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BCAJ May 2006

27th International Tax and Finance Conference

Held at The Leela in Gandhinagar, Gujarat, the 27th International Tax and Finance (ITF) Conference was the first ITF Conference to be held in the month of April. Held from 6th April, 2023 to 9th April, 2023, this Conference received an overwhelming response with about 250 participants (including faculties and special invitees) attending the conference. As a flagship program of the International Taxation Committee of BCAS, the ITF Conference was designed to provide an all-encompassing platform for professionals in the field of international tax and finance to share knowledge, exchange ideas, learn from industry experts and network with peers.

The 27th ITF Conference comprised of:

Paper for Presentation Faculties
1. Intricacies of New UAE Tax Regime Chairman: CA T P Otswal

Presenter: CA Nirav Shah

2. Family Offices and Private Investment set-up in a globalised world (including cross border trust and structuring issue) CA Gautam Doshi
3. FEMA Issues in Overseas Investment Rules, LRS and Inheritance issues for Foreign Assets CA Anup Shah
Paper Presentation for Group Discussion (GD) Faculties
1. Tax Treaty and MLI Interpretation and Interplay Chairman: CA Kishor Karia,

Paper Writer: CA Ganesh Rajgopalan

2. Taxation of Foreign Income – Computation, Disclosure and Credits of Foreign Tax Chairman: CA Padamchand Khincha

Paper Writer: CA P V Srinivasan

Paper for Group and Panel Discussion Faculties
1. Case studies in International Tax (including structuring and allied issues) Chairman: CA Pranav Sayta

 

Panellist:

Pitambar Das, CCIT, International Tax

Saurabh Soparkar, Sr Advocate

Sunil Gupta, Head – Direct Tax, Reliance Industries Ltd

Deviating from its past practice, this ITF had a group discussion on case studies discussed by the panel. The participants were divided into four groups, each group ably led by group leaders (aggregating to 25 across the three papers) who helped generate an in-depth discussion of the case studies from the papers. The paper writers visited each group to witness the brainstorming sessions.

DAY 1: 6th APRIL, 2023

President CA Mihir Sheth gave his opening remarks and explained the BCAS’ activities and its new initiatives. Chairman of the International Taxation Committee CA Nitin Shingala made the introductory remarks.

The Conference was inaugurated by the President CA Mihir Sheth, Chairman CA Nitin Shingala, Special Invitee Injeti Srinivasa, Past Presidents Dr. CA Mayur Nayak, CA Gautam Nayak, CA Kishor Karia and CA Shariq Contractor by lighting the traditional lamp.

In his Keynote Address, Mr. Injeti Srinivasa, Head, IFSCA gave an insightful presentation on the state of the Indian economy and the promising trends that lie ahead. He expounded the significance of the Gujarat International Finance Tec-City (GIFT) and its role in elevating India’s status as a global financial powerhouse.


Following Srinivasa’s keynote address, Mr. Dipesh Shah, Executive Director (Development), IFSCA delivered an informative and insightful presentation on various facets of GIFT City and its role in bolstering India’s position as a global financial centre.

The delegates were engaged in a stimulating GD on Tax Treaty and MLI – Interpretation and Interplay followed by presentation on the same topic by paper writer CA Ganesh Rajgopalan who provided an in-depth analysis of the topic, exploring various intricacies and nuances involved and addressed various points that emanated from the GD. The session was chaired by CA Kishor Karia, who expertly moderated the discussion in absence of CA Pinakin Desai.

DAY 2: 7th APRIL, 2023

The day began with a GD on case studies in International Tax (including structuring and allied issues). The session was engaging and informative, with participants actively sharing their experiences and insights on the subject matter. Following the GD, CA Anup Shah spoke on FEMA issues in Overseas Investment Rules, LRS, and Inheritance issues for Foreign Assets highlighting complex issues involved in these Regulations.

Later, CA Nirav Shah delivered a session on Intricacies of New UAE Tax Regime. His presentation was thorough and detailed, covering various aspects of the new regime, including its impact on businesses and investors operating in the UAE. This was expertly moderated by CA T P Otswal.

The visit to GIFT City was a highly insightful and fruitful experience for the conference delegates. Participants visited INX (BSE of GIFT City), Waste Management System and Utility Centre. The visit was expertly guided by the GIFT City officials, who provided valuable insights into the various initiatives and policies that are being implemented to promote business growth and development within the GIFT City.


The visit was followed by a session delivered by Sandip Shah, Executive Director, FSCA. His session provided the delegates with a detailed and insightful overview of the geographical location of the GIFT City and various types of business opportunities that exists. This season was chaired by Dr. CA Mayur Nayak.

DAY 3: 8th APRIL, 2023

The day began with GD on paper on Taxation of Foreign Income – Computation, Disclosure and Credit of Foreign Taxes written by CA P. V. Srinivasan.

Following this, CA Gautam Doshi delivered an insightful session on Family Offices and Private Investment set-up in a globalised world (including cross border trust and structuring issue). CA Chetan Shah chaired this season.

Then, CA P V Srinivasan made a comprehensive presentation of his paper on Taxation of Foreign Income – Computation, Disclosure and Credit of Foreign Taxes. This session was chaired by CA Padamchand Khincha.

An evening talk – Non-taxing Dialogues – was organised which was moderated by CA Shariq Contractor. The faculty – CA T P Otswal and CA Hitesh Gajaria – relived their initial days of international tax and shared their invaluable experiences of their professional lives.

After several intensive study sessions, the organising committee of the conference took a much-needed break and organised a fun-filled karaoke and antakshari event for the delegates. The event provided a much-needed opportunity for the delegates to unwind, relax, and connect with one another in a casual and light-hearted atmosphere.

DAY 4: 9th APRIL, 2023

The morning session began with a highly informative and thought-provoking panel discussion on Case studies in International Tax (including discussions on structuring and allied issues). The panel comprised of Pitambar Das, CCIT, International Tax; Saurabh Soparkar, Sr. Advocate and Sunil Gupta, Head-Direct Tax, Reliance Industries Ltd and was moderated by CA Pranav Sayta. The discussion centered around six case studies, which were thoroughly analysed and dissected by the panelists.

CONCLUDING REMARKS

The ITF was held under the guidance of CA Nitin Shingala, Chairman, International Taxation Committee and CA Chetan Shah, Co-Chairman. CA Jagat Mehta was the Chief Conference Director. He was ably assisted by CA Divya Jokhakar as the Joint Conference Director, who minutely supervised all the sessions personally and devoted a tremendous amount of time and effort to make it the resounding success. Contribution by CA Utsav Hirani from Ahmedabad was significant in various aspects of the Conference. CA Mukesh Khandwala and CA Darshit Mehta played a pivotal role for visit to GIFT City.

Other members of the core team included CA Rutvik Sanghvi, CA Siddharth Banwat, CA Mahesh Nayak, CA Anil Doshi and CA Deepak Kanabar. The ITF Conference ended on a high note and received encouraging response and feedback from the participants.

BCAJ May 2007

Social Networking: Boon or Bane

Computer Interface

Part-2

(I would like to clarify at the outset that this write-up
does not seek to malign or discredit anyone/any site in particular. My
observations and comments are merely a reflection of what is already available
in public domain.)

In part 1 of this write-up, we briefly discussed the growing
importance of social media and networking in today’s business and personal
environment. While there are many who swear by this recent (and a highly potent)
phenomenon, there is a growing number of users who after having burnt
themselves, speak in hushed tones about the disasters that have already struck
and the ones that are waiting to happen.

The hype :

Notwithstanding the perils, most people are happy to join the
bandwagon. In general, if you ask anyone the real reasons for him or her joining
Facebook or Twitter, the responses you get will range between the standard of
“keeping in touch with friends”, “it’s hip”, “you have got to be in the groove”,
etc. Many are on the network for the heck of it (which in reality translates to
— due to peer pressure). Largely the popularity is due to the hype about social
media (including “if you are not on it, you are toast” types), and the fact
remains that most new joiners are clueless about what they are signing up for.

Interestingly, one recent statistic (which was proudly
reported in all leading forms of news media) suggests that teenagers, who (for
the record) are the most prolific users of social networking sites, post as many
as 100 status updates on their social networks.

Hmmm ! ! ! . . . 100 status updates . . . Considering that in
a day you have 24 hours, out of these 24 hours you eliminate 8 hours for your
natural instincts for food and sleep and . . ., the remainder is 16 hours.

In these balance 16 hours the user would have 960 minutes to
post these 100 odd messages. If that is the case, to send out 100 updates, the
required (run rate) frequency would be one update every 9.6 minutes. Wow ! ! ! !
That calls for an ‘AWESOME ! ! ! !’

No wonder these teenagers turn around and question the very
existence of life beyond Twitter and Facebook. There just isn’t any time left
for them to do anything else.

Any sane person would equate this awesome feat with
obsession. You may not believe this but do a search on Google (or Bing or Yahoo
for that matter) and you will find reports about the death of a toddler (there
could be more). Apparently the toddler died due to malnourishment. Apparently a
Japanese couple was so busy raising their virtual child on a social
network game that they forgot to feed their child in the real world. Surely now
the only word coming to your mind would be ‘SHOCKING’.

The perils :

Here’s another example : Hordes of people while registering
with such sites, part with personal details (and that to in amazing detail mind
you). Details which by any rate are sensitive and of a personal nature. These
sites ask you who you are, where you live, what you do, when you do it. They
want to know how-when-where — with who . . . . blahblahblah . . . . They want
details of all your friends, relatives, acquaintances, etc. They will even do
the good thing of asking the same from all your connections. Without these you
are not ‘assimilated’ (sounds like the Blog in Star Trek — NG) or not a
‘part of the gang’. The depth of the information sought is more detailed than
some of the best KYC (know your
customer) checklists I have seen in the recent past.

You know what the best part of this is . . . . the user
concedes with most of these details (which are very sensitive personal)
willingly. So whats wrong with that ? ? ? ? Well for starters, nobody reads the
disclaimers, even worse most people can’t comprehend the perils of not doings so
before signing up . . . . yes It’s the part where the users accept the terms and
conditions without reading (let alone understanding the consequences). If you
ask me its only a matter of time before this information falls in the hands of
all those wrong sorts of people. Mind you this information in one form or the
other, at one time or the other, can fall in the hands of telemarketers,
scamsters, your boss or bosses and ofcourse (since this magazine is read by a
lot of tax practitioners) u know who. You’re thinking “THAT’S IMPOSSIBLE” or
“THAT’S EXAGGERATING IT A BIT TOO MUCH” . . . . is it ? ? ? ?

Lets take a simple example, say, Mr. A is also Mr. Popular on
the social network. He starts updating (speaking his mind). All the updates
instantly reach all the people connected to him. Similarly there would be other
people on his network who update their status. The natural response would be
that . . . . That’s the intention, they are my friends, colleagues, family . . .
. they wouldn’t do me any harm.


That, my friends, is the proverbial weakest link in the
chain.
While Mr. A may have some control who is connected to his network
and who accesses his information, but the same cannot be said about the people
on his network. It may be that he is not very friendly with someone (could even
be his boss) and that someone is very chummy with someone else on A’s
‘controlled’ network. Mr. A may or may not be aware or might not even approve
(or for that
matter disapprove) of this. Needless to say that even a single slip-up by Mr. A
or his connection, would (very harshly) change their opinion about ‘the theory
of six degrees of separation’. Still don’t believe me, do you ? ?

OK here goes nothing . . . . if you read all the recent
reports on the ongoing spat between a certain Member of Parliament and the head
of a popular sport venture. Several media reports suggest that the entire
episode would never have assumed the proportions that it did, had it not been
for the ‘tweets’ between the two parties. Whats more these tweets (and many more
related to the other alleged misdemeanours) are likely to be used as evidence
against them (as I recall, one of the articles cited a similar spat about a
decade ago and how the parties involved could get away by denying everything,
but not this time, all due to the provisions of the Information Technology Act,
2000). The OUTCOME — the media now calls one a twit who tweeted too much while
the other party is waiting for the decision of the third umpire.

The scams :

As stated earlier, depending on who has access to this
information, the user can be scammed, used and abused, taken advantage of, taken
to task —or all of above. Here’s another instance :

I’ve Been Robbed ! Western Union Me Money !

When you accept someone as your friend on the
net-work, he has access to most of your updates, your profile, your
pictures, adventures, friends, etc. Surely you trust someone as a friend
when you accept his invitation on Facebook or Twitter or else why would
you give an absolute stranger or an acquaintance access to your
personal information— you cant be that naïve ! ! ! ! Then one fine day,
you’re browsing around social networking site and suddenly one of your
friends IMs you to tell you that they’re stuck in another country,
they’ve been robbed, don’t have a wallet, and need money to get out of
the country. It’s a horrible situation, but what are the odds that they
found a computer to log on to in order to in-stant message you ?

So
what do you do . . . . you ask him for the details and do the good
thing (ahem ! ! ! not the smartest thing) and wire him the money. At
that moment you could be singing praises about how social net-working is
a boon, but it is more likely that when the true picture is revealed
the you may horrified by the fact that it was your folly due to which
you were scammed (i.e., scammed in one of the oldest scams on the
Internet).

How is it possible ? ? ? ? Its fairly simple actually.
All the scammer needs to do is (a) access to one account on the social
network, (b) collate all possible personal information, (c) list out all
the (gullible) ‘friends’ and then he can start the ball rolling.

In
this instance a hacker/scammer gains access to the account of a
(trusted) friend. He would know through the frequent status updates what
you and your friend are up to and how he can exploit you. The scammer
would thereafter, using one of the most common ways, manipulate others
for financial gain. This also called the London scam, or Western Union
scam. In most cases, users get fooled because the scammer (being
proficient in his art) will portray a very convincing picture about his
predicament. The scammer uses all the personal information (available on
the hacked user account as well as your account) to gain your
confidence (and not to mention. . . . your money).

Don’t believe me ? Run a search on Facebook or google, you will find that there are lots more like you.

While
these were limited examples, news reports are littered with other
‘disasters’ (reset password, sign up for contests, etc.) — you can
search Google for Facebook and Twitter scams to learn about more scams.
There are several examples of successful businesses shooting themselves
in the foot with social networking if one is really seriously
considering investing money on social media-based marketing.

Having
digested the above reality (not a reality show mind you or is it
reality show — cant tell the difference these days), the moot question
is whether social media and networking is as good as its cracked out to
be or is there something more than what meets the eye ? ? ? Is it really
worth all the time and energy or is this a big scam ? ? ?

While I
don’t have any definite answers, I do have these glaring instances
which force me to think twice (no connection to a book with the same
title— published by Havard Business Press) which bring out the darkside
of social networking and provide some basis as to why one should be
cautious of the brouhaha that’s being raised about social media and
networking.

ICAI And Its Members

ICAI & Its Members

1. Disciplinary case :


In the case of U.V. Bendikar v. C.A. N. G. Kulkarni
the articled clerk of the member lodged a complaint against the member. In this
complaint, it was alleged that the member did not give his consent for transfer
of articleship as requested for by the complainant. It was also alleged that the
member had not paid stipend to the articled clerk and that the articled clerks
were asked to work for more than 35 hours in a week and that they were asked to
work on all public holidays and also on Sundays.

The Disciplinary Committee as also the Council of ICAI found
the member guilty of professional misconduct under clause (i) of Part II of the
second schedule of the C.A. Act. According to the Council, the member was guilty
of non-compliance with Regulations 32 B (Non-payment of monthly stipend) and 45
(Excess working hours). The Council recommended to the High Court to award
punishment of ‘Reprimand’ to the member.

The Bombay High Court has accepted the above recommendation
of the Council. According to the High Court, under Regulation 32B, a member is
required to pay stipend to the articled clerk on a month-to-month basis and the
member has no option to make payment in lump sum at any time. The High Court has
also accepted that the member’s office was open from 9.30 a.m. to 8.30 p.m. on
all 365 days and articled clerks were required to attend the office work even on
Sundays and public holidays. Thus, the articled clerks were asked to work for
more than 35 hours in a week.

(Refer Pages 1744-1746 of C.A. Journal-April, 2008)

2. Disclosure of Internal Consumption in the Profit & Loss Account :


The Expert Advisory Committee (EAC) has recently given an
opinion on the above issue (C.A. Journal April, 2008 P. 1686-1691) as under :

(i) The company owns and operates (i) gas pipeline of natural
gas, (ii) gas-based LPG manufacturing plants in different parts of the country,
(iii) an integrated gas-based petrochemical plant for producing polymers, and
(iv) LPG pipelines for transmission of LPG. The company has a number of
accounting units which record and maintain the accounts for the respective
business activities carried out by them.

(ii) There are inter-unit transfers of materials manufactured
in the respective units. Each unit records raw materials, fuel, etc. received
from the other unit and debits the price to ‘Raw Materials’ A/c. and/or ‘Power,
Fuel and Water Charge’ A/c. The unit transferring the material credits the
amount to ‘Other Income’ A/c. In the final consolidated Profit & Loss A/c. of
the company, these items appear on the debit side as expense and on the credit
side as other income.

(iii) The auditors objected to the above and observed that
disclosure of internal consumption in Profit & Loss account under the head
‘Income’ on the credit side and ‘consumption’ on the debit side was not proper.

(iv) The following two questions have been considered by EAC :

(a) Whether the disclosure of internal consumption of gas
separately from ‘Sales’ on the ‘Income’ side of the Profit & Loss account with
corresponding debit to ‘Raw Material Consumed’ and ‘Power, Fuel and Water
Charges’ on the ‘Expenses’ side of the Profit & Loss account by the company is
correct and in compliance with AS-9.

(b) In case the answer to (a) above is in the negative, an
appropriate method of accounting and disclosure to be followed by the company
for such internal consumption of gas, which will comply with the requirements
of AS-9, AS-17 and clause 2 of Part II of Schedule VI to the Companies Act,
1956, may kindly be suggested.

(v) EAC has given the following opinion :

(a) The disclosure of consumption of gas separately from
‘Sales’ on the ‘Income’ side of the Profit & Loss account with corresponding
debit to ‘Raw Material consumed’ and ‘Power’, Fuel and Water Charges’ on the
‘Expense’ side of the Profit & Loss account by the company is not correct even
though it is not shown as ‘revenue’ within the meaning of AS-9.

(b) The Committee is of the view that intersegment transfer
entries should be ignored while generating the financial statements of the
enterprise as a whole, even though these have to be considered for segment
reporting purpose under AS-17. This will ensure that there is no double
booking of the consumption and at the same time statistical information
required to be disclosed under Part II of Schedule VI to the Companies Act,
1956 would be available without including any profit element. For this
purpose, depending upon the basis of inter-segment pricing, some adjustments
may be needed, so that apart from quantitative information, financial value of
information disclosed is proper. In this regard, ‘Statement’ gives detailed
guidance. In other words, the Committee is of the view that merely for the
purposes of AS-17, it is not appropriate to bring various elements of
inter-segment transfers as a whole. Segment reporting can be done on the basis
of the information otherwise available with the company.


3. CPE credit requirement for Members :


In March, 2008 issue of BCA Journal (Page 710), it was
reported that members, unless exempted, may undergo unstructured programmes of
learning for specified period in each rolling three-year period. For members in
practice, this period is 30 CPE credit hours and for others it is 15 CPE credit
hours over a period of 3 years.

The following is the indicative list of unstructured CPE
activities :

  • Web-based learning modules

  • Self-learning modules and courses (use of audiotapes, videotapes, correspondence courses, computer-based learning programmes)

  • Reading and individual home study

  • Group or bilateral discussion  on technical issues

  • Acting as visiting faculty or guest faculty at the various universities/management institutions/ institutions of national importance

  • Participation in CPE teleconferencing programmes without the supervision of the POD

  • Providing solutions to questionnaires/puzzles available on web/professional journals

  • Internal training programmes being organised by firms of Chartered Accountants with seven or more partners.

 
It is reported that a self-declaration given by a member about participation in such activities each year will be accepted by ICAI for giving CPE credit. It appears that in ‘Group or bilateral discussion on technical issues’ attendance in seminars, work-shops, study circle meetings, etc. organised by any professional association, society or other similar body will be recognised for unstructured programmes.   

4. ICAI News:

(Note: Page Nos. given below are from CA. Journal for April, 2008)

i. Annual  Membership  Fees:

As reported earlier, the Annual Membership Fees payable by members to ICAI have been revised as under w.e.f. 1-4-2008.

(Pages 1629, 1779-1781)

ii. Quality  Review  Board:

The Central Government has constituted the Quality Review Board under Chapter VII (a) of the C.A. Act consisting of following members:

(a) Shri K. N. Memani  –  Chairman
(b) Shri A. K. Awasthi,
(c) Shri P. S. Sharma,
(d) Shri Dr. B. C. Jain,
(e)Shri Dushyant  Tyagi,
(f)Shri R. Vasudevan,
(g)Shri Ved Jain,
(h)Shri Jayant  Gokhale,
(i)Shri Manoj Fadnis,
(j) Shri K. P. Khandelwal,    and
(k) Shri G. Ramaswamy.   
(Page 1789)   

(iii) ICAI    publications:

The following new publications are issued by ICAI :

a) Compendium   of Opinions,  Vol. XXV

b)Insurance  Broking

C) Canadian Advantage (A Research Study on Canadian Business Opportunities).

ICAI And Its Members

1. Retrospective Amendment of Accounting Standard (AS-11)

    By a Gazette Notification dated 31.3.2009, the Central Government has amended Accounting Standard (AS-11) dealing with “The Effects of Changes in Foreign Exchange Rates” as notified by the Companies (Accounting Standard) Rules, 2006. It may be noted that para 46 has been added in this Accounting Standard with retrospective effect from 7th December, 2006. This para reads as under :

    “46. In respect of accounting periods commencing on or after 7th December, 2006 and ending on or before 31st March, 2011, at the option of the enterprise (such option to be irrevocable and to be exercised retrospectively for such accounting period, from the date this transitional provision comes into force or the first date on which the concerned foreign currency monetary item is acquired, whichever is later, and applied to all such foreign currency monetary items), exchange differences arising on reporting of long-term foreign currency monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, insofar as they relate to the acquisition of a depreciable capital asset, can be added to or deducted from the cost of the asset and shall be depreciated over the balance life of the asset, and in other cases, can be accumulated in a ‘Foreign Currency Monetary Item Transaction Difference Account’ in the enterprise’s financial statements and amortised over the balance period of such long-term asset/liability but not beyond 31st March, 2011, by recognition as income or expense in each of such periods, with the exception of exchange differences dealt with in accordance with paragraph 15. For the purposes of exercise of this option, an asset or liability shall be designated as a long-term foreign currency monetary item, if the asset or liability is expressed in a foreign currency and has a term of 12 months or more at the date of origination of the asset or liability. Any difference pertaining to accounting periods which commenced on or after 7th December, 2006, previously recognised in the profit and loss account before the exercise of the option shall be reversed insofar as it relates to the acquisition of a depreciable capital asset by addition or deduction from the cost of the asset and in other cases by transfer to ‘Foreign Currency Monetary Item Translation Difference Account’ in both cases, by debit or credit, as the case may be, to the general reserve. If the option stated in this paragraph is exercised, disclosure shall be made of the fact of such exercise of such option and of the amount remaining to be amortised in the financial statements of the period in which such option is exercised and in every subsequent period so long as any exchange difference remains unamortised.”

    From the retrospective amendment of AS-11, it will be possible for all corporate bodies to exercise the option to restate their long-term Foreign Currency Monetary Items acquired during accounting periods commencing on or after 7.12.2006. The effect of this amendment will be as under :

    (i) If the long term Foreign Currency Monetary Item relates to other than an acquisition of a depreciable capital asset, exchange differences should be accumulated in the “Foreign Currency Monetary Item Transaction Difference Account” and amortised over the life of the monetary item but not beyond 31 March, 2011.

    (ii) If the long-term Foreign Currency Monetary Item relates to acquisition of a depreciable capital asset, exchange differences arising on such monetary items should be added to or deducted from the cost of the asset.

    By a separate notification dated 31/3/2009, the Central Government has also amended Schedule VI of the Companies Act. By this amendment the second paragraph along with explanation 1 and explanation 2 of the instructions under the head ‘Fixed Assets’ has been deleted with effect from 31.3.2009. The effect of this amendment will be that the requirement of capitalisation of foreign exchange difference relating to the liability incurred for acquiring fixed assets purchased from a foreign country, gets removed. Therefore, if any fixed assets are purchased from a foreign country by taking loan in foreign currency, the foreign exchange difference will have to be recorded as provided in AS-11 as modified by Para 46 inserted w.e.f. 7.12.2006.

2. Limited Liability Partnership

    The Central Government has issued a Notification u/s. 1 (3) of the Limited Liability Partnership Act, 2008 (LLP Act) on 31st March, 2009. notifying that LLP Act has come into force from that date. LLP Rules, 2009 and forms are also notified by a separate Notification. The Ministry of Corporate Affairs has now started registering LLP under the LLP Act/Rules.

    It may be noted that the position of LLP under the Income-tax Act is not yet clarified. Unless this position is clarified, the existing partnership firms or unlisted companies may not exercise the option of conversion into LLP status. Even new partnership to be formed hereafter may not like to register as LLP unless the position under the Income-tax Act and Wealth-tax Act is clarified.

    The LLP Act is silent regarding taxation of LLP under the Income-tax Act. The basic structure of LLP is that of a partnership and the only difference is that the liability of partners is limited. Therefore, the Government should grant the status of a ‘Firm’ to LLP for the purpose of Income-tax Act. In other words, the definition of the words ‘Firm’, ‘Partner’ and ‘Partnership’ in Section 2 (23) of the Income-tax Act should be so amended that it includes definition of these words under the LLP Act. Once this is done, there will be no need to amend other provisions of the Income-tax Act. Accordingly, LLP will pay tax at the flat rate applicable to a ‘Firm’ and it will get deduction for interest and salary to working partners as provided in Section 40 (b) of the Income-tax Act. Share of profit received by a partner from LLP will be exempt from tax. Losses of LLP will be allowed to be carried forward in the hands of the LLP. Other provisions relating to changes in constitution of LLP, dissolution, conversion of LLP to the status of company etc. will apply as they presently apply in the case of a Firm.

3. Working Hours of Articled Assistants

The Council of ICAI has taken certain decisions relating to working hours for training of articled assistants. Some decisions, among others, relate to the minimum and maximum working hours for the articled assistants per week, the course of action required to be taken in case the minimum working hours exceed, etc. These decisions are as follows:

i) The minimum working hours for the articled assistants shall be 35 hours in a week excluding the lunch break.

ii) The office hours of the principal for the articled assistants shall not be generally before 9.00 a.m. or after 7.00 p.m.

iii) The normal working hours of the articled assistants shall not start after 11.00 a.m. or end before 5.00 p.m.

iv) If the exigencies or nature of training so warrants, the articled assistant shall work beyond the normal office hours. However, the maximum working hours for the articled assistants should not normally exceed 35 hours in a week, excluding the lunch break and in any case or circumstances should not exceed 45 hours per week. In case the articled assistant is required to work beyond 35 hours per week, he/she is entitled to compensatory leave calculated with reference to the number of completed hours worked over and above 35 hours per week. The principal shall ensure that long , working hours are not imposed on the articled assistants on a regular basis, and only in case of exceptional circumstances where time-bound work is to be delivered, the articled assistants may be required to work longer hours which will still be subject to a maximum of 45 hours per week. The principal shall be free to allow compensatory leave or off hours in lieu of extra working beyond 35 hours.

(Source:  Communication from Secretary, dated 3.4.2009)

4. Auditing Standards

The following Auditing Standards are issued by the Institute.

(i) Standard on Auditing (SA) 500 (Revised)- ‘Audit Evidence’. This Standard was hitherto known as SA 500 (AAS-5) ‘Audit Evidence’. The revised standard is effective for audits of financial statements for periods beginning on or after 1st April, 2009.

(Refer pages 1818 – 1825 of C.A. Journal for April, 2009)

ii) Standard on Auditing (SA) 720 – “The , Auditor’s Responsibility in Relation to other Information in Documents containing Audited Financial Statements”. This standard is effective for audits of financial statements for periods beginning on or after 1st April, 2009.

