improving our
Society; we will try to implement the maximum possible suggestions.

ICAI Leadership: ICAI elected its new President and Vice-President for the term 2020-2021.
CA. Atul Kumar Gupta has been elected President and CA. Nihar
Jambusaria Vice-President with effect from 12^th February, 2020.
Both leaders are widely respected for their strong organisational skills, deep
insight into the affairs of the profession and for their enormous contribution
to the cause of our profession during their terms with the Central Council. We
congratulate them on their new roles and wish them all the best for achieving
enormous success in taking the profession to new peaks and measure up to the
expectations of all members. I look forward to working closely with the ICAI,
especially its new leaders, and strengthen the co-operation between the ICAI
and the BCAS. I am also proud to inform you that Nihar Jambusaria
is a life member of our Society since 1995.

BCAS
@ your Doorstep: This is another initiative of our Society wherein
we provide tailor-made training to our corporate members and other corporates
at their doorstep, deploying our faculty and expertise based on the corporate’s
training needs. I am happy to inform you that last month we conducted training
for the credit officers of a large public sector bank on understanding
financial statements of borrowers prepared under Ind AS, various disclosures
and understanding the various comments like audit modifications, emphasis of
matter, Key Audit Matters and other matters in an Auditor’s Report. The session
was very interactive and two live case studies of large corporate borrowers
(under financial stress) were discussed threadbare. These credit officers could
gain experience in better understanding the financial statements, thus
substantially improving their credit appraisal, supervision and monitoring
skills. Our efforts were well appreciated and we look forward to undertaking more
such training for corporates under our umbrella of ‘BCAS @ your Doorstep’.

MCA’s
Consultation Paper: In February, the Ministry of Corporate
Affairs issued a notice inviting suggestions and comments along with
justifications on a consultation paper to examine the existing provisions of
law and make suitable amendments therein to enhance audit independence and
accountability. This paper has raised several questions on burning and
sensitive issues such as economic concentration of audits, non-audit services to
audit clients, joint audits in case of larger companies and public interest
entities, proposed panel of auditors (like CAG / RBI / NFRA), imposition of
concurrent audits, restriction on the number of audit firms a group can have in
the whole of India, disclosure requirement on probability of default on the
lines of credit rating agencies, submitting quarterly returns to SEBI of
unlisted companies whose parent is listed, development of a ‘Composite Audit
Quality Index’ for auditors and audit firms to improve accountability,
resignation of auditors and other similar matters. The sole objective of this
was to solicit the views and comments of other Government Departments,
Regulatory Agencies and the general public on suggestions relating to
amendments in existing law to enhance audit independence, audit quality and
accountability. The Accounting and Auditing Committee of our Society met at
short notice, deliberated in detail on all the issues raised by this paper and
sent our response and representation to MCA well in time, keeping in mind the
interests of our members. The response of the Society has been mailed to all
the members and is also available for viewing on our website and all other
social media platforms.

CARO
2020:
This is issued with the objective of strengthening the corporate governance
framework under the Companies Act, 2013; under the powers conferred under
sub-section (11) of section 143 of the Companies Act, 2013. the Central
Government has notified the Companies (Auditor’s Report) Order, 2020 (CARO,
2020). The eligibility criteria in CARO, 2020 have not been changed and hence
it shall be applicable to all those companies on which CARO, 2016 has been
applicable. CARO 2020 has 21 clauses and 47 sub-clauses, thus enhanced
reporting requirements by the auditors including reporting on proceedings
initiated / pending if any against the company under the Benami Transactions
(Prohibition) Act, 1988; stricter reporting on discrepancies noticed on
physical verification of inventory; reporting on mismatches in physical stock
and those reported to lending banks / financial institutions; disclosure of
unrecorded transactions in income tax assessments; utilisation of funds; GST
dues payments and cash losses; declaration of company as wilful defaulter by any
lender; disclosure of whistle-blower complaints; any resignation of the
statutory auditors during the year, and so on. Reporting under CARO, 2020 would
necessitate enhanced due diligence, reporting responsibility and disclosures on
the part of auditors and has been designed to bring in greater transparency in
the financial state of affairs of companies. Members are requested to be well
informed and equipped to report under CARO, 2020 as it is applicable for audit
of financial statements of eligible companies for the financial years
commencing on or after 1^stApril, 2019.

Before
I sign off, let me offer my warm wishes to you and your family on the joyous
occasion of Holi! I wish with all my heart that it brings more colours to your
life.

With
Best Regards,

CA
Manish Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

KEY AUDIT
MATTERS PARAGRAPH FOR A COMPANY WHERE RESOLUTION PLAN IMPLEMENTED PURSUANT TO
CORPORATE INSOLVENCY RESOLUTION PROCESS

TATA STEEL BSL LTD.
(31-3-2019) (FORMERLY KNOWN AS BHUSHAN STEEL LTD.)

From auditors’ report

We have determined
the matters described below to be the key audit matters to be communicated in
our report:

Key audit matter

How our audit addressed the key audit
matter

Accounting
treatment for the effects of the Resolution Plan

(a) Refer Note 43
to the standalone financial statements for the details regarding the
Resolution Plan implemented in the company pursuant to a Corporate Insolvency
Resolution Process concluded during the year under Insolvency and Bankruptcy
Code, 2016

On 17^th
May, 2018, prior to the implementation of the Resolution Plan, the Company
had outstanding credit facilities from several financial institutions,
aggregating to Rs. 6,054,746.50 lakhs. The Company also had accrued dues
amounting to Rs. 110,627.58 lakhs towards operational creditors

Owing to the size
of the overdue credit facilities, multiplicity of contractual arrangements
and large number of operational creditors, determination of the carrying
amount of related liabilities at the date of approval of Resolution Plan was
a complex exercise

Further, comprehending the provisions
of the Resolution Plan and determining the appropriateness of the accounting
treatment thereof, more particularly the accounting treatment of de-recognition
of liabilities, required significant judgement and estimates, including
consideration of accounting principles to be applied for presentation of
difference between carrying amount of novated debt and consideration paid
there for

Accounting for
the effects of the Resolution Plan is considered by us to be a matter of most
significance due to its importance to intended users’ understanding of the
financial statements as a whole and materiality thereof

(b) Refer Note 43
to the standalone financial statements

Prior to the
approval of the Resolution Plan on 15^th May, 2018, the Company was
a party to certain litigations. Pursuant to the approval of the Resolution
Plan, it was determined that no amounts are payable in respect of those
litigations as they stand extinguished

The Company had
also made certain payments to the relevant authorities in respect of those
litigations which were presented as recoverable under ‘Other non-current
assets’ in the standalone financial statements

The estimates
related to expected outcome of litigations and recoverability

(a) We have performed the following
procedures to determine whether the effect of Resolution Plan has been
appropriately recognised in the financial statements:

Reviewed management’s process for
review and implementation of the Resolution Plan

Reviewed the provisions of the
Resolution Plan to understand the requirements of the said plan and evaluated
the possible impact of the same on the financial statements

Verified the balances of
liabilities as on the date of approval of Resolution Plan from supporting
documents and computations on a test check basis

Verified the underlying documents
supporting the receipt and payment of funds as per the Resolution Plan

Tested the implementation of
provisions of the Resolution Plan in computation of balances of liabilities
owed to financial and operational creditors

Evaluated whether the accounting
principles applied by the management fairly present the effects of the
Resolution Plan in financial statements in accordance with the principles of
Ind AS

Tested the related disclosures made
in notes to the financial statements in respect of the implementation of the
resolution plan

(b) We have performed the following
procedures to test the recoverability of payments made by the Company in
relation to litigations instituted against it prior to the approval of the
Resolution Plan:

Verified the underlying documents
related to litigations and other correspondences with the statutory
authorities

Involved direct and indirect tax
specialists to review the process used by the management to determine
estimates and to test the judgements applied by management in developing the
accounting estimates

Assessed management’s estimate of
recoverability, supported by an opinion obtained by the management from a
legal expert, by determining whether:

• The method of measurement used is
appropriate in the circumstances; and

of payments made in respect thereof have
high degree of inherent uncertainty due to insufficient judicial precedents
in India in respect of disposal of litigations involving companies admitted
to Corporate Insolvency Resolution Process

The application of significant
judgement in the aforementioned matters required substantial involvement of
senior personnel on the audit engagement including individuals with expertise
in accounting of financial instruments

• The assumptions used by management are
reasonable in light of the measurement principles of Ind AS

Determined whether the methods for
making estimates have been applied consistently

Evaluated whether the accounting
principles applied by the management fairly present the amounts recoverable from
relevant authorities in financial statements in accordance with the
principles of Ind AS

From Notes to Financial Statements

29. Exceptional Items

(Rs. in lakhs)

Particulars

Year ended 31^st March,
2019

Year ended 31^stMarch,
2018

(a)

Effects of implementation of Resolution Plan (refer sub-note [i])

315,927.27

–

(b)

Provision for impairment on property, plant and equipment and other
assets
(refer sub-note [ii])

(18,326.60)

(2,075,901.76)

(c)

Provision for impairment on financial assets

–

(23,833.52)

(d)

Other exceptional items

–

(2,34,732.49)

297,600.67

(2,334,467.77)

i) Effects of implementation of Resolution
Plan (refer Note 43 for details of effects of Resolution Plan)

Pursuant
to CIRP proceedings and implementation of Resolution Plan, there has been a
gain of Rs. 315,927.27 lakhs on account of the following:

(a) Operational creditors extinguishment –
Rs. 55,212.35 lakhs,

(b) Redemption of preference shares and
waiver of related interest obligation – Rs. 242,557.34 lakhs,

ii) Provision for impairment on property,
plant and equipment and other assets

(a) Provision for impairment of property,
plant and equipment – Rs. 5,219.23 lakhs [refer Note 3],

(b) Provision for impairment of certain
non-current advances – Rs. 17,837.52 lakhs,

iii) Exceptional items recognised in previous
year financial statements

(A) Provision for impairment on property, plant
and equipment and other assets includes:

(a) Provision for impairment of property,
plant and equipment (including CWIP) – Rs. 1,911,279.90 lakhs,

(b) De-recognition of Minimum Alternate Tax
credit Rs. 80,605.55 lakhs,

(d) Certain non-current advances Rs.
47,135.93 lakhs.

(B) Provision
for impairment on financial assets of Rs. 23,833.52 lakhs comprises:

(a) Expenditure incurred on development of
de-allocated coal mines of Rs. 14,833.52 lakhs, and

(b) Security deposits given to Bhushan
Energy Limited of Rs. 9,000.00 lakhs.

(C) Other exceptional items for the year
ended 31^st March, 2018 include prior period items of Rs. 201,909.65 lakhs comprising of the following:

(a)
Amortisation of leasehold land
accounted as operating lease – The Company has taken land properties on
operating lease in earlier years, which prior to year ended 31^st
March, 2018 were accounted as finance lease. Upon change in their
classification as operating lease, the cumulative effect of amortisation from
inception until the year ended 31^st March, 2017 has been recognised
in previous year’s profit or loss in ‘exceptional items’. Further, these
leasehold land properties were recognised at fair value on transition to Ind AS
as on 1^stApril, 2015 and such fair valuation adjustment has also
been reversed in previous year’s profit or loss in ‘exceptional items’.

(b)
Accounting effect of oxygen plant
accounted as finance lease – The Company entered into sale and lease-back
arrangement for oxygen plant in earlier years which was accounted as operating
lease. However, the terms of the lease require such arrangement to be
classified as finance lease. Consequently, the asset has been recognised with
corresponding finance lease obligation. Cumulative effect of reversal of
operating lease rentals and booking of depreciation and finance cost from
inception until the year ended 31^st March, 2017 has been recognised
in previous year’s profit or loss in ‘exceptional items’.

43. The corporate insolvency resolution
process (CIRP) was initiated pursuant to a petition filed by one of its
financial creditors, State Bank of India (SBI) under section 7 of the
Insolvency and Bankruptcy Code, 2016 (IBC). SBI filed the petition before the
National Company Law Tribunal, Principal Bench, New Delhi (Adjudicating
Authority) vide Company Petition No. (IB) – 201 (PB) / 2017 on 3^rd
July, 2017. The Adjudicating Authority admitted the said petition and the CIRP
for the Company commenced on 26^thJuly, 2017. The CIRP culminated
into the approval of the Resolution Plan submitted by Tata Steel Ltd (TSL) by
the Adjudicating Authority vide its order dated 15^thMay, 2018
(Order).

Accordingly,
keeping in view the order dated 15^th May, 2018:

i. On 18^th May, 2018
(Effective Date), Bamnipal Steel Limited (wholly-owned subsidiary of TSL)
(BNPL) deposited Rs. 3,513,258 lakhs for subscription to equity shares of the
Company, payment of CIRP cost and employee-related dues and payment to
financial creditors in terms of the approved Resolution Plan.

ii. The reconstituted board of
directors in its meeting held on 17^th May, 2018 approved allotment
of 794,428,986 fully-paid equity shares of Rs. 2 each to BNPL, aggregating to
Rs. 15,888.58 lakhs, representing 72.65% of the equity share capital of the
Company.

iii. The remaining amount of Rs. 3,497,369.42
lakhs was treated as Inter-Corporate Deposits.

iv. Out of the amount received from
BNPL, Rs. 3,258 lakhs was utilised towards payment of CIRP cost and
employee-related dues. The balance amount of Rs. 3,510,000 lakhs was paid to
the Financial Creditors between 18^th and 31^st May, 2018.

v. The financial creditors invoked the
pledge created in their favour by the erstwhile promoters of the Company over
67,654,810 equity shares of the Company held by them (Pledged Shares). The
market value of the pledged shares amounted to Rs. 18,157.58 lakhs and the same
has been recorded as an exceptional item in these financial statements. Refer
Note 29 for the details of exceptional items.

vi. The eligible financial creditors were
further allotted 72,496,036 equity shares at the face value of Rs. 2 each
aggregating to Rs. 1,449.92 lakhs.

vii. After adjusting the amounts as mentioned
in Para No. v. and vi. above, the balance due to the financial creditors,
amounting to Rs. 2,528,550.72 lakhs, was novated to BNPL for an aggregate
consideration of Rs. 10,000 lakhs. BNPL, in its capacity as the promoters of
TSBSL, has waived off the debts, less cost of novation, and the same has been
considered as capital contribution. Refer Note 14 for details of other equity.

viii.10% Redeemable Cumulative Preference shares
of Rs. 100 each amounting to Rs. 242,557.39 lakhs were redeemed for a total sum
of Rs. 4,700 only. Gain arising out of redemption of such preference shares has been recorded as an exceptional item in these financial statements. Refer
Note 29 for the details of exceptional items.

ix. In
respect of operational creditors, the Company has provided for liabilities
based on the amount of claims admitted pursuant to CIRP. Further, the Company
has proposed to pay an amount of Rs. 120,000 lakhs to operational creditors, in
the manner mentioned in the Resolution Plan, within 12 months from the closing
date (18^thMay, 2018), i.e., on or before 17^th May, 2019.
Accordingly, the Company has recognised a gain of Rs. 55,212.35 lakhs on
account of extinguishment of such financial liabilities as an exceptional items.

BCAJ Admin

CORPORATE LAW CORNER

14. Maharashtra
Seamless Ltd. vs. Padmanabhan Venkatesh [2020] 113
taxmann.com 421 (SC) Civil Appeal Nos.
4242, 4967, 4968 of 2019 Date of order: 22^nd
January, 2020

Insolvency
and Bankruptcy Code, 2016 – There is no provision in the Code which stipulates
that amount approved in the resolution plan should match the liquidation value
– Once approved, resolution plan cannot be withdrawn under provisions of
section 12A of the Code

FACTS

U
Co, the corporate debtor, had a total debt of Rs. 1,897 crores out of which Rs.
1,652 crores comprised of term loans from two entities of Deutsche Bank. There
was also debt on account of working capital borrowing of Rs. 245 crores from Indian
Bank. Indian Bank initiated the Corporate Insolvency Resolution Process (CIRP)
against U Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code).

The
National Company Law Tribunal (NCLT), by an order passed on 21^st January,
2019, approved the resolution plan submitted by M Co in an application filed by
the Resolution Professional (RP). The resolution plan included an upfront
payment of Rs. 477 crores. Ancillary directions were issued by the NCLT while
giving approval to the said resolution plan with the finding that the said plan
met all the requirements of section 30(2) of the Code.

P,
who was one of the promoters of U Co, and Indian Bank filed an appeal with the
National Company Law Appellate Tribunal (NCLAT). M Co also filed an appeal
before NCLAT seeking directions upon U Co, as also the police and
administrative authorities, for effective implementation of the resolution
plan. The grievance of M Co in that proceeding was that they were not being
given access to the assets of U Co.

The
complaint of P, one of the original promoters, and the bank before the NCLAT
was primarily that the approval of the resolution plan amounting to Rs. 477
crores was giving the resolution applicant a windfall as they would get assets valued
at Rs. 597.54 crores at a much lower amount. The other ground urged by the bank
was that Area Projects Consultants Private Limited, one of the resolution
applicants, had made a revised offer of Rs. 490 crores which was more than the
amount offered by M Co.

The
application was disposed of with a direction to extend co-operation to M Co. In
the course of hearing, M Co agreed to pay operational creditors at the same
rate (25%) as financial creditors. NCLAT also ordered that the upfront payment
agreed to by M Co be increased from Rs. 477 crores to Rs. 597.54 crores (being
the average liquidation value) by paying an additional Rs. 120.54 crores.
Failure to make the payment would set aside the order of NCLT approving the
resolution plan. The plan could be implemented only when M Co made the revised
payment.

Aggrieved, M Co filed an appeal before the Supreme Court
seeking withdrawal of the resolution plan and a refund of the sum deposited in
terms of the resolution plan along with interest. M Co argued that in order to
take over the corporate debtor, they had availed of substantial term loan
facility and deposited the sum of Rs. 477 crores for resolution of U Co, but
because of delay in implementation of the resolution plan, they were compelled
to bear the interest burden. Further, the export orders that they had accepted
in anticipation of successful implementation of the resolution plan were
cancelled, as a result of which the takeover of U CO had become unworkable. It
was also argued that NCLAT had exceeded its jurisdiction in directing matching
of liquidation value in the resolution plan.

On
the other hand, the banks, while supporting the main appeal of M Co, resisted
the plea for withdrawal of the resolution plan and refund of the sum already
remitted by M Co. It was argued that the only route through which a resolution
applicant can travel back after admission of the resolution plan was under the
auspices of section 12A of the Code.

HELD

The
Supreme Court heard the arguments put forth by both the sides. The primary
issues before it were two-fold. The first one was whether or not the scheme of
the Code contemplates that the sum forming part of the resolution plan should
match the liquidation value. The second issue was whether section 12A is the
applicable route through which a successful resolution applicant can retreat.

The
Supreme Court observed that M Co in the appeal sought to sustain the resolution
plan but its prayer in the interlocutory application was refund of the amount
remitted, coupled with the plea for withdrawal of the resolution plan. Its main
case in the appeal was that the final decision on the resolution plan should be
left to the commercial wisdom of the Committee of Creditors and there was no
requirement that the resolution plan should match the maximised asset value of
the corporate debtors.

The
Court observed that substantial arguments were advanced before the NCLT over
its failure to maintain parity between the financial creditors and the
operational creditors on the aspect of clearing dues. It was also observed that
section 30(2)(b) of the Code specified the manner in which a resolution plan
shall provide for payment to the operational creditors. The Court relied on its
own decision in the case of Committee of Creditors of Essar Steel India
Limited vs. Satish Kumar Gupta [Civil Appeal Nos. 8766-8767 of 2019]
wherein it was concluded that section 30(2)(b) of the Code referred to section
53 not in the context of priority of payment of creditors, but only to provide
for a minimum payment to operational creditors. However, that did not in any
manner limit the Committee of Creditors (CoC) from classifying creditors as
financial or operational and as secured or unsecured. Since M Co had agreed
before NCLAT to clear the dues of operational creditors in percentage at par
with the financial creditors, the controversy on there being no provision in
the resolution plan for operational creditors was rendered only academic.

It
was observed that NCLT relied on section 31 of the Code in approving the
resolution plan. Indian Bank and P relied on Clause 35 of The Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. The law did not prescribe any provision which stipulates
that the bid of a resolution applicant had to match the liquidation value
arrived at in the manner provided in clause 35. The object behind prescribing
the valuation process was to assist the CoC in taking a decision on a
resolution plan properly. Once a resolution plan was approved by the CoC, the
statutory mandate on the NCLT u/s 31(1) of the Code was to ascertain that the
resolution plan met the requirements of sections 30(3) and 30(4). The Supreme
Court held that it did not find any breach of the said provisions in the order
of the NCLT in approving the resolution plan.

The
Court held that NCLAT had proceeded on an equitable perception rather than
commercial wisdom. It ought to cede ground to the commercial wisdom of the
creditors rather than assess the resolution plan on the basis of quantitative
analysis. The case of M Co in their appeal was that they wanted to run the
company and infuse more funds. In such circumstances, the Court held that NCLAT
ought not to have interfered with the order of the NCLT and direct the successful
resolution applicant to enhance their fund inflow upfront.

As
regards withdrawal of plan by M Co, it was observed that the manner
contemplated by approaching the Supreme Court was incorrect. The exit route
prescribed in section 12A is not applicable to a resolution applicant. The
procedure envisaged in the said provision only applies to applicants invoking
sections 7, 9 and 10 of the Code. Having appealed against the NCLAT order with
the object of implementing the resolution plan, M Co could not be permitted to
take a contrary stand in an application filed in connection with the very same
appeal. The Supreme Court did not engage in the judicial exercise to determine
the question as to whether, after having been successful in a CIRP, an
applicant altogether forfeits its right to withdraw from such process.

The
appeal filed by M Co was allowed and the order passed by the NCLT on 21^st
January, 2019 was upheld. The Resolution Professional was directed to take
physical possession of the assets of the corporate debtor and hand these over
to M Co within a period of four weeks.

15. Icchapurti Global
Buildcon (P) Ltd. vs. Registrar of Companies, Mumbai [2020] 113
taxmann.com 481 (NCLT, Mum.) Date of order: 11^th
December, 2019

ROC struck off the name of petitioner company from
Register of Companies on account of its failure to furnish financial statements
– In view of fact that petitioner company was in operation, it had assets and
current liabilities and, moreover, in case relief sought was not granted, grave
hardship and irreparable loss and damage would be caused to it, application
filed by petitioner seeking to restore its name in Register of Companies is to
be allowed

FACTS

I
Pvt. Ltd. (the Company) was incorporated on 27^th September, 2012
under the Companies Act, 1956 as a private company limited by shares with the
Registrar of Companies, Mumbai. The name of the Company was struck off from the
Register of Companies maintained by the Registrar of Companies (ROC) due to
defaults in statutory compliances, namely, failure to file financial statements
and annual returns for three years from the financial year ended 31^st
March, 2015 to 31^stMarch, 2017.

The
Company filed an application before the Bench to restore its name in the
Register of Companies.

It
was brought to the notice of the Bench (by the Company) that:

(i) the Company has failed to file its financial statements and annual
returns for three years 2014-15 to 2016-2017;

(ii) the Company is a closely-held company and is a going concern and in
continuous operation;

(iii) it is evident from the audited financials for the defaulting
period that the Company was a going concern at the time when its name was
struck off by the ROC and that it was generating income. The Company had
current assets and liabilities.

The
Company also submitted copies of audited accounts for the financial years from
31^st March, 2015 to 31^stMarch, 2017, copies of
acknowledgement of Income-tax Returns filed for the assessment years 2015-16 to
2017-18, copies of bank statements to show that it is a going concern, actively
involved in business and is in continuous operation. The Company further
submitted that if its name was restored, it undertakes to file all the pending
statutory documents from the financial years 2014-15 till date along with the
filing fees and the additional fees, as applicable on the date of actual
filing.

From
the response filed by the ROC, the Bench gathered that the name of the company
was struck off for its failure to file statutory documents since 31^st
March, 2015, as mandatorily required under the statute.

The
Bench perused the financials filed during the course of the proceedings and
noted that the Company is in operation and has its assets and current
liabilities.

HELD

The
Bench came to the conclusion that unless the relief sought is granted to the
Company, grave hardship and irreparable loss and damage shall be caused to it.
Given the above set of facts, the Bench was satisfied that the prayer sought by
the Company deserves to be allowed.

The
Bench allowed the appeal of the Company on the following terms:

(a) The ROC was directed to restore the name of the
Company in the Register of Companies subject to payment of a sum of Rs. 1,00,000
as cost payable in the account of the ‘Prime Minister’s National Relief Fund’;
and

(b) The Company shall file all its pending financial statements and
annual returns with all the applicable fees and late fees with the ROC within
30 days from the date of receipt of a copy of the order, failing which the
order will stand vacated automatically.

BCAJ Admin

BOOK REVIEW

BRIDGITAL NATION: SOLVING TECHNOLOGY’S
PEOPLE PROBLEM – By N. Chandrasekaran and Roopa Purushothaman

The authors of this book are as
illustrious as they come. While Mr. N. Chandrasekaran is the Chairman of the
Board, Tata Sons Pvt. Ltd., Ms Roopa Purushothaman is Chief Economist and Head
of Policy Advocacy at the Tata Group.

Its theme is India @ 2030 and the
probable situation is best described as follows: India is among the top three
economies of the world. All Indians use advanced technology to do their work,
or to get their job done. All Indians have access to quality jobs, better
healthcare and skill-based education. Technology and human beings co-exist in a
mutually-beneficial ecosystem.

This reality is possible. It is within
reach. With Bridgital.

The book provides an interesting
perspective on what might be an effective means of tapping India’s vast
underutilised human resource base. It advocates three transformational
requirements, Technology, Talent and Vision as important
foundations to help solve people’s problems with major technological
transformation.

It is also an attempt to understand how
technology could help India navigate this crucial transition period. It is
apparent that there are two primary challenges that need urgent attention: Jobs
and access to vital services. Whether in education, healthcare, the
judiciary or any other field, the problems remain the same – both resources and
skilled people are scarce. And this is what holds India back from reaching its
full potential. The authors say these issues can be labelled India’s Twin
Challenges: Jobs and Access.

JOBS

India has a massive jobs challenge on
its hands. It is expected that 90 million people will come of working age
between 2020 and 2030. In other words, the number of Indians reaching working
age will be four times that of the US, Brazil and Indonesia combined. India’s
particular challenge is the existing levels of skill and education. For
example, only one in around 50 workers has any kind of formal vocational
training.

ACCESS

But jobs are only one half of the
problem. The other is a critical shortage of access to vital services. We may
not know it by name, but we are living witnesses to the access challenge – the
overcrowded classrooms and doctors’ waiting rooms; the legal cases that go on
for decades; and countless middlemen and agencies that help make sense of it
all.

The access challenge puts services such
as quality healthcare and education out of the reach of millions, a situation
that has arisen in large part because there aren’t enough qualified people.

Addressing this challenge will bear
fruit almost immediately. It will mean shorter wait times. It will mean faster
justice. It will mean better quality healthcare and education. It will make
people feel less like a crowd, more like they matter. It will improve the
quality of life.

According to the authors, the twin
challenges can be addressed with the help of two strategies to be
complemented with a Bridgital approach:

(1) Bringing women to the workforce
(the ‘XX’ factor)

The authors observe that in India a
woman’s path from education to work is often permanently interrupted – by
marriage, family wishes, children, societal pressures. According to the data,
nearly 120 million women in India have at least a secondary education but do
not participate in the workforce.

Women will form an important part of
the pool of Bridgital workers. What will it take to bring them to work?
Smart policies focused on childcare provision and parental leave, and promoting
attitudinal shifts in society around working women are good places to begin.
The last decade of experience and research has brought this opportunity to the
fore. India now needs to shift gears and understand better how to make paid
work available to and worthwhile for women. With a more balanced educational
profile, the country can address a key part of the skills gap it faces. For
this to happen, the access barriers to women’s employment need a serious
overhaul.

(2) Entrepreneurs everywhere:
Preparing the ground for thriving entrepreneurship throughout the country

Capturing India’s entrepreneurial
spirit means a transformation of vision away from the culture of
micro-management. The fact is that the country must embrace SME growth. Growth
will come not from pushing hard, but from removing the obstacles that confront
SMEs.

A certain level of judicious
risk-taking accompanies this growth mindset. SMEs require supervision, not
suspicion. Smart risk management doesn’t force more control, more rules and
more policies, but improves oversight of existing rules while simplifying them.

Entrepreneurship can flourish
everywhere through the development of Bridgital clusters that integrate
and extend a range of digital business services to which many SMEs lack access.
Bridgital clusters, coupled with greater use of digital governance to
transform the relationship between SMEs and the bureaucracy can positively
channel the entrepreneurial spirit inherent throughout the nation.

‘BRIDGITAL’
NATION

India needs a new approach that views Artificial
Intelligence (AI) and automation as a human aid, not a replacement for human
intervention. If this is done, automation in India will look nothing like
it does anywhere else and it is this approach that is called ‘Bridgital’.
By turning a challenge into an opportunity, by seeing India’s access
challenge as the engine of employment generation, it builds a
technology-based bridge between the dual parts of the Indian economy.

The authors very aptly suggest that
technology alone isn’t the answer; it has to be configured and adapted to the
demands of the situation. Bridgital works best when roles and services
are deconstructed and re-imagined and when the delivery of the tasks they
contain is redesigned.

In the Bridgital world,
technology does not disrupt an existing market as much as it creates an
entirely new one. When services are re-imagined through twenty first century
technological advances, an additional layer of workers emerges who can
intermediate both technology and existing resources for larger numbers of
people.

The authors again and again reiterate
that the future will be one of humans and technology working together. It’s
this future India will have to anticipate, design and prepare for, keeping its
young workforce, limited infrastructure and linguistic and cultural differences
in mind.

Bridgital provides the unprecedented ‘bridge’
between jobs and access, while the ‘XX’ factor and ‘Everywhere
Entrepreneurship’ bolster both sides of the scale, thus multiplying the impact
on jobs and access. India needs to solve the twin challenges for hundreds of
millions, but the beauty of a technology-driven approach is that scale can take
hold.

Bridgital will provide new opportunities to meet
the needs of small and medium businesses.

ROLE OF
EDUCATION

A combination of education and exposure
can improve awareness and acceptance of entrepreneurship as a viable career
path. The goal of entrepreneurship education isn’t simply to make it more
appealing, but to change the way the students think. The right curriculum can
improve non-academic skills such as creativity, persistence and teamwork and
can encourage comfort with risk-taking. These skills are crucial to success in
a future of work that is likely to be deeply entrepreneurial in spirit.

Entrepreneurship education is different
from core school subjects which are traditionally teacher-led and tested with
exams. With entrepreneurship education, the focus is not as much on learning
concepts as it is about building skills such as the ability to collaborate and
communicate. These skills cannot be taught and tested like core subjects but
can be developed through a learning-by-doing approach.

DATA PRIVACY

The authors recognise that data
privacy, the foundation of any Bridgital approach, is a necessity.
India is in the process of recognising individuals’ rights over their personal
data. As it does so, it needs to ensure that data can be accessed only by
people who are authorised to do so, but without stifling researchers who need
it. At the same time, India requires an authority that can provide redress for
unauthorised access to data.

To summarise, this book is a perfect
combination of an expert in technology sitting with an economist to write
digital solutions to India’s economic problems.

One felt, while
hearing the 2020 Budget speech of the Finance Minister, that she was deeply
impressed by the book, especially the boost to the concept of ‘entrepreneurs
everywhere’.

The book has narrated real-life
situations (with names changed) to show how digital solutions have successfully
tackled several challenges, such as the transformations at AIIMS and Kolar
which prove that the principles that underpin Bridgital can be applied
anywhere and by anyone, whether in the fields of agriculture, logistics, judiciary,
education or financial services.

Finally, let’s recall the Prime Minister’s statement while releasing the
book: ‘Technology is the bridge between aspiration and achievement. When
technology becomes a bridge, it leads to transparency and targeted delivery’.

BCAJ Admin

SOCIETY NEWS

ON BUILDING A PROFESSIONAL SERVICES FIRM

A virtual and thoroughly illuminating panel discussion on a vital subject, ‘Building a Professional Services Firm: Characteristics, Challenges & Leadership Model’, was organised by the BCAS on 10th February, 2021. The panel consisted of such illustrious speakers as Dinesh Kanabar, Mr. Haigreve Khaitan, Senior Partner, Khaitan & Co., and Mr. Jay Desai, Founder, Universal Consulting. Past President Shariq Contractor acted as the moderator.

Welcoming the participants, President Suhas Paranjpe gave the backdrop of the day’s topic for discussion. He said that the process of building a professional services firm resonated very well with the BCAS Theme for the year ‘Tradition – Transition – Transformation’ as every growth from small to medium to big would need to undergo this process.

After Hon. Secretary Mihir Sheth introduced the guest speakers, Shariq Contractor set the tone of the discussion by emphasising the need for growth by the professional services firms and a change in their mind-set if they wished to survive the challenges posed by continuing innovations and technology transformations. The need for change could not be overemphasised when 90% of the professional firms were operating with less than four partners, depriving them of the scale and depth required to maintain excellence through best possible talent retention. Sharing his own experience, he said that it was a ‘leap of faith’ fully realising that change could be painful. However, not changing would have been more painful in hindsight. Every professional firm would need to decide and discuss amongst its stakeholders its strategy, systems and processes, succession and leadership decisions and define the relevant metrics for growth. After this brief introduction, he invited each panellist to share his story of growth.

Dinesh Kanabar, who was the first to speak, said he would rather share the experience of what he did and why he did what he did instead of delving into the theories of growth. When he started his firm after retiring from the Big-4, he focused on the basics by defining the fundamental tenets of where the focus should be out of the large canvas of services that it was possible to offer. However, what made a difference was the realisation that growth could only be possible by offering expertise through quality talent in the chosen domain of strength. Besides, the services on offer had to be relevant to the marketplace. This, in turn, would build the size and scale necessary to create a brand that would self-sustain growth by attracting further best-in-class talent, making it possible to have patronage from large domestic and international firms.

Creating the right size with a deep knowledge base was the key to success. There was also an underlying conviction that the size and scale should not be achieved by chasing revenue enhancement and spreading thin into a number of domains. Another factor that was responsible for this decision was the belief that the services that his firm would offer must leave no chance of conflict of interest between the verticals. This belief reinforced his vision to focus on a few areas of acquired expertise that could count amongst the best. A broad vision to this effect was the germination point that eventually evolved by hiring the right talent, building the appropriate infrastructure and technology, and sourcing of the right mix of domestic and international clients. If one was ready to break the mould, there was huge scope and also plenty of opportunities for professional services firms. Dinesh Kanabar concluded by saying that growth was not an option but a compulsion in the current times.

Narrating his growth story, Mr. Haigreve Khaitan described how his more-than-100-year-old firm had to reinvent itself by breaking the shackles of its image of being only a regional player. One of the fundamental principles with which the firm decided to take up the challenge was that under no circumstances would it compromise on its culture and value system but yet cast itself in a new avatar, fully equipped with the right talent, knowledge base and infrastructure. It was this thought process that eventually led it to define the pillars that could help achieve the goal of building a firm with a stellar repute and consistent growth. The pillars that were defined were: (i) Knowledge, (ii) Technology, (iii) Infrastructure, and (iv) H.R. Practices and Hiring policies to attract the best talent. This resolve to change had met with the expected success.

Mr. Jay Desai, sharing the story of the journey of his firm Universal Consulting, stated that by force of circumstance he had to change and evolve continuously to meet the demands of time and of the ecosystem. He started management consultancy for the SME sector with a focus on Operations Improvement, Organisation Structuring and Developing an IT Strategy in 1994 – but he had to rethink and re-strategise in the year 2000 because of the dot.com crash followed by global recession. Adapting to the new reality, his firm then focused on developing strategies for mid-sized and large companies. This led to a change in the business model for the better when their client profile changed from 90% SME sector to 20%, with the rest of the 80% coming from mid- and large-sized companies. Again in the year 2008, with the financial sector crash, his firm decided to deepen focus on different industry verticals so as to have broad-based exposure. While this was helping, there was a recession that followed due to the anti-corruption movement and the lack of policy decisions by the Government which then prompted the firm to focus on implementation of a strategy for growth.

Again in 2020, the corona pandemic occurred that forced a complete overhaul and relook at the way of doing things. Mr. Desai said he abandoned the fixed office concept and created a digital platform enrolling consultants across various domains in different verticals. This helped him build size and scale for consulting and expand his business. At the firm level, they focussed on a single vertical of Life Science and Healthcare catering to their need for strategy, operations and organisational structuring. This led them not only to survive but also helped them to grow. Concluding his story, he added that it was not the ability to predict but the ability to adapt that leads an organisation to survive, sustain and grow.

Several other issues were also deftly handled by the experts. These were:

Treatment of goodwill, partners’ compensation, managing and retaining clients, managing technology, hiring strategies, succession planning, expanding footprints globally like big multinational professional firms, growth vs. profitability, retaining the core of the organisation by the code of conduct and the value system on which the organisation is built.

On the issue of goodwill payment, most panellists felt that goodwill should remain with the firm; on partners’ compensation, the opinion was that it should be based on a proper evaluation based on defined criteria giving full weightage to the fact that each partner could be different in his capabilities, some good on strategy, some on execution, some others on profiling and client acquisition. They must not be made to play a salesman’s role but be made part of the environment that gives them joy and satisfaction to work. Client retention and management could be best managed if the client was given end-to-end solutions and total comfort.

Technology management and hiring strategies was a specialised field and would require a long-term vision and the help of experts; a firm should not hesitate in taking their help. Succession planning should be openly discussed amongst partners and lead candidates as identified should be groomed with special training. Once the succession occurs, the successor should be empowered with full authority and no interference; the handing-over partner should only play the role of a guide.

Although global expansion was a desirable ambition, it required sustained wherewithal to make a mark globally. Some of the experts did share their experience on the challenges posed by local laws, huge investments and regulatory problems. On the issue of growth vs. profitability, the consensus was that they are not mutually exclusive. In the process of growth there was bound to be chaos that would upset the structure of costs and immediate profitability. But eventually it would give rise to a U-shaped recovery with sweet spots emerging by way of enhanced profits and client acquisition.

On retaining the core of the organisation, there was a consensus that growth and the value system forming the core of the organisation were not oxymorons but in fact complementary to each other. Growth based on the strong value system on which an organisation is formed will always be exponential. Anyone acting contrary to this was sure to die.

The panel discussion was followed by a Q&A session when questions and concerns related to many of the above matters were answered by the panellists.

Treasurer Chirag Doshi proposed the vote of thanks. The video link of the panel discussion is available on YouTube and the BCAS website.

MEETING THE MAYOR

President Suhas Paranjpe called upon the Mayor of Mumbai, Ms Kishoritai Pednekar, on Tuesday, 16th February, 2021. At this courtesy meeting, he briefed her about the BCAS and its activities. He also presented her with copies of the BCAJ for the months of January and February, 2021, the 28th Union Budget 2021 publication, the tome ‘Gita for Professionals’ and other publications of the BCAS. The Mayor noted that BCAS is a voluntary body of Chartered Accountants and has been in existence for 72 years with around 9,000 members all over India. She also appreciated the fact that the widely-read BCAJ has completed 52 years of continuous publication and that the annual Budget book was now in its 28th edition. President Suhas invited the Mayor to visit the BCAS office at her convenience.

President Suhas Paranjpe presenting recent publications of the BCAS to the Mayor of Mumbai, Ms Kishoritai Pednekar, when he called on her at her office on 16th February, 2021

BCAJ Admin

MISCELLANEA

I. Technology

19. Apple fined for slowing down old iPhones

Apple has been fined 25 million euros (£21m or $27m) for deliberately slowing down older iPhone models without first informing its customers. The fine was imposed by France’s competition and fraud watchdog DGCCRF, which said consumers were not warned. In 2017, Apple confirmed that it did slow down some iPhones but said it only did so to ‘prolong the life’ of the devices. Apple said in a statement that it had resolved the issue with the watchdog.

Many customers had long suspected that Apple slowed down older iPhones to encourage people to upgrade when a new one was released. In 2017, the company confirmed that it did slow down some models as they aged, but not to encourage people to upgrade. It said the lithium-ion batteries in the devices became less capable of supplying peak current demands as they aged over time. That could result in an iPhone unexpectedly shutting down to protect its electronic components. So, it released a software update for the iPhone 6, iPhone 6s and iPhone SE which ‘smoothed out’ battery performance. The practice was confirmed after a customer shared performance tests on Reddit, suggesting their iPhone 6S had slowed down considerably as it had aged, but had suddenly speeded up again after the battery had been replaced.

The French watchdog said iPhone owners ‘were not informed that installing iOS updates (10.2.1 and 11.2) could slow down their devices’. As part of the agreement, Apple must display a notice on its French language website for a month. It says Apple ‘committed the crime of deceptive commercial practice by omission’ and had agreed to pay the fine.

Does Apple still slow down older iPhones? Yes. Since Apple confirmed the practice in 2017, it has implemented it on several more iPhones including:

* iPhone 6, 6 Plus, 6S, 6S Plus
* iPhone SE
* iPhone 7 and 7 Plus
* iPhone 8 and 8 Plus running iOS 12.1 or higher
* iPhone X running iOS 12.1 or higher
* iPhone XS, XS Max and XR running iOS 13.1 or higher

The setting is only enabled when the battery begins to degrade, and iOS now offers clearer information to consumers about when performance management has been switched on. ‘The effects of performance management on these newer models may be less noticeable due to their more advanced hardware and software design,’ Apple said.

Source: www.bbc.com, 7th February, 2021

20. Twitter begins testing voice message feature for DMs

If you intend to send a direct message (DM) on Twitter, the micro-blogging platform is offering an option of doing so through audio.

Twitter will begin testing the voice message feature for DMs in India. The feature, which is being tested in India, Brazil and Japan, will be rolled out in phases for users. ‘India is a priority market for Twitter and that is why we’re constantly testing new features and learning from people’s experience on the service here,’ said Manish Maheshwari, Managing Director, Twitter India

Here’s how it works
The voice messages feature builds on the voice tweets feature that the micro-blogging platform began testing in June last year. With voice tweets, users can compose their audio tweet from the composer tab. They can record their audio tweets by tapping on a new wavelength icon in the composer. Once they tap on the icon, they will see their profile photo with the record button at the bottom. They can tap the button to record 140 seconds of audio.

Voice DMs will also support 140 seconds of audio similar to the feature. The user’s current profile photo will be added to the voice note as a static image when the note plays in DMs.

The feature will be made available for both Android and iOS users. In order to send a voice message, users can open an existing conversation or start a new one. They can then record their message by tapping on the voice recording icon and end the recording once they’re done by tapping it a second time. Users can also listen to their voice message before sending it. iOS users can also press-and-hold the voice recording icon to start recording. They can then send the note immediately when they swipe up and release the icon.

Source: www.thehindubusinessline.com, 17th February, 2021

II. Motivational

21. Mumbra girl defies odds to top CA intermediate

The all-nighters spent studying in the kitchen of the modest 300 sq. ft. home that she shares with her parents and three younger siblings, the limited resources and the apprehensions over whether she would even clear an exam that thousands of hopefuls take, proved every bit worthwhile for Mumbra girl Zarin Khan when she topped the country in the chartered accountancy (CA) intermediate examination. A total of 4,094 students took the exam held as per the old syllabus.

When Zarin got the news from her friends, she could barely believe it. ‘I had not expected to be a ranker, let alone be the first in the country, as I was too scared to even take the exam. I had applied in 2017 and took a two-year gap. But with my family strongly backing me, I decided to take the exam last year. I used to study all night to focus better as in the morning hours there is too much noise.’ Her house is located alongside a main road in Mumbra which is on the outskirts of Mumbai.

The young woman, aged 25, is among the first generation of learners to pursue a professional course in her family. While her father, who could study only till class IX, is a mechanic, her mother is a homemaker. Seeing their oldest sibling ace the CA exam, her sister and brothers are now keen to pursue academics more seriously. Her younger sister has completed B.Sc. and
is working.

‘As no one is well educated in the family, I wasn’t even aware about the courses available or what I should pursue. It was not until 2017 after I completed my graduation that I applied for CA. Later, I did an internship for a year, after which I worked in a Thane-based company. I used the money to pay for my CA classes.’ After completing her articleship, Zarin will pursue her CA final exams. She plans to study all night when it is quieter.

Source: mumbaimirror.indiatimes.com, 13th February, 2021

22. Miss India 2020 runner-up Manya Singh, auto driver’s daughter, was told shakal achi nahi hai

Manya Singh, the daughter of an autorickshaw driver, who was crowned ‘Miss India 2020 Runner-Up’ recently, was once told ‘shakal achi nahi hai’ (you don’t have a nice face).

The newly-crowned Miss India 2020 Runner-Up, who hails from Uttar Pradesh, has made everyone proud after her story went viral on social media. Following the win, her struggles and inspiring story have won praise from all over the country.

In an emotionally-charged ‘Humans of Bombay’ post, Manya Singh spoke about her childhood struggles, her parents’ belief in her dreams and the way she was criticised because of her looks.

She recalled leaving home at 14 to come to Mumbai to pursue her dreams. She had to work at a Pizza Hut store to earn an income. ‘At 14, I boarded the train from my village and left for Mumbai to pursue my dreams, all by myself. I didn’t know where it would lead me, but I knew I was meant to achieve great things. When I walked out of the station, Pizza Hut was the first place I saw. I somehow got myself a part-time job there and temporary accommodation’.

Her parents were always supportive of her dreams. A few days after she arrived in Mumbai, they followed her there, took up a job and supported her.

‘Two days later, when I called Papa, he started crying. But I reassured him, “This is where I belong.” So the next day, both my parents came to Mumbai. Papa said, “We’ll support you”’; he drove an auto to make a living. Still, they put me in a good school. Alongside, I also worked part-time. I earned Rs.15,000 a month,’ she added.

Talking about her dream of winning the Miss India pageant, she said, ‘I was 15 when I watched the Miss India Pageant for the first time. I thought, “I’m going to win that crown someday and make Papa proud.” But coming from a patriarchal family, I was told that women are lesser than men. Tauji would say, “Ladkiyon ko padhai karke bhi shaadi hi karni padti hai.” But when I told Papa, “I want to compete for a beauty pageant”, he said, “Keep working hard and you’ll get there!”’

She revealed that in the beginning she had to face rejection because of her looks or her English. She was once told that she does not have a nice face. ‘I auditioned for over ten pageants, but they’d say, “Shakal achi nahi hai” (you don’t have a nice face), or “You don’t even know English!” Things weren’t easy at home either. Papa had mortgaged our jewellery to pay my fees. So if I’d need money to buy clothes, I’d mop the floor at the pizza place. There, I observed how people carried themselves and in college I’d observe how my friends spoke English (sic),’ Manya Singh added.

Source: www.indiatoday.in, 17th February, 2021)

23. Your big break

Some people get one. Most people don’t.

But, if you’re reading this, it means that you’ve received more than one, perhaps a countless number of, little breaks.
Access to tools, the benefit of the doubt, decent health, occasional peace of mind.
Little breaks. Over and over.
Little breaks get you into a room, but they don’t guarantee your performance. Little breaks get you a glimmer of trust or opportunity, they give you a microphone and a chance to share your dream.
Little breaks don’t always announce themselves the way big breaks do.
Little breaks compound, one often leading to another. Or they don’t, creating false momentum and then disappointment.
Sometimes little breaks pretend to be big ones, and sometimes they’re hiding in plain sight.
Little breaks are easy to ignore and thus are wasted.
Little breaks don’t like being waited for the way big breaks do, because while you’re waiting, you’re wasting the little breaks you’ve already gotten.

Source: seths.blog – Mr. Seth Godin, 14th February, 2021

BCAJ Admin

STATISTICALLY SPEAKING

1. Maharashtra
ranks 1^st in justice delivery

Source: Times of India
Website

2. Indian
startups attract $10.14 billion funding in 2020

Source: Financial
Express Website

3. Karnataka
tops India Innovation Index 2020

Source: Times of India
Website

4. Most
Innovative economies in the world

The index takes into account R&D
intensity, value-added manufacturing, productivity, high tech density, tertiary
efficiency, patent activity and researcher concentration

Source: Bloomberg 2021
Innovation Index

5. Equalisation
levy Collections

* The figures for the
year 2020-2021 are up to 31^st January, 2021

Source: Ministry of Commerce and Industry

BCAJ Admin

ETHICS AND U

Arjun: Bhagwan, what kind of justice are you doing to innocent people? They are made to suffer always.

Shrikrishna: My dear Arjun, what happened? What’s on your mind?

Arjun: See, these banks sanction and disburse loans to any person against stocks, book debts and so on.

Shrikrishna: Yes, that is their business.

Arjun: Agreed. But they do not appraise the proposal properly. They may even act in collusion with the borrower. And finally, when the loan becomes an NPA, they just pass on the blame to the auditors.

Shrikrishna: How can they do that? Do you mean to say that your CAs do the job properly and still they are made to suffer?

Arjun: Precisely.

Shrikrishna: Tell me, how?

Arjun: See, what happens is the banks grant a loan for working capital. Then they appoint CA firms to do the stock audit. They ask the CAs to certify the stock values, book debts, loans, vehicles and what not.

Shrikrishna: What is unusual about that? It’s normal. It’s a part of your profession.

Arjun: Yes, Bhagwan. But quite often there are fraudulent transactions in large borrower companies. Stock records are not proper, there are multiple locations, there is no reconciliation, sales are inflated, debtors are bogus, vehicles are not properly registered, they are hypothecated to many banks…

Shrikrishna: Enough, enough! These are common problems. But what’s your problem? You have to verify and certify.

Arjun: True. But there are practical problems, managements of borrower companies do not co-operate, they conceal the details, data is not made available, the time given is very short, the fees are too low, and…

Shrikrishna: I know all this, Arjun. But it is for this task that you are appointed.

Arjun: How can we certify without proper data?

Shrikrishna: Then say clearly in the certificate that the data is not proper and inadequate and hence you can’t certify. Simple!

Arjun: Bhagwan, how can we give such a negative and harsh certificate? How shall we then get clients?

Shrikrishna: So, you want to somehow accommodate the client! For that, you are willing to compromise your principles and risk your degree?

Arjun: These bankers are funny! They complain that based on our certificate they renewed their working capital facility. But in fact they have already sanctioned or renewed it. And they pass the blame on to the CAs.

Shrikrishna: Arjun, yours is a responsible profession. You are expected to work without fear or favour. How can you certify something as true and correct unless you are objectively satisfied about it?

Arjun: Yes, in principle that is right. But in practice…

Shrikrishna: You cannot take the excuse of ‘practicality’… This is clearly gross negligence as well as lack of due diligence.

Arjun: But then what should we do?

Shrikrishna: Simple, follow the basics. Apply your common sense. Don’t rely only on financial books of accounts. You need to see beyond that. Learn to read between the lines. Have professional scepticism. Maintain working papers. Try to get third party evidence. Ask questions, create a record of your work. Remember, ‘Work should not only be done, but it should be seen that it is done!’

Arjun: Enough, enough! Followed. In short, the quality of work should be absolute regardless of fees. Right?