(Refer  pages 1826 – 1828 of C.A. Journal for April, 2009)

5. ICAI News

(Note: The page nos. given below are from C.A. Journal for April, 2009)
    
i) Chapter  of ICAI in Singapore

The Singapore Government has permitted leAl to open a chapter in Singapore. This will be inaugurated in April/May, 2009. (page 1668)

ii) International  Conference  at Agra

As part of the Diamond Jubilee celebrations of ICAI, an International Conference will be held at Agra from 3rd to 5th July, 2009. The theme of the conference will be “Winds of Challenges – Global Strategies for Accounting Profession”. (page 1669)

(iii) ICAI Publications
(a) Compendium of Standards on Internal Audit

(b) Manual on Internal Audit

(c) Manual on Concurrent Audit of Banks

(d) Training Material on Internal Audit

(e) Compendium of Opinions, Vol. I to Vol. XXV on CD.

(f) Handbook of Auditing Pronouncements (2008 Edition) (Vol. I & II)

(g) Practitioner’s Guide to Audit of Small Entities

(h) Implementation Guide to Risk-based Audit of Financial Statements

(i) Guidance Note on Audit of Banks ( 2009 Edition)
(Refer page 1808 – 1809, 1812 – 1813)

(iv) Master in Business Finance
ICAI has introduced a Certificate Course in ‘Master in Business Finance’. This course is open to members of ICAI and those students who have passed their final examination. Registration for 2009-10 session is in progress. The classes will be held on Saturdays/Sundays at Mumbai, New Delhi, Chennai and Kolkata from 1st June, 2009 (page 1811).

(v) ICAI Examinations
(a) PE-II, PCE, Final and all other examinations will be held from 1st to 15th June, 2009.

(b) CPT examination will be held on 28.6.2009

From The President

From The President

Dear professional colleagues,

Indian taxpayers live in an
atmosphere of uncertainty with regard to various tax issues, e.g., applicability
of tax rates, chargeability of income to tax, allowability of claim for
expenses, liability to deduct tax at source, retrospective amendments and so on.
These uncertainties and consequential tax risk become apparent if one looks at
high pitched assessments, conflicting judicial decisions, abnormal delay in
settling tax disputes and above all the trend to change tax laws with
retrospective effect.

Indian taxpayers as well as the
global investors consider this as high risk. Business plans, profit estimation,
cash flows, etc., go haywire when the unexpected tax demand is raised on the
taxpayers particularly when the law is amended with retrospective effect. Along
with the tax liability there is additional liability for mandatory interest for
non-payment of advance tax or delayed payment of tax for the relevant year.

The Finance Bill, 2008,
presented before the parliament has the distinction of introducing many direct
tax proposals to be effective from earlier dates. The reason given for these
retrospective amendments is that they are proposed to clarify the legislative
intent. Now, it is a moot question as to how the taxpayer will be able to
ascertain the legislative intent behind insertion or modification of any
provisions in the statute.

Once the judiciary including
apex court interprets the law after analysing the statute, one wonders whether
it is ethical and equitable for the Government to amend the law retrospectively
under the guise of legislative intent.

The trend of retrospective
changes in the law destroys the trust between the Government and the taxpayer.
If the Government genuinely wishes to develop atmosphere of mutual trust with
the taxpayers, it must refrain from bringing retrospective changes in law for
small revenue gain. No regulation can be truly effective unless it is
accompanied by ethical approach.

Any inequitable action of the
Government that shakes taxpayers’ confidence will not help the nation in the
long run. When a taxpayer who succeeds in the apex court after a long drawn
legal battle is compelled to pay tax on account of retrospective change in the
law, he considers it to be mockery of justice and equity. The Government, after
losing the tax matter in the Court should not become a winner by changing the
rules of the game through retrospective amendment. At least the retrospective
changes should spare those who have succeeded at the appeal stage.

One does not question the power
of the legislature to make retrospective amendment, but one believes such power
should be used sparingly and that too only for extra-ordinary matters. It should
not be used merely to overrule every single judicial development that causes
discomfort to the administration.

That apart, the taxpayer is
burdened with the levy of mandatory interest under sections 234A and 234B on
additional tax liability due to retrospective change in the law without any
justification. Such an interest burden is unjust. There should be in-built
provision in the law for not charging interest in case of increase in tax
liability due to retrospective amendments to the law.

Accountability, a virtue for a
good administration and good governance is yet to be brought on the statute.
Accountability as applicable to the taxpayer should equally be made applicable
to the tax collector. Accountability, if introduced, will certainly infuse
confidence amongst the taxpayers. Today, the taxpayer is liable for penal
consequences for any default committed by him. Similarly, tax administration
should also be made responsible for any lapse on its part.

Instead of bringing much
awaited accountability in the administration, the Finance Bill, 2008, seeks to
provide that a notice issued by an income tax authority will be presumed to have
been served in a proper manner and in time, if the assessee co-operates or
appears in the assessment proceeding.

Such co-operation will validate
the assessing officer’s lapse in serving a valid notice. The irony of this
proposal is that the assessee who co-operates in the assessment proceeding in
spite of improper service of notice is penalised for his cooperation. Such
procedural changes in the law to cover up the lapses of the tax officials have
demoralising effect on the taxpayers.

At the end, any taxpayer
prefers to have reasonable estimate of its tax consequence. He should be in a
position to manage tax risk without having any unexpected or unreasonable impact
on liquidity, profitability, cost structure and future investment plans.
Unexpected tax burden due to retrospective amendments shakes the confidence of
the taxpayers.

Various retrospective
amendments including proposal to modify the penalty provisions, are proposed in
the Finance Bill, 2008. The Society has made representation to the Finance
Minister on such issues. It is hoped that the Society’s representation to the
Hon’ble Finance Minister would be considered in right earnest and the tax
proposals will be modified before they are enacted into law.

With regards,
Rajesh Kothari

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From The President

From The President

Dear BCAJ Lovers,

Over the past 9 months, through these pages, I have been able
to share thoughts that have convinced many members to spare some time in writing
to the BCAS with suggestions and feedback. The mails received by me in the past
one month have brought many constructive ideas. Due to the sheer numbers, it has
not been possible to reply to each person individually. However, members may
rest assured that BCAS is taking note of the various suggestions and efforts are
being made to translate the suggestions/feedback into action. Some of the
responses are being reproduced in the journal under the title “Members Speak”.

Recent press reports said that at a campus placement
conducted by ICAI, a fresh CA was hired by a foreign company at a staggering
starting salary of Rs.70 lakhs per annum. There was also another news item which
contended that many companies now prefer MBAs over CAs.

Both these pieces of news are important and interesting for
CAs. What remuneration a person is able to command depends on the perceived
value of that person in the eyes of the payer. The value of an individual CA is
also dependent on the value of the profession at large. Over the years, there
has been raging discussion on how CAs get less remuneration than other
professionals and how one category of professionals is perceived to be scoring
over CAs. I believe that we CAs are responsible for the state of affairs that we
find ourselves in today. Have we ever paused to reflect on why one firm of CAs
gets double (or many times more) the fees for what seems to be the same
service ? Have we ever tried to analyse the reasons why one firm is able to get
higher hourly rate of fees as compared to another ? Why is that many highly
intelligent CAs earn far lesser than less qualified business persons ? Let us
ask ourselves why, despite the fact that the total number of CAs in the country
is a minuscule percentage of the total population and therefore, there is a
limited availability of CAs in India; despite the tremendous amount of client
loyalty that we enjoy and despite the fact that we have so much work that the
Govt.’s policies and laws generate for us and despite the fact that we are able
to add substantial value to our clients, why is it that most of the times, many
CAs feel that the financial returns that we get are not commensurate with the
efforts that we put in and with the value that we bring to the table for the
clients ?

This apart, there is also the fact that one firm of CAs or
one CA stands out as compared to other firms or other CAs. Most CA firms or most
practising CAs are rendering the same type of services to their clients. Yet,
there is a perceptible difference between what one CA/firm achieves in terms of
revenues, type of clients, quantum of work, quality of work, quality of staff,
etc. What is it that makes each of us different ?

Traditionally, many CAs were not accustomed to charging fees
based on the number of hours spent for an assignment. Then, spurred by the
growth of the larger firms and their system of charging by the hour, many
smaller firms too started charging fees on hourly basis. Even our Institute has
recommended a certain scale of fees for certain types of assignments based on
hourly rates.

My personal view is that hourly basis of charging is a very
inefficient way of charging. It breeds inefficiency since the focus is on the
number of hours spent and not on bringing in efficiency to reduce the number of
hours spent. Also, it does not factor in the value that a CA adds to his client.
Therefore, I humbly suggest to readers to consider the concept of value pricing.
One must charge fees based on the value that one feels he/she is adding to the
client. We need to educate our client about the value of the work that we do for
them. Unless the client is aware of what are the repercussions of a CA’s work
not being done properly, that client will never understand the value of the CA’s
efforts. For this reason, it would be a good idea for a CA to create well
thought-out presentations on important areas of one’s practice and show such
presentations to a prospective client. There are a number of websites devoted to
value pricing which may be of interest to some of you.

Another area of practice management that I feel very strongly
about is the need for CAs to network amongst each other and to build their
capacities. The ICAI has been strongly advocating the concept of mergers and
networks amongst CAs. Unfortunately, the members have been slow in adapting to
this. Considering the high costs of running a practice in terms of real estate
and salaries, the complexities of today’s ever-changing laws and the resultant
need to focus on a few (if not one) areas and specialise in the same instead of
trying to be a jack of all trades etc., there is a crying need for smaller
entities to get together and form a larger entity.

In a large metro like Mumbai, we have, for the past few
years, witnessed large-scale consolidation amongst various firms. There have
been many mergers amongst smaller firms and many “take overs” by the Big 4.
However, whenever I meet members from smaller cities (as I did recently in
Lucknow, Kanpur, etc.), I learn that CAs continue to practise there as smaller
entities. The concepts of mergers and networking have not yet become very
popular there. Merger of CA firms does involve many complex issues. However, I
believe that if a person is willing to, for a moment, let go of the attachment
to one’s own name and focus on future growth, everything else is likely to fall
in place. As the larger firms grow in strength, it will become more and more
difficult for smaller firms to cope with the increased volumes of work, complex
and frequently changing laws, shortage of good staff and growing requirement
from clients for a one-stop shop for diverse services. Those who are content
with their current quality of practice may continue with their existing size and
set-up. But circumstances beyond their control will definitely continue to
affect their functioning and, maybe, their survival. The BCAS has offered
networking and merger prospects to many of its active members. I hope that other
members too see the merit in looking beyond their own turf and joining hands
with like-minded professionals.

On other fronts, the Icelandic volcano disrupted more than
90,000 flights to/from Europe resulting in what seems to be a greater financial
impact than even the 9/11 attacks. One hopes that life will return to normal
very soon. The IPL saga has turned into a very ugly tamasha. Every day we hear
of new developments. In the context of what I had written last month, many
members have now questioned my choice of comparison of IPL with our profession.
I may only say that it was only the concept of change that I had tried to
highlight and not the concept of IPL. Let us all try to imbibe change without
the dishonesty, corruption and all other ills that seem to have got attached to
the present drama that is unfolding before our eyes.

As usual, I look forward to receiving your views and feedback
on what I have written. I hope that all of you whose children have appeared for
school/college examinations are now breathing easy and that the children will
fare very well in the exams. Do enjoy the summer holidays with your family members and have a great time.

From The President

Dear Professional Colleagues,

    As I write this communication, the election to the Lok Sabha is in full swing. On 16th May, the results will be declared and we will hopefully have a new stable government in place. One wonders whether it will be different from its predecessor governments.

    As the news of the voting percentage of the first two phases of election came in, it was disappointing to note that voting percentage had dropped in comparison to last election. Even more disturbing was the fact that voting percentage in urban areas was lower than in rural areas. Therefore, in the educated and elite there is apparent indifference towards the election process. The number of voters would have increased since the last Lok Sabha election, and the literacy levels would have also improved. The apathy of the educated voter seems to be unchanged.

    A large number of groups, non-government organisations and the media have all been exhorting the public to vote but the effect seems to be minimal. Despite the fact that election day is a public holiday, the voting booths are at convenient locations in most places, people simply do not seem to be interested. This lack of interest is not unique to the election to the parliament. A Chartered Accountant, who is a member of the Institute of Chartered Accountants of India is a professional who is highly educated. He ought to be interested about the regulation of the profession to which he belongs. However, in the case of elections to Regional and Central Councils of our Institute, the voting percentage never crosses 50.

    There could be a number of reasons for this, but the most important reason appears to be total disconnect between institutions, the leaders that run them, and the people who are or have been members of those institutions, i.e. the stakeholders. The sense of ‘belonging’ is on the decline. We often talk of our political leaders not having national interest at heart. I believe that a ‘nation’ is not an independent concept. It is made up of concentric circles beginning from individuals, their families, neighbours, cities, regions and States.

    Readers will pardon me if I sound too philosophical but I think that this sense of belonging comes from the heart and not the head. We have gradually become a little too self-centered. Many of our actions are on the basis of a cost benefit analysis. Consequently, if the institution does not give one any future benefit, the person feels he has neither an obligation nor does he have any attachment towards it. There would of course be, honourable exceptions to this. When I was reflecting on the contents of this communication I tried to recall the extent of my participation in or contribution to the school that I passed out from or the college that I graduated from. Sadly, it is virtually nothing. For this, one can always give a number of reasons, but they will not change the fact. Having said this, one must also accept that institutions also have to take a fair share of the blame. Many of them have lost their focus, are no longer serving the purpose for which they were incorporated.

    If democracy has to become more meaningful, institutions that make up the entire system must become responsive, and willing to change. They must become more transparent and inclusive. This change should occur not only in fact but also in perception. Individuals on their part must come forth and give whatever they can to the institution. They must participate in the affairs of the institution. There needs to be installed a mechanism, whereby this participation is facilitated on an ongoing basis. Education must also instil this sense of belonging among the coming generations.

    Coming back to Elections 2009, it is heartening to note that some professionals have taken the plunge and are contesting as independent candidates. Irrespective of the result, this participation has to continue. Citizens must continue to be involved in the governance process on a continuous basis. It is only then that accountability that has reached abysmal low level, will improve. We will then fare better in terms of human satisfaction or happiness index that welfare organisations measure.

    When one reads the news or watches the various channels, one gets a depressing feeling. However, there is hope. I witnessed the national anthem being played at a small function. The seniors in the audience stood to attention, while a college student was talking on the cell. A child, possibly his younger brother, tugged at his sleeve and asked him to switch off the cell as the anthem was being played. These children with impressionable minds are young Indians and are our future. We owe them a debt. Let us attempt to repay it.

    With warm regards,

    Anil Sathe

ICAI And Its Members

1. ICAI News :

(Note : Page
Nos. given below are from C.A. Journal for April, 2010)

(i) The Council
of ICAI has constituted four new groups to make the Institute more responsive,
progressive, robust and member/student-friendly. These groups are as under.

(a) The
Central Grievance Redressal Cell :

This cell will
mainly work to effectively and speedily resolve the grievances received from
members and students across the nation centrally.

(b) Codification
of Regulations, Directions of Council regarding functions of Branches of
Regional Councils Group :

This group will
study and examine the provisions of existing regulations, directions of the
Council regarding the functions of Regional Councils or their Branches and
various decisions of the Council/the Executive Committee in place and suggest
suitable changes therein, so as to make such provisions more effective and
members/students-friendly and improve overall functioning of the Branches,
including the aspect of staff and technology requirements.

(c) The
Infrastructure Acceleration Group :

This group will
mainly prioritise various infrastructure projects of ICAI and study, consider
and suggest ways and means of accelerating the ongoing projects besides
ensuring efficient management and maintenance of ICAI properties.

(d) The
Information Technology Initiatives Group :

This group will
see to it that the Institute becomes more hi-tech to the ultimate benefit of
its members and students. (Refer pages 1564-1565)

(ii) Campus
Placement Programme

February-March
2010 :

The first phase
of the interview process for new members of ICAI under the above programme has
been held in February-March, 2010 in 16 major cities. 94 companies participated
in this programme seeking placement for more than 1600 Chartered Accountants.
2906 candidates registered for the above campus interviews. In the first phase,
1032 candidates have been offered jobs. It is reported that this year’s
response far exceeded the response in 2009. It is interesting to know about
some details given on pages 1691-1692 of jobs offered by various companies.

(i) Remuneration
offered
:

(a) International
posting :

Name of company

CTC offered

Total job offers made

Olam International

1,50,00 US $ (approx.Rs.70 lacs per annum)

11

Tolaram Corporation Pvt. Ltd.

Rs.20.75 lacs per annum

7

Topaz Energy and Marine

Rs.12 lacs per annum

4

(b) Domestic
posting :

Name of company

CTC offered

Total job offers made

Axis Bank

Rs.10.82 lacs per annum

1

ITC Limited

Rs.10.61 lacs per annum

8

BPCL

Rs.9.5 lacs per annum

15

 

    Summary of job offers and acceptance at selected places?:


  

 Some ethical issues :

The Ethical Standards Board has considered some ethical issues and given its views on page 1572. Some of these issues are as under :

    i) Can a practising Chartered Accountant accept a position as auditor previously held by some other Chartered Accountant in such conditions as to constitute undercutting ?

Ans. : A Chartered Accountant in practice can accept a position as auditor previously held by some other Chartered Accountant in such conditions as to constitute undercutting (vide amendment in the CA Act in 2006).

    ii) Whether a member of the Institute will be guilty of professional misconduct, if he, not being a fellow, styles himself as a fellow ?

Ans. : As per Clause (1) of Part III of the First Schedule to the CA Act, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he, not being a fellow, styles himself as a fellow.

    iii) Can a Chartered Account in practice disclose information acquired in the course of his professional engagement ?

Ans. : As per Clause (1) of Part I of Second Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he discloses information acquired in the course of his professional engagement to any person other than his client so engaging him, without the consent of his client or otherwise than as required by any law for the time being in force.

    iv) Whether an auditor is required to provide the client or other auditor of the same enterprise access to his audit working papers ?

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

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

Ans. : Council direction under Clause (2) of Part I of the Second Schedule to the CA 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 severally responsible for the work which is not interse divided among the auditors, and also for compliance of requirements of relevant statues.

    vi) Can a member in practice express his opinion on financial statements of any business or enterprises in which he, his firm or a partner in his firm has a substantial interest ?

Ans. : As per Clause (4) of Part I of the Second Schedule to the CA Act. A Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he expresses his opinion on financial statements of any business or any enterprise in which he, his firm or a partner in his firm has substantial interest. (Vide amendment in the CA Act in 2006, even after disclosure of interest by the member, expression of opinion is not allowed.)

(For this purpose, ‘Substantial Interest’ means 20% or more interest held by the member or his relatives in the concern. (Refer Appendix-9 of CA Regulations)

    vii) Whether a member in practice will be held liable for failing to keep moneys of his client in a separate banking account or to use such moneys for purposes other than they are intended for ?
Ans. : As per Clause (10) of Part I of Second Schedule to the CA Act, a member in practice shall be deemed to be guilty of professional misconduct, if he fails to keep moneys of his client other than fees or re-muneration or money meant to be expended in a separate banking account or uses such moneys for purposes other than they are intended for.

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

Ans. : 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. Disclosure in Cash Flow Statement of Borrowings, etc. in the case of a financial institution :

    i) Facts :
A company is recognised as a Financial Institution. The company is engaged in financing of power sec-tor in India. The company prepares its Cash Flow Statement using the indirect method as per AS–3 dealing with ‘Cash Flow Statements’. While preparing financial statements, the company disclosed the net cash outflows/inflows from loan disbursements made to/principal repayments received from the borrowers under the head ‘cash flow from financing activities’. The company also disclosed the net in-flows/outflows from loans borrowed from/principal repayments made to lenders under the head ‘cash flow from financing activities’.

The auditors of the company objected to this presentation. They were of the view that the above amount should be shown under ‘cash flow from operating activities’. The company is of the view that AS-3 defines the operating activities as “the principal revenue-producing activities of the enterprise and other activities that are not investing or financing activities”.

    ii) Query :
The company sought opinion of Expert Advisory Committee (EAC) on the following issues :

    a) Whether it is correct to classify the amounts of loans disbursed to and the repayments received from the borrowers under the head ‘cash flows from operating activities’, and the amounts of loans raised from and the repayments made to the lenders under the head ‘cash flows from financing activities’, as per the indirect method of preparation of cash flow statement as per AS-3.

    ii) If not, what is the correct method of disclosure of the amounts of loans disbursed to and the repayments received from the borrowers, and the loans raised from and the repayments made to the lenders, as per the indirect method of preparation of cash flow statement as per AS-3.

    iii) EAC opinion :
While giving this opinion EAC has considered paras 5, 14, 17 and 20 of AS-3 and given its opinion as under :

    a) It is correct to classify the amounts of loans raised from and the repayments made to the lenders under the head ‘cash flows from financing activities’ and the amounts of loans disbursed to and the repayments received from the borrowers under the head ‘cash flows from operating activities’, as per the indirect method of preparation of cash flow statement as per AS-3. For the purpose of the preparation of cash flow statement, the aforesaid amounts would be arrived as increased/decrease in the borrowings and loans & advances outstanding in the two balance sheets relevant for the Cash Flow Statement.

    b) Since the answer to (a) above is not in the negative, this question does not arise.

    Accounting Standards :
Accounting Standards Board (ASB) has issued expo-sure drafts revising the following accounting standards and also issued some exposure drafts of new accounting standards after convergence with Inter-national Financial Reporting Standards (IFRS) for public comments.

    Revised Standards :
    i) AS-4 (Corresponding to IAS-10) — Events after Reporting Period.
    ii) AS-5 (Corresponding to IAS-8) — Accounting Policies, Changes in Accounting Estimates and Errors.

    iii) AS-7 ( Corresponding to IAS-11) — Construction Contracts.
    iv) AS-10 (Corresponding to IAS-16) — Property, Plant and Equipment.
    v) AS-11 (Corresponding to IAS-21) — The Effects
    vi) AS-19 (Corresponding to IAS-17) — Leases.
    vii) AS-21 (Corresponding to IAS-27) — Consolidated and Separate Financial Statements.
    viii) AS-23 (Corresponding to IAS-28) — Investments in Associates.

    ix) AS-25 (Corresponding to IAS-34) — Interim Financial Reporting.

    New Standards :

    x) AS-34 (Corresponding to IAS-29) — Financial Reporting in Hyper Inflationary Economies.
    xi) AS-35 (Corresponding to IFRS-6) — Exploration for Evaluation of Mineral Resources.
    xii) AS-37 (Corresponding to IAS-40) — Investment Property.

    5. Auditing Standards :
The following Standards on Auditing (SA) have been finalised and published at pages stated below. This will apply to Financial Statements for periods begin-ning on or after 1st April, 2011 :

    i) SA-710 (Revised) — Comparative Information — Corresponding Figures and Comparative Financial Statements. (pages 1693-1698)
    ii) SA-800 — Special Considerations — Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks. (pages 1699-1702)
    iii) SA-805 — Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement. (pages 1703-1708)
    iv) SA-810 — Engagements to Report on Summary Financial Statements. (pages 1709-1716)

CENVAT credit

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New Page 1

II. Tribunal :


4. CENVAT credit :



Vodafone Essar Digilink Ltd. v. CCE., Jaipur-I, 2008 (10)
STR 139 (Tri. – Del).

  •  BSNL provided taxable
    service to the appellant and paid service tax on port and space charges. Credit
    was denied for service tax paid, alleging that BSNL was not liable to pay
    service tax in respect of port and space charges.


It was held that since the payment of service tax by BSNL was
not challenged, credit cannot be denied. Pre-deposit of duty and penalty was
waived and stay petition was allowed.

levitra

ORDERS OF CIC

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Right to Information

                                         PART A: ORDERS OF CIC

  • Section 18 of the RTI Act




A very sad and no doubt unusual and unprecedented case has
come up before CIC Shailesh Gandhi.

The appellant, Mr. Surinder Puri of Delhi, sought certain
information from the Municipal Corporation of Delhi (MCD) regarding one
property, all around which there had been encroachment.

The PIO did not provide the information. First, the AA
directed the PIO to provide the requisite information as available on record.

In the second appeal, Mr. Surinder Puri had stated:

Correct and complete Information not provided within the
stipulated time. The PIO tried to shift the onus for providing the information
on some other public authorities and if the onus for providing this
information lay on them, why this application was not transferred to them.

In the decision dated 29.12.2009, the CIC directed the PIO
to give the appellant the length and breadth of the said plot after obtaining
it from the building department before 12 January 2010.The Commission also
directed the PIO to arrange a joint inspection of the area with MCD House Tax,
Building Department and Engineering Department with a copy of the sanctioned
building plan on 12 January 2010.

On 12.01.2010, the inspection became unruly. The Commission
received a letter dated 28.01.2010 from the Appellant Mr. Puri wherein he
alleged physical assault and brutal manhandling of two office bearers of the
Public Grievance and Welfare Society (PGWS), who were among the other members
who accompanied the Appellant for the joint inspection. In the letter, it has
been stated that the inspection was initiated in the presence of MCD
officials. According to the letter, there were seven police constables of
Sarai Rohilla Police Station who were also present at the inspection site. The
MCD officer is said to have only allowed two of the society members to inspect
the property site. Therefore, only two office bearers of PGWS went in for the
inspection on the Appellant’s behalf. It has been alleged that while the
inspection was on, Municipal Councilor Mr. Satbir Singh, along with his
accomplices (reportedly son and nephew), came with a mob of 30 people and
inflicted a brutal physical assault with an iron rod on one office bearer,
which is said to have caused him a fracture on the nose bone and that the
second office bearer was slapped and bullied. Furthermore, it has been alleged
that when an attempt was made to file a FIR (First Information Report) against
the said attack, the case was only registered after the society lodged a
complaint with the CMM (North).

On the basis of the above letter, the Commission registered
a complaint in accordance with Section 18(1)(f) of the RTI Act.

The Commission writes:

If the allegations made by the Complainant were true, it
meant that persons lawfully exercising their rights under the Right to
Information Act were being unduly harassed and physically assaulted. The
allegations that the assault was carried out in the presence of police and MCD
officials led to suspicion of a probable collusion. The Commission has been
given the powers to initiate an enquiry in a complaint under Section 18(2) of
the RTI Act, when enquiring into a complaint under Section 18(1). Section
18(3) of the RTI Act also confers the powers of a Civil Court on the
Commission when it is inquiring into any matter under Section 18.

Considering the gravity of the matter, the Commission wrote
letters dated 18.02.2010 to the Commissioner of Police (CP) and Commissioner
of the Municipal Corporation of Delhi (MCD), informing them about the matter
and requesting them to inquire into the matter and submit a report to the
Commission before 24.02.2010.

The CP instead of inquiring into the matter and submitting
a report, filed a writ petition in the High Court against the direction of the
Commission. In the writ petition, the CP has challenged the power of the
Commission, stating that the Commission has ‘over reached the powers’
conferred on it under the RTI Act and the letter sent by the Commission to the
CP is bad-in-law. The Commissioner of MCD did not care to reply even despite
telephonic reminders to his office.

The Commission decided to call some of the people present
to understand whether a RTI Applicant was deliberately obstructed from
undertaking inspection, which had been ordered by the Central Information
Commission and whether the assault on the two persons was with the intention
of preventing them from undertaking inspection. It summoned 7 different
officers who were present on 12.01.2010 and the appellant and his
representatives.

During the inquiry, each person deposing before the
Commission was asked to come in one at a time and once they had finished their
account, they were allowed to sit and listen to the deposition of the others.
Each person was asked to narrate the sequence of events on the day of
inspection, starting from the time that they all met at the MCD Office and
then proceed to the inspection site and subsequent events. At the end, the
persons who had deposed were allowed to give their clarifications or
contradict the statements of the others.

The statements of 6 persons who were present were recorded
and two more were called in later, so 8 in all. The CIC made the following
observations on points common to the deposition of all:

  • as some tension was
    anticipated, both parties had requested the Police to be present during the
    inspection.


  • crowd had gathered
    before the Inspection could be completed and persons were asking questions
    to the representatives of the Appellant.


  • some level of
    altercation took place either at the inspection site or just away from it on
    the Main Road. Even the MCD officials have admitted that there was some
    pushing around and arguments.


  • the inspection could
    not be completed due to the presence of the crowd. It was completed at a
    later point in the absence of the Appellant or his representatives but in
    the presence of a larger Police force.

  •     Mr. Ajay Kumar (one representative of PWGS) had sustained injuries and had been taken to Hospital by the Police.

    The Commission made the following Decision:

    The Commission finds from the statements that Po-lice personnel were present during the whole epi-sode and were either unable to or unwilling to take any action to intervene and disperse the crowd. This points to a very sorry state of affairs in terms of law and order. Trouble had been anticipated at the site and when it did start, the Police was unable or un-willing to take any action. The incident took place on 12 January, 2010. The Commission requested for a report on the incident before 24.02.2010, which the Police has not submitted. Now it is over ten weeks since the incident occurred, but the police did not give a report but instead deemed it a fit case to op-pose in a writ petition.

    Complaint is allowed.

    The appellant was prevented from carrying out the inspection to arrive at the facts. MCD officers and police officers were present but could not ensure that the inspection could be carried out.

    With regard to the allegations of physical assault, the Commission finds that offences under the Indian Penal Code may have been committed in the pres-ent case against the representatives of the Appel-lant. However, the Commission as a statutory body does not have the powers to investigate allegations against offences under the Indian Penal Code or take action under the Code of Criminal Procedure. When such incidents are brought to the notice of the Com-mission, the Commission can initiate an inquiry at its level under Section 18(2) of the RTI Act and it has to rely on external agencies such as the Police and the MCD to undertake part of the inquiry and assist the Commission. As a statutory body, the Commission can work effectively only if it gets cooperation from other Departments of the Government, especially those which are trained in investigative methods. If statutory bodies such as the Delhi Police and the Municipal Corporation of Delhi decide not to assist the Commission in the performance of its statutory functions, the Commission will find it difficult to dis-charge its duties under the RTI Act.

    Neither the Commissioner, MCD, nor the Commis-sioner, Delhi Police, have extended cooperation in the conduct of this inquiry. The Commission expresses the hope that the Police and the MCD will do their duty and help statutory authorities in performing their functions, failing which it would not be possible for citizens to exercise their fundamental right to information to ‘contain corruption and to hold Governments and their instrumentalities accountable to the governed’, which is the objective and promise of the Right to Information Act 2005.

    Citizens rightly expect that the Information Commission must ensure their protection when they are using Right to Information to unearth and challenge illegal activities. It is with deep concern that I admit that I am unable to take any further action as my powers under the Act have now been rendered completely ineffective by the non-cooperation of the Police and the MCD. I hope that all statutory agencies will cooperate to ensure that the rule of law prevails.

    (Mr. Surinder Puri, Delhi vs. PIO, MCD, Delhi: Decision No. CIC/SG/C/2010/000163/7237 dated 25.03.2010)

        Section 4 of the RTI Act

    As stated often in my articles, Section 4 of the RTI Act is the mother of all Sections in the Act. If the obligations on public authorities cast therein are complied with, the need to furnish RTI applications can get considerably reduced. In this case, even the State Bank of India, the largest bank of the country, has not complied with its obligation under this Section.

    The Order states:

    During the hearing, it was brought to our notice that the State Bank of India as a public authority has not yet published details about the monthly remuneration received by each of its officers and employees, including the system of compensation as provided in its regulations in terms of the mandatory obligations cast on it under Section 4(1)(b)(x) of the RTI Act. If it is true, it is unfortunate; a major public authority like the SBI is expected to be a trendsetter in implementing RTI Act. We direct the CPIO to bring it to the notice of the authorities in the SBI immedi-ately to ensure that such details about each of its officers and employees are immediately put up in the public domain through its website at all lev-els and certainly not later than a month from the receipt of this Order.

    The Order also directs the PIO to furnish information on the following points to the applicant, Shri Chetan Kothari, which was denied by the PIO and the AA:

        Monthly salary and wages paid to each employee, by name, in the State Bank of India, Mumbai Zone as at the end of 31st March 2009; [This information should be given in electronic form in a CD as the number of employees might be too large]

        Total number of safe deposit lockers in the Mumbai Zone as on the above date; and

        A categorical statement to the effect that the names of the CPIO and the Appellate Authority have been duly displayed in every branch of the Mumbai Zone.

    It may be of interest to the readers that CIC conducts many appeals by video conferences. This one was heard through video conferencing. The Appel-lant was present in the Mumbai studio of the NIC whereas the Respondents were present in the Bandra (Mumbai) studio.

    (Shri Chetan Kothari, Mumbai vs. CPIO, State Bank of India, Bandra Kurla Complex, Mumbai: CIC/SM/ A/2009/001479 decided on 01.04.2010)

        Postal Order

    In spite of such a mode prescribed in the Rules, the CPIO of UCO Bank refused to accept the application since it was accompanied with a postal order by way of application fee and declined to provide the information. The AA endorsed the decision of the CPIO. CIC Satyananda Mishra in his Order writes:

    “We strongly object to the decision of the CPIO sup-ported by the order of the Appellate Authority that the Indian postal order is not an accepted mode of payment of application fee under the RTI Act. The rules framed by the Government of India in this regard are quite clear and it is unfortunate that nearly 3* years after the Indian postal order was introduced as a method of payment, these authorities should be rejecting an application from a citizen by disal-lowing his postal order. During the hearing, the Respondents expressed regrets on behalf of the CPIO and the Appellate Authority but that hardly helps. The rejection of his application and, later; his appeal on the sole ground that he had decided to pay his application fee by postal order has caused avoidable harassment and financial loss to the Appellant. We, therefore, direct the CPIO to explain in writing if he has reasonable cause for his decision to disallow the application of the Appellant. If we do not receive his explanation within 15 working days from the receipt of this order, we will proceed to consider impos-ing the maximum penalty of Rs. 25,000 on him for having denied the information on thoroughly wrong grounds.

    The appellant in this appeal had also submitted that the UCO Bank had only one Appellate Authority lo-cated in their corporate office in Kolkata and very few CPIOs in the field making it extremely difficult for information (* Actually it is nearly 4 years) seek-ers to approach these authorities for information. Besides, it appears that the Appellate Authority does not give any opportunity of hearing to the Appellants before deciding the appeals. The Respon-dents admitted that indeed there was only one Appellate Authority for the entire Bank having thou-sands of branches all over India and that the Appellate Authority decided appeals without providing any opportunity of hearing to the Appellants. This is both unfortunate and unacceptable; nearly 5 years into the implementation of the Right to Informa-tion (RTI) Act, a responsible public authority like the UCO Bank must not treat this law with such casual abandon. Section 5 (1) of the Right to Information (RTI) Act clearly mandates every public authority to appoint as many CPIOs in all administrative units or offices under it as may be necessary to provide information to persons requesting for the information under this Act. Similarly, Section 19(1) requires that such officers senior in rank to the CPIOs should be identified as Appellate Authority for receiving and deciding appeals. We expect that the UCO Bank shall, within a month from the receipt of this Order, designate larger number of CPIOs to cater to the information need of the citizens and designate more appellate authorities, preferably, in the Zonal offices, so that Appellants do not have to go all the way to its corporate office for filing appeals. We also direct the Appellate Authority to provide an opportunity of hearing to the Appellants before passing any order on their appeals.

                                     Part B: The RTI ACT

    On January 20, 2010, the Ministry of Personnel, Public Grievances and Pensions [Department of Personnel & Training (DoPT)] issued one Office Memorandum (OM) on the subject of maintenance of records in consonance with Section 4 of the RTI Act.

    In part A, I have summarised one Order on Section 4 and commented on its importance. In Part 3, the letter of SCIC talks of Section 4. I request all readers to bring this OM of DoPT to the notice of public authorities they are connected with such as PSUs, Nationalised Banks, Government-owned insurance companies and so on. Said OM reads as under:

    The Central Information Commission in a case has highlighted that the systematic failure in maintenance of records is resulting in the supply of incomplete and misleading information and that such failure is due to the fact that the public authorities do not adhere to the mandate of Section 4(1)(a)of the RTI Act, which requires every public authority to maintain all its re-cords duly catalogued and indexed in a manner and form which would facilitate the Right to Information. The Commission also pointed out that such a default could qualify for payment of compensation to the complainant. Section 19(8)(b) of the Act gives power to the Commission to require the concerned public authority to compensate the complainant for any loss or other detriment suffered.

        Proper maintenance of records is vital for the success of the Right to Information Act but many public authorities have not paid due attention to the issue despite instructions issued by this Department. The undersigned is directed to request all the Ministries/Departments, etc,. to ensure that requirements of Section 4 of the Act in general and clause (a) of sub-section (1) thereof in particular are met by all the public authorities under them without any further delay.

    At this stage, I may also refer to THE PUBLIC RE-CORDS ACT, 1993 (PRA), which regulates the man-agement, administration and preservation of public records of the Central Government, Union Territory Administrations, public sector undertakings, statutory bodies and corporations, commissions and committees constituted by the Central Govern-ment or a Union Territory Administration and mat-ters connected therewith or incidental thereto. The rules (THE PUBLIC RECORDS RULES, 1997) are also enacted under this PR Act.

    Under the said Act and Rules also duty is cast on all entities as referred to above (and which are also entities covered under the RTI Act) to regulate etc. of the public records (extensively and in inclusive manner defined) and to furnish an Annual Report to the Director General or head of the Archives in the pre-scribed form.

    It may be noted that this Act also provides the regulations for destruction of Public Records. Very often, in response to the request to the PIO to provide some records, the reply is received that the same are destroyed. The applicant then should ask whether compliance is made to the PR Act and the PR Rules. It may be noted that penalty for contraventions is very heavy provided in Section 9 of PR Act as under:

    Whoever contravenes any of the provisions of Section 4 or Section 8 shall be punishable with imprisonment for a term which may extend to five years or with fine which may extend to ten thousand rupees or with both.

                                  
                                 Part C: OTHER NEWS


        Important Pronouncements by the Commission:

    (Continuing from January 2010)

    When Shailesh Gandhi, CIC, was in the BCAS of-fice some months ago addressing RTI activists and journalists, he distributed a compilation of 8 important and profound pronouncements by the Central Information Commission. Herewith 7 & 8 (the last two) thereof:

     7.   Third Party

    It is clearly stated in Section 11 (1) that ‘submission of third party shall be kept in view while taking a decision about disclosure of information’. Section 11 gives a third party an opportunity to voice its objections to disclosing information. The PIO will keep these in mind and denial of information can only be on the basis of exemption under Section 8 (1) of the RTI Act.

    The test of public interest is to be applied to give information, only if any of the exemptions of Section 8 apply. Even if any exemption applies, the Act enjoins that if there is a larger public inter-est, the information would still have to be given. There is no requirement in the Act of establishing any public interest for information to be obtained by the sovereign Citizen; nor is there any require-ment to establish larger Public Interest, unless an exemption is held to be valid. Insofar as looking at the credentials of the applicant are concerned, the lawmaker has categorically stated in Section 6 (2), ‘An applicant making a request for information shall not be required to give any reason for requesting the information or any other personal details except those that may be necessary for contacting him.’ Since the law categorically states as above, it is clear that the credentials of the applicant are of no relevance, and are not to be taken into account at all when giving the information. The truth remains the truth and it is not important who accesses it. If there is a larger Public Interest in disclosing a truth, it is not relevant who gets it revealed.

    If the third party objects to giving the information, the Public Information Officer must take his objec-tions and see if any of the exemption clauses of Sec-tion 8 (1) apply. If any of the exemption clauses ap-ply, the PIO is then obliged to see if there is a larger Public interest in disclosure. If none of the exemp-tion clauses applies, information has to be given.

      8.  Assets of Public Servant

    The Commission can allow denial of information only based on the exemption listed under Section 8 (1) of the Act.

    Under Section 8 (1) (j), information which has been exempted is defined as:
     “Information which relates to personal information, the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless the Central Public Information Officer or the State Public Information Officer or the appellate authority, as the cause may be, is satisfied that the larger public interest justifies the disclosure of such information:”

    To qualify for this exemption, the information must satisfy the following criteria:

       1. It must be personal information

    Words in a law should normally be given the meanings given in common language. In common lan-guage we would ascribe the adjective ‘personal’ to an attribute which applies to an individual and not to an Institution or a Corporate. From this it flows that ‘personal’ cannot be related to Institutions, organisations or corporates. (Hence we could state that section 8(1)(j) cannot be applied when the in-formation concerns institutions, organisations or corporates).

        2. The phrase ‘disclosure of which has no relationship to any public activity or interest’ means that the information must have some relationship to a public activity.

    Various Public Authorities in performing their func-tions routinely ask for ‘personal’ information from Citizens, and this is clearly a public activity. When a person applies for a job, or gives information about himself to a Public Authority as an employee, or asks for a permission, license or authorisation, all these are public activities. The information sought in this case by the appellant has certainly been obtained in the pursuit of a public activity.

    We can also look at this from another aspect. The State has no right to invade the privacy of an individual. There are some extraordinary situations where the State may be allowed to invade the privacy of a Citizen. In those circumstances, special provisos of the law apply, always with certain safe-guards. Therefore it can be argued that where the State routinely obtains information from Citizens, this information is in relationship to a public activity and will not be an intrusion of privacy.

    Therefore we can state that disclosure of information such as assets of a Public Servant, which is routinely collected by the Public Authority and routinely provided by the Public Servants, – cannot be construed as an invasion of the privacy of an individual. There will only be a few exceptions to this rule, which might relate to information which is obtained by a Public Authority while using ex-traordinary powers such as in the case of a raid or phone-tapping. Any other exceptions would have to be specifically justified. Besides, the Supreme Court has clearly ruled that even people who aspire to be public servants by getting elected have to declare their property details. If people who aspire to be public servants must declare their property details, it is only logical that the details of assets of those who are public servants must be considered to be disclosable. Hence the exemption under Section 8(1)(j) cannot be applied in such a case.


        RTI Act amendments:

    Very interesting and significant exchange of corre-spondence has taken place between PM and Mrs. Sonia Gandhi: Times of India on April 10, 2010 has made following report:

    Against PM wish, Sonia stood ground on ‘no RTI changes’

    Congress Chief Sonia Gandhi firmly resisted changes to the RTI Act despite the government wanting to tinker with the transparency legislation, an RTI query reveals.

    Amendments to the RTI Act have been in the news for some time with activists protesting against the government’s move to exempt disclosure of Cabinet papers, internal discussions and judiciary. Sonia, in a letter dated November 10 had voiced this concern and said the government should “refrain from accepting or introducing changes in the legis-lation… in my opinion there is no need for changes or amendments”.

    The letter, accessed under RTI by activist S C Agar-wal, said, “It will of course take time before the momentum generated by the Act makes for greater transparency and accountability in the structures of the government. But the process has begun and it must be strengthened… It is important, therefore, that we adhere strictly to this original aims and re-frain from accepting or introducing changes in legislation on the way it is implemented that would dilute its purpose. In my opinion, there is no need for changes or amendments. The only exceptions permitted, such as national security, are already well taken care of in the legislation.”

    In response, the PM on December 24 stood his ground that certain issues could not be dealt with without changes in the Act. Among the issues cited by the PM were that the CJI had pointed out that the “independence of the higher judiciary needs to be safeguarded in the implementation of the Act. There are some issues relating to disclosure of Cabinet papers and internal discussions”.

    The PM assured that while the government was tak-ing steps to improve dissemination of information and training of personnel, “there are some issues that cannot be dealt with, except by amending the Act”. “The Act does not provide for the constitution of benches of the CIC though this is how the busi-ness of commission is being conducted,” the PM had said.

        Editorial in Times of India of India of April 14, 2010

    The RTI Spectre

    The act is working. Don’t tamper with it

    Few of our public institutions foster a culture of transparency and accountability. The Right to In-formation (RTI) Act was enacted in 2005 to change tradition of opacity and make governance a trans-parent process. The Act’s been working reasonably well and has become useful tool for a large cross-section of civil society to examine the workings of government. Since in the process institutional failings get exposed as well, there is resistance to the RTI culture from various quarters including the government.

    Many public institutions that come under the ambit of the Act now want its radical edge blunted. Many state information commissions are starved of funds and personnel, which may lead to a collapse of the institution itself. Pleas to amend the Act must be seen in this context and handled with caution. As Congress president Sonia Gandhi wrote in her letter to the prime minister, “It is important that we adhere strictly to its (RTI Act) original aims and re-frain from accepting or introducing changes in the legislation on the way it is implemented that would dilute its purpose.” Sonia’s intervention has come in the wake of a letter written by the Chief Justice of India (CJI) to the Prime Minister. The letter states that information concerning the functioning of the judiciary should be exempted from the scope of the Act to safeguard its independence.

    The CJI’s apprehensions about possible misuse of in-formation of “a highly confidential and sensitive nature” are valid. But should, for example, information on in-house inquiry proceedings regarding allegations against sitting judges or appointment of judges in high court be considered sensitive and barred from the public eye? Should not the apex court be in the forefront of an initiative to make the working of public institutions transparent? The push to amend the RTI Act came first from the government itself. Last year, the government proposed amendments to the Act so that “frivolous and vexatious” applications could be discarded and disclosure of file notings exempted. The amendments failed to pass muster with state information commissioners, but they could be revived at any time.

    To give teeth to the RTI legislation, the government must beef up infrastructure at the information commissions. More personnel and infrastructure must be created fast at the commissions to avoid a break-down. There are already more than 11,000 cases pending with the Central Information Commission. The situation is worse in many states. The focus must be on a climate of openness, rather than trying to restrict the scope of RTI Act.

        Right to Information – A route to good Governan
    ce

    The book under above title was published by BCAS Foundation in 2007. Its updated, enlarged and re-vised edition authored and compiled by Narayan Varma was launched by BCAS on 25th March by Shri TN Manoharan, former president of ICAI and the director of Satyam Computer Services Ltd and now Padma Shri.

    Same was re-released by Public Concern for Governance Trust (joint publishers of this edition) on 7th April through the hands of Dr. Suresh Joshi, the Chief Information Commissioner, Maharashtra. The function was extensively covered by the Press. Hereunder is what DNA reported on 08.04.2010:

    •     RTI replies may soon be at your doorstep in 7 days State information commissioner will write to CM for faster disposal of cases


    If State information commissioner Suresh Joshi has his way, information sought under the Right to Infor-mation (RTI) Act will be made available to citizens in seven days, and not the stipulated 30 days.

    Speaking at the launch of RTI activist Narayan Varma’s book Right to Information – A Route to Good Governance on Wednesday, Joshi said he will be writing to the chief minister and the chief secre-tary asking for a change in the Act to ensure faster dissemination of information.

    Joshi said that in only 15% of the total applications, information officers may need more than a week to respond. “There is no reason for all applicants to wait for a month to get a reply,” Joshi said, adding, “I will also ask the chief minister and chief secretary to compliment officers who give information within seven days.”

    Talking about the success of the RTI Act, Joshi said corruption has gone down by 20%, “The RTI Act has increased accountability and transparency. Bureau-crats cannot shirk their responsibilities anymore.”

    He said the government needs to appoint senior officers as first appellant authorities (FAA). “If there is better work at that level, 50% of our work will re-duce,” he sad.

    Talking about Varma’s book, Joshi said it was a one-stop guide for all RTI related queries. The book contains information on prominent cases and judgments given by various commissioners. “The idea is not only to create awareness, but also to help peo-ple understand the Act,” Varma said.

        Information under RTI now in just 15 days

    True to his words as reported in above, Dr. Joshi wrote to CM on April 8. Hereunder news item in In-dian Express of 22.04.2010:

    CITIZENS now may not have to wait for 30 days to get details under the Right to Information Act. In a bid to make Maharashtra progressive by setting a good trend in RTI, State Information Commissioner Suresh Joshi has requested Chief Minister Ashok Chavan to issue a resolution to make information available in 15 days.

    With the State receiving 4.4 lakh applications from citizens – considered higher than in the US and Mexico – and disposal rate of more than 95 percent Joshi said it was about time that Maharashtra moves to giving information earlier than the 30-days limit.

    In 2002, before the Central Government accepted the Act, Maharashtra had its own RTI Act, which required providing information within 15 days.

    Therefore, there shouldn’t be a problem in going back to the original process. “It is not difficult to give details or documents in 15 days as everything is available in the department itself. Officials can send letters to applicants in seven days time to take the information after paying necessary amount and by the 15th day they can hand over the detail,” Joshi said.

    The letter – a copy of which is available with The Indian Express written to Chavan on April 8 – states that a Government Resolution should be issued urging officials to try hard and give information in 15 days. Chavan is expected to reply to the letter in the next few weeks.

    Although officials doing so cannot be given monetary incentive, head of departments could be suggested to take this note while considering promotions, the letter states.

    “There are Confidential Reports prepared for officers by their seniors and they can mention that due to exemplary services in disposing RTI queries he could be considered for accelerated promotion,” Joshi said. While amendment to this extent in the act will require Center’s approval, Joshi said that Maharashtra can experiment and see if the effort is successful.

    “If information could be given in 15 days and all departments follow the rule instead of waiting for 30 days, then the state can set an example and then central government could take the lead and make a similar suggestion for other states,” Joshi said.

    While Joshi is happy with the massive use of the RTI by citizens he has expressed dissatisfaction in section 4 of the act which requires voluntary disclosure of information on part of government.

    NSE is a Public Authority

    High Court of Delhi in a decision dated 15th April, 2010 have held that NATIONAL STOCK EXCHANGE OF INDIA LIMITED is a “public authority” as it is an “authority or institution of self government’ constituted or established by notification or order issued by the appropriate Government. It is also held that the petitioner is controlled by the appropriate Government.

    Detailed reporting of this landmark decision will be made in the next month’s article. In Mumbai, we are moving Bombay High Court, where Writ petition is pending, to decide similarly in the matter of BSE.

Some recent judgments

I Supreme Court :

    1. Grant of stay pending disposal of case.

        Ø Ravi Gupta vs. Commissioner of Sales Tax, Delhi 2009 TIOL 47 SC-CT.

    For want of declaration forms, demand for over 8 crore was made on appellant, a dealer registered under the Delhi Sales Tax Act, 1975. The appellant prayed for further time to produce declaration forms, which was declined and on failing to get any relief, the appellant moved the Tribunal in six appeals. Along with the appeal, application to dispense with pre-deposit was filed. The Tribunal after hearing rival stands and particularly that declaration will be filed, directed payment of three crore rupees. The appellant filed a writ before the Delhi High Court questioning correctness of the order. The High Court directed the petitioner to produce statutory forms within six weeks and failing to do so, directed to pre-deposit in terms of the order. As the appellant did not produce the records, the Tribunal held that the appellant was required to pre-deposit three crore rupees as directed earlier and as the appellant failed to do both, appeals were held as not entertainable. A writ was again filed questioning correctness of the order, which was dismissed by the order on the ground that earlier order was not complied with. This order was challenged in appeal to the Supreme Court, wherein it was pleaded that the Tribunal and the High Court failed to appreciate that large number of declaration forms were to be collected from various parties and since the situation was beyond the control of the appellant, the forms could not be produced. If the forms are taken into account, the liability would not be more than 15 lakh.

    After examining the relevant provision, the Hon’ble Court observed that though discretion is available, it has to be exercised judiciously. These things are to be considered by the Tribunal while dealing with application for dispensing with the pre-deposit — prima facie case, balance of convenience and irreparable loss. The Court noted, “Merely on establishing a prima facie case, interim order of protection need not be passed. But on a cursory glance, if it appears that the demand has no legs to stand, it would be undesirable to require the assessee to pay full or substantive part and dispose of petition in a routine manner. Merely because the Court has indicated the principles, that does not give a licence to the forum/authority to pass an order which cannot be sustained on touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen’s faith in the impartiality of public administration, interim relief can be given ! !”

    The Tribunal was accordingly directed to hear the appeal on merits without insisting on any pre-deposit. However, no opinion was expressed on the merits of the case and the appeal was disposed of.

II High Court — Important decisions :

2. CENVAT Credit : Credit for service tax paid on outward freight.

Ø Ambuja Cements Ltd. vs. Union of India and Others 2009 TIOL 447 STR 3 (P&H) — order dated February 10, 2009.

    Readers may refer to the decision of Delhi CESTAT reported at 2007 (6) STR 249 (Tri.-Del.) against which instant appeal was filed by the appellant on substantive question of law i.e., whether service of transportation up to the customer’s doorstep in the case of ‘for destination’ sales where the entire freight was paid and borne by the manufacturer would be ‘input service’ for Rule 2(1) of CC Rules and whether interest should have been demanded on the same ?

    The Hon’ble Court examined and relied on these aspects, the definition of ‘place of removal’ as provided in Section 4(3)(c)(iii) of the Central Excise Act, 1944, the subsequently issued Board’s Circular No.97/6/2007-ST, dated 23.08.2007 (Master Circular) and the definition of input service as per Section 2(1) of the CC Rules — ‘Place of removal’ means a depot, a premise of consignment agent or any other premises or place where excisable goods are sold after the goods are cleared from the factory. Para 8.2 of the Board’s Circular (supra) contemplates fulfilment of certain conditions; (a) ownership of goods and the property of the goods should remain with the seller till the delivery of goods in acceptable condition at the doorstep of the purchasers, (b) the seller bears the risk of loss or damage in transit to destination, (c) the freight charge should form integral part of the price of goods.

    Binding nature of the Board’s Circular also was recognised by the Court relying on the decision of Paper Products Ltd. vs. CCE, (1999) 7 SCC 84 which in turn had relied inter alia on earlier SC decisions like Usha Martins Industries (1997) 7 SCC 47 and Ranade Micro Nutrients vs. CCE (1996) 10 SCC 387 and that the Revenue precluded from challenging the correction of the Circular even on the ground that is inconsistent with statutory provisions.

    Further, the Hon’ble Court examined that all the requirements of the Circular were fulfilled —the supply of cement was ‘at destination’. Freight and insurance were borne by the appellant. Referring to the reply filed by the appellant to show-cause notice, the Court ruled that the third condition of freight charge forming part of cost of excisable goods stood fulfilled and thus the service of transportation was ‘input service’ for the CC Rules and accordingly, the credit availed was ruled to have been lawfully availed and there being no contravention of law, consequential interest payment did not arise.