Shrikrishna: In fact, first understand the value of work, of your signature yourself. Only then will others recognise it. Don’t allow others to take you for granted. Now, Arjun, please don’t tell me that if you refuse to certify, some other CA will do it. I have no answer to this argument.

Arjun: Bhagwan, like in the Bhagvad Geeta, you have opened my eyes again today. Do keep on meeting me and guiding me, always.

Om Shanti

(This dialogue is based on the need for due diligence while certifying stocks, etc.)

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. Faceless Assessment (1st Amendment) Scheme, 2021. [Notification No. 6 of 2021 dated 17th February, 2021.]

COMPANIES ACT, 2013

(I) MCA amends Corporate Social Responsibility (CSR) Rules, 2014 Key amendments include changes in definitions. Terms such as Administrative Overheads, Ongoing Projects are now defined. Every entity undertaking CSR activity is required to register with the Central Government. CFO is required to certify that funds disbursed have been utilised for the purposes approved by the Board. Set-off of excess amount spent permitted subject to certain conditions. Unspent amount is required to be transferred to certain Funds. Revised format is prescribed for Annual Report on CSR activities to be included in Board’s Report. Amendments are effective 1st April, 2021; as such, few of them apply from the financial years commencing on or after 1st April, 2021. [MCA Notification G.S.R. 40 (E) dated 22nd January, 2021.]

(II) MCA notifies the commencement of specified sections in the Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 including provisions related to CSR, definition of listed entities, further issue of share capital, exemption related to any class of persons by the Central Government from complying with the requirements of declaration of beneficial interest if considered necessary in public interest. [MCA Notification S.O. 324 (E) dated 22nd January, 2021.]

(III) MCA amends criteria for a company to be classified as a Small Company w.e.f. 1st April, 2021 – A company other than a public company with paid-up capital and turnover as per profit and loss account for the immediately preceding financial year not greater than Rs. 2 crores (as against earlier threshold of Rs. 50 lakhs) and Rs. 20 crores (as against earlier threshold of Rs. 2 crores), respectively, shall be considered as a Small Company under the Companies Act, 2013 and its Rules. [MCA Notification G.S.R. 92 (E) dated 1st February, 2021.]

(IV) MCA allows merger of startups u/s 233 – MCA now allows a scheme of merger or amalgamation u/s 233 to be entered into between any of the following class of companies, namely:
i) two or more startup companies; or
ii) one or more startup company with one or more small company.

For the purpose of this amendment, ‘startup company’ shall mean a private company incorporated under the Companies Act, 2013 or the Companies Act, 1956 and recognised as such. [MCA Notification G.S.R. 93 (E) dated 1st February, 2021.]

(V) MCA eases norms for One Person Company (OPC) incorporated under the Companies Act, 2013 and its Rules with effect from 1st April, 2021 – Key highlights of the Companies (Incorporation) Second Amendment Rules, 2021 are:
1. Non-resident Indians can also incorporate OPCs and the minimum residency period has been brought down to 120 days from 180 days for Indian citizens.
2. Automatic cessation of the validity of the OPC upon exceeding paid-up capital of Rs. 50 lakhs and average annual turnover (during the relevant period) of Rs. 2 crores has been dispensed with. This implies that it can continue to grow and operate as an OPC forever.
3. An OPC can convert itself into a public or private company at any point of time subject to compliance with prescribed procedure. [MCA Notification G.S.R. 91 (E) dated 1st February, 2021.]

(VI) MCA notifies change in timeline for acceptance of rights issue offer w.e.f. 1st April, 2021 – The Notification clarifies that where rights issue of shares is proposed, the offer shall be made to the existing shareholders by notice specifying the number of shares offered and the time limit [not being less than seven days (as opposed to 15 days) and not exceeding 30 days from the date of the offer] within which the offer, if not accepted, shall be deemed to have been declined. This Notification will be effective from 1st April, 2021. [MCA Notification G.S.R. 113 (E) dated 11th February, 2021.]

(VII) MCA Advises LLPs, Partners and Designated Partners to take note of proposed changes in LLP Act – MCA has advised stakeholders that certain provisions of the Companies Act, 2013 will soon be extended to LLPs with modifications and adaptations. The sections which are to be extended to LLPs include:
* Investigation of beneficial ownership of shares,
* Disqualifications for appointment of directors,
* Provision relating to number of directorships,
* Power to direct inspection of books and papers of a company by an inspector, and
* Provisions which specify that offences under the Act will be non-cognizable. [MCA Notice dated 18th February, 2021.]

SEBI

(VIII) No separate registration is required to render investment advice to general investors under Investment Advisers Regulations (IA) – SEBI in an informal guidance scheme has clarified that no separate registration is required to render investment advice to general investors under IA regulations. In addition, a portfolio manager registered under PMS regulations is also exempted from seeking registration as an investment adviser when it provides any incidental investment advice to its clients. [Circular No. SEBI/HO/IMD/DF1/OW/P/2021/3186/1 dated 6th February, 2021.]

(IX) SEBI notifies revised disclosure formats by specified persons under Regulation 7 of the Prohibition of Insider Trading (PIT) Regulations, 2015 – Further to the amendments made to Regulation 7 of the PIT Regulations, 2015 requiring that a member of the promoter group and designated person (in place of ‘employee’) submit disclosures under the said Regulation, SEBI has prescribed the revised formats for Initial Disclosures, Continual Disclosures and Disclosures by Connected Persons. [Circular No. SEBI/HO/ISD/ISD/CIR/P/2021/19 dated 9th February, 2021.]

ACCOUNTS AND AUDIT

(A) SAE 3410, Assurance Engagements on Greenhouse Gas Statements – The ICAI has issued a Standard on Assurance Engagement (SAE 3410) that deals with assurance engagements to report on an entity’s Greenhouse Gas (GHG) statement. [ICAI Release dated 27th January, 2021.]

(B) Risk-Based Internal Audit (RBIA) Framework for NBFCs and UCBs – The RBI has issued a Notification mandating an RBIA Framework for: (a) all deposit-taking NBFCs, irrespective of their size, (b) all non-deposit-taking NBFCs (including CICs) with asset size of Rs. 5,000 crores and above, and (c) all UCBs having asset size of Rs. 5,000 crores and above. The Framework needs to be implemented by 31st March, 2022 in accordance with the Guidelines framed. [Notification No. RBI/2020-21/88 Ref. No. DoS.CO.PPG./SEC.05/11.01.005/2020-21 dated 3rd February, 2021.]

(C) Guidance Note on Accounting by E-Commerce Entities – The ICAI has revised the ‘Guidance Note on Dot-com Companies’ as the ‘Guidance Note on Accounting by E-Commerce Entities’ applicable to companies preparing financial statements under the Companies (Accounting Standard) Rules, 2006, LLPs and Partnership firms, and deals with accounting by e-commerce entities in respect of certain issues relating to revenue and expense recognition. [ICAI Guidance Note released on 16th February, 2021.]

(D) Guidance Note on Accrual Basis of Accounting – The ICAI has revised this Guidance Note originally issued in 1988 that highlights the need for accrual basis of accounting, provides guidance in respect of transition from cash basis to accrual basis of accounting, and further states the benefits associated with the accrual accounting system. [ICAI Guidance Note released on 16th February, 2021.]

FEMA

(i) RBI had issued a Notification in October, 2020 (please refer to the December, 2020 issue of the BCAJ) allowing only authorised dealers in India to post and collect margins in and outside India on their own and their customers’ behalf, for permitted derivative contracts entered into with a person resident outside India in the form and manner that was to be specified by RBI. RBI has now specified that AD Category I banks can post and collect such margins in India in the form of:
a) Indian currency;
b) Freely convertible foreign currency;
c) Debt securities issued by Indian Central Government and State Governments;
d) Rupee bonds issued by persons resident in India which are:
1. Listed on a recognised stock exchange in India; and
2. Assigned a credit rating of AAA issued by a rating agency registered with the Securities and Exchange Board of India. If different ratings are accorded by two or more credit rating agencies, then the lowest rating shall be reckoned.

AD Cat-I banks shall maintain a separate account in the name of persons resident outside India for the purpose of posting and collecting cash margin in India, and transactions incidental thereto.

Further, AD Category I banks can post and collect such margins outside India in the form of:
a) Freely convertible foreign currency; and
b) Debt securities issued by foreign sovereigns with a credit rating of AA- and above issued by S&P Global Ratings / Fitch Ratings or Aa3 and above issued by Moody’s Investors Service.

AD Cat-I banks may also receive and pay interest on margin posted and collected on their own account or on behalf of their customers for a permitted derivative contract entered into with a person resident outside India. [A.P. (DIR Series 2020-21) Circular No. 10, dated 15th February, 2021.]

(ii) Indian residents are now permitted under LRS to make remittances to IFSCs set up in India for investment purposes. The following conditions have been prescribed:
a) Such investments shall be only in securities other than those issued by entities or companies resident in India (outside the IFSC).
b) Resident individuals can also open a non-interest-bearing Foreign Currency Account (FCA) in IFSCs for making the above permissible investments under LRS. However, any funds lying idle in the account for a period up to 15 days from the date of receipt into the account shall be immediately repatriated to the domestic INR account of the investor in India. Resident individuals cannot settle any domestic transactions with other residents through these FCAs held in IFSC. [A.P. (DIR Series 2020-21) Circular No. 11, dated 16th February, 2021.]

(iii) RBI had broadened the scope of Special Non-Resident Rupee (SNRR) accounts last year by allowing them to be used for specified transactions in trade, foreign investments, ECBs, etc. RBI has now issued FAQs for SNRR Accounts on 19th November, 2020. The FAQs provide clarifications on processes, responsibility for undertaking compliances, reporting, permitted transactions and transfers with respect to SNRR accounts. The FAQs have clarified that remittances or transactions under LRS cannot be routed through the SNRR account. These FAQs would not apply to FPIs, FVCIs and Depository Accounts or FCCB Conversion Accounts which are operated by custodians. The FAQs can be accessed at: https://m.rbi.org.in/Scripts/FAQView.aspx?Id=138.

ICAI MATERIAL

Accounts and Audit
* Educational material on Ind AS 23, Borrowing Costs. [27th January, 2021.]
* Internal Control System in State-Owned Universities: A Study to Formulate Internal Control Manual. [16th February, 2021.]

Valuation
* Technical Guide on Valuation (Revised Edition 2021). [11th February, 2021.]
* Valuation: Professionals’ Insight (Series 5). [11th February, 2021.]
* Educational material: ICAI Valuation Standard 103 – Valuation Approaches and Methods. [11th February, 2021.]
* Educational material: ICAI Valuation Standard 301 – Business Valuation. [18th February, 2021.]

Corporate and Other Laws
* Handbook on Role of Women Directors. [11th February, 2021.]
* FAQs on SEBI (LODR) Regulations, 2015. [11th February, 2021.]
* Background material on Business Responsibility and Sustainability Reporting. [15th February, 2021.]
* Money Laundering and Scams ‘Through’ Multi-State Urban Co-operative Credit Societies in India – Cash Deposits. [16th February, 2021.]
* Money Laundering and Scams ‘Through’ Multi-State Urban Co-operative Credit Societies, Angadias and Banks in India / Abroad – Gems and Jewellery Industry. [16th February, 2021.]

Taxation
* Inching towards Tax Certainty: Neoteric Domestic Dispute Mechanism for Cross-Border Taxation. [16th February, 2021.]

Others
* Analysis and Evaluation of Indian Startups in Non-Metropolitan Areas and Selected Metropolitan Areas – An Untold Story. [16th February, 2021.]
* Impact of Digital Transformation Strategies on Performance of Manufacturing Companies in India. [16th February, 2021.]
* How Indian Companies can play a pivotal role in the Supply Chain to Australia? [16th February, 2021.]

BCAJ Admin

CORPORATE LAW CORNER

11. Dr. Venkadasamy Venkataramanujan vs. Securities and Exchange Board of India, Mumbai [2021] 123 taxmann.com 126 (SAT-Mum.) Date of order: 7th February, 2020

Independent Director – Where appellant was inducted as an Independent Director of company and there was no finding that act of company in collection of funds under collective investment scheme without obtaining certificate of registration occurred with appellant’s knowledge or consent, order of SEBI prohibiting appellant from accessing securities market for four years could not be sustained and same was to be quashed

FACTS

The present appeal has been filed against the order of the whole-time member (‘WTM’) of the Securities and Exchange Board of India (‘SEBI’) who held that the scheme floated by the company was nothing but a collective investment scheme (‘CIS’) in terms of section 11AA of the SEBI Act, 1992 and that this was done without obtaining a certificate of registration as required u/s 12(1B) of the SEBI Act and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999. The WTM had directed the company and its directors, including the appellant, to abstain from collecting any money from investors or to carry out any CIS, including the present scheme, and further to return the money so collected. The WTM further restrained the appellant and others from accessing the securities market and prohibited them from buying, selling or otherwise dealing in the securities market for a period of four years.

The appellant ‘V’, being one of the directors and being aggrieved by the order, has filed the present appeal.

‘V’ was appointed as an Independent Director on 26th February, 2015 and resigned on 21st July, 2015. His resignation was accepted by the company on 31st August, 2015 and intimated to the Registrar of Companies on 5th October, 2015.

‘V’ contended before the WTM and SAT that he was appointed in view of the requirement under the CIS Regulations for appointment of a professional as an Independent Director. ‘V’ was not a shareholder in the company, he was not directly associated with the persons who were running it, nor was he involved in its day-to-day running. He also urged that in view of section 149(12) of the Companies Act, 2013 an Independent Director cannot be held liable for such misfeasance which occurred without his knowledge.

It was also noted from the WTM order that ‘V’ has been held responsible only on the ground that part of the mobilisation of the fund was done during the period when he was appointed as a director.

HELD

The Tribunal came to the conclusion that the order insofar as it relates to ‘V’ cannot be sustained. There is no dispute about the fact that he was appointed as an Independent Director by the company in order to comply with the eligibility criteria for CIS application under the relevant Regulations. The Tribunal further noted that a specific assertion was made that ‘V’ did not attend any Board meeting which fact has not been disputed by the respondent. It also noted that ‘V’ was not directly associated with the persons having control over the affairs of the company, nor was he involved in the running of the company and this fact has been stated by the company itself. It was also emphasised that ‘V’ was not holding any shares in the company.

The mere fact that the company had mobilised certain funds under the CIS during the short period when ‘V’ was an Independent Director would not by itself make him liable for the misfeasance committed by the company unless it is shown that he was also involved in the decision-making process or in the collection of the funds. Neither of the two elements was present in the instant case.

The Tribunal further noted the provisions of section 149(12) of the Companies Act, 2013 and observed that a perusal of the same makes it clear that an Independent Director shall be held liable only in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through a Board process, and with his consent or connivance, or where he had not acted diligently.

In the instant case, there is no finding by the WTM that the acts of the company in the collection of the funds had occurred with the knowledge of ‘V’ or that he was part of the decision-making processes through Board’s resolution, or that the activities of the company were being done with his consent or connivance.

The Tribunal observed that there is no finding that ‘V’ had not acted diligently. In fact, the record indicates that he was only appointed for a period of five months and had not attended any meeting of the Board.

Hence, the Tribunal held that the order insofar as ‘V’ is concerned cannot be sustained and quashed the order passed by the WTM.

12. Union of India, Ministry of Corporate Affairs vs. Mukesh Maneklal Choksi [2019] 101 taxmann.com 98 (NCLT-Mum.) Date of order: 3rd January, 2019

Where family members of statutory auditor were shareholders of the company and statutory auditor had issued audit report without examining books of accounts of company, provisions of section 143(3)(d) of the Companies Act, 2013 had been violated and statutory auditor would cease to function as statutory auditor of the company

FACTS

A complaint was filed alleging that shares of the respondent company were not listed on the Pune Stock Exchange. There was siphoning of investors’ money and the company had not issued financial statements after 1995.

The Inspecting Officer u/s 207(3) of the Companies Act, 2013 issued summons to all the directors of the respondent company in addition to R1, who were the Statutory Auditors of the respondent company for the financial years 2014-15 and 2015-16.

The Statutory Auditor in his statements stated that he had not audited the books of accounts of the company. However, he had signed the Audit Report of the company for the relevant period.

The petitioner Ministry of Corporate Affairs (MCA) filed a petition u/s 140(5) of the Companies Act, 2013 for direction that R1 should immediately cease to function as Statutory Auditor of the respondent company. It was also prayed that MCA be permitted to appoint an independent auditor to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

HELD

The Tribunal on perusal of the application noted that the respondent company is not listed on any stock exchange despite the assurances given in the prospectus dated 10th October, 1996 and its present directors are apparently dummy / shadow directors of the company. The Chairman had dodged his responsibilities to assist in the inspection and it was further noted that all the commonly-known attributes of a shell company were in existence in the case of the company under inspection.

Relying on the statement on the oath of R1, it was clear that R1, i.e., the statutory auditor, has failed to exercise his duty and has further stated that he has issued the Audit Report even without examining any of the records / books of accounts of the company.

It is recorded that family members of R1 are shareholders of the respondent company, whereas section 141(3)(d) of the Companies Act, 2013 specifically prohibits a statutory auditor being appointed as such if his relative or partner is holding any security or interest in the company.

The Tribunal further noted that issuing the audit report of the company even without examining any books of accounts is a clear-cut violation of the statutory provision of section 141(3)(d) of the Companies Act, 2013.

Under the circumstances, the Tribunal ordered that R1 shall immediately cease to function as statutory auditor of the company. The MCA is permitted to appoint an independent auditor for the respondent company to replace R1 in terms of the first proviso to section 140(5) of the Companies Act, 2013 read with Explanation 1 thereto.

13. Phoenix Arc Pvt. Ltd. vs. Spade Financial Services Ltd. Civil Appeal No. 2842 of 2020 (SC) Date of order: 1st February, 2021

Sections 5(7), 5(8) and first proviso to section 21(2) of Insolvency and Bankruptcy Code, 2016 – Parties would not be regarded as Financial Creditors if they entered into collusive or sham transaction with Corporate Debtor – The transaction could not be regarded as financial debt – Parties would qualify as related party and excluded from COC if they were related at the time of creation of debt but ceased to be related parties when CIRP was initiated for the purpose of gaining a backdoor entry to the COC

FACTS

Corporate Insolvency Resolution Process (‘CIRP’) was initiated against P Co (‘Corporate Debtor’) on 18th April, 2018 by an operational creditor, Mr. H. During the process of CIRP, the Resolution Professional (‘RP’) invited claims. S Co filed its claim as a financial creditor in Form C for a sum of Rs. 52.96 crores on 10th May, 2018. S Co later revised its form to submit a claim of Rs. 109.11 crores. The basis for filing these claims was an MOU dated 12th August, 2011 which stated that inter-corporate deposits (‘ICDs’) of Rs. 26.55 crores were granted to the Corporate Debtor by S Co bearing an interest rate of 24%. Subsequently, it was submitted that ICDs worth Rs. 66 crores were granted to the Corporate Debtor between June, 2009 and January, 2013.

AAA filed its claim before the IRP in form F as a creditor other than financial or operational creditor for a sum of Rs. 109.72 crores on 23rd May, 2018. It had entered into a Development Agreement dated 1st March, 2012 with the Corporate Debtor to purchase development rights in a project. On 25th October, 2012 the Development Agreement was terminated and an agreement to sell, along with a side letter, was executed between AAA and the Corporate Debtor for purchase of flats. The sale consideration for the agreement to sell was enhanced to Rs. 86,01,00,000 from Rs. 32,80,00,000 under the Development Agreement. AAA paid a sum of Rs. 43.06 crores which along with interest at the rate of 18% increased to Rs. 109.72 crores.

The Committee of creditors (‘COC’) was established on 22nd May, 2018. On 25th May, 2018 the IRP rejected the claim of Spade inter alia on the ground that the claim was not in the nature of a financial debt in terms of section 5(8) of IBC since there was an absence of consideration for the time value of money, i.e., the period of repayment of the claimed ICDs was not stipulated. The IRP also rejected the claim of AAA on the ground that its claim as a financial creditor in Form C was filed after the expiry of the period for filing such a claim.

Phoenix was a part of the COC on the basis of its claim arising from a registered Deed of Assignment in its favour dated 28th December, 2015 pursuant to which Karnataka Bank Limited had assigned the non-performing assets relating to the credit facilities granted to the Corporate Debtor.

AAA and Spade filed an application before the National Company Law Tribunal (‘NCLT’) to be included in the COC. The NCLT on 30th May, 2018 allowed these applications where none of the other creditors such as Yes Bank or Phoenix were present. As a result of the inclusion of AAA and Spade, the voting share of Phoenix in the COC was reduced to 4.28%.

Yes Bank and Phoenix filed an application before the NCLT to exclude AAA and Spade from the COC on the ground that they were related parties. Upon hearing the submissions, NCLT held that the transactions between the Corporate Debtor and both SPADE and AAA were collusive in nature. Accordingly, they did not qualify to be considered as financial creditors. NCLT took note of the first proviso to section 21(2) of the IBC, which stated that a financial creditor who is a related party of the Corporate Debtor shall not have the right of representation, participation or voting in the COC. Therefore, the application of Yes Bank and Phoenix for exclusion of Spade and AAA was upheld by the Court.

NCLAT upheld the view taken by the NCLT to exclude Spade and AAA from the COC. However, there was an inadvertent observation that ‘admittedly’ Spade and AAA were financial creditors of the Corporate Debtor. Mr. Anil Nanda, in concert with Mr. Arun Anand and his family, had created a web of companies which were related parties to the Corporate Debtor and was now trying to gain a backdoor entry into the COC through them. Phoenix and Yes Bank thus filed an appeal before the Supreme Court challenging the observation of NCLAT that Spade and AAA were financial creditors to the Corporate Debtor.

HELD

The Supreme Court examined in detail the transactions between the Corporate Debtor, Spade and AAA which gave rise to their claims as Financial Creditors.

In the case of Spade, it was observed that the MOU dated 12th August, 2011 which provided ICDs to the Corporate Debtor charged interest at the rate of 24%. However, Spade has stated that actually only 12% interest was charged and hence its claim is on that basis. The Corporate Debtor through this MOU provided security for the ICDs through 37 flats worth Rs. 39.825 crores in their real estate project, AKME RAAGA. Further, additional security was provided through 11 plots worth Rs. 3 crores in another project. The charge was not registered. Out of the ICDs provided to the Corporate Debtor by Spade, Rs. 43.06 crores’ worth were credited to the account of Mr. Arun Anand by consent. However, this has been disputed by Spade.

As for AAA, the Supreme Court noted that the Development Agreement dated 1st March, 2012 was superseded by an agreement to sell dated 25th October, 2012 through which AAA bought a saleable area of 313,928 sq. ft. in AKME RAAGA at a price of Rs. 43.06 crores. A side letter executed on the same day noted that the area bought by AAA was 38.3% of AKME RAAGA and AAA would provide for the cost of its development accordingly.

The Supreme Court also observed that there was a close relationship between the key managerial personnel of the Corporate Debtor, Mr. Anil Nanda, and the director of Spade and AAA, Mr. Arun Anand.

The Court heard the parties at length and also their submissions on the issues.

The submission of the Corporate Debtor that the order of the NCLT dated 31st May, 2018 where it admitted AAA and Spade as financial creditors operated as res judicata was rejected by the Supreme Court on the grounds that other creditors were not heard. The order was passed without giving them an opportunity of being heard.

The next submission of the Corporate Debtor that the issue of the eligibility of Spade and AAA as financial creditors was never raised before the NCLT was found to be contrary to the material produced on record.

The next issue raised by the Corporate Debtor was that NCLAT acted beyond jurisdiction in the appeal filed by AAA and Spade in inquiring into whether they are related parties. This submission was also not accepted by the Supreme Court.

The primary contention of Phoenix and Yes Bank before the Supreme Court was to challenge the observation of the NCLAT that it was an admitted position that AAA and Spade are financial creditors. The Supreme Court examined the provisions of sections 5(7) and 5(8) of the Code which define the terms financial creditor and financial debt, respectively.

The Supreme Court observed that money advanced as debt should be in the receipt of the borrower. The borrower is obligated to return the money or its equivalent along with the consideration for a time value of money, which is the compensation or price payable for the period of time for which the money is lent. A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive.

Further, the Court observed that for the success of an insolvency regime the real nature of the transactions has to be unearthed in order to prevent any person from taking undue benefit of its provisions to the detriment of the rights of legitimate creditors.

Relying on the observations of the NCLT and the submissions made by Yes Bank, Phoenix and the Corporate Debtor, the Court held that the MOU entered between Spade and the Corporate Debtor was an eye-wash and collusive in nature. Similarly, the Corporate Debtor and AAA converted the Development Agreement into an agreement to sell executed along with a side letter to circumvent the legal prohibition on splitting a development license in two parts. The transaction between AAA and the Corporate Debtor was also held to be collusive in nature.

Since the commercial arrangements between Spade and AAA and the Corporate Debtor were collusive in nature, they would not constitute a ‘financial debt’. Hence, Spade and AAA are not financial creditors of the Corporate Debtor.

The Supreme Court took note of section 5(24) of the Code which defines the term ‘related party’ along with the detailed submissions of the parties on the relationship of key managerial personnel. It was observed that the definition of ‘related party’ under the Code was significantly broad. The intention of the Legislature in adopting such a broad definition was to capture all kinds of inter-relationships between the financial creditor and the Corporate Debtor.

It was observed that Mr. Arun Anand has held multiple positions in companies which form part of the Anil Nanda Group of Companies. Further, Mr. Anil Nanda has himself invested in companies owned by Mr. Arun Anand and had commercial transactions with them. Through Spade and AAA’s own admission, Mr. Arun Anand was appointed as the Group CEO of the Anil Nanda Group of Companies (for however short a period) on circular approval by Mr. Anil Nanda himself. Finally, Mr. Arun Anand’s brother in-law, Mr. Sonal Anand, has also been consistently associated with companies in the Anil Nanda Group of Companies, including the Corporate Debtor.

It was observed that there was a deep entanglement between the entities of Mr. Arun Anand and Mr. Anil Nanda, and Mr. Arun Anand did hold positions during this period which could have been used by him to guide the affairs of the Corporate Debtor. Based on this, the Supreme Court upheld the conclusion of the NCLAT that Mr. Arun Anand would be a related party of the Corporate Debtor in accordance with section 5(24)(h) and section 5(24)(m)(i). Mr. Arun Anand, Spade and AAA were related parties of the Corporate Debtor during the relevant period when the transactions on the basis of which Spade and AAA claimed their status as financial creditors took place.

The Supreme Court further noted that the COC is comprised of financial creditors, under loan and debt contracts, who have the right to vote on decisions, and operational creditors such as employees, rental obligations, utilities payments and trade credit, who can participate in the COC but do not have the right to vote. The aim of the COC is to enable coordination between various creditors so as to ensure that the interests of all stakeholders are balanced and the value of the assets of the entity in financial distress is maximised.

In the context of the first proviso to section 21(2), the issue before the Supreme Court was whether the disqualification under the proviso would attach to a financial creditor only in praesenti, or whether the disqualification also extends to those financial creditors who were related to the corporate debtor at the time of acquiring the debt.

The Court held that where a financial creditor seeks a position on the COC on the basis of a debt which was created when it was a related party of the corporate debtor, the exclusion which is created by the first proviso to section 21(2) must apply. If the definition of the expression ‘related party’ u/s 5(24) applies at the time when the debt was created, the exclusion in the first proviso to section 21(2) would stand attracted.

The Supreme Court further clarified that the exclusion under the first proviso to section 21(2) is related not to the debt itself but to the relationship existing between a related party financial creditor and the corporate debtor.

Thus, the default rule under the first proviso to section 21(2) is that only those financial creditors that are related parties in praesenti would be debarred from the COC, those related party financial creditors that cease to be related parties in order to circumvent the exclusion under the first proviso to section 21(2), should also be considered as being covered by the exclusion thereunder.

The Supreme Court concluded that Spade and AAA were not financial creditors of the Corporate Debtor and accordingly the NCLAT observation to that extent was set aside. The exclusion of Spade and AAA from the COC was upheld for the reasons stated above.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

28. [2021 (44) GSTL 337 (A.P.)] S.P.Y. Agro Industries Ltd. vs. UOI Date of order: 20th October, 2020

Sections 73, 74 and 122 of CGST Act, 2017 – Initiating recovery proceedings before the timeline to prefer appeal against the assessment order issued for non-filing of GST returns and before the period given for replying to notice issued for discrepancy in GSTR1 and GSTR3B is in contravention of principles of natural justice

FACTS

The petitioner is engaged in the manufacture and sale of alcoholic and non-alcoholic beverages, ethanol, etc. For the period February, 2018 to June, 2020, GST liability could not be cleared by it in time but subsequently it was cleared. While the various notices and assessments were going on during the period of default, a recovery notice was issued u/s 79 of the CSGT Act, 2017 demanding tax and interest along with penalty amounting to Rs. 12,14,61,113. Revenue disputed that the petitioner had failed to pay GST liabilities and also file GSTR3B for various months within the prescribed due dates. Further, it had filed GSTR1 for certain months but failed to file GSTR3B for the corresponding months.

In view of the above, it was urged that no revenue was actually transferred to the Government and also the party to whom the petitioner had issued invoices would avail GST credit, which the petitioner paid with delay.

HELD

The High Court was of the view that as per the procedure contemplated under sections 73 and 74 of the CGST Act, a notice has necessarily to be issued and adjudicated following due process of law. For the period from February to December, 2018, the petitioner had filed a valid return for part demand within 30 days of service of assessment order and thus by virtue of section 62(2) of the Act, the assessment order to the extent of which the valid return was filed is deemed to be withdrawn and only the liability of payment of interest shall continue and not the penalty pertaining to such valid return.

For the period January to December, 2019, the notice intimating the discrepancy in the return was issued in Form GSTR ASMT-10 on 28th July, 2020 wherein the petitioner was directed to explain the reasons for the discrepancies contained therein on or before 27th August, 2020. Even before waiting till that date, the garnishee notice for the said period came to be issued. Further, it was not even an order that was passed by the authority, but only a notice seeking explanation about the discrepancies contained therein, on or before 27th August, 2020. For the tax period January to June, 2020, an assessment order was passed in Form ASMT-13 and the impugned notice was issued without waiting for a period of three months to prefer appeal against the order.

In view of the above circumstances, the High Court set aside the impugned order and the matter was remanded back to the authorities to deal with it afresh in accordance with law, after giving an opportunity of hearing to the petitioner.

BCAJ Admin

Service Tax

I. TRIBUNAL

25. [2021 (124) taxmann.com 351 (CESTAT-Ahmd.)] Pujan Builders Engineers & Contractors vs. CCE&ST Date of order: 11th February, 2021

The period for which the assessee was under the bona fide belief that no refund is due to him (as the excess service tax paid was adjusted by him in TRANS-1), should not be reckoned for the counting period of limitation u/s 11B of the Central Excise Act

FACTS

For the period April to June, 2017, Service Tax return was filed on 14th August, 2017. Due to the cancellation of some of the invoices, the appellant revised the return on 21st September, 2017. The excess tax paid as a result of the cancellation of invoices was adjusted by it in Form TRAN-1. The GST Department objected to the said adjustment and it was reversed along with payment of interest on 27th February, 2019. Thereafter, a refund application was filed on 5th April, 2019 for the excess payment. The refund claim was rejected on the ground of time bar by treating the relevant date as the date of payment of service tax, i.e., 5th July, 2017, u/s 11B of the Central Excise Act, 1944.

HELD

The Hon’ble Tribunal held that since the amount of excess paid service tax was adjusted against the TRAN-1 account and the same was reversed on 27th February, 2019 along with interest, till such date there is no cause for claiming refund of this amount. The refund arises only after the amount is reversed. The refund was admittedly filed on 5th April, 2019, i.e., well within the prescribed time limit of one year in terms of section 11B and hence is not time-barred.

26. [2021 (123) taxmann.com 444 (CESTAT-Bang.)] Target Corporation India (P) Ltd. vs. Commissioner of Central Excise Date of order: 10th January, 2021

Reimbursement of salaries and out of pocket expenses to the foreign group entity in respect of employees seconded by it to the Indian entity would not be regarded as ‘Manpower Recruitment and Supply of Manpower Agency Service’ as the group companies are not in the business of supplying manpower

FACTS

The appellant entered into an agreement with its group company in the USA (Target, USA) for secondment of employees. Apart from the agreement, it issued a letter of assignment to such seconded employees specifying the location of work, the position of duties, hours of work, computation of employee benefits, terms of employment, annual revision, termination of employment and taxation, etc., relevant to their secondment. The terms of the agreement provided that the employees seconded shall continue to have their payroll processed by Target, USA. They will act in accordance with the instructions and directions of the appellants and the appellant shall reimburse Target, USA all remuneration including the out of pocket expenses incurred by the seconded employees at actuals. In addition, a service charge was to be paid to Target, USA for processing of the payroll and it was agreed that during the secondment period the role of Target, USA is restricted to that of payroll service provider only.

Target, USA raised debit notes towards salaries and the payments were remitted in foreign currency. In the financials the same were grouped as ‘salaries, wages and bonus’ under the head ‘expenditure incurred in foreign exchange’. Further, the amount under the said head also contained salaries deposited in the foreign bank accounts of its own employees deputed on overseas assignments. After investigation, the Revenue authorities entertained the view that the assessee has evaded the payment of service tax towards import of services on ‘Manpower Recruitment and Supply of Manpower Agency Service’.

HELD

The Tribunal referred to the definition of ‘Manpower Recruitment or Supply Agency’ Services u/s 105(k) under the Finance Act, 1994, the scope of the said services explained by Circular F. No. B1/6/2005-TRU dated 27th July, 2005, and also to the definition of service u/s 65B(44) for a period on or after 1st July, 2012. The Tribunal held that the legal position post the negative list regime does not make any departure from the settled position of law as it existed before 2012 with respect to the service tax implications on deputation of employees. It further held that the agreement entered into with the group entity is for provision of certain specialised services and is not related to the supply of manpower services and that the group companies are not in the business of supplying manpower. It further held that the persons seconded to the appellant were working in the capacity of employees and payment of salaries, etc., is made to such employees by group companies only for disbursement purposes and hence an employer-employee relationship exists between the appellant and such employees and such an activity cannot be termed as ‘manpower recruitment or supply agency’ and the whole arrangement between the appellant and its group companies does not fall under the taxable service of ‘manpower recruitment or supply agency’ service as defined under the Finance Act, 1994.

The Tribunal also referred to many decisions, including that of Honeywell Technology Solutions Pvt. Ltd. vs. CST, Bangalore, 2020-TIOL-1277-CESTAT-Bang., M/s Volkswagen India Pvt. Ltd. vs. CCE, Pune-I 2014 (34) S.T.R. 135 (Tri.-Mumbai), Computer Sciences Corporation India Pvt. Ltd. vs. Commissioner of Service Tax, Noida reported in 2014-TIOL-434-CESTAT Del, etc., in support of its conclusion.

27. [2021 (124) taxmann.com 355 (CESTAT-Mum.) Vantage International Management Company vs. CCGST Date of order: 12th February, 2021

The value of diesel supplied free of charge by the receiver as per the agreement in the course of execution of the contract does not form part of the taxable value even after the amendment made in section 67 by the Finance Act, 2015 (20 of 2015), with effect from 14th May, 2015

FACTS

The appellant was engaged in providing mining services to ONGC for performing drilling operations on oil wells in the East and West Coasts of India. The agreement was entered into with M/s ONGC for carrying out the drilling operations. The agreement inter alia provided that there will be an average consumption of diesel @ 50 KL/per day which will be provided by M/s ONGC at their cost. The Revenue authorities took a view that the cost of such fuel should form part of the gross amount u/s 67 of the Finance Act, 1994 for payment of service tax on such value.

HELD

On perusal of the agreement, the Tribunal observed that M/s ONGC was required to supply the fuel (diesel) for running of the drilling equipment; that it was not required to make payment of fuel to the appellant; and that the same was in fact supplied free of cost to accomplish the assigned task. The Tribunal also noted that as per the amendment made in section 67 by the Finance Act, 2015 with effect from 14th May, 2015, the taxable value includes inter alia any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, subject to the fulfilment of the prescribed conditions. However, in the present case it is an admitted fact on record that the appellant had never charged any cost of fuel to M/s ONGC over and above the amount claimed by it for providing the taxable service. Therefore, the value of the fuel cannot be added to the taxable value both under the non-amended and the amended provisions of section 67.

Further, the Tribunal held that the entire consideration was received in monetary terms. Hence, it cannot be said that it was not properly able to determine the value of taxable service in order to attract the provisions of Rule 3(b) of the Service Tax (Determination of Value) Rules, 2006. Similarly, the provisions of Rule 5 ibid also would not attract in this case inasmuch as no cost of fuel was charged or billed to the recipient of the service. The decision of the Supreme Court in the case of Commissioner of Service Tax vs. Bhayana Builders (P) Ltd. 2018 (10) GSTL 118 (SC) was referred to in support of the aforesaid conclusions.

28. [2021 (44) GSTL 284 (Tri.-Ahmd.)] Lakshmi Exports vs. Commissioner of C.Ex.&S.T., Surat Date of order: 22nd September, 2019

Amount deducted from invoice under the head of commission cannot be treated as business auxiliary service (commission) where the transaction itself is on principal-to-principal basis

FACTS

The appellants are merchant exporters and engaged in the export of goods such as fabric, scarves, saris, dress material, etc. While charging consideration to the buyer located in the foreign country, the appellant had reduced amounts ranging from 11% to 12.5% from the invoice value under the heading of ‘commission’. During the audit of refund claims of the appellant, the Department observed that the said amount being reduced under the head ‘commission’ amounts to commission paid by the appellant to the commission agent in relation to export of their goods and that the commission is liable to service tax under the head ‘Business Auxiliary Service.’

HELD

The Tribunal, after considering the facts of the case, observed that since the transaction was of sale and purchase between the appellant and the buyer of the goods, whatever was shown on the invoice was the sale value and the deduction shown was nothing but discount given by the exporter to the foreign buyer. Further, it also noticed that the Department had grossly failed to bring any evidence on record to show that there existed a commission agent in the entire transaction. In the entire transaction only two persons were involved, one, the appellant as exporter of the goods, and two, the buyer of the goods. In the sale of goods, in case of the service of a commission agent, if involved, there has to be a third person as service provider to facilitate and promote the sale of an exporter to a different foreign buyer. In the present case, there was absolutely no evidence that this 11% was paid to some third person as commission. There was no contract of commission agent service with any of the commission agents and there was no person to whom payment of commission was made; therefore, no service provider, i.e., foreign commission agent, exists in the present case and no service was provided by any person to the appellant. In the absence of any provision of service, no service tax can be demanded. The Tribunal, citing various precedents, held that no service tax exists in the entire transaction and accordingly quashed the demand.

It was also observed that if at all the amount deducted was considered as business auxiliary service, the said service being provided for export of goods in any case shall not be liable to service tax. Hence, the entire exercise would be revenue neutral. Further, as the appellant had shown all the figures and data in the documents, there was absolutely no suppression of facts and thus the longer period of demand shall not be invoked. Accordingly, the impugned orders were set aside and the present appeals were allowed.

29. [2020 (43) GSTL 183 (Tri.-Mum.)] V. Express vs. Commissioner of Service Tax-I, Mumbai Date of order: 28th February, 2020

Tax demand by the Department where there is a clarificatory confusion or uncertainty in the provisions of the law cannot be maintainable on such shaky foundation

FACTS

The appellant, as a ‘goods transport agency’, had been rendering service of ‘transportation of goods by road’. On investigation it was alleged that the service rendered by the appellant was liable as ‘courier agency service’ instead of the acknowledged taxability. Though both services are, admittedly, taxable, the differential tax arises from the benefits available to providers of ‘transport of goods by road service’.

HELD

In the given case, the Department emphasised on ‘door-to-door delivery’ and ‘time sensitive’ nature of the delivered documents, goods or articles, thus considering it as a ‘courier agency service’. The Tribunal held that the two taxable entries, i.e., ‘goods transport’ and ‘courier agency’, are opposite in nature and suffer clarificatory confusion. Thus, due to uncertain conformity with the definition of ‘courier agency’ in its entirety and inability to discard, with certainty, the demand of differential tax is not maintainable. Therefore, the matter is dismissed.

BCAJ Admin

ALLIED LAWS

24. Jayanta Ghosh & Ors. vs. Ajit Ghoshb AIR 2020 Calcutta 196 Date of order: 25th February, 2020 Bench: Shampa Sarkar J.

Gift deed – Unconditional registered gift deed cannot be revoked – No conditions of maintenance of parents are referred in the gift deed hence no duty cast upon son to maintain the parents [Maintenance and Welfare of Parents and Senior Citizens Act, 2007, S. 10, S. 23; Transfer of Property Act, 1882, S. 122]

FACTS

By a registered deed of gift dated 18th July, 2018, Ajit Ghosh (the respondent), transferred a two-storied building together with the appurtenant land to his son Jayanta Ghosh (petitioner No. 1). Thereafter, by a registered deed of gift dated 14th November, 2018, the petitioner No. 1 transferred the suit property to his wife and son (petitioners Nos. 2 and 3). The petitioners reside on the first floor and the parents on the ground floor.

The petitioners have alleged that the married daughters of the respondent and their husbands with ulterior motive tried to grab the said property, conspired with a few developers and created a cloud over the petitioners’ title over the suit property. Under such circumstances, being left with no other alternative, the petitioners Nos. 2 and 3 were constrained to institute a civil suit seeking a decree for declaration of title and injunction against the daughters and sons-in-law of the opposite party. The Court of the Learned Civil Judge (Jr. Division) directed the parties to maintain status quo in respect of the nature, character and possession of the suit property.

The respondent filed an application seeking maintenance under the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 (the Act). The Tribunal directed the petitioner No. 1 to pay maintenance of a sum of Rs. 10,000 per month. The respondents filed an application before the Tribunal seeking cancellation of the said deed of gift.

The Tribunal allowed the maintenance case, thereby cancelling the two registered deeds of gift dated 18th July, 2018 and 14th November, 2018 and further directing the petitioners to vacate the said property within six months from the said order. Aggrieved, this revisional application has been filed before the High Court.

HELD

From the recitals in the deed of gift, it appears that the respondent being pleased and satisfied with the love and respect shown by the petitioners, considered it his fatherly duty to secure his son in the future and thus had gifted the said property to the petitioner No. 1. The deed of gift was unconditional. No condition was attached with regard to the duty upon the petitioner No. 1 to provide basic maintenance and basic physical needs to the respondents. Therefore, section 23 of the said Act does not have any manner of application in this case. The revisional application is allowed.

25. Ashwin Kumar Ramanathan & Anr. vs. Inspector-General of Registration, Chief Controlling Revenue Authority AIR 2020 Madras 246 Date of order: 27th May, 2020 Bench: M. Govindaraj J.

Family arrangement – Stamp duty is not leviable – Transfer of property between family members [Stamp Act, 1899, Sch. 1 Art. 45(a)]

FACTS

One Mr. K. Ganesan by a Will dated 12th April, 1990 bequeathed life interest in favour of his wife and absolute interest in favour of his grandson (the appellant). On 18th October, 2002 the said Ganesan died. Since the Will was not probated, the family members have entered into a family arrangement. As per this, the wife and daughters of the deceased Ganesan have given the property to the grandchild as intended by the testator in his Will. However, the conveyance by the daughters of Ganesan was considered as settlement by non-family members as they do not fall within the definition of ‘family’. Therefore, stamp duty was imposed in respect of the shares of the daughters of Ganesan settled in favour of their brother’s son under the Indian Stamp Act.

HELD

It is pertinent to note that the Government in Notification No. 5450/C2/05 has clarified the definition of family for the purpose of Article 45(a) of Schedule I of the Indian Stamp Act. The clarification is given by the Government to the effect that even though the parent has died, the sisters and brother shall be construed as sons and daughters and they will fall within the definition of family. This will also apply to the children of the predeceased sons and daughters. As per the clarification, the daughters of Ganesan shall also fall under the definition of family. The conveyance or settlement made by them in favour of the children of the predeceased sons shall be considered as a transaction between the family members. They cannot be treated as members outside the family but included within the meaning of the family. The appeal is allowed.

26. Branch Manager, Indigo Airlines vs. Kalpana Rani Debbarma AIR 2020 Supreme Court 678 Date of order: 28th January, 2020 Bench: A.M. Khanwilkar J., Dinesh Maheshwari J.

Deficiency in service – Failure of passenger to reach the boarding gate after issuance of boarding pass – Airlines not duty-bound to escort every passenger [Consumer Protection Act, 1986, S. 2(1)(g), S. 21]

FACTS

The respondents had booked air ticket(s) for the flight from Kolkata to Agartala operated by the appellant airlines. According to them, they had reported well in time at the check-in counter and after completing the necessary formalities, they were issued boarding passes. However, they were left behind by the ground staff of the airlines and the flight departed without any information about its departure being given to the respondents. The respondents then requested the ground staff of the airlines to accommodate them in the next available flight for Agartala. Even this request was turned down.

As a result, the respondents had to incur expenditure for staying back at a hotel in Kolkata for two nights. They also had to incur loss of salary, mental agony, harassment, etc. Initially, the respondents sent a legal notice through their advocate on 28th January, 2017 demanding compensation of Rs. 3,32,754. As no response thereto was received, the respondents filed a complaint before the District Forum reiterating the grievance made in the legal notice and prayed for direction to the appellants for damages along with interest at the rate of 12% per annum.

HELD

The District Forum, the State Commission and the National Commission ruled in favour of the respondents but granted compensation of varying amounts. The matter was carried to the Apex Court.

The Supreme Court noted that while dealing with such a complaint, the jurisdiction or the nature of inquiry to be undertaken by the consumer fora is limited to the factum of deficiency in service and to award compensation only if that fact is substantiated by the party alleging the same. The expression ‘deficiency in service’ has been defined in section 2(1)(g) of the Consumer Protection Act, 1986 to mean any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service.

Further, the approach of the consumer fora is in complete disregard of the principles of pleadings and burden of proof. First, the material facts constituting deficiency in service are blissfully absent in the complaint as filed. Second, the initial onus to substantiate the factum of deficiency in service committed by the ground staff of the airlines at the airport after issuing boarding passes was primarily on the respondents. That has not been discharged by them. The consumer fora, however, went on to unjustly shift the onus on the appellants because of their failure to produce any evidence. In law, the burden of proof would shift on the appellants only after the respondents / complainants had discharged their initial burden in establishing the factum of deficiency in service.

Further, after the boarding pass is issued, the passenger is expected to proceed towards the security channel area and head towards the specified boarding gate on his own. There is no contractual obligation on the airlines to escort every passenger, after the boarding pass is issued at the check-in counter, up to the boarding gate. Further, the airlines issuing boarding passes cannot be made liable for the misdeeds, inaction or so to say misunderstanding caused to the passengers, until assistance is sought from the ground staff of the airlines at the airport well in time. It is not the case of the respondents that the boarding gate was changed at the last minute or there was any reason which created confusion attributable to airport / airlines officials, so as to invoke an expansive meaning of ‘denied boarding’. The factual situation in the present case is clearly one of ‘Gate No Show’ and the making of the respondents and not that of ‘denied boarding’ as such.

The appellant airlines cannot be blamed for the non-reporting of the respondents at the boarding gate. The appeal is allowed.

27. Seelam Pra vs. Ganta Mani Kumar AIR 2020 Telangana 189 Date of order: 19th July, 2019 Bench: M.S. Ramachandra Rao J.

Recording evidence through video conferencing – Wife working in USA – Unable to come to India – Cannot be compelled to give up her job to appear in Court – Evidence can be led through video conferencing [Hindu Marriage Act, 1955, S. 13, S. 21; Evidence Act, 1872, S. 65-B]

FACTS

The petitioner is employed in the USA and lives there along with a son born to the parties. The petitioner is represented by her father / G.P.A. holder. She sought recording of evidence by video conference from her residence in the US on the ground that she was living there and it was not possible for her to appear before the Family Court, Hyderabad on the several dates of adjournment. But the trial Court declined to give such permission observing that in the premises of the City Civil Court, Hyderabad where the Family Court was located, infrastructure / facility for video conferencing has not been provided.

HELD

In a situation where one or both of the parties to a matrimonial proceeding is living abroad and is unable to come to India to give evidence on account of his / her employment there, and there is a risk of the party losing his / her employment if he / she were to return to India, it would be unjust to compel the said party to give up her job there so that she can appear on every date of adjournment in the Family Court in India where her case is pending. It is common knowledge that pendency in some of the Family Courts is very high and there is every possibility of the matter getting dragged on indefinitely.

Further, that the petitioner cannot be penalised if her evidence could not be recorded when she was in India in the year 2018 because she admittedly attempted to file her documents through her G.P.A. which was rejected and permitted only much later.

The Principal Judge, Family Court, was directed to record the chief-examination / cross-examination of the petitioner through video conferencing at the video conferencing facility available in City Civil Court, Hyderabad after fixing an appropriate time with the consent of both parties and their counsel.

28. Abhilasha vs. Parkash & Ors. AIR 2020 Supreme Court 4355 Date of order: 15th September, 2020 Bench: Ashok Bhushan J., R. Subhash Reddy J., M.R. Shah J.

Maintenance – Unmarried daughter unable to maintain herself even after attaining majority – The obligation which is cast on the father to maintain his unmarried daughter can be enforced by her against her father [The Hindu Adoptions and Maintenance Act, 1956, S. 20(3); The Code of Criminal Procedure, 1973, S. 125]

FACTS

The respondent No. 2, mother of the appellant, on her behalf as well as on behalf of her two sons and the appellant daughter, filed an application u/s 125 CrPC against her husband, the respondent No. 1, Parkash, claiming maintenance for herself and her three children. The Judicial Magistrate dismissed the application u/s 125 CrPC of the applicants and allowed the same for respondent No. 1 (appellant before us) for grant of maintenance till she attains majority.

Two questions arise for consideration in this appeal:

(i) Whether the appellant, who although she had attained majority but is still unmarried, is entitled to claim maintenance from her father in proceedings u/s 125 CrPC although she is not suffering from any physical or mental abnormality / injury?

(ii) Whether the orders passed by the Judicial Magistrate as well as the Revisional Court limiting the claim of the appellant to claim maintenance till she attains majority on 26th April, 2005 deserves to be set aside with a direction to the respondent No. 1 to continue to give maintenance even after 26th April, 2005 till the appellant remains unmarried?

HELD

Section 20(3) of the Hindu Adoptions and Maintenance Act, 1956 (Act) is nothing but recognition of the principles of Hindu Law regarding maintenance of children and aged parents. Section 20 of this Act casts a statutory obligation on a Hindu to maintain his daughter who is unmarried and unable to maintain herself out of her own earnings or other property. Hindu Law prior to the enactment of the Act of 1956 always obliged a Hindu to maintain an unmarried daughter who is unable to maintain herself. The obligation, which is cast on the father to maintain his unmarried daughter, can be enforced by her against her father if she is unable to maintain herself by enforcing her right u/s 20.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

CIRCULARS

Standard Operating Procedure (SOP) for implementation of the provision of suspension of registrations under sub-rule (2A) of rule 21A of the CGST Rules, 2017 – Circular No. 145/01/2021-GST dated 11th February, 2021

New Rule 21A (2A) has been introduced for immediate suspension of Registration of a person. In the above Circular, guidelines are given to the field formations about implementation of the Rule.