3. Broadband connectivity — liable for VAT as sale of light energy although taxable to service tax.

Ø Bharti Airtel Ltd. vs. State of Karnataka & Others 2009 TIOL 99 HC — KAR-VAT

Vide an order dated January 16, 2009 the judgment in this case has given rise to controversy and uncertainty as the broadband connectivity charge recovered by the appellant is held as ‘sale of light energy’ taxable under the Karnataka VAT Act on the entire sale proceeds in spite of being taxed to service tax and principle laid down by the Supreme Court in the landmark decision of Bharat Sanchar Nigam Ltd. vs. UOI, 2006 (2) STR 161 (SC) is distinguished. The Assessing Authority in this case issued twelve notices under the Karnataka VAT Act (KVAT) to reassess the turnover of the appellant by adding subscription received towards leasing of broadband by treating the same as ‘transfer of right to use goods’ on the ground that physical lines of optical fibres were goods and rejecting appellant’s contention that leasing of broadband was a service on which service tax was paid. The demand was confirmed through a reassessment order on the new ground that the appellant was selling light energy. The appellant’s writ against the order was allowed by way of remand for fresh disposal. Twelve fresh notices were issued proposing to treat the transaction of providing broadband service as ‘sale of light energy’ and then were reassessed treating the leased service as sale of light energy. The Assessing Authority while deciding the case had also observed that there is no express provision in the service tax law that no VAT could be levied on a transaction on which service tax was levied nor does KVAT law contain a provision as to non-levy of VAT on a transaction on which service tax was levied by the Central Government. The appellant strongly relied on the decision of BSNL (supra), State of U.P. and Another vs. Union of India and Another 2003 TIOL 14 SC-ST, Associated Cement Company Ltd. vs. Asst. Commissioner of Sales Tax, Jabalpur and Another 1971 (28) STC 629 and a few other decisions and contended that the order of reassessment was opposed to the decision in the case of BSNL (supra) and that the activity of transmission of data from one place to another through optical fibre cables (OFC) did not involve sale of ‘light energy’ to the subscribers of broadband. What is delivered by the broadband users is data or voice information in electronic wave form and the light emitted by the laser device in the transmitter is used only for transmitting the same data at the destination point and that there was no element of ‘sale’ as Artificially Created Light Energy (ACLE) could not be termed as ‘goods’ as defined under Article 366(12) of the Constitution of India, under Section 2(7) of the Sale of Goods Act, 1930, Section 2(15) of the KVATAct, 2003, as it does not possess any of the properties of goods. The ACLE which is the electronic magnetic wave of high frequency is not capable of being possessed, stored, delivered and marketed and therefore, it cannot be held as goods was contended relying on the decision in the case of BSNL (supra), wherein it was held that ‘goods’ do not include ‘electro magnate waves’ or radio frequencies for the purpose of Article 366(29A)(a). Per contra on behalf of the Revenue, it was contented that the principle enunciated in BSNL’s case (supra) cannot be applied to this case, as it had not considered ‘artificially created light energy’ and placing strong reliance on the decisions of the Supreme Court in (1) Associated Cement Co. Ltd. vs. CC (2001) 4 SCC 493 (2) Tata Consultancy Services vs. AP (2005) 1 SCC 3208 – 2004 (178) ELT 22 (SC) and (3) State of A.P. vs. NTPC & Others (2002) 5 SCC 203. It was further contended by the Revenue that artificially created light energy is capable of being abstracted, possessed and consumed and as such, it could be held as ‘goods’ for the purposes of Article 3661(12), Section 2(7) of the Sale of Goods Act, 1930 and Section 2(15) of the KVAT Act, 2003. The definition of ‘goods’ under these laws was examined in detail by the Hon’ble High Court and it observed that in the decisions of TCS (supra) and ACC (supra), the term ‘goods’ as used in Article 366(12) is very wide and includes all types of properties whether tangible or intangible/ any incorporeal property and accordingly it was held that software sale was sale of goods as it was capable of being extracted, consumed and used and it could be transmitted, transferred, delivered, stored and possessed, etc. The Hon’ble High Court ana lysed observations in the BSNL’s case as regards’ electromagnetic waves’ in detail and distinguished non-extinguishable electromagnetic waves from’ Artificially Created Light Energy: (ACLE)’ and noted that ACLE is made to travel in the confined area in OFC Network and direction of their movement is regulated and that the said light energy gets extinguished and it cannot be reused by the same subscriber for carrying his another data or of any other subscriber. Each specific data is carried by a separate ACLE and it could be safely held that it is being abstracted, possessed, transmitted and delivered during transmission of data to the subscriber  and like, in the case of electricity, the creation, supply, possession, use and transmission (movement) and delivery of ACLE takes place almost simultaneously. Rival submissions including expert opinions were placed on record by the appellant as well as by the Revenue. However, artificially created light energy was held as ‘goods’.

Further questions that were examined were – whether there is a ‘sale’ of ACLE by the appellant to its subscriber so as to attract VAT and whether VAT was leviable even if transmission was chargeable to service tax. The definition of ‘sale’ was considered, analysed and discussed at great length and it was held that the nature of the transaction between the appellant and its subscriber under ‘service line agreement’ though is described as ‘service’, is one of ‘composite transaction’ involving ‘service’ and ‘sale’ elements. With ACLE, the data and information of the subscribers cannot be transmitted by using only OFC network. Similarly, without using OFC network, the data/information cannot be transmitted by using only ACLE.

For composite transactions, again the Supreme Court’s observations in BSNL’s case were examined and an opinion was formed that in the instant composite transaction also, the two elements of service and sale cannot be split. In this frame of reference, relying on the decision in State of UP vs. UOI, 2003 TIOL 14 SC-ST, it was held that the entire proceeds received from the subscriber as ‘service rentals’ would have to be taxed under the KVAT Act treating the transaction of providing broadband connectivity to its subscribers as sale of Artificially Created Light Energy *(ACLE) and that the Government of Karnataka had authority to levy VAT on the entire proceeds collected as ‘lease rentals’, despite it being assessed to ‘service tax’ by the Central Government under the Finance Act, 1994.

[Note:    The above decision would have repercussions of serious nature if finality is reached for taxing a transaction twice].

4. Whether supply of vessels to ONGC amounts to a service in relation to mining?

Indian National Ship Owners’ Association & Others vs. UOI & Others, 2009 TIOL 150 HC Mum-ST.
 
Members of the petitioner provide vessels that include offshore drilling rigs, harbour tugs, construction barges, etc. to exploration and production operators such as ONGC in India and in international waters on time-charter basis to carry out various jobs which inter alia includes anchor handling, towing of vessel, supply to rig or platform, supporting offshore construction, piloting big vessels in and out of harbour, etc. When the taxing entry of service in relation to mining of mineral oil or gas was introduced with effect from 01.06.2007 (entry 65(105)(zzzy), the petitioner’s members on approaching service tax authorities were informed that services of supply of vessels to ONGC or the like companies were liable for service tax under the said taxing entry and actions were initiated for recovery of service tax and an instant writ was filed therefor. In the interim, the Finance Act, 2008 with effect from 16.05.2008 introduced entry (zzzzj) to tax service in relation to supply of tangible goods for use without transferring right of possession and effective control of such goods. Accordingly, the petitioner pleaded that the activity of the members was specifically covered by the new entry and since it did not relate to ‘mining’, it was not covered by the earlier entry and that the new entry was not carved out of the old entry. Reliance was placed on Pappu Sweets & Biscuits & An. vs. CIT, UP, (1998) 7 SCC 228 and Yogendra North Naskar vs. CIT, Calcutta, (1969) 1 SCC 555 and also on Glaxo Smithkline Pharmaceuticals, 2005 (188) ELT (TrL), Diebola Systems (P) Ltd. 2008 9 STR 546 (TrL) and a couple of others.

Attention of the Court was drawn to the fact that there existed taxing entries for services of transportation by aircraft, transportation by road and transportation of goods other than water through pipeline or conduit, but no specific entry exists for transportation by sea and, therefore, the activity could not be subjected to service tax.

Provisions of Section 65A, entry (zzzy) and entry (zzzj) along with the respective clarificatory Circulars of the Board were examined. Quoting from the judgment of the Assam Court in the case of Magus Construction P. Ltd. vs. UOI, 2008 TIOL 321 HC GIW-ST, the Court observed that tax on services is a new concept and the Government had adopted selective approach as against comprehensive approach and this distinction needs to be kept in mind as only specified services are taxable under such approach.

The Court further observed that the expressions ‘in relation to’ and ‘in respect of’ are words known as of ‘widest amplitude, but one has to keep in mind the context in which they are used’. The services rendered by a person must have a direct or a proximate relation to the subject matter of the taxing entry. Services having remote connection cannot be included in a taxing entry on the strength of the words ‘in relation to’. Applying this, it was held that entry (zzzzj), was not inserted by amending entry (zzzy) and the former is not the specie of what is covered by (zzzy) and no service tax could be demanded on the activity of supply of vessels under mining service.

5. When does the taxable event take place under the service tax law?

CCE&C Vadodara vs. Schott Glass India P. Ltd., 2009 TIOL 82 HC -AHM-ST 2009 (14) STR 146 (Guj).

The Revenue challenged the order of Ahmedabad CESTA T on the following questions:

o Whether or not in service tax the taxable event is realisation of payment for taxable services rendered and not the time of rendering service?

o Whether or not at the time of realisation of payment for the taxable service provided, the provisions of Rule 2(1)(d)(iv) come into force making the service receiver liable for service tax?

According to the Revenue, in the order in question, the CESTAT had overlooked the fact that service tax burden was shifted to the recipient of service from 16.08.2002 in terms of Rule 2(1)(d)(iv) for services provided by non-residents and the respondent assessee was required to pay service tax on the amount paid in September, 2003. Factually, CESTAT had found that services were rendered prior to March 2002 and at such time, there was no liability cast on the receiver of service. The Court observed that service tax is levied as provided in Section 64(3) of the Act to all taxable services provided or after commencement of Chapter 97 of the Act. Thus, taxable event is providing all taxable services defined by Section 65(105) of the Act. Merely for the fact that invoice was raised later and payment was made subsequently, the liability cannot be fastened. Neither the Section nor did the Rule even suggest that taxable event is raising of the invoice for making the payment. The Tribunal accordingly had decided in accordance with the law based on facts and material on record and there was no legal infirmity in the order.

III Tribunal:

CENV AT Credit  :

6. Service tax on accident policies, etc. allowable as credit?

Milipore India Ltd. vs. CCE, Bangalore, II 2009 TIOL 490 CESTAT-BANG.

The  issue    related to availment of CENV AT credit  of service  tax on the services of medical and personal accident policy,  group  personal accident policy, insurance personal vehicle services, landscaping of factory  and  catering bills. Definition of input  service in Rule 2(i) of CC Rules was examined vis-a-vis CAS-4 standards reproduced in the decision of GTC Industries Ltd. 2008 TIOL 1634 CESTAT-MUM-LB Since CAS-4 considered all the services like medical benefit, subsidised food, education and canteen bill, etc. to form part of the cost of final products, the services received should be treated as received in relation to manufacture. , Further, since modernisation, renovation, repair etc. of the office premises, etc. are also included in the broad definition of input service, even landscaping should be treated as in relation to manufacture of final product and accordingly, the credit on all the above services was allowed.

7. Erection of machinery at buyer’s place by a sub-contractor: Whether allowable?

CCEX Vapi IAlidhara Textool Engineers PI Ltd. vs. Alidhora Textool Engineers Ltd./CCEX Vapi, 2009 TIOL 370 CESTAT-AHM.

A manufacturer supplied, installed and erected machinery in buyer’s premises. An agency was outsourced to instal the machines and took credit of service tax paid on erection and commissioning services provided by the said agency. The question involved was whether installation done at buyer’s premise would be treated as input service for manufacturing as it was a post manufacturing activity. It was contended that commissioning and installation cost was included in the price of machines and duty was paid on the same and that part of the service was provided at buyer’s premises and a part at manufacturer’s. Copy of sample sales contract wherein erection and commissioning cost was included was produced. Commissioning was to be managed by the appellant-manufacturer. Sub-contractor was held to be service provider to manufacturer and it was held that CENV AT Credit Rules do not require that the service should be rendered at factory only for determining eligibility of service tax credit and accordingly, credit was allowed to the appellant.

8. Service provided by one person, tax paid by another – whether entitled for credit?

Federal-Mogul-Goetze (India) Ltd. VS., CCE, Chandigarh, 2009 TIOL 460 CESTAT-DEL.

Credit was taken by a manufacturer on the basis of TR-6 challan showing payment of service tax by the sister concern of the service provider. Service provider was not registered initially when service was provided. Hence, its sister concern which was registered paid service tax charged to the appellant for services provided through its sister concern. This fact was intimated to the Asst. Commissioner. However, no reply was received. Later even the unregistered service provider got registered and paid service tax with interest. It was held that TR-6 was a valid document based on which credit was taken. Since the service tax liability was dis-charged and later even service tax registration was obtained by the actual service provider, it was held that credit could not be denied.

9. Service tax credit on mobile phones or landlines at residence of staff admitted as CENV AT credit.

ITC Ltd. VS. CC&CE, 2009 TIOL 439 CESTAT- MAD
 
Relying on the decision of the High Court in the case of CCE VS. Excel Crop Care Ltd., 2008 (12) STR 436 (Guj.) and also the Tribunal decision in the cases of Indian Rayon & Industries Ltd. VS. CCE Bhavnagar, 2006 (4) STR 79 and Keltech Engineers Ltd. vs. CCE, Mangalore, 2008 (10) STR 280 and the case of CCE (LTU) Chennai VS. Braka India, 2009 (89) RLT 876, it was held to the effect that in the absence of express prohibition under CCR, service tax paid is admissible as the phones were not installed at the factory premises cannot be the ground germane to the provision of rates relevant for the purpose.

10. Whether credit for service tax paid on reimbursable expenses is allowed to be taken?


Chandra Shipping  & Trading Services vs. CCE & C, 2009 (13) STR 655 (Tri.-Bang).

The appellant, a Custom House agent was alleged to have wrongfully availed input credit for over 4 years and an amount of over 52 lakh plus interest and penalty under Sections 76 and 78 were demanded. It was contended that CENVAT credit returns were not verified by the Department. The credit was denied on the grounds that credit was taken on services not used and that no evidence was produced by the appellant that no credit was availed by importers/exporters for whom the services were used. The appellant contended that grounds on which credit was denied were extraneous to the CCR, which have to be interpreted strictly and credit could not be denied based on suspicion. Time bar also was pleaded. Benefit of time bar was granted to the appellant. Since the Revenue had not verified the facts, benefit of doubt was granted to the appellant. It was held that the burden of proof was on the Department to prove the allegations with solid evidence. Since the appellant had filed all its Returns regularly, the demand hit by time bar and the penalties were set aside.

11. Credit taken prior to payment for value of input service.

Gujarat Pipavav Port Ltd. vs. CCE Bhavnagar, 2009 (14) STR 53 (Tri.-AHD).

Service tax credit was availed one month earlier than permissible under Rule 3(1) of the Service Tax Credit Rules, 2002. Credit can be availed only after making payment for value of input service and the service tax shown in the invoice. The appellant pleaded technical lapse. Since in any case credit was available in the next month, interest for one month was required to be paid but penalty imposed was waived.

Right To Information

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Part A : Decision of the High Court of Delhi

This feature, divided into three parts, normally starts with
CIC’s decisions. In past, more than once a departure was made, instead of CIC’s
decisions, it covered Courts’ decisions. Since long, I have been making efforts
to procure RTI decisions of the Courts, High Courts and Supreme Court, when
CIC’s/SIC’s decision is challenged under the writ. Search has remained elusive.
However, one CA member requested me to give him citation of the Delhi High Court
Order reported under ‘Other News’ in BCAJ of April, 2008 under “Mere existence
of an investigation, no ground for refusal of information”. I had no citation
available. It gave me the motivation to really search hard — a challenge. With a
friend of mine, we went on serious search on Net and finally traced out the
order through Google search. It deals with the tax evasion petition submitted to
the investigation wing of the Income-tax Department, hence interesting to the
readers. The said order is briefly summarised hereunder :


Before I do so, let me record that CIC’s decision against
which the writ is filed was reported in this feature in September, 2006.


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

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

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

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


The application was rejected by PIO of the Income-tax
Department u/s.8(1)(j) of the RTI Act, holding that information sought was
personal in nature and did not further public interest. The Appellate Authority
also dismissed the appeal citing provisions of S. 8(1)(j) and also 8(1)(h) under
which exemption is granted, if the information would impede the process of
investigation or apprehension or prosecution of offenders.

In the second appeal, CIC vide its order dated 8th May 2006,
set aside the rejection of information and held that “as the investigation on
TEP has been conducted by DIT (Inv), the relevant report is the outcome of
public action which needs to be disclosed. The same cannot be exempted
u/s.8(1)(j) as interpreted by the Appellate authority. Accordingly, DIT (Inv)
was directed to disclose the report as per the provision u/s.10(1) and (2),
after the entire process of investigation and tax recovery, if any, is complete
in every respect.

After the above Order also, the Income-tax Department did not
furnish the information, probably
holding that the entire process of investigation is not complete yet. Enquiry by
CIC’s office at the instance of the petitioner, to the Income-tax Department
(Investigation) for its comments with respect to non-compliance of the Order and
to show cause as to why a penalty should not be imposed u/s.20 of the RTI Act,
also brought no response.

The petitioner in this writ petition requested the Court to
partially quash CIC’s Order insofar as it directs disclosure after the entire
process of investigation and tax recovery is completed. “It was urged that CIC,
after appreciating that there was no merit in the plea regarding applicability
of S. 8(1)(h), and being satisfied, should not have imposed the condition
regarding completion of proceedings, which could take years. Such power to
restrict access to information did not exist under the Act.

Paragraphs 11 to 14 of the Order reflect the tenor of the RTI
Act and hence instead of paraphrasing them are reproduced in original :

11. The Universal Declaration of Human Rights, adopted by the United Nations in 1948, assures, by Article 19, everyone the right ‘to seek, receive and impart information and ideas through any media, regardless of frontiers’. In (the case of) Secretary, Ministry of Information and Broadcasting, Govt. of India and Ors v. Cricket Association of Bengal and Ors., [1995 (2) SCC 161], the Supreme Court remarked about this right in the following terms :

The right to freedom of speech and expression includes the right to receive and impart information. For ensuring the free speech right of the citizens of this country, it is necessary that the citizens have the benefit of plurality of views and a range of opinions on all public issues. A successful democracy posits an ‘aware’ citizenry. Diversity of opinions, views, ideas and ideologies is essential to enable the citizens to arrive at informed judgment on all issues touching them.

This right to information was explicitly held to be a fundamental right under Article 19(1)(a) of the Constitution of India for the first time by Justice K. K. Mathew in State of UP v. Raj Narain, (1975) 4 SCC 428. This view was followed by the Supreme Court in a number of decisions and after public demand, the Right to Information Act, 2005 was enacted and brought into force.

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

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

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

Thus holding,  the Court stated  that Orders of PIO, and CIC do not reflect any reasons why the investigation process would be hampered. It further stated “S. 8(1)(j) relates only to investigation and prosecution and not to recovery. Recovery in tax matters, in the usual circumstances, is a time-consuming affair, and to withhold information till that eventuality, after the entire proceedings, despite the ruling that investigations are not hampered by information disclosure, is illogical.

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

The Court then ruled that “the order of the CIC dated 8th May 2006 insofar as it withholds information until tax recovery orders are made, is set aside”. PIO and AA were directed to release the information sought, on the basis of the materials available and collected with them, within two weeks.

The Court also made adverse comments on the Income-tax Department’s PIO and AA by stating that the materials on record clearly show the lacka-daisical approach by them in releasing the information sought.

Part B : The RTI Act
 

Chapter 5 of the Annual Report 2005-06 as published by the Central Information Commission is titled: Significant initiatives by Ministries/Departments/Public Authorities (hereinafter referred to as entities) and suggestions for reforms.

Some significant initiatives taken by the entities are summarised hereunder.

S. 25(3)(f) of the RTI Act mandates the public authorities to report:
“Any facts which indicate an effort by the public authorities to administer and implement the spirit and intention of the Act.”

Report presents efforts made by some entities to administer and implement the Act beyond mandatory requirements.

10 entities have set up Information Facilitation Centre/RTI Cell to accept information requests and payment of fees and/ or a separate RTI Section/Cell to implement the Act.

Some entities have drafted an internal procedure to implement the RTI Act, some have set up cash register for application and other information fees, so that the money received can be monitored and accounted for. Some reported that they have taken the initiative of designating alternate Public Information Officers and Assistant PIOs. Three of them viz. the Noida Special Economic Zone (Ministry of Commerce & Industry), the Office of the Registrar of Companies Tamil Nadu-Coimbatore (Ministry of Company Affairs) and the State Bank of India (Ministry of Finance) have reported that they have disseminated awareness about the Act amongst the public.

Several public authorities have also reported that they have undertaken training of their Public Information Officers and issued guidelines about implementing the Act.

The National Information Centre (NIC) is in the process of setting up a RTI Request Management Information System (RRMIS) to monitor requests received u/ s.6 of the Act. There are three modules. The concerned public authority, the Central Information Commission and the Assistant Public Information Officer at the Department of Posts can use these modules:

  • Request and First Appeal Module for Public Authority

  • Second Appeal Module for Central Information Commission (CIC)

  • Request and Appeal Module for Central Assistant Public Information Officer (CAPIO), Department of Posts.

There is also an updation system  where  the stage at which the application is, can be updated as and when required.
 
Suggestions received from public authorities for reforms shall be covered in the next issue.
 

Part C: Other News
 
RTI gives visually impaired great relief:
The RTI Act came to the rescue of 200 visually impaired and physically-challenged Thane residents. Their battle of five years came to an end when in response to RTI application, State Chief Information Commissioner (SCIC) directed Thane Municipal Corporation (TMC) to provide details of the allotment of telephone booths and also requested TMC to expedite the matter. It is understood that the applicant has received the details and also the allotments have been made. serc Mr. Joshi was very pleased and remarked:

“The Order went beyond the RTI Act’s ambit as the panel considered the anguish of the hundreds of physically-challenged people who were willing to put in hard labour, but denied employment opportunities”.

• CIC’s office has no information:

RTI application revealed the shocking state of affairs in the very office which is the last refuge under RTI regime. One RTI activist, Shruti Singh Chauhan sought details of cases heard by the erc, but where verdicts were still not announced. She was told that the Commission did not maintain records of cases with it. Information has shocked one and all including erc Chief, Mr. Habibullah. He has now cracked the whip and ordered an in-house upgrade of records. CIC advises public authorities to ensure transparency in maintaining records. The Act also so provides. It was a shame that CIC’s own office defaulted in it. Who will fine it! Now it is ordered that within one month it will get up-to-date in its record keeping.

The Times of India wrote an editorial in this context to say that it is unconscionable that the very body created to bring about greater transparency in the working of public bodies is itself unable to furnish information about its own operation. Further two paras read :

  • The Right to Information Act is perhaps the most powerful legislation that empowers citizens to check on the functioning of public establishments. It has the ability to curb corruption, which is one of the biggest evils facing the country. Lack of transparency and accountability on the part of Government officials increases the propensity for corruption.

  • Although the Right to Information Act is landmark legislation, it is just a stepping stone towards eradicating corruption and bringing about lucidity in the working of the Government. Right to information has to mature and translate into duty to inform. Just like businesses are accountable to investors, the Government too should be made accountable to citizens.

• Maharashtra MLAs – unjust allowance:
RTI has many dimensions. Recently unexpected dimension came to light: Action taken out of fear of exposure under RTI. It is understood that the Maharashtra State Government has approved a proposal to allow each legislator to claim Rs.25,000 per month as mileage allowance without any obligation to produce bills to avoid giving explanations to citizens under the Right to Information Act or in response to a Public Interest Litigation (PIL).

As per existing rules, a legislator can demand a vehicle from the district collector to tour his/her constituency. If the administration fails to. provide one, the legislator can make his own arrangements and produce the bills before legislature secretariat and claim a maximum of Rs.25,000 in a month (based on a rate of Rs.I0/km).

Being aware that RTI can expose the legislators, it is now suggested to remove the need to produce bills, the mileage allowance would be credited to the account of each legislator every month. The State Cabinet accepted the proposal.

• Our MPs don’t pay MTNL telephone bills!
The telephone line of an average Mahanagar Telephone Nigam Limited subscriber would be disconnected if he did not pay bills by the stipulated due date. But the telephone lines of several MPs and various State and Central Government establishments ate still operational even though bills amounting to crores are still pending.

RTI query revealed that outstanding from such leaders (?) who have to set example of discipline have outstanding dues of Rs.375 crores over the last 3 years.

• S. 8(1)(a), (d) and (e) of the RTI Act:
Can the details of a Memorandum of Understanding (MOU) signed between the State Government and a multinational chemical firm undermine the sovereignty and integrity of the nation? The Maharashtra State Industries Department thinks so.

RTI application had sought information on MOU signed between the Industries Secretary and Dow Chemicals International Pvt. Ltd. for starting a facility to manufacture some chemicals at Chakan near Pune. Dow is responsible for producing Agent Orange and napalm – used in the Vietnam War. It also produces ozone-depleting CFCs and the widely-used insecticide, Dursban.

In reply to RTI application, the PIO of the Indutries Department rejected the application by stating that it is exempt information under clauses (a), (d) and (e) of S. 8(1) of the RTI Act.

It is felt that denial is unjustified as it is difficult to appreciate how a commercial deal between private chemical firm and the State can harm the interests of the nation [clause (a)], or can be considered as disclosing trade secrets / intellectual property [clause (d)] or can be considered as information pertaining to private party held in a fiduciary relationship [clause (e)].

• Asset declaration by judges:
In response to RTI application, the Supreme Court’s CPIO has stated that the information relating to declaration of assets by Judges is “not held by or under the control of” its registry and therefore could not be furnished by him.

Reply has exposed the SC’s resistance to transparency. Though the CJI can easily say whether Judges have been filing declarations of their assets, the CPIO has claimed that the information is not in possession of the registry. The matter is now pending before the CIC.

• Mumbai City Police:
The details of the city police budget obtained under the RTIAct reveal that Rs.559 crore (i.e., more than 75%) is being spent only to keep 40000 personnel in service out of the budget of Rs.716 crore.

Experts feel that at a time when the city faces the threat of organised crime and terrorism, the police should not spend all its money on salaries, though conceding that maintaining a police force is expensive as unlike other Government departments, it does not earn revenue. Yet, it still does not justify the present scenario.

Words and deeds

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New Page 1

17 Words and deeds


Mergers & Acquisitions

‘The playing field for acquisitions is a little less crowded
than before, mainly because many firms aren’t exactly in a position to be
writing cheques for acquisitions’

— Peter Sands, Group Chief Executive, Standard Chartered Bank
in Business Today.

Leadership

‘Plenty of leaders do not want to acknowledge their
weaknesses. That is fine with me as long as they work at a subconscious level on
those weaknesses’

— K. V. Kamath, CEO, ICICI BANK, in The Economic Times

Other voices

‘Nowhere in the world is so much capital being consumed. As
our consumption goes up, more and more money is required to fuel it’

— Gopal Srinivasan, Director, TVS Electronics, in India Today

Softly speaking

‘Compassion, like a mother’s care, is the essence of moral
ethics. If somebody is ethically or compassionately motivated to do things, his
actions will always be positive’.

— Dalai Lama, in a lecture at IIM, Ahmedabad on ‘Ethics and
Business’

(Source : Indian Management, March 2008)

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Ethics and u

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Dear friends,

I hope you did not read my last month’s article. If you have read it, please try to forget it. Henceforth, we are going to listen to the dialogue between CA — Arjuna and Bhagawan Shrikrishna on the Code of Ethics (COE) of our Institute of Chartered Accountants of India — (ICAI).

Is it a coincidence that our ICAI Head Office is situated on ‘Indraprastha Marg’ — the capital of Pandavas? Anyway, CA Arjuna and Shrikrishna are present on the battlefield. War is yet to commence!

What a great idea! — Even the wars in those times were fought by following the rules of ethics! — Start at sunrise, close at sunset, not to harm women and children, not to attack anyone who is without a weapon; and above all, seek blessings from seniors even from the enemy side! — Poetic indeed — but at that time, a reality.

The dialogue begins: CA Arjuna

(A) — Hell with this profession! And that meaningless Code of Ethics (COE)! Lord Shrikrishna

(S) — What happened? Why are you so upset?

A — Last time, I was not willing to fight. You pushed me into the war. But then this COE ties my hands. I can’t freely accept audits, I cannot advertise, I cannot do any other thing! How can I fight now?

S — Who says? Have you read COE?

A — Yes. Of course! I read it 20 years ago for my exam.

S — Oh! You still remember it?

A — Not fully. I only remember that while auditing, I have to obtain an NOC, and I cannot advertise.

S — Only that much? Then why are you making such a fuss of it? Only a couple of restrictions!

A — But nowadays many of my friends are receiving love-letters from the Institute.

S — Do you remember, at that time it was called Code of Conduct; and now it is Code of Ethics?

A — The same nonsense. Only the name has changed. Unnecessary burden! Times are changing so fast — and they are sticking to those old so-called ethics!

S — Are you aware your CA Act of 1949 was amended in 2006?

A — What difference does it make to me? We elect the Council members and they harass us. I hate going for voting.

S — But do you know what the motto of the Institute is? What a CA really stands for?

A — Don’t tell me that. There is an eagle there and something scribbled in Sanskrit. Who cares to know it!

S — It is ‘Ya Esha Supteshu Jagarti’ — He who is awake when the others are asleep.

A — Yes. We are slogging round the clock, and our clients are relaxing and enjoying. Very apt motto! No wonder, I am suffering from insomnia! And on top of it this burden of Ethics.

S — No dear. You are in the slumber — only playing with numbers. You have forgotten your role. That’s what also happened in Mahabharata war. Ethics is not your burden. It is your shield. That is why you Pandavas succeeded.