Extension for sanction of pending IGST refund claims where the records have not been transmitted to ICEGATE due to GSTR1 and GSTR3B mismatch error – Circular No. 12/2018-Customs dated 29th May, 2018; Cir-04 of 2021-Customs dated 16th February, 2021

For getting IGST refund by exporters, matching of data in GSTR1 and GSTR3B is required to match with ICEGATE. Due to representations the time was already extended for doing the needful by the stakeholders. The Customs Department has issued the above Circular to give further extended time as well as giving relaxation for the period up to 31st March, 2021. The stakeholders may refer to the above Circular for more details. Further, Cir-05 of 2021-Customs dated 17th February, 2021 has been issued providing for an alternate mechanism.

FAQ on QRMP Scheme

The Department has issued an FAQ on the QRMP scheme which is available on the site. The provisions are explained stepwise for easy understanding.

BUDGET – 2021-2022

Proposed amendments to the CGST Act

The Finance Bill, 2021 introduced in the Budget session of Parliament contains certain proposals of far-reaching consequences in the CGST Act. The indicative changes (amendments) are as under:

1. Amendment in section 7 of the CGST Act

Section 7 defines the meaning of ‘supply’. In the said section 7, clause (aa) in sub-section (1) is proposed to be added.

The intention of the amendment appears to be to do away with the concept of mutuality in relation to the applicability of GST. There are on-going and possible future disputes as to whether transactions of clubs, societies, etc., with their members amount to supply. The main thrust in such disputes is on the fact that a club and its members are not separate entities and that there is a concept of mutuality between them. The judgment of the Supreme Court in the case of State of West Bengal vs. Calcutta Club Limited in Civil Appeal No. 4189 of 2009 dated 3rd October, 2019 is being considered as supporting the above theory. It appears that the above amendment is proposed to tide over the possible disputes. The amendment, with an Explanation thereto, seeks to treat particular entities and their members to be separate persons and activities / transactions inter se to be treated as supply.

The insertion is proposed to be retrospective, i.e., to be effective from 1st July, 2017.

Simultaneously, paragraph (7) in Schedule II to the CGST Act, which provides similar treatment in case of unincorporated associations, etc., is proposed to be deleted. This may be due to the above proposed amendment which is considered to be wide enough to cover contingencies covered by the above paragraph (7).

2. Amendment in section 16

Section 16 is to provide for ITC to Registered Person (RP). The availability of ITC is subject to various conditions. Now, one more condition is proposed to be added by way of insertion of clause (aa) in section 16(2) of the CGST Act.

To be eligible to get ITC, the claimant RP should possess the tax invoice or debit note. In addition to this, the proposed amendment requires that the invoice or debit note should be reflected in the outward details furnished by the supplier and also should have been communicated to the claimant in the manner specified in section 37.

The onerous burden on the recipient is increasing and he will now be at the mercy of the supplier to get his lawful ITC.

3. GST audit by professionals

Section 35(5) of the CGST Act provides for submission of a reconciliation statement audited by a professional like a CA or a Cost Accountant if the turnover exceeds the prescribed limit. Now, this section 35(5) is proposed to be deleted. The effect will be that there will be no requirement of such an audit by any professional.

4. Self-certified annual reconciliation statement

A new requirement of filing a self-certified reconciliation statement as part of the annual return by the RP is proposed to be introduced by substituting the existing provisions of section 44.

5. Interest – On cash portion

Section 50(1) provides for payment of interest in respect of delay in tax payment on supplies in relation to a tax period.

In other words, section 50(1) provides that the delay in payment of tax shown in the return should be liable to interest. There was confusion as to whether it is attracted on gross liability on supplies or net liability, i.e., after adjustment of ITC against outward tax liability. The issue is under resolution.

Although it was sorted out in previous amendments, the issue still remained whether it is from 1st July, 2017 or prospective.

Now the proviso is added in section 50(1) and it has been made clear that the amended provision will apply from 1st July, 2017. As per this provision interest will get attracted on the cash portion involved in the discharge of the liability as per the return. The above provision is subject to other inclusions and exclusions.

6. Conclusion of proceedings – section 74

Sections 73 and 74 are in the nature of assessment provisions. Sub-clause (ii) to Explanation I of section 74 provides that if the proceedings against the main person are concluded, then they shall also be deemed to be concluded in the case of the other connected persons in respect of penalty under sections 122, 125, 129 and 130.

The scope of this deemed conclusion is now sought to be curtailed. Such conclusion will be in respect of proceedings under sections 122 and 125 and not in relation to sections 129 and 130 which relate to detention, confiscation and penalty. It appears that in spite of the conclusion of proceedings against the main person, the penalty proceedings under sections 129 and 130 against connected persons are intended to be continued independently.

7. Recovery – section 75

Amongst others, section 75(12) provides for the recovery of unpaid tax as per the returns. It can be recovered as per section 79. Now, the scope of the said section is proposed to be expanded by providing that it will include differential tax shown in the details of the outward supplies furnished u/s 37 (GSTR1) and return in section 39 (GSTR3B).

The intention appears to be that if a person shows more tax payable in GSTR1 but shows lesser liability in GSTR3B, then the difference can be recovered under the provisions of section 79 without going through the proceedings of sections 73 and 74, etc.

8. Provisional attachment – scope widened

Section 83 provides for provisional attachment of property of a taxable person in specific circumstances. Now, the said power can be exercised in case of other persons also who are specified in sub-section (1A) of section 122. The above provision is also made applicable in relation to all proceedings under Chapter X.

Section 122(1A) covers persons such as the one who retains benefit and at whose instance the given transactions are conducted. In other words, section 122(1A) makes the beneficiary liable to penalty leviable u/s 122. Now, provisional attachment provisions will also apply to such other persons. The implication will be far-reaching and may cover a wide range of persons.

9. Appeal – mandatory payment

Section 129 relates to detention, seizure and release of goods and conveyances in transit. Section 129(3) provides for levy of tax / penalty in relation to offences u/s 129.

As per the present appeal provisions in section 107, no amount is payable against penalty before filing an appeal.

However, now an amendment is proposed in section 107(6) to provide that in case of an appeal against an order u/s 129(3), no appeal can be filed unless 25% of the penalty amount is paid.

10. Increase in penalty amount u/s 129

Section 129 is regarding detention, seizure and release of goods and conveyances in transit.

In clause (a) of section 129(1), the penalty limit is 100% of tax payable, which is now proposed to be enhanced to 200%. However, reference to payment of tax is proposed to be deleted.

Similarly, in clause (b) of section 129(1), the penalty limit is being reset and it can be equal to 50% of the value of the goods or 200% of the tax payable, whichever is higher. Sub-section (2) of section 129 is proposed to be omitted. This section is regarding applicability of provisions of section 67 to section 129.

Section 129(3) provides for passing of order by the proper officer. There is no time limit in the said section. Now, a time limit of seven days is proposed to be provided for issue of notice and seven days for passing of order from the date of service of the notice.

At present, section 129(4) directs to give opportunity of hearing before determining tax, interest and penalty attracted u/s 129. Now, the said hearing is proposed to be restricted to tax only as per proposed amendment in section 129(4).

Sub-section 129(6) gives powers for initiation of proceedings as per section 130 in case of failure to pay tax and penalty within seven days. Section 130 provides for confiscation and disposal of goods and conveyances.

Section 129 is now delinked from section 130 and an independent provision is being proposed by substitution of section 129(6).

As per the proposed provision, the disposal can be made u/s 129(6) itself on failure to pay the penalty levied u/s 129(3) within 15 days.

The section has other attributes, too, to be seen in detail.

11. Penalty u/s 130

Changes are proposed in section 130, which is regarding confiscation of goods and conveyances and disposal thereof.

There is reference to levy of penalty and in the second proviso to section 129(2) the quantum is restricted to penalty leviable as per section 129(1). Now, the penalty quantum is proposed to be specified in the second proviso itself which will be equal to 100% of tax payable on such goods.

12. Section 151 relates to collection of statistics by issue of notification, etc. Section 151 is now proposed to be substituted. As per the proposed substituted section 151, the Commissioner or an Officer authorised by him can call for information by issue of order.

The proposed amendment may have substantial implications.

13. Proposed amendment to section 152 is about a bar on disclosure of information. As per section 152(1) the information about any individual return or part
thereof cannot be disclosed without the consent of the person concerned. Now, the proposed change omits reference to individual returns. The effect will be that
no information can be disclosed without the consent of
the person concerned. The proposed change also provides for an opportunity of a hearing to the person concerned.

Section 152(2) provided for restrictions about the use of this section. But now section 152(2) is proposed to be omitted, resulting in removal of such restrictions.

There are also proposed changes in section 168 which are procedural in nature.

Proposed Amendments in IGST Act

Supply to SEZ units

Section 16 of the IGST Act deals with zero-rated supply. Sub-clause (b) in section (1) of section 16 covers zero-rated supply to SEZ developer / unit. Till now there is no speaking condition in the Act that supply to such entities should be for authorised operations only. Now, by an amendment in section 16(1)(b) the words ‘for authorised operation’ are proposed to be added.

The implication of this is that the supply should be for authorised operations of SEZ developer / units. How to find out and substantiate that the supplies are for the authorised operations of such entities is going to be difficult.

Under earlier laws, there used to be a scheme of obtaining declaration forms, etc., from buyers. It is felt that a similar scheme is required to be brought in otherwise it will be very difficult to sustain the claim by a supplier who has no control over such recipient entities.

Refund in relation to zero-rated supply

Section 16(3) specifies about entitlement of claim of refund in the case of zero-rated supplies. The said section is proposed to be substituted. The proposed substituted section intends to continue refund of unutilised ITC in the case of zero-rated supply under bond and LUT, but with added conditions.

By a proviso to the proposed substituted section 16(3), it is being provided that in case of non-realisation of sale proceeds as per the Foreign Exchange Management Act, 1999 (FEMA) such refund should be returned back with interest u/s 50 within 30 days from expiry of the time limit of realisation.

Classification

Section (4) is proposed to be inserted in section 16 by which the Government will take over power to specify the class of persons who can make zero-rated supply on payment of IGST as also the class of goods or services in relation to which the supplier of such goods / services can claim refund.

Some of the budget proposals are intricate in nature. The above is only an indicative note and there is no in-depth analysis. The readers should refer to the provisions in detail to understand the implications.

ADVANCE RULING

ITC in relation to temporary structure created for wedding and other banquet functions

M/s VDM Hospitality Pvt. Ltd. [Advance Ruling No. HAR/HAAR/R/2019-20/02 dated 21st June, 2020] (Haryana)

The applicant is a company engaged in the business of organising weddings and other banquet functions on a large scale at its premises at Ambience Golf Drive, Gurugram, Haryana. The said site is among the premier locations for wedding functions in Delhi NCR.

For carrying out the above functions, the applicant creates a temporary structure (i.e., a ‘hall’) on the said premises. The hall is prepared with different materials such as iron and steel pillars, sheets, pumps, angles which are tightened with nuts and bolts. The frame is further covered with iron sheets and canvas for coverage and waterproofing and plywood is used on the inner portion which makes the roof smooth, and then the decoration is done.

The applicant approached the Haryana Authority for Advance Ruling (AAR) seeking determination whether he is entitled to ITC in relation to inward supply for the above temporary structure. The issue involved was whether it is movable property or immovable property. If the structure is considered as immovable property, then the ITC will not be eligible in view of section 17(5)(d) of the CGST Act.

The applicant cited many judgments in relation to the nature of movable and immovable properties. The learned AAR also referred to the meaning of ‘immovable property’ in the General Clauses Act, 1897 as well as the Transfer of Property Act, 1882. One of the aspects of immovable property is that it is attached to the earth.

The learned AAR observed on the facts that the structure is erected on the premises of the applicant and it is not intended to be dismantled but it is for permanent enjoyment. There is also large-scale civil work which further supports the view that it is permanent in nature. The AAR finally observed that although the walls and roof are replaced with prefabricated structures, it cannot be categorised as movable goods. Therefore, he held that it is immovable property and ITC is ineligible.

BCAJ Admin

FINANCIAL REPORTING DOSSIER

1. Key Recent Updates

SEC: Amendments to Modernise and Enhance MD&A Disclosures

On 19th November, 2020, the US Securities and Exchange Commission (SEC) adopted amendments to certain financial disclosure requirements in Regulation S-K (Items 301, 302 and 303). The amendments, inter alia, (a) replace the current requirement for quarterly tabular disclosure with a principles-based requirement for material retrospective changes; (b) add a new item, Objective, to state the principal objectives of MD&A; (c) enhance disclosure requirements for liquidity and capital resources and results of operations; and (d) replace current item Off-balance sheet arrangements, with an instruction to discuss such obligations in the broader context of MD&A.

FRC: Research Supports Introduction of Standards for Audit Committees

On 2nd December, 2020, the UK Financial Reporting Council (FRC) reported that its newly-commissioned research has shown that the developments of standards for audit committees would support a more consistent approach to promoting audit quality. The research also reveals that the key attributes audit committee chairs value in auditors are a good understanding of the business and its sector, the ability to identify key risk areas, good communication skills, along with a focus on timeliness in raising issues and completing work.

IAASB: Quality Management Standards

On 17th December, 2020, the International Auditing and Assurance Standards Board (IAASB) released three Quality Management Standards: (a) International Standard on Quality Management (ISQM) 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements; (b) ISQM 2, Engagement Quality Reviews; and (c) ISA 220 (Revised), Quality Management for an Audit of Financial Statements. The standards become effective on 15th December, 2022 and are aimed at promoting a robust, proactive, scalable and effective approach to quality management.

IFAC: New International Standard Support Resources

On 21st December, 2020, the International Federation of Accountants (IFAC) released updates to two international standard support resources: (a) Agreed-Upon Procedures (AUP) Engagements: A Growth and Value Opportunity that describes AUP engagements, when they are appropriate and identifies key client benefits; it provides six short case studies with example procedures that might be applied; and (b) Choosing the Right Service: Comparing Audit, Review, Compilation and Agreed-Upon Procedures Services that explains and differentiates the range of audit, review, compilation and agreed-upon procedures services which practitioners can provide in accordance with relevant international standards.

IFRS Foundation: Educational Material on Going Concern Application

On 13th January, 2021, the IFRS Foundation published an educational material Going Concern – A Focus on Disclosure aimed at supporting consistent application of IFRS standards. The educational material brings together the requirements in IFRS standards relevant for going concern assessments as deciding whether financial statements should be prepared on a going concern basis involves a greater degree of judgement than usual in the current stressed economic environment arising from the Covid-19 pandemic.

FRC and IESBA: Government-backed Covid-19 Business Support Schemes

And on 26th January, 2021, the UK FRC and the International Ethics Standards Board for Accountants (IESBA) jointly released a Staff Guidance publication, Ethical and Auditing Implications Arising from Government-Backed Covid-19 Business Support Schemes that inter alia includes guidance for those who prepare related financial information and disclosures, as well as for those who independently audit or provide assurance services regarding such information.

2. Research – Revaluation Model for PPE

Setting the Context

Items of property, plant and equipment (PPE) upon initial recognition (Day 1) are measured at cost. The subsequent measurement requirement (Day 2), in general across prominent GAAPs, is to allocate the capitalised cost to the periods (and manner) in which the benefits embodied in the asset will be consumed by way of a depreciation charge. Additionally, the assets will also be subject to impairment testing. Accordingly, PPE are carried in the balance sheet at their historical cost.

The IFRS framework permits the use of an alternate accounting model for Day 2 measurement of PPE, viz., the Revaluation Model. USGAAP, on the other hand, prohibits the use of the revaluation model for PPE.

In the following sections, an overview of the revaluation model under IFRS is provided and an attempt is made to address the following questions: What have been the historical developments and rationale adopted by global standard-setters, and what is the current position under prominent GAAPs?

The Position under Prominent GAAPs

USGAAP

The Accounting Principles Board’s Opinion No. 6 (APB Opinion No. 6) issued in October, 1965 (that amended Accounting Research Bulletin No. 43) specifically prohibited the use of current values in subsequent measurement of items of PPE except under specified situations. The relevant extract is provided herein below:

Chapter 9B – Depreciation on Appreciation: The Board is of the opinion that property, plant and equipment should not be written up by an entity to reflect appraisal, market or current values which are above cost to the entity. This statement is not intended to change accounting practices followed in connection with quasi-organisations or reorganisations.

Extant USGAAP does not permit the use of the revaluation model for subsequent measurement of PPE. ASC 360, Property, Plant and Equipment requires items of PPE to be measured subsequent to initial measurement by accounting for depreciation (on cost) and for any impairment losses. [ASC 360-10-35]

IFRS

Current Position

Under IFRS, in measuring PPE subsequent to initial recognition, an entity can choose either the cost model or the revaluation model as its accounting policy. The measurement basis is therefore a function of the policy choice.

The IFRS Conceptual Framework defines a measurement basis as an identified feature of an item being measured in the financial statements. With respect to assets, a historical cost measure provides monetary information using information derived, at least in part, from the price of the transaction or other event that gave rise to them. In contrast with current value measures, historical cost does not reflect changes in values, except to the extent that those changes relate to impairment. On the other hand, current value measures (e.g., fair value) provide monetary information about assets using information updated to reflect conditions at the measurement date.

Information provided by measuring assets at fair value is perceived to have predictive value since it reflects the market participants’ current expectations about the amount, timing and uncertainty of future cash flows.

The conditions specified by IAS 16 that need to be complied with by an entity that opts to use the revaluation model are:

* If an entity elects to use the revaluation model, it needs to apply the same for an entire class (grouping of assets with similar nature and use) of PPE,

* The model can be used only for items for which fair value can be measured reliably,

* Revaluations should be made with sufficient regularity to keep the values of PPE current in the balance sheet, and

* If an item of PPE is re-valued, the entire class of PPE to which the asset belongs should be re-valued.

Revaluation gains being unrealised in nature are recognised in other comprehensive income and are never recycled to the income statement. The IFRS Conceptual Framework states: The accounting process of revaluation of PPE gives rise to increases or decreases that in effect meet the definition of income and expenses. However, they are not included in the Statement of Profit and Loss under certain concepts of capital maintenance and instead, are included in equity as capital maintenance adjustments (revaluation reserves). [IFRS Conceptual Framework 8.10]

The revaluation surplus included in equity is permitted to be transferred directly to retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of and some of the surplus may be transferred as the asset is used (the amount of the surplus transferred would be the difference between depreciation based on the re-valued carrying amount and depreciation based on the asset’s original cost).

Historical Developments

Under the International Accounting Standards framework (now IFRS), IAS 16 Accounting for Property, Plant and Equipment was issued in 1982. The standard permitted the use of re-valued amounts as a substitute for historical cost. However, these amounts were not necessarily based on fair value, a measurement base that had yet to gain traction in the accounting arena. The re-valued amounts could be on any valuation basis subject to the cap that they could not breach the recoverable amount.

The standard underwent a re-haul in 1993 (with an effective date of 1st January, 1995) where fair valuation was introduced in connection with revaluation accounting. Fair value as defined then was based on arm’s length pricing in an exchange transaction. It may be noted that the fair value concept under IFRS has since developed and now has a new definition courtesy IFRS 13 that is based on the notion of an exit price. Recoupment of additional depreciation (on account of revaluation) through the profit and loss account was not permitted.

In 2003, IAS 16 was amended whereby a condition was attached: an entity could opt for the revaluation model only for items of PPE whose fair value could be measured reliably. Under the previous version of the standard, the use of re-valued amounts did not depend on whether fair values could be reliably measured.

Ind AS

Indian Accounting Standards (Ind AS 16, Property, Plant and Equipment) is aligned with its IFRS counterpart IAS 16 in the area of revaluation accounting.

AS 10 – Accounting for Fixed Assets issued in 1985 permitted the usage of revaluation amounts that were in substitute of historical cost. Relevant extracts from that standard are provided herein below:

* A commonly accepted and preferred method of restating fixed assets is by appraisal, normally undertaken by competent valuers. Other methods sometimes used are indexation and reference to current prices which when applied are cross-checked periodically by appraisal method.

* It is not appropriate for the revaluation of a class of assets to result in the net book value of that class being greater than the recoverable amount of the assets of that class.

* An increase in net book value arising on revaluation of fixed assets is normally credited directly to owner’s interests under the heading of revaluation reserves and is regarded as not available for distribution. A decrease in net book value arising on revaluation of fixed assets is charged to profit and loss statement.

The standard was revised in 2016 and AS 10, Property, Plant and Equipment was notified on 30th March, 2016 and is similar to Ind AS in many aspects but with some conceptual differences, viz.,

1) Fair value under the AS Framework is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction unlike Ind AS where it is based on the notion of an exit price (Ind AS 113, Fair Value Measurement), and

2) In the absence of the concept of OCI, revaluation surpluses are directly credited to shareholder’s funds without routing them through total comprehensive income.

IFRS for SMEs

Section 17, Property, Plant and Equipment of extant IFRS for SMEs states that ‘An entity shall choose either the cost model or the revaluation model as its accounting policy’. [Section 17.15]

The IFRS for SMEs Framework issued by the IASB required the cost model to be used for subsequent measurement of PPE until 2017. The IASB, in 2015, made amendments that introduced the accounting policy option to use the revaluation model in acknowledgement of the fact that not allowing the revaluation model was the single biggest impediment to adoption of the accounting framework in some jurisdictions. This amendment was made effective from 1st January, 2017.

US FRF for SMEs

The Financial Reporting Framework for Small- and Medium-Sized Entities (FRF for SMEs), a self-contained financial reporting framework not based on USGAAP issued by the AICPA, does not permit the use of the revaluation model for Day 2 measurement of PPE.

Chapter 14, Property, Plant and Equipment of the Framework states that it does not deal with special circumstances in which it may be appropriate to undertake a comprehensive revaluation of assets and liabilities of an entity [i.e., New Basis (Push-Down) Accounting].

In Conclusion

The attribution of current values to items of fixed assets (PPE) continues to be a contentious issue in the accounting world. There is a lack of consensus among prominent GAAPs. While some accounting frameworks have permitted revaluation as an option focusing more on the relevance characteristic of items in the financial statements, other frameworks that do not permit such revaluations continue with their unwavering focus on the reliability aspect.

Compared to USGAAP, there is greater flexibility to incorporate current values for PPE under IFRS.

3. Global Annual Report Extracts: ‘Reporting on External Audit Process Effectiveness’

Background

The UK Corporate Governance Code issued by the FRC requires Audit Committees to report on the effectiveness of the external audit process in the Annual Report. This reporting obligation is contained in Section 4, Principle N, Provision 26 of the Code (extracted below):

Section 4 – Audit, Risk and Internal Control

Principle N – The board should establish formal and transparent policies and procedures to ensure the independence and effectiveness of internal and external audit functions and satisfy itself on the integrity of financial and narrative statements.

Provision 26 – The annual report should describe the work of the audit committee, including:

* an explanation of how it has assessed the independence and effectiveness of the external audit process…

Extracts from an Annual Report

Company: BODYCOTE plc. (FTSE 250 Constituent, 2019 Revenues – GBP 720 million)

Extracts from the Report of the Audit Committee

External Audit – Assessment of Effectiveness

The Committee has adopted a formal framework for the review of the effectiveness of the external audit process and audit quality which includes the following aspects:

* assessment of the engagement partner, other partners and the audit team,

* audit approach and scope, including identification of risk areas,

* execution of the audit,

* interaction with management,

* communication with and support to the Audit Committee,

*insights, management letter points, added value and reports, and

* independence, objectivity and scepticism.

An assessment questionnaire is completed by each member of the Committee, the Group Chief Executive and Group Chief Financial Officer and other senior finance executives. The feedback from the process is considered by the Audit Committee and provided to the external auditor and management. The full formal questionnaire is completed every three years with key areas being completed every year.

The Committee considered the FRC Audit Quality Review report on PWC dated July, 2019. If the audit is selected for quality review, the Committee understands that any resulting reports will be sent to the Committee by the FRC. After considering the above matters, the Committee felt that the external audit had been effective.

4. COMPLIANCE: Presentation of Other Comprehensive Income

Background

Under the Ind AS framework, other comprehensive income (OCI) comprises items of income and expense that are not recognised in the Statement of P&L as required or permitted by other Ind AS’s. Examples of OCI include PPE revaluation surplus, re-measurement of employee-defined benefit plans and gains / losses arising from translating the financial statements of a foreign operation.

An entity needs to take into consideration relevant requirements of Ind AS1, Presentation of Financial Statements in complying with the related disclosure and presentation requirements.

The same is summarised in Table A (on the following page):

Table A: Presentation and Disclosure Requirements (OCI)

Disclosure Requirements
• Present Total Other Comprehensive Income and Comprehensive Income (aggregate of P&L and OCI) for the period. [Ind AS1.81A]	• Present OCI line items grouped into those that: o Will not be reclassified subsequently to P&L, and o Will be reclassified subsequently to P&L [Ind AS1.82A (a)]	• Disclose income tax relating to each item of OCI (including reclassification adjustments) either in the statement of P&L or in the notes [Ind AS1.90] • Items of OCI may be presented either: o Net of related tax, or o Before related tax with one line item for the aggregate tax amount (allocate separately for the two groupings of the OCI section) [Ind AS1.91]
• Present allocation of Comprehensive Income for the period attributable to a) non-controlling interests and b) owners of the parent. [Ind AS 1.81B (b)]	• Present share of OCI of associates and joint ventures (accounted using the equity method) grouped into above 2 categories. [Ind AS 1.82A (b)]
Reclassification adjustments¹
o Disclose reclassification adjustments relating to components of OCI. [Ind AS 1.92] o Reclassification adjustments may be presented either in the Statement of P&L or in the notes. [Ind AS 1.94]
Statement of Changes in Equity
o Reconciliation to be provided between carrying amount of OCI at the beginning and end of the period (disclosing changes resulting from OCI). [Ind AS 1.106 (d) (ii)] o Present either in the statement of changes in equity or in the notes, an analysis of OCI by item for each component of equity. [Ind AS 1.106A]

Disclosure
Requirements

Statement
of P&L

OCI
Section of Statement of P&L

OCI
Related Taxes

• Present Total Other Comprehensive Income and Comprehensive
Income (aggregate of P&L and OCI) for the period. [Ind AS1.81A]

•
Present OCI line items grouped

into those that:

o Will not be reclassified subsequently
to P&L, and

o Will be reclassified subsequently to
P&L [Ind AS1.82A (a)]

• Disclose income tax relating to each item
of OCI (including reclassification adjustments) either in the
statement of P&L or in the notes [Ind AS1.90]

• Items of OCI may be presented either:

o Net of related tax, or

o Before related tax with one line item for
the aggregate tax amount (allocate separately for the two groupings of the
OCI section) [Ind AS1.91]

• Present allocation of Comprehensive
Income for the period attributable to a) non-controlling interests and b)
owners of the parent. [Ind AS 1.81B (b)]

• Present share of OCI of associates and
joint ventures (accounted using the equity method) grouped into above 2
categories. [Ind AS 1.82A (b)]

Reclassification
adjustments¹

o Disclose reclassification adjustments
relating to components of OCI. [Ind AS 1.92]

o Reclassification adjustments may be
presented either in the Statement of P&L or in the notes. [Ind AS 1.94]

Statement
of Changes in Equity

o Reconciliation to be provided between
carrying amount of OCI at the beginning and end of the period (disclosing
changes resulting from OCI). [Ind AS 1.106 (d) (ii)]

o Present either in the statement of changes
in equity or in the notes, an analysis of OCI by item for each component of
equity. [Ind AS 1.106A]

¹Amounts
previously recognised in other comprehensive income that are reclassified to
P&L in the current reporting period

5. INTEGRATED REPORTING

a) Key Recent Updates

IIRC: Revisions to the International <IR> Framework

On 19th January, 2021, the International Integrated Reporting Council (IIRC) published revisions to the International <IR> Framework that: (a) focuses on simplification of the required statement of responsibility for the Integrated Report; (b) provides improved insight into the quality and integrity of the underlying reporting process; (c) makes a clearer distinction between outputs and outcomes; and (d) lays greater emphasis on the balanced reporting of outcomes and value preservation and erosion scenarios.

GRI: Three New and Updated Standards Effective 2021

Companies disclosing their impacts through sustainability reporting standards are required to adhere to three new and updated GRI standards for reports they publish effective 1st January, 2021, viz., (1) GRI 207: Tax 2019 – A new standard that enables organisations to better communicate information about their tax practices with a focus on transparency on the tax contribution they make to the economies in which they operate; (2) GRI 403: Occupational Health and Safety 2018 – An updated standard that represents global best practice on reporting about occupational health and safety management systems, prevention of harm and promotion of health at work; and (3) GRI 303: Water and Effluents 2018 – An updated standard that provides a holistic perspective on the impact organisations have on water resources and considers how water is managed, inclusive of impact on local communities, and provides a full picture of water usage, from withdrawal to consumption and discharge.

b) Reporting Organisational Strategy and Drivers of Value Creation

Background

The primary purpose of an Integrated Report is to explain to providers of financial capital how an organisation creates value over time. One of the Guiding Principles of the International <IR> Framework is Strategic Focus and Future Orientation: An integrated report should provide insight into the organisation’s strategy and how it relates to the organisation’s ability to create value in the short, medium and long term and to its use of and effects on the capitals. [Para 3.3, Part II]

Extracts from Integrated Report of CAPGEMINI SE [Listed: Euronext Paris]

Our Group is built on five strategic pillars:

1. Be the Preferred Partner for our client’s transformation and growth challenges.

2. Invest in our employees, who are our most valuable assets.

3. Roll out a balanced portfolio of innovative offerings.

4. Innovate by mobilising an ecosystem of strategic partners.

5. Strengthen our impact as a responsible company.

Our Value Creation: Using our operational excellence, innovative assets and added-value partnerships, we link technology, business and society to deliver sustainable value to all stakeholders.

Our Drivers of Value Creation:

Passionate and committed talents:

* Seven core values.

* A continuous entrepreneurial spirit.

* Ethical conduct at all times.

* CSR stakes at the heart of our decisions.

Motivating development paths:

* The recruitment of the best talents.

* Recognised knowhow in particular in the design and management of complex technological programmes addressing business challenges.

* The development of tomorrow’s skills.

* Regular training courses adapted to each employee.

A global ecosystem of research and innovation:

* A global technology and innovation network, including 15 Applied Innovation Exchanges (AIE) to co-innovate with our clients.

* Euro 160m cash invested in digital and innovation acquisitions.

An agile organisation:

* Global delivery model.

* Proven expertise in the allocation of talents and skillsets.

* Global Quality Management System.

* A hub of more than 110,000 employees in India.

6. FROM THE PAST – ‘The Theory of Why Strong Mandatory Disclosures Drive Capital Formation is Straightforward’

Extracts from a speech by Luis A. Aguilar (then Commissioner, US SEC) at the Annual Conference of the Consumer Federation of America in December, 2013 is reproduced below.

‘It is investors who are the real “job creators” in our economy. As such, it is in the country’s best interest that we ensure that there is an investment environment that works for investors, particularly the retail investors that live and work on Main Street.

Facilitating true capital formation means making sure that investors have the information needed to make informed decisions. The goal is for issuers to provide potential investors with appropriate and sufficient information so that investors can assess the risks and potential rewards of investing their capital. True capital formation is about ensuring that the companies with the best ideas, even if those ideas are risky, can get the financing they need to make those ideas a reality.

For that goal to be reached, the research makes it clear that we need strong and effective securities regulation that fosters appropriate disclosures.

The theory of why strong mandatory disclosures drive capital formation is straightforward. Disclosures improve the accuracy of share prices and help to determine which business ventures should receive society’s limited capital.’

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Compiler’s Note: Evaluation of Going Concern by management and disclosure thereof in the Financial Statements is becoming a very important aspect, especially with Covid-19-enforced business disruptions and uncertainties. Given below is an illustration of a very detailed analysis and disclosure of the same in the financial statements of a large company having operations in multiple locations across the world.

TATA MOTORS LTD. (31ST MARCH, 2020)

From Notes forming part of Consolidated Financial Statements

Going concern

These financial statements have been prepared on a going concern basis. The management has, given the significant uncertainties arising out of the outbreak of Covid-19, as explained in Note (f)(ix), assessed the cash flow projections and available liquidity for a period of twenty-four months from the date of these financial statements. Based on this evaluation, management believes that the Company will be able to continue as a ‘going concern’ in the foreseeable future and for a period of at least twelve months from the date of these financial statements based on the following:

i.) As at 31st March, 2020, the Company reviewed its business and operations to take into consideration the estimated impact and effects of the Covid-19 pandemic, including the estimated impact on the macroeconomic environment, the market outlook and the Company’s operations. Expected future cash flows from operating activities and capital expenditure is based on the under-mentioned key assumptions in the business projections:

* Revenues based on latest total industry forecasts / estimates. Indian automobile industry volume forecast of about 2.78 million units and 3.18 million units for the financial year ending 31st March, 2021 and 2022, representing decreases of about 21% and 9%, respectively, compared to year ended 31st March, 2020 industry volumes of about 3.50 million units. A decrease in the Company volumes is somewhat less for the year ending 31st March, 2021 and 2022, compared to the industry assumptions referenced.

* Reduction in capital expenditure considering the macroeconomic environment by suspending certain programmes. Estimated capital expenditure for the year ending 31st March, 2021 is Rs. 1,500 crores for the Company.

* Working capital cash inflows due to lower levels of inventory and trade receivables along with increase in acceptances with more suppliers / vendors opting for the same resulting in a net cash inflow of Rs. 1,500 crores in the year ending 31st March, 2021 as compared to the year ended 31st March, 2020.

ii.) Available credit facilities.
* Long-term borrowings subsequent to 31st March, 2020 raised of Rs. 1,000 crores [Note 47(i)] and borrowings agreed with lenders of Rs. 3,000 crores.
* Various undrawn limits available with the Company amounting to Rs. 4,065 crores, under revolving credit facility and limits with consortium banks as at 31st March, 2020.
* Exercise of options by Tata Sons Private Limited (Note 23).

Based on the above factors, Management has concluded that the going concern assumption is appropriate. Accordingly, the financial statements do not include any adjustments regarding the recoverability and classification of the carrying amount of assets and classification of liabilities that might result, should the Company be unable to continue as a going concern.

Going Concern for Jaguar Land Rover business

Jaguar Land Rover business (JLR) has adopted going concern basis following a rigorous assessment of the financial position and forecasts of the JLR through to 30th September, 2021. In particular, careful consideration has been given to the impact of Covid-19 in recognition of the impact it has had on the global economy and automotive industry. The impact has been significant, requiring temporary plant and retailer shutdowns, thereby impacting production and sales and creating substantial uncertainty over the timeframe for economies and the automotive industry to recover.

Liquidity and funding

JLR ended the financial year 31st March, 2020, with substantial liquidity of GBP 5.6 billion (Rs. 52,379.38 crores), including GBP 3.7 billion (Rs. 34,607.80 crores) of cash and other highly liquid investments and a GBP 1.9 billion (Rs. 17,771.57 crores) undrawn revolving credit facility. Net debt was GBP 2.2 billion (Rs. 20,577.61 crores) after GBP 5.9 billion (Rs. 55,185.41 crores) of gross debt and net assets stood at GBP 6.6 billion (Rs. 61,732.84 crores).

The GBP 5.9 billion (Rs. 55,185.41 crores) of gross debt consists mainly of long-dated bonds [face value GBP 3.8 billion (Rs. 35,543.15 crores) outstanding as at 31st March, 2020] with various maturities out to 2027, a US$1 billion (Rs. 7,562.75 crores) syndicated bank loan with final maturity in 2025, a GBP 625 million (Rs. 5,845.91 crores) amortising UKEF facility with final maturity in 2024 [face value GBP 573 million (Rs. 5,359.53 crores) outstanding at 31st March, 2020], a GBP 100 million (Rs. 935.35 crores) short-term secured fleet buy-back working capital facility and GBP 540 million (Rs. 5,050.87 crores) of leases. The only contractual debt maturities over the review period are a GBP 300 million (Rs. 2,806.04 crores) bond maturity in January, 2021 and the amortisation of GBP 188 million (Rs. 1,758.45 crores) of the UKEF facility as well as the Black Horse fleet buy-back facility maturing in Q3 FY21. The undrawn revolving credit facility matures in July, 2022. The debt and revolving credit facility have no financial covenant requirements, with the exception of the UKEF facility which has a GBP 1 billion (Rs. 9,353.46 crores) global liquidity requirement, measured at quarter ends. This is not projected to be breached in any of the downside scenarios assessed and summarised later in this disclosure. (See Note 27, Interest Bearing Loans and Borrowings, for additional details.)

Subsequent to the year-end, JLR increased an existing short-term working capital facility from GBP 100 million (Rs. 935.35 crores) to GBP 163 million (Rs. 1,524.61 crores) and a wholly-owned Chinese subsidiary completed a GBP 170 million (Rs. 1,590.09 crores) equivalent one-year loan with a Chinese bank. The GBP 170 million (Rs. 1,590.09 crores) equivalent loan was then repaid in June and replaced with a new three-year GBP 567 million (Rs. 5,303.41 crores) equivalent facility with a syndicate of five Chinese banks. The GBP 567 million (Rs. 5,303.41 crores) equivalent syndicated loan is subject to an annual review customary in the Chinese banking market and a profitability and leverage covenant applicable only to JLR’s Chinese subsidiary, which are not expected to be breached in any of the scenarios tested. JLR has a strong track record of raising funding in the bond and bank markets and continues to expect it will have opportunities to issue new funding in the future as evidenced by the completion of the Chinese GBP 567 million (Rs. 5,303.41 crores) syndicated loan in June, 2020. In addition, JLR has had discussions to access part of the GBP 330 billion (Rs. 3,086,641.80 crores) of guarantees announced by the UK government to assist companies with Covid-19 but nothing has been agreed, so the going concern analysis does not assume anything for this.

JLR generally requires payment from retailers on or shortly after delivery of the vehicle. Most dealers use wholesale financing arrangements in place to pay for vehicles. These facilities do not involve recourse to JLR in general and as such are not accounted as JLR debt. JLR expects these facilities to continue over the going concern review period in all scenarios. In the event any of these facilities were not to continue and retailers were unable to settle invoices immediately, working capital would be negatively impacted, possibly significantly, but this risk is considered remote. In addition, JLR has in place US $700 million (Rs. 5,293.93 crores) debt factoring facility for selected retailers and distributors without such wholesale financing arrangements in place. At 31st March, 2020, GBP 392 million (Rs. 3,666.56 crores) of the facility was utilised. The facility matures in March, 2021 and JLR expect this to be renewed at that time. In the event any of these facilities were not to continue, working capital would be negatively impacted, possibly significantly, but this risk is considered remote.

Update on trading performance since year end

The Covid-19 pandemic and resulting lockdowns resulted in a sharp drop in sales first in China in late January and then other regions in late March with a peak sales decrease in April. JLR responded quickly to the Covid-19 pandemic with temporary plant shutdowns and rigorous cost and investment controls to conserve cash as much as possible. The China joint venture production plant was shut down in late January and reopened in late February. All plants outside of China were shut down from late March with most plants restarting from late May and production is expected to gradually increase as sales recover.

As a result of the impact of Covid-19 on sales and production, JLR had negative free cash in April and May of about GBP 1.5 billion (Rs. 14,030.19 crores). This includes a GBP 1.2 billion (Rs. 11,224.15 crores) unwind of working capital resulting from the plant shutdowns. The working capital unwind primarily reflects the runoff of payments to suppliers for vehicles built before the plant shutdowns, offset partially by the sale of vehicles in inventory. Cash at the end of May was about GBP 2.4 billion (Rs. 22,448.30 crores), including about GBP 278 million (Rs. 2,600.26 crores) in international subsidiaries and the revolving credit facility of GBP 1.9 billion (Rs. 17,771.57 crores) remained available and undrawn. A free cash outflow of less than GBP 2 billion (Rs. 18,706.92 crores) is now expected in Q1 of FY21.

JLR is planning for a gradual recovery in the business as lockdowns are relaxed and economies recover. The pick-up in China has been encouraging with all retailers now open and retail sales of 6,828 vehicles in April, 2020 (down 3.1% compared to April, 2019) and 8,068 in May, 2020 (up 4.2% compared to May, 2019). The sales of Range Rover and Range Rover Sport have been particularly encouraging. Other regions have seen peak lockdowns in April with total worldwide retail sales of 14,709 vehicles in April (down 62.5% year-on-year), improving somewhat in May to 20,024 units (down 43.3%). Sales are expected to gradually recover in other regions following the reopening of retailers. Most recently, over 97% of retailers worldwide are open or partially open.

JLR plans to resume production gradually to meet demand as it recovers. The Solihull and Halewood assembly plants and engine plant in the UK, the Slovakia plant and contract manufacturing line in Graz (Austria) restarted from late May. The Castle Bromwich plant will reopen in due course, while the joint venture plant in China has been open since late February. Given the present uncertainties, Jaguar Land Rover will continue to manage costs and investment spending rigorously to protect liquidity. JLR has announced the Project Charge (now Charge+) transformation programme achieved a further GBP 600 million (Rs. 5,612.08 crores) of cash improvements in the Q4 of FY20, increasing lifetime savings under the programme to GBP 3.5 billion (Rs. 32,737.11 crores) since launch in the Q2 of FY19, including investment saving of GBP 1.9 billion (Rs. 17,771.57 crores) measured relative to original planning targets. (All savings attributed to Project Charge+ are unaudited pro forma analytical estimates.)

JLR has announced a Charge+ saving target for FY21 of GBP 1.5 billion (Rs. 14,030.19 crores) across investment spending, inventory and selling and administrative as well as material and warranty costs.

JLR has also implemented enhanced cost and investment reduction processes and controls complementing Project Charge in response to Covid-19. This includes reductions in non-product spending and lower margin and non-critical investment spending and numerous other cost control measures.

As discussed, the outlook beyond Q1 this year remains uncertain. However, JLR presently expects a gradual recovery of sales consistent with external industry estimates and improving cash flow boosted by the recovery of working capital as a result of the resumption of production, lower investment and other Project Charge+ cost reductions.

Going concern forecast scenarios

For the purposes of assessing going concern over the period from the date of signing of accounts to 30th September, 2021, JLR has considered three scenarios: 1) Base Case, 2) Severe, and 3) Extreme Severe. These scenarios are summarised below with more detailed assumptions provided in the appendix at the end of this disclosure.

As indicated, JLR had about GBP 2.4 billion (Rs. 22,448.30 crores) of cash and short-term liquid investments at the end of May, 2020. This includes the GBP 63 million (Rs. 589.27 crores) increase in short-term working capital facility and GBP 170 million (Rs. 1,590.09 crores) equivalent one-year loan with a Chinese Bank which were complete after March, 2020 and excludes the GBP 567 million (Rs. 5,303.41 crores) equivalent three-year loan facility which replaced the one-year China loan. As a result, total debt at the end of May was about GBP 6.5 billion (Rs. 60,797.49 crores).

Scenario 1: Base case

The base case scenario assumes:
* A global industry volume forecast of about 71 million units for calendar year 2020 and 81 million units for 2021, representing decreases of about 21% and 10%, respectively, compared to 2019 industry volumes of about 90 million units based on a number of external industry volume forecasts.
* A decrease in JLR wholesale volumes somewhat greater for FY21 and somewhat less for FY22 compared to the industry assumptions referenced.
* Investment, inventory and cost improvements are broadly consistent with the GBP 1.5 billion (Rs. 14,030.19 crores) Project Charge target described above in FY21. There is not yet a Charge target for FY22 and so not all of the saving in FY21 are assumed to continue at the same level in FY22 for the purposes of this going concern analysis.
* Total liquidity including the revolving credit facility is forecast to remain more than adequate with significant headroom in this scenario.

Scenario 2: Severe scenario

The severe scenario assumes:
* Global industry volumes of about 55 million units for calendar year 2020 and about 65 million units for calendar year 2021, representing decreases of about 39% and 28%, respectively, compared to calendar year 2019. This represents a more L-shaped recovery from Covid-19, based on selected external industry downside forecasts.
* A decline in JLR wholesale volumes for FY21 and FY22 broadly similar to the assumed industry decline referenced.
* Investment, inventory and cost improvements broadly consistent with Project Charge targets indicated above but increased by about 15% in FY21 (and about 5% in FY22) to partially mitigate the lower volumes in this scenario.
* Total liquidity including the revolving credit facility was forecast to remain adequate in this scenario but with lower headroom than in the base case.

Scenario 3: Extreme severe scenario

An extreme severe scenario was assessed which is the same as Scenario 2 but with the following further sensitivities applied:
* A further volume reduction of about 5% in FY21 resulting in JLR wholesale volumes down about 35% in FY21 and about 27% in H1 FY22, compared to FY20.
* Partial non-achievement of target Charge+ targets with respect to inventory and cost savings including material costs, overheads and warranty.
* Modest incremental supply chain cash impacts results from Covid-19.
* A hard Brexit resulting in 10% WTO tariffs on UK vehicle exports to EU countries and increased logistics and other associated costs from 1st January, 2021 offset partially by the impact of a weaker pound expected in such a scenario.
* A number of smaller other sensitivities.

In this more severe scenario, JLR has identified a number of ‘tough choice’ mitigating actions within their control that would be implemented to maintain sufficient liquidity in the business to remain a going concern. These actions include:
* Further significant reductions in investment spending,
* Reductions in fixed marketing and other marketing related costs, and
* Certain other discretionary costs.

In this more severe scenario, and taking into account these controllable mitigating actions, total liquidity including the revolving credit facility was forecast to remain adequate (without breaching the UKEF quarter-end liquidity covenant) but with more limited headroom.

Going concern conclusions

As described above, JLR have considered going concern in three scenarios: 1) Base Case, 2) Severe and 3) Extreme Severe.

In each of these scenarios, sufficient liquidity is forecast for JLR to operate and discharge its liabilities as they fall due, taking into account only cash generated from operations, controllable mitigating actions and the funding facilities existing on the date of authorisation of these financial statements and as at 31st March, 2020, including the presently undrawn revolving credit facility. In practice, management also expect JLR will be able to raise additional funding facilities over the assessment period to increase available liquidity, considering the strong track record of raising funding in the bond and bank markets.

Management do not consider more extreme scenarios than the ones assessed to be plausible.

As described above, management, after reviewing JLR’s operating budgets, investment plans and financing arrangements, consider that JLR has sufficient funding available at the date of approval of these financial statements.

Appendix: Detailed assumptions

This going concern analysis is based on detailed assumptions on how the business normally operates and how Covid-19 might impact the business. The assumptions include but are not limited to the following considerations. Except where stated otherwise, the assumptions are the same for all scenarios.

Dealer network

Currently, over 97% of retailers worldwide are open or partially open although this varies by region and some dealers are open on a constrained basis. The shutdown of dealers during the pandemic has undoubtedly decreased the financial strength of the retailer network with announcements of layoffs and other actions to reduce costs. Jaguar Land Rover is continuously engaging with its retailers and at present is not assuming material risks associated with retailer distress in any of the scenarios.

Supplier base

The business is carefully monitoring the impact of the Covid-19 shutdown on the supply base and readiness of suppliers to support the gradual resumption of production underway. Many of our suppliers are large well-capitalised companies, with others being smaller and medium-sized suppliers who tend to have less financial flexibility. At present there are a limited number of known supplier issues, which at this point are not materially different to historically experienced levels. JLR is therefore not presently assuming these represent a material risk compared to historically experienced levels in the Base Case and Severe Scenarios – supplier claims in May, 2020 are below prior year levels in terms of number and value. The Extreme Severe Scenario assumes a modest increase in supply chain cash costs related to Covid-19.

Suppliers are on payment terms ranging from seven to 64 days, with the standard terms being 60 days and the average 58 days. No change in supplier terms is assumed in the going concern analysis compared to historical experience.

Covid-19 and production restart considerations

JLR’s production facilities have been modified to protect the safety of our employees and to comply with social distancing legislation. Production ramp-up post lockdown has been managed to ensure that these changes within the facilities are embedded quickly and JLR don’t expect them to have a lasting impact on the variable costs of production. Restart plans have been coordinated with our supply base to ensure that all our suppliers can support the production schedule effectively.

Production facility restarts have been demand-led in order to ensure that JLR manage the impact on variable profit margins. Given the high level of uncertainty, JLR has ensured that they remain flexible and react to changes swiftly.

Employees

For the purposes of this going concern analysis, no structural changes are assumed to the permanent employee base in any of the scenarios. JLR has participated in the UK job retention scheme whereby the government partially reimburses the wage and salary costs of furloughed workers. At its peak, about 20,000 employees were furloughed providing about GBP 50 million (Rs. 467.67 crores) of monthly subsidy. However, participation is now decreasing with plants reopening and it is assumed the programme will not continue after October.

Working capital

Working capital movements in cash flow are significantly driven by volume levels and changes. This is because supplier payment terms are about 58 days on average although payment terms for individual suppliers can be longer or shorter, while payments for vehicles are received in most countries within a few days of dealers being invoiced. Inventories can also vary to the extent wholesale volumes deviate from forecast before production can be adjusted but in general JLR has set a Charge+ inventory target of GBP 3 billion (Rs. 28,060.38 crores) or lower.

JLR had negative free flow in April and May of about GBP 1.5 billion (Rs. 14,030.19 crores). This includes a GBP 1.2 billion (Rs. 11,224.15 crores) unwind of working capital resulting from the plant shutdowns. The working capital unwind primarily reflects the runoff of payments to suppliers for vehicles built before the plant shutdowns, offset partially by the sale of vehicles in inventory. Cash at the end of May was about GBP 2.4 billion (Rs. 22,448.30 crores), including about GBP 278 million (Rs. 2,600.26 crores) in international subsidiaries and the revolving credit facility of GBP 1.9 billion (Rs. 17,771.57 crores) remained available and undrawn. A free cash outflow of less than GBP 2 billion (Rs. 18,706.92 crores) is now expected in Q1 of FY21.

As production volumes resume, this effect is assumed to reverse and wholesale revenues are assumed to increase while payments to suppliers will lag because of the difference between supplier and dealer payment terms described.

Intra-period volatility

There is a certain degree of volatility in cash flows by month and within months. Historically, this has averaged about GBP 188 million (Rs. 1,758.45 crores) intra-month with only a very limited number of exceptions over GBP 400 million (Rs. 3,741.38 crores). It is assumed this level of volatility varies with sales and production volumes and so would be smaller in lower volume scenarios. While not assumed, this could be reduced through more active day-to-day management of receipts and payments.

Brexit

The Scenario 1 and Scenario 2 assumption for Brexit is that a deal is agreed to avoid a hard Brexit. Scenario 3 assumes a hard Brexit. A hard Brexit is assumed to result in 10% WTO tariffs on UK vehicle exports to EU countries and increased logistics and other associated costs from 1st January, 2021, offset partially by the impact of a weaker pound expected in such a scenario.

BCAJ Admin

FROM THE PRESIDENT

My dear Members,

It is said that the month of ‘March comes in like a lion’. So let me start by congratulating and complimenting our own lions, President CA Nihar Jambusaria and Vice-President CA Debashis Mitra of the Institute of Chartered Accountants of India (ICAI), our alma mater. It is a proud moment of all of us @ BCAS that President Nihar, who is based in Mumbai, was a Core Group member of the BCAS for many years. On behalf of all of us @ BCAS I wish the newly-elected team a successful and impactful tenure and also assure them of BCAS support in their endeavours to strengthen and enhance the image of the profession of chartered accountancy.

Let me also take this opportunity to congratulate the office-bearers at the WIRC of the ICAI led by Chairman CA Manish Gadia and Vice-Chairperson CA Drushti Desai. Both are BCAS members. I assure them also of BCAS support and co-operation and wish that under their capable leadership the Western Region will continue to retain its prime position amongst the five Regions of the Institute and continue to provide quality service to members and students.

The BCAS organised a special panel discussion on ‘Budget 2021 – 360-Degree View of the Indian Economy’. It was very well received and featured an excellent analysis on the economic, industry and capital market situations, thus affording a 360-degree view of Budget 2021. The panellists, Dr. Ajit Ranade, CA Dr. Niranjan Hiranandani and CA Bhagirath Merchant dealt with their respective domains. They were at their erudite best and offered a lot of insights. They shared their expertise and large experience on several relevant issues and posers raised by the moderator CA Vikas Khemani with his investment research background. The video is available on the BCAS YouTube handle for those who missed it.

March is going to offer us a very busy schedule with lots of events, starting with the International Women’s Day celebration, a lecture meeting on ‘Ethics and Code of Conduct under ICAI Guidelines’, a lecture meeting on ‘Important recent decisions on international taxation’, Workshop on Labour Laws and a few other events.

The reprint version (first edition published in January, 2013) of the BCAS publication ‘CA Firm of the Future’ is now available for subscription. It is a publication that is relevant even today, eight years later. Already, professionals are rushing to grab the fresh edition. The 15th GST RSC of the BCAS is also attracting huge response. Please remain connected with www.bcasonline.org.

We are all aware that BCAS is a voluntary organisation with 72 years of valuable contribution to the profession at large and the public in general. It’s an achievement for a voluntary body to remain relevant so long and also be adaptable and to create benchmarks in all the activities it carries out – be it ethics and governance, events and programmes, or be it publications. The chief guest at our last Founding Day, CA Deepak Parekh, Chairman, HDFC, complimented us for the same.

Becoming a member of such a reputed voluntary organisation is a proud privilege for all CA professionals.

May I remind you that membership for the year 2021-22 for both the BCAS and the BCAJ is now open. And may I request all of you to renew your membership and introduce at least two new members to this august body? You could also consider Life Membership and a new initiative, ‘GIFT A MEMBERSHIP’. This initiative is an apt proclamation of the well-known proverb,

Give a man a fish, and you feed him for a day;
Teach a man to fish, and you feed him for a lifetime.

Last year we could not celebrate the festival of Holi due to the pandemic. With the fear of a second wave of the corona virus, this year, too, it looks like we had better be cautious with our Holi celebrations. We must follow the spirit of the proverbs,

Happy Holi and a smooth financial year closure

Best Regards,

Suhas Paranjpe
President

BCAJ Admin

SOCIETY NEWS

HUMAN DEVELOPMENT STUDY CIRCLE MEETING OF HRD COMMITTEE – PRESENTED BY MR. VIJAY KABTA ON 11th JANUARY, 2022 (VIRTUAL ONLINE MEETING)

Topic: ‘Basic Facts on Financial Health of Wealth’

Wealth has many aspects. Wealth need not necessarily mean money. Wealth takes many forms like capital investment in a business, immoveable property, material assets, etc.

Some of the aspects discussed:

1. Principles of Wealth

Laws of Compounding are applicable to all fields of life – namely wealth, relationship, business etc.

Work Within our Circle of competence.

Understanding your circle of competence helps you avoid problems, identify opportunities, helps you learn from others. It improves your decision making and outcomes.

Practice the Concept of Delayed gratification.

Minimise Risk through diversification

2. Devising a plan/ (money) blueprint for creating wealth.

a) “Building a right business ownership mindset is the key to success in creating wealth”, says Warren Buffet.

b) Focus is power, Focus on roots (efforts) rather than fruits (results), What you focus on expands.

c) Understand your current plan. Implement, monitor, evaluate and modify it if needed.

How to create your Blueprint?

One can create a blueprint for himself if we understand how it is formed.

a. Awareness – Write Down all the statements you heard about money when you were young.

b. Understanding – How does your thinking originate?

c. Disassociation – Delink your past beliefs or from the way you think.

d. Reconditioning – Understanding how we are conditioned is an important step in reconditioning ourselves.

Key elements of change

How are we conditioned :

Programing ThoughtsFeelingsActionResults

a) Verbal Programming, i.e. what we heard when we were young, like money does not grow on trees, it is the root of all evil.

b) Modelling, i.e. What we saw when we were young? We thought of becoming a CA or Doctor or Engineer etc.

c) Specific incidents – Our experiences. If money is unable to save your near and dear ones’ lives, you may feel money is unimportant, hence avoid building wealth unconsciously.

If we change our programming, everything will change. To change the temperature of a room, we need to change the thermostat of the A.C.

Tools and Techniques to create wealth

a) How to select a Role Model?
When we follow our parents or heroes, like the Great Shivaji Maharaj or follow Lord Jesus Christ, we choose our role model knowingly or unknowingly. Choose a role model that suits your temperament, your limitations, had identical struggles in life so that we get a ready blue print to achieve success.

b) Model of a Map
The map of reality is not reality. A map is just a reduction of what it represents. It is a snapshot of a point in time. If we keep this in mind as we think through the problems, we can make better decisions.

c) Inversion Model
Inversion means approaching a situation from the opposite end. Examples: how can I lose money? What is this stock not worth? What can go wrong?

It is a powerful tool to improve your thinking because it helps you identify and remove obstacles to success.

d) A Decision Journal

It is a powerful tool for decision making. It provides insights as to how we make decisions, at what time of day we make decisions that go well and vice versa.

WEBINAR ON ‘NUANCES OF AND INTERPLAY BETWEEN THE ANTI-MONEY LAUNDERING LAW, NEW BENAMI LAW AND BLACK MONEY ACT’ HELD ON THURSDAY, 13th JANUARY, 2022

BCAS, jointly with IMC Chamber of Commerce and Industry and Chamber of Tax Consultants, organised a webinar on the topic ‘Nuances of and Interplay between the Anti-Money Laundering Law, New Benami Law and Black Money Act’ to understand the multifaceted and intertwined application amongst the above-mentioned laws.

The webinar dealt with various aspects of the laws relating to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 –“Black Money Act”, Prevention of Money Laundering Act and the Prohibition of Benami Property Transactions Act – “Benami Act”. Domain experts helmed the session – Advocate Mr. Ashwani Taneja, CA & Ex-Tribunal Member, Dr. Rabi Narayan Dash (Ex-DGIT & Ex-Chairman, Tribunal of PMLA & Benami Law), Mr. Amit Khemka (Advocate, Supreme Court of India). The webinar was conducted in a panel discussion format.

The experts dealt with the basics of the three laws and then went into the enforcement of these laws. They highlighted that while these laws were necessary, the enforcement has gone astray and become difficult. The enforcement is prone to misuse in the absence of checks and balances without any effective remedial mechanism. It is further compounded with practically no time limits for regulatory authorities. The experts also dealt with some live cases revolving around Black Money Act, the substantially amended Benami Act, and how vigorously these laws have been applied. The experts also dealt with several amendments made to tighten the gaps around the existing provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

The experts ended the session by providing practical guidance to practitioners on dealing with proceedings under these laws. The session proved to be of immense help and acted as an eye-opener for professionals from both practice and industry.

Youtube link: https://www.youtube.com/watch?v=guBvID3XVSo
QR Code:

DIRECT TAX LAWS STUDY CIRCLE MEETING ON ‘RE-ASSESSMENT PROCEDURES EFFECTIVE FROM 1st APRIL, 2021 UNDER SECTION 148(A)’ ON 21st JANUARY, 2022

The Group leader, CA Navin Gandhi, gave a comprehensive analysis of section 148(A) of the Income-tax Act, 1961. The provisions of the section were discussed in-depth in comparison to the erstwhile re-assessment procedures with judicial precedents. Further, cases wherein provisions under section 148A shall not be applicable was discussed.

Thereafter, the group leader discussed in detail appropriate points to be covered in submissions before the Indian Revenue Authorities. The session ended with the speaker providing his concluding thoughts and practical steps to be taken on re-assessment.

‘PUBLIC LECTURE MEETING ON DIRECT TAX PROVISIONS OF THE FINANCE BILL 2022’ HELD ON 5th FEBRUARY, 2022

The Public Lecture Meeting of the Society on the Direct Tax Provisions of the Finance Bill 2022 by CA Shri Pinakin Desai was held online on 5th February, 2022. This was the 4th lecture meeting on the Finance Bill in a row by him and the 53rd of the Society.

CA. Abhay Mehta, President, BCAS welcomed the speaker CA. Shri Pinakin Desai and the participants. CA Mihir Sheth, Vice President, BCAS introduced the speaker and requested CA Pinakin Desai to formally release ‘The BCAS Union Budget 2022’ Publication, which is an annual feature of masterly analysis of budget proposals

CA. Shri Pinakin Desai covered all important budget amendments in his speech encompassing all major amendments. He gave his explicit views on every important tax proposals and also touched upon the hardship that could arise to taxpayers on account of some of the budget proposals.

The lecture meeting was broadcast live through online platform to more than 1,200 participants. The meeting ended with a round of applause and appreciation by the participants.

Youtube Link: https://www.youtube.com/watch?v=O0YxSToYXu8

QR Code:

HRD STUDY CIRCLE OF HUMAN RESOURCES DEVELOPMENT COMMITTEE

On Tuesday 8th February, 2022, from 6.15 p.m.to 8.30 p.m., the Committee organised a ‘Yoga’ session to Discuss, Teach and Practice YogaAsanas for Curing Diseases. Pradeep Thakkar, a Professional Yoga teacher and an active member of ISH Foundation guided the participants.

He demonstrated and guided participants to perform different Asanas with ease, comfort for healthy body and mind relaxation.

He taught some Powerful Asanas to keep the body flexible and tone the body’s muscles. He also taught various exercises for curing Diabetes, Blood Pressure, Thyroid, Heart, Stomach and other diseases.

Participants had good learning of YogaAsanas for curing diseases to have a healthy body and peaceful mind.

BCAS VISIT TO HON. CBDT CHAIRMAN MR. MOHAPATRA’S OFFICE FOR POST BUDGET REPRESENTATION ON DIRECT TAX PROVISIONS OF FINANCE BILL, 2022.

BCAS was given an appointment on 21st February, 2022 by Hon.CBDT Chairman Mr. Mohapatraji to make a post-budget representation on direct tax provisions of Finance Bill, 2022.

Hon. CBDT Chairman appreciated the role played by BCAS in disseminating knowledge to professionals. He acknowledged that he was also a beneficiary through the reading of BCA Journal during his tenure in Mumbai. He gave a patient hearing for about 50 minutes and was receptive to certain suggestions on amendments which needed reconsideration. BCAS handed over a copy of the representation and he assured that they shall consider the recommendations while passing the Finance Bill. BCAS was represented by President, CA Abhay Mehta, Chairman & Co-Chairman Taxation Committee CA Deepak Shah and CA Anil Sathe respectively, Past President CA Gautam Nayak and Member Taxation Committee CA Anuj Gupta. The representation can be accessed on BCAS website.

BCAS Meeting with Honourable Chairman – Central Board of Direct Tax

L-R: CA Anuj Gupta, CA Gautam Nayak, CA Deepak Shah, Shri J. B. Mohapatra, CA Abhay Mehta and CA Anil Sathe

BCAJ Admin

MISCELLANEA

I. TECHNOLOGY

18 #‘Zero-Click’ hacks are growing in popularity. There’s practically no way to stop them

As a journalist working for the Arab news network Alaraby, Rania Dridi said she’s taken precautions to avoid being targeted by hackers, keeping an eye out for suspicious messages and avoiding clicking on links or opening attachments from people she doesn’t know.

Dridi’s phone got compromised anyway with what’s called a “zero-click” attack, which allows a hacker to break into a phone or computer even if its user doesn’t open a malicious link or attachment. Hackers instead exploit a series of security flaws in operating systems — such as Apple Inc.’s iOS or Google’s Android — to breach a device without having to dupe their victim into taking any action. Once inside, they can install spyware capable of stealing data, listening in on calls and tracking the user’s location.

With people more wary than ever about clicking on suspicious links in emails and text messages, zero-click hacks are being used more frequently by government agencies to spy on activists, journalists and others, according to more than a dozen surveillance company employees, security researchers and hackers interviewed by Bloomberg News.

Once the preserve of a few intelligence agencies, the technology needed for zero-click hacks is now being sold to governments by a small number of companies, the most prominent of which is Israel’s NSO Group. Bloomberg News has learned that at least three other Israeli companies — Paragon, Candiru and Cognyte Software Ltd. — have developed zero-click hacking tools or offered them to clients, according to former employees and partners of those companies, demonstrating that the technology is becoming more widespread in the surveillance industry.

There are certain steps that a potential victim can take that might reduce the chances of a successful zero-click attack, including keeping a device updated. But some of the more effective methods — including uninstalling certain messaging apps that hackers can use as gateways to breach a device — aren’t practical because people rely on them for communication, said Bill Marczak, a senior research fellow at Citizen Lab, a research group at the University of Toronto that focuses on abuses of surveillance technology.

Dridi, who is based in London, said the hack forced her to shut down some of her social media accounts and left her isolated and fearful for her safety.

“They ruined my life,” said Dridi, who suspects she was targeted because of her reporting on women’s rights in the Arab world or her connection to other journalists who are high-profile critics of Middle Eastern governments. “I tried to just go back to normal. But after that I suffered from depression, and I didn’t find any support.”

It’s not known how many people have been targeted with zero-click hacks, because they are done in secret and the victims are often unaware.

Human rights groups have tied zero-click technology from NSO Group to attacks by governments on individuals or small groups of activists. A 2019 lawsuit filed by Facebook accused NSO Group of using a zero-click hacking method to implant spyware on the devices of 1,400 people who used its WhatsApp service. NSO Group has disputed the allegations.

The attacks can be difficult for security experts to detect and pose new challenges for technology giants such as Apple and Google as they seek to plug the security holes that hackers exploit.

“With zero clicks, it’s possible for a phone to be hacked and no traces left behind whatsoever,” Marczak said. “You can break into phones belonging to people who have good security awareness. The target is out of the loop. You don’t have to convince them to do anything. It means even the most skeptical, scrupulous targets can be spied on.”

Sometimes a zero-click hack doesn’t go as planned and leaves traces that investigators can use to identify that a device has been compromised. In Dridi’s case, administrators at Alaraby noticed suspicious activity on their computer networks and followed a digital trail that led them to her phone, she said in an interview.

Attackers use zero-click hacks to gain access to a device and then can install spyware — such as NSO Group’s Pegasus — to secretly monitor the user. Pegasus can covertly record emails, phone calls and text messages, track location and record video and audio using the phone’s inbuilt camera and microphone.

Marczak and his colleagues at Citizen Lab analyzed Dridi’s iPhone XS Max and found evidence that it had been infected at least six times between October 2019 and July 2020 with NSO Group’s Pegasus. On two occasions in July 2020, Dridi’s phone was targeted in zero-click attacks, Citizen Lab concluded in a report, which attributed the hacks to the United Arab Emirates government.

Dridi is now pursuing a lawsuit against the UAE government. Her solicitor, Ida Aduwa, said she will be seeking permission from a High Court judge in London in the next few weeks to proceed with the case. “We want an acknowledgement that this is something that states cannot get away with,” Aduwa said.

A representative for the UAE Embassy in Washington didn’t respond to messages seeking comment.

Marczak, from Citizen Lab, said most of the documented cases of zero-click hacks have been traced back to NSO Group. The company began deploying the method more frequently around 2017, he said.

NSO Group, which was blacklisted by the U.S. in November for supplying spyware to governments that used it to maliciously target government officials, journalists, businesspeople, activists and others to silence dissent, has said it sells its technology exclusively to governments and law enforcement agencies as a tool to track down terrorists and criminals.

“The cyber intelligence field continues to grow and is much bigger than the NSO Group,” a spokesperson for the company said in a statement to Bloomberg News. “Yet an increasing number of ‘experts’ who claim to be ‘familiar’ with NSO Group are making allegations that are contractually and technologically impossible, straining their credibility.”

The spokesperson said that NSO Group has terminated customer relationships due to “human rights issues” and won’t sell cyber intelligence products to approximately 90 countries. “The misuse of cyber intelligence tools is a serious matter,” the spokesperson said.

In December, security researchers at Google analyzed a zero-click exploit they said was developed by NSO Group, which could be used to break into an iPhone by sending someone a fake GIF image through iMessage. The researchers described the zero-click as “one of the most technically sophisticated exploits we’ve ever seen,” and added that it showed NSO Group sold spy tools that “rival those previously thought to be accessible to only a handful of nation states.”

“The attacker doesn’t need to send phishing messages; the exploit just works silently in the background,” the Google researchers wrote.

[Source: indianexpress.com dated 19th February, 2022.]

19 #Google moves to make Android apps more private

Google’s plan to limit data tracking on its Chrome browser has been extended to cover apps on its Android-based smartphones. Its so-called Privacy Sandbox project aims to curb the amount of user data that advertisers can gather.

Rival Apple now forces app developers to ask permission from users before tracking them. The news will be a blow to firms like Meta, which rely on putting their code on apps to track consumer behaviour. Meta said this month that Apple’s changes would cost it $10bn (£7.3bn) this year. Google’s Android operating system is used by about 85% of smartphone owners worldwide.

Third-party cookies, which use people’s browsing history to target adverts, will be phased out on Google’s Chrome browser by 2023.

In a blog, Google said it was now extending what it calls its Privacy Sandbox to Android apps, and working on solutions that will limit sharing users’ data and “operate without cross app identifiers, including advertising ID”. These identifiers are tied to smartphones and are used by apps to collect information. Google said that it will keep them in place for at least two years, while it works “with the industry” on a new system.

“We’re also exploring technologies that reduce the potential for covert data collection, including safer ways for apps to integrate with advertising SDK (software developer kits),” it added. The tech giant did not detail how it plans to do this. Apple decided in April last year that app developers had to explicitly ask for permission from users to use IDFA (Identifier for Advertisers). Data from advertising company Flurry Analytics, and published by Apple, suggests that US users are choosing to opt out of tracking 96% of the time.

Google’s blog did not name Apple, but referred instead to “other platforms” which it said “have taken a different approach to ads privacy, bluntly restricting existing technologies used by developers and advertisers”. “We believe that – without first providing a privacy-preserving alternative path – such approaches can be ineffective,” it added.

Google, unlike Apple, relies on advertising revenue. Google’s attempts to create alternatives to third party cookies on its Chrome browser have not gone entirely smoothly. Its first proposal -a system called Federated Learning of Cohorts (Floc) – was disliked by privacy campaigners and advertisers alike. Floc aimed to disguise users’ individual identities by assigning them to a group with similar browsing histories.

[Source: www.bbc.com dated 17th February, 2022.]

II. SCIENCE AND ENVIRONMENT

20 #Amazon deforestation: Record high destruction of trees in January

The number of trees cut down in the Brazilian Amazon in January far exceeded deforestation for the same month last year, according to government satellite data.The area destroyed was five times larger than 2021, the highest January total since records began in 2015.

Environmentalists accuse Brazil’s President Jair Bolsonaro of allowing deforestation to accelerate.Protecting the Amazon is essential if we are to tackle climate change. Trees are felled for their wood as well as to clear spaces to plant crops to supply global food companies. At the climate change summit COP26 in Glasgow last year, more than 100 governments promised to stop and reverse deforestation by 2030.

The latest satellite data from Brazil’s space agency Inpe again calls into question the Brazilian government’s commitment to protecting its huge rainforest, say environmentalists. “The new data yet again exposes how the government’s actions contradict its greenwashing campaigns,” explains Cristiane Mazzetti of Greenpeace Brazil. Greenpeace are calling on supermarkets in the UK and elsewhere to drop suppliers who are involved in deforestation from their meat and dairy supply chains suppliers.

Deforestation totalled 430 square kilometres (166 square miles) in January – an area more than seven times the size of Manhattan, New York.

• Which countries are cutting down trees?

• The illegal Brazilian gold you may be wearing.

• An indigenous leader trying to protect the Amazon.

Felling large numbers of trees at the start of the year is unusual because the rainy season usually stops loggers from accessing dense forest. Brazil’s vast rainforest absorbs huge amounts of greenhouse gases from the atmosphere, acting as what’s known as a carbon sink. But the more trees cut down, the less the forest can soak up emissions. But the area is also home to communities who say they need to use the forest for mining and commercial farming in order to make a living.

At the same time, indigenous communities living in the Amazon fight to protect the rainforest and their ways of life. Mr Bolsonaro has weakened environmental protections for the region and argued that the government should exploit the area to reduce poverty. There are a number of factors driving this level of deforestation.

Strong global demand for agricultural commodities such as beef and soya beans is fuelling some of these illegal clearances – Another is the expectation that a new law will soon be passed in Brazil to legitimise and forgive land grabbing. The Brazilian government argues that in the period between August last year and January 2022, overall deforestation was lower compared to the same period twelve months ago.

Environmentalists say that they are not surprised by the record January felling, given that President Bolsonaro has significantly weakened legal protections since he took office in 2019. At the COP26 climate summit in Glasgow last year, Mr Bolsonaro was one of the world leaders who promised to halt and reverse deforestation by the end of this decade. Political observers argue that despite this change in tone, the policies on the ground remain the same.

[Source: www.bbc.com dated 11th February, 2022.]

21 #Sunlight helps clean up oil spills in the ocean more than previously thought

Sunlight may have helped remove as much as 17 percent of the oil slicking the surface of the Gulf of Mexico following the 2010 Deepwater Horizon spill. That means that sunlight plays a bigger role in cleaning up such spills than previously thought, researchers suggest February 16 in Science advances.

When sunlight shines on spilled oil in the sea, it can kick off a chain of chemical reactions, transforming the oil into new compounds (SN: 6/12/18). Some of these reactions can increase how easily the oil dissolves in water, called photo dissolution. But there has been little data on how much of the oil becomes water-soluble.

To assess this, environmental chemists Danielle Haas Freeman and Collin Ward, both of Woods Hole Oceanographic Institution in Massachusetts, placed samples of the Macondo oil from the Deepwater Horizon spill on glass disks and irradiated them with light using LEDs that emit wavelengths found in sunlight. The duo then chemically analyzed the irradiated oil to see how much was transformed into dissolved organic carbon.

The most important factors in photo dissolution, the researchers found, were the thickness of the slick and the wavelengths of light. Longer wavelengths (toward the red end of the spectrum) dissolved less oil, possibly because they are more easily scattered by water, than shorter wavelengths. How long the oil was exposed to light was not as important.

Though the team didn’t specifically test for seasonal or latitude differences, computer simulations based on the lab data suggested that those factors, as well as the oil’s chemical makeup, also matter.

The researchers estimate irradiation helped dissolve from 3 to 17 percent of surface oil from the Deepwater Horizon spill, comparable to processes such as evaporation and stranding on coastlines. What impact the sunlight-produced compounds might have on marine ecosystems, however, isn’t yet known.

[Source: www.sciencenews.org dated 15th February, 2022.]

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. CBDT notifies E-advance Rulings Scheme, 2022: E-advance Rulings Scheme, 2022 shall apply to the applications of advance rulings made to the Board for Advance Ruling under section 245Q(1) or applications transferred to such Board under section 245Q(4). The applicant shall not be required to appear personally or through an authorised representative before the Board. The proceedings before the Board shall not be open to the public. An appeal against an order for advance ruling passed by the Board for Advance Rulings under this Scheme shall lie before the High Court. [Notification No. 7 of 2022 dated 18th January, 2022.]

2. Insertion of Rule 8AD – Income-tax (2nd Amendment) Rules, 2022: Rule 8AD prescribes computation of capital gains for the purposes of section 45(1)(1B), where any person receives at any time during any previous year any amount under a specified unit-linked insurance policy, including the amount allocated by way of bonus on such policy. [Notification No. 8 of 2022 dated 18th January, 2022.]

3. Guidelines under clause (10D) section 10: Sum received including any sum allocated by way of bonus during the previous year under any one or more ULIPs issued on or after 1st February, 2021 shall be exempt under section 10(10D), subject to satisfaction of other provisions of said clause. The related circular issued explains the same by giving various examples. [Circular 2 of 2022 dated 19th January, 2022.]

4. Clarification regarding the Most-Favoured-Nation (MFN) clause in the Protocol to India’s DTAAs with certain countries: CBDT has issued the following clarifications on the applicability of the MFN clause:
a) To claim the benefits under the MFN clause of DTAA, the third state is to be a member of the OECD both at the time of conclusion of the treaty with India and at the time of applicability of the MFN clause.
b) The unilateral decree of a treaty partner does not represent a shared understanding of the applicability of the MFN clause.
c) Benefit of concessional rates under DTAAs, shall only be available after the date of entry in force with the third state, not from when it became a member of OECD.
d) A separate notification has been issued by India, importing the benefits of the second treaty into the treaty with the First State, as required by the provisions of sub-section (1) of Section 90. [Circular No. 3 of 2022 dated 3rd February, 2022.]

COMPANY LAW

I. COMPANIES ACT, 2013

1. Requirement to file Report on CSR in Form CSR-2 by 31st March, 2022: MCA now requires every Company to which provisions of CSR are applicable u/s 135 to file a report in Form CSR-2 (format is prescribed in the notification), as an addendum to Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be. It is to be noted that for the preceding financial year (2020-2021), Form CSR-2 shall be filed separately on or before 31st March, 2022, after filing Form AOC-4 or AOC-4 XBRL or AOC-4 NBFC (Ind AS), as the case may be. [Notification No. G.S.R. 107 (E) dated 11th February, 2022.]

2. MCA directs that certain provisions of the Companies Act, 2013 shall apply to LLPs, with specified modifications to suit LLPs, w.e.f. 12th February, 2022: The few provisions which are important are enlisted below:

Section	Nature of Provision
90	Companies to maintain a Register of significant beneficial owners in a company
164	Disqualifications for appointment of Director of the Companies Act shall also apply to LLPs
165	No person shall become designated partner in more than 20 LLPs, similar to the cap of 20 companies for Directors under the Companies Act
206(5)	Empowering the Central Govt. to direct inspection of books and papers of LLP
252	Notifying strike off
439	Offences to be non-cognizable

Section

Nature
of Provision

Companies to maintain a Register of
significant beneficial owners in a company

164

Disqualifications for appointment of
Director of the Companies Act shall also apply to LLPs

165

No person shall become designated partner
in more than 20 LLPs, similar to the cap of 20 companies for Directors under
the Companies Act

206(5)

Empowering the Central Govt. to direct
inspection of books and papers of LLP

252

Notifying strike off

439

Offences to be non-cognizable

[Notification No. G.S.R. 110(E) dated 11th February, 2022.]

3. Delegation of certain powers to Regional Directors and appointment of ROCs as adjudicating officers: In line with the amendments in the LLP Rules, MCA has delegated certain powers w.e.f. 1st April, 2022 to the Regional Directors at Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Guwahati namely the powers and functions vested in it u/s 17 of the LLP Act [Change of name of limited liability partnership]. These delegated powers shall be subject to the condition that the Central Govt. may revoke such delegation of powers or may itself exercise the powers under the said section, if in its opinion such a course of action is necessary in the public interest. [Order No S.O. 622 (E) dated 11th February, 2022.]

4. Appointment of Registrar of Companies as adjudicating officers for the purposes of LLP Act: MCA through notification has appointed Registrar of Companies as adjudicating officers for the purposes of LLP Act, while also enlisting their respective jurisdiction. However, the said notification states that appeals, if any, filed before the concerned RD shall be disposed of according to the specific Notifications issued by MCA in this regard from time to time. This notification will be effective from 1st April, 2022. [Notification No. S. O. 623 (E) dated 11th February, 2022.]

5. Further relaxation in additional fees in filing e-forms for F.Y. ended 31st March, 2021: In continuation of Circular dated 29th December, 2021 MCA has granted further relaxation on levy of additional fees for filing following e-forms:

Sr. No.	Forms	Nature of Filing	Nature of Relaxation
1	AOC-4, AOC-4 (CFS), AOC -4 XBRL and AOC-4 Non XBRL	Audited Accounts for the F.Y. ended 31^st March, 2021	No additional fees if forms mentioned in the preceding column are filed on or before 15^th March, 2022
2	MGT 7 and MGT 7-A	Annual Returns	No additional fees if forms mentioned in the preceding column are filed on or before 31^st March, 2022

Sr. No.

Forms

Nature of Filing

Nature of Relaxation

AOC-4, AOC-4

(CFS), AOC -4 XBRL and AOC-4 Non XBRL

Audited Accounts for the F.Y. ended 31^st
March, 2021

No additional fees if forms mentioned in
the preceding column are filed on or before 15^th March, 2022

MGT 7 and MGT 7-A

Annual Returns

No additional fees if forms mentioned in
the preceding column are filed on or before 31^st March, 2022

[Circular 01/2022 dated 14th February, 2022.]

II. SEBI

6. Operational procedure to be followed by Listed Entities/RTA in case of issuance of securities in Demat mode: SEBI vide its notification dated 24th January, 2022 mandated listed entities to issue securities in Demat mode only while processing the investor service requests related to duplicate certificate issuance, subdivision, consolidation, split, transmission etc. In this connection, SEBI has now issued an operational circular prescribing the procedure to be followed by the Listed Entities/RTA in processing such investor requests and issuance of dematerialized securities. [Circular No. SEBI/HO/MIRSD/MIRSD_RTAMB/P/CIR/2022/8, dated 25th January, 2022.]

7. SEBI prescribes detailed guidelines for preparation of financial statements of Mutual Fund Schemes on Ind AS basis: The SEBI has prescribed that MF Schemes shall prepare opening balance sheet as on transition date and comparative as per Ind AS. SEBI has also specified the format of preparation of financial statement by the AMC as specified in Annexure A of the circular. SEBI clarified that, in order to align with Ind AS, brokerage and transaction cost shall be charged to schemes up to 12 bps and 5 bps for cash market transactions and derivatives transactions. The circular shall be effective from 1st April, 2023. [Circular No SEBI/HO/IMD-II/DOF8/P/CIR/2022/12, dated 4th February, 2022.]

8. SEBI modifies ‘Master Circular for Depositories dated February 05, 2021’ w.r.t. opening of Demat account in case of HUF: SEBI has specified certain modifications to the Master Circular for Depositories issued on 5th February, 2021. SEBI’s earlier circular restricted married daughters from being new Karta of the HUF in case of the death of the Karta. SEBI has now removed that restriction. Further SEBI added one additional guideline to be followed in case of opening of Demat account in case of death of the Karta. All other provisions of the earlier master circular remain the same. [Circular No. SEBI/HO/MRD2/DDAP/CIR/P/2022/20, dated 17th February, 2022.]

FEMA

1. FM proposes the introduction of India’s own digital currency by RBI: In her budget speech, the Finance Minister announced the issuance of a Digital Rupee (using blockchain and other technologies) by the RBI starting 2022-23. Accordingly, a new definition of ‘bank note’ has been proposed in section 2 of the RBI Act, 1934. As per newly inserted Section 2 (aiv), ‘bank note’ means a bank note issued by the Bank, whether in physical or digital form, under section 22. Section 22 of the RBI Act, 1934 gives the RBI sole right to issue bank notes. The amendment is in line with the ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’, which aims to create a framework for the creating the official digital currency to be issued by the RBI. The Bill has, however, not been introduced in Parliament yet. A new section 22A has been proposed to be inserted, which prescribes that certain sections of the RBI Act, 1934, which specifically relate to physical bank notes would not apply to the digital form of the bank notes. [Budget Speech and Finance Bill 2021, dated 1st February, 2022.]

2. RBI Cautions against unauthorised forex trading platforms: RBI has issued a Press Release pointing out that it has noticed misleading advertisements of unauthorised Electronic Trading Platforms (ETPs) offering forex trading facilities to Indian residents, including on social media platforms, search engines, OTT platforms, gaming apps and the like. RBI has clarified that resident persons can undertake forex transactions only with authorised persons and for permitted purposes. RBI has cautioned the public not to undertake forex transactions on unauthorised ETPs or remit/deposit money for such unauthorised transactions. RBI has cautioned that Resident persons undertaking forex transactions for purposes other than those permitted under the FEMA or on ETPs not authorised by the RBI shall render themselves liable for penal action under the FEMA.
A list of authorised persons and authorised ETPs is available on the RBI website, along with a set of FAQs. [Press Release: 2021-2022/1660 dated 3rd February, 2022.]

3. Foreign Currency Settled Overnight Indexed Swaps: RBI had issued the Rupee Interest Rate Derivatives Directions on 26th June, 2019. Following that, it has now allowed banks in India having AD Cat-I license under FEMA to offer Foreign Currency Settled Overnight Indexed Swaps (FCS-OIS) based on the Overnight MIBOR benchmark published by FBIL to persons not resident in India as well as to other AD Cat-I banks. Banks can undertake these transactions through their branches in India, through their International Financial Services Centre (IFSC) Banking Units (IBUs) or their foreign branches (in case of foreign banks operating in India, through any branch of the parent bank). Banks may undertake FCS-OIS transactions beyond onshore market hours. [Circular No. FMRD.DIRD.12/14.03.046/2021-22, dated 10th February, 2022.]

4. Voluntary Retention Route (VRR) for FPIs – enhancement of limits: To simplify stable investments in debt instruments issued in the country, Voluntary Retention Route (VRR) for investment in government and corporate debt securities by Foreign Portfolio Investors (FPIs) was announced on 1st March, 2019. An investment limit of R1,50,000 crore was set for investments under the VRR. Given the encouraging response to the VRR, RBI has increased the investment limit under VRR by R1,00,000 crore, i.e., up to R2,50,000 crore w.e.f. 1st April, 2022. [RBI/2021-22/156 A.P. (DIR Series) Circular No. 22 dated 10th February, 2022.]

RBI

1. Clarifications on IRACP prudential norms on advances: The RBI has issued clarifications in respect of Prudential Norms on Income Recognition, Asset Classification, and Provisioning (IRACP) that include: the definition of ‘out of order’ shall apply to all loan products being offered as an overdraft facility, including those not meant for business purposes and/or which entail interest repayments as the only credits; the ‘previous 90 days period’ for determination of ‘out of order’ status of a CC/OD account shall be inclusive of the day for which the day-end process is being run and; in case of borrowers having more than one credit facility from a lending institution, loan accounts shall be upgraded from NPA to standard asset category only upon repayment of entire arrears of interest and principal pertaining to all the credit facilities. [Notification No. RBI/2021-22/158 DOR.STR.REC.85/21.04.048/2021-22 dated 15th February, 2022.]

ICAI ANNOUNCEMENTS

1. FRN compulsory field for generating UDINs: Firm Registration Number (FRN) has been made a compulsory field for generating UDINs w.e.f. 1st February, 2022 to enable firms to consolidate the total UDINs generated by its partners on its behalf for its clients, prospectively. [31st January, 2022.]

2. Guidelines for conducting distance/remote/online peer review: The Peer Review Board has decided to adopt conducting of distance/remote/online Peer Review. Considerations for Peer Reviewers have been specified that requires the Reviewers to ensure that appropriate audit evidence is available with them based on which they are able to express their opinion. [9th February, 2022.]

ICAI MATERIAL

Accounts and Audit
1. Guidance Note on Division I – Non Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022 Edition). [24th January, 2022.]
2. Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013 (Revised January 2022 Edition). [24th January, 2022.]
3. Guidance Note on Division III – Schedule III to the Companies Act, 2013 for NBFC that is Required to Comply with Ind AS. (Revised January 2022 Edition). [24th January, 2022.]
4. Guidance Note on Audit of Banks (2022 Edition). [10th February, 2022.]

Valuation
5. Concept Paper on Estimating Discount Rates in Valuation. [10th February, 2022.]
6. Concept Paper on Inventory Valuation. [10th February, 2022

BCAJ Admin

REPRESENTATION MADE

BCAS has personally submitted, “Representation on the Direct & Indirect Tax Laws Provisions of the Finance Bill, 2022” to the Chairman of CBDT at New Delhi.

To read the Representation – Scan here

BCAJ Admin

CORPORATE LAW CORNER

16 Bank of Baroda vs. Aban Offshore Limited National Company Law Appellate Tribunal Company Appeal (AT) No. 35 of 2019 Date of Order: 29th January, 2020

Preference shareholders have locus standi for filing class action suit u/s 245 and application u/s 55(3) of Companies Act, 2013 in relation to the redemption of preference shares

FACTS
• M/s BOB had subscribed to Cumulative Redeemable Non-Convertible Preference Shares of M/s AOL aggregating to Rs. 30,00,00,000 at a varying coupon rate of 8% and 9% p.a. and had consented for its extension/roll over for three years from the original redemption date.

• However, M/s AOL did not redeem any preference shares and instead, they paid a 180% dividend to equity shareholders in the F.Y. ended 31st March, 2015. M/s AOL had defaulted on the redemption and payment of dividends to preference shareholders for the F.Y. ended 31st March, 2016 onwards. The said defaults continued till the date of the petition filed before National Company Law Tribunal (“NCLT”), Chennai Bench.

• NCLT, in its order, stated that the procedure laid down u/s 55(3) of the Companies Act, 2013 clearly provides a mandate to the Company to file the petition with the consent of the shareholders having 3/4th in value in relation to the preference shares. NCLT further stated that section 245 deals with Class Action Suit for seeking different remedies against the Company and its Directors. The same is not dealing with preference shareholders; hence, the holder of the preference shares has no locus standi to file such application. Therefore, NCLT held that the application was not maintainable and dismissed it.

Being aggrieved by NCLT order, M/s BOB preferred an appeal against it before the National Company Law Appellant Tribunal (NCLAT).

HELD
• The NCLAT had examined the legislature’s intention while promulgating Section 55 of the Companies Act, 2013 which was to compulsorily provide for the redemption of preference shares by doing away with the issue of irredeemable preference shares. Therefore, even though there was no specific provision stipulated under the said Act through which relief can be sought by preference shareholders in case of non-redemption by the company or consequent to non-filing of the petition u/s 55, the intention of the legislature being clear and absolute, Tribunal’s inherent power can be invoked to get an appropriate relief by an aggrieved preference shareholder(s).

• NCLAT observed that alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) r.w.s. 88 of the Companies Act, 2013, may file a petition u/s 245 of the Act, as a Class Action Suit, being aggrieved by the conduct of affairs of the company.

• NCLAT held that the preference shareholders were not without a remedy and for the redemption of preference shares, they can file an application u/s 55(3), or alternatively they may also file an application u/s 245 as a Class Action Suit and the NCLT while exercising the inherent power namely Rule 11 of NCLT Rules, 2016 can pass appropriate order.

• Hence, the NCLAT observed that M/s. BOB being a preference shareholder has no locus standi to file an application of Class Action Suit for the redemption of preference shares does not hold good. Thus, NCLT’s order was set aside, and the matter was remitted back to NCLT, Chennai Bench.

17 Universal Heat Exchangers Limited vs. K. Ramakrishnan National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 343 of 2018 Date of Order: 8th January, 2020

In a case where the minority shareholders of the company had the intent to exit from the company, the same would not provide any ground to deny them their right to subscribe to additional shares in proportion to their shareholding

FACTS
• Mr. K. Ramakrishnan (Mr. KR) and Others were residents of Singapore and Malaysia and had invested Rs.1,40,00,000 in M/s UHEL in a single tranche. They were allotted 4,00,000 equity shares of Rs.10 each at a premium of Rs. 25.

• Subsequently, M/s UHEL had made two allotments on a right-issue basis to existing shareholders, excluding Mr. KR and Others, i.e. the first allotment was of 20 Lakhs shares on 9th April, 2007 (at Rs.10 per share) and the second allotment was of 5,55,555 shares on 27th September, 2010 (at Rs.18 per share, including a premium of Rs.8 per share). It resulted in the dilution of shareholding of Mr. KR and Others from existing 27% to 9.86%.

• Thereafter Mr. KR and Others had filed an application before National Company Law Tribunal, Chennai Bench (NCLT) against the said right issue allotments made by M/s UHEL.

The following was submitted by Mr. KR and Others before NCLT, Chennai Bench:

• That the two allotments made in the year 2007 and 2010, where M/s UHEL being closely held Company had made right issue to existing shareholders but Mr. KR and Others were not offered the right issue nor they have received notices for the EGM.

• Further, they also submitted various oppression and mismanagement issues like:
a) In the year 2009-10, the Company had taken unsecured loans from Directors and Shareholders to the tune of Rs.8.96 Crores, but in the same year, the Company had granted loans to parties covered under Register maintained under Section 301 of the Act to the extent of Rs.4 Crores.

b) Similarly, in the year 2010-11, the Company had taken loans from interested parties to the tune of Rs.16.20 Crores and had diverted these funds. Mr. KR & Others alleged that the funds were siphoned by the Company and the Directors.

M/s UHEL submitted before NCLT, Chennai Bench that:

Mr. KR & Others were aware of the Extraordinary General Meeting (‘EGM’) and were also aware of valuation done by the M/s UHEL including Annual Returns filed in 2007 and 2010.

Further, the said application was filed before the Company Law Board, Chennai on 17th April, 2012 only, in spite of being aware of all the material facts. Mr. KR and Others had challenged the allotment made on 9th April, 2007.

NCLT after hearing:

• HELD that M/s UHEL had dispatched the notice but did not submit any proof that Mr. KR & Others have received such EGM notice. Hence, the notice in respect of the right issue needed to be annulled.

• Further, set aside the two allotments of shares made on 9th April, 2007 and 27th September, 2010 on right-basis and ordered to refund to the concerned allottees the amount received by M/s UHEL on account of the allotments that have been set aside and was further ordered to rectify the Register of Members after making refund of the amount received against the allotment.

M/s UHEL being aggrieved by NCLT order preferred an appeal before National Company Law Appellant Tribunal (NCLAT) u/s 421 of the Companies Act, 2013 against such impugned order passed by NCLT.

HELD
• NCLAT observed that the minority shareholders were requiring exit from the Company but that cannot provide a ground for denying their right to subscribe additional shares in proportion to their shareholding vis-à-vis that of the total paid-up capital of the Company as required under Section 81 of the Companies Act, 1956.

• NCLAT further observed that there were certain oppression and mismanagement and the relationship between the majority shareholders and minority shareholders were strained. Hence, there was a need for valuation report to be done by a Registered Valuer and the majority shareholders were free to buy the shares of the minority shareholders or otherwise.

• In view of the aforesaid findings, NCLAT upheld the impugned order dated 10th July, 2018 passed by the NCLT, Chennai Bench and M/s UHEL were directed to comply with the order of the NCLT as stated therein. Accordingly, the Appeal was dismissed.

18 Dheeraj Wadhawan vs. Administrator of DHFL & Ors. Company Appeal No. 785 of 2020 and 647 of 2021 NCLAT, Delhi Bench Date of Order: 27th January, 2022

Whether the Resolution plan can be given only to suspended directors and not superseded directors?

FACTS
The Appeal was filed by the erstwhile directors of the DHFL against the Administrator for not calling them to the Committee of Creditors (COC) meeting and providing the copy of resolution plan. The Corporate debtor was an NBFC and went under Insolvency of Financial Service Provider by an application made by RBI.

The company is a Housing Finance Company regulated by National Housing Bank Act,1987 and RBI Act, 1934. RBI superseded the company’s board on 20th November, 2019 in exercise of powers under Section 45-IE of the RBI Act by appointing Mr. R Subramniakumar as the Administrator. Further, RBI moved an application before the Adjudicating Authority (AA) and appointed the same Administrator under Financial Service Provider Rules, 2019.

The erstwhile directors wrote letters to the Administrator to invite them for COC meetings from time to time and also asked for a copy of the resolution plan. The request was not adhered to, and therefore the erstwhile directors moved an application before AA/NCLT, which came to be rejected. The reason which was given by Administrator and accepted by AA/NCLT was that RBI already superseded the directors and therefore they were not directors on the date of insolvency commencement. The rights of the suspended directors are recognized and not the superseded ones under law.

The issue came before NCLAT, wherein the appellants raised an important question of law that the superseded directors are akin to suspended directors. They emphasized that the law should be read as a whole and harmoniously. The appellants referred to Arcelor Mittal vs. Satish Gupta1 – interpretation of words should be based on the object, text, and context of the provision.

Further, it was also submitted that the RBI has only chosen to come under IBC and therefore the doctrine of election should be applied, and the words should be given logical meaning by allowing the appellants to participate and also get a copy of the resolution plan.

HELD
It was held that the superseded directors are not akin to suspended directors as the two are different. The superseded directors are those who are removed or deemed to be demitted office and who are not holding the office on the date of commencement of the Insolvency process. Therefore, the erstwhile directors are not entitled to documents/meetings which otherwise are available to suspended directors who are always on the board and continue to assist the IRP/RP. Further, it was clarified that once the plan is approved, it is not a confidential document and, therefore the same be provided to the appellants.

______________________________
1 (2019) 2 SCC 1

BCAJ Admin

ALLIED LAWS

22 Shiv Developers through its partner Sunil bhai Somabhai Ajmer vs. Aksharay Developers & Ors. Civil Appeal No. 785 of 2022 (SC) Date of order: 31st January, 2022 Bench: Dinesh Maheshwari J. and Vikram Nath J.

Partnership Firm – Unregistered Firm – Not barred to file a suit – Where contract in question is not related to business. [Indian Partnership Act, 1932, S. 69(2)]

FACTS
The Appellants, an unregistered partnership firm instituted a suit seeking perpetual injunction and declaration of a sale deed as null and void. The Trial Court rejected the application of the defendants which stated that the suit filed by and on behalf of an unregistered partnership firm which was barred by law.

On appeal, the High Court held that the plaintiff, being an unregistered firm, would be barred to enforce a right arising out of the contract in terms of Section 69(2) of the Partnership Act, 1932 (Act).

HELD
It was held that to attract the bar of Section 69(2) of the Act, the contract in question must be the one entered into by the unregistered partnership firm with a third party and must also be in the course of its business dealings.

Section 69(2) of the Act is not attracted to each and every contract. The sale transaction in question is not arising out of the business of the appellant firm.

The subject suit is one where the plaintiff seeks common law remedies with the allegations of fraud and misrepresentation as also of the statutory rights of injunction and declaration in terms of the provisions of the Specific Relief Act, 1963 as also the Transfer of Property Act, 1882 (while alleging want of the sale consideration). Therefore, the bar of Section 69(2) of the Act of 1932 does not apply to the present case.

The appeal was allowed.

23 V. Anantha Raju and another vs. T.M. Narasimhan and Ors. AIR 2021 Supreme Court 5342 Date of order: 26th October, 2021 Bench: L. Nageswara Rao J., Sanjiv Khanna J. and B. R. Gavai J.

Partnership Firm – Share of Profits – Disputed – Evidentiary value of Deed is above an oral testimony – Nothing precluded the Defendants from rectifying the deed between 1995 – 2004 – Clauses of Deed would prevail. [Indian Partnership Act, 1932, India Evidence Act, 1872, S. 17, 91 and 92]

FACTS
A Partnership Firm was constituted in the year 1986 vide Partnership Deed dated 30th October, 1992. According to the said deed, the Plaintiff No. 1 was entitled to 50 per cent of the profits provided he introduces a sum of Rs. 50 lakhs as his capital contribution on or before 31st March, 1993 otherwise the same would be only 10 per cent.

Subsequently, the deed was amended in 1995, where the Plaintiff No.1 and his son (Plaintiff No. 2) were both entitled to 25 per cent of the profits, inter alia. The Plaintiffs also filed their Income-tax returns wherein their share is shown as 25 per cent.

In 2004, a dispute arose between the Plaintiffs and the Defendants (Other partners of the Firm). It is the case of the Defendants that the Plaintiff did not bring the said amount of Rs. 50,00,000 on or before 31st March, 1993 and the deed of 1995 has mistakenly mentioned the share of the plaintiffs as 25 per cent each and they rely on their statement made under oath in the affidavit.

The Trial Court had held that the plaintiffs together were entitled to only 10 per cent share in the profits up to 2004, as subsequently they were expelled from the Firm. The appeal against the impugned order of the Trial Court was dismissed by the Hon’ble High Court of Karnataka.

HELD
It was held that the Defendants have not disputed about the reconstitution of the partnership firm by the 1995 Deed. They have also not disputed that in the 1995 Deed, the share of plaintiff Nos. 1 and 2 in the profits and losses of the partnership firm is mentioned as 25% each. The Defendants denying that they had received the requisite sum would have lesser evidentiary value than the Deed of 1995. The contention that the deed of 1995 has mistakenly mentioned the share of the Plaintiffs at 25 per cent each (Total of 50 per cent) cannot be accepted as nothing precluded the Defendants from rectifying the deed between 1995 to 2004.

The appeal was allowed on this point.

24 Ripudaman Singh vs. Tikka Maheshwar Chand (2021) 7 SCC 446 Date of order: 26th July, 2021 Bench: Sanjay Kishan Kaul J. and Hemant Gupta J.

Family Settlement – Exempt from compulsory registration – Where the same to pre-existing rights and no new right is created. [Registration Act, 1908. S. 17]

FACTS
The Plaintiff and Respondent were sons of one late Vijendra Singh. The Appellant-Plaintiff filed a suit for possession in the year 1978 disputing the Will dated 4th December, 1958 executed by Vijendra Singh in favour of the Defendant. The Appellant claimed half share of the land as described in the plaint. During the pendency of suit, a decree was passed on the basis of compromise arrived at between the parties.

In pursuance of the decree so passed, the Plaintiff sought mutation of the half share of the land vesting to him which was allowed by Tehsildar. However, an appeal against the said mutation was disposed of for fresh consideration without granting any opportunity of being heard to the Respondent

The Appellant-Plaintiff thereafter filed an appeal before the Divisional Commissioner. The appeal was dismissed on the ground that the compromise decree in the absence of registration was against the provisions of the Registration Act, 1908. The Appellant-Plaintiff subsequently filed a suit for declaration challenging such order passed by the Commissioner. The suit was dismissed by the Ld. Sub Judge. But the appeal preferred by the appellant was allowed by the Ld. District Judge.

This order was challenged before the High Court. The High Court set aside the judgment and decree passed by the first appellate court and the suit was dismissed on the ground that the land even though being subject-matter of compromise, was not the subject-matter of the suit and therefore the decree required registration under Section 17(2)(vi) of the Registration Act, 1908.

HELD
In the judgment in the case of Bhoop Singh vs. Ram Singh Major (1995) 5 SCC 709 it was held that a decree or order including compromise decree creating new right, title or interest in praesenti in immovable property of value of Rs.100 or above is compulsory for registration. It was also held that where the decree holder has a pre-existing right in the property, that decree does not require registration.

Therefore, the judgment and decree of the High Court holding that the decree requires compulsory registration is erroneous in law. The compromise was between the two brothers consequent to death of their father and no right was being created in praesenti for the first time, thus not requiring compulsory registration. Consequently, the appeal is allowed and the suit is decreed.