A — Ah! Don’t give me the sermon. How can the restrictions imposed on me become my shield? Who will remember all those rules of ethics? Such a long list of dozens of items!

S — No. You are mistaken. Really speaking there are only 3 rules, which your Guru told you when you completed your education.

A — Yes. Something he told from Taittireeya Upanishad. S — Satyam Vada — Always speak the truth.
— Dharmam Chara — Follow the Religion — that means not the worship — or pooja path — But your duties. That time, duties as a Kshatriya (warrior); now as a CA — professional. — And third — Swadhyayat Ma Viramah — Never give up studies.

A — I know. That is that CPE! That is the only place where I can sleep in the auditorium.

S — Why? — Do you attend it or send your proxy?

A — But then, in that war, you gave us some ‘practical tips’ to circumvent the truth. Why these double standards?

S — No. That was not bypassing the truth; but temporarily masking it — Eventually to uphold the Truth — and Dharma.

A — I am again confused. Next time, explain to me all those nasty restrictions one by one — and tell me how it is a shield. Let us take a break. Om Shanti.

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Ethics and u

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Shrikrishna (S) Arjun, Congrats. You got possession of new flat. When are you shifting?

Arjun (A) I will shift in two or three weeks. That way I got possession in March itself. But children’s exams were there.

S – Ok. But it is far away from the city. That area has just started developing. A – Yes. But it is a spacious flat. That way, in Mahabharata, we had stayed even in exile. I don’t mind staying away from city.

S – There also, rates may be too high. How did you manage the funds? You are always crying that there is not much earning in the profession.

A – It is true. You can’t earn much unless you compromise on principles. Anyway, I took housing loan. Then I also took some gold loan against Subhadra’s ornaments. But now the gold rates have fallen. They may demand additional security. Still there was a shortfall. Then I borrowed some amounts from 2-3 clients. 5 to 10 lakh each.

S – Very good. But how will you repay all these loans? EMI will be pretty high.

A – See, I am giving my old flat on leave and licence. That rental will come. And clients I will adjust against their audit fees. As it is, they never pay my fees in time.

S – Oh! You do their audit?

A – Yes. How can I repay loans in lakhs from their meagre tax fees? Even audit fees are not very high. But there are 3-4 concerns in each group. So somehow I will make it.

S – But how can you do their audit?

A – Why? What happened? Why can’t I do their audits? They are not my relatives. After you told me once, I gave up the audits of Bhima’s business.

S – Oh dear Arjuna, you cannot be the auditor when you are indebted to a client. There are the Council’s guidelines.

A – When did the Council issue these guidelines?

S – They were very old. But on 8th of August, 2008, the Council issued them afresh.

A – What do they say?

S – They cover many topics. Chapter X says you cannot accept appointment as auditor of a concern if you are indebted to it for more than Rs.10,000/-.

A – Oh My God! Then I will shift these loans to my partner’s name, and show that I borrowed from my partner! So simple!

S – No Arjuna. Even your partner cannot be a borrower of that concern.

A – Just Rs.10,000/-? Such a ridiculous limit!

S – Council’s limit is Rs.10,000/-. But in Companies Act, it was just Rs.1,000/-. They may increase it in the new Law.

A – Then, what I will do is that I will ask my friend to sign these audits. Actual work I will do myself. He will just sign.

S – Is he close to you?

A – Of course! He is a guarantor to my loan.

S – Then he also cannot accept the audit. If you are guarantor to a borrower of a concern, then also you can’t accept that audit.

A – This is too much!

S – See, if you are in debt or under obligation of someone, you are likely to compromise with your duties as an auditor. You may tend to accommodate him.

A – Then I will get another friend to sign it. He has given his property as a collateral security for my loan.

S – Again a problem! An auditor to be independent, should not have provided any security for any loan given by that concern to any third person.

A – Two of the concerns are private limited companies. You mean, the limit is then just Rs.1,000/-?

S – Yes. Then the limits fixed in the relevant statute will apply.

A – O God! Serious problem! These clients are so useless. They are thoroughly disorganised. They don’t maintain their accounts properly. I have to literally spoon feed them! Their record is in a complete mess! Somehow, I have been signing. But I cannot expose it to a stranger.

S – Arjun; you are cursing a client who has lent you money when you needed it.

A – That’s true. But he is thoroughly indisciplined. I have always overlooked the blunders in his accounts and accommodated him.

S – Shall I ask you one thing? Do you keep your own accounts properly? And up-to-date?

A – Ah! But I adjust it myself at the year end, while filing my return.

S – Then remember. Chapter V of the Council guidelines says a practicing CA shall maintain and keep proper books of account! – Cashbook, ledger, etc. It is a disgrace to you that the Council had to issue such a guideline. Please introspect my dear! Are you disciplined yourself?

A – Let it be. Tell me about that indebtedness again. I have taken a housing loan from the Dadar branch of a bank. I am getting the audit of Thane branch of the same bank. Then what is the position?

S – Still you can’t accept. The bank as a whole is one concern. You are a borrower of the Bank; and which branch you are auditing is immaterial.

A – Oh. This is very harsh!

S – This is to ensure auditor’s independence. And remember, it is not restricted to mere statutory audit but covers all audits.

A – Actually, I am giving my old flat on leave and license basis to a bank and I will be taking a security deposit of Rs. 1 lakh. I think, that should not be a problem. It is not a loan as such. Can I then do that bank’s audit?

S – No dear. The word used is indebtedness. Security deposit is also a debt.

A – I must caution my friends. I am sure, they are not aware of all this. Tell me, can we take advance fees? It is a dream for a CA; as they don’t pay until the next year’s audit starts. But hypothetically —

S – Taking advance fees is also indebtedness.

A – Hey Bhagwan, good that you made me aware well in time. I am really indebted to you.

The above dialogue is with reference to Chapter V and Chapter X of the Council General Guidelines, 2008 Issued On 8th August, 2008 which read as under:-

Chapter V: Maintenance of books of account :

A member of the Institute in practice or the firm of Chartered Accountants of which he is a partner, shall maintain and keep in respect of his/its professional practice, proper books of account including the following:-

(i) a Cash Book

(ii) a Ledger Chapter X: Appointment of an auditor when he is indebted to a concern.

A member of the Institute in practice or a partner of a firm in practice or a firm shall not accept appointment as auditor of a concern while indebted to the concern or given any guarantee or provided any security in connection with the indebtedness of any third person to the concern, for limits fixed in the statute and in other cases for amount exceeding Rs.10,000/-.

Further, readers may also refer pages 313 to 323 of ICAI’s publication on Code of Ethics, January 2009 edition (reprinted in May 2009).

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PART d: Good Governance

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Audacity of Ideas in the age of Resentment:

Thank the ancient Greeks for giving us the idea. Two thousand and six Hundred years on, trust the modern Greeks for showing the world how to mess up the idea of democracy. Today the “bailout” nation of the Eurozone is up for sale. literally: The cash-starved government is even selling state buildings; and the Emir of Qatar is buying six islands off Ithaca. Amidst the doom, the neo-Nazi party that promises salvation calls itself Golden Dawn. Greece is just one example of how the best form of governance is capable of offering the worst scenario of freedom to a people.

Narendra Modi (Gujarat Chief Minister) on governance:

“Democracy should not just be a five-year contract given to a leader by way of votes. It must be a participative process in which people work with the government to ensure better governance and greater development.”

Government is file, governance is life; Government is all about power, governance is about empowerment.

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PART B: RTI Act, 2005

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Review petition made by Ms. Aruna Roy and Mr. Shailesh Gandhi in the matter of Order of the Supreme Court in Namit Sharma’s case.

The judgment in Namit Sharma’s case had had resulted in stopping the functioning of five State Information Commissions.

Now the Supreme Court has passed the following order:

O R D E R I.A.NO. 6 in R.P.(C) No. 2309 of 2012

This is an application for stay of the operation of the judgment dated 13th September, 2012 passed in Writ Petition (C) No. 210 of 2012 titled Namit Sharma vs. Union of India reported as 2013 (1) SCC 745 during the pendency of the Review Petition (C) No. 2309 of 2012 titled Union of India vs. Namit Sharma. We have heard learned counsel for the parties and we are not inclined to stay the operation of the entire judgment in Namit Sharma vs. Union of India but we direct that the following directions in sub-paras 108.8 and 108.9 quoted here-in-below shall remain stayed during the pendency of the Review Petition (C) No. 2309 of 2012.

108.8 The Information Commissions at the respective levels shall henceforth work in Benches of two members each. One of them being a ‘judicial member’, while the other an ‘expert member’. The judicial member should be a person RP(C) 2309/2012 etc. 3 possessing a degree in law, having a judicially trained mind and experience in performing judicial functions. A law officer or a lawyer may also be eligible provided he is a person who has practiced law at least for a period of twenty years as on the date of the advertisement. Such lawyer should also have experience in social work. We are of the considered view that the competent authority should prefer a person who is or has been a Judge of the High Court for appointment as Information Commissioners. Chief Information Commissioner at the Centre or State level shall only be a person who is or has been a Chief Justice of the High Court or a Judge of the Supreme Court of India.

108.9 The appointment of the judicial members to any of these posts shall be made ‘in consultation’ with the Chief Justice of India and Chief Justices of the High Courts of the respective States, as the case may be”.

We further direct that wherever Chief Information Commissioner is of the opinion that intricate questions of law will have to be decided in a matter coming before the Information Commissioners, he will ensure that the matter is heard by a Bench of which at least one member has knowledge and experience in the field of Law.

We make it clear that subject to orders that may be finally passed after hearing the Review Petitions, the competent authority will continue to fill up the vacant posts of Information Commissioners in accordance with the Act and in accordance with the judgment in RP(C) 2309/2012 etc. W.P.(C) No. 210 of 2012 except sub-paras 108.8 and 108.9 which we have stayed. This is to ensure that functioning of the Information Commissioners in accordance with the Act and the Judgment is not affected during the pendency of the Review Petitions. We further make it clear that the Chief Commissioners already functioning will continue to function until the disposal of the Review Petitions. I.A.No. 6 is ordered accordingly.

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FROM THE PRESIDENT

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These are depressing times for most Indians – firstly, as the country has been drifting in her economic growth performance, and secondly the spate of scams, scandals, charges and counter charges of corruption cutting across the entire spectrum, add to the woes of citizens. In the last few months, the country has witnessed the eruption of a number of egregious events, and we as citizens not only look for government intervention but question the Government for all the wrongs committed by a few unscrupulous individuals. The Government does take measures both fiscal and others to remedy the situation. At the same time, the Government is demanding that corporates and other organisations become more socially responsible.

In this communication, rather than discussing what the Government and Corporates should do or are not doing, I have attempted to share my thoughts on Social Entrepreneurship and Individual Social Responsibility which can make up for the shortcomings of the bureaucracies and the Government. It may appear to be a new concept in relation to Corporate Social Responsibility, but it is a concept as old as The Golden Rule — Do unto others as you would have them do unto you.

The quote by Hubert H. Humphrey says it all – “The impersonal hand of the Government can never replace the helping hand of a neighbour”.

Social Entrepreneur is someone who recognises a social problem and uses entrepreneurial principles to organise, create and manage a venture to make a social change, and will assess its success in terms of its impact on the Society. A leading example is, Dr. Verghese Kurien, Founder of the Amul Dairy Project, who was amongst the earliest social entrepreneurs, who started a co-operative movement and made it a sustainable project. His vision was big, there was passion in his actions. His terrific leadership sustained the involvement of others in the project at the grass root level. Thus as a Social Entrepreneur, you become the agent of change, by grabbing the new, yet overlooked opportunities, and changing the world for the better.

Whereas, taking the Individual Social Responsibility, you commit yourself towards the community where you live, by taking interest towards what is happening in the community, as well taking an active part in solving some of the local problems. And today, we see individuals are becoming more socially responsible.

I for one believe that various norms of any society are always determined by the norms of the dominant elements in society. As professionals we are part of this dominant element and have a significant role to play in the improvement of all standards of conduct, whether in relation to business or otherwise. We can become role models for a large part of the society. Therefore, the norms we adopt and the manner in which we conduct ourselves will largely determine the norms of our society.

It is time to show that we professionals do not merely discharge a function. We must go well beyond the responsibilities of the function we discharge. We have a responsibility not merely to satisfy the needs of an individual client or employer but also a responsibility to oneself, to obtain satisfaction for the work we do for, and in all cases where public interest is involved, to ensure that the same is safeguarded.

I am sure many of us would be more active in pro bono work, and taking part in various developments in different ways, working through non-profits and citizen groups, by working in the private and government FROM THE PRESIDENT 140 (2013) 45-A BCAJ Bombay Chartered Acountant Journal, may 2013 9 from the president BCAJ sectors to find what is not working, and solve the problems by attempting to improve the system, and where necessary change it.

But really speaking being socially responsible not only requires participation in socially responsible activities and mentoring, but to actually make it a lifestyle. Only through a commitment to embrace and embed social responsibility into your personal value and belief system, you truly become socially responsible in all you do.

In the end, I would say that All Social responsibility is voluntary; it is about going above and beyond what is called for by the law (legal responsibility). Just Remember :

“We make a living by what we get, but we make a life by what we give.” – Winston Churchill.

 “It profits us to profit the non-profits.” – Peter Drucker

With warm regards,

Yours truly,
Deepak R. Shah

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PART C: Information on & Around

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Anna Hazare’s event at MMRDA ground, Mumbai by ‘India against Corruption’ (IAC)

IAC could not rent out the ground as it is not a registered trust. It then rented through Arvind Kejriwal’s NGO. Now through RTI query comes to light that MMRDA battled no similar compunctions in handing out discounts to the city Congress committee, also an unregistered body. In an RTI reply to Mumbai-based businessman Viren Shah, the MMRDA admits that in 2009, the Mumbai Regional Congress Committee (MRCC) was given concessions to hold political rallies on MMRDA ground twice. State BJP President Sudhir Mungantiwar said, “This is favouritism. Just because the Congress is the ruling party, doesn’t mean it can use the government machinery to favour its own, and that too during elections. If the Congress is given a concession, other parties should also be shown such considerations.”

  • RTI query by 10-year-old girl

Aishwarya Parashar of Lucknow stumped PMO officials with her query on when and by what orders was the title of ‘Father of the Nation’ conferred on Mahatma Gandhi. Asked what prompted her to file the RTI application on Gandhi and send it to the PMO, Aishwarya said how the term ‘Father of the Nation’ had always “somehow excited and interested” her after she read it in her social studies text book.

The PMO replied that they had no such record whatsoever and directed the query to the Ministry of Home Affairs, which then referred the case to the National Archives of India (NAI).

The NAI”s Assistant Director and CPIO Jayprabha Ravindran also had no answers to the poser by the Lucknow girl, and responded with an invite to Aishwarya asking her to visit the Archives to find for herself if there were any such relevant papers.

[It is in public knowledge that Subhash Chandra Bose gave the title of Father of the Nation to Mahatma. He, in his address on Singapore Radio on July 6, 1944 had addressed Gandhi as Father of the Nation. Thereafter on April 28, 1947 Sarojini Naidu referred Gandhi with the same title at a conference.]

[Note: I have just talked with the mother of Aishwarya in Lucknow, an RTI Activist congratulating her for this great story. It is rarely that a minor furnishes the query under RTI. In Mumbai the episode has appeared in atleast in 3 newspapers.]

A thought of the month

Many of the areas which have actually seen systemic reforms have also seen the disappearance of corruption.

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PART B: RTI act , 2005

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Amendments to Maharashtra Right to Information Rules, 2005:

It is strange but true that Govt. of Maharashtra published in Gazette two notifications related to RTI dated 16-1-2012 and 31-1-2012 amending Maharashtra Right to Information Rules. The Govt. never informed citizens about it. It was only by chance, advocate Vinod Sampat saw that in March-end and communicated the same to all RTI activists.

All RTI activists are very much agitated. PCGT arranged a meeting with the Chief Minister (CM) where Mr. Julio Riberio, I and 7 other RTI activists invited by me met the CM on 10-4-2012. After 30 minutes dialogue, CM stated that he would look in to the matter. These notifications read as under:

The Maharashtra Right to Information (Amendment ) Rules , 2012, Dt. 16.1.2012

General Administration Department

Mantralaya, Mumbai 400032, dated the 16th January 2012

Notification

Maharashtra Right to Information Rules , 2005.

No. CRTI./2009/C.R.398/09/VI. – In exercise of the powers conferred by sub-sections (1) and (2) of section 27 of the Right to Information Act, 2005 (22 of 2005), the Government of Maharashtra is hereby pleased to make the following rules further to amend the Maharashtra Right to Information Rules, 2005, as follows, namely:-

1. These rules may be called the Maharashtra Right to Information (Amendment) Rules, 2012.

2. After rule 3 of the Maharashtra Right to Information Rules, 2005, the following rule shall be inserted, namely:-

“3A. Request relate only to single subject matter:- A request in writing for information under section 6 of the Act shall relate to one subject matter and it shall not ordinarily exceed one hundred and fifty words. If an applicant wishes to seek information on more than one subject matter, he shall make separate applications.

Provided that, in case the request made relates to more than one subject matter, the Public Information Officer may respond to the request relating to the first subject matter only and may advice the applicant to make a separate application for each of the other subject matters.’’

By order and in the name of the Governor of Maharashtra

Nandkumar Jantre
Secretary to Government

The Maharashtra Right to Information
(2nd Amendment ) Rules , 2012,
Dt. 13.1.2012

General Administration
Department

Mantralaya, Mumbai 400032, dated the 31st January 2012

Notification


Maharashtra Right to Information Rules , 2005.

No. CRTI. 2008/CR 356/VI. – In exercise of the powers conferred by sub-section 27 of the Right to Information Act, 2005 (22 of 2005), and of all other powers enabling in this behalf, the Government of Maharashtra is hereby pleased to make the following rules further to amend the Maharashtra Right to Information Rules, 2005, namely:-

(1) These rules may be called Maharastra Right to Information (2nd Amendment) Rule 2012

(2) After Rule 3A of the Maharastra Right to Information Rules, 2005, the following rules shall be added namely:

3B. Procedure for seeking inspection of records: If after having considered the application filed by the applicant for seeking inspection of record under the s.s (1) of section 6, the Public Information Officer find it appropriate, the applicant may be granted permission inspect of the record and if he grants such permission the Public Information Officer shall requisition the record desired by the applicant for perusal, from the concerned section of the Department and shall give the same to the applicant for inspection in his presence or in the presence of authorised representative, during the office hours. While inspecting such record, the applicant shall be allowed to use pencil only and the information desired by the applicant shall be noted by him by pencil only and if applicant bring any writing instruments other than pencil, he shall deposit the same with the Public Information Officer and thereafter, he shall be allowed to inspect the record. The applicant shall not make any marking on the record by the pencil he is allowed to use during inspection.

By order and in the name of the Governor of Maharashtra

Nandkumar Jantre
Secretary to Government

CIC feels RTI is dying in Maharashtra

Shailesh Gandhi, India’s feisty Central Information Commissioner and an early crusader for the Right To Information Act, believes that the RTI Act in Maharashtra is being pushed into a coma from where it may not be able to recover.

According to one version, pendency of cases pending as on 31-12-2011 is 22,000.

As per the report in Times of India acting State Information Commissioner Bhaskar Patil has stated ‘At the end of the 2011, about 1.07 lakh appeals were pending disposal’.

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Lecture Meetings

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Lecture Meetings: Direct Tax Provisions of the Finance Bill, 2012 Lecture Meetings

S. E. Dastur, Senior Advocate, addressed the annual lecture meeting on Direct Tax Provisions of the Finance Bill, 2012 on 20th March, 2012 at Yogi Sabhagruha, Shree Swaminarayan Mandir, Dadar. This was 24th meeting addressed by Mr. Dastur. As usual it received overwhelming response from members and public.

An audience of around 3,000 present in the auditorium and many more watching through live webcast connections throughout India and across the Globe, benefitted from Mr. Dastur’s masterly analysis of various direct tax proposals contained in the Bill.

Indirect Tax Provisions of the Finance Bill, 2012

Bhavna Doshi, Chartered Accountant and Dadi Engineer, Solicitor and Advocate, addressed the audience on various aspects of indirect tax provisions of the Finance Bill, 2012 at this lecture meeting held jointly with the Forum of Free Enterprise on 22nd March, 2012 at Kilachand Hall, IMC Mumbai. The audience gained immensely from analytical insights from the learned faculty.

Service Tax Provisions of Finance Bill, 2012

Vikram Nankani, Advocate, addressed this lecture meeting on 26th March, 2012 at Rama Watumall Auditorium, K. C. College, Churchgate. The speaker addressed the audience on various aspects of Indirect Tax Provisions of the Finance Bill, 2012 and received enthusiastic response from members and public. An audience of around 400 present in the auditorium immensely benefitted from Mr. Nankani’s expertly analysis.

Other programmes

Workshop on Personality Development for CA Students

The Human Resources Committee had organised the workshop on Saturday, 17th and Sunday, 18th March, 2012 at Direct I Plex, Andheri (East) under the auspices of Amita Memorial Trust. Fortyfour participants, all pursuing chartered accountancy as a career, actively participated in the workshop.

 Speaker Mr. Ramanujam, paved the way for the participants to better understand themselves, and he explained the importance of this aspect in today’s life. The workshop was spread over 2 days, in which important topics on Goal Setting, Time Management, Communication, Team Building, Memory Enhancement, Human Relations and Ethics, and Governance were covered.

The participants gained from the wealth of knowledge and experience shared by the learned faculty.

Interactive Session with President and Vice-President of ICAI

The Society invited CA Jaydeep Shah, President, ICAI, and CA Subodh Kumar Agarwal, Vice-President, ICAI, on 11th April, 2012 at the BCAS Office and felicitated them. Gracing the occasion were Chairman of the WIRC, members of Central Council, WIRC, BCAS, past Presidents of ICAI and BCAS.

A very interesting interactive session was held on the occasion. Past President of the Society Pradyumna N. Shah discussed with the President and Vice-President of ICAI a Chartered Accountant’s letter giving suggestions. The letter broadly gave suggestions for the possibility of having the BCAS office as a polling centre for ICAI elections, reports of decisions in disciplinary cases and issues in conversion of a CA firm into an LLP. The ICAI President assured positive actions for each of the suggestions highlighted. Other members also interacted with the President and the Vice-President, and views were exchanged.

The meeting was fruitful and has definitely strengthened the existing relationship of ICAI and BCAS.

Full-Day Workshop on Practical Issues in Tax Deduction at Source

The Taxation Committee organised this Seminar on Friday, 13th April, 2012 at Walchand Hirachand Hall, IMC, Churchgate, Mumbai. The 340 participants included students and some members from industry.

The learned speakers A. C. Shukla, CIT (TDS), Mumbai, Ms. Babina Dinashan, Manager (TIN Operations) NSDL, Nikhil Bhatia, Shabbir Motorwala, and Yogesh Thar, all Chartered Accountants, covered various aspects pertaining to practical issues with regard to Tax Deduction at Source, Tax credits and TDS assessments.

A video DVD capturing the proceedings of the seminar has been prepared and is available on BCAS Web TV.

Two-Day Workshop on Recent Developments in Accounting & Auditing Standards and Reporting Requirements

The Accounting & Auditing Committee had organised this seminar on Friday, 13th and Saturday, 14th April, 2012 at Novotel Hotel, Juhu, Mumbai. The 116 participants included non-members, members in practice and from industry. The learned speakers Akeel Master, Ashutosh Pednekar, Jayesh Gandhi, Khushroo Panthaky, Ravikant Banga, Sudhir Soni, and Mukund Chitale, all Chartered Accountants, explained the latest developments in Accounting & Auditing Standards with regards to the reporting requirements and the guidance notes. After each session, the queries raised by the participants were addressed to their satisfaction. A video DVD capturing the proceedings of the seminar has been prepared and is available for sale.

Felicitation of Hon. Auditor Shri P. M. Dharia

On behalf of the Members of the Society, President Pradip Thanawala, along with Past President Mr. C. C. Dalal and Mr. Nayan Parikh, Hon. Secretary Mr. Chetan Shah, visited to the residence of Shri. P. M. Dharia, on Akshay Tritiya Tuesday, 24th April, 2012 for felicitating him for sincere and dedicated services rendered by him as Hon. Auditor for over 40 years. n L

  

   

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Readers View

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Sir,

Apropos of the article, ‘Taxation of commission payments to non-residents’, co-authored by three C.A.s in the International Taxation Section of the BCAJ Journal of March 2012, I would like to share my views as under:

It is true that while dealing with International Taxation we must analyse the given issue with reference to tax law, circulars, notifications, DTAA, and case law evolved by jthe udiciary. The co-authors have done excellent exercise by bringing out the finer points. However, there are two more aspects which one should explore.

First, if an Indian resident agent receives commission from a foreign exporter, what are the tax withholding provisions in the country of the foreign exporter?

Second, if the Indian exporter fails to pay commission to the foreign non-resident agent as per the contract, whether legal remedy (available to the foreign non-resident agent) to recover such commission is available in the Indian Court or in the court of the country in which services were rendered by the foreign non-resident agent. This may have a bearing on the chargeability of the commission. I think the above-mentioned issues should have been addressed while dealing with the commission issue.

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Lecture Meeting

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Subject : Finance Bill, 2012
Speaker : S. E. Dastur, Senior Advocate
Date : 20th March 2012
Venue : Yogi Sabhagraha, Dadar, Mumbai

1. On 16th
March 2012, Indian Finance Minister, Pranab Mukherjee presented the
Indian Budget for the Fiscal Year 2012-13.

“The life of a finance
minister is not easy and I must be cruel only to be kind” Mr. Mukherjee
lamented in his 8th budget speech. The tax provisions contained therein
have indeed proved him right. A few days after the Bill was announced,
Mr. S. E. Dastur, ‘the’ Senior Tax Counsel shared his views on the
implications and the fine print of the Finance Bill, 2012.

 2. Vodafone —
Wherever you go, the tax net(work) follows!

The budget this year seems
focussed on garnering as much revenue as possible by way of various
retrospective amendments. While the budget took care of several issues,
plugged many loopholes and gave a few benefits to the taxpayer, the most
discussed aspect of the Finance Bill was the Vodafone case.

The issue
in the Vodafone case was that the Tax Department had issued a notice to
Vodafone for not withholding tax while making payment to Hutchison for
purchasing 1 share of a Cayman Island Company. The Supreme Court (‘SC’)
held that the tax officer did not have jurisdiction in matters relating
to tax withholding in case of offshore transaction of sale of shares of a
foreign company between two non-residents as it was not chargeable to
tax in India. To counter this decision, the Government retrospectively
amended sections 2, 9 and 195 of the Income-tax Act, 1961 (‘Act’).

The
question which arises now is whether the Government is justified in
making these retrospective amendments and what is the consequence of
these retrospective amendments?

Mr. Dastur opined that there was no bar
on making retrospective amendments. However, whether the Government
could rely on this amendment, which was made after the decision in
Vodafone’s case was pronounced to collect taxes from Vodafone itself?
The review petition filed by the Government challenging the Vodafone
decision was dismissed by the SC. This was rightly so, as on the date of
dismissal, there was no enactment on the basis of which the SC could
accept it.

A review lies because of the change in law, while presently,
the amendments are still at the Bill stage. The question now is whether,
once the provisions are enacted into a law, the Government could once
again approach the SC to review its Vodafone decision in light of the
change in law? If the answer to this is yes, would it mean that two
review petitions could be filed to the SC against the same decision?
Perhaps the better course of action for the Government would have been
to wait till the provisions were enacted and then to file the review
petition asking for condonation of delay.

3. Retrospective perspective

 It is possible to take a view that if a retrospective amendment is
passed, it means that there is an error in the Court’s judgment and
hence, the judgment could be reviewed by the Court. However, in the case
of Kauvery Water Disputes Tribunal [1993 SCC Supl. (1) 96], the SC has
held that a change of law cannot per se set aside a SC decision.