25 Moutushi Chakraborty vs. Manju Deb (Chakraborty) AIR 2021 Tripura 40 Date of order: 23rd April, 2021 Bench: S. Talapatra J. and S. G. Chattopadhay J.

Hindu Law – Maintenance – Daughter from second marriage entitled to share in pension of her deceased Father – ‘Estate’ includes pension. [Hindu Adoption and Maintenance Act, 1956, S. 22, 23]

FACTS
The Appellant is the daughter of Mr. Narayan Chakraborty from his second marriage with Smt. Karuna Chakraborty. The Respondent is the first wife of Mr. Narayan Chakraborty. The lower Court had held that Smt. Karuna Chakraborty cannot claim any maintenance as she was not legally married to Mr. Narayan Chakraborty. However, there cannot be any dispute that the appellant has a right over the property/estate of the deceased for all purposes.

The Appellant and her mother filed a petition seeking maintenance from the respondent who is in receipt of family pension for the death of Mr. Narayan Chakraborty.

HELD
The word ‘estate’ cannot be given a narrow definition for purpose of Hindu Adoption and Maintenance Act. The family pension is no doubt an ‘estate’, which has been acquired through the deceased as pension is an estate secured on putting the definite period of service. Thus, the dependents have the right to claim maintenance from the heirs of the deceased. The discretion to deny the maintenance under Section 23 of the Hindu Adoption and Maintenance Act, 1956 is confined to determining the quantum of the maintenance, not to whether the maintenance should be granted or not.

The appeal was allowed

26 Master M. Yashas (Minor) vs. Nil AIR 2021 Karnataka 198 Date of order: 23rd April, 2021 Bench: B. V. Nagarthna J. and J. M. Khazi J.

Property of Minor – Parents seeking permission to sell – Not for the minor’s necessity – Parents can’t dispose minor’s property to overcome their financial problems. [Hindu Minority and Guardianship Act, 1956, S. 8]

FACTS
The petition was filed by the appellant, mother of the minor child aged about twelve years under Section 8(2)(a) of the Hindu Minority and Guardian ship Act, 1956 (Act), seeking permission to sell the property standing in the name of her minor son and to use a portion of the sale proceeds to the tune of Rs. 15,00,000 for use of the minor son for the purpose of meeting his day-to-day expenses, school expenses, to tide over the financial crisis of the parents etc., and to deposit the balance sale proceeds in the name of her minor son. The trial Court by impugned order dated 28th January, 2021 has dismissed the petition.

HELD
As per Section 8(4) of the Act, the Court may grant permission to alienate the minor’s property only for his legal necessity or benefit to the estate.

In the present case, petitioner/appellant is seeking permission to sell the petition schedule property belonging to minor child not for his legal necessity or benefit to the estate, but to tide over the financial crisis faced by her and her husband.

Being the parents and natural guardians of the minor child, it is the duty and responsibility of petitioner/appellant and her husband to take care of him including his education and other expenses. In order to overcome their financial crisis, they cannot dispose of the minor’s property. The legal necessity of the minor does not include the necessity of the guardian or any other person even in the face of a pandemic like Covid-19. Certainly, the intended alienation of the property is not for the benefit to the estate of the minor.

The appeal was dismissed.

BCAJ Admin

Service Tax

I. TRIBUNAL

21 Shri S. Sakhtikumar vs. The Commissioner of GST and Central Excise [2022-TIOL-139-CESTAT-MAD] Date of order: 2nd December, 2021

Service tax paid by mistake cannot be barred by limitation and ought to be refunded

FACTS
Appellant had taken on lease the maintenance of toilets at the Central Bus Stand and the New Bus Stand at Tirunelveli in 2017. It was noticed that Tirunelveli Municipal Corporation had collected service tax from the appellant for the above services and paid the same in the Government treasury. Subsequently, it was noticed that the said service forming a part of Article 243W is exempted from payment of service tax. A refund claim was filed with respect to the above in 2019. A show-cause notice was issued rejecting the claim on the ground of time bar.

HELD
The Tribunal relied on the decision in the case of M/s 3E Infotech vs. CESTAT, Chennai [2018(18) GSTL 40 (Mad.)] which is binding and where it is laid down that when service tax is paid by mistake a claim for refund cannot be barred by limitation, merely because the period of limitation under section 11B had expired. Such a position would be contrary to the law laid down by the Hon’ble Apex Court, and therefore we have no hesitation in holding that the claim of the Assessee cannot be barred by limitation and ought to be refunded. In view of the above decision of the Hon’ble jurisdictional High Court, the rejection of refund is unsustainable. Hence, the impugned order of the First Appellate Authority is set aside.

[Note: Readers may also refer to a similar decision in the case of Ishwar Metal Industries vs. CCE & CGST dated 28th January, 2022 reported at [2022-TIOL-133-CESTAT-DEL]]

22 V.V. Minerals vs. Commissioner of GST & Central Excise, Madurai [2022 (56) GSTL 167 (Tri. – Chennai)] Date of order: 4th June, 2021

Refund of service tax paid by the exporter cannot be denied merely because the supplier of goods had violated the provision of local law

FACTS
Appellant is a 100% Export Oriented Unit engaged in the manufacture and export of ‘Garnet’ and ‘Super Garnet’. They had filed a refund claim of service tax paid for May 2016 to December 2016. It came to the knowledge of the department from the District Level Committee of Tirunelveli District about illegal mining of beach sand and unlawful transportation thereof. Respondents were of the view that Appellant was not eligible for the refunds claimed, inasmuch as, the sands had been exported by way of illegal mining and unlawful transportation. The Commissioner (Appeals) also rejected the refund claim of the Appellant. Being aggrieved by the order rejecting refund, the Appellant preferred this appeal before the Hon’ble Tribunal. Appellant submitted before the Hon’ble Tribunal that allegation of illegal mining was against M/s. V. V. Minerals [Mines], whereas the export is made by M/s. V. V. Minerals [100% EOU], which is a different entity from M/s. V. V. Minerals [Mines]. Appellant procures minerals from other licence holders and exports the goods after further processing. Since Appellant does not have any mining lease, the recommendation by District Level Committee is not applicable to them.

HELD
It was observed that merely because M/s. V.V. Minerals [Mines], i.e. supplier of goods, has committed violation of a local law, M/s. V. V. Minerals [100% EOU], i.e. the exporter who procured goods cannot be put into adverse situations, especially when there was no evidence with respect to abetment or collusion on the part of the exporter. Since all the conditions specified in Notification No. 41/2012-ST, which are necessary for a refund of service tax paid, are fulfilled, the Appellant is eligible for the refund of service tax, and the order rejecting refund was set aside.

23 Vandana Global Ltd. vs. Commr. of CGST, Central Excise & Customs, Raipur [2022 (56) GSTL 310 (Tri. – Delhi)] Date of order: 23rd June, 2021

Extended period of limitation cannot be invoked by alleging suppression of availment of CENVAT credit on ineligible services, where regular audit was conducted by the Department

FACTS
Appellant was engaged in the manufacture of Sponge Iron, M.S Billets and ‘Dolachar’. During the audit by Auditor General Raipur, it was noticed that during April 2012 to March 2016, CENVAT credit was availed on various input services such as membership fees, construction services, rent-a-cab services, general insurance of vehicles, repair services, etc. that were not ‘input services’. Assistant Commissioner disallowed CENVAT credit availed on car insurance, repair and maintenance of motor vehicles. Further, Commissioner Appeals also disallowed the CENVAT credit and being aggrieved by such disallowance; Appellant preferred an appeal before the Tribunal.

HELD
Tribunal held that since the records of Appellant was regularly audited by the Audit Authority, department had knowledge about the affairs including availment of CENVAT credit. As a result, invocation of the extended period of limitation was not available to the Revenue, and hence the impugned order was set aside.

24 Microsoft India (R&D) Pvt. Ltd. vs. Commr. of C. EX. & S.T., Bangalore [2022 (56) GSTL 29 (Tri-Bang.)] Date of order: 26th July, 2021

Department is estopped from taking a contrary view than the view taken for the previous period unless the order passed for the prior period is revised by the competent authority

FACTS
Appellant was engaged in providing customer care and product support services in relation to Microsoft Software products to the customers of Microsoft located in India and abroad. Appellant provides these services through its Global Technical Support Centre (GTSC), a 100% Export Oriented Unit located in Bangalore. The major portion of Appellant’s turnover qualifies as export of services, which results in accumulation of CENVAT credit on various input services. Appellant had been regularly filing refund claims of such accumulated credit. For the period April 2010 to March 2011, Appellant was denied CENVAT credit availed on event management service, outdoor catering, mandap service and rent-a-cab service mainly on the two grounds: firstly, there was no nexus between input services and output services and secondly, that absence of such input services will not directly have an impact on the quality and efficiency of its output services. Being aggrieved by the order of Commissioner, the Appellant preferred an appeal before the Honourable Tribunal.

HELD
It was held that the Appellant had given full justification and established nexus of all the above-mentioned services. Further, Appellant’s refund applications for the previous periods for the same input services were allowed. Tribunal pointed out the Principal of Consistency and held that once the nexus has been accepted by the department for the previous period, such nexus cannot be denied for a subsequent period. There cannot be two different yardsticks; one for allowing refund and another for deciding the eligibility of CENVAT credit. In view of this, the impugned order denying CENVAT credit was set aside, and the appeal was allowed.

25 Commissioner of CGST and Central Excise vs. M/s Ethics Infra Development Pvt. Ltd. [2022-TIOL-97-CESTAT-MUM] Date of order: 21st December, 2021

Service tax is not leviable on the activity of construction of residential complex to existing members as there is an absence of sale – Also when the service tax is discharged on the gross consideration received from new buyers there is no question of levy of service tax from the existing members

FACTS
Appellant is providing taxable service of re-development of residential complex. It was observed during audit that the assessee did not discharge service tax on services of construction of residential complex services rendered by them towards the flats allocated to existing members. It was noted that from 1st July, 2012 these services had become classifiable as ‘declared service’ under section 66E(b) of the Finance Act, 1994. Its valuation method also had been highlighted vide CBEC Circular no. 151/2/2012-ST dated 10th February, 2012 read with High-Level Committee clarification issued vide Board’s letter F. No. 354/311/2015-TRU dated 20th January, 2016. The adjudicating authority observed that flats given to existing members cannot be considered a sale and hence is outside the ambit of service tax. It was noted that the entire income in the present transaction had been generated from the sale of flats to customers other than the existing society members because those members were provided flats free of cost. Accordingly, the demand was set aside. Being aggrieved by the said order, revenue filed an appeal.

HELD
The Tribunal primarily noted that in the present case, the respondent had discharged the complete service tax liability on the consideration received by him for providing the taxable services to the buyers of the flats that the respondent could sell in an open market. Further, it was also observed that there was no material change in the provisions of law relating to construction service in the negative list based taxation. Hence the Circulars relied upon by the adjudicating authority were applicable. Once the tax liability was discharged on the consideration received from the service in respect of flats to new buyers, the demand of service tax for the flats handed over to the existing members of the societies without any consideration cannot be sustained. Reliance was placed in the case of Vasantha Green Projects [2019 (20) GSTL 568 (THyd)]. The Appeal of the revenue was accordingly dismissed.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

36 R.K. Ganapathy Chettiar vs. Assistant Commissioner (ST), Kangeyam [2022 (56) GSTL 129 (Mad.)] Date of order: 11th August, 2021

Section 17(5)(h) of CGST Act – Input Tax Credit reversal is not required on invisible loss of inputs which automatically occurs during the normal course of manufacturing process

FACTS
Petitioner was engaged in the manufacture of ghee. The process of manufacturing invariably results in invisible loss of input through evaporation, creation of by-products etc. Department had rejected the Input Tax Credit to the extent of such loss by invoking section 17(5)(h) of the Central Goods and Service Tax Act, 2017 which talks about blocked credit in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples and asked Petitioner for reversal of such Input Tax Credit. Being aggrieved by the assessment order passed by Department, the Petitioner filed a petition before the Hon’ble High Court of Madras.

HELD
Hon’ble High Court strongly relied upon the judgement of A.R.S. Steels and Alloy International Pvt. Ltd. 2021 (52) GSTL 402 and held that the cases covered by section 17(5)(h) of CGST Act, 2017 indicate the loss of inputs that are quantifiable, involve external factors or compulsion. It does not cover the loss of inputs that arises from the consumption process, which is inherent to the process of manufacturing itself. Thus, reversal of Input Tax Credit is not contemplated under section 17(5)(h) of CGST Act, 2017 on the invisible loss of inputs during the manufacture of Ghee.

37 Ali Cotton Mill vs. Appellate Joint Commissioner (ST) [2022 (56) GSTL 270 (A.P.)] Date of order: 11th February, 2021

Rule 108 of Andhra Pradesh Goods and Services Tax Rules, 2017 – Appeal can be filed either electronically or manually

FACTS
Petitioner had first attempted to file an appeal electronically under Rule 108 of Andhra Pradesh Goods and Service Tax Rules, 2017. However, the same was not received by the department due to some technical glitches. As a result, the petitioner filed the same manually and obtained acknowledgement. Approximately 11 months later, Respondent rejected the appeal on the sole ground that the appeal was not filed electronically. Being aggrieved by such rejection, the petitioner preferred the writ petition.

HELD
It was held that when substantial justice is pitted against technical considerations, it is always necessary to prefer the ends of justice. Rule 108(1) of Andhra Pradesh Goods and Service Tax Rules, 2017 prescribes that an appeal can be filed either electronically or otherwise as may be notified by the Chief Commissioner. So, till the time Chief Commissioner specifies any particular mode of filing, the concerned appellant can choose to file the appeal either electronically or otherwise, i.e. manually. The view that, till the time Chief Commissioner specifies any other mode of filing, the appellant has to file an appeal electronically is contrary to the purport of Rule 108(1) of Andhra Pradesh Goods and Service Tax Rules, 2017. Thus, the petition was allowed, and the respondent was directed to receive the appeal, process the same and issue suitable check memos for compliance, in which case Petitioner shall comply the same within the prescribed time and resubmit the appeal either electronically or manually.

II. AUTHORITY FOR ADVANCE RULING

38 Kapil Sons [2022-TIOL-26-AAR-GST] Date of order: 8th February, 2022 [AAR-Maharashtra]

Drilling and blasting works include both services as well as goods in the form of explosives and tools and thus the service is classified as a works contract

FACTS
In relation to the work awarded under EPC Agreement, the main contractor engaged the applicant for a sub-contracting arrangement for the construction of tunnel by drilling and blasting method and issued a work order for subject work. Applicant seeks an advance ruling as to whether the activity carried out shall be classified as supply of goods or services or a composite supply of ‘Works Contract’ under Entry no. 3(iv) of 11/2017-Central Tax (Rate) and taxable @12%.

HELD
The Authority noted that the impugned supply undertaken by the applicant as per the Work Order is ‘drilling and blasting including all tools, materials, explosive vans etc. complete for approach roads and Tunnel Works’. There is definitely involvement of supply of services in the form of drilling and blasting and clearing of rubble etc. Further, to perform such services there is requirement of goods which include explosives. The service of drilling and blasting cannot be conducted without the use of explosives and, therefore, there is an element of composite supply. Thus the said supply will be covered under Entry 3(iv) of Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 and is taxable @12%.

39 Rakesh Kumar Gupta [2022-TIOL-23-AAR-GST] Date of order: 6th January, 2022 [AAR-Madhya Pradesh]

Cash discount and incentives offered by supplier without reversing their output tax liability does not require proportionate reversal of credit – Credit is fully allowed on the basis of the original invoice

FACTS
The applicant is a rice dealer. The supplier offers an incentive for early payment by offering a cash discount if payment is made before the due date or within certain days. The credit note of cash discount is issued without considering GST on such discount. The supplier does not reverse its output liability of GST, and likewise, the applicant does not reverse its input tax credit on such commercial credit notes issued by the supplier. The question before the authority is whether input tax credit can be fully availed or proportionate reversal is required with respect to the cash discount received? And, whether GST is applicable on the cash discount offered by the supplier as an output supply?

HELD
The Authority noted that as per section 15(3), for the cases where supply has already been effected, and discount given after supply shall be in terms of prior agreement before effecting the supply of goods and specifically linked to relevant invoices, then such discount shall not be included in the value of supply and input tax credit has to be reversed by the receiver. In the applicant’s case, the supplier of goods is issuing a commercial credit note for cash discount for early payment and quantity discount after post supply without adjustment of GST. As per the applicant’s submission, the Authority observed that the commercial credit notes issued by the supplier/Principal Company do not satisfy the conditions prescribed in sub-section (3) of section 15 of the CGST/SGST Act; the supplier is not eligible to reduce the original tax liability. As the supplier of the goods is not reducing the original tax liability, the applicant will be eligible to avail the credit of the tax paid as per the invoice of the supplier subject to payment of the value of supply as reduced by the commercial credit notes plus the amount of original tax charged. In other words, the applicant will not be required to reverse proportionate input tax credit. Similarly, target incentives offered which is not as per the agreement and where the supplier has not reduced its output tax liability, proportionate credit reversal is not required. Further, the credit note issued is in the form of a discount and therefore cannot be considered as an output supply.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

I. BUDGET 2022 – PROPOSALS

The Hon’ble Union Finance Minister has presented budget proposals in Parliament for 2022-2023 on 1st February, 2022. Some of the important changes proposed in GST law may be noted as follows:

1. Insertion of a new sub-clause (ba) in section 16(2) of the CGST Act, 2017 to provide that ITC for supply can be availed only if such credit has not been restricted in the details communicated to the taxpayer u/s 38.

2. In Clause (c) to Section 16(2), reference to Section 43A is deleted as the said Section has been omitted.

3. In Section 16(4), the time limit for availing the credit of any invoice pertaining to a particular Financial Year is extended from the due date of September Return to 30th November, following the end of the financial year.

4. The proper officer may cancel the Registration of a Composition person under Section 29(2)(b) if the said person has not furnished returns for a financial year beyond three months from the due date of furnishing the said return.

5. The proper officer may cancel the Registration of a registered person other than a composition person under Section 29(2)(c) if the said person has not furnished returns for a financial year for such period as may be prescribed instead of the six months provided earlier.

6. The effect of the GST Credit Note, pertaining to invoices of a particular financial year, can be given in the returns up to 30th November following the financial year. Time has been extended from the due date of September return to 30th November.

7. Section 37 relating to furnishing of outward supplies is amended, and reference to Section 42 and 43
relating to mismatch is removed as said sections are omitted.

8. Section 37(4) is inserted whereby a registered person may not be allowed to furnish details of outward supplies in GSTR-1 if the details of outward supplies for any of previous tax periods have not been furnished.

9. Entire Section 38 has been substituted with new Section 38. Basically, new Section 38 provides for communication of the details of inward supplies and input tax credit to the recipient. A system-generated statement shall be communicated to the recipient based on which ITC shall be availed. The system generated statement shall also give details of restrictions of ITC on account of time limit for availing ITC, suppliers who have: (a) defaulted in payment of tax and default continues for the prescribed period; (b) output tax as per GSTR–1 exceeds the output tax paid in GSTR–3B; (c) supplier has availed ITC in excess of the ITC available to Supplier in Section 38(2)(a); (d) supplier has defaulted in making payment of tax under Section 49(12); and (e) ITC from such class of persons as may be prescribed.

10. Time Limit for furnishing GSTR 3B by a non-resident registered person is reduced from 20 days to 13 days after the end of a calendar month.

11. First Proviso to Section 39(7) is substituted to provide an additional method of payment in lieu of
the Self-assessment tax dues in such manner and subject to such conditions and restrictions as may be prescribed.

12. As per amended Section 39(9), any omission or correction in GSTR – 3B shall be corrected in GSTR 3B up to 30th November following the end of the Financial Year.

13. Section 41 has been substituted entirely. As per substituted Section 41, proviso specifically provides that the recipient may re-avail the ITC when paid by the supplier in the manner as may be prescribed.

14. Sections 42, 43 and 43A are omitted.

15. Necessary amendments proposed to be carried out in Section 47 and 48 for omitting reference to ‘inward return’ and Section 38.

16. Sub-Section (12) to Section 49 has been inserted, which provides power to restrict usage of ITC for making payment of Output liability at the prescribed percentage as may be recommended by GST Council.

17. Retrospective amendment carried out to Section 50(3) w.e.f. 1st July 2017 to provide that interest shall be applicable only on ITC ‘availed and utilised’.

18. Time limit in Section 52(6) extended to 30th November following the Financial Year.

19. As per amended Section 54(10), now any refund can be withheld till default has been cleared by the Registered Person.

20. Necessary retrospective amendments have been brought in Notifications pursuant to Section 38, Section 50, etc.

II. ADVANCE RULINGS

(A) Agent vis-à-vis Transportation

M/s Dheeraj Goyal (AAR No. 08/AP/GST/2021 dated 18th January, 2021)

The applicant in the present case acts as an intermediary between truck owners and good transport agencies. The applicant arranges truck from trunk owner to Goods Transport Agencies (GTA). The applicant submits that he is not exempt under transportation of goods nor he is GTA as he does not issue consignment notes. He submits that he is a commission agent. He receives commission from the truck owner.

The commission is received by deducting the same from money to be passed on to truck owner after receipt of same from GTA, or if GTA directly pays to truck owner, the truck owner pays to him. Under the above facts, the issue raised was that the applicant should be liable on the amount retained by him and not on the gross amount.

The learned AAR held the applicant as intermediary as per provision of section 2(13) of IGST Act and ‘Agent’ as per the definition in section 2(5) of CGST Act.

In light of above the AAR reproduced question and gave answer as under:

‘Question: Whether the applicant will be classified under transportation of goods by road, which is exempt or commission agents or goods transport agencies and under what HSN code his services are classified and what will be the turnover?
Answer: The applicant will be classified as ‘Agent’ providing supporting service for transportation of goods under heading 9967(ii) as per the Notification No. 11/2017 Central Tax (Rate) and the amount received by him will form part of his turnover.’

(B) Basis for working of ratio for transfer of ITC in case of Demerger

M/s. IBM India Private Limited (KAR ADRG 47/2021 dated 30th July, 2021)

The applicant is a private limited company and has intended to separate its Managed Infrastructure services (‘MIS’) unit into a new company. Pursuant to such transfer, the applicant is to carry out the remaining business.

The applicant has sought an advance ruling in respect of the following questions:

‘i. Whether the value of assets which are outside the purview of GST is required to be included in the value of assets for the purpose of apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017?

ii. If the answer to Question (i) is yes, whether following assets are required to be considered for the purpose of determining the value of assets for apportionment towards transfer of input tax credit in case of de-merger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017:-

a. Assets which are created only to comply with the requirements of the Accounting Standards;
b. Assets which are not being transferred as part of de-merger.

iii. If the answers to Question 1 and / or 2 are yes, whether the assets which are not attributable to any particular GSTIN be considered in the GSTIN of the head office of the Company for the purpose of computation of asset ratio?’

The AAR held that according to Section 18(3) of the CGST Act, 2017 whenever there is reconstitution of a registered person, by way of demerger, with a specific provision for transfer of liabilities, the said registered person is allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to the demerged businesses in the manner as may be prescribed. The manner is prescribed in Rule 41 of CGST Rules. The AAR observed that the proviso to the sub-rule (1) of rule 41 of the CGST Rules, 2017 provides that the input tax credit shall be apportioned to the demerged unit in the ratio of the ‘value of assets’ of the new unit as specified in the demerger scheme to the value of entire assets of the registered person. Referring to the CBIC Circular No. 133/03/2020-GST dated 23rd March, 2020, the AAR held that the term ‘entire assets’ has been mentioned in the circular, and hence all the assets of the parent company in the State are to be considered to find out the ratio. Regarding the question of whether the assets which are created to comply with the requirements of accounting standards also AAR held that they form part of the ‘entire assets’ and hence are to be included in the scope of ‘entire assets’. It is also held that since there are no specific exclusions contemplated in the provisions of the Act or rules made thereunder, these assets are also includible in the ‘entire assets’.

In light of above the learned AAR replied to questions reproduced above as under:

‘A1. The value of assets which are outside the purview of GST is required to be included in the value of assets for apportionment towards transfer of input tax credit in case of demerger in terms of Section 18(3) of CGST Act, 2017 read with Rule 41(1) of CGST Rules, 2017.

A2. The value of assets includes the assets which are created only to comply with the requirement of accounting standards and also the assets which are not being transferred as part of demerger.

A3. There is no question of assets which are not being attributed to any particular GSTIN. For the purpose of computation of asset ratio, the assets which are transferred to the new units has to be considered to the total assets which the company was maintaining in the particular state and accordingly ITC apportionment is to be calculated.’

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Compilers’ Note: The ICAI has recently given awards for Excellence in Financial Reporting. The Gold award in the category ‘Manufacturing Sector’ was awarded to Grasim Industries Ltd for 2020-21. Below are some major ‘significant accounting policies’ from the Company’s Consolidated Financial Statements, which can be used for reference.

GRASIM INDUSTRIES LIMITED (31st MARCH, 2021)

Significant Accounting Policies

Principles of Consolidation
The Consolidated Financial Statements (CFS) comprises the Financial Statements of Grasim Industries Limited (“the Company”) and its Subsidiaries (herein after referred together as “the Group”), Joint Ventures and Associates. The CFS of the Group have been prepared in accordance with the Indian Accounting Standards on “Consolidated Financial Statements” (Ind AS 110), “Joint Arrangements” (Ind AS 111), “Disclosure of Interest in Other Entities” (Ind AS 112), “Investment in Associates and Joint Ventures” (Ind AS 28) notified under Section 133 of the Companies Act 2013.

(i) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which controls commences until the date on which control ceases.

(ii) Non-Controlling Interest (NCI)
Non-controlling interest in the net assets of the consolidated subsidiaries consists of:
a) The amount of equity attributable to noncontrolling shareholders at the date on which the investments in the subsidiary companies were made.
b) The non-controlling share of movements in equity since the date the Parent-Subsidiary relationship comes into existence.

The total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interest having deficit balance.

(iii) Loss of Control
When the Group loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any interest retained in the former subsidiary is measured at fair value at the date the control is lost. Any resulting gain or loss is recognised in the Statement of Profit and Loss.

(iv) Equity Accounted Investees
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining whether significant influence or joint control are similar to those necessary to determine control over the subsidiaries.

The Group’s investments in its associates and joint ventures are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment.

When the Group’s share of losses of an equity accounted investee exceed the Group’s interest in that associate or joint venture (which includes any long-term interest that, in substance, form part of Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligation or made payments on behalf of the associate or joint venture.

Unrealised gains resulting from the transaction between the Group and joint ventures are eliminated to the extent of the interest in the joint venture, and deferred tax is made on the same.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss as ‘Share of profit of an associate and a joint venture’ in the Statement of Profit and Loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

(v) Transaction Eliminated on Consolidation
The financial statements of the Company, its Subsidiaries, Joint Ventures and Associates used in the consolidation procedure are drawn upto the same reporting date, i.e., 31st March, 2021.

The financial statements of the Company and its subsidiary companies are combined on a line-by-line basis by adding together of like items of assets, liabilities, income and expenses, after eliminating material intra-group balances and intra-group transactions and resulting unrealised profits or losses on intra-group transactions. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

GOODWILL ON CONSOLIDATION
Goodwill represents the difference between the Group’s share in the net worth of Subsidiaries and Joint Ventures, and the cost of acquisition at each point of time of making the investment in the Subsidiaries and Joint Ventures. For this purpose, the Group’s share of net worth is determined on the basis of the latest financial statements, prior to the acquisition after making necessary adjustments for material events between the date of such financial statements and the date of respective acquisition.

Goodwill that arises out of consolidation is tested for impairment at each reporting date. For the purpose of impairment testing, goodwill is allocated to the respective cash-generating unit (‘CGU’). The impairment loss is recognised if the recoverable amount of the CGU is higher of its value in use and fair value less cost to sell. Impairment losses are immediately recognised in the Statement of Profit and Loss.

PROPERTY, PLANT AND EQUIPMENT (PPE)
On transition to Ind AS, the Group has elected to continue with the carrying value of all its property plant and equipment recognised as at 1st April, 2015 measured as per the previous GAAP, and use that carrying value as the deemed cost of the property, plant and equipment.

Property, plant and equipment are stated at acquisition or construction cost less accumulated depreciation and impairment loss. Cost comprises the purchase price and any attributable cost of bringing the asset to its location and working condition for its intended use, including relevant borrowing costs and any expected costs of decommissioning.

If significant parts of an item of PPE have different useful lives, then they are accounted for as separate items (major components) of PPE.

The cost of an item of PPE is recognised as an asset if, and only if, it is probable that the economic benefits associated with the item will flow to the Group in future periods, and the cost of the item can be measured reliably. Expenditure incurred after the PPE have been put into operations, such as repairs and maintenance expenses, are charged to the Statement of Profit and Loss during the period in which they are incurred.

Items such as spare parts, standby equipment and servicing equipment are recognised as PPE when it is held for use in the production or supply of goods or services, or for administrative purpose, and are expected to be used for more than one year. Otherwise, such items are classified as inventory.

An item of PPE is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the assets. Any gain or loss, arising on the disposal or retirement of an item of PPE, is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognised in the Statement of Profit and Loss.

Capital work-in-progress includes cost of property, plant and equipment under installation/under development as at the reporting date.

TREATMENT OF EXPENDITURE DURING CONSTRUCTION PERIOD
Expenditure, net of income earned, during the construction (including financing cost related to borrowed funds for construction or acquisition of qualifying PPE) period is included under capital work-in-progress, and the same is allocated to the respective PPE on the completion of construction. Advances given towards acquisition or construction of PPE outstanding at each reporting date are disclosed as Capital Advances under “Other Non-Current Assets”.

DEPRECIATION
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life, and is Provided on a straight-line basis, except for Viscose Staple Fibre Division (excluding Power Plants), Nagda, and Corporate Finance Division, Mumbai for which it is provided on written down value method, over the useful lives as prescribed in Schedule II of the Companies Act, 2013, or as per technical assessment.

A. Major assets class where useful life considered as provided in Schedule II:

Sr. No.	Nature of Assets	Estimated Useful Life of the Assets
1.	Plant and Machinery – Continuous Process Plant	25 Years
2.	Reactors	20 Years
3.	Vessel / Storage Tanks	20 Years
4.	Factory Buildings	30 Years
5.	Building (other than Factory Buildings) RCC Frame Structure	60 Years
6.	Electric Installations and Equipment (at Factory)	10 Years
7.	Computer and other Hardwares	3 Years
8.	General Laboratory Equipment	10 Years
9.	Railway Sidings	15 years
10.	– Carpeted Roads – Reinforced Cement Concrete (RCC) – Carpeted Roads – other than RCC – Non Carpeted Roads	10 Years 5 Years 3 Years
11.	Fences, wells, Tube wells	5 Years

Sr. No.

Nature of Assets

Estimated Useful

Life of the Assets

Plant and Machinery – Continuous Process
Plant

25
Years

Reactors

20
Years

Vessel / Storage Tanks

20
Years

Factory Buildings

30
Years

Building (other than Factory Buildings) RCC
Frame Structure

60
Years

Electric Installations and Equipment
(at Factory)

10
Years

Computer and other Hardwares

3 Years

General Laboratory Equipment

10
Years

Railway Sidings

15
years

10.

– Carpeted Roads – Reinforced Cement

Concrete (RCC)

– Carpeted Roads – other than RCC

– Non Carpeted Roads

10
Years

5 Years

3 Years

11.

Fences, wells, Tube wells

5 Years

In case of certain class of assets, the Group uses different useful life than those prescribed in Schedule II of the Companies Act, 2013. The useful life has been assessed based on technical advice, taking into account the nature of the asset, the estimated usage of the asset on the basis of the management’s best estimation of getting economic benefits from those classes of assets. The Group uses its technical expertise along with historical and industry trends for arriving the economic life of an asset.

Also, useful life of the part of PPE which is significant to the total cost of PPE, has been separately assessed and depreciation has been provided accordingly.

B. Assets where useful life differs from Schedule II:

Sr. No.	Nature of Assets	Useful Life as Prescribed by Schedule II of the Companies Act, 2013	Estimated Useful Life of the Assets
1.	Plant and Machinery:
1.1	Other than Continuous Process Plant (Single Shift)	15 Years	15 – 20 Years
1.2	Other than Continuous Process Plant (Double Shift)	Additional 50% depreciation over single shift (10 Years) 20 Years	20 Years
1.3	Other than Continuous Process Plant (Triple Shift)	Additional 100% depreciation over single shift (7.5 Years)	20 Years
2.	Motor Vehicles	6 – 10 Years	4 – 5 Years
3.	Electrically Operated Vehicles	8 Years	5 Years
4.	Electronic Office Equipment	5 Years	3 – 7 Years
5.	Furniture, Fixtures and Electrical Fittings	10 Years	2 – 12 Years
6.	Buildings (other than Factory Buildings) other than RCC Frame Structures	30 Years	3 – 60 Years
7.	Power Plants	40 Years	25 Years
8.	Servers and Networks	6 Years	3 – 5 Years
9.	Spares in the nature of PPE		10 – 30 Years
10.	Assets individually costing less than or equal to Rs.10,000/-		Fully depreciated in the year of purchase
11.	Separately identified Component of Plant and Machinery		2 – 30 Years

Sr. No.

Nature of Assets

Useful
Life as Prescribed by Schedule II of
the Companies Act, 2013

Estimated
Useful

Life
of the Assets

Plant and Machinery:

1.1

Other than Continuous Process Plant (Single
Shift)

15
Years

15 – 20
Years

1.2

Other than Continuous Process Plant (Double
Shift)

Additional
50% depreciation over

single
shift
(10 Years) 20 Years

20
Years

1.3

Other than Continuous Process Plant (Triple
Shift)

Additional
100% depreciation over

single
shift
(7.5 Years)

20
Years

Motor Vehicles

6 – 10
Years

4 – 5
Years

Electrically Operated Vehicles

8 Years

5 Years

Electronic Office Equipment

5 Years

3 – 7
Years

Furniture, Fixtures and Electrical Fittings

10
Years

2 – 12
Years

Buildings (other than Factory Buildings)
other than RCC

Frame Structures

30
Years

3 – 60
Years

Power Plants

40
Years

25
Years

Servers and Networks

6 Years

3 – 5 Years

Spares in the nature of PPE

10 – 30
Years

10.

Assets individually costing less than or
equal to Rs.10,000/-

Fully depreciated in the year of

purchase

11.

Separately identified Component of Plant
and Machinery

2 – 30
Years

The estimated useful lives, residual values and the depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Continuous process plants, as defined in Schedule II of the Companies Act, 2013, have been classified on the basis of technical assessment and depreciation is provided accordingly.

Depreciation on additions is provided on a prorate basis from the month of installation or acquisition and, in case of a new Project, from the date of commencement of commercial production. Depreciation on deductions/disposals is provided on a pro-rata basis upto the month preceding the month of deduction/disposal.

INTANGIBLE ASSETS ACQUIRED SEPARATELY AND AMORTISATION

On transition to Ind AS, the Group has elected to continue with the carrying value of all its Intangible Assets recognised as at 1st April, 2015 measured as per the previous GAAP and use that carrying value as the deemed cost of the Intangible Assets.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses, if any.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment, whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the Statement of Profit and Loss unless such expenditure forms part of carrying value of another asset. Intangible assets are amortised on a straight-line basis over their estimated useful lives.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognised in the Statement of Profit and Loss when the asset is derecognised.

Intangible Assets and their Useful Lives are as under:

Sr. No.	Nature of Assets	Estimated Useful Life of the Assets
1.	Computer Software	2 – 6 Years
2.	Trademarks, Technical Know-how	5 – 10 Years
3.	Value of License/Right to use infrastructure	10 Years
4.	Mining Rights	Over the period of the respective mining agreement
5.	Mining Reserve	On the basis of material extraction (proportion of material extracted per annum to total mining reserve)
6.	Jetty Rights	Over the period of the relevant agreement such that the cumulative amortisation is not less than the cumulative rebate availed by the Group
7.	Customer Relationship	15 – 25 Years
8.	Brands	10 Years
9.	Production Formula	10 Years
10.	Distribution Network (inclusive of Branch/Franchise/Agency network and Relationship)	5 – 25 Years
11.	Right to Manage and operate Manufacturing Facility	15 Years
12.	Value-in-Force	15 Years
13.	Group Management Rights	Indefinite
14.	Investment Management Rights	Over the period of 10 Years
15.	Order Backlog	3 Months – 1 Year
16.	Non-Compete fees	3 Years

Sr. No.

Nature of Assets

Estimated Useful Life of
the Assets

Computer Software

2 – 6
Years

Trademarks, Technical Know-how

5 – 10
Years

Value of License/Right to use
infrastructure

10
Years

Mining Rights

Over
the period of the respective mining agreement

Mining Reserve

On the
basis of material extraction (proportion of material extracted per annum to
total mining reserve)

Jetty Rights

Over
the period of the relevant agreement such that the cumulative amortisation is
not less than the cumulative rebate availed by the Group

Customer Relationship

15 – 25
Years

Brands

10
Years

Production Formula

10
Years

10.

Distribution Network (inclusive of
Branch/Franchise/Agency network and Relationship)

5 – 25
Years

11.

Right to Manage and operate Manufacturing
Facility

15
Years

12.

Value-in-Force

15
Years

13.

Group Management Rights

Indefinite

14.

Investment Management Rights

Over
the period of 10 Years

15.

Order Backlog

3
Months – 1 Year

16.

Non-Compete fees

3 Years

INTERNALLY GENERATED INTANGIBLE ASSETS – RESEARCH AND DEVELOPMENT EXPENDITURE
Revenue expenditure on research is expensed under the respective heads of the account in the period in which it is incurred. Development expenditure is capitalised as an asset, if the following conditions can be demonstrated:
a) The technical feasibility of completing the asset so that it can be made available for use or sell.
b) The Group has intention to complete the asset and use or sell it.
c) In case of intention to sale, the Group has the ability to sell the asset.
d) The future economic benefits are probable.
e) The Group has ability to measure the expenditure attributable to the asset during its development reliably.

Other development costs, which do not meet the above criteria, are expensed out during the period in which they are incurred.

PPE procured for research and development activities are capitalised.

FOREIGN CURRENCY TRANSACTIONS
In preparing the financial statements of the Group, transactions in foreign currencies, other than the Group’s functional currency, are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the rate prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.

Exchange differences on monetary items are recognised in the Statement of Profit and Loss in the period in which these arise, except for:
• Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
• Exchange differences relating to qualifying effective cash flow hedges and
• Exchange difference arising on re-statement of long-term monetary items that in substance forms part of Group’s net investment in foreign operations, is accumulated in Foreign Currency Translation Reserve (component of OCI) until the disposal of the investment, at which time such exchange difference is recognised in the Statement of Profit and Loss.

FOREIGN OPERATIONS
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on Acquisition are translated into Indian Rupees, the functional currency of the Group, at the exchange rates at the reporting date. The income and expenses of foreign operations are translated into Indian Rupee at the exchange rates at the dates of the transactions or an average rate, if the average rate approximates the actual rate at the date of the transaction. Exchange differences are recognised in OCI and accumulated in other equity (as exchange differences on translating the financial statements of a foreign operation), except to the extent that the exchange differences are allocated to non-controlling interest.

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount of exchange differences related to that foreign operation recognised in OCI, is re-classified to the Statement of Profit and Loss as part of the gain or loss on disposal. If the Group disposes of part of its interest in a subsidiary, but retains control, then the relevant proportion of the cumulative amount of foreign exchange differences is re-allocated to NCI. When the Group disposes of only a part of its interest in an Associate or a Joint Venture, while retaining Significant influence or joint control, the relevant proportion of the cumulative amount of foreign exchange differences is reclassified to Statement of Profit and Loss.

REVENUE RECOGNITION
(a) Revenue from Contracts with Customers
• Revenue is recognised on the basis of approved contracts regarding the transfer of goods or services to a customer for an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

• Revenue is measured at the fair value of consideration received or receivable taking into account the amount of discounts, incentives, volume rebates, outgoing taxes on sales. Any amounts receivable from the customer are recognised as revenue after the control over the goods sold are transferred to the customer which is generally on dispatch of goods.

• Variable consideration – This includes incentives, volume rebates, discounts etc. It is estimated at Contract inception considering the terms of various schemes with customers and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. It is reassessed at end of each reporting period.

• Significant financing component – Generally, the Company receives short-term advances from its customers. Using the practical expedient in Ind AS 115, the Company does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or service will be one year or less.

(b) Revenue from services are recognised as they are rendered based on agreements/arrangements with the concerned parties and recognised net of Service Tax or Goods and Service Tax (GST).

(c) If only one service is identified, the Group recognises revenue when the service is performed. If an ongoing service is identified, as a part of the agreement the period over which revenue is recognised for that service generally determined by the terms of agreement with the customer. For practical purposes, where services are performed by an indeterminate number of acts over a specified period of time, revenue is recognised on a straight line basis over the specified period unless there is evidence that some other method better represents the stage of completion. When a specific act in much more significant than any other acts, the recognition of revenue is postponed until the significant act is executed.

(d) Dividend income is accounted for when the right to receive the income is established.

(e) For all financial instruments measured at amortised cost or at fair value through Other Comprehensive Income, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument to the gross carrying amount of the financial asset.

(f) Insurance, railway and other claims, where quantum of accruals cannot be ascertained with reasonable certainty, are accounted on acceptance basis.

For Life Insurance Business, revenue is recognised as follows:
Premium Income of Insurance Business
Premium income on Insurance contracts and Investment Contracts with Discretionary Participative Feature (DPF) is recognised as income when due from policyholders. For unit-linked business, premium income is recognized when the associated units are created. Premium on lapsed policies is recognised as income when such policies are reinstated. In case of linked business, top-up premium paid by policyholders are considered as single premium and are unitised as prescribed by the regulations. This premium is recognised when the associated units are created.

Fees and Commission Income of Insurance Business
Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognised over those future periods.

Reinsurance Premium
Reinsurance premium ceded is accounted for at the time of recognition of the premium income in accordance with the terms and conditions of the relevant treaties with the re-insurers. Impact on account of subsequent revisions to or cancellations of premium is recognised in the year in which they occur.

For Health Insurance Business, Revenue is recognised as follows:
Gross Premium
Premium (net of service tax) in respect of insurance contracts is recognised as income over the contract period or the period of risk, whichever is appropriate, after adjusting for reserve for unexpired risk. Any subsequent revisions to or cancellations of premiums are recognized in the year in which they occur.

Reinsurance Premium
Premium (net of service tax) in respect of insurance contracts is recognised as income over the contract period or the period of risk, whichever is appropriate, after adjusting for reserve for unexpired risk. Any subsequent revisions to or cancellations of premiums are recognised in the year in which they occur.

Income from items other than to which Ind AS 109 Financial Instruments and Ind AS 104 Insurance Contracts are applicable
Revenue (other than for those items to which Ind AS 109 Financial Instruments are applicable) is measured at fair value of the consideration received or receivable. Ind AS 115 Revenue from contracts with customers outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance found within Ind ASs.

The Group recognises revenue from contracts with customers based on a five step model as set out in Ind AS 115:

Step 1: Identify contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

Step 2: Identify performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

Step 3: Determine the transaction price: The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Step 4: Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Group allocates the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Group expects to be entitled in exchange for satisfying each performance obligation.

Step 5: Recognise revenue when (or as) the Group satisfies a performance obligation.

GOVERNMENT GRANTS AND SUBSIDIES
Government grants are recognised when there is a reasonable assurance that the same will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised in the Statement of Profit and Loss by way of a deduction to the related expense on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income on a systematic basis over the expected useful life of the related asset.

Government grants, that are receivable towards capital investments under State Investment Promotion Scheme, are recognised in the Statement of Profit and Loss when they become receivable.

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates, and is being recognised in the Statement of Profit and Loss.

When the Group receives grants of non-monetary assets, the asset and the grant are recorded at fair value amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset.

PROVISION FOR CURRENT AND DEFERRED TAX
Current Income Tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Group operates and generates taxable income.

Current income tax, relating to items recognised outside of statement of profit and loss, is recognised outside profit or loss (either in Other Comprehensive Income or in other equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in other equity. The management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and established provisions, where appropriate.

Deferred Tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available, against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date, and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws), that have been enacted or substantively enacted at the reporting date.

Deferred tax, relating to items recognised outside profit or loss, is recognised outside profit or loss (either in Other Comprehensive Income or in other equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in other equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities, and the deferred taxes relate to the same taxable entity and the same taxation authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. Acquired deferred tax benefits recognised within the measurement period reduce goodwill related to that acquisition if they result from new information obtained about facts and circumstances existing at the acquisition date. If the carrying amount of goodwill is zero, any remaining deferred tax benefits are recognised in OCI / capital reserve depending on the principle explained for bargain purchase gains. All other acquired tax benefits realised are recognised in profit or loss.

MINIMUM ALTERNATE TAX (MAT)

MAT is recognised as an asset only when and to the extent there is convincing evidence that the Group will pay normal Income Tax during the specified period. In the year in which the MAT credit becomes eligible to be recognised, it is credited to the Statement of Profit and Loss and is considered as MAT Credit Entitlement. The Group reviews the same at each Balance Sheet date and writes down the carrying amount of MAT Credit Entitlement to the extent that there is no longer convincing evidence to the effect that the Group will pay normal Income Tax during the specified period. Minimum Alternate Tax (MAT) Credit are in the form of unused tax credits, that are carried forward by the Group for a specified period of time, hence, it is presented with Deferred Tax Asset.

BCAJ Admin

FROM THE PRESIDENT

Dear BCAS Family,

I am penning this communication while I am attending the 55th Residential Refresher Course (RRC) of the Society at the holy city of Nashik, and we are on the verge of concluding the RRC. The unique feature of RRCs organized by BCAS is the immaculate planning, time management, extensive networking amongst participants from around the country and excellent learning imparted by leading professionals in the traditional areas as well as emerging areas of professional interest. The most satisfying aspect of the RRC has been to see the glow on the faces of each delegate for meeting personally at a physical conference after a gap of two years. I hope this is the beginning of normalcy and relegation of pandemic fear into oblivion.

RRCs are in the DNA of BCAS. From one RRC in a year, BCAS has come a long way and now organizes 4 RRCs every year. One is the General RRC which I am currently attending, which encompasses various areas of practice and other professional interest topics. The second is International Tax & Finance RRC, which caters to international taxation professionals and aspirants. Third is the Residential Study Course (RSC) on GST, which is eagerly awaited by GST practitioners. This year it is scheduled from 2nd June, 2022 to 5th June, 2022 at Hotel The Westin, Goa. Fourth is the IndAS RSC, which is well received by IndAS/IFRS fraternity.

The event which has rocked the world is the full-scale invasion of Ukraine by Russia. During this invasion, Russia has recognized the independence of two Russia backed regions in Eastern Ukraine, namely Donetsk and Luhansk. This has led to sanctions announced by the US, Britain, EU, Japan and other countries. The sanctions are travel bans, freezing of assets held by Russian banks and restricting access to western finances. Russia has retaliated against the sanctions by cutting gas exports to Europe by almost 30% which in turn has flared up the gas prices worldwide.

I feel that humankind is moving towards less tolerance and less empathy. The unending competition to have an upper hand and dominate creates frictions which in turn converts to greed and hatred. We all are becoming less forgiving by nature. However, we all must bear in mind that the best quality to bring solace to one’s life, and in turn to the whole of humankind is Forgiveness. I would like to quote my Guru Mahatria Ra on Forgiveness:

Forgiveness is giving up your right to hurt the other for hurting you.
The purpose of forgiveness is not to liberate the other,
But to liberate you from the clutches of disturbances.
Learn to tranquilise hurt and hatred with forgiveness….
Feel liberated…. Forgive….

The development of this invasion does not augur well for the economies of the world, which were just limping back to normalcy. India is also facing the brunt with rising crude oil prices, which have touched USD 105 per barrel. It is the highest in 7 years. This will add to the inflationary pressures currently faced by the Indian economy.

Amidst the crisis, there is a landmark IPO of LIC of India, which is planned in March, 2022. It will be the biggest IPO in the Indian stock market history. It proposes to raise INR 63,000 crores through an Offer for Sale by the Government of India by diluting its stake by 5%. We will have to wait and watch with bated breath whether the geo-political situation affects LIC of India’s plans of listing in March, 2022.

Dealing with the developments at BCAS, I am happy to inform you that this year we were provided with an opportunity by the Honorable Chairman of CBDT, Mr. J B Mohapatraji, to present before him post-budget representation in person. It was an honour and a matter of pride for BCAS. I and four other members from BCAS made a representation on proposed amendments which according to us required further deliberations and consideration. Honorable Chairman gave a patient hearing to our representation. The detailed Post Budget Representation is available for download from the BCAS website.

We also had an interesting Panel Discussion on Budget 2022, which was not restricted to taxation but also included its impact on the economy and capital markets. This discussion was well received and attended virtually in large numbers. The panellists were Mr. Soumya Kanti Ghosh, an eminent economist, CA Shariq Contractor, an eminent tax professional and Past President of BCAS and Mr. Deven Choksey, a reputed financial consultant and analyst. The discussion was very ably moderated by CA Sonal Bhutra an anchor at CNBC TV18.

TAXCON 2022, which was organized by six Mumbai based professional associations during the month was successfully concluded. It was appreciated by the participants for its content and the learned faculties who made presentations and participated in the panel discussions.

Our journey of imparting knowledge is not restricted to the routine areas of professional excellence. We continuously bring to the members and public at large upcoming opportunities to be exploited. One such opportunity is setting up base at GIFT CIty IFSC at Gandhinagar. To create awareness of the same, we had a Lecture Meeting wherein three speakers provided insights into the infrastructure available, its ecosystem, legal and regulatory framework and taxation related benefits from operating out of GIFT City.

From the activities being highlighted through my communications, it would be appreciated that BCAS is trying to bring new ideas to its members and become an enabler of creating a vision to take on challenges in the areas emerging and untried. This same can be summarized through an interesting quote of my Guru Mahatria Ra:

The crux of creativity is seeing things from a new perspective.
The greatest block to creativity is old judgements.
It is time to reprogram your minds.
So, try the untried.

Best Regards,

Abhay Mehta
President

BCAJ Admin

Society News

LEARNING EVENTS AT BCAS

1. LECTURE MEETING ON CHALLENGES IN IMPLEMENTATION OF AQMM

Bombay Chartered Accountants’ Society organised an online lecture meeting on the topic ‘Challenges in Implementation of Audit Quality Maturity Model (AQMM) on 20th February. 2023. The meeting was attended by over 150 participants.

CA Durgesh Kabra shared the history and need of AQMM, its phase-wise applicability to various firms, benefits of self-evaluation vis-à-vis evaluation by peer reviewer, overview and weightage of various sections and sub-sections in the AQMM.