In the
case of Raja Shatrunji v. Mohammad Azmat Azim Khan, (2 SCC 200), the SC
held that a review was possible when there was a change in the law.
However, Mr. Dastur observed that it would be unjust and contrary to the
principle of equity to ask Vodafone to deduct tax at source, after the
SC has decided in favour of Vodafone on the issue, only in view of the
retrospective amendment to law. The liability of deducting tax at source
on Vodafone is only as a statutory agent of the Government. The
Government cannot say that Vodafone, having acted as per the law then
existing, ought to now deduct tax at source and pay it to the Government
only on the basis of the retrospective amendment of law. It would be
contrary to Article 14 of the Constitution of India as harsh,
unreasonable and arbitrary.

4. Curing the Vodafone indigestion

There are
two actions that the Government has undertaken to overcome the effects
of the Vodafone decision of the SC:

(i) Amendment to sections 2(14) and
2(47) which now provide that if rights in India are transferred owing to
a transfer of shares of a company registered or incorporated outside
India, then those rights are deemed to be a capital asset giving rise to
capital gains. However, if the asset is confined to rights such as
transfer of ‘right to vote’, ‘right to control’, etc., the question
arises as to how to determine the value of the ‘right’. These rights are
as a result of the shares in the offshore entity held and it is not
possible to apportion the cost of such rights from the cost of the
shares. In the case of B. C. Srinivasa Setty (128 ITR 294), the SC held
that if the cost of acquisition of the asset cannot be determined, there
cannot be a capital gains tax liability.

(ii) However, Explanations 4
& 5 to section 9(1) (i) resolve the above by deeming that if any
right in India is transferred on account of transfer of shares of an
offshore company, the shares of offshore company would be an asset
situated in India and section 9(1)(i) would apply to income arising from
its transfer.

5. Loyalty to royalty

In the case of Ericsson, the Delhi
High Court (‘HC’) held that a copyrighted article is different from the
use of a copyright. Explanation 4 is inserted in section 9(1)(vi) to
include as Royalty, the use of a computer software, thereby overcoming
the above HC decision.

In the Asia Satellite’s case (332 ITR 340), the
Delhi HC took a view that use of space on transponder for beaming
programmes to India would not amount to use of a process and thus,
consideration paid for the same is not royalty. This decision is now
brought to a naught by insertion of Explanation 6 to section 9(1)(vi).

6. The domestic transfer pricing bomb

Shielding itself by the SC remark
in the case of CIT v. GlaxoSmithKline Asia (P) Ltd., the Finance Bill
has introduced the concept of transfer pricing in relation specified
domestic related party transactions. The transfer pricing provisions
till now applicable to specified international transactions would be now
made applicable to domestic transactions as well by amendment to
section 92CA. The arm’s-length price (‘ALP’) would be determined in
accordance with the most appropriate method laid down in section 92C.
Further, these domestic entities will be required to maintain adequate
documentation supporting the transfer price on an annual basis as per
Rule 10D of the Income Tax Rules.

The sections of the Act affected by
domestic transfer pricing are:

(i) Section 40A(2) — In case of an entity
making a payment to another related entity, especially where paying
entity is posting a loss and thereby, paying lower taxes. However,
proviso to section 40A(2)(a) states that no adjustment would be made on
account of the expenditure being excessive having regard to the fair
market value (‘FMV’), if such expenditure is at ALP, thereby making a
distinction between the FMV and the ALP.

(ii) Sections 80A/80IA — if an
assessee has an 80A/80IA eligible unit and a transaction is effected
between the 80A/80IA unit and an 80A/80IA ineligible unit belonging to
the same assessee, transfer pricing provisions would be attracted. No
distinction is made between the FMV and the ALP.

(iii) Section 10AA —
Similar applicability as for sections 80A/80IA.

 7. Penalising the
honest?

Section 92CA(1) states that a reference to a Transfer Pricing Officer to determine the fair value of a transaction should be made only after consent of the Commissioner of Income-tax and if he feels that it is necessary or expedient to make the reference. However, it seems that today, reference is made only based on the monetary value of the transaction. Mr. Dastur said that such an action can be taken to the Courts by the assessee, if there appears to be no valid reason for the reference. The Bombay HC in the case of Coca Cola has favoured this position.

8.    GAAR — General Anti-Assessee Rules!

Till date, the view taken by the Courts was that there is no duty on the assessee to pay the maximum tax so far as he stays within the four corners of the law. Mr. Dastur remarked that while the GAAR provisions were introduced in the Direct Tax Code, the Code is put on hold as there were certain ambiguities in it. Nevertheless, the Finance Bill, 2012 has proposed to implement what was perhaps the most obnoxious part of the Code!

The GAAR defines ‘impermissible avoidance arrangements’ as arrangements which meet certain criteria laid down in the provisions and provide tax benefits to the assessee. In such a case, the tax officer has been given powers to disregard/ignore the transaction or steps in the transaction and rewrite the entire transaction and foist tax liability on the transaction.

Mr. Dastur opined that these are perhaps the widest and unguided powers given to tax officers and that despite the Supreme Court holding that a transaction could only be looked at and not looked through, the GAAR seeks to do just that.

Some examples of the likely consequences of the GAAR provisions pointed out by Mr. Dastur are:

  •     Setting up industries/units in backward areas to avail the tax benefits/exemptions granted to such areas could result in GAAR being invoked on the basis that no rational person would set up industry in backward areas except to obtain tax benefit.

  •     Investing of capital gains in low return securities granting exemption to the capital gains u/s.54EC of the Act could be characterised as an impermissible avoidance arrangement as it provides tax benefit to the assessee and no rational person would have invested in such low-return securities in normal circumstances.

  •     A demerger transaction could be disregarded and GAAR invoked by the tax officer claiming that the main intention of the demerger was to sell the undertaking and demerger route, which was commercially unnecessary, was adopted only to avail tax benefit.

  •     Sale and lease back transactions could be ignored stating that these were only for tax purposes.

All these consequences would be contrary to all the Supreme Court decisions till date.

9. Safeguards

The safeguards introduced to prevent misuse of the GAAR provisions by the tax officers are approval of the Commissioner of Income-tax and of a three-member Approving Panel consisting of three Income-tax Officials.

Attention was drawn to a letter from the Chairman of the Central Board of Direct Taxes dated 17th February 2012 sent out to tax officials sought to give the highest weightage to the tax revenue collections while deciding on the promotions and postings of the Commissioners.

Mr. Dastur expressed serious doubts on the independence of the Commissioner and the Approving Panel and questioned the adequacy of the safeguards.

10.    Implications on DTAAs

New section 98 gives the tax officer the power to deny DTAA benefits or modify the DTAA applicability including the power to decide which treaty should apply to the case, irrespective of the actual place of residence of the assessee. Mr. Dastur observed that while it may be permissible by a section in the Act to override a treaty, which is an agreement between two countries, GAAR gives the tax officer the power to override that treaty.

Circular 789, dated 13th April 2000 states that if an assessee provides a Tax Residency Certificate (TRC) issued by the Mauritian Government stating that he is a Mauritian resident, he shall be treated as such, and benefits for the Indo-Mauritian DTAA would be available to him. Now, in view of the above provisions, the validity of the Circular is also in question.

Mr. Dastur pointed out that the Explanatory Memo-randum to the Bill states that while obtaining the TRC is now a necessary condition u/s.90(4) for avail-ing treaty benefit, it is not the only condition.

Explanation 3 inserted in section 90 gives the Tax Department the power to retrospectively define a ‘term’ for the purposes of the DTAAs.

11.    Dispute Resolution Panel (DRP)

The DRP is now given powers to enhance the additions made by the Assessing Officer. Further, the Order of the DRP is made appealable by the Tax Department. These amendments defeat the purpose of the Panel which was to reduce the amount of tax litigation.

12.    Other amendments
Mr. Dastur, briefly dwelled upon taxation of charitable institutions, introduction of alternate minimum tax for all assessees, amendments relating to taxability of share application money u/s.68, amendments to section 2(19AA) dealing with demerger, new section 50D, extension of time limits for re-opening of assessments.

Mr. Dastur, concluded the session with the remark that the Finance Bill, 2012 has inserted approximately 31 Explanations of which 22 are with retrospective effect with most Explanations using the words ‘for removal of doubts’! Mr. Dastur, with his vast knowledge and wit, kept the audience hanging on to his every word.

Representation

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The Charity Commissioner of Greater Mumbai Region,
Mumbai

Dear Sir,

Subject: For your kind attention
           — A representation on certain Administrative matters concerning Charity Trusts

This is with reference to certain administrative aspects concerning filing of documents, inspections and permissions, etc., in various statutory matters concerning charitable trusts, in Maharashtra (particularly in Greater Mumbai Region), we would like to bring to your kind notice a few issues, which need your kind attention.

To introduce ourselves first, we would like to state here that Bombay Chartered Accountants’ Society (BCAS) is a voluntary organisation of chartered accountants. It was established in 1949 and, at present, has around 8500 members spread all over India. Its main object is to spread education among its members and the people in general. It conducts several educational programmes and organises public meetings on various topics of public interest. In addition, it publishes various books, from time to time, spreading knowledge and awareness among the people. Its monthly journal ‘BCAJ’ is being read with interest by more than 10000 subscribers. It also conducts free of charge ‘Charitable Trust Clinic’, RTI Clinic and such other guidance cell, at Mumbai, to guide members, trustees and the people in general.

Sir, the trustees of charitable trusts, their representatives, chartered accountants and lawyers are visiting your office in connection with various matters concerning administration of charitable trusts (within your jurisdiction). These matters may be concerning statutory compliances, accounts, audit, inspection and permissions, etc. There are certain limitations within the Bombay Public Trust Act, 1950, and, there are certain processes followed in your good office, both may need a little modification, so as to keep pace with time, avoid unnecessary hurdles, and to provide a hassle-free process to comply with statutory requirements.

Sir, before presenting these views (contained in the enclosed memorandum), we have discussed each issue in detail and thereafter placing before you the best possible solution within the existing framework.
We hope it will find your favour. For further discussions, you may kindly call us on any day and time as may be convenient to you.

Thanking you.

Yours faithfully,

For BOMBAY CHARTERED ACCOUNTANTS’ SOCIETY
Pradip Thanawala                                                         Govind G. Goyal
President                                                                                 Chairman
BCAS                                                           Indirect Taxes & Allied Laws Committee
                                                                                                        

Bombay Chartered Accountants’ Society
Memorandum of Representation to the Charity Commissioner of Greater Mumbai

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From the President

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Dear Members,

April is a month of audit deadlines. There is a race to declare financial results at the earliest, which puts the fraternity of auditors under tremendous pressure. While I understand that every corporate desires to be in the news, I am unable to comprehend what difference it would really make if audited results are put in the public domain a few days later than they actually are. Those in top management are blissfully unaware of the ground realities, and many a time set impossible deadlines. This is true of audits of public sector undertakings, particularly banks. This year has been no different from the past.

The appointments of bank branch auditors were delayed this year on account of a proposal by banks not to appoint auditors for branches below a particular threshold of advances. What was distressing was that the cause for the banks wanting a reduction in the number of branches audited was the cost of audit. Audit has remained a cost centre to business and industry, which cost is treated as avoidable. When a businessman thinks of cost reduction, he looks at the cost of audit, since he does not perceive it to have a value commensurate with cost. In reality, many audit reports send warning signals to stakeholders, which if recognised and acted upon can change fortunes of a corporate. One reason for this may be the manner of presentation of these reports. Therefore, while audits deliver value, they are perceived to be only an exercise for statutory compliance. It is necessary to change this perception.

A mechanism has to be devised, whereby material findings in the course of audit are collated and brought to the notice of not only the powers that be, but also the general public. This is not easy; but if done, the public would become aware of the value of the job that we auditors perform. The public uproar that the recent reports and findings of the Comptroller and Auditor General of India have created is an illustration.

The expectation gap is something that is being discussed for a long time. While the profession must be alive to the expectations of society, the limitations under which an auditor functions must also be brought to the fore. We must point out to stakeholders of business that an audit is an exercise for providing assurance, and hence is neither an investigation nor a fault-finding mission. In fact, a public awareness campaign on a continuous basis must be carried out to ensure that the public understands the job that we perform and the value that we add.

While I am sure that most of us are doing a commendable job, it would be foolish for us to rest on our laurels. We must continuously upgrade our professional skills, and to that extent I am a supporter of the concept of continuous professional education. We at the Society continuously strive to provide excellent programmes for upgradation of members’ knowledge and skills. One such programme on Developments in Accounting, Auditing and Taxation was organised at Kolkata, jointly with the DTPA Chartered Accountants study circle of Eastern India Regional council of the ICAI. Many a time one finds that our colleagues treat a CPE programme as an idle formality, and find ways and means to comply with the letter of the regulation while killing its spirit. While this is true for some professional colleagues, organisers of such programmes must also ensure that education remains the prime objective of these programs, and no collateral purposes are allowed to creep in.

Coming back to the issue of allotment of audits by statutory authorities, I would request my colleagues to strive to give value in the professional jobs that they perform, rather than worry about work allotted by a regulatory body. If we give value, rewards will follow. While it protects the interests of the members, the Institute of Chartered Accountants of India (ICAI), our alma mater should take upon itself the responsibility of changing the perception of our profession with both the public and the authorities, for this is a task that an institution is equipped to carry out, rather than individuals. While one need not lobby for work, a sustained effort to change our image will go a long way in enhancing respect for our profession that it richly deserves. In order to do so, it may call for some necessary changes in the regulatory framework of the profession.

It has been some time since the change of guard at the ICAI. Recently, we at the BCAS had an opportunity to interact with the President and Vice President of the ICAI during their visit to the Society’s office. The current President of the ICAI concurred with the subject of education, which is close to his heart. We at the BCAS are confident that during his tenure he would address many of the issues that have been raised in this communication. We wish him and his team success in their endeavour!

With Warm regards,
Pradip K. Thanawala

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FROM THE PRESIDENT

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Dear Valued Reader,

The new financial year began with a bang for India, as the Indian Cricket team romped home with the coveted World Cup in One Day International on 2nd April, 2011 at Wankhede Stadium, Mumbai. The entire nation plunged into frenzied celebrations, and why not, after all, history was repeated after 28 years. Several lessons can be learnt by all of us, especially CA students, by observing the way India won the game in the final match:

(i) The game is entirely a mind game. If you can control your nerves during crucial moments, you are sure to win. So dear students, keep your cool on the eve of and during the examinations;

(ii) Some ‘overs’ are bound to go maiden or low-scoring; Keep your spirit high, even when you feel low while studying at times and writing your examinations;

(iii) It is always better to score high in the first few ‘overs’ and keep the scoreboard ticking to keep the tension away, lest the asking rate goes up; similarly, keep a good pace of study from the beginning and while writing answers, maintain an equally good pace from the beginning;

(iv) Do not panic even when there are googlies and/or some early blows (as it happened when both Sehwag and Sachin got out on low scores); it happens even while writing exams, one or two initial papers or answers may misfire, but you should not lose your nerve on that account. Be like a river which always flows in one direction and never in the reverse.

(v) Do not give up until the last ball is bowled. Many exciting matches, including the first World Cup T20 by India, were won on the last ball. It may happen that your last answer and/or paper may get you through the exams, provided you stay on the field.

Eradication of Corruption:

The corrupt politicians looked askance when Anna Hazare began his fast unto the death from 5th April 2011 in support of the Jan Lokpal Bill which is to be enacted to strengthen the fight against corruption. As his fast progressed, support to Hazare from all sections of civil society, particularly the youth, kept on increasing. As the fight against corruption was turning into a nationwide uprising, Government acquiesced. A Committee comprising Members of Parliament and from civil society has been formed to draft a Bill, for passing a law against corrupt people in power which has eluded us for the past 42 years. Not all politicians are interested in enacting a law which could incriminate the political class as such.

The significant aspect of this agitation is participation by young Indians, the aam aadmi, who are simply fed up with corruption in their daily lives.

Protest marches and support emerging from every nook and corner of the country to Hazare resembled like the movement against corruption started by Loknayak Jai Prakash Narayan in the 70’s which provoked Mrs. Indira Gandhi to declare a national emergency. The government this time was wiser and swift to act before the situation got out of control. As always, there are diametrically opposite views in respect of this awesome uprising. The fact however remains that people of India are tired of rampant corruption and the plethora of scams reported in the press, day in and day out. People watched, helplessly and hopelessly, the spectacle of their being looted by powerful politicians and their cronies and they found an outlet in this agitation to voice their frustration. Evidently, they found the idea of punishing politicians exciting enough to come out in the open against the cancer of corruption in public life.

Chartered Accountants, both as taxpayers and tax practitioners are worst hit by the menace of corruption. We, therefore, took the lead to support Anna Hazare. An appeal was made to members to support the cause. I sincerely thank all those who rallied in response there to.

Corporate Membership:
BCAS made history on 13th April 2011 when its General Body at the Extraordinary General Meeting passed a resolution providing for Corporate Membership. Any Company or Limited Liability Partnership (except CA firms in LLP form) can nominate two or more CAs, being its directors/employees as Associate Members of BCAS. A formal launch of Corporate Membership is on the anvil.

History at Midnight:
Similarly, the Government of Maharashtra created history at midnight on Wednesday 20th April 2011 by unanimously passing a bill providing fifty percent reservation for women in the Panchayats and Zilla Parishads.

India of course is full of paradoxes. On the one hand, women are worshipped as Goddesses; on the other, they are harassed and tortured to death by in-laws. Domestic violence perhaps would rank the highest amongst all kinds of human rights violations in this great, ancient country. In stark contrast, passing of women’s reservation bill assumes significance. It is a general perception that women have better understanding of social issues than men and therefore fifty per cent reservation will give them an opportunity to deal with these issues in an effective manner. Let us hope and pray that with the presence of women at the grassroot level, our politicians also would learn some decency in that they would measure their language and behave as becoming persons with a head on their shoulders.

Invitation to young members to take active part in BCAS activities:

Time mellows and imparts maturity. Naturally, persons with seniority and/or grey heads occupy seats of power to guide institutions. Time is never stagnant. And so, the old order need to yield place to the new crop of would be saviors/grey heads and thus the cycle goes on without let up.

I make this pointed reference here for the reason that young professionals are future leaders and they must come forward purposefully to shoulder the responsibilities of BCAS. New ideas from the young and maturity on the part of their seniors would blend well to carry forward the institution in furtherance of the laudable objectives for which the BCAS was founded.

Come one, come all. This is a clarion call to all those who can contribute their mite to make BCAS stronger, healthier and make it as a tool or vehicle to promote the common good of the profession and the citizens.

Very soon the Society will undertake the activity of formation of the Core group for 2011-12 and therefore, I invite both young and senior members to come forward and volunteer for participating in multifarious activities of the Society.

I wish you all a happy vacation with your loved ones.

With warm regards,
Mayur B. Nayak

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ICAI and its members

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1. Code of ethics:

The Ethical Standards Board of ICAI has considered some ethical issues which are published in the C.A. Journal of April, 2011, at page 1472. Some of these issues are as under:

(i) Issue: Whether a member in practice is permitted to undertake the management of NRI funds?

Response: A member in practice is not permitted to undertake such services, as it is not covered under ‘Management Consultancy and other Services’ specified by the Council.

(ii) Issue: Can a chartered accountant in practice provide ‘Portfolio Management Services’?

Response: As the ‘Management Consultancy and other Services’ expressly bars the activities of broking, underwriting and portfolio management, this is not permitted.

(iii) Issue: Can a chartered accountant in practice work as a ‘collection agent’?

Response: A chartered accountant in practice cannot work as a ‘collection agent’, as the ‘Management Consultancy and other Services’ specified by the Council, do not permit such engagement.

(iv) Issue: Whether the auditor of a Subsidiary Company can be a Director of its Holding Company?

Response: The auditor of a Subsidiary Company cannot be a Director of its Holding Company, as it will affect the independence of the auditor.

(v) Issue: Whether a member can take up AMFI (Association of Mutual Funds in India) Course and become a Member of the Association?

Response: Members from industry as well as from practice can pursue the AMFI Course. However, as to the question whether a member can be registered with it so as to take the role of Financial Intermediary, it has been decided that members in Industry, not in practice, can obtain the membership by registering them with a mutual fund/ Association, whereas members in practice (whether holding full-time COP or part-time COP) cannot do so.

(vi) Issue: Whether the permission of Council is necessary for a chartered accountant in practice to engage in share trading?

Response: Engagement by a member, in practice, in the business of buying and selling shares amounts to be ‘any business’ within the meaning of Clause (11) of Part-I of the First Schedule to the CA Act and hence prior permission of the Council is required.

(vii) Issue: Whether concurrent auditor of a bank can also undertake quarterly review of the same bank?

Response: Concurrent audit and the assignment of quarterly review of the same entity cannot be taken simultaneously, as the concurrent audit being a internal audit and the quarterly review being a kind of statutory audit undertaken simultaneously are prohibited under the provisions of ‘Guidance Note on Independence of Auditors’.

(viii) Issue: Whether a firm of Chartered Accountants can print special words ‘celebrating 75 years in the profession’ on the letterheads and envelopes?

Response: Publishing a book by a firm containing its history for the purpose of distributing to clients, associates, friends and well-wishers and printing of the words ‘Celebrating 75 years in the profession’ on special letterheads and envelopes will lead to solicitation of professional work, hence not permissible as per the provisions of Clauses (6) and (7) of Part of the First Schedule to the Chartered Accountants Act, 1949.

2. Revised Schedule VI of the Companies Act, 1956:

The Ministry of Corporate Affairs has notified a Revised Schedule VI of the Companies Act, 1956. This Revised Schedule VI is applicable for the Balance Sheet and Profit & Loss Statement to be prepared for the financial year commencing on or after 1-4- 2011. The horizontal form of old Schedule VI is now withdrawn. Now, all companies will have to prepare the Balance Sheet and Profit & Loss Statement in the vertical form. Some of the general instructions are as under.

(i) The disclosure requirements specified in Part I and Part II of this Schedule are in addition to and not in substitution of the disclosure requirements specified in the accounting standards prescribed under the Companies Act, 1956. Additional disclosures specified in the accounting standards shall be made in the notes to accounts or by way of additional statement, unless required to be disclosed on the face of the financial statements. Similarly, all other disclosures as required by the Companies Act shall be made in the notes to accounts in addition to the requirements set out in this Schedule.

(ii) Notes to accounts shall contain information in addition to that presented in the financial statements and shall provide where required (a) narrative descriptions or disaggregations of items recognised in those statements and (b) Information about items that do not qualify for recognition in those statements.

(iii) For the purpose of this Schedule, the terms used herein shall be as per the applicable accounting standards.

The above instructions will show the importance of accounting standards in the preparation and presentation of financial statements after the new Schedule VI comes into operation.

3. Opinion of EAC

Disclosures in segment report under consolidated financial statements:

Facts:
A company is engaged, through its subsidiaries, joint ventures and associates, in generation of power, development of expressways, airport infrastructure facilities in special economic zones, etc. It is a public company and is listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

The company has about 100 subsidiaries/associates/ JVs. It prepares its stand-alone financial statements and also consolidated financial statements. The consolidated financial statements (CFS) include the accounts of the company (stand-alone) and its subsidiaries, associates and joint ventures. According to the company, the CFS are prepared in accordance with historical cost convention and comply in all material respects with the applicable accounting principles in India, the notified accounting standards and other relevant provisions of the Companies Act.

The company believes that under CFS, segment report of the company and its subsidiaries, associates and joint ventures is prepared considering business segment as the primary segment and geographic segment as the secondary segment. The company has identified the business segments as power, roads, airport, engineering, procurement & construction (EPC) and others. Others include the operations like real estate development, investment company which do not qualify for separate disclosure as segments as per the threshold limit prescribed under Accounting Standard (AS) 17, ‘Segment Reporting’.

According to the company, each of the SPVs prepares its stand-alone annual accounts and has specifically identifiable timing differences for the computation of deferred taxes and specific allowances and disallowances for the computation of current tax. Also, each of the SPVs is individually discharging its tax liability and the books of account of each of these entities also carries the tax assets/provisions (net) distinctly. Hence, for the preparation of consolidated financial statements, the company is of the view that the tax assets/ expenses are part of the respective segments only, as the same are distinctly identifiable and directly attributable to those respective sectors/ segments. The company has prepared the consolidated segment report accordingly by classifying the tax assets/expenses under each of the respective segments. However, the same is not acceptable to the auditors who are of the view that the same should be disclosed as an unallocated items in segment report included in consolidated accounts. The auditors are also of the opinion that interest expenses relating to loans borrowed by the SPVs for their projects, overdrafts and other operating liabilities including loans identi

Direct Taxes

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The Finance Bill 2011, received the Presidential Assent on 8-4-2011.

The Finance Bill 2011, received the Presidential Assent on 8th April, 2011.

Circular No. 1/2011 F. NO. 142/1/2011-SO(TPL), dated 6-4-2011 regarding Explanatory notes to the provisions of the Finance Act, 2010.

New tax return forms notified — Notification No. S.O. 693(E), dated 5-4-2011.

For the A.Y. 2011-12, the CBDT has notified new Income Tax Return Forms Sahaj for individual tax returns and Sugam for taxpayers falling under the presumptive taxation scheme as prescribed.

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Part A : ORDERS OF the COURTS

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Section 20(1) of the RTI Act: Penalties
Section 20(1) provides for penalty on Public Information Officer (PIO). Sub- section (1) provides six types by default –

PIO

— refuses to receive an application for information,
— does not furnish information within the time provided under the Act,
— malafidely denies the request for information,
— knowingly gives incorrect, incomplete or misleading information,
— destroys information which is the subject of the request,
— obstructs in any manner in furnishing the information.

If any of the above is committed without any reasonable cause it is provided that the Commission shall impose a penalty on PIO at Rs.250 per day but not exceeding Rs.25,000 .

Issue that has been raised from time to time is whether word ‘shall’ makes impositionof penalty mandatory or ‘shall’ here means ‘may’ and it is optional for CIC to levy or not to levy the penalty.

On 11th April, 2011, CIC Shailesh Gandhi has ruled as under in the case of complainant Mr. Attar Singh v. PIO, Vivekananda College:

The RTI application was furnished on 04-02-2010. The information was provided on 08-04-2011 after the decision of CIC.

After the hearing in the matter of penalty, CIC writes:

If without reasonable cause, information is not furnished within the time specified under sub-section (1) of section 7, the Commission is duty- bound to levy a penalty at the rate of Rs. 250 each day till the information is furnished. Once the Commission decides that there was no reasonable cause for delay, it has to impose the penalty at the rate specified in section 20(1) of the RTI Act and the law gives no discretion in the matter. The burden of proving that denial of information by the PIO was justified and reasonable is clearly on the PIO as per section 19(5) of the RTI Act.

Decision:
As per the provisions of section 20(1) of the RTI Act 2005, the Commission finds this a fit case for levying penalty on Mr. Rajender Kumar Wadhwa, PIO & Administrative Officer. Since the delay in providing the information has been over 100 days, the Commission is passing an order penalising Mr. Rajender Kumar Wadhwa Rs.25000 which is the maximum penalty under the Act.

The Chairman, Vivekananda College is directed to recover the amount of Rs.25000 from the salary of Mr. Rajender Kumar Wadhwa and remit the same by a demand draft or a Banker’s Cheque in the name of the Pay & Accounts Officer, CAT, payable at New Delhi and send the same to Shri Pankaj K. P. Shreyaskar, Joint Registrar and Deputy Secretary of the Central Information Commission, 2nd Floor, August Kranti Bhawan, New Delhi-110066. The amount may be deducted at the rate of Rs.5000 per month every month from the salary of Mr. Rajender Kumar Wadhwa and remitted by the tenth of every month starting from May 2011. The total amount of Rs.25000 will be remitted by 10th September, 2011.

[Mr. Attar Singh v. PIO, Vivekanand College, University of Delhi. Decision No. CIC/SG/C/2010/000502/11484- Penalty]

Section 2(h): Public Authority
Madras High Court (Madurai bench) in a judgment delivered on 06-07-2010 has extensively discussed the words ‘includes’ and ‘substantially financed’ as they appear in section 2(h) which defines ‘Public Authority’.