CA N. Jayendran, commenced his session by sharing the advantages of AQMM for practising units. He shared the process to re-assess AQMM, fees for review by peer reviewer. He shared his views on some of the challenges in the implementation of AQMM especially for SME firms:

Weightage of various aspects in score card like HR, qualitative aspects, etc

Negative scoring on regulatory action for unsatisfactory work by a regulator

Same set of questions repeated leading to incorrect assessment

Vision and mission statement may become surrogate advertising

Low weightage of 1.33 per cent to audit manual despite it being necessary for quality audit compared to good internet connection having weightage of 15 per cent

Maintenance of records for low value small audit

Lack of clarity on score where no QRB audit has been conducted during the period

Evaluation of questions on client disputes, IP-based attendance monitoring, data security and cyber security, adherence with minimum scale of fees for small and miscellaneous work

Budgeting and monitoring tools for smaller firms

Dedicated help desk lacks clarity

Maintaining Partner to manger ratio, minimum staff to partner ratio, manager to article ratio, client to staff ratio, etc

Focused policies for support for staff wellbeing, engagement and communication, gender diversity, credible employee survey, compensation management.

CA N. Jayendra appreciated the overall benefit that would accrue with this exercise despite various initial challenges in implementation of AQMM.

Both the speakers satisfactorily addressed the queries raised by the participants.

BCAS Lecture Meetings are high-quality professional development sessions which are open-to-all to attend and participate. Missed the Lecture Meeting, but still interested in viewing the entire meeting video

Visit the below link or scan the Q.R. code with your phone scanner app:

Link – https://www.youtube.com/watch?v=SaRrKcAoisA

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2. HRD STUDY CIRCLE MEETING ON AVERTING DANGEREOUS SITUATIONS

The Bombay Chartered Accountants’ Society organised a session on identifying potentially dangerous people on the basis of their facial features. Conducted under the aegis of the Human Resources Development Study Circle on 14th February, 2023 the hybrid session included presentation on reading ‘Red Flags on Face – An Iota of Alertness Can Avert a Potentially Dangerous Situation.’ by Naresh Kokal.

Attended by 78 people, session at the Churchgate premises of BCAS started by pictures of visages of Asuras/Demons, created by artisans of India, and depiction of ferocity in the images. The eyes and surrounding areas, displayed the inherent brutality of the face.

In the subsequent slides of pictures of leaders – Indian & Foreign, celebrities, politicians and underworld dons, it was demonstrated that the browbones, eyebrows, eyes, chin and jaws account for the barbarity.

The browbones show the need to control others. The eyebrows, the passion, energy and leadership qualities

The eyes show the heart in general, the size of the iris and sclera shows the state of the mind. The Chin shows the willpower. A broad chin is usually noticed on Dictators.

The Jaws show determination. They show the resoluteness. They also point to the potential terror that these people can unleash. The session ended on the note that although these signs show a dangerous person, they could also be found on Successful Entrepreneurs.

This was followed by Q & A session, where the attendees asked their questions which were answered.

The session ended with the Chairman thanking Naresh Kokal for the presentation.

Link – https://www.youtube.com/watch?v=SWyLuJVn0dM

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3. SESSION ON SECTION 138 OF NEGOTIABLE INSTRUMENTS ACT

The Corporate and Commercial Laws Study Group convened a session on Section 138 of the Negotiable Instruments Act and concomitant provisions related to prosecution for cheque bouncing on 13th February, 2023.

Titled, “Prosecution for cheque bouncing: Overview of the law, issues and solutions,” the session was led by speaker Adv. Kartik Garg who took the participants through detailed notes on the law and judgments under each provision. He explained the concepts in a lucid manner. In fact, the notes were of such sterling quality and were so exhaustive that no more oral explanation was required. After the session these notes were circulated amongst the participants. Around 55 participants attended the session. Further sessions on other white collar criminal topics are in the process of being scheduled.

4. LECTURE MEETING ON DIRECT TAX PROVISIONS OF THE FINANCE BILL 2023

The Society organised a public lecture meeting on ‘Direct Tax Provisions of the Finance Bill 2023.’ Addressed by CA Pinakin Desai, the meeting was held at Yogi Sabhagruha on 7th February, 2023. This was the 5th lecture meeting by him and the 58th of the Society.

The lecture meeting was live streamed and witnessed by more than 5,000 persons including online viewers. CA Mihir Sheth, President, BCAS welcomed and shared his thoughts about the Budget. He then invited CA Chirag Doshi, Vice President to introduce the speaker.

Mr. Desai started his speech by appreciating the Finance Minister’s speech having met the public expectations. He also discussed on the various new insertions/amendments in areas of rate of tax and alternating tax regime, angel tax, capital gain exemptions for residential house, taxability of Nil cost assets, disallowance under section 43(b) in case of delay in payment to MSME, taxability of life insurance policies, market linked debentures. The talk also covered other aspects of the Direct Tax Provisions for Charitable trusts, dealing with the refund cases, TDS provisions, assessment provisions, etc. which were part of the Finance Minister’s speech.

CA Pinakin Desai expressed his views on every important tax proposal under the Finance Bill, 2023.

The audience benefitted greatly from his speech. The meeting ended with a huge round of applause and appreciation by the participants.

Visit the below link or scan the Q.R. code with your phone scanner app:

Link – https://www.youtube.com/watch?v=XxDNgV4bOVg

Q.R. Code –

5. STUDY CIRCLE MEETING ON ‘PROFESSIONAL CHALLENGES IN HANDLING INQUIRIES AND RECENT JUDICIAL PRONOUNCEMENTS RELATED THERETO.’

The Indirect Tax Committee organised a hybrid Study Circle meeting at the Bombay Chartered Accountants’ Society Auditorium on 6th February, 2023

The meeting focused on the topic titled ‘Professional Challenges in handling inquiries and recent judicial pronouncements related thereto.’ It was presided by Adv (CA) J. K. Mittal who deliberated on the challenges in handling multiple inquiries and ratio of recent judicial pronouncements. He covered the following aspects in detail

Power to summon and give evidence under section 70 with explanation of producing a document and evidence and the time when the same needs to be available

Whether a summons constitute an enquiry by itself

Judgment of Canon India (P) Ltd of honorable Supreme Court to clarify “the proper officer” does not mean “Any proper officer”

Essential ingredients of issuing summons

Whether legal opinions provided by chartered accountants lead to aiding or abetting in case of alleged evasion

Three factor ingredients of section 67 “claimed ITC + in contravention of any + to evade tax”, its need and necessity to exist before start of investigations, search, seizures

Whether cash can be seized during the search

Issues in relation to retrospective cancellation of GSTIN

Disallowance of mismatched ITC, legality of the said provisions

The two-hour meeting benefitted 73 participants from across who posed several questions to the speaker in the physical as well as virtual mode.

6. FELICITATION OF CA FINAL PASS-OUTS OF NOV 2022 BATCH

On January 30, 2023, BCAS felicitated the young pass-outs of Chartered Accountancy of the November 2022 batch at a special function held at the BCAS Hall.

The felicitation ceremony was preceded by a talk on the subject “Milestone 2.0 – Career in International Tax, Mergers & Acquisition, Start-ups and More” by experts, CA Namita Gad, CA Kinnari Gandhi and CA Siddharth Banwat.

Each expert guided the 180-strong audience on the skillsets and aptitude required for the respective profile job, while sharing some of the challenges faced and how to overcome them. The discussion was appreciated by the young achievers. The experts also answered the questions posed by the the audience at the time of registration. Some basic questions were also taken up at the end of the talk. The entire event was coordinated by the team comprising CA Rimple Dedhia, CA Samit Saraf and CA Vivek Shah.

Youtube link: https://www.youtube.com/watch?v=VMDuFfMd1YU

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7. INCOME TAX KI PAATHSHAALA – LONG DURATION CERTIFICATION COURSE ON INCOME TAX

The BCAS Taxation Committee organised a Long Duration Certification Course on Income Tax – ‘Income Tax ki Paathshaala’ from 2nd January to 30th January, 2023. The meeting comprised 21 sessions. The key note addressed was delivered by CA TN Mahoraran while the concept and scope of total income was explained by CA Nandkishor Hegde. CA Narendra Jain touched upon the concept of Residence and the income deemed to be achieved or deemed to accrue in India.

Other speakers at the event included CA Ronak Doshi, CA Chaitee Londhe, CA Abhitan Mehta, CA Krishna Upadhay, CA Kinjal Bhuta, CA Bhaumik Goda, CA Sonalee Godbole, CA Gautam Nayak, CA Hitesh Gajaria, CA Rutvik Sanghavi, CA Amil Sawant, CA Toral Shah, CA Avinash Rawani, CA Nikhil Tiwari, CA Ashok Mehta, Adv. Rahul Hakani, CA Ameet Patel, CA Anil Sathe and CA Nihar Jambusaria

Attended by 212 participants, the course received an overwhelming response. Each of the participant was given a certificate of participation in the Long Duration Course organized by the Taxation Committee of BCAS.

8. ITF STUDY CIRCLE MEETING ON UAE CORPORATE TAX REGIME

ITF Study circle meetings were organised on UAE Corporate Tax Regime in two sessions on 6th January 2023 and 25th January 2023.

The meeting was led by group leaders CA Janak Panjuani and CA Rajiv Hira from Dubai. The sessions covered the UAE Corporate Tax laws in a holistic manner. The group leaders focused on the basics of corporate taxation, residential status, Permanent Establishment (PE), importance of Anti-Money Laundering (AML) compliance.

Specific concepts pertaining to taxability of unincorporated JV / associations, reliefs to small businesses, exempt income, FTZ etc. along with case laws were discussed in detail to give a better understanding to the participants.

The group leaders also discussed the topics of interest deduction, interest capping rules, non-deductible expenses, tax loss, carry forward of losses and losses adjustment, tax groups, transfer pricing provisions, managerial remuneration, etc.

An interesting round of Q & A with the participants was elaborately addressed by the speakers.

9. SESSION ON LAW FOR REDEVELOPMENT OF SOCIETIES

On 16th January, 2023, Ms. Rucha Jog Raheja, Solicitor addressed a session in the Corporate and Commercial Laws study group on the law relating to redevelopment of societies. After dealing with the legal concepts and need for redevelopment, Ms. Jog Raheja gave a brief account of the law relating to deemed conveyance and the drafting mistakes made in the legal documentation governing the rights of parties before, during and after the actual redevelopment. The session addressed many misconceptions and wrong assumptions of the audience. Finally, Ms. Jog Raheja dealt with all the questions asked by the audience. After the session many suggestions were received for more sessions on niche aspects of redevelopment like deemed conveyance, etc. Further sessions focusing on drafting particular contracts relating to redevelopment will also be scheduled. Over 80 participants attended the session and a very strong positive feedback was received from the participants.

10. 20TH RESIDENTIAL RETREAT – LEADERSHIP SKILLS ORGANIZED IN MUMBAI

The 20th Residential Retreat – “Leadership Skills and Management-The Chanakya Way” was organized by Dr. Radha Krishnan Pillai on 14th and 15th January, 2023 at Keshav Shrusti in Bhayander, Mumbai.

Faculties Dr. Radhakrishnan Pillai and his colleague Mr. Pranav Patel explained Chanakya’s life and his vow to pull down the Nand Dynasty promising Chandra Gupt Maurya to make him a King and thus proving that leadership is an attitude and not a designation.

Participants were enlightened on the term “Aanvikshiki” – educating them on how to think using science. This helped them differentiate between chinta and chintan i.e.going to root cause, understanding real problem and find appropriate resolution.

Further they explained Kautilaya “Saptanga” – The Seven pillars:

1. – The King – Leader

2. – The Minister

3. – The Country – Your Market / Client / Customer

4. – Fortified City – The Head Office

5. -The Treasury

6. – The Army – Your Team

7. – The Ally – Mentor / Friend / Consultant

All these seven pillars were explained in detail with applying the Saptang model. The faculty also showed them a film based on a book titled ’Corporate Chanakya’ featuring interviews of imminent personalities applying the Saptang model. It also distributed a workbook containing details on The Seven Pillars to find Chanakya in You.

The faculty explained that despite being a thankless job leadership gives utmost inner satisfaction. It also emphasized on documentation, standardization and having a succession plan and to create another leader. Besides, it discussed management lessons from Bhagvad Gita.

Around 38 participants attended the event which included games, singing and dancing in a perfect winter setting and camp fire. The event ended on the second day giving the participants a clarity on the roles and goals in each sphere of life.

BCAJ Admin

Miscellanea

I. TECHNOLOGY

36 India’s CAG has a warning for ChatGPT users

Explaining that India is the home to the third largest and fastest growing AI ecosystem in the world, Alkesh Kumar Sharma, Secretary, Ministry of Electronics and Information Technology, said in his speech, “In this era of digital transformation, role of AI technologies becomes crucial in bringing accountability and transparency in delivery of public services.”

The Comptroller and Auditor General of India (CAG) echoed the sentiments of many tech experts when he said that AI technologies like ChatGPT, despite being an exciting technology, come with a potential risk of biasness.

The national auditor Girish Chandra Murmu while addressing the seminar themed “AI and Data Analytics” said that “AI technologies while being exciting also bring a certain degree of risk with them. The most significant risk associated with AI implementation in the public sector is the potential for bias.”

While ChatGPT is seen as a path-breaking technology, many have accused the technology of being “woke” and giving biased responses. Expressing concerns around AI’s ability to learn and improve itself, Murmu said that AI algorithms learn and improve themselves by identifying a pattern in training data and the entire algorithm would be vulnerable to similar bias. “Another risk of AI implementation in the public sector is privacy concerns for the individuals.”

While the indispensability for AI to detect malicious cyber activities, identifying potential threats and in responding to them in the forseeable future is bound to increase, AI is also being used by cyber criminals to create more advanced attacks against security infrastructure and solutions, he said.

“That is why AI is always to be hyphenated with ‘responsible’ i.e., it should work for overall betterment of society, environment and not just for humankind but for the entire planet,” Murmu added.

Explaining that India is the home to the third largest and fastest growing AI ecosystem in the world, Alkesh Kumar Sharma, Secretary, Ministry of Electronics and Information Technology, said in his speech, “In this era of digital transformation, role of AI technologies becomes crucial in bringing accountability and transparency in delivery of public services.” Sharma added how the government is moving towards evidence-based policy formulation and facilitating the acceleration that is being brought for the development of innovative start-up ecosystem in India.

Another speaker, Rohini Shrivastha, CTO, Microsoft India, explained the principles for responsible and ethical use of AI, and also emphasised on the need for risk-based regulation of AI technologies.

(Source: financialexpress.com 23rd February, 2023)

37 2,767 complaints against influencers processed, most violations on Insta

The Advertising Standards Council of India (ASCI) said it has processed 2,767 complaints since coming up with influencer guidelines in May 2021.

More than half of the violations have been found on Meta-owned Instagram platform, while Youtube contributed a third of them, the self-regulatory organisation for the advertising industry said.

The body said in over 90 per cent of the cases, there were modifications required.

“The Central Consumer Protection Authorities also now require disclosure of material connection between brands and influencers. Hence, non-disclosures are potential violations of the law,” the body’s Chief Executive and Secretary General Manisha Kapoor said.

In FY22, the total number of violations stood at 1,592, with virtual digital assets like bitcoins topping with nearly 24 per cent, and followed closely by personal care category which accounted for 23 per cent.

In the first nine months of FY23 (April-December 2022), there were 1,175 complaints received with personal care category topping by contributing a third of them, followed by food and beverage at 16 per cent.

Instagram accounted for 53 per cent of the violations in FY22, which has increased to 65 per cent in the first nine months of FY23, while in the case of Youtube, the same has declined from 37.8 per cent to 27 per cent.

The body also conducted a survey of 820 respondents, which found 79 per cent of them saying they trust influencers and 90 per cent saying they have made purchases based on influencer endorsements.

The survey said transparency and honesty about brand associations is the number one reason for influencer trust, followed by relatable lifestyle and content.

(Source: business-standard.com 16th February, 2023)

II. WORLD NEWS

38 Financial Action Task Force Suspends Russia’s Membership

The Financial Action Task Force (FATF) sets standards for more than 200 countries and jurisdictions and seeks to help authorities tackle serious crime including drug smuggling, human trafficking and terrorism. The global anti-money laundering watchdog said it has suspended Russia’s membership over Moscow’s invasion of Ukraine.

“The Russian Federation’s actions unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system,” the group said.

It added that Russia was still accountable for implementing FATF’s standards.

Following a five-day meeting in Paris, FATF added Nigeria and South Africa to its list of countries subject to increased monitoring, and removed Cambodia and Morocco from the category.

Russia has been expelled from the Council of Europe and suspended from the UN Human Rights Council, but is still a member of many international organisations.

(Source: ndtv.com. dated 24th February, 2023)

III. ENVIRONMENT

39 The other victim: The environmental costs of the Russia-Ukraine War

The environmental costs of the conflict are likely to far outlive the fighting itself with Ukraine’s current claims of compensation for environmental damage standing at over $ 50 billion.

As the first anniversary of the war between Russia and Ukraine arrives, the true costs of the war are slowly dawning upon the world. The war has killed thousands, displaced many more, left many with debilitating injuries, flattened towns and caused immeasurable suffering. But the conflict, which does not seem to be ending anytime soon, also has another, often less mentioned, victim: the Planet itself.

The machinations of modern war impact the environment in more ways than one. From sky-high fuel consumption and a ginormous carbon footprint to degradation of thriving ecosystems caused by the fighting, the conflict in Ukraine has racked up environmental costs that will far outlive the actual fighting.

Here’s a look at how exactly the war has been deleterious to the environment.

Fighting-induced destruction

The first and most direct impact of the war is the destruction that the fighting itself has caused. According to UN Environment Program data, the conflict has seen damage across many regions of the country, with incidents at nuclear power plants and facilities, energy infrastructure, including oil storage tankers, oil refineries, drilling platforms and gas facilities and distribution pipelines, mines and industrial sites and agro-processing facilities.The result has been multiple air pollution incidents and potentially serious contamination of ground and surface waters.

According to the claims by the Ukraine’s environment ministry, altogether the losses from land, water and air pollution amounted to $51.4 billion.

Kateryna Polyanska, a landscape ecologist travelling across Ukraine to study the environmental damage caused by the War, told The Guardian that the worst damage is not always visible. “It is not just the explosive material, it is rocket fuel and shrapnel and wire … All these little tiny pieces of pollution have a huge impact on nature. You can’t imagine the scale of the impact,” she said.

Yuliia Ovchynnykova, a Ukrainian MP who serves on a parliamentary environment committee, told The Guardian that “more than 2 million hectares of forest have been destroyed, wrecking ecosystems and putting at risk rare endemic species such as pearl cornflowers, which can be found only on sandy steppes on the outskirts of Mykolaiv, or the bare tree, which grows in a narrow area of the Stone Graves reserve in Donetsk”.

A new Greenpeace map of Ukraine plots the myriad ways in which the War has damaged the environment. In the long term, Ukraine will need a significant clean-up of air, soil and water to allow those who’ve fled the war to return and restart their lives.

Astronomic carbon footprint

The environmental costs however go far beyond the direct destruction of nature that the fighting has caused.Notably, the war has an extremely large carbon footprint. Ukraine estimates the emissions from Russia’s invasion to be roughly around 33 million tons of CO2 from the conflict and 23 million tons CO2 from fires caused by the conflict. It predicts that reconstruction of infrastructure and buildings destroyed or damaged during the war could emit 49 million tons of CO2. For perspective, even without adding the potential carbon costs for reconstruction, that is roughly equivalent to the carbon footprint of Greece or Belarus in 2020.

Many of the machines and equipment used for battle are extremely “dirty”. For instance, the state-of-the-art Leopard 2 tanks that Ukraine have a fuel capacity of 1,200 litres. Depending on the terrain, their operational range varies from 220 km (cross country) to 340km (on roads). This means that these monster machines consume roughly between 3.5-5.5 litres of fuel per km. For comparison, a modern car can travel well over 15 km per litre of fuel consumed.

While some observers claim that the energy fluctuations caused by the war shall quicken the pace of transition away from oil and gas, as of now, the war itself is one of the world’s biggest polluters amidst a growing global climate crisis.

Nature has taken a backseat

The fact of the matter is that amidst the most immediate exigencies and consequences of the War, nature has taken a back seat. For instance, Russian troops dug up deep trenches in the protected Chernobyl sanctuary: an area largely untouched since the nuclear disaster in 1986. Critics claim that this could have dug up dangerous radioactive material. But alas, the tactical needs of battle were far more important than the risks of nuclear contamination.The loosening of environmental norms and the spike in military production are all outcomes of the War. In a bid to maximize fighting capabilities, both Ukraine and its allies as well as Russia have cut corners where they can. Generally, environmental norms, the benefits of which are far less tangible in the short term, are the first casualty in this process.

Even when the conflict ends, the immediate efforts of reconstruction will focus not on the environment but housing, building infrastructure, and restoring services. “There will be a lot of competing priorities post-conflict”, said Doug Weir, research and policy director of the Conflict and Environment Observatory Unit, which monitors and campaigns about the environmental impacts of war.

(Source : indianexpress.com 24th February, 2023)

40 Lithium discovery important for India’s EV push but mining poses serious environmental risks: Experts

The Geological Survey of India recently identified a potential deposit of 5.9 million tons of lithium in Reasi district’s Salal-Haimana area, the first such anywhere in India, which imports lithium. GSI said the site is an “inferred resource” of the metal, which means it is at a preliminary exploration stage, the second of a four-step process.

The discovery of lithium in Jammu and Kashmir is significant for India’s push towards electric vehicles but any environmental gains could be negated if it is not mined carefully, say experts, citing risks such as air pollution and soil degradation in the fragile Himalayan region.

The discovery of lithium deposits can be a potential “game changer” for the country’s clean energy manufacturing ambitions in several ways, said Siddharth Goel, Senior Policy Advisor, International Institute for Sustainable Development (IISD).

“First of all, the scale of the reserves is significant, and can — if proven to be commercially viable — reduce India’s reliance on imports of lithium-ion cells, which are a key component for EV batteries and other clean energy technologies,” he said.

But there is a flip side too. “Reports indicate that approximately 2.2 million litres of water is needed to produce one ton of lithium. Further, mining in the unstable Himalayan terrain is fraught with risks,” cautioned Saleem H. Ali, Professor, Energy and the Environment, the University of Delaware. Lithium mining in Chile, Argentina and Bolivia, for instance, has led to concerns over soil degradation, water shortages and contamination, air pollution and biodiversity loss. “This is because the mining process is extremely water-intensive, and also contaminates the landscape and the water supplies if not done in a sustainable method,” Ali said.

According to the US Geological Survey (USGS), about a fourth of the Earth’s known lithium deposits (88 million tons) would be economical to mine, said Charith Konda, Energy Analyst, Electricity Sector, US-based Institute for Energy Economics and Financial Analysis (IEEFA). “Applying this benchmark, India could probably economically extract 1.5 million tons of lithium from the 5.9 million tons discovered in preliminary studies,” Konda told PTI.

Economically here would mean that the resources and technology used to extract will give good return in terms of usage of the resource.

“India has a vision of increasing the share of electric vehicle sales to 30 per cent in private cars, 70 per cent in commercial vehicles, 40 per cent in buses, and 80 per cent in two- and three-wheelers by 2030. In absolute numbers, this could translate to 80 million EVs on Indian roads by 2030,” Konda said.

The battery pack of an average electric car, he explained, requires 8 kg of lithium. By this metric, India’s economically extractable lithium reserves should be enough to power 184.4 million electric cars.

Currently, India is import dependent for several elements such as lithium, nickel and cobalt. Ministry of Commerce data shows that India spent around Rs 26,000 crore importing lithium between 2018-2021.

In 2021, preliminary surveys by Atomic Minerals Directorate for Exploration and Research (AMD) showed the presence of lithium resources of 1,600 tons in Mandya District in Karnataka. However, there has been no report of mining the resource till date. An IISD study found that access to critical elements such as lithium is a key challenge faced by companies investing in India’s EV ecosystem.

“These reserves could potentially be a huge carrot to attract investment into domestic battery manufacturing and other clean energy technologies,” Goel said the potential site in Reasi has the same amount of lithium as the reserves in the US and more than China’s current reserves which are around 4.5 million tons. However, the world’s largest lithium reserves in South America — especially in Bolivia, Chile and Argentina — are several times greater, collectively over 40 million metric tonnes.

According to University of Delaware’s Ali, domestic supply of usable lithium, if developed, could help develop batteries for solar and wind storage and EV usage.

What is critical in this scenario is the government putting in place the right support to make sure that securing these critical minerals is done in a socially and environmentally responsible manner, experts agree.

Environmentalists also argue that the focus should be on redesigning cities to reduce car usage in general instead of using metals like lithium to shift to EVs.

“This could specially be done in high density population centres of India with smarter urban planning,” Ali said.

This is because even when safeguards try to limit the social and environmental harm around fossil fuel extraction, which is considerable, there is no “fix” for air pollution and greenhouse gas emissions, IISD’s Goel added.

“Given that lithium-ion batteries are the most advanced batteries available, they would continue to play a major role for the foreseeable future. India should mine lithium with proper environmental and social safeguards in place given the ecological and political sensitivities of the area,” IEEFA’s Konda said.

(Source : economicstimes.com 24th February, 2023)

BCAJ Admin

Regulatory Referencer

DIRECT TAX

1. Corrigendum to circular no. 23 of 2022 dated 03rd November, 2022 – explanatory notes to Finance Act, 2022 – Circular No. 2/2023 dated 6th February, 2023

The Explanatory notes to the Finance Act, 2022, explaining the amendments made in direct tax laws vide the Finance Act, 2022 were issued vide Circular no. 23 of 2022 dated 03rd November, 2022 A corrigendum to the said circular is issued.

2. Amendment to Rule 12 – Income-tax (First Amendment) Rules, 2023- Notification No. 4/ 2023 dated 10th February, 2023

SAHAJ ITR-1, ITR-2, ITR-3, SUGAM ITR4, ITR-5, ITR-6, ITR-V and ITR- Acknowledgement notified for A.Y. 2023-24

COMPANIES ACT, 2013

1. MCA revises e-form AOC-5; seeks more disclosures relating to address at which books of accounts are maintained:

MCA has notified the Companies (Accounts) Amendment Rules, 2023. E- form AOC-5 (Notice of address at which books of account are to be Maintained) has been revised. Now, it is mandatory to attach proof of address, copies of the utility bill, and a photograph of the registered office showing at least one director with form AOC-5. Earlier, only board resolution was required to be attached. The changes will be effective 23rd January, 2023 [Notification No. G.S.R. 40(E), dated 20th January, 2023]

2. Now Directors disqualified under section 164 (1) of Companies Act, 2013 are also required to file form DIR 8:

MCA has amended the Companies (Appointment and Qualifications of Directors) Rules, 2014. The amendment requires that directors disqualified under section 164(1) of the Companies Act must also file Form DIR-8 with the company. Earlier, the DIR-8 was required to be filed in case of disqualification under section 164(2). Further, the company is required to file Form DIR-9 with RoC within 30 days of receipt of DIR-8. Various changes in forms are also notified. [Notification dated 20th January, 2023]

3. MCA prescribes detailed disclosures relating to charges/valuations in the revised forms PAS-2, PAS-3, & PAS-6:

MCA has amended the Companies (Prospectus and Allotment of Securities) Rules, 2014. The Ministry has substituted form PAS-2, PAS-3 & PAS-6 with new forms. Now, in form PAS-2, formats of disclosure relating to charges has been amended. In form PAS-3, greater disclosures regarding valuation undertaken is to be given. Further, in form PAS-6, greater disclosure of details of shares as per class is to be given.

[Notification dated 20th January, 2023]

4. MCA grants additional 15 days to file PAS 3 and other newly launched forms on the V3 portal:

MCA has decided to allow an additional 15 days for filing these forms without any additional fees. Form PAS-03 & 45 other forms, whose due dates for filing fall between 20th January, 2023 and 06th February, 2023, can now be filed without payment of additional fees for a period of 15 days. The extension is provided due to change in the manner of filing of Forms in V3, including the fresh process of registration of users on MCA-21

[General Circular No. 03/2023, dated 07th February, 2023]

I. SEBI

1. SEBI amends Stock Brokers Regulations; enhances obligations and responsibilities for qualified stock brokers:

SEBI has notified the SEBI (Stock Brokers) (Amendment) Regulations, 2023. A new regulation 18D has been added which empowers the Board to designate a stockbroker as a “qualified” stockbroker based on the size and scale of operations, its impact on investors and securities market, and governance and service standards. Further, the stockbroker designated as a qualified stockbroker is required to meet enhanced obligations and discharge responsibilities.

[Notification No. SEBI/LAD-NRO/GN/2023/116., dated 17th January, 2023]

2. SEBI widens the definition of ‘Senior Management’ under LODR regulations to include ‘all functional heads’:

SEBI has notified the SEBI (LODR) (Amendment) Regulations, 2023. An amendment has been made to the definition of ‘senior management’ under regulation 16 of LODR. Now, functional heads would also be included in the definition of senior management. Under the extant norms, functional heads were not covered in the definition. Further, a new clause w.r.t details of material subsidiaries of the listed entity including date, place of incorporation etc. has also been inserted.

[Notification No. SEBI/LAD-NRO/GN/2023/117, dated 17th January, 2023]

3. SEBI introduces two new methods to achieve ‘Minimum Public Shareholding’:

SEBI has introduced two new methods to achieve the Minimum Public Shareholding (MPS) by listed Companies. Now, MPS can be achieved by allocating shares to employees through ESOP subject to a maximum of 2 per cent of the paid-up equity share capital of the listed entity. However, no shares will be allotted to the promoters/promoters’ group under this method. Further, MPS can be achieved by transferring shares held by promoters to an exchange-traded fund managed by a SEBI-registered mutual fund.

[Circular No. SEBI/HO/CFD/POD2/P/CIR/2023/18, dated 03rd February, 2023]

4. SEBI puts an end to Buyback via odd lot method; notifies various other amendments in Buyback Regulations;

SEBI has notified an amendment in SEBI (Buy-back of Securities) Regulations 2018. As per the amended norms now Buyback can be carried out via tender offer or open market method only. Also, maximum limits for buyback through open market through stock exchanges have also been changed. Further, it has been clarified that buy-back from the open market through the stock exchange shall not be allowed with effect from 1st April, 2025. Various other amendments have also been notified.

[Notification No. SEBI/LAD-NRO/GN/2023/120, dated 07th February, 2023]

5. First-time issuers of NCDs may alter AoA to appoint a nominee of Debenture Trustee within 6 months from listing date:

SEBI recently mandated the issuer companies to include provisions in their Articles of Association (AoA), with respect to the requirement for the board to appoint a person nominated by the debenture trustee. The regulations also provide a time period till 30th September, 2023 for existing issuers. Consequently, after receiving representations from first time issuers, the SEBI advised exchanges to take an undertaking from first-time issuers that they will ensure that their AoA are amended within 6 months from the listing date.

[Circular No. SEBI/HO/DDHS/DDHS-RACPOD1/CIR/P/2023/028, dated 09th February, 2023]

FEMA AND IFSCA REGULATIONS

1. ECONOMIC SURVEY 2023

The Finance Minister tabled the Economic Survey 2022-23 in Parliament on 31st January, 2023. While providing an overview of the state of the economy, it also includes analysis of the foreign exchange reserves, movement of the currency, etc. in Chapter 11 on External Sector. As part of Chapter 4 on Monetary Management and Financial Intermediation the Survey covers developments in GIFT City-IFSC on page 106.

The Finance Bill 2023 also provides important measures for the GIFT-City IFSC including allowing foreign banks to provide acquisition finance; establishment of a subsidiary of the EXIM Bank in IFSC; recognising offshore derivative instruments as valid contracts; allowing setup of Data Embassies within the IFSC. These measures are apart from the tax incentives introduced in the form of increase in scope of exempted income earned by a non-resident as a result of transfer of offshore derivative contracts, non-deliverable forward contracts or over the counter derivatives with a banking unit of an IFSC; extension of timeline for relocation of a fund to IFSC to 31st March, 2025; extending the definition of “Investment Fund” to include funds, particularly Category I & Category II AIFs, regulated and incorporated under the IFSCA (Fund Management) Regulations, 2022.

[Economic Survey 2022-23 and Budget 2023]

2. SOVEREIGN GREEN BONDS

The RBI has added that all Sovereign Green Bonds issued by the Government in the F.Y. 2022-23 as ‘specified securities’ under the Fully Accessible Route (FAR) introduced by the Reserve Bank earlier. FAR allows investment in certain specified categories of Central Government securities which were opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well. Sovereign Green Bonds (SGBs) amounting to Rs. 16,000 crore are proposed to be issued in the current financial year for mobilising resources for green infrastructure projects. Rs. 8,000 crore has already been raised in the first tranche of the SGBs. The proceeds will be deployed in public sector projects which help reduce the economy’s carbon intensity, the Minister stated.

[CIRCULAR NO. FMRD. FMID. NO. 07/14.01.006/2022-23, dated 23rd January, 2023 and PRESS RELEASE, dated 6th February, 2023]

BCAJ Admin

Corporate Law Corner Part A : Company Law

17 Case Law no. 1/ March 2023

Raj Hospitality Pvt Ltd

RD(WR)/Sec. 454(5)/ Raj Hospitality /T35477447/2021/3397

Regional Director Western Region, Mumbai Date of Order: 26th November, 2021

Appeal order against Adjudication Order for delayed filing of Annual Returns and Financial Statements and violating Section 92(5) and 137(3) of the Companies Act, 2013

FACTS

Registrar of Companies, Goa (‘RoC’) had observed from the master data, that M/s RHPL had filed its financial statements and annual returns on 1st April, 2019 for the financial year ending 31st February, 2017 But returns for the financial year ending 31st March, 2018 were not filed and default continued. The RoC had issued a show cause notice to M/s RHPL and its directors seeking information and reply from M/s RHPL.

As per records maintained by the RoC, Mr. RM director was disqualified under section 164(2)(a) of the Companies Act, 2013 for the period 01st November, 2016 to 31st October, 2021. Therefore, penalty was not imposed on him.

An adjudication order was passed by the Registrar of Companies, Goa on 09th May, 2019 wherein the penalty was imposed as per table below:

Document required to be filed	No. of days of default	Penalty imposed on Company/ Director	First Default (In Rs.)	Continued Default (In Rs.)	Total (In Rs.)
Financial Statements under section 137(3) of the Companies Act, 2013	189 days	On M/s RHPL	1000X189 = 1,89,000		1,89,000
		Mr. ATM	1,00,000	100X189=18,900	1,18,900
		Mrs. JM	1,00,000	100X189= 18,900	1,18,900
		Mr. AM	1,00,000	100X189= 18,900	1,18,900
Annual Returns u/s 92(5) of the Companies Act, 2013	160 days	On M/s RHPL	50,000	100X160=16,000	66,000
		Mr. ATM	50,000	100X160= 16,000	66,000
		Mrs. JM	50,000	100X160= 16,000	66,000
		Mr. AM	50,000	.100X160= 16,000	66,000
			Total		8,09,700

*No. of days were calculated from November, 2018 and December 2018 for Financial Statement and Annual Return respectively till the date of order.

An appeal in Form ADJ (SRN T35477447) was filed on 13th August, 2021. On examination of the application/appeal it was observed that the said appeal was not filed within sixty days (60) from the date of passing of adjudication order by the RoC (i.e. 09th May, 2019). Hence, M/s RHPL filed an application for condonation of delay vide form CG-1 and order was received by M/s RHPL in this regard. Accordingly, the appeal was considered for further processing.

In Appeal, M/s RHPL had stated as under:

M/s RHPL had held its Annual General Meetings for the year ended 31st March, 2017 on 30th May, 2017 and for the year ended 31st March, 2018 on 29th September, 2018. Accordingly, the company was required to file Financial Statements and Annual Returns for the financial year ended 31st March, 2017 on or before 27th October, 2017 and 28th November, 2017 and for the year ended 31st March, 2018 on or before 27th October, 2018 and 27th November, 2018 respectively (extended up to 31st December, 2018 vide General Circular No. 10/2018 dated 29th October, 2018). M/s RHPL submitted that the financial statements for financial year ended 31st March, 2017 and 31st March, 2018 were filed on 1st April, 2019, 5th December, 2019 and 06th December, 2019 respectively.

M/s RHPL also submitted that M/s RHPL is a small company having paid-up share capital of Rs. 2,00,000. M/s RHPL admitted that the filing of the Annual Return was delayed due to reasons beyond the control of M/s RHPL. M/s RHPL prayed that the financial statements and annual returns filed be requested to be approved and taken on record and the delay be condoned and to withdraw the order of Adjudication of Penalty dated 09th May, 2019 as the amount of penalty awarded would put further financial burden on Mr. ATM, Mrs. JM, Mr. AM who are already facing financial problems due to the ongoing pandemic. Further, M/s RHPL had already filed delayed documents with the RoC by paying additional fees.

Appellate authorities provided hearing to M/s RHPL through Video Conference.

HELD

The appeal was allowed and directed to the representative of M/s RHPL that the revised penalty to be paid as under:

Sr. No.	Document required to be filed	No. of days of default	Penalty to be paid by Company/Director (Officer in default)	Penalty (Rs.)
1	Financial Statement under section 137(1) of the Companies Act, 2013	189 days	On M/s RHPL	47,250
			Mr. ATM	29,725
			Mrs. JM	29,725
			Mr. AM	29,725
2	Annual Returns under section 92(4) of the Companies Act, 2013	160 days	On M/s RHPL	16,500
			Mr. ATM	16,500
			Mrs. JM	16,500
			Mr. AM	16,500
Total Penalty Amount				2,02,425

M/s RHPL submitted the copies of challan/payment receipt for penalties paid to the MCA as directed in virtual hearing. On payment of the Penalty amount of Rs. 2,02,425 for the violation of Section 92(5) and 137(3) of the Companies Act, 2013, the Appeal was disposed of.

BCAJ Admin

Service Tax

TRIBUNAL

29. Lindstrom Services India Pvt Ltd vs.

CCE & ST Vadodara-1

2023-TIOL-97-CESTAT-AHM

Date of order: 23rd January, 2023

Whether services of leasing – workwear (uniform) liable for service tax when VAT is paid on the same.

FACTS

Appellant is in the business of leasing workwear (uniform) to the clients upon conditions mentioned in the agreement with the clients. The conditions inter alia included delivering, collecting for washing, and servicing individually customized with workwear of every worker’s size along with logo and label as specified. The appellant would own such uniforms and would have the exclusive right to wash and service them. Also, if the workwear was not usable on account of wear and tear, they were returnable to the appellant and the price was fixed for the customer to pay at a depreciated price as agreed upon. For replacement also, it was redeemed at an agreed price. VAT was charged on the rental charges charged by the appellant to their clients. In the scenario, the case of Revenue was that the contract involving the service of renting, using workwear, washing, maintenance, repairing, alteration, designing of workwear, etc. for use while transferring possession without transferring right was a service of “supply of tangible goods” as contained in section 65(105)(zzzzg) of the Finance Act, 1994 and/or a declared service post 1st July, 2011 i.e. in the negative list regime as the effective control over the workwear was not transferred.

According to the appellant, two benches of Chandigarh and Chennai respectively had taken a consistent view on an identical service agreement that the purported service was not taxable under service tax and hence the decision had to be followed; whereas the Revenue contended that against the two orders of Chennai Tribunal, the revenue had filed an appeal before Supreme Court. However, either side could not produce a stay order. In one of the appeals filed by the appellant, at the first appeal level, the demand was set aside. Hence, the Revenue filed the appeal against the said order. Both appeals are accordingly bunched here.

HELD

Hon. Division Bench went through and recorded excerpts from CESTAT Chandigarh Order No.60716 of 2nd August, 2019 and CESTAT Chennai’s final Order No. 40818 dated 29th October, 2020 and final Order No.42148 dated 25th August, 2021. In these cases, the judgments in the cases of Bharat Sanchar Nigam vs. UOI 2006 (2) STR 161 (SC), the case of Gimmco Ltd vs. CCE & ST, Nagpur 2017 (48) STR 476 (Tri.- Mum) as well as Andhra Pradesh High Court in the case of G S Lamba & Sons 2011-TIOL-49-HC-AP-CT were analysed to conclude that the workwear rented was always in the exclusive possession and control of the clients. Some of the activities such as maintenance and washing of workwear rented will not mean that effective control was retained by the appellant. The workwear could not be used by anyone else except the users and hence effective control and possession was always with the client and hence the transaction was one of “deemed sale,” and was not taxable as the service of supply of tangible goods or a declared service. Further, as for the appeals filed by the Revenue before Supreme Court, it was held that since either side could not produce any stay order staying the operation of the Chennai Tribunal’s order, the fact of mere filing of an appeal before the Supreme Court would not help the Revenue and the decision of two benches will be followed. Hence the appeal of the appellant was allowed and the order of the Commissioner (Appeals) was upheld.

30. Coface India Credit Management Services Pvt Ltd. vs. Commissioner of CGST & CE, Belapur

2023-TIOL-111-CESTAT-MUM

Date of order: 10th January, 2023

Rejection of refund application under Rule 5 of CCR on the grounds of the utilization of opening balance in the CENVAT register and inability to establish nexus of input service with output service set aside.

FACTS

The appellant filed a refund application under Rule 5 of CENVAT Credit Rules, 2004 (CCR) which was rejected because the opening balance of CENVAT register should not be taken into consideration for grant of refund and that some of the input services did not have nexus with the output services.

HELD

As for the issue of opening balance in the CENVAT register, CBE&C Circular No.120/01/16 clarifies that the closing balance of the previous quarter can be considered for the utilization towards export as the opening balance for the subsequent quarter. On the second issue of nexus between input services and export of services, it was noted that the department had not initiated any proceeding for the recovery of irregular credit under Rule 14 of CCR r.w.s 73 of the Finance Act, 1994. If availment of credit is not questioned at the material time, it cannot be questioned by the revenue at a later date. The said issue being a covered matter inter alia in the cases of Ness Technologies (I) Pvt. Ltd. vs. CST Division V Mumbai 2016. (41) STR 984 (Tri.-Mum) and M. Net Partner Technologies Pvt Ltd vs. Commissioner, CGST Mumbai at 2019-TIOL-3657-CESTAT-MUM, the department could not have any objection to the claim. The appeal was thus allowed.

31. Rajasthan State Board Development Construction Corporation Ltd vs. Commissioner CGST&CEX Jodhpur

Date of order: 31st May, 2022

Whether the appellant held Government Authority for the exemption Notification No.25/2012 dated
20th June, 2012.

FACTS

The appellant is a company registered under section 617 of the Companies Act, 1956, a Government company of which 100 per cent shares are held by the Rajasthan Government. They provided the service of laying fresh water pipeline by sub-contracting the said service which is a work entrusted to the municipality under Article 243W of the Constitution of India. Consequent upon an inquiry conducted on the subcontractor who provided the said service– a proprietary concern, it was found that the said proprietary concern from July 2012 to March 2015 provided works contract service to the appellant. Since there is a Reverse Charge Mechanism (RCM) applicable to the works contract service whereby a recipient has to pay 50 per cent of service tax liability vide Notification No.30/2012-ST dated 20th June, 2012, a show cause notice was issued to the appellant in this case for recovery of such 50 per cent service tax, being the recipient of the said service provided by subcontractor.

HELD

It was held that the appellant was set up by the State Government of Rajasthan having 100 per cent control in the hands of the State Government of Rajasthan, the appellant is a Government Authority. Since “Government Authority” is mentioned in sl. no.25 of the said exemption notification no. 25/2012-ST and further elaborated in the definition clauses that “Government Authority” means a Board or authority or any other body established with 90 per cent or more participation by way of equity or control by Government and set up by an Act of the Parliament or State legislation to carry out any function entrusted to a municipality under Article 243W of the Constitution. Hence, the appellant was entitled to the exemption and the appeal was thus allowed.

BCAJ Admin

Goods and Services Tax

I. HIGH COURT

73 Prerana Enterprises vs. Commissioner of Delhi Goods & Service Tax

2022-TIOL-227-HC-DEL-GST

Date of order: 7th February, 2022

Refund for the zero-rated supply of goods and/or services requires to be granted in terms of the provisions of the law.

FACTS

Refund for April to September 2020 was sought by a proprietary concern – petitioner herein along with applicable interest under section 56 of the CGST Act. The petitioner exported zero-rated dental care solutions and he is duly registered under the CGST Act and had filed the refund application in the prescribed form. However, the refund application was not processed by the revenue. The petitioner submitted to the Court that in terms of sections 54(6) and 54(7) of the CGST Act read with Rule 91(2) of the CGST Rules, the proper officer is required to refund at least 90 per cent of the refund claimed when zero-rated goods or services are supplied by a registered person within seven days from the date of acknowledgment issued under section 90(1) or (2) and as per section 54(7) of CGST Act, the whole amount requires to be refunded within sixty days from the date of receipt of the refund application whereas the time limit had already expired and he relied upon the order of Hon. Delhi High Court in W.P. (e) 4205/2020 Jan International vs. Commissioner of Delhi Goods and Service Tax 2020-TIOL-1235-HC-DEL-GST.

HELD

Counsel for the revenue undertook that the petitioner’s refund application shall be decided in accordance with law within the time of 3 weeks. Hence the department was bound by the same.

74 Taghar Vasudeva Ambrish vs.

AAAR Karnataka & Commissioner of Central Tax, Bangalore South

2022-TIOL-242-HC-KAR-GST.

Hostel rooms for students and others – purpose is for residence. Hence lease rent exempt from GST.

FACTS

Petitioner, a co-owner of a residential property having 42 rooms is situated in Bengaluru. The property was leased by all the co-owners to a corporate vide executing a lease deed. The said lessee leased the property as a hostel to provide long-term accommodation to students and working professionals with the stay ranging from 3 months to 12 months. Since the entry 13 of Exemption Notification No.9/2017-Intergrated Tax (Rate) dated 28th June, 2017 exempts renting service provided for use as a residence, with the intent of seeking clarification as regards eligibility of the exemption from GST on the rent received from the lessee, the petitioner filed an Advance Ruling Application before the Authority of Advance Ruling, Karnataka (AAR Karnataka). AAR vide it’s Ruling 2020-TIOL-84-AAR-GST inter alia held that the service of renting of residential dwelling for use as residence does not fall under Entry 13 of the said Exemption Notification, and further held that the lessee itself is not using the accommodation. Thereafter, the Appellate Authority for Advance Ruling Karnataka (AAAR Karnataka) on hearing the appeal filed by the petitioner in the matter held that the property rented by the petitioner is a hostel building which is more akin to sociable accommodation rather than what is commonly understood as residential accommodation. Hence it cannot be termed as a residential dwelling. Further that the benefit of the exemption is available only if the residential dwelling is used as a residence by the person who has taken the same on rent/lease and accordingly dismissed the appeal. Hence the writ for the petitioner. It was submitted for the petitioner that the expression residential dwelling is not defined in the law. Therefore the trade parlance meaning has to be taken into account. The zonal regulations of Bengaluru clearly provide for operation of hostels in residential category plots. It was further urged that students use a hostel for residential purposes. Hence hostels have to be treated as residential accommodation and principles of purposive interpretation must be applied while interpreting an exemption notification. Regard must be had to the object and purpose of the exemption. It was also urged that in the exemption notification, no condition is laid down that the tenant alone must occupy and hence additional conditions cannot be read in the exemption notification. Reliance was placed inter alia on the decision of the Supreme Court in the State of Kerala vs. Mother Superior Adoration Convent 2021-TIOL-156-SC-Misc and also relevance was made to AAR West Bengal in Borbheta Estate (P.) Ltd. In Re (2019) 106 Taxmann.com 386 (AAR-West Bengal). Revenue’s case was that the lessee runs a business of leasing out of premises. The court’s attention was drawn to the trade license issued by the Mahanagar Palika of Bengaluru to the lessee wherein the trade name was described as boarding and lodging to which the public are admitted and that the lessee was registered as a commercial establishment under the Karnataka Shop & Establishment Act, 1961. Further that the exemption notification requires to be strictly construed. Reliance was placed on the Constitution Bench decision of Supreme Court in Commissioner of Customs (Imports) Mumbai vs. Dilip Kumar & Company & Others 2018-TIOL-302-SC-CUS-CB.

HELD

Hon. Bench had due regard for the Supreme Court’s Constitution Bench’s decision in Dilip Kumar & Company and Others (supra) in relation to interpretation of an exemption notification. It was stressed that there is a need for strict interpretation and discussed the said legal principle accordingly while interpreting Entry 13 of the exemption notification vis-à-vis the expression “residential dwelling”. A reference was made to the Education Guide issued by CBIC which clarified the meaning of residential dwelling in normal trade parlance as any residential accommodation and which is different from a hotel, motel, inn, guest house, etc. meant for a temporary stay. It was also noted that the accommodation used as a hostel for students and working women is classified in the residential category in the Revised Master Plan 2015 of Bangalore City. Recognizing that the students use the hostel for sleeping, eating and carrying out studies for a period from 3 to 12 months, the duration is longer compared to a hotel or a guest house, etc. Also examined by the Bench as to what is being rented and for which the residence is used and held that since the residential dwelling is being rented as a hostel for students and working women for residence whether by the lessee itself or not. Hence it was held that the benefit of the exemption under Entry 13 of the Notification No.9/2012 dated 28th June, 2017 was available to the petitioner and accordingly the order passed by AAAR Karnataka was quashed.

BCAJ Admin

Recent Developments in GST

I. CIRCULARS

a) Clarification about GST rates and classification of certain goods – Circular no.189/01/2023-GST, dated 13th January, 2023

The CBIC has issued the above circular giving a clarification about certain items like Rab, by-products of milling of dal/pulses, carbonated beverages of fruit drink or with fruit juice, etc., snack pellets (fryums), compensation cess on sports utility vehicles and goods specified under the Notification No.3/2017-Integrated (Rate) dated 28th June, 2017.

b) Clarification about classification of certain services – Circular no.190/02/2023-GST, dated 13th January, 2023

The CBIC has issued the above circular giving a clarification about classification of services like, applicability of GST on accommodation services supplied by Air Force Mess to its personnel and applicability of GST on incentive paid by Ministry of Electronics and Information Technology (MEIT) to acquiring banks under Incentive scheme for promotion of RuPay Debit Cards and low value BHIM-UPI transactions.

c) In communication titled “GST updates” dated 12.01.2023 various new functionalities made available on portal are informed.

d) Similarly, Advisory about facilities of “Initiating Drop Proceeding” of suspended GSTINs due to non-filing of returns dated 24th January, 2023 is issued.

II. ADVANCE RULINGS

Scope of Advance Ruling Provisions and liability in respect of lease:

40 Karnataka Text Book Society (R)

(AAR No. KAR ADRG 18/2022

dated 1st July, 2022)

The applicant is a registered Society and it has been formed by the Karnataka State Government as an umbrella body in the context of preparation, printing and distribution activity of all Government approved school text books. It has also rent activity, and holds GST registration. The applicant has put up various questions before the learned AAR. The questions and replies given by the learned AAR on each issue can be noted as under:

Qi. Whether the service of printing and supply of textbooks received by the government entity (the Applicant) from private printers where content belongs to the Applicant and physical inputs belong to the printer, would be covered by Notification No.12/2017-Central Tax (Rate), as amended and subject to Nil rate of tax. This clarification is sought so as to enable the Applicant to avail the benefit of the Notification during the tendering process.

Qii. If the printing and supply of textbooks is held to be taxable, what would be the rate of GST and the SAC Code.

Qiii. Whether the amendment of Sl.No.27 of Notification No. 11/2017 vide Notification No.06/2021 would apply to the Applicant, or whether the Notification 12/2017 Central Tax (Rate) would supersede it so as to make the Applicant liable for nil rate of GST on printing and supply of textbooks.