R. Sivaprakasam sought xerox of the day book pertaining to a receipt of Rs.3, 00,000 received by Karanthai Tamil Sangam (Sangam). Same was denied to him. Subsequently, in response to RTI application made District Registrar, Thanjavur directed Sangam to furnish xerox of the day book as above. This direction is put to challenge in the writ petition.

Sangam submitted that information sought is not ‘information’ as defined u/s2(f), Sangam is not a public authority as defined u/s2(h) and in any case information sought is exempt u/s 8.

Hereunder, I am confining only to the part of the judgment deciding on applicability of section 2(h).

In one earlier judgment the Madras High Court had held as under:

The word ‘substantial’ is not defined in the Act. For the word ‘substantial’ it is not possible to lay down any clear and specific definition. It must be a relative one, however, ‘substantial’ means real or actual as opposed to trivial. ‘Substantial’ also means practicable as far as possible, hence the word ‘substantial’ not to be construed as higher percentage of the estimated amount or otherwise.

The Court then reproduced certain paras (NOs.15 to18, 21&23) from the said judgment as under:

“15. If we look at the definition of section 2(h), it is clear that the appellant-company does not come under the provisions of section 2h(a), (b), (c) or (d), but thereafter section 2(h)(d) of the definition clause uses the word ‘includes’. It is well known that when the word ‘includes’ is used in an interpretation clause, it is used to enlarge the meaning of the words and phrases occurring in the body of the statute. Reference in this connection can be made to G. P. Singh’s ‘Principles of Statutory Interpretation’ in the 10th edition of the said treatise, the learned author formulated that when the word defined is declared to ‘include; such and such, ‘the definition is prima facie extensive’ (page 175 of the book). In support of the aforesaid formulation, the learned authority has referred to a number of decisions. The latest decision referred to in support of the aforesaid proposition was rendered in the case of Associated Indem Mechanical P. Ltd. v. W. B. Small Industries Development Corporation ltd., AIR 2007 SC 788 of the report, the learned judges held as follows:

“10. The definition of premises in section 2(c) uses the word ‘includes’ at two places.It is well settled that the word ‘include’ is generally used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute; and when it is so used those words of phrases must be construed as Comprehending, not only such things, as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include [see Dadaji al ias Dina v. Sukhadeobabu AIR 1980 1 SCR 1135, Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. AIR (1987) 2 SCR 1 and Mahalakshmi Oil Mills v. State of A.P. AIR 1989 SC 335: (1989) SCC 164.”]

16. Therefore, obviously the definition of bodies referred to in Section 2(h)(d)(i) of the RTI Act would receive a liberal interpretation, and here the words which fall for interpretation are the words ‘controlled or substantially financed directly or indirectly by funds provided by the appropriate Government.’

17. We are here concerned with the interpretation of the definition clause in the RTI Act. The Act has been enacted ‘in order to promote transparency and accountability in the working of every public authority’. In the Preamble to the Act, it is made clear that ‘democracy requires an informed citizenry and transparency of information which are vital to its functioning and also to contain corruption and to hold Governments and their instrumentalities accountable to the governed’. From the Preamble to the Act it is clear that revelation of information may cause conflict with the other public interest including efficient operations of the Governments, but the Act has been enacted to harmonise these conflicting interests while preserving the paramountcy of the democratic ideal.

18. The RTI Act thus attempts to inculcate openness in our democratic republic. It has to be accepted that one of the salience of openness in democracy is an access to information about the functioning of the public authorities.

21. The RTI Act is virtually enacted to give effect to citizen’s right to know. Citizen’s right to know has been construed by the Hon’ble Supreme Court a

Mantra for life

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How many times, at the end of the day, do you feel exhausted though you had done nothing worthwhile? On how many occasions did you react negatively without any tangible rational reason? Did you ever conduct a self audit to ascertain why your peace was disturbed?

What are the types of commitments you make? What is the number of commitments you make? Take a closer look. Have you trivialised your existence?

Ryan Nicodemus has this to say, “Those voices inside your head won’t be quiet. All you can hear is your boss telling you to have those reports done by Friday or your daughter reminding you that there’s soccer practice this Saturday or a parent’s voice telling you that they’re going to need you to help them drop off their car at the mechanic.”

If I have to talk of one mantra for a peaceful living, it is declutter. Declutter, according to the Collins English Dictionary, means to simplify or get rid of mess, disorder, complications, etc.

External decluttering can be of the possessions/ materials which one accumulates over the period, but that is not the subject of this article. The methods deployed there can also be meaningfully utilised in internal decluttering.

One oft repeated advice is – go slower. It may seem a cliché, but slowing the pace of your acts can substantially change the dynamics.

Another great way of doing it is found in what we call “simplicity”. Mahatma Gandhiji personified simplicity. In today’s world, it is common to hear the expression, ” It is simple to be happy, but it is difficult to be simple.” However, a minimalist programme can see you through to simplicity.

How do you declutter a mind? The mind is not an Inbox which you can work upon with robotic efficiency. The mind is a complex phenomenon with layers of memories, hurts, etc. that cannot be peeled off as in the case of an onion.

Shloka 3.34 from the Gita reads thus : “Indriyasyendriyasyarthe ragadvesau vyavasthitau, Tayorna vasamagaechet tau hyasya paripanthinau”

The baggage is a creation of sense organs which cling to sense objects through the emotions of Raga and Dvesha. The Gita therefore proclaims that attachment and aversion of the sense organs for the sense objects are natural. No one should come under their clutches as these are highway robbers.

 Many a times, you harbour and dwell on your past, your actions, your decisions, your mistakes, your choices, etc. But ponder over these questions. Is that situation relevant now or ever that serious? Are you blowing it out of proportion? Was that situation in your control?

Lo and behold…it will dawn upon you that you were wasting your time, energy and thoughts over unwarranted matters. The Gita proclaims that attachment and aversion of the sense organs for the sense objects are natural. No one should come under their clutches as these are highway robbers. When you are worried, everything you are grappling with, appears to be an urgent problem. The real issue is your anxiety which makes you focus on imaginary problems. You like to project yourself as invincible and invulnerable.

In the process, you live a life of a pressure cooker without a whistle. It is better not to conceal your pains, your feelings, your anxiety or your frustrations. You do not have to worry that you shall appear like the rest of us. When you lend your ears to others and passionately listen to them, you shall find the magic working for you. This seems surprising but is true.

Giving up your past baggage shall eliminate a variety of the set patterns of thoughts. In fact, you can become more creative in all that you think and do. Lateral thinking, propounded by Edward De Bono, requires challenging of accepted concepts.

Declutter will allow you to negate a back to back, bumper to bumper existence. The deluge of activities shall be replaced by a surge of accomplishments. Decluttering will allow you to be in a “good to go” position anytime.

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PART C: Information on & Around

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• Misuse of plot near Mantralaya on Madame Cama Road:

An investigation using the Right to Information Act by Mumbai Mirror has found out that the 19 ministerial bungalows situated on Madame Cama Road in Mumbai, next to the New Administrative Building of Mantralaya, are illegal.

The 5-acre plot had originally been earmarked for a public garden and, in 1979, the government had even promised that the bungalows would be demolished and the plot handed over to BMC for developing the garden.

This, however, was never done. The ministerial bungalows were constructed in the 1950s and are being maintained by the Public Works Department. When Mirror sought an explanation from PWD Minister Chhagan Bhujbal, he said, “It’s a very old case. I do not remember much.”

Several prominent citizens have opined that the government must hand over the plot for the garden. Among them, architect P. K. Das, whose firm had once prepared a plan for the makeover of Nariman Point, said, “In the Development Plan for Mumbai, the land is reserved for a garden and is meant for public use. This has been taken over and built upon. The ministers’ bungalows and sheds housing PWD offices must be cleared and the land utilised for its reserved purpose. There is a comprehensive redevelopment plan for this plot by the MMRDA, which was cleared by the state’s empowered committee which is headed by the chief secretary.”

The area’s citizens group is all for a garden. Atul Kumar of the Churchgate Nariman Point Residents Association said, “The city is starved of green spaces. The government must do away with these bungalows and develop a garden on the plot.”

• Eastern Freeway:

The third phase of the Eastern Freeway up to Ghatkoper, which is thrown open to motorists in April, has witnessed a 23% increase in cost ever since work started in 2007.

“The project’s cost rose from Rs. 847 crore to Rs. 1,106 crore because of delay in rehabilitation of project-affected people and slow execution of work,” RTI activist Anil Galgali said.

Galgali had sought information about the Eastern Freeway project from the MMRDA. The work on the stretch between Chhatrapati Shivaji Maharaj Vastu Sangrahalaya to Anik Junction was scheduled to be completed by 18th January, 2011 after the work order was issued in January 2008. “There was a delay of 29 months in executing this phase of the project,” Galgali added.

• RTI & Housing Society in Mumbai:

At a special general body meeting on Sunday 30- 03-2014, of the Salsette Catholic Society in Bandra, it expelled a member for harassment through the RTI Act.

54 of the 73 members present voted in favour of the motion to expel Leslie Almeida. Earlier, Almeida had not replied to a showcause notice issued by the society that said it would allow him to present his side. But at the meeting, the members did not give Almeida an opportunity to speak as they constantly interrupted him. The committee, however, made a 90-minute presentation on why he should be expelled.

Father Michael Goveas, parish priest at St Andrew’s Church, suggested an inquiry be set up to prove the allegations against Almeida. The society’s secretary, Cornel Gonsalves, said the society had been dragged into a personal dispute, and has been harassed with hundreds of RTI applications.

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PART B: RTI Act, 2005

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• RTI Humour:

Chinese scientists gave environmentalism boost by inventing a printer that uses water instead of ink on rewritable paper This printer might trigger interest in India for an entirely different reason. Given the babus’ reluctance to allow the spirit of RTI legislation to prevail, they could use this invention in their line of work. What can an RTI petition achieve when the reply comes with blank pages?

• Sad story of RTI:

RTI Activist from Pune, Vihar Durve, Sought information from DoPT about the names & addresses of RTI Activists murdered/injured/harassed/assaulted etc. during 2005 to 2013. The information received is shocking. The number of persons affected as above in more than 8 years is as high as 151. The individuals murdered are 23, which includes Maharashtra 6, Gujarat 4 and 13 from other 9 States.

In 2014 also, the number of persons Killed/ Committed Suicide in Maharashtra as per my information is 2.

• Western India RTI Convention

Western India RTI Convention

Few RTI activists met in Mumbai last month to consider the proposal to organise such Convention in Mumbai. All the activists endorsed the proposal.

The BCAS Foundation (of Bombay Chartered accountants’ Society) offered to become a platinum sponsor by contributing at least 50% of the cost of organising the Convention to be incurred.

The Department of Civic and Social Justice of Dr. Ambedkar Center for Social Justice, University of Mumbai offered to host the convention at its campus premises and to provide many other complimentary facilities. Accordingly, we, the RTI activists of MUMBAI, are pleased to hold a twoday convention in MUMBAI, the dates fixed are 7th & 8th June.

We invite RTI Activists from Maharashtra, Gujarat & Goa and other States to join and be a part of this historic event.

The Convention Convener is Bhaskar Prabhu of the Mahiti Adhikar Manch. Shailesh Gandhi is the guide, Ms. Aruna Roy shall inaugurate the convention and be with us for both the days. Anyone Interested may join as delegate. For Registration form and other details please mail to: mahitiadhikarmanch@gmail.com or narayanvarma2011@ gmail.com

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PART A: ORDERS OF CIC & the court

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• Appeal –Section 19(3) of the RTI Act:

The Appellant through an RTI application dated 19-12-2012 sought certain information regarding a notification dated 15-09-2011 by which Bharat Petroleum Corporation Ltd, public authority had invited the applications for dealership within the range of 2 kilometer of Bhaniyawala NH 72. The application made included queries such as how many applications have been received for the dealership; to provide name, address and telephone numbers of applicants; when was the site inspection conducted; to provide the name, strength and designation of the officers who were part of the Inspection Committee, to provide a copy of Inspection report and so on.

The CPIO furnished the information sought but the appellant was dissatisfied with the information supplied to him by the CPIO.

In the appeal before the CIC, the appellant not only requested that the full information sought be provided to him but also sought some additional information like, yardstick being followed for giving dealership in respect of highways; a copy of objection raised by the Site Inspection Committee in respect of yardstick etc.

During the hearing, the Respondents pointed out that the Appellant in his present appeal before the Commission has sought additional information which he had not sought in his original RTI application. At that stage, he is not allowed to seek information other than sought in his RTI application.

The Commission ruled:
“The Commission agrees with the Respondents that the information now sought by the Appellant in the present appeal did not form part of his original RTI application. Therefore, the Commission is not in a position to allow the disclosure of the information which had not even been sought by the appellant in his RTI application. An information seeker cannot be allowed to expand the scope of his RTI enquiry at appeal stage. No disclosure can, therefore, be directed to be made in the present appeal of the Appellant. The Appellant, however, may file a fresh RTI application, if he so desires.”

[Harish Prasad Divedi vs. Bharat Petroleum Corporation Ltd. Appeal No CIC/LS/A/2013/001477-SS decided on 28-01-2014: (RTIR I (2014)132(CIC)]

• Section 7(9) of the RTI Act:

Section 7(9) of the Right to Information Act reads as under:

7(9) An information shall ordinarily be provided in the form in which it is sought unless it would disproportionately divert the resources of the public authority or would be detrimental to the safety or preservation of the record in question.

In the writ petition, the petitioner sought expeditious disposal of petitioner’s appeal under the Right to Information Act, 2005 as well as a direction to respondents to pay amount of ` 3,01,000/- as compensation. Petitioner had also prayed for a direction to take disciplinary action against respondent No.1.

The petitioner had sought the information under 23 different items. The petitioner stated that he is a financier who gives advances to various contactors working with Director General, Deference estates.

The Court held:
“Keeping in view the width and amplitude of the information sought by the petitioner, it is apparent that the prayers in the writ petition are nothing short of an abuse of process of law and motivated if not an attempt to intimidate the respondent.”

“In the opinion of this Court, the primary duty of the officials of Ministry of Defence is to protect the sovereignty and integrity of India. If the limited manpower and resources of the Directorate General, Defence Estates as well as the Cantonment Board are devoted to address such meaningless queries, this Court is of the opinion that the entire office of the Directorate General, Defence Estates and Cantonment Board would come to stand still.” The court then reproduced the relevant Paragraph, from the Supreme Court decision in CBSE vs. Aditya Bandopadhyay, [(2011) 8 SCC 497].

Then it quoted para 39 of the Supreme Court decision in ICAI vs. Shaunak H. Satya, [(2011) 8 SCC 781], as under:

39. “We however agree that it is necessary to make a distinction in regard to information intended to bring transparency, to improve accountability and to reduce corruption, falling u/s. 4(1) (b) and (c) and other information which may not have a bearing on accountability or reducing corruption. The competent authorities under the RTI Act will have to maintain a proper balance so that while achieving transparency, the demand for information does not reach unmanageable proportions affecting other public interests, which include efficient operation of public authorities and the Government, preservation of confidentiality of sensitive information and optimum use of limited fiscal resources.”

Consequently, the Court deemed it appropriate to refuse to exercise its Writ Jurisdiction, and the petition was dismissed. This Court was also of the view that “misuse of the RTI Act has to be appropriately dealt with, otherwise the public would lose faith and confidence in this sunshine Act. A beneficent Statute, when made a tool for mischief and abuse must be checked in accordance with law.”

[Shail Sahni vs.Sanjeev Kumar and Ors. W.P. (C) 845/2014 decided by the High Court of Delhi on 05-02-2014. (RTIR I (2014) 220 (Delhi)]

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From published accounts

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Section B:

• Disclosure as per AS 29 SKF India Ltd (year ended 31st December 2013)

From Notes to Financial Statements
Additional disclosures relating to other provisions (as per Accounting Standard 29)

(Rs. in million)

(i) Provision for disputed statutory and other matters: This represents provisions made for probable liabilities/claims arising out of pending disputes/litigations with various regulatory authorities and those arising out of commercial transactions with vendors/others. Above provisions are affected by numerous uncertainties and the management has taken all the efforts to make a best estimate. The timing of outflow of resources will depend upon the timing of decision of cases.

(ii) Provision for warranties: A provision is estimated for expected warranty claims in respect of products sold during the year on the basis of a technical evaluation and past experience regarding failure trends of products and costs of rectification or replacement. The timing and amount of cash flows that will arise from these matters will be determined at the time of receipt of claims.

(iii)The provision for other obligations is on account of coupons given on products sold by the Company and other retailers and distributors incentive schemes. The provision for coupons is based on the historic data/estimated figures. The timing and amount of the cash flows that will arise will be determined at the time of receipt of claims from customers.

• Disclosure of foreign currency exposures and contracts
Nestle India Ltd. (year ended 31st December 2013)

From Notes to Financial Statements

(a) Category wise quantitative data*

(b) All the forward contracts are for hedging foreign exchange exposures relating to the underlying transactions and firm commitments or highly probable forecast transactions.

(c) Foreign currency exposures remaining unhedged at the year-end*

• Disclosure under AS 18 regarding dependence on Related Party Transactions

Honeywell Automation India Ltd (year ended 31st December 2013)

From Notes to Financial Statements

Note below AS 18 disclosures

The Company generates a large percentage of its sales and profits from its business with the Honeywell group (Honeywell), its major shareholder. Sales to Honeywell accounted for approximately 30% and 35% of our total net sales in the fiscal years 2013 and 2012 respectively. The Company’s ability to maintain or grow its business with Honeywell depends upon a number of performance factors. However, the Company cannot be assured that its level of sales and profits associated with its relationship with Honeywell will continue. Honeywell-specific business consideration (independent of its shareholding in the Company), including changes in Honeywell’s strategies regarding utilisation of alternate opportunities available to it to source products and services currently provided by the Company (including from alternate sources which Honeywell may acquire or develop within its own group), may also reduce the level and/or mix of Honeywell’s business with the Company.

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From the President

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Dear members,

With the Indian summer in full bloom, scorching heat is pervading throughout the country and has pushed behind glimpses of the pleasant weather witnessed earlier due to the erratic climate. A similar scene is perhaps being enacted in the political spectrum that has suddenly become very heated.

Even though the Loksabha passed the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement (Amendment) Bill, 2015 [the LARR (Amendment) Bill, 2015] on 10th March, 2015, the debate over it seems to be continuing putting the ruling NDA alliance in a tight spot. An extremely unfortunate and sad incident of the death of a protestor has further vitiated the atmosphere.

My discussions about this grave issue with few CA friends made me realise as concerned citizens that we need to understand the issues involved in the greater detail and its impact the nation’s economic development.

The land acquisition process hitherto carried out under the Land Acquisition Act, 1894 has been viewed as unfair, bureaucratic and inadequate. As per reports, over 50% of the land acquired between 2006 and 2013 for SEZs lie unused. The CAG in its report has commented that the land appeared to be the most crucial and attractive component of the SEZ scheme and listed many cases where the land acquired was sold off or put to other uses.

The Land Acquisition Act, 1894 empowered the Government to acquire land for ‘public purpose’ as the justified reason for the acquisition of private lands, but provided inadequate safeguards against forced acquisition or for proper resettlement and rehabilitation. The phrase ‘public purpose’ was not explained properly in the act, and its determination was entirely left to the Executive. Various studies have established failure on the part of the State machinery in showing any empathy towards the rural people who lose lands and livelihood.

Given increasing discontentment, the Government adopted the National Rehabilitation and Resettlement Policy, 2007 and initiated the process to amend the land acquisition law and provide for effective safeguards and adequate rehabilitation and resettlement. This process culminated in the enactment of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 [the LARR Act, 2013]. This 2013 law required the compulsory consent of the landowners – 80% for private projects and 70% for public-private partnership projects. It also made the Social Impact Assessment (SIA) necessary for all projects with very few exceptions. This 2013 law has been perceived to have made the land acquisition process extremely difficult. It has been blamed for stalled projects and labelled as a roadblock to the development.

The land issues coincide with the severe crisis faced by the farmers. A study by the Centre for Study of Developing Societies (CSDS) conducted last year has reported that given an option, over 60% of farmers would prefer to migrate to cities as that would give them access to better education, health and employment avenues there. They cited reasons such as inadequate income, bleak future and stress, for giving up farming.

Despite a significant growth India has witnessed in last two decades or so, it continues to depend significantly on agriculture. The 4th Annual Employment and Unemployment Survey Report for 2013-14 published on 7th January 2015 estimates that approx. 47% persons (all India) are employed in the primary sector consisting of agriculture, forestry and fishing.

A research report by McKinsey published in February 2014 states that there are too few job opportunities outside the farm sector, a factor that limits the economic opportunities available. It estimates that a faster shift of labour from farm to non-farm jobs (matching China’s pace) could have lifted 10 crore more people above the Empowerment Line, a line marginally higher than the Poverty Line, from 2005 to 2012.

Amartya Sen, the well-known Nobel Laureate in economics, opines that prohibiting the use of fertile agricultural land for industries is ultimately self-defeating. He further argues that in countries such as Australia, the US or Canada, where agriculture has prospered by increasing productivity and efficiency, only a very tiny population is involved in agriculture. When people move out of agriculture, total production does not go down; rather, per capita income increases. Sen makes a case that for the prosperity of industry, agriculture and the economy, India needs industrialisation.

The above discussion brings us to the conclusion that the creation of job opportunities remains an important goal for any government. Increasingly, this goal is becoming more challenging. The Economic Survey for 2014-15 avers that there has been a decline in long-run employment growth in the 2000s relative to the 1990s along with a decline in the employment elasticity of growth.

In order to address the challenges of reviving the limping economy and push for the creation of jobs, the present NDA Government brought this 2015 amendment to the LARR Act of 2013. It attempts to make the land acquisition less onerous and thereby to ease the cost of doing business in India.

The amendment mainly exempts projects in five categories such as defence and infrastructure from the mandatory consent provision. It also permits the government to exempt projects in these five categories from the requirement to conduct a Social Impact Assessment and certain restrictions on the acquisition of irrigated multicropped land and other agricultural land.

Past bureaucratic hurdles, inordinate delays and abuse of law have resulted in the widespread reservation in the masses against the land bill. As a result, there is widespread opposition to vesting of any additional discretionary power. It is imperative that the present Government to manage the tightrope walk well and navigates this piece of crucial reform through the legislative process. It is equally essential for the Government to improve urgently the governance and infuse confidence amongst the suffering lot. Let’s hope the promises made and expectations raised by the NDA Government will come true.

On the other front, the issue of applicability of MAT on foreign companies is getting vexed. The tax administration seems to be further drifting from the coveted objectives of predictability, stability and certainty so vehemently espoused in the reports of the Tax Administration Reforms Commission (TAR C).

Talking about summer heat, this is also the time for exam fever. I hope all of you whose children have appeared for school/college examinations are now breathing easy and that the children will fare very well in the exams. Best wishes to those children appearing for their CA examinations.

As I am about to complete writing this page, the news of the devastating earthquake in Nepal and also parts of India, one of the worst in recent times, has deeply saddened us. It is a grim reminder of the mankind’s frailty against the fury of nature. At the same time, the human race continues to come together, show resilience to rise again and recover. Let’s direct our prayers and thoughts to the brave people of Nepal and help them in any way we can.

Once again, I look forward to receiving your feedback and views.

With warm regards,

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Ethics and You

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Procedure of Enquiry (Continued) – Part IV

Arjun (A) — Oh My God! This heat is unbearable. And also this humidity.

Shrikrishna —Why don’t you go to some hill station? April must be a ‘cool’ month for you CAs.

A — Kaash, yeh sach hota!

S — Why? Isn’t the work load less now?

A
— Maybe, yes. No deadlines. But bank audits, service tax returns and
whatever nonsense tax assessments are completed in March, we need to
submit appeals, stay applications, and what not!

S — H ow was bank audit experience this year?

A—
T hat is a nightmare. Big branches to be completed in 4 to 5 days; with
just one or two assistants. Bank staff never co-operates. Bhagwaan ka
naam le ke hi sign karna padta hai.

S— I agree. Your profession is difficult.

A—
By the way, you have so far explained to me how a disciplinary case
starts. Apart from complaint, there could be suo moto ‘information’
cases as well. I have also understood upto the stage of ‘Prima facie
opinion’ and the types of punishments for various items of misconduct.

S— T oday, I wish to explain how the actual enquiry is conducted.

A— Y es, yes! I wanted to know that. It must be a dreadful experience.

S—
A ctually, it is not so frightful. It is not a police enquiry. It is a
plain fact finding exercise. No need to be nervous if you have acted
diligently.

A— But there are many mistakes that occur unknowingly. If they are exposed, it could be serious!

S—
Y es. It depends on the nature of offence. It is held in a conference
hall; not like a court where the judges sit on a raised platform.

A— So, it is across the table. Good.

S—
Y es. On one side of the table, the Members of the Board of Discipline
(BOD) or Disciplinary Committee (DC) sit. They are assisted by the
Secretariat. The complainant, his counsel, respondent and his counsel
sit in front of the BOD/DC on the other side of the table.

A— A nd how does it start?

S—
E verything is tape-recorded. Also, there is a stenographer. Everyone
has to speak into a mike. First of all, all parties are required to
identify themselves. Then, Complainant and Respondent are put on oath.

A— A re there witnesses?

S—
See, in the Misconduct Procedure Rules, for First Schedule Offence,
before BOD, there is no provision for witnesses. But for Second Schedule
items before DC, one can call witnesses.

A— Both the parties?

S— Y es. Not only the parties but even the Committee can call its witnesses.

A— Ohh!

S—
A fter this, the complainant is asked to explain his charges. Committee
asks him questions so as to define the exact charges. A— What next? S— R
espondent is asked whether he has understood the charges. He is asked
to state whether he pleads guilty or he wants to defend himself.

A— What is he expected to say?

S—
I f Respondent wants to accept his guilt, well and good. He has to say
so. If he wants to argue or defend, he can say accordingly.

A— T hen what happens?

S—
I f it is to be defended, the Respondent is allowed to speak and
explain his position. His counsel may also speak on his behalf.

A— D o they ask questions?

S—
O f course. Previously, it used to be formal like in a court. There was
examination, cross-examination and so on. However, cross examination is
permitted. Nowadays, they adopt a summary procedure.

A— What about witnesses?

S—
A s I told you, witnesses are called and examined. All parties can
question the witnesses. But one cannot ask leading questions except in a
cross-examination.

A— What about new evidences or new documents?

S—
See, Arjun. One must keep in mind that it is an enquiry into the
conduct of a member of the Institute. It is not a law suit – civil or
criminal. So ordinarily everything is entertained in a fair and
transparent manner. But complainant is not allowed to make a new charge
or allegation. One cannot enlarge the scope of the complaint.

A— What is the value of precedents?

S—
F rankly, in my opinion there is not much value to the precedents. Each
case is unique on its facts. There are so many shades of human
behaviour. Misconduct is to be viewed on the facts and in the
circumstances of each case.

A— I s it advisable to have a lawyer with us?

S—
I t depends. Sometimes, a respondent gets psychologically nervous. Many
times they cannot express themselves clearly and properly. So a
counsel’s presence does help.

A— But who can be a counsel?

S—
N ormally, any other member of your Institute; or a company secretary,
cost accountant or a lawyer is engaged as counsel. But lawyers need to
understand that a very legalistic approach does not help. It is a
fact-finding process.

A— Like what?

S— F or example,
while doing audit, you may take a view in respect of some provision of
company law or income tax. There, you may argue in a legalistic way. But
petty matters of procedures should not be given too much importance.
They allow you every reasonable opportunity to submit any documents,
information, explanation and so on. You are allowed to speak without any
pressure or tension.

A— H ow long does the hearing last?

S— R anging from half-an-hour to even 2 to 3 days! D epending upon the nature of allegation, number of witnesses and so on.

A— I need to know many more things about these proceedings. I will bring my friends also to listen to all this.

S—
R emember that all the proceedings are recorded and you get verbatim
minutes. These are called Notes of Hearing. One has to apply to the
Director Discipline to get these minutes.