Reply: The learned AAR noted the nature of activity. It observed that the applicant provides contents and gets the printing done from a printing contractor who uses his own physical input like paper. The learned AAR held that in this case the applicant is a recipient of service and not the supplier. Referring to section 95(c) of the CGST Act, the learned AAR held that it cannot give ruling on above questions.

Qiv. Whether GST should be collected on the rental income from property leased by the Appellant to Karnataka Food & Civil Supplies Corporation Ltd (Government of Karnataka Undertaking), and if yes, whether rent received in January 2022 for past periods (2005-2021) is liable for GST.

Reply: In this respect, the learned AAR noted that the applicant has leased the property to Karnataka Food and Civil Supplies Corporation Ltd and receives rent for the same. Referring heading 9972, which covers real estate services, the learned AAR held that the applicant is liable to pay GST at 18 per cent on above rentals.

Qv. Whether GST is applicable on sale of scrap by the Applicant.

Reply: Since no details about nature of scrap, etc. were provided, the question was not answered.

Qvi. Whether the Applicant’s GST registration should be retained or surrendered.

Reply: In respect of this question, the learned AAR referred to section 97 and reproduced the following part in the advance ruling.

“Section 97. Application for advance ruling. –

1)……………………………

2) The question on which the advance ruling is sought under this Act, shall be in respect of-

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) Whether applicant is required to be registered;

(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.”

The learned AAR held that the above question, on which advance ruling is sought, is not covered by section 97(2) and hence no answer is given.

E-commerce operator vis-à-vis liability under section 9(5)

41 Multi-Verse Technologies Pvt Ltd

(AAR No. KAR ADRG 36/2022

dated.27th October, 2022)

The applicant provides computer application services (herein after referred to as “APP”) for facilitating business transactions of goods or services or both connecting through the platform of suppliers/sellers and recipients/buyers. The applicant charges a membership and subscription fee to the person who enrolls by furnishing the application in the pre-subscribed form. The applicant discharges the output tax on the membership/subscription fee received from the members registered on the Super App (known as MYn) for availing the benefits.

For the above purpose, the applicant enters into “END USER LICENSE AGREEMENT” (EULA) with supplier of goods and services as well as proposed customers of such suppliers. The modus operandi is that the supplier creates “Business User Account” (BSA) on the App and the transactions are entered through the said account.

The transactions through the above account between the suppliers and their customers are on their own account. The terms and conditions governing such contracts of supply such as class, quality, quantity, price, value of goods, schedule of delivery goods, etc., are as mutually agreed upon by them and the applicant neither has a say / role in that regard nor the applicant is involved directly or indirectly in such supply and delivery of goods or providing services or both as the case may be; the applicant is not in any way concerned with collection of the consideration for supply from the clients/business associates of the subscribed suppliers; all such matters are only within the knowledge and domain of the subscribers of the “APP” of the applicant and their business clients and associates.

Through the app of the applicant, cab services can also be booked. The general features about cab services are stated as under:

“a) We provide technology to cab operators (through the APP). This allows the passenger to identify the nearby cab through which he can take the ride and no further

b) The ride is not monitored by the applicant

c) The completion of the ride is not known to the applicant

d) The fare details are not known to the applicant

e) The fare and method of its collection are not known to the applicant

f) The fare is not collected through the applicant

g) The applicant is not responsible to the supplier for non-receipt of the consideration for the supply

h) The applicant is not responsible to the consumer for deficiency on the part of the supplier in rendering of the services.”

Based on above basic facts the applicant was of the view that it is not the e-commerce operator, as well as not liable to collect and pay GST under section 9(5) of the GST Act.

The applicant put up following questions for opinion of the learned AAR.

“a. Whether the Applicant satisfies the definition of an e-commerce operator and the nature of supply as conceptualized in Section 9(5) of CGST Act 2017 r/w notification No. 17/2017 dated 28.06.2017?

b. Whether the supply by the service provider (person who has subscribed to Applicant’s app) to his customers (who also have subscribed to Applicant’s app) on the Applicant’s computer application amounts to supply by the Applicant?

c. Whether the Applicant is liable to collect and pay GST on the supply of goods or services supplied by the service provider (person who has subscribed to Applicant’s app) to his customers (who also have subscribed to Applicant’s app) on the Applicant’s computer application? “

The learned AAR observed about the nature of e-commerce operator as given in sections 2(44) & 2(45). The said sections are reproduced in AR as under:

“2(44) – electronic commerce means the supply of goods or services or both, including digital products over digital or electronic network;

2(45) – electronic commerce operator means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce;

In light of above definition, the learned AAR observed as under in respect of question whether the applicant is E-commerce operator or not?

“16. It could be inferred from the definitions supra that Electronic Commerce Operator (ECO) means any person who owns, operates or manages digital or electronic facility or platform for electronic commerce i.e. for the supply of goods or services or both, including digital products over digital or electronic network. In the instant case the applicant owns digital platform (APP MYn), for the supply of goods or services or both, thus the applicant squarely fits into the definition and qualifies to be an Electronic Commerce Operator.”

Regarding remaining two questions, the learned AAR referred to section 9(5) of the CGST Act and reproduced the same as under:

“Levy and collection.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.”

The learned AAR noted three requirements as under, so as to be liable under section 9(5):

“a) The categories of the services shall be specified by notification, on the recommendation of the Council, by the Government.

b) The supply of such specified services shall be intra-state supplies.

c) The supply of such service is through the electronic commerce operator. “

The learned AAR held that the applicant fulfills first two conditions. However, it held that the third condition i.e. the supply is through electronic commerce operator is not fulfilled in case of applicant. In this respect, the learned AAR observed as under:

“18. In this regard, we invite reference to Merriam Webster dictionary, in accordance to which the word ‘through’ is used as a function word to indicate means, agency, intermediacy such as by means of, by the agency of etc. The word ‘through’ is also used as a function word to indicate extent, period of time such as during entire period, from the beginning to the end, to and including etc. Thus, the word ‘through’ in the phrase services supplied through electronic commerce operator, in Section 9(5) ibid, gives the meaning that the services are to be supplied by means of / by the agency of / from beginning to the end / during entire period by ecommerce operator. In the instant case, it is observed that the applicant, because of their unique business model, merely connects the driver and passenger and their role ends on such connection; they do not collect the consideration; they have no control over actual provision of service by service provider; they do not have the details of the ride; they do not have control room/call center, etc. The supply happens independent of the applicant and the applicant is involved only in the identification of the supplier of services and doesn’t take responsibility for the operational and completion of the ride. Thus, it is observed that supply of service is not through the electronic commerce operator, but are independent. Therefore, the applicant does not satisfy the conditions of Section 9(5) for the discharge of tax liability by electronic commerce operator. Thus, the applicant, though qualifies the definition of being an e-commerce operator, is not the person liable for discharge of tax liability under Section 9(5) of the CGST Act, 2017.”

Accordingly, the learned AAR held that applicant is not liable to collect and pay GST on the supply of goods and services supplied by the service providers to their customers through applicant’s computer application.

BCAJ Admin

Glimpses of Supreme Court Rulings

1. Charitable Institution – Recognition under section 80G(5)(vi) – The only condition that is required to be fulfilled for seeking renewal is specified under section 80G(5)(ii) and the clauses narrated therein. The section only postulates that any income of the charitable trust may be used for charitable purpose – Whether the income is used for charitable purpose or not can checked by the assessing authority at the time of the assessment

23 DIT(E) vs. D. R. Ranka Charitable Trust(2022) 447 ITR 766 (SC)

The assessee, a charitable trust, was granted registration under section 12A of the Act on 21th July, 1986. It was also granted recognition under section 80G(5)(vi) of the Act for the years 2005-06, 2006-07 and 2007-08.

The assessee filed its returns regularly. On 1st January, 2009 the assessee filed an application for renewal under section 80G of the Act. The DIT (E) rejected the application. Aggrieved by the same, the assessee preferred an appeal before the Tribunal. The Tribunal expressed a doubt whether the assessee was entitled even for the benefit under section 12A and therefore remanded the matter.

On remand, the Commissioner passed an order on 31st August, 2009 rejecting the application for renewal of the recognition under section 80G. Aggrieved by the same, the assesse preferred an appeal before the Tribunal. The Tribunal dismissed the appeal.

The High Court observed that the Commissioner had noted that the assessee had let out the building for business purposes. According to the Commissioner, the income was not used for charitable purposes, there was absence of charitable activity and the activity of the trust was not in consonance with the objects of the Trust.

The High Court noted that it was the contention of the assessee that the condition as specified in section 80G(5)(ii) postulated that income could be used for charitable purposes and that letting out of the property was not barred by law. The assessee had used the income towards repayment of the loan borrowed in the earlier year and paid interest thereon, which was the application of the income.

The High Court held that the only condition that required to be fulfilled for seeking renewal was specified under section 80G(5)(ii) and the clauses narrated therein and none of the clauses could be said to be applicable to the facts of the present case. The section only postulates that any income derived from the charitable trust may be used for charitable purpose. According to the High Court, the Tribunal was not right in holding that the assessee was not eligible for approval under section 80G. The High Court was of the view that whether the income is used for charitable purpose or not can be checked by the assessing authority at the time of the assessment.

The Supreme Court dismissed the appeal of the Revenue holding that the High Court’s decision on the conditions to be considered for renewal of approval of the assessee under section 80G was correct.

Note: It may be noted that substantial changes have been made with regard to approval/renewal under section 80G by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

2. Settlement of cases–The order passed by the Settlement Commission being bereft of reasons is unsustainable, and the fact that the assessee has made payment in terms of the order passed by the Settlement Commission could not be a ground to sustain the order passed by the Settlement Commission

24 Nand Lal Srivastava Ors vs. CIT(2022) 447 ITR 769 (SC)

During search operations at different premises of assessee, certain incriminating documents were seized. Pursuant thereto the assessment was made under section 158BC(c) of Income Tax Act, 1961.

The assessee moved an application under section 245-C of the Act before the Settlement Commission. During the pendency of the proceedings before Settlement Commission, the assessee approached the High Court vide Writ Petition No. 506 of 2008 and connected matters, wherein an order was passed on 18th March, 2008 directing Settlement Commission to decide settlement application filed by assessee by 31st March, 2008.

Pursuant thereto the Commission passed an order, paras 4 and 5 of the which read as under:

“4.This would involve more than 1500 assessments. The Settlement Commission deals only with the assessments which involve complexity of investigation and the application is intended to provide quietus to litigation. For example, in one group of cases where 23 applications are involved, the paper book which has been filed before the Settlement Commission runs into thirty thousand pages. It goes without saying that sufficient and proper opportunity is required to be given both to the applicant and the Commissioner of Income Tax Department for arriving at a proper settlement.

5. At this juncture, it is not practicable for the Commission to examine the records and investigate the case for proper settlement. Even giving adequate opportunity to the applicant and the department, as laid down in Section 245D(4) of Income Tax Act, 1961 is not practicable. However, to comply with the directions of the Hon’ble High Court, we hereby pass an order u/s 245D(4)of Income Tax Act, 1961.”

The Commission granted immunity to the assessee from prosecution and penalty under the Act and directed the assesse to make payment of tax along with interest within 35 days. The undisclosed income of the assessee was settled in the manner stated in para 6 of the order and the Income Tax Commissioner was directed to compute total income etc. in compliance of said order.

The Commissioner of Income Tax, Allahabad filed writ petitions challenging the aforesaid orders. The writ was filed on the grounds that without any hearing or looking to the record and giving opportunity to parties, the Settlement Commission, under the garb of compliance of this Court’s order, had passed orders of settlement without following the procedure prescribed in the statute i.e. it was obligatory upon the Settlement Commission to examine the record and report of the Commissioner, give opportunity to the parties, hear them and only thereafter pass an appropriate order. The entire procedure as contemplated in Section 245D(4) of the Income-tax Act, 1961 had been completely overlooked by the Settlement Commission, and, therefore, the impugned orders are patently illegal and null in the eyes of law.

The assessee contended that he had already complied with the impugned order of Settlement Commission, deposited the amount of tax as per the Settlement Order and the consequential order was also passed by the Commissioner of Income Tax. Since there was no interim order in these writ petitions, the assessee would be prejudiced in case the impugned orders are now set aside.

The High Court held that the mere fact that the orders impugned in the writ petitions had been complied with since there was no interim order, would not validate a patently illegal and bad order, which had been passed in flagrant violation of the statutory provision. It was not a case, where things could not be restored or where restitution is impossible.

According to the High Court, the manner in which the impugned orders were passed by the Settlement Commission clearly showed a complete lack of sensibility on its part. The High Court quashed the orders on 31st March, 2008 passed by the Settlement Commission.

The Supreme Court agreed with the judgment dated 25th February, 2015 of the High Court that the order passed by the Settlement Commission being bereft of reasons was unsustainable. Further the fact that the Respondent has made payment in terms of the order passed by the Settlement Commission could not be a ground to sustain the said order, being contrary to the mandate of Section 245D(4) of the Income-tax Act,1961. But the Supreme Court, however was of the view that the matter had to be remitted for fresh decision.

The Supreme Court noted that the Settlement Commission had been wound up, and the matters pending before the Settlement Commission were being adjudicated and decided by the Interim Board constituted under section 245AA of the Income-tax Act, 1961.

In view of the above position, the Supreme Court remitted the matter to the Interim Board with a request that the matter to be taken up expeditiously and should be preferably decided within a period of six months from the date of first hearing. A reasoned order would be passed.

Recording the aforesaid, the impugned judgment was partly set-aside and the appeals were allowed in the aforesaid terms. The Supreme Court however clarified that it had not made any observations or given any findings on the merits.

3 Capital or Revenue – Finding of facts by lower authorities upheld by the High Court, namely, that the amount received as compensation was of revenue nature -no interference was called for

25 Manoj B Joshi vs. 8th ITO and others (2022) 447 ITR 757 (SC)

On 10th April, 1985 the appellant entered into an agreement termed as ‘Memorandum of Understanding’ with one Mr. Dalvi, who was to acquire certain piece of land bearing Survey No. 6 of village Barave, taluka Kalyan, for construction of buildings, to be used mainly for residential purpose. Mr. Dalvi wanted to sell the flats, which he proposed to construct, to third parties on ownership basis. Said Mr. Dalvi, the developer, was short of funds to undertake this project. The appellant therefore, offered to promote a Cooperative Housing Society and there by collect funds from the proposed members of the Society. Consequently, the aforesaid MOU dated 10th April, 1985 was entered into by and between the appellant and Mr. Dalvi whereby it was agreed that Mr. Dalvi will construct the flats with the help of monies that the appellant will hand over to Mr. Dalvi after collecting the same from the prospective buyers thereof, the members of the proposed society. Mr. Dalvi will give these flats to the appellant, who in turn will allot the flats to various members of the proposed Society, which was to be named as Krushna Housing Society.

In his capacity as promoter, the appellant collected funds of Rs. 29,11,000 from prospective members of the proposed Society. The appellant says that he added an amount of Rs. 2,00,000 as his own contribution as a member of the proposed Society towards one flat and paid total Rs. 31,11,000 to Mr. Dalvi on various dates between 3rd April,1985 to 31st March,1989. It was also agreed as per the clauses of the MOU dated 10th April, 1985 that if Mr. Dalvi fails to complete the development and carry out construction as agreed, the promoters or the Society will be entitled to claim refund of the booking amount along with interest.

On account of certain legal problems, Mr. Dalvi could not honor his commitments of development and construction. Therefore, the parties entered into another agreement, also termed as Memorandum of Understanding dated 1st December, 1989 where by Mr. Dalvi agreed to refund the entire amount paid by the appellant of Rs. 31,11,000. In addition to refund of the said amount with interest by the said MOU dated 1st December, 1989 Mr. Dalvi also agreed to pay an additional amount of Rs. 29,11,000 i.e. the amount in issue, to the appellant inter-alia as a compensation for cancellation of arrangement and the so called understanding entered into between the appellant and Mr. Dalvi, in terms of an MoU dated 10th April, 1985. Accordingly, the amount in issue was paid by Mr. Dalvi to the appellant, in the F.Ys. 1996-97 and 1997-98.

In the meantime the appellant and Mr. Dalvi entered into a third agreement, called ‘Release Deed’, dated 11th June, 1997, declaring that Mr. Dalvi is released absolutely forever and from all obligations, arising under MOU dated 10th April, 1985.

The appellant filed income tax returns on 13th November, 1998 in regards to the A.Y. in issue i.e.1998-99,declaring total income of Rs. 25,48,000. Along with the returns, the appellant submitted two agreements, termed as MoUs dated 10th April, 1995 and 1st December, 1989. The appellant also submitted a copy of the Release-deed dated 11th June, 1997.

The appellant claimed that the amount in issue of Rs. 29,11,000 was an amount received by the appellant as a compensation on account of the transactions reflected by the aforesaid three documents which was not an income within the definition of section 2(24) of the Act and in the alternative, that if at all, it was a’ capital gain’. However, the authorities treated the amount in issue as income earned by the appellant as and by way of ‘income from other sources’, by rejecting the claim of the appellant. According to the High Court, the facts demonstrated that the appellant was paid the amount in issue so that no action in future could be initiated against the Developer, Mr. Dalvi, by the members of the proposed housing society for having failed to construct flats for them as was initially agreed by Mr. Dalvi. In other words, the appellant had received this amount in issue to indemnify Mr. Dalvi against any action (that too if any) that may be taken against Mr. Dalvi in future.

This amount in issue was not paid to the appellant towards any right/title/ interest that the appellant had in present in any immovable property.

The High Court held that all the three lower authorities were fully justified in treating the receipt of amount in issue of Rs. 29,11,000 by the appellant, not only as an income but also as income received by the appellant from other source as contemplated by Sections 14 r.w.s 56 of the said Act and subject the same to taxation accordingly.

The Supreme Court noted that the findings of fact recorded by the AO which had been affirmed right till the High Court, were: (i) the appellant had entered in to an MoU dated 10th April, 1985 with Shirish Dalvi, a developer who was to acquire certain pieces and parcels of the land in Village Barve, Taluka Kalyan and there upon construct residential buildings/ apartments; (ii) the appellant had collected funds from prospective members of the proposed society; (iii) these funds were transferred to Shirish Dalvi; (iv) subsequently, Shirish Dalvi faced legal problems in acquiring the land and in obtaining clear title and necessary permissions; (v) thereupon, another MoU dated 01st February, 1989 was arrived and executed between the appellant and Shirish Dalvi, pursuant to which the amount received from the proposed members was refunded to the appellant, albeit this amount has not been brought to tax as income of the appellant, but another amount of Rs. 29,11,000 received stated as a compensation by the assessee has been brought to tax as income from other sources.

According to the Supreme Court, in view of the factual background, there was no justification and reason to hold that this amount received was not taxable being a capital receipt. Whether or not the amount would be taxable as income from business or income from other sources, was not an issue and therefore was not examined and answered in the present case. The appeal was accordingly, dismissed without any order as to costs.

BCAJ Admin

Allied Laws

51 Mandira Paul and another vs.

Maya Rani Dev and another

AIR 2023 GAUHATI 4

Date of order: 11th November, 2022

Wills – Suspicious circumstances surrounding the Will – Propounder failed to establish the genuineness – Probate rejected. [S. 273, 270, 63, Indian Succession Act, 1925; S. 68 of Indian Evidence Act, 1872]

FACTS

The Plaintiff instituted a suit seeking probate of her mother’s will where she was appointed as the executor. A deity was impleaded as the Petitioner No. 2. Her two sisters were impleaded as opposite parties. According to the will, the three daughters and the deity were each entitled to 1/4th share in the property.

The District Court dismissed the suit on several grounds such as non-mentioning the date of death, tampering with the will and lack of confirmation if it was the last will.

On appeal to the High Court

HELD

The onus to prove the due execution of the will is on the propounder. The evidence brought on record must be credible and inspire confidence and the same cannot be assumed to be satisfied by mere mechanical compliance.

As there are several instances which bring doubt on the genuineness of the will, the same cannot be ignored by the Court. As the testatrix has failed to discharge the onus of proof regarding the genuineness of the will, the decision of the lower Court is upheld.

The appeal was dismissed.

52 Neeraj Garg vs. Sarita Rani and others

(2021) 9 SCC 92

Date of order: 2nd August, 2021

Judiciary – Cannot pass remarks on the counsel – The same has no bearing on the process of adjudication – Can affect the career and repute of counsels.

FACTS

The Appellant is a practicing lawyer before the High Court of Uttarakhand with around 17 years of experience. The High Court in its order passed certain remarks on the lawyer regarding his conduct without giving him an opportunity of being heard.

On an appeal to the Supreme Court on this limited issue.

HELD

The conduct of an advocate has no bearing on the process of adjudication. Further, no opportunity was given to the counsel for his explanation. Such remarks cast an apprehension on the professional integrity of the advocate and it will adversely impact his professional career. The offending remarks are to be recalled to avoid future harm.

The appeal was accordingly disposed of.

53 UOI vs. Manraj Enterprises

(2022) 2 SCC 331

Date of order: 18th November, 2021

Arbitrator – Creation of a contract – Powers – Cannot award interest which is contrary to the contract. [S. 31, 28, 34, Arbitration and Conciliation Act, 1996]

Appearing Counsels – Cannot provide concession which is contrary to law – No estoppel against the Law.

FACTS

On account of a dispute between the Union of India and a contractor, the issue was referred to Arbitration. The Sole Arbitrator passed an award wherein, pendente lite and future interest was also prescribed.

The Union of India preferred an appeal before the High Court (Single Bench) on the issue of interest. The Single judge of the High Court dismissed the appeal. The Division Bench also dismissed the appeal of the Union of India.

On an appeal to the Supreme Court.

HELD

The Arbitrator is a creation of a contract. The Arbitrator cannot award interest if the same is contrary to the terms of the contract between the parties.

Further, if any concession is proposed by the Counsel and the same is contrary to the law, it cannot bind the parties. There can be no estoppel against the law.

The appeal was accordingly allowed.

54 Sri Ganesh Sai Granites and Minerals vs. Commissioner and Inspector General

AIR 2023 (NOC) 14 (AP)

Date of order: 25th August, 2022

Partnership – Issue raised before the Registrar of Firms – Registrar is duty-bound to look into the complaint and act on it. [S. 64, Partnership Act, 1932]

FACTS

A dispute arose between the partners of a partnership firm. It was claimed that one of the partners had forged the signatures of the other partners and created a deed of reconstitution of the Firm. The said deed was registered before the Registrar of the Firms.

One of the partners filed a complaint before the Registrar of Firms explaining the details, requesting the registrar not to act on the reconstitution deed filed before it and to rectify the same.

There was no enquiry or rectification done by the Registrar of Firms.

On a Writ Petition.

HELD

As per section 64 of the Indian Contract Act, 1932 and State Rules thereof, the partners are entitled to approach the Registrar of Firms to ascertain the correct facts. The Registrar is duty-bound to conduct an enquiry and pass necessary orders. Refusal or inaction by the Registrar is not proper. The Registrar of Firms is directed to conduct an enquiry as per the complaint.

The petition was accordingly allowed.

55 Jagdish Gotam vs. State of Madhya Pradesh and others

AIR 2023 (NOC) 19 (MP)

Date of order: 22nd July, 2022

Senior Citizen – Seeking urgent relief – Right to live with dignity – Alternate Remedy not to be applied strictly – Writ Petition allowed. [Article 21, 226, Constitution of India]

FACTS

The Petitioner claimed to be the owner of a house situated at Jabalpur based on a registered sale deed. He was living with his wife. He allowed his son and daughter-in-law to live with him.

On account of matrimonial disputes between his son and his daughter-in-law, his son left the house. The daughter-in-law ousted the petitioner and his wife from the house.

On a Writ Petition for recovery of vacant possession of his self-acquired property.

HELD

The objections raised by the daughter-in-law (Respondent No. 4) are that there is an alternative remedy available under the provision of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 and she denied any harassment.

As per Article 21 of the Constitution, every citizen has the right to live with dignity. In such a case it would not be appropriate for a senior citizen to go through the statutorily prescribed alternate remedy. The rule of alternate remedies should not be strictly applied.

The daughter-in-law and her children are to be evicted from the premises and a vacant possession is to be handed over to the Petitioner.

The petition was accordingly allowed.

BCAJ Admin

From The President

Dear BCAS Family,

As I write this message, a big suspense on what would budget have in store for us has been unravelled. Shimmering with its pro-people and pro-market initiatives, it is poised to propel India’s growth to greater heights. It has the distinct stamp and finesse of the Finance Minister, Nirmala Sitharaman who has pulled off a remarkable feat in putting together a budget that has something for everyone. The budget focuses on boosting technology, infrastructure and green energy while easing tax across various citizen classes. It dexterously manages macro-economic stability, while providing a strong impetus to job creation and harnessing youth power. The budget also has initiatives to add a fillip to agriculture, rural development, women empowerment, entrepreneurship, healthcare and education. What is laudable is that the budget has laid clear direction for the nation in its Amrit Kaal to what its goal posts are for India @100 in 2047. Care has also been taken to pave the way for revitalizing the economy and ensuring its steady growth and development. That said the Finance Bill 2023 still leaves out required reforms at the administrative level that would have helped honest tax-paying businesses. I am hopeful that with representations from the BCAS and other institutions, wisdom will prevail to bring about those reforms.

While there are many positive developments in a country which is on the cusp of exponential growth, there is one distressing fact about the manner in which the MCA portal has opted for migration of its software platform. Considering the strategic importance of its operation, it was expected that there would be adequate trial runs of its Beta version and an open forum for the users to give their feedback. Unfortunately, in its zeal and zest of claiming credit for the “Ease of Business Initiative,” its effect has been counterproductive. The performance of the portal has been far from satisfactory. Result- there is complete chaos and confusion- with no statutory forms being able to get filed, Incorporation of new companies being on hold resulting in uncertainty for those wanting to invest in India under a JV. I hope the government takes up this with utmost priority to resolve it.

It is heartening to note that National Financial Reporting Authority (NFRA) has extended the date of submission of views/comments in relation to Annual Transparency Reports by Auditors/Audit Firms after representation by the BCAS.

ICAI has mandated an Audit Quality Maturity Model (AQMM) for a certain category of audit firms. This is a welcome initiative considering the fact that the entire Model has been developed with the volunteering team at the ICAI with the required help of seniors in the profession. It is expected that initially there could be a few teething problems and implementation challenges till the time it gradually attains maturity. But it is a laudable initiative and would help Indian firms to compete globally and raise their level.

I am also very happy to inform you that BCAS has been successfully audited and found compliant with the ISO 9001 Quality Standards. This will help BCAS further increase its administration and reputation.

It is said, “The brightest stars shine in the darkest nights!” I am sure you will agree with me when we look at the situation across the world today. Wars and proxy wars are spreading suffering, while a powerful earthquake has wiped out thousands and added to the misery in the world. Stunted economies, looming recession, battered supply chains and spiralling inflation are also adding to the prevailing ‘darkness’. So, are there any stars to be seen?

India! By day or by night, India has emerged as a shining star! With a policy of “reimagine, reinvent every single element of governance” by the government there is a determined transition from ‘Government-First to a People-First approach and the results have been nothing short of astounding.

The number of taxpayers escalated drastically, and the gross tax revenue has grown more than three-fold; from Rs.11 lakh crore in 2013-14 and is expected to be more than Rs. 33 lakh crores in 2023-24. What’s remarkable is that the growth has happened even after reducing the tax rates. The government has been working at the grassroot level – transforming the lives of the marginalised with a variety of welfare schemes which were innovatively delivered. Jan Dhan bank accounts, Mudra Loans, low-cost housing, construction of toilets, availability of electricity and clean cooking fuel were some of the key initiatives that have been systematically unrolled across the country.

With one-third of the world wrestling with recession and 75 countries facing a global debt crisis, India is looking at the economic growth of 6.9%. To further accelerate the economy the government is aggressively investing in a variety of infrastructures that will not only provide jobs but attract both global and private finance. The immense confidence and optimism around India have not gone unnoticed – numerous corporate heads have hailed India’s dynamism and are announcing plans to invest and step-up employment in India. Bob Moritz, Global Chairman of PwC said, “You should not be thinking about India as an emerging market, India is the leading market.” Undoubtedly, India’s Amrit Kaal is now!

Events:

As usual last quarter of the financial year is throbbing with events and activities. The meeting was organized on the provisions of the Finance Bill 2023 where the speaker CA Pinakin Desai lucidly explained the nuances and finer points of the Finance Bill. The 56th RRC held at Coimbatore got an overwhelming response and active participation. The interactive platform provided to the participants was appreciated by one and all and provided an excellent networking opportunity. There were interesting lecture meetings on the subject of Chat GPT and AQMM which were received very well. On behalf of the BCAS Foundation, I along with some trustees got an opportunity to inaugurate the digital classroom at the school in the tribal area. BCAS Foundation has donated 23 digital screens with preloaded education software to various schools in the tribal area of Talasari, near Umbergaon. These will be used by 12 schools with the advantage of being able to conduct classes with few teachers.

The month of March also brings exciting opportunities. There is a workshop on M&A, Ind AS RSC and Power Summit. There are also several other Lecture Meetings that may be of interest to you. I request you to keep a tab on the announcements not to miss out.

Before I sign off let me wish that the colours of Holi make our life spectacular. Happy Holi to you all!

Thank You!

Best Regards,

CA Mihir Sheth,

President

BCAJ Admin

Corporate Law Corner Part B: Insolvency and Bankruptcy Law

9. NCLAT, Principal Bench

New Delhi

Company Appeal (AT) (Insolvency) No. 241 of 2022

Arising out of order dated 10th February, 2021 passed by the National Company Law Tribunal, Guwahati Bench, Guwahati in IA No. 32 of 2020 in C.P. (IB) No. 20/GB/2017.

1. Principal Commissioner of Income Tax,

2. Assistant Commissioner of Income Tax,

…Appellants.

vs.

M/s Assam Company India Ltd …Respondent.

FACTS

Corporate Insolvancy Resolution Process (CIRP) under Section 7 was admitted against the Assam Company/Corporate Debtor (“CD”) on 20th September, 2018. Appellants filed their claim under Form B and claimed the Income Tax for the A.Y. 2013-14 for Rs. 6,69,84,657 and A.Y. 2014-15 for Rs. 9,50,41,296 totalling Rs. 16,20,25,953 before the Resolution Professional (RP). RP via email informed that the NCLT, Guwahati Bench may consider payment of Rs. 1,97,92,084 being 15 per cent of the outstanding dues owed to the Appellants since the Respondent had filed petition for stay of demand before the AO. RP made a payment of Rs. 1,20,23,691 as a tranche payment to the Appellants and told that the rest of the amount would be contingent on the outcome of the appeal filed before the IT appellate authority.

The appellants filed an application for review of the order of the Hon’ble NCLT dated 20th September, 2018 with necessary directions to the Resolution Professional for submission of the revised resolution plan incorporating the entire amount alleged to be due to the Appellants. NCLT, in its order dated 22nd October, 2019 stated that since the RP intimated the Department that the demand after finalization of appeal by CIT(A) would be payable by the new promoter, such a written intimation of the RP is to be read with the new resolution plan and the demand of the Appellants is duly considered and they have a right to lay their claim before the new promoter of the Respondent Company. NCLT dismissed the claims of the Appellants vide its order dated 10th February, 2021.

QUESTION OF LAW

This appeal lies against the order dated 10th February, 2021 with respect to extinguishment of appellants claim. In that order, the Hon’ble NCLT, failed to take into consideration that vide its earlier order dated 22nd October, 2019 it had stated that since the RP intimated the Appellants that the demand after finalisation of appeal by CIT(A) would be payable by the new promoter, such written intimation of the RP is to be read with the new resolution plan; and the demand of the Appellants is duly considered and the Appellants have a right to lay their claim before the new promoter of the Respondent Company.

RULING IN CASE

NCLAT held that as per the judgment passed by the Hon’ble Supreme Court in the case of “State Tax Officer (1) vs. Rainbow Papers Ltd, Civil Appeal No. 1661 of 2020 dated 06th September, 2022”, the dues of the Appellants are ‘Government dues’ and they are Secured Creditors.

HELD

That the impugned order dated 10th February, 2021 passed by the Adjudicating Authority (National Company Law Tribunal, Guwahati Bench, Guwahati) in IA No. 32 of 2020 in C.P. (IB) No. 20/GB/2017 is hereby set aside and the matter is remitted back to the Adjudicating Authority (National Company Law Tribunal, Guwahati Bench, Guwahati) with a request to hear the parties (Appellants and Respondent herein) considering the aforesaid facts and also judgment passed by the Hon’ble Supreme Court in the case of ‘Rainbow Papers Ltd Case (supra)’ and pass fresh orders as expeditiously as possible.

shailesh.kwebmaker

Quality Control

Arjun: (chanting) – Hare Krishna! Hare Krishna! Krishna Krishna Hare Hare!

Shrikrishna: Arey Arjun, I am very much in front of you. What makes you chant my name at this moment?

Arjun: Lord, all my CA friends are fed up with this practice. They say it is frustrating and humiliating.

Shrikrishna: Really?

Arjun: Yes, Bhagwan. They say, we are taken for granted by everybody. We are slogging sleeplessly without commensurate reward. Too much of regulation!

Shrikrishna: What else they feel?

Arjun: They are repenting that they became a CA and entered into this practice.

Shrikrishna: And still they are putting their next generation into the CA course?

Arjun: Many of them have preferred their next generation to study other streams. And those children who have done CA are choosing corporate jobs instead of entering the practice.

Shrikrishna: I understand this situation. One reality is that your practice has become Compliance-oriented without much creativity. Secondly, clients don’t feel that you are indispensable.

Arjun: Lord, we cannot afford to be assertive. We have always to remain submissive and accommodative. In the process, many mistakes occur. Quality suffers.

Shrikrishna: Yes. That’s the reason why there are rampant cases of misconduct for technical defaults.

Arjun: Many regulators are there to harass us. And clients are least bothered about it. They don’t see any value addition to them; and feel that all the work we do is only to protect ourselves. They don’t feel the pinch of it! Hence, no value, no reward!

Shrikrishna: You people lack unity; and don’t use your collective strength. But Arjun, you need to endure what cannot be cured.

Arjun: You mean, there is no solution to this problem?

Shrikrishna: I never said so. But that requires will-power and determination.

Arjun: In what sense?

Shrikrishna: I know a CA who is extremely proactive and strict. He gives a deadline to the clients to submit all the data; and refuses to do their work if they don’t come in time. And if any client comes after the set deadline, he has to pay 10 per cent extra fee and that too, in advance!

Arjun: Oh! So wonderful to hear that! But very difficult to implement.

Shrikrishna: I understand, it is difficult to suddenly adopt this attitude and culture. But at least, there should be a determined and sincere attempt.

Arjun: What exactly should we do? How many years shall we keep on undergoing same stress in tax filing season? Our health suffers, family life suffers; and the clients for whom we do all this is least concerned about it.

Shrikrishna: I feel; you should form a group of 4 or 5 like-minded CAs. This typically is a problem of SME firms – who have limited resources, limited exposure, limited man-power and so on. You should seriously and dispassionately deliberate on what difficulties you face; how to overcome them; how to ensure quality of work, how to maintain working papers, how and when the communication should be made. So on and so forth.

Arjun: We should sit and prepare a checklist, and monitor it strictly and regularly.

Shrikrishna: I feel; this is the appropriate time you set to plan the work. There is no point in planning it too late in May or June! For this, you need to also brush up certain standards of accounting and auditing. Amidst the pressure of work, you are not quite serious about updating your knowledge.

Arjun: I agree. We complete the CPE hours just for compliance. We never understand the spirit and purpose behind it.

Shrikrishna: For quality control, you should devote at least 30 minutes every day to see what was planned today, to what extent it was achieved, why it remained incomplete; whether the quality was up to the mark and so on. This review is essential. There should be timely and clear communication both internally and externally and maintain time-sheets.

Arjun: All this we studied in theory but were never able to implement it.

Shrikrishna: Never take previous auditor’s communication lightly; and ensure that previous auditor’s undisputed audit fees have been really paid. Be particular about written communication everywhere and take proper and comprehensive Management Representation Letter (MRL). Please understand that certain things like this are for your own safety and your own safety is of supreme importance. It cannot be compromised.

Arjun: Yes, Lord. I have realised that the appointment letter and engagement letter are very important. We take it lightly. So also, generation of UDIN. We are also required to follow the KYC guidelines of ICAI.

Shrikrishna: And never ever sign anything in good faith before the client signs the financial statement or other documents.

Arjun: Bhagwan, a few of my friends were held guilty just because they did not put their membership number, FRN number and even the date of signing.

Shrikrishna: Most importantly, you SME people never go for stock verification. You never insist on a third-party evidence. Try to change yourself from this year. Plan the stock checking, write to banks, debtors, creditors, lenders; and all other concerned parties for confirmation of balances. All this forms your working papers. It is a must. Also, insist on company secretarial records and minutes. Further, verify what is available in the public domain.

Arjun: Our attitude is to say ‘who has time to do all this?’ But this is to our own detriment. I should recruit and retain good staff; not just who come through relatives and acquaintances! One good well-paid assistant is better than 3 or 4 mediocre assistants. All are unsatisfied, all of poor calibre; and all equally irresponsible!

Shrikrishna: Arjun, I am happy that you are introspecting. There is no use blaming or cursing others. Change yourself. Just as Charity begins at home, ‘Change’ also should begin at home! Have strict quality control. Be determined that you will have a stress-free tax filing season!

! OM SHANTI!

This dialogue is based the need for proper planning for ensuring good quality of work.

shailesh.kwebmaker

Tech Mantra

Productivity in the Computer World is managing to do things fast, efficiently and accurately. Sometimes, it is just saving a few clicks, some other times it could mean opening up new possibilities and sometimes it is just a quick and amazing trick. Today, we run through a few Chrome Extensions which do exactly that. So here we go!

CHECKER PLUS FOR GOOGLE CALENDAR

If you use Gmail and Google Calendar, you would be doing a lot of tab-jumping from Gmail to Google Calendar, especially when you are responding to emails. Even otherwise, when you are online and doing some intensive work, jumping to your calendar from time to time can be quite a chore.The Chrome extension – Checker Plus for Google Calendar is a great tool to have the calendar at your fingertips. The extension sits neatly on your Chrome Extension panel and you can pop it up any time to get a quick view of your Calendar. It also lets you view upcoming events, get meeting notifications and reminders, and snooze events – all without opening the Google Calendar page. Convenience at the click of a button!

A very nifty tool to avoid multiple clicks on the Calendar Tab daily.

WHATSAPP (WA) WEB PLUS EXTENSION

We have all got used to using WhatsApp Web on our computers – it is such a breeze to handle! WhatsApp web plus extension for Chrome enhances the utility of WhatsApp Web dramatically.Once installed and running, the WA Web Plus Extension allows you to add more tools and options for WhatsApp Web for more privacy and enhanced reliability. It brings all the missing features of WhatsApp Web for personal and business use.

When you are on WhatsApp Web, just click on the WA Web Plus Extension and you will find a host of options – you can blur recent messages, blur contact names and photos, play audio messages without intimating the sender, disable read receipts, hide online status and much more. You can even password protect the app so that no one can access your WhatsApp web. Many other options for customisation like pin unread messages to top, highlight online contacts, etc. are available for easy access.

Most of the options are free while some are available for a small subscription fee.

A very useful tool for hardcore, daily users of WhatsApp Web!

AMAZON PRICE TRACKER – KEEPA AND BUYHATKE

If you are a regular shopper on Amazon, it may be a good idea to track price changes for any product you desire. Just install this extension on your Chrome browser and whenever you visit Amazon, select a product and scroll down a bit, you will be able to see the price history of that product. It also indicates price drops for lightning deals and for prime members. This will help you identify the lowest price of a product, when it occurred and if you are able to see the trend, you may even be able to grab it at the lowest price!If you shop on amazon.com, there are many more options available – you may visit their website www.keepa.com to see the variety of ways in which you can track products and their prices.

And, if you shop regularly on Flipkart, Myntra and other shopping sites, you may like to look at Buyhatke – Price tracker & Price history. This extension works similarly and is very useful for price tracking and price history.

Go ahead, save some money and buy wisely!

I DON’T CARE ABOUT COOKIES

Whenever we visit a new website, owing to increasing privacy concerns, the website asks us whether we would like to allow cookies. Some websites do not even take ‘No’ for an answer – they insist that you allow cookies, before they allow you to enter. This repeated questioning can get irritating. Most of the time, we allow cookies and move forward.I don’t care about Cookies is an extension which allows you to skip this question for all sites. Just install this extension and it will accept cookies on all websites that you visit. No more clicking Allow Cookies again and again on all the websites you visit!

Save time and make your web surfing super smooth!

shailesh.kwebmaker

Letter of Allotment and Receipt of Immovable Property

ISSUE FOR CONSIDERATION

Section 56(2) provides for the taxability of certain receipts, which inter alia include the receipt of any immovable property, either without consideration or for a consideration which is less than its stamp duty value. When taxability of such receipts was introduced for the first time vide clause (vii) of section 56(2), it was applicable only if the immovable property was received without consideration by the assessee on or after 1st October, 2009. The Finance Act, 2013 amended the provision of clause (vii) with effect from AY 2014-15, expanding its scope to cover the receipt of an immovable property for a consideration, if the consideration was lesser than the stamp duty value of the said immovable property.

The said clause (vii) of section 56(2) was applicable only to individuals and HUFs. However, thereafter, the Finance Act, 2017 made clause (vii) inapplicable to receipts after 31st March, 2017. Receipts subsequent to that date were brought to tax under clause (x) in the hands of all types of assessees. The taxability under both these clauses is subject to further conditions and several exclusions.

In the real estate market, when the immovable property is bought from a builder in a project which is underconstruction, it is a common practice that the builder will first issue a letter of allotment upon finalization of the deal and receipt of the booking amount. Thereafter, it will be followed by execution of a detailed agreement for sale and its registration. Even as per the provisions of the Real Estate (Regulation and Development) Act, 2016, it is obligatory for the promoter to enter into an agreement and to get it registered only when a sum of more than 10 per cent of the total consideration is received from the buyer. Thus, generally, the agreement for sale is not executed and registered immediately when the assessee books any property with the builder in an under-construction project and pays booking amount not exceeding 10 per cent of the total consideration.

If, in such cases, the year in which the assessee booked the property and received the letter of allotment is different from the year in which the agreement for sale has been executed and registered, then the issue arises as to in which year the assessee should be considered to have ‘received’ the immovable property. The Mumbai bench of the tribunal has considered the year in which the agreement for sale was executed as the year in which the property was effectively received by the assessee, and the Jaipur bench of the tribunal has considered the year in which the letter of allotment was issued as the year in which the property was effectively received by the assessee.

SUJAUDDIAN KASIMSAB SAYYED’S CASE

The issue first came up for consideration of the Mumbai bench of the tribunal in the case of Sujauddian Kasimsab Sayyed vs. ITO (ITA No. 5498/Mum/2018). The assessment year involved in this case was 2015-16.

In this case, the assessee had agreed to purchase flat No. 2901 on 29th Floor, C-Wing, in the building named as Metropolis, Andheri (West), Mumbai admeasuring area of 123.36 sq. m (carpet area) for a consideration of Rs. 88,30,008, whereas its stamp duty value was determined at Rs. 1,88,44,959. The assessee had originally booked this flat with M/s Housing Development & Infrastructure Ltd on 27th April, 2012 and an advance payment of Rs. 3,00,000 was also made on 27th April, 2012. The purchase deed was executed and registered on 10th September, 2014 i.e. during the year under consideration, apart from the payment of Rs. 3,00,000 at the time of booking of the flat, the assessee had made the payment of Rs. 14,66,001 till the time of execution of the agreement. The balance amount of Rs. 70,64,007 was still payable, and it was to be paid in instalments as specified in the agreement.

During the course of assessment proceedings, the AO asked the assessee to explain why the difference of Rs.1,00,14,951 (being the stamp duty value) should not be treated as income from other sources under section 56(2)(vii)(b). Not being satisfied with the reply of the assessee, the AO made the addition of such difference while passing the assessment order.

Aggrieved by the order of the AO, the assessee filed an appeal before the CIT(A). Before the CIT(A), it was contended that the assessee had booked the said flat on 27th April, 2012 on which date the letter of allotment was issued as well as the amount of Rs.3,00,000 was also paid. The copies of the allotment letter and receipt were also placed on record. On this basis, it was contended that these dates were falling in the previous year relevant to AY 2013-14, in which year the amended provisions of section 56(2)(vii)(b) were not applicable. The amendment made by the Finance Act, 2013 bringing to tax the receipt of immovable property for a consideration lesser than the stamp duty value was applicable only w.e.f. 01st April, 2014

The CIT (A) dismissed the appeal of the assessee, mainly on the ground that 27th April, 2012 could not be considered to be the date of purchase of the flat, as it was merely an allotment on that date, and the real transaction of purchase of flat had been entered on 10th September, 2014 by a registered deed. It was held that for any purchase or sale deed of immovable property to be covered under section 53A of the Transfer of Property Act, it was required to be a registered instrument enforcing civil law rights. In the absence of registration, the transaction would not fall under section 2(47)(v) of the Act. The CIT (A) placed reliance on the decisions of the tribunal in the case of Saamag Developers Pvt Ltd [TS-26-ITAT-2018(DEL) order dated 12th January, 2018] wherein it was held that registration under section 17(1A) of the Registration Act, 1908 was a pre-condition to give effect to section 53A of the Transfer of Property Act. He also relied upon the decision in Anil D. Lohana [TS-466-ITAT-2017(MUM) order dated 25th September, 2017], wherein it was held that the holding period of the property is to be reckoned from the date on which the assessee got right over the property by virtue of sale agreement.

Before the tribunal, the assessee submitted that the letter of allotment was executed with the builder on 27th April, 2012, which conferred the right to obtain conveyance of the said flat. It therefore became an asset under section 2(14) and therefore, the date of letter of allotment should be considered as the date of receipt of immovable property. Since the allottee would get title to the property on issuance of an allotment letter, and the payment of instalments would be only a consequential action upon which the delivery of possession would follow, it was claimed that the assessee was having a right in the property since 27th April, 2012 i.e. the date of allotment. Therefore, the effective date of agreement was 27th April, 2012, which pertained to A.Y. 2013-14. On this basis, it was argued that no addition should have been made in the assessment year under consideration.

The assessee relied upon the following decisions in support of his contentions –
Babulal Shambhubhai Rakholia vs. ACIT (ITA No. 338/Rjt/2017 for A.Y. 2014-15),
Sanjay Kumar Gupta vs. ACIT (ITA No. 227/JP/2018 for A.Y. 2014-15),
Anita D. Kanjani vs. ACIT (2017) 79 taxmann.com 67 (Mumbai-Trib),
DCIT vs. Deepak Shashi Bhusan Roy (2018) 96 taxmann.com 648 (Mumbai-Trib),
Pr. CIT vs. Vembu Vaidyanathan (2019) 101 taxmann.com 436 (Bombay HC) and
ACIT vs. Shri Keyur Hemant Shah (ITA No. 6710/Mum/2017 for AY 2013-14 dated 2nd April, 2019)(Mumbai ITAT).

The tribunal held that the decisions of Anita D. Kanjani, Deepak Shashi Bhusan Roy and Keyur Hemant Shah were not applicable to the case under dispute, since the issue under consideration in those cases was the period of holding of the property – whether to be reckoned from the date of issue of the letter of allotment or from the date when the agreement was executed. With respect to the decision in the case of Vembu Vaidyanathan, the tribunal held that the High Court in that case had considered the date of allotment would be the date on which the purchaser of a residential unit could be stated to have acquired the property for the purposes of section 54. In that case, the High Court had relied upon the CBDT Circular No. 471 dated 15th October, 1986 and Circular No. 672 dated 16th December, 1993 and had observed that there was nothing on record to suggest that the allotment in the construction scheme promised by the builder in that case was materially different from the terms of allotment and construction by DDA as referred to in those circulars. By observing that the issue in the case under consideration was not the allotment in construction scheme promised by the builder which is materially the same as the terms of the allotment and construction by DDA, the tribunal held that the decision in Vembu Vaidynathan was distinguishable.

The decision in Babulal Shambhubhai Rakholia was also distinguished on the grounds that, in that case, the stamp papers were purchased on or before 30th March, 2013 and the transferor as well as the transferee had put their signature on the sale deed on 30th March, 2013. It was on this basis, it was held that section 56(2)(vii)(b) would not be applicable. Similarly, the decision in Sanjay Kumar Gupta was also distinguished as in that case the assessee had claimed to have purchased the property in question vide unregistered agreement dated 28th March, 2013 and the AO considered the date of transaction as of the sale deed which was dated 26th April, 2013. Though the agreement dated 28th March, 2013 was not registered, it was attested by the notary and the payment of part of the consideration on 28th March, 2013 was duly mentioned in the sale deed dated 26th April, 2013. Under these facts, it was held in that case, that the transaction would be treated to have been completed on 28th March, 2013 as the agreement to sell dated 28th March, 2013 had not been held to be bogus.

The tribunal further held that there was no dispute that the “Agreement for Sale” was dated 10th September, 2014. The “Letter of Allotment” dated 27th April, 2012 could not be considered as the date of execution of agreement by any stretch of imagination. The immovable property was not conveyed by delivery of possession, but by a duly registered deed. Further, it was the date of execution of registered document, not the date of delivery of possession or the date of registration of document which was relevant. The tribunal relied upon the decisions in the cases of Alapati Venkataramiah vs. CIT (1965) 57 ITR 185 (SC), CIT vs. Podar Cements Pvt Ltd (1997) 226 ITR 625 (SC).

On the basis of the above, the tribunal upheld the order of the CIT (A) and dismissed the appeal of the assessee.

NAINA SARAF’S CASE

The issue, thereafter, came up for consideration of the Jaipur bench of the tribunal in Naina Saraf vs. PCIT (ITA No. 271/Jp/2020).

In this case, in the previous year relevant ot the AY 2015-16, the assessee had purchased an immovable property i.e. Flat No. 201 at Somdatt’s Landmark, Jaipur for a consideration of Rs.70,26,233 as co-owner with 50 per cent share in the said property. The stamp duty value was determined at Rs.1,03,12,220 as against the declared purchase consideration of Rs.70,26,233.

The case of the assessee was selected under CASS for the reason of “Purchase of property”. During the course of the assessment proceeding, the assessee filed registered purchase deed and other details as required by the AO. Finally, the AO after examining all the details and documents filed, accepted the return of income vide his order dated 21st December, 2017 passed under section 143(3).

Later on, the PCIT observed that the AO had failed to invoke the provisions of section 56(2)(vii)(b) with respect to the difference between the stamp duty value and the purchase consideration amounting to Rs.32,85,987, and, therefore, considered the order of the AO as erroneous and prejudicial to the interest of the revenue by passing an order under section 263 of the Act.