Om Shanti !!!

levitra

From Published Accounts

Section b: Illustration of Auditors’ Report as per The Companies Act, 2015 for 2 Companies infosys ltd. (31-3-2015))

Report of The financial Statements
We have audited the accompanying standalone financial statements of infosys Limited (‘the Company’), which comprise the balance sheet as at 31st march 2015, the statement of profit and loss and the cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements
the  Company’s  Board  of  directors  is  responsible  for the matters stated in section 134(5) of the Companies act, 2013 (“the act”) with respect to the preparation and presentation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in india, including the accounting Standards specified u/s. 133 of the Act, read with Rule 7 of the Companies  (accounts)  rules,  2014.  This  responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the act and the rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified u/s. 143(10) of the Act. those  Standards  require  that  we  comply  with  ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,  including  the  assessment  of the risks of material misstatement of the financial statements, whether due to fraud or error. in making those risk assessments, the auditor considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. an audit also includes evaluating the appropriateness of the accounting policies used  and  the  reasonableness of the accounting estimates made by the Company’s directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements.

Opinion
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the act in the manner so required and give   a true and fair view in conformity with the accounting principles generally accepted in india, of the state of affairs of the Company as at 31st march 2015 and its profit and its cash flows for the year ended on that date.

Report on Other legal and Regulatory Requirements
1.    As  required  by  the  Companies  (auditor’s  report) order, 2015 (“the order”) issued by the Central Government of india in terms of sub-section (11) of section 143 of the act, we give in the annexure a statement on the matters specified in the paragraph 3 and 4 of the order, to the extent applicable.

2.    As required by section 143(3) of the act, we report that:

a)    We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
b)    In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books;
c)    The balance sheet, the statement of profit and loss and the cash flow statement dealt with by this report are in agreement with the books of account;
d)    In our opinion, the aforesaid standalone financial statements comply with the accounting Standards specified u/s. 133 of the Act, read with Rule 7 of the Companies (accounts) rules, 2014;
e)    On the basis of the written representations received from the directors as on 31st march 2015 taken on record by the Board of directors, none  of the directors is disqualified as on 31st March 2015 from being appointed as a director in terms of section 164 (2) of the act; and
f)    With respect to the other matters to be included in the auditor’s report in accordance with rule 11 of the Companies (audit and auditors) rules, 2014, in our opinion and to the best of our information and according to the explanations given to us:
i.    The Company has disclosed the impact of pending litigations on its financial position in its financial statements  –  refer  note  2.20  and  2.37  to  the financial statements;
ii.    The Company has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long- term contracts including derivative contracts – Refer Note 2.7 to the financial statements;
 
iii.    There has been no delay in transferring amounts, required to be transferred, to the investor education and Protection fund by the Company.

Annexure To The Independent Auditors’ Report
The  annexure  referred  to  in  our  independent  auditors’ report to the members of the Company on the standalone financial statements for the year ended 31st March 2015, we report that:

i.    (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.
(b)  The  Company  has  a  regular  programme  of physical verification of its fixed assets by which fixed assets are verified in a phased manner over a period of three years. in accordance with this programme, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets.

ii.    The  Company  is  a  service  company,  primarily rendering software services. accordingly, it does not hold any physical inventories. thus, paragraph 3(ii) of the order is not applicable.

iii.    (a) The Company has granted loans to three bodies corporate covered in the register maintained u/s.189 of the Companies act, 2013 (‘the act’).
(b)    In the case of the loans granted to the bodies corporate listed in the register maintained u/s.189 of the act, the borrowers have been regular in the payment  of  the  interest  as  stipulated.  The  terms of arrangements do not stipulate any repayment schedule and the loans are repayable on demand. Accordingly, paragraph 4(iii)(c) of the order is not applicable to the Company in respect of repayment of the principal amount.
(c)    There  are  no  overdue  amounts  of  more  than Rs. 1 lakh in respect of the loans granted to the bodies corporate listed in the register maintained u/s. 189 of the act.

iv.    In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchase of fixed assets and sale of  services.  The  activities  of  the  Company  do not involve purchase of inventory and the sale of goods. We have not observed any major weakness in the internal control system during the course of the audit.

v.    The Company has not accepted any deposits from the public.

vi.    The  Central  Government  has  not  prescribed  the maintenance of cost records u/s. 148(1) of the act, for any of the services rendered by the Company.

vii.    (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, income tax, sales tax, wealth tax, service tax, duty of customs, value added tax, cess and other material statutory dues have been regularly deposited during the year by the Company with the appropriate authorities. As explained to  us, the Company did not have any dues on account of employees’ state insurance and duty of excise. According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, income tax, sales tax, wealth tax, service tax, duty of customs, value added tax, cess and other material  statutory  dues were in arrears as at 31st march 2015 for a period of more than six months from the date they became payable.

(b)    According to the information and explanations given to us, there are no material dues of wealth tax, duty of customs and cess which have not been deposited with the appropriate  authorities on account of any  dispute.  however,  according to information and explanations given to us, the following dues of income tax, sales tax, service tax and value added tax have not been deposited by the Company on account of  disputes:  (List not reproduced)

(c)    According to the information and explanations given to us the  amounts  which  were  required  to be transferred to the investor education and protection fund in accordance with the relevant provisions of the Companies act, 1956 (1 of 1956) and rules there under has been transferred to such fund within time.

viii.    The  Company  does  not  have  any  accumulated losses at the end of the financial year and has not incurred cash losses in the financial year and in the immediately preceding financial year.

ix.    The Company did not have any outstanding dues to financial institutions, banks or debenture holders during the year.

x.    In our opinion and according to the information and the explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions.

xi.    The   Company   did   not   have   any   term   loans outstanding during the year.

xii.    According to the information and explanations given to us, no material fraud on or by the Company has been noticed or reported during the course of our audit.

Gruh Finance ltd. (31-3-2015)

Report of the financial Statements
We have audited the accompanying financial statements of   Gruh   finance   Limited   (“the   Company”),   which comprise the Balance Sheet as at 31st march, 2015,  and the Statement of Profit and Loss and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the financial Statements
The  Company’s  Board  of  directors  is  responsible  for the matters stated in section 134(5) of the Companies act, 2013 (“the act”) with respect to the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the accounting principles generally accepted in india, including the Accounting Standards specified u/s. 133 of the Act read with  rule  7  of  the  Companies  (accounts)  rules,  2014. this responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the act for safeguarding the assets of the Company and for preventing and detecting frauds and other irregularities, selection and application of appropriate accounting policies, making judgments and estimates that are reasonable and prudent, and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the act and the rules made thereunder.

We conducted our audit in accordance with the Standards on Auditing specified u/s. 143(10) of the Act. Those  Standards  require  that  we  comply  with  ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor’s judgment,  including  the  assessment  of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors considers internal financial control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on whether the Company has in place an adequate internal financial controls system over financial reporting and the operating effectiveness of such controls. an audit also includes evaluating the appropriateness of the accounting policies used  and  the  reasonableness of the accounting estimates made by the Company’s directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the financial statements.

Opinion
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in india, of the state of affairs of the Company as at 31st March, 2015, and its profit and its cash flows for the year ended on that date.

Report on Other legal and Regulatory Requirements
1.    As required by the Companies (auditor’s report) order, 2015 (“the order”) issued by the Central Government of india in terms of sub-section (11) of section 143 of the act, we give in the annexure a statement on the matters specified in paragraphs 3 and 4 of the order.

2.    As required by section 143(3) of the act, we report that:

(a)    We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes  of our audit.

(b)    In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books and proper returns adequate for the purposes of our audit have been received from the branches not visited by us.

(c)    The Balance Sheet, the Statement of Profit and Loss,  and  the  Cash  flow  Statement  dealt  with by this report are in agreement with the books of account and with the returns received from the branches not visited by us.

(d)    In our opinion the aforesaid financial statements comply with the Accounting Standards specified u/s.  133  of  the act,  read  with  the  rule  7  of  the Companies (accounts) rules, 2014.

(e)    On the basis of the written representations received from the directors as on 31st march, 2015 taken on record by the Board of directors, none  of the directors is disqualified as on 31st March, 2015 from being appointed as a director in terms of section 164(2) of the act.

(f)    With respect to the other matters to be included in the auditor’ s report in accordance with rule 11 of the Companies (audit and auditors) rules, 2014, in our opinion and to the best of our information and according to the explanations give to us:

i.    The   Company   has   disclosed   the   impact   of pending litigations on its financial position in its financial statements – Refer Note 27.1 to the financial statements.

ii.    The   Company   did   not   have   any   long-term contracts including derivative contracts for which there were any material foreseeable losses;

iii.    There has been no delay in transferring amounts, required to be transferred, to the investor education and Protection fund by the Company.

Annexure to the Independent Auditors’ report
Referred to in Paragraph 1 under the heading “report on other legal and regulatory requirements” of our report of even date,

(i)    (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets.

(b) All the fixed assets were physically verified by the management during the year. We are informed that no material discrepancies were noticed on such verification.

(ii)    (a)   The   stocks   of   acquired   and/or   developed properties have been physically verified during the year by the management. In our opinion, the frequency of verification is reasonable.

(b)    The procedures of physical verification of stock of acquired and/or developed properties followed by the management are reasonable and adequate in relation to the size of the Company and the nature of its business.

(c)    The  Company  is  maintaining  proper  records of acquired and developed properties. no discrepancy was noticed on verification between the physical properties and the book records.

(iii)    The Company has not granted any loans, secured and unsecured to Companies, firms or other parties covered in the register maintained u/s. 189 of the act. Consequently, requirement of clauses (iii,a) and (iii,b) of paragraph 3 of the order are  not applicable.

(iv)    In our opinion and according to the information and explanations given to us, there exists an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to acquisition of properties, fixed assets and with regard to the sale of properties and services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls.

(v)    In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of sections 73 to 76 of  the act  and  the  housing  finance  Companies (NHB) directions, 2010 with regard to the deposits accepted from the public. No order has been passed by the Company Law Board or national Company Law tribunal or reserve Bank of india or any Court or any other tribunal.

(vi)    The   Company   is   not   engaged   in   production, processing, manufacturing or mining activities. Therefore, the provisions of clause (vi) of paragraph 3 of the order are not applicable.

(vii)    (a)  The  Company  is  regular  in  depositing  with appropriate authorities undisputed statutory dues including Provident fund, investor education and Protection fund, income tax, Wealth tax, Service tax,   CESS   and   other   material   statutory   dues applicable to it. according to the information and explanations given to US, no undisputed amounts payable in respect of outstanding statutory dues were in arrears as at 31st march, 2015 for a period of more than six months from the date they became payable.

(b)    According to the information and explanations given to us, following amounts have not been deposited as on 31st March, 2015 on account of any dispute:

(c)    According to the information and explanations given to us, the amount required to be transferred to investor education and protection fund in accordance with the relevant provisions of the Companies act, 1956 (1 of 1956) and rules made thereunder has been transferred to such fund within time.

(viii)    The   Company   neither   has   any   accumulated losses nor has incurred any cash losses during the financial year covered by our audit and the immediately preceding financial year.

(ix)    According to the information and explanations given to us, the Company has not defaulted in repayment of dues to banks or debentures holders.

(x)    To  the  best  of  our  knowledge  and  belief  and according to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from bank or financial institutions.

(xi)    To  the  best  of  our  knowledge  and  belief  and according to the information and explanations given to us, in our opinion, the term loans obtained during the year were, prima facie, applied by the Company for the purpose for which they were obtained, other than temporary deployment pending application.

(xii)    To  the  best  of  our  knowledge  and  belief  and according to the information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year, although there have been few instances of loans becoming doubtful of recovery consequent upon fraudulent misrepresentation by borrowers, the amounts whereof are not material in the context and size of the Company and the nature of its business and which have been provided for.

Lecture Meeting

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Lecture Meeting on Success in CA Exams by Nilesh Vikamsey on 19th March 2014

Speaker
Mr. Nilesh Vikamsey, Chartered Accountant dealt with various aspects of
getting success in CA Exams. He explained various methods with examples
for preparing for various subjects in better ways. More than 350
students benefited from the expert analysis and knowledge shared by the
speaker. The presentation and video of the lecture is available at
www.bcasonline.org & www. bcasonline.tv, respectively, for the
benefit of all Students, Members and Web TV Subscribers.

Lecture Meeting on Taxation of Expatriates on 9th April 2014

Speaker
Mr. Sushil Lakhani, Chartered Accountant explained various aspects of
Taxation of Expatriates both inbound as well as out bound expatriates.
At this lecture meeting, a publication titled “Taxation of Expatriates
(Including certain Non-Tax aspects)” was also released at the hands of
Mr. S. E. Dastur, Senior Advocate. The publication has been Coauthored
by Mr. Sushil Lakhani, Mr. Nitin Shingala, Mr. Nandkishore Hegde &
Ms. Niji Arora, Chartered Accountants. This publication was the 25th
Publication under the auspices of Shailesh Kapadia Publication Memorial
fund.

More than 300 participants benefited from the speaker’s
vast knowledge and experience. The presentation and video of the lecture
is made available at www.bcasonline.org & www.bcasonline. tv,
respectively, for the benefit of all members and Web TV subscribers.

Other Programs:

Full day Workshop on “Practical Issues in Tax Deduction at Source” on 21st March 2014

A
full day workshop was organised by the Taxation Committee of BCAS. The
objective of the workshop was to keep the Members & Students updated
with recent changes in the regulatory as well as compliance aspects of
TDS provisions.

The following topics were discussed:

536
participants benefited from the Workshop. The video of the full
workshop is made available at www.bcasonline.tv for the benefit of all
Students,

Members and Web TV Subscribers.

Human Resources
Committee of BCAS organised this workshop where the learned speaker Mr.
Mihir Sheth, Chartered Accountant dealt with the various aspects of
good business etiquettes. The objective of the workshop was to make
participants deal with many such protocols and business etiquette
practices which can help them to carry effortlessly while dealing with
their counter part from other countries.

36 participants
attended the workshop and gained immensely from the knowledge shared by
the speaker. Seminar on Charitable Trust on 22nd March 2014 A full day
seminar on “Charitable Trusts” was organised jointly with The Chamber of
Tax Consultants. The objective of the seminar was to understand various
statutory provisions relating to Formation, Registration, Taxation and
Compliance by the Charitable Trusts and to discuss and deliberate upon
the various issues faced in day to day practice. 127 participants
attended the seminar.



Professional Accountant Course Batch XVI, Convocation on 25th March 2014

Human
Resources Committee of the Society and HR College of Commerce &
Economics has successfully completed XVI Batch of Professional
Accountants Course. The convocation was held at HR College where
participants shared their experiences with dignitaries present on the
dais like Mr. Nitin Shingala.

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ICAI And Its Members

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The Disciplinary Committee (DC) of ICAI has decided some cases. These cases are reported in the publication of the ICAI “Disciplinary Cases” VOL- 1. The page Nos. Given below are from this book. The names of Members are not given, in order to maintain confidentiality.

(I) Case of Mr. T. G.

In this case, a Public Sector Bank had complained that the Member, being the concurrent auditor of a Branch, failed to report in their Audit Report for January about certain exceptional and fraudulent transactions. If reported, the Bank could have averted the huge loss suffered by it. Some of the items of high withdrawals by certain parties, some return of large value clearing cheques, kite flying operations of the above parties and some of the other irregularities were listed by the Bank in its complaint.

The defence of the Member was that these irregularities started prior to his appointment as a concurrent auditor. He was not getting enough co-operation from the Branch Staff. Therefore, after submitting the report for one month he had resigned. Further, in one month’s audit it was not possible to unearth a deliberately concealed irregularity. After a detailed inquiry, the DC was not satisfied with the explanation given by the Member and held him guilty of professional misconduct under Clauses (7) and (8) of Part I of the Second Schedule to C.A. Act. However, the DC considered the facts that (i) although the Member was appointed as a concurrent Auditor for the year, he conducted audit for one month only and then resigned, as he did not get sufficient co-operation from the staff of the Branch, (ii) in one month’s span it was not feasible to unearth a perpetual fraud which had been going on for many years and (iii) the role of the member was limited to one month’s audit. On these facts, the DC awarded punishment by way of ‘Reprimand’ only . (P. 114 – 125 of Part I of Vol. -I ) (ii) Case of Mr. S. S. G. In this case, the Excise Intelligence Department had reported that (a) the Member had given an opinion to S.A. Ltd. that no service tax was payable by the company, (b) the Company did not deposit this tax which amounted to evasion of the service tax of about Rs. 142.45 crore and (c) the member had admitted that he had isued the opinion. Before the DC, the Member explained that he was appointed as a retainer of the Group. He also stated that the opinion was given to the company on the query whether the services provided by the company would be liable to service tax under the head Advertising Agency. Thus, the scope was limited to this one category of service. Further, the opinion was not given to the Excise Department but to the company. The Member also explained that this opinion was based on the decision in the reported case of Advertising Club vs. CBEC ( 6 STT 196-MAD). After a detailed enquiry, the DC accepted the submission of the Member and held that he was not guilty of professional misconduct. (P. 98 to 103 of Part II of Vol.I). (iii) Case of Mr. S. J. In this case, the Joint Commissioner of Sales tax filed the complaint against the Member. It was alleged that the Member had certified two different sets of financial statements of BPP Ltd. for 2004-05, 2005-06 and 2006-07 in the name two Firms viz. M/s. J & D and M/s. M.R. & Co. The first set signed in the name of M/s. J & D was filed by the company with the bank and the second set was filed with the Sales Tax Department. This amounted to Professional Misconduct. Before the DC, the Member explained as under: (a) The firm of M/s. J & D was dissolved on 01-04-2005 when it merged with M/s. M.R. & Co. (b) He had signed financial statements of BPP Ltd. as

(ii) Case of Mr. S. S. G.

In this case, the Excise Intelligence Department had reported that (a) the Member had given an opinion to S.A. Ltd. that no service tax was payable by the company, (b) the Company did not deposit this tax which amounted to evasion of the service tax of about Rs. 142.45 crore and (c) the member had admitted that he had isued the opinion. Before the DC, the Member explained that he was appointed as a retainer of the Group. He also stated that the opinion was given to the company on the query whether the services provided by the company would be liable to service tax under the head Advertising Agency. Thus, the scope was limited to this one category of service. Further, the opinion was not given to the Excise Department but to the company. The Member also explained that this opinion was based on the decision in the reported case of Advertising Club vs. CBEC ( 6 STT 196-MAD). After a detailed enquiry, the DC accepted the submission of the Member and held that he was not guilty of professional misconduct. (P. 98 to 103 of Part II of Vol.I).

(iii) Case of Mr. S. J.

In this case, the Joint Commissioner of Sales tax filed the complaint against the Member. It was alleged that the Member had certified two different sets of financial statements of BPP Ltd. for 2004-05, 2005-06 and 2006-07 in the name two Firms viz. M/s. J & D and M/s. M.R. & Co. The first set signed in the name of M/s. J & D was filed by the company with the bank and the second set was filed with the Sales Tax Department. This amounted to Professional Misconduct. Before the DC, the Member explained as under:

(a) The firm of M/s. J & D was dissolved on 01-04-2005 when it merged with M/s. M.R. & Co.
(b) He had signed financial statements of BPP Ltd. as Partner of M/s M.R & Co. for 2004-05 to 2006-07.
(c) The financial statements, alleged to have been signed by him as partner of M/s. J & D for these three years and filed by the company with the Bank were forged by someone. The firm of M/s. J & D was not in existence from 01-04-2005 onwards.

The DC, after examining the evidence produced before it, came to the conclusion that the financial statements filed by the company with the Bank, which were alleged to have been signed by the Member as partner of J & D were forged by someone. On this finding, the DC held that the Member was not guilty of professional misconduct ( P. 111 to 117 Part II of Vol. I).

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From the President

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Dear members of BCAS family,

Chai-Chunauti-Chunav

By the time this President’s page reaches your desks, the bulk of the voting would have been over and post counting on 16th May 2014, we will all see round two of this long winding tamasha. Horse trading will begin if no clear majority emerges. But that’s another story. All of us were so caught up with this well-orchestrated frenzy that talking about anything else was just not possible. We have done our bit by voting. Now, it’s out of our hands. Phew! But this message is not about that.

Trimurti

Our Government consists of three branches; the Executive, the Legislative and the Judiciary. According to the Constitution, the Legislative branch is to make the laws, the Judicial branch is to review the laws and make sure that they are Constitutional, and the Executive branch is to enforce the laws. We have all seen and read a lot about the current state of our Executive and the Legislative. I haven’t read much about the Judiciary. By the 73rd and 74th amendments to the Constitution, the Panchayat Raj system has become an institution for local governance, which makes our Judiciary very unique. We are all aware about the statistics of the pending cases, the pace of the discharge cases and many other issues that fraught our legal system. A Judicial Reform is the next big leap in our evolution that we are all waiting for. But this message is not about that.

UttejitUchhatamNyayalay

My message is about the emerging role of the Supreme Court (SC) in India. But before I progress, a few disclaimers:

1. These are my personal views and not that of the Bombay Chartered Accountants’ Society.

2. In the unlikely event of this message causing any kind of legal or other issue, the Editor of this journal be completely absolved of any repercussion.

3. I have the highest respect for our judiciary, in particular the Supreme Court.

4. Contempt of Court is not intended. As we all know, according to the Constitution, the role of the Supreme Court is that of a guardian of Constitution and that of a federal court. The Supreme Court has extensive original jurisdiction in regard to the enforcement of the fundamental rights. The Supreme Court also has the power to take cognisance of matters on its own.

NyayikSakriyata

The SC has come a long way since then. It has been playing an exemplary role in our democracy in discharging its constitutional duties. Nature abhors vacuum and hence, in recent times, time and again, we have seen that the SC has gone beyond deciding on the legality of a case. Many judgments have preambles which are ‘sermons’ to the Executive, Legislative or the society. Here are a few examples of such recent judgments which were sent to me by my friend CA. Anup Shah (he is an unwitting partner to this and he too maybe absolved).

1. Sahara’s case: the Court has placed Subroto Roy under its custody and is personally monitoring the repayment schedule proposed by Sahara.
2. Black Money / Liechtenstein Bank Accounts Case – the Court has again pulled up the Government for failing to reveal the names of all Liechtenstein Bank Account Holders.
3. 2G Case – Spectrum Allocation Case was personally monitored by the Apex Court.
4. Open Spaces in Mumbai –6 mt. wide open skirting around building projects and minimum 10% of project to be kept open to the sky.
5. Lal Batti – The Supreme Court slammed the indiscriminate use of the Red Beacon on Cars.
6. Vishaka’s Case: The Supreme Court laid down the law on Sexual Harassment in the absence of any legislation on the subject at that time.

One respects all the judgments and most of these sermons. But doesn’t this reek of Judicial Activism? Black’s Law Dictionary defines judicial activism as a “philosophy of judicial decision-making whereby judges allow their personal views about public policy, among other factors, to guide their decisions.”India has a recent history of judicial activism, originating after the Emergency which saw attempts made by the Government to control everything, including the judiciary. During the emergency period, the Government passed the 39th Amendment, which sought to limit judicial review for the election of the Prime Minister. Subsequently, the parliament, with most opposition members in jail during the emergency, passed the 42nd amendment which prevented any court from reviewing any amendment to the Constitution with the exception of procedural issues concerning ratification. A few years after the emergency, however, the SC rejected the absoluteness of the 42nd Amendment and reaffirmed its power of judicial review in the Minerva Mills case (1980). Another example of activism is the Public Interest Litigation which was an instrument devised by the courts to reach out directly to the public, and take cognizance though the litigant may not be the victim. Suo moto cognisance allows the courts to take up such cases on its own.

JiskaKaamUsikoSaaje

The original intent was that the three branches would be able to check and balance one another so that no single branch would be able to claim too much power. And this balance is sought to be changed time and again. At times the SC takes on the Legislative (Eg: drafting the Vishaka Guidelines) and the Executive (Eg: taking Subroto Roy in the SC custody) roles. The SC can uphold or overturn decisions of all lower courts. This highest of courts can make decisions that cannot easily be overturned. But the Legislative tends to reign supreme and the retrospective amendments post Vodafone judgment is an example of how the Government of India, instead of accepting the SC verdict, made retrospective amendments in the Incometax Act to nullify the effect of Vodafone’s case.

The trend has been supported as well as criticised.The New York Times author Gardiner Harris sums this up as “India’s judges have sweeping powers and a long history of judicial activism that would be all but unimaginable in the United States. In recent years, judges required Delhi’s auto-rickshaws to convert to natural gas to help cut down on pollution, closed much of the country’s iron-ore-mining industry to cut down on corruption and ruled that politicians facing criminal charges could not seek re-election. Indeed, India’s SC and Parliament have openly battled for decades, with the Parliament passing multiple constitutional amendments to respond to various SC rulings.”

We are glad that there is at least one wing of the government which has a conscience and has the courage to act upon it.Having said that, this trend is neither intended nor desired. If each wing of the government discharged its role diligently then this debate and tussle would not arise. We need the courts to discharge their primary duties, an area where there is a lot of scope for improvement. The vast number of pending cases is an area that needs highest attention. If the courts get distracted by activism then this issue will only get more severe. Justice delayed is justice denied.

Errata: In my previous communique I erroneously referred to Mr. Nandan Nilekani as CA. Correct examples would have been Mr. Rahman Khan,
Mr. Suresh Prabhu, Mr. Piyush Goyal and Mr. Harish Salve. I thank my friend Narayan Pasari for pointing out this error.

Here’s wishing everyone happiness and love.

With Warm Regards
Naushad A. Panjwani

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Glimpses Of Supreme Court Rulings

5.  (2018) 400 ITR 9 (SC)

DIT
vs. S.R.M.B. Dairy Farming (P.) Ltd.

Dated:
23.11.2017


Appeal to
the High Court – Monetary Limits for Litigation by Department – Circular would
apply even to the pending matters but subject to two caveats provided in Surya
Herbal case

The
Supreme Court was concerned with the implementation of Instruction No.3 of
2011, dated February 9, 2011, providing for appeals not to be filed before the
High Court(s) where the tax impact was less than Rs.10 lakh which was issued in
supersession of the earlier Instruction No. 1979 of 2000, dated March 27, 2000.

The instruction/circular in
question was stated to have a prospective effect as per the revenue and, thus,
cases which were pending in the High Court and had been filed prior to the
instruction in question (Instruction No.3) but had tax effect of less than
Rs.10 lakh were, thus, required to be determined on their merits and not be
dismissed by applying the circular/instruction. 

The Supreme Court noted
that there had been a divergence of legal opinion on this aspect amongst the
High Courts.

The Madras High Court,
Kerala High Court, Chhattisgarh High Court and the Punjab and Haryana High Court
had taken a view that the existing circular/instruction prevailing at the
relevant time when the appeal/reference was made would apply and there would be
no retrospective application of the circular. 

On the other hand, the line
of reasoning adopted by the Bombay High Court, Madhya Pradesh High Court, Delhi
High Court and the Karnataka High Court was, that as the value of money went
down and the cases of the Revenue increased, the choking docket required such
an endeavour and there was no reason why the same policy should not be applied
to old matters to achieve the objective of the policy laid down by the Central
Board of Direct Taxes (“CBDT”). An earlier circular dated June 5, 2007 issued
by the Central Board of Direct Taxes was also taken note of which required all
the appeals pending before the court to be examined, with a direction to
withdraw the cases wherein the criteria for monetary limit as per the
prevailing instructions was not satisfied unless the question of law involved
or raised in the appeal referred to the High Court was of recurring nature, and
therefore, required to be settled by a higher court.

The Supreme Court noted
that the view adopted by the Delhi Court making the  Circular applicable to pending matters came
up before a three-Judges Bench of the Supreme Court in SLP(C) No.CC 13694 of
2011 titled CIT vs. Surya Herbal Ltd. (2013) 350 ITR 300 (SC).

According to the Supreme
Court, the aforesaid order, should have laid the controversy to rest. The
retrospective applicability of the Circular dated February 9, 2011 was not
interfered with, but with two caveats – (i) Circular should not be applied by
the High Courts ipso facto when the matter had a cascading effect; (ii)
where common principles may be involved in subsequent group of matters or a
large number of matters. In that matter it was opined that in such cases, the
attention of the High Court would be drawn and the Department was even given
liberty to move the High Court in two weeks.

The Supreme Court was of
the view that this order held the field and should continue to hold the field.
According to the Supreme Court therefore, the Circular would apply