The assessee filed an appeal before the tribunal against the said order of the PCIT passed under section 263. Before the tribunal, the assessee not only challenged the jurisdiction of the PCIT to invoke the provisions of section 263, but also disputed the applicability of section 56(2)(vii)(b) to her case on merits. It was submitted that the assessee applied for purchase of Flat No.201 on 23.09.2006 (as mentioned in allotment letter) and paid Rs.7,26,500 on 3rd October, 2006. The seller company M/s SDB Infrastructure Pvt Ltd issued allotment letter on 06th March, 2009 to the assessee. On 11th November, 2009, by signing the allotment letter as token of acceptance, the assessee agreed to purchase the property measuring 2,150 sq ft at the rate of Rs. 3,050 per sq. ft. for a sum of Rs. 65,57,500 as per terms and conditions mentioned in the allotment letter dated 6th March, 2009. The formal agreement was exceuted and registered on 09th December, 2014. It was also submitted that the consideration of Rs.45,26,233 was already paid before 5th April, 2008 i.e. even prior to the date on which the allotment letter was issued.

On the basis of the above, the assessee contended that the purchase transaction effectively took place in AY 2010-11 itself, and not in AY 2014-15 when the actual registration took place. Therefore, the case of the assessee would be governed by the pre-amended provision of section 56(2)(vii)(b), which applied only where there was a total lack of consideration and not when there was inadequacy of purchase consideration.

Further, the assessee also challenged the denial of benefit of the first proviso to section 56(2)(vii)(b) by the PCIT, on the grounds that the date of the sale deed and the date of its registration were the same. It was contended that a bare perusal of the allotment letter showed that all the substantive terms and conditions which bound the parties, creating their respective rights and obligations were contained therein. The said allotment letter also provided for giving possession of the property within a period of 30 months from the date of allotment (except if due to some unavoidable reasons). Hence, there was an offer and acceptance by the competent parties for a lawful purpose. Thus, such allotment letter was having all the attributes of an agreement as per the provisions of the Indian Contract Act, 1872.

In so far as the PCIT’s observation that the allotment letter was provisional was concerned, it was submitted that the provisional nature of allotment was only to take care of unexpected happenings, such as changes by the sanctioning Authority or by the Architect or by the Builder, which might result in increase or decrease in the area, or absolute deletion of the apartment from the sanctioned plan. But for all intents and practical purposes, it was a complete agreement between the parties, which was even duly acted upon by both of them.

Further, the assessee contended that the relevant provision used the word ‘receives’ but did not use the word ‘purchases’ or ‘transfers’. Therefore, the legislature never contemplated the receipt of the subjected property as a complete formal transfer by way of registration of the property purchased in order to invoke section 56(2)(vii)(b)(ii). This would have had the effect of deferring the taxability, and resulted in late receipt of revenue from the taxpayer. On the contrary, by using the word ‘receives’, the legislature had advanced the taxability (provided the assesse clearly falls within the four walls of the provision as existed on the date of such receipt of the subjected property). The receipt of the property simplicitor happened in AY 2010-11, and not in the subject year i.e. AY 2014-15, where mere registration and other legal formalities were completed. The assesse’s right stood created and got vested at the time of the signing of the allotment letter itself by both the parties, on certain terms and conditions, and on specific purchase consideration. What happened later on was a mere affirmation / ratification by way of registration of the sale transaction in that year.

The tribunal perused the allotment letter and observed that it contained all the substantive terms and conditions which create the respective rights and obligations of the parties i.e. the buyer (assessee) and the seller (the builder) and bind the respective parties. The allotment letter provided detailed specification of the property, its identification and terms of the payment, providing possession of the subjected property in the stipulated period and many more. Evidently the seller (builder) had agreed to sell and the allottee buyer (assessee) had agreed to purchase the flat for an agreed price mentioned in the allotment letter. What was important was to gather the intention of the parties and not go by the nomenclature. Thus, there being the offer and acceptance by the competent parties for a lawful purpose with their free consent, the tribunal found that all the attributes of a lawful agreement were available as per provisions of the Indian Contract Act, 1872. It was also noted by the tribunal that such agreement was acted upon by the parties, and pursuant to the allotment letter, the assessee paid a substantial amount of consideration of Rs.45,26,233, as early as in the year 2008 itself. With respect to the PCIT’s observation that it was a mere provisional allotment, the tribunal held that it was a standard practice to incorporate the provision for increase or decrease in area due to unexpected happening so as to save the builder from unintended consequences. On this basis, it was concluded that the assessee had already entered into an agreement by way of allotment letter on 11th November, 2009, falling in AY 2010-11. Having said so, it was held that the law contained in section 56(2)(vii)(b) as it stood at that point of time, did not contemplate a situation of a receipt of property by the buyer for inadequate construction.

Accordingly, the tribual quashed the order of the PCIT, on the grounds that the assessment order, which was subjected to revision under section 263, was not erroneous and prejudicial to the interest of the revenue.

An identical view has been taken by the Mumbai bench of the tribunal in the case of Indu Kamlesh Jain vs. PCIT (ITA No. 843/Mum/2021) and Siraj Ahmed Jamalbhai Bora vs. ITO (ITA No. 1886/Mum/2019).

With respect to the applicability of section 43CA which has come in force with effect from A.Y. 2014-15, in cases where the allotment letters were issued prior to 1st April, 2013, diagonally opposite views have been taken by the Mumbai and Jaipur benches of the tribunal. In the case of Spenta Enterprises vs. ACIT [TS-63-ITAT-2022(Mum.)], it has been held that the provisions of section 43CA would not apply in such cases. As against this, in the case of Spytech Buildcon vs. ACIT [2021] 129 taxmann.com 175 (Jaipur – Trib.), it has been held that merely because an agreement had taken place prior to 1st April, 2013, it would not take away the transaction from the ambit of provisions of section 43CA. However, in the case of Indexone Tradecone (P) Ltd. vs. DCIT [2018] 97 taxmann.com 174 (Jaipur – Trib.), it was held that the provisions of section 43CA would not apply to a case where the agreement to sell was entered into much prior to 1st April, 2013, though the sale deed was registered after it came in force.

OBSERVATIONS

There are different stages through which a transaction of buying an immovable property passes, particularly when it has been bought from the builder in an ongoing project which is under construction and yet to be completed. These different stages can be broadly identified as under –

Allotment – When the person decides to buy a particular property and finalizes the relevant terms and conditions, the builder allots that particular property to that person by issuing a letter of allotment or a booking letter against the receipt of the booking amount. It contains the broad terms and conditions, which are the bare minimum required, such as identification of the property by its unique no., area of the property, total consideration to be paid, the time period within which the possession would be given etc. Normally, it is signed by both the parties i.e. the buyer as well as the seller.
Such an allotment letter is normally issued because it may not be feasible to execute the agreement for sale immediately. The execution of the agreement may take time due to its drafting and settlement, payment of stamp duty etc.
Agreement – After the necessary formalities are completed, the parties may thereafter proceed to execute an agreement which is popularly called as ‘agreement for sale’ and get it registered also. In order to safeguard the interest of the buyer, the relevant applicable local law may provide for restrictions on receipt of consideration in excess of certain limit, unless the necessary agreement has been executed and registered. For instance, as per the Real Estate (Regulation and Development) Act, 2016, it is obligatory for the promoter to enter into an agreement and to get it registered when a sum of more than 10 per cent of the total consideration is received from the buyer.

Possession – Upon completion of the construction, the builder hands over the possession of the property to the buyer in accordance with the terms and conditions as agreed.

The buyer is required to make the payment of the consideration as per the agreed terms throughout these stages. Normally, if the entire consideration as agreed has been paid, then the receipt of possession of the property is regarded as its deemed conveyance.

The first stage i.e. issuance of the allotment letter, may not be there in every case. But, the other two stages will normally be there in all cases, unless the property has been conveyed at the time of agreement itself and possession has also been handed over simultaneously.

Due to such multiple stages, several issues arise while applying the provisions of the Income-tax Act, some of which are listed below –

From what date should the assessee be considered as holding the property for determining whether it is short-term or long-term in accordance with the provisions of section 2(42A)?
When should the assessee be considered to have purchased or constructed the residential house for the purpose of allowing exemption under section 54 or 54F?
When should the assessee be considered to have received the property under consideration for the purpose of section 56(2)(x)? Whether the first proviso to section 56(2)(x) applies in such case and whether the stamp duty value as on the date of the allotment letter can be taken into consideration?
If the assessee is the seller, when should he be considered to have transferred the property for the purpose of attracting the charge of capital gains or business income in his hands? Whether the first proviso to section 50C is applicable in such case and whether the stamp duty value as on the date of the allotment letter can be taken into consideration?

Though the controversies exist on each of the above issues, the scope of this article is to deal with the controversy with respect to the applicability of section 56(2)(x) only. The limited issue under consideration is whether can it be said that the assessee ‘receives’ an immovable property when a letter of allotment is issued to him by the seller or he ‘receives’ it only upon the execution of the agreement for sale. Though one may contend that the assessee does not receive the property on either, and he receives it only upon receipt of the possession of the property, such issue has not been dealt by the tribunals in the cases discussed above.

The primary reason as to why the allotment letter was not considered to be receipt of the immovable property by the Mumbai bench of the tribunal in the case of Sujauddian Kasimsab Sayyed (supra) was that the allotment letter was not considered to be in the nature of an agreement equivalent to an agreement for sale, resuling into receipt of the property in the hands of the assessee. Therefore, first and foremost, it is required to be examined whether the letter of allotment or the booking letter can be considered to be an agreement and is there any material difference between the allotment letter and the agreement for sale, because of which the assessee is considered to have received the property on execution of the agreement for sale but not on issue of the allotment letter.

At the outset, it is clarified that the contents of the allotment letter and other related facts would be very relevant to decide this aspect of the matter. In this article, the attempt has been made to discuss the issues, assuming that the allotment letter contains all the important terms and conditions necessary to be agreed upon in any transaction of purchase and sale of property as per the standard practice of the industry i.e. identification of specific unit no. of the property, its area, total consideration, schedule of payment and possession, etc.

The Indian Contract Act, 1872 simply defines an agreement that is enforceable by law as a contract. It further provides that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void. Further, it also provides that the agreement need not be in writing, unless it is required so to be in writing by any other law in force. All the essential ingredients of a contract are present in the allotment letter, and, therefore, the same needs to be considered as a contract enforceable in the eyes of law.

In the case of Manjit Singh Dhaliwal vs. JVPD Properties Pvt Ltd (No. AT006000000000017 – decision dated 12th April, 2018), the issue before the Maharashtra Real Estate Appellate Tribunal was whether the allottees who had been issued only the letter of allotment and no agreement for sale had been executed could seek relief under the RERA Act or not. While holding that the complaint of the allottees would not fall for want of agreement for sale, the tribunal observed that the letter of allotment in that case stipulated the description of the property to be purchased, description of the payment schedule, the total cost, the necessary requisite permission, obligation to complete the projects and getting clarity to the title and, therefore, the cumulative effect of it would not be short of branding it to be the terms agreed upon between the parties. It was held that the agreement is a form of contract relating to offer, acceptance, consideration, time schedule, clarity of title and as to essence of time. The allotment letter incidentally was couched in such a fashion as to incorporate all the requisite terms. Hence, the absence of an agreement for sale would not scuttle the rights of allottees.

In the case of Shikha Birla vs. Ambience Developers Pvt Ltd (IA No. 418/2008 dated 20th December, 2008), the Delhi High Court was dealing with a suit against the developer for specific performance of the contract contained in the letter of allotment, and for direction to handover possession of the concerned property. In this case, the High Court held that an understanding to enter into a legally binding agreement does not result in a legally enforceable contract, but an understanding or a bargain is legally enforceable, if execution of a further document is to effectuate the manner in which the transaction already agreed upon by the parties is to be implemented. In the former case, execution of the agreement is a condition precedent. An agreement to enter into an agreement is not executable, but in the latter case, execution of a formal document is not a condition precedent and rights and obligations of the parties come into existence. A mere reference to a future formal contract will not in law prevent a binding bargain between the parties. On the facts of that case, the High Court held that, vide the allotment letter, the terms and conditions were ascertained and certain. Nothing was left to be negotiated and settled for future. Terms were agreed and the agreement for sale on a standard format was read and understood. It was a certain and concluded bargain. It was not a case where the parties were entering into a temporary understanding, which may or may not fructify into a binding bargain, and where execution of agreement for sale was a condition precedent for creating permanent obligations. A concluded contract therefore had come into existence. Therefore, the letters of allotment, in that case, were not regarded as in the nature of an understanding which did not create an enforceable agreement in law but only an understanding between the parties to enter into an enforceable agreement in future.

The Delhi High Court in the said case also referred to the decision of the Supreme Court in the case of Poddar Cement Pvt Ltd (supra) and held that the Supreme Court had also referred to with approval the need and requirement to continuously update and construe law in accordance with changes, ground realities to make it a living enactment, in tune with the present state of affairs.

Further, the clause in the allotment letter that the allottee shall not be entitled to enforce the same in a Court of Law was regarded as void by the Delhi High Court in view of section 28 of the Contract Act, 1872, by relying upon the decision of the Supreme Court in the case of Food Corporation of India vs. New India Assurance Company Ltd reported in AIR 1994 SC 1889, wherein it was held that every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent.

In the context of the Income-tax Act, 1961, the Mumbai bench of the tribunal in the case of Indogem vs. ITO (2016) 160 ITD 405 (Mum) has already examined the issue as to whether the letter of allotment could be regarded as agreement giving equivalent benefits to the assessee under the Act and the relevant portion from this decision is reproduced below:

“First point for consideration is whether there is an agreement for acquisition of property between the builder and the assessee. Agreement means set of promises forming consideration for each other. Law does not require that an agreement shall always be in writing or if reduced into writing, it shall be in a particular/specific format. As could be seen from the record, the allotment letter runs into so many clauses and, in our view, it answers the description of an agreement. When all the terms agreed upon by the parties are reduced into writing in detail, nothing more is required than formal compliance with the stamp and registration requirements. On a careful perusal of this allotment letter, we find that it contains all the details that were agreed upon by the parties, as such, by no stretch of imagination could it be said that there is no valid agreement for acquisition of the property.”

In view of the above, it appears that the view taken by the Mumbai bench of the tribunal in the subsequent decision in the case of Sujauddian Kasimsab Sayyed was contrary to what was held in the decision as referred above of the co-ordinate bench.

There can be an equally strong argument to claim that, upon issuance of the allotment letter, what is received is not the immovable property itself, but only the right to receive it in future by executing a registered agreement at a later stage or by receiving its possession. This view can be further justified on the grounds that if the allotment letter is considered to be a receipt of the immovable property, then it would result in taxing the difference in that year itself (in a case where the allotment letter has been issued subsequent to 1st April, 2013 i.e. subsequent to the amendment), irrespective of whether it has then culminated into a registered agreement or has been cancelled due to any reason. In the case of Hansa V. Gandhi vs. Deep Shankar Roy (Civil Appeal No. 4509 of 2007), the Supreme Court has held that mere letter of intent, which was subject to several conditions, would not give any right to the allottee for purchase of the flats in question, till all the conditions incorporated in the letter of intent were fulfilled by the the proposed purchasers. Further, it was also held that if the same flat has been sold to the other buyer upon non-fulfillment of the conditions of the letter of intent, then it cannot be presumed that such subsequent buyer had knowledge about the previous transaction for want of registration of the said letter of intent.

However, even if the provisions of section 56(2)(x) are invoked for taxing the difference between the stamp duty value and the actual consideration in the year in which the agreement has been executed and registered, then the benefit of the first proviso to section 56(2)(x) needs to be extended. The first proviso states that where the date of agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of agreement may be taken for this purpose. In such a case, the letter of allotment is to be considered as the agreement fixing the amount of consideration, subject to fulfillment of the other conditions. Difference of opinion may exist only with respect to the nature of rights which the buyer derives on the basis of the letter of allotment, but certainly not with respect to the fact that the letter of allotment needs to be regarded as the agreement fixing the amount of consideration.

The view that the stamp duty value as on the date of allotment letter should be preferred over the stamp duty value as on the date of registration of the agreement for sale is supported by the following decisions:-

ITO vs. Rajni D. Saini (ITA No. 7120/Mum/2018)
Sajjanraj Mehta vs. ITO (ITA No. 56/Mum/2021)
Radha Kishan Kungwani vs, ITO [2020] 120 taxmann.com 216 (Jaipur – Trib.)

That being the position, where the inadequacy of the consideration has to be judged on the basis of the difference in valuation on a date before the amended law came into force, the better view seems to be that such transactions entered into at that point of time are not intended to be covered by the subsequent amendments.

Section 56(2)(x) and its predecessor clause(vii) provides for bringing to tax the cases of inadequate consideration on receipt of an immovable property. The term ‘property’ is defined in vide clause (d) of Explanation to s.56(2)(vii) which in turn includes an immovable property and sub-clause(i) thereof defines an ‘imovable property’ to be ‘land and building or both’. There is a reasonable consistency of the judiciary in restricting the scope of the term immovable property to the cases of land and building simpliciter and not to the cases of the rights in land and building. Please see Atul G.Puranik, 132 ITD 499 (Mum) which holds that even leasehold rights in land are not the ‘land’ simpliciter. Equating the ‘land and building’ to the case of a rights under a letter of allotment, issued at the time where the premises are yet under construction, perhaps is far -fetched and avoidable. Secondly, what is required for a charge of tax, under s.56(2). to be complete is the ‘receipt’ of a property ; such a property that can be regarded as land or building. Obviously, the receipt of a right under letter of allotment would not satisfy the requirement for a valid charge of tax. Under the circumstances, it is better to hold that the provisions of s.56(2)(x) are inapplicable in the year in which an allotment letter is issued in respect of the premises under construction. The charge of tax may be attracted in the year of receipt of the premises, Yasin Moosa Godil, 52 SOT 344(Ahd.), and in that year the benefit of the Provisos(s.43CA,50C and 56(2)(x)), while determining the inadequacy shall be ascertained w.r.t the allotment letter.

shailesh.kwebmaker

Of Mules and Securities Laws

BACKGROUND

Mules, in common parlance, are understood as beasts of burden. They mindlessly carry out severe labor work often for relatively small rewards. In the narcotic drug business, mules are those who carry/smuggle drugs from one place to another. In securities laws too, now, the term ‘mules’ has acquired a similar meaning. They refer to persons who do illegal work under the instructions of another mastermind. Theyget small rewards for doing such work or allowing their names to be used. The question is how they are treated in securities laws since the violations are carried out in their names?

USE OF MULES TO CARRY OUT NUMEROUS TYPES OF SECURITIES LAWS VIOLATIONS

The typical use of mules is to use their names to carry out certain acts, which if carried out in one’s own name, would be illegal or otherwise help links to be established whereby the acts would be held to be illegal. A corrupt person, for example, would take bribes and build wealth in the name of another person, and thus himself being free of scrutiny. Having wealth in one’s own name could be a presumption of having acquired it through corrupt means. In securities laws, there are similar reasons. An insider having Unpublished Price Sensitive Information (UPSI), for example, may use mules to carry out trades with benefit of such information and make illicit profits. Similarly, a front runner, who has information of impending large orders of clients/employers, may use these mules to carry out transactions in such scrips. Since it is expected that on account of the large orders of his client/employer, there would be significant movement in price, he would use these mules to enter into transactions first and then reverse these transactions when the orders of his employer/client are put through.

Then, there are those who engage in price manipulation. Often a group of persons are needed to carry out such acts. Such group of persons may engage in trades and counter trades, often in a circular manner whereby, at least initially, there may be no movement of shares outside such the group. If the intent is ‘pump and dump’, then, after the price is pumped up to higher levels, there would be off loading of the shares by the master mind to unsuspecting investors. At a later date, when there are complaints and investigations, the master mind may claim to have had no knowledge or connection with the various mules. The mules, assuming they are traceable or appear before SEBI against summons, too may claim having no connection.

Then there were the classic cases of share subscriptions in public issues to take the benefit of reservations for retail investors. It was alleged that share applications in large numbers were made in the names of thousands of such mules, and these were financed by a small group of people. These cases, which came to be popularly referred by one of the alleged persons, Roopalben Panchal, led to investigations and multiple proceedings that lasted for a long time. It was alleged that share applications were made in the name of such mules and shares allotted to such persons were sold and the profits/sale proceeds transferred back to the alleged financiers.

DETECTION/DEMONSTRATING VIOLATIONS OF SECURITIES LAWS USING MULES

The use of mules present a challenge to the regulator in proving and punishing violations of securities laws. The mules and their mastermind may claim no connection with each other and thus argue that there were no violations.

In case of insider trading, the work of SEBI is thus relatively easier as there are deeming provisions that hold several connected persons as insiders. Further, well settled principles of law (as laid down by the Supreme Court and as discussed later herein) help SEBI in using circumstantial evidence. Thus, several such orders are seen to be regularly passed from time to time.

That said, sophisticated capital market operators may use means that make detection and punishment difficult. Digital tools, messengers, etc. may also be used. In some cases, SEBI has meticulously traced mobile calls and established links between persons based on such connections. However, there are just too many ways to pass messages/make calls unless such messages remain on record. Here too, there are sporadic cases where SEBI has even used web archives to excavate deleted websites. But the technical challenges remain formidable.

SEBI does come to know of suspicious transactions through market surveillance. Financial transactions between the parties, introducing such mules in bank or broker accounts, etc. also help establish guilt. SEBI had, in one case, shown extraordinary initiative to track the movement of an alleged front runner through his mobile phone and found that the person used to withdraw cash through ATM from the account of such a mule. However, such cases are one off and do not help wider prevention, detection and punishment of securities laws violations.

SEBI’S ENFORCEMENT ACTION AGAINST SUCH MULES – DIFFICULTIES AND INJUSTICE

Even if detected, the unresolved issue is what action should be treated against mules? The dilemma particularly here is this. The ‘mastermind’ may claim that he has done no wrong, the transactions are not done by him and the rewards of the misdeeds are also not with him. It is the other person, the alleged mule, who has done everything. The mule may claim a similar story of innocence, the counter part. He may say he is just an uneducated person, maybe in the employment of the mastermind at a lower hierarchy earning a small salary or otherwise in a similar job elsewhere and who is recruited. He may claim that the rewards of the misdeeds have been transmitted to the real culprit, either by the way of ‘loans’ or through cash. In some cases, he may admit to have signed various documents on the basis of some small remuneration. It may be difficult for SEBI to ascribe/allocate blame to the “real culprit”. This is more so if it is admitted, or otherwise easily demonstrated, that the mule was aware that wrongful transactions were being done in his name.

Typically, SEBI has been punishing all the persons equally. They may all be debarred from capital markets. A common penalty be levied on them, payable jointly and severally and this stance is particularly justified if the money may be lying with the mule or if SEBI is unable to find out where it has landed.

The difficulties in taking such a uniform stand are several. Firstly, the mule gets punished as an equal to the main person, despite his role being less, maybe a name-lender. Secondly, levying the penalty as fully recoverable from the mule (even if on a joint and several basis) creates far more difficulties on the mule. His bank account and his meagre savings and properties may get attached/recovered. Even if he bears guilt in this regard, such a punishment is clearly disproportionate and unjust. The mastermind may also have bigger resources to fight the matter.

Recently, however, SEBI has been changing its stand for the better. For one, if it is possible to trace how much of the ill-gotten gains went to whom, the recovery is made accordingly from such persons, instead of recovering on a joint basis. Further, in several cases, even if not on a consistent basis with general principles laid down, SEBI has levied penalty/punishment on the basis of demonstrated involvement in the violation. The backgrounds of the parties too have been considered for this purpose. Hence, while some punishment may still be meted out, it may be proportionate to the guilt and involvement.

Admittedly, if it is not easy to find the culprits, then, demonstrate the violations and then go even further and allocate blame. However, SEBI has the benefit of at least two Supreme Court decisions (SEBI vs. Kishore R. Ajmera (2016) 3 Comp. LJ 198 (SC) & SEBI vs. Rakhi Trading (P.) Ltd. ((2018) 207 Comp Cas 443 (SC)) which have made deciding of the guilty easier on the principles of “preponderance of probability.” This principle does not require a proof of beyond reasonable doubt but a lower one based on what is more probable than not. SEBI could see the facts of the case, see the level of sophistication and resources of the persons involved, the cooperation given, etc. and ascribe blame and punishment accordingly.

VISHWANATHAN COMMITTEE REPORT

The SEBI Committee chaired by T. K. Vishwanathan had in August 2018 made certain recommendations on this topic. A method of detecting mule accounts was suggested. For this purpose, a formula was provided that lays down the volumes of trades based on income/net worth of the investor. If the broker finds that the volumes are beyond an “affordability index”, then the broker should exercise special diligence for such client. If the volumes are beyond this and even beyond prescribed levels, the account could be suspected as a mule account. However, though amendments to the Regulations were suggested, they have not yet been made.

SOME CASES

An interesting investigation was carried out by SEBI which culminated in an interim order dated 1st October, 2020. While a detailed analysis of this order could be a separate subject, it is seen that SEBI traced the mobile records and even the location of parties as available from such records. Based on these investigations, it alleged that mule accounts were created for carrying out front running and the primary person withdrew the cash from the bank accounts of such mules. However, SEBI ordered that the profits made be deposited by all the parties including the alleged mules and this liability for deposit was made joint and several. Till this was done, the assets, bank accounts, etc. were required not to be disposed off. Effectively, this meant that the alleged mules too suffered such embargo.

In an order dated 24th December, 2020, in the matter of Viji Finance Ltd, SEBI alleged that 78 parties were ‘mules’ or ‘name lenders’. They were low income/unskilled/uneducated people whose occupations included being a vegetable vendor, house painter, auto drivers, etc. For alleged violation of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, a penalty of Rs. 15 lakhs was levied jointly and severally on them. The result is that the full amount could be recovered from even any one of them and there would be no mechanism for them to share it between them. It is possible that they may not even know each other.

In an order dated 13th January, 2021, SEBI elaborated the concept of “Family and Friends” mule accounts. It was stated, “Before proceeding to deal with the circumstances, it will be appropriate to elaborate on the concept of “Family and Friends” mule accounts. These are trading accounts which are “lent” by persons known to the person who is effectively controlling / placing the orders in the trading account. For example, family members, extended family members, friends, acquaintances, etc. The person who is controlling the account / placing the orders gets access to the trading accounts based on trust or on the strength of relationship between him and the registered owner of the trading account.” Using this principle, the family members were held equally responsible for the alleged violations. They all were required to deposit the impounded amount their banks.

CONCLUSION

While legal issues of proving and apportioning guilt are difficult enough, the unorganized economy in India where transactions in cash may be made, adds to the difficulties. It is quite possible that the SEBI’s attempt may be barely scratching the surface.

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Section 148 –Reopening – beyond the period of four years – Approval for issuance of notice:

24 MA Multi-Infra Development Pvt Ltd vs.

ACIT Circle- 3(2)(1) & Ors

[Writ Petition No. 1650 of 2022,

Date of order: 09th January, 2023, (Bom.) (HC)]

Section 148 –Reopening – beyond the period of four years – Approval for issuance of notice:

The assessee challenges the notice dated 31st March, 2021 under section 148 of the Act, for the A.Y. 2015-16, inter-alia, on the ground that since the same has been issued beyond the period of four years, approval for issuance of the same ought to have been obtained from the Principal Chief Commissioner of Income-tax in terms of section 151(ii) of the Act.

The Court observed that a perusal of the notice dated 31st March, 2021 issued under section 148 of the Act by the AO shows that the same has been issued after obtaining necessary satisfaction of Additional Commissioner of Income Tax, Range (3)(2), Mumbai. As per the objections filed by the revenue, the approval was obtained from the Additional Commissioner of Income Tax, Range (3)(2), Mumbai. The said officer, it is stated, was competent to grant approval in view of the applicability of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for the sake of convenience, hereinafter referred to as ‘the Relaxation Act’).

It is stated that in terms of the Relaxation Act, the limitation inter-alia, under provisions of sections 151(i) and 151(ii) of the Act, which were originally expiring on 31st March, 2020, stood extended to 31st March, 2021. It was, thus, urged that since the Relaxation Act had extended the period of limitation, the authority which was otherwise supposed to grant approval in regard to cases falling within the ambit of section 151(i) of the Act could have granted approval beyond the period of three years based upon the Relaxation Act.

The Court in J.M. Financial & Investment Consultancy Services (P) Ltd. vs. Assistant Commissioner of Income Tax & Ors. [Writ Petition No.1050 of 2022 dated.4th April, 2022 ] has already taken a view holding that the Relaxation Act would apply only to cases where the limitation was expiring on 31st March, 2020 and since for the A.Y. 2015-16, the limitation period was six years which was to expire only on 31st March, 2022, the said provisions would not be applicable. It was held that while the time to issue notice may have been extended but that would not amount to amending the provisions of section 151 of the Act.

The petitioner urged that the case of the petitioner fell under section 149(b), and therefore, the period of limitation of six years for issuance of notice under section 148 for the A.Y. 2015-16 would expire on 31st March, 2022. It was, therefore, urged that the case of the petitioner was squarely covered by J.M. Financial & Investment Consultancy Services (P) Ltd.

Accordingly it was held that the approval for issuance of notice under section 148 ought not have been obtained from the Additional Commissioner of Income Tax but from the authority specifically mentioned under section 151(ii) of the Act.

The notice impugned notice dated 31st March, 2021 was quashed. The petition was allowed.

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Unaccounted income – Bogus Long Term Capital Gains – Concurrent finding of fact – No substantial question of law :

23 Pr. Commissioner Of Income Tax-10 vs.

M/S. Rajat Finvest & Ors[ITA NO.13 OF 2023,

Date of order: 12th January, 2023, (Del.) (HC)]

[Arising out of ITAT order dated 12th September, 2019 for A.Y. 2010-2011 [ITA 13/2023], A.Y. 2009-2010 [ITA 14/2023] and A.Y. 2008-2009 [ITA 15/2023].

Unaccounted income – Bogus Long Term Capital Gains – Concurrent finding of fact – No substantial question of law :

The respondent/assessee is in the business of trading and investing in scrips. On 7th August, 2012, a survey was carried out by the appellant/revenue in exercise of powers under section 133A of the Income-tax Act, 1961, and according to the appellant/revenue, during investigation, the fact was revealed i.e., that the respondent/assessee had introduced unaccounted income in its books of accounts in the guise of long-term capital gains (LTCG), albeit, by first investing and then selling the shares of two entities i.e., REI Agro Ltd. [in short, “REI”] and REI Six Ten Ltd [in short, “REI Six”]. The respondent/assessee, against the LTCG, had claimed exemption from tax.

It is not in dispute, that REI is a listed company, and its shares were transacted on the stock exchange. The facts also show, that during the course of the survey on 7th August, 2012, the statement of one Mr. Brij Mohan Vyas was recorded. Mr. Brij Mohan Vyas, according to the appellant/revenue, is an employee of REI Agro Group. The shares of REI were bought and sold through brokers, on instructions of one Mr. Sandeep Kumar Jhunjunwala.

The AO has relied upon the details gathered by the Investigation Wing, to conclude that the respondent/assessee had introduced its unaccounted income to purchase and sell the shares of REI. Thus, based on the information gathered by the Investigation Wing, the AO concluded, that the entire set of transactions was a ‘sham’, and that the same had been configured to give the sale and purchase of shares by the respondent/assessee a legal framework. The Assessment Order was passed pursuant to reopening of assessment of the respondent/assessee under section 148 of the Act.

The CIT(A) via order dated 29th June, 2016 partly allowed the respondent/assessee’s appeals. The appellant/revenue preferred an appeal to the Tribunal.

The Tribunal considered the matter in great detail, and came to the conclusion that the order passed by the CIT(A) had to be confirmed.

The Hon. High Court noted that both the CIT(A) and the Tribunal have returned findings of fact. The important fact was that the respondent/assessee traded in shares and the respondent had converted a part of its stock-in-trade as investment. In A.Y. 2008-09, the respondent/assessee had declared profit from trading in shares of REI, and during that very year, the said shares were transferred to opening stock and were purchased under investment portfolio.

Further the statement made by Mr. Brij Mohan Vyas on 7th August, 2012 did not reveal that REI was manipulating share prices on the stock exchange. The involvement of Mr. Sandeep Kumar Jhunjunwala, based on whose instructions Mr. Brij Mohan Vyas acted, was to the extent as to the right time when shares of REI had to be bought and sold.

The observation of the AO, that the funds which flowed from REI in the form of unsecured loans to six companies, which were located in Gujarat, were unaccounted income of the respondent/assessee, appears to be based on assumptions and/or conjectures. No material to back the conclusion arrived at by the AO.

The appellant/revenue could not have bifurcated the purchase and sale transactions. Concededly, when the shares were purchased for trading purposes in earlier years, the profits so generated were accepted, and at the point in time, when these scrips were converted into investment and sold during the Assessment Years in issue, they could not be treated as bogus transactions. The fact that shares were traded on stock exchange after paying securities transaction tax, and that money had been received through banking channels only demonstrated that they were not bogus transactions.

The Court noted that there are concurrent findings of facts returned by the CIT(A) as well as the Tribunal. The proposed questions of law by the appellant/revenue do not state that the findings returned by the Tribunal or the CIT(A) are perverse.

Thus, the appeals were, dismissed, as no substantial question of law arose for consideration.

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Section 264 – Revision – amount had been taxed twice – powers under section 264 of the Act were not limited to correcting any errors committed by the authorities but also extended to errors committed by the assessee.

22 Interglobe Enterprises Pvt Ltd vs.

Pr. Commissioner of Income

Tax Delhi -4 & Ors.

[Writ Petition (L) NO. 11708 OF 2021 & CM APP. 36194 OF 2021

Date of order: 20th January, 2023, (Delhi) (HC) ]

Section 264 – Revision – amount had been taxed twice – powers under section 264 of the Act were not limited to correcting any errors committed by the authorities but also extended to errors committed by the assessee.

The controversy, in the present case, relates to the liability to pay tax on the interest received on income tax refund pertaining to the A.Ys. 2009-10 and 2010-11. The assessee had credited interest amounting to Rs. 1,61,38,250 in its books of account for the F.Y. 2013-14. This amount included a sum of Rs. 1,29,01,031 as interest on income tax refund for the A.Y. 2009-10 and Rs. 22,66,836 as interest on income tax refund for the A.Y. 2010-11. Thus, an aggregate amount of Rs. 1,51,67,867, on account of interest on income tax refund(s), was included as income for the F.Y. 2013-14. The assessee included the said amount in its return of income for the A.Y. 2014-15 and paid tax on the same.

The assessee’s return for the A.Y. 2014-15 was picked up for scrutiny and an assessment order dated 28th October, 2016 was passed under section 143(3) of the Act. There is no dispute that income, as assessed, included the said amount of Rs. 1,51,67,867 as interest on income tax refund(s) pertaining to the A.Ys. 2009-10 and 2010-11.

Thereafter, by a notice dated 15th February, 2017, issued under section 148 of the Act, the assessee’s assessment of income for the year 2012-13 was reopened. The interest on refund of tax, for the years 2009-10 and 2010-11, was sought to be included in the taxable income for the A.Y. 2012-13 on the grounds that the said interest was received during the previous year 2011-12.

The petitioner, inter alia, contended that the said amount was included in the income of the assessee for the A.Y. 2014-15 and thus, had not escaped assessment warranting any addition in the income changeable to tax for the A.Y. 2012-13. However, this contention was not accepted and the AO passed an order dated 08th December, 2017, inter alia, adding the amount of Rs. 1,51,67,867 as income for the A.Y. 2012-13.

Although the AO added the amount of Rs. 1,51,67,867 as income for the A.Y.2012-13, he did not pass any order excluding the said amount from the taxable income for the A.Y. 2014-15. Resultantly, the said amount has been taxed twice; once, as income assessed under the assessment order dated 8th December, 2017for the A.Y. 2012-13, and second, in terms of the assessment order dated 28th October, 2016 for the A.Y. 2014-15.

Whilst the appeal under section 246A of the Act was pending before the Commissioner of Income Tax (Appeals), the assessee accepted the addition of Rs. 1,51,67,867 in its income chargeable to tax in the A.Y. 2012-13 and applied under the Direct Tax Vivad Se Vishwas Act, 2020 (hereafter ‘the VSV Act’) for settlement of the dispute. The liability for the A.Y. 2012-13 has been finally settled; the petitioner has received the Form 5 and has paid the necessary tax.

Since a sum of Rs. 1,51,67,867 had been taxed twice, on 16th February, 2018, the petitioner applied for revision of the assessment pertaining to the A.Y. 2014-15. The respondent did not take any steps in regard to the said application for a period of more than 3.5 years.

The assessee filed a writ petition (being WP(C) No.8177/2021) in the Court. The said petition was disposed of by an order dated 11th August, 2021, directing the respondent to dispose of the assessee’s application dated 16th February, 2018, filed under section 264 of the Act. The assessee’s application was rejected by an order dated 04th October, 2021, which was under challenge before the High Court.

The assessee contended that the impugned order is, ex facie, erroneous as it proceeds on the basis that the issue regarding the interest amount does not form a part of the order under section 143(3) of the Act. It is contended on behalf of the assessee that the said reasoning is, ex facie, erroneous as the amount of Rs. 1,51,67,867 (Rs. 1,29,01,031 and Rs. 22,66,836) was subjected to tax for the A.Y. 2014-15 and is included in the income as assessed by the order dated 28th October, 2016, passed under section 143(3) of the Act.

The Hon. Court observed that section 264 of Act enables the Principal Commissioner or Commissioner, on its own motion or on an application made by the assessee, to call for records of any proceedings under the Act or to cause such inquiry to be made and, subject to the provisions of the Act, pass such order thereon as the Commissioner thinks fit. The only condition being that such order cannot be prejudicial to the assessee. Undisputedly, if the records for the A.Y. 2014-15 were recalled, it would reveal that the sum of Rs. 1,51,67,867, received on account of interest on income tax, was assessed as income for the previous year 2013-14 relevant to the A.Y. 2014-15. However, as stated above, the said amount was brought to tax by the Income Tax Authority in the A.Y. 2012-13. Clearly, the same amount cannot be taxed twice.

It is settled law that an assessee is liable to pay income tax only on the income that is chargeable under the Act. Merely because an assessee has offered a receipt of income in his return does not necessarily make him liable to pay tax on the said receipt, if otherwise the said income is not chargeable to tax. InCIT vs. Shelly Products: (2003) 5 SCC 461, the Supreme Court held that if the assessee had, by mistake or inadvertently, included his income or any amount, which was otherwise not chargeable to tax under the Act, the AO was required to grant the assessee necessary relief and refund any tax paid in excess.

It is also well settled that the powers conferred under section 264 of the Act are wide. In Vijay Gupta vs. Commissioner of Income Tax Delhi-XIII & Anr.: 2016 SCC OnLine Del 1961, a Co-ordinate Bench of this Court held that powers under section 264 of the Act were not limited to correcting any errors committed by the authorities but also extended to errors committed by the assessee.

As observed above, it is clear that the amount of Rs. 1,51,67,867 cannot be taxed twice. In the aforesaid view, it was apposite for the Commissioner to have revised the assessment order for the A.Y. 2014-15 in light of the reassessment order dated 08th December, 2017, whereby the amount of Rs. 1,51,67,867 was brought to tax in an earlier assessment year (A.Y. 2012-13).

In view of the above, the impugned order was set aside and the matter was remanded to the concerned Commissioner to pass the fresh order in light of the observations made above. The petition was allowed in the aforesaid terms.

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Search and seizure — Assessment in search cases — Condition precedent — Prior approval of prescribed authority in respect of each assessment year — Sanction of prescribed authority for various assessees granted on single day — AO passing draft assessment order and final assessment order on same day of approval — Approval illegal and non est

87 Principal CIT vs. Subodh Agarwal

[2023] 450 ITR 526 (All)

A. Y.: 2015-16

Date of order: 12th December, 2022

Sections 132, 153A, 153D and 260A of ITA 1961

Search and seizure — Assessment in search cases — Condition precedent — Prior approval of prescribed authority in respect of each assessment year — Sanction of prescribed authority for various assessees granted on single day — AO passing draft assessment order and final assessment order on same day of approval — Approval illegal and non est

Pursuant to a search and seizure operation under section 132 of the Income-tax Act, 1961 conducted on 31st August, 2015, the assessment for the A.Y. 2015-16 was completed under section 153A/143(3) of the Act by the Deputy Commissioner of Income-tax, Central Circle-1, Kanpur, vide order dated 31st December, 2017and various additions were made.

The Tribunal set aside the order of the AO. The Tribunal found as under: The AO prepared the draft assessment order on 31st December, 2017 for the A.Y. 2015-16. The approval of the draft assessment order under section153D was given on 31st December, 2017 itself and the final assessment order was passed on the same day, i.e., on 31st December, 2017 by the AO. The Additional Commissioner of Income-tax granted approval of draft assessment orders under section 153D in 38 cases which also included the case of the assessee. The Tribunal having taken note of the said undisputed facts, came to the conclusion that it was humanly impossible for the approving authority to peruse the material based on which, the draft assessment order was passed. It was, thus, concluded that the approving authority granted approval under section 153D of the Act in a mechanical manner which vitiated the entire proceedings.

On appeal by the Revenue, the Allahabad High Court upheld the decision of the Tribunal and held as under:

“i) Section 153D of the Income-tax Act, 1961 requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of “each assessment year” referred to in clause (b) of sub-section (1) of section 153A which provides for assessment in case of search u/s. 132. The requirement of approval u/s. 153D is a prerequisite to pass an order of assessment or reassessment. A conjoint reading of section 153A(1) and section 153D leaves no room for doubt that approval with respect to “each assessment year” is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order u/s. 153A. The approval of the draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the approving authority on the material placed before him and the reasoning given in the assessment order. The prior approval of superior authority means that he should appraise the material before him and appreciate the factual and legal aspects to ascertain that the entire material has been examined by the assessing authority before preparing the draft assessment order. It is trite in law that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts on record.

ii) The Tribunal on undisputed facts had concluded that the approving authority under section 153D had exercised his power mechanically which vitiated the entire proceedings under section 153A and that it was humanly impossible for the approving authority to peruse and apply his independent mind to appraise the material in one day in respect of 38 assessees including that of the assessee based on which the draft assessment order was passed. Therefore, its conclusion was not perverse or contrary to the material on record.

iii) For the A.Y. 2015-16, the Assessing Officer had prepared the draft assessment order on December 31, 2017, the approval of the draft assessment order u/s. 153D was given on the same date and the final assessment order was also passed on the same day by the Assessing Officer. The submission of the Department that the grant of approval was an administrative exercise of power on the part of the approving authority and that the approval was in existence on the date of the passing of the assessment order and hence it could not be vitiated was a fallacy since the prior approval of superior authority meant that he had appraised the material before him so as to appreciate the factual and legal aspects to ascertain that the entire material had been examined by the assessing authority before preparing the draft assessment order. The appeal was devoid of merit. No question of law arose.”

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(A) Salary — Difference between salary and professional income — Factors to be considered whether particular income constituted salary — Remuneration of doctors working in hospital — Contracts between hospital and doctors should be considered — Contracts showing relationship between hospital and doctors not of master and servant — Remuneration not taxable as salary

86 DR. Mathew Cherian vs. ACIT

[2023] 450 ITR 568 (Mad):

A.Y.: 2018-19

Date of order: 1st September, 2022

Sections 15, 28, 147, 148 and 148A of ITA 1961:

(A) Salary — Difference between salary and professional income — Factors to be considered whether particular income constituted salary — Remuneration of doctors working in hospital — Contracts between hospital and doctors should be considered — Contracts showing relationship between hospital and doctors not of master and servant — Remuneration not taxable as salary

(B) Reassessment — Notice — Law applicable — Effect of amendments w.e.f. 1st April, 2021 — Show-cause notice under section 148A and opportunity to assessee to be heard — Notice under section 148A should be based on tangible “information” — Remuneration of doctors working in hospital — Order under section 148A for issue of notice of reassessment without examining contracts between the hospital and doctors — Order under section 148A not valid

The assessee is a practicing doctor. On the basis of documents seized in the course of a survey at a hospital, and consequent inferences, the authorities came to the conclusion that (i) an employer-employee relationship was established between the assessee doctor and the hospital, (ii) the assessee was to be construed as an employee and not full time or visiting consultant, and (iii) the income returned by the doctor had to be assessed under the head “Salary” and not “professional income”. For the A.Y. 2018-19, show-cause notice was issued to the assessee (doctor) under clause (b) of section 148A of the Income-tax Act, 1961. The assessee filed replies objecting to the proposal to treat the income returned under the head “Salary” and not “Professional Income” and submitting that none of the documents found were incriminating or supported the issuance of the notices. An order was passed under section 148(d) of the Act rejecting the arguments.

The Madras High Court allowed the writ petition filed by the assessee and held as under:

“i) As on April 1, 2021, the scheme of reassessment under the Income-tax Act, 1961 law has undergone a sea change. While the provisions earlier required the officer to have “reason to believe” that there had been escapement of income from tax, what is now required is “information” that suggests escapement of income from tax. Section 148A stands activated only if the Income-tax Department is in possession of “information”, which suggests that income chargeable to tax has escaped assessment. The definition of “information” is wide and could include just about any material in the possession of the officer. However, the caveat is that such information must enable the suggestion of escapement of tax. Then again, the mandate cast upon the officer u/s. 149A(d) is that he has to decide whether it is a “fit case” for issue of a notice for reassessment, upon a study of the material in his possession, including the response of the assessee. Thus, not all information in the possession of the officer can be construed as “information” that qualifies for initiation of proceedings for reassessment, and it is only such “information” that suggests escapement and which, based upon the material in his possession, that the officer decides as “fit” to trigger reassessment, that would so qualify. The “information” in the possession of the Department must prima facie, satisfy the requirement of enabling a suggestion of escapement from tax. This is not to say that the sufficiency or adequacy of the “information” must be tested, as such an analysis would be beyond the scope of jurisdiction of the court in writ jurisdiction. However, whether at all the “information” gathered could lead to a suggestion of escapement from tax can certainly be ascertained. For the purposes of such ascertainment and to determine “fitness” to reassess, the materials gathered must be seen in the context of the allegation of tax evasion, taking assistance of decided cases to ascertain whether or not the allegation is sustainable. In the present regime of reassessments, an Assessing Officer must be able to establish proper nexus of information in his possession, with probable escapement from tax. No doubt the term used is “suggests”. That is not to say that any information, however tenuous, would suffice in this regard and it is necessary that the information has a live and robust link with the alleged escapement.

ii) There is a distinction between a contract for service and one of service, and depends on several factors. The regulations, restrictions, guidelines and control exercised in regard to logistical and administrative functions of the work force have to be considered. It is difficult to identify any establishment that does not exercise some degree of control over the administrative and logistical functioning of the workforce, be they salaried or otherwise. What is vital is that professionals discharge their professional duties and function in a free and fully independent fashion without any interference from the hospital management. Though it is expected that there would be regular quality control measures, this would not lead to the inference that there is control exercised over the discharge of professional functions. The prima facie test for determination of a master-servant relationship is the right of the master to supervise and control the work done by the servant in the matter of not just directing what work is to be done but also the manner in which he shall execute the work. Application of the test of control in the case of skilled employments to decide whether there is relationship of master-servant would be unreal and would not result in a proper conclusion. Thus the question of whether there was “right of control” by the employer would depend on the facts in each case and on the terms of the contracts between the parties.

iii) In all the cases the entity searched was the KMC hospital. The Assessing Officer had come to the conclusion that the hospital exercised total control over the doctors in regard to their timings of work, holidays, call duties based on the exigencies of work, termination, entitlement to private practice, increments and other service rules. However, the agreements between the hospital and the assessees revealed the following terms : (i) The doctors were referred to as consultants and fell within the category of visiting consultants or full time consultants, as against part-time and special category consultants who also attended the hospital. (ii) The remuneration paid was of a fixed amount along with a variable component depending on the number of patients treated, and was termed “salary”. (iii) The consultants were not entitled to any statutory service benefits such as provident fund, gratuity, bonus, medical reimbursement, insurance or leave encashment. (iv) Working hours were stipulated as 8 a. m. to 5 p. m. and the consultants were expected to be available on call in the night. (v) They were permitted a month’s vacation and leave on a case-to-case basis and depending on need. (vi) Private practice was permitted in the case of both categories, upon the satisfaction of certain conditions, such as service of two years in the hospital and other conditions. (vii) The hospital did not exercise any control, intervention or direction over the exercise of professional duties by the assessees. (viii) The assessees were wholly responsible for professional indemnity insurance and the hospital did not indemnify the doctors from any manner of claims. The intention of the parties appeared to engage in a relationship as equals. The hospital, on the one hand, and the professional, on the other, engaged in a relationship where the former provided the administrative infrastructure and facilities and the latter, the professional skill and expertise to result in a mutual rewarding result. The fact that the remuneration paid was variable, and the doctors were not entitled to any statutory benefits also pointed to the absence of an employer-employee relationship. The mere presence of rules and regulations did not lead to a conclusion of a contract of service.

iv) Rules and regulations are necessary to ensure that the workplace functions in a streamlined and disciplined fashion. Thus, the mere existence of an agreement that indicated some measure of regulation of the service of the doctors, could not lead to a conclusion that they were salaried employees. The fact that the doctors held full responsibility for their medical decisions and actions and the hospital bore no responsibility in this regard was also of paramount importance, relevant to determine the nature of the relationship as being one of equals, rather than one of master-servant. The order contained clear, categoric and conclusive findings that were adverse to the assessees. There were no disputed facts at play and rather, it was only the interpretation of admitted facts and conclusions arrived at by the officer, that were challenged. The “information” in the possession of the Revenue did not, in the light of the settled legal position lead to the conclusion that there had been escapement of tax. The order u/s. 148A was not valid.”

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Reassessment — Notice under section 148 — Service of notice without signature of AO digitally or manually — Notice invalid — Consequent proceedings without jurisdiction — Notices and order issued beyond period of three years after relevant assessment year — Show-cause notice and order for issue of notice and notice for reassessment quashed and set aside

85 Prakash Krishnavtar Bhardwaj vs. ITO
[2023] 451 ITR 27 (Bom)
A Y.: 2015-16
Date of order: 9th January, 2023
Sections 147, 148, 148A(b) and 148A(d) of ITA 1961:

Reassessment — Notice under section 148 — Service of notice without signature of AO digitally or manually — Notice invalid — Consequent proceedings without jurisdiction — Notices and order issued beyond period of three years after relevant assessment year — Show-cause notice and order for issue of notice and notice for reassessment quashed and set aside

The relevant year is the A.Y. 2015-16. The assessee filed a writ petition for quashing the impugned notice under clause (b) of section 148A dated 21st March, 2022, order under clause (d) of section 148A dated 2nd April, 2022 and notice under section 148 dated 2nd April, 2022 passed by the respondents under the Income-tax Act, 1961. The Bombay High Court allowed the writ petition and held as under:

“The notice issued under section 148 of the Income-tax Act, 1961 admittedly having no signature of the Assessing Officer affixed on it, digitally or manually, was invalid, and would not vest the Assessing Officer with any further jurisdiction to proceed with the reassessment under section 147. Consequently, the Assessing Officer could not assume jurisdiction to proceed with the reassessment proceedings. The notice having been sought to be issued after three years from the end of the relevant assessment year 2015-16 any steps taken by the Assessing Officer the notice issued u/s. 148A(b) and the order passed u/s. 148A(d) were without jurisdiction and therefore, arbitrary and contrary to article 14 of the Constitution of India and consequently set aside.”

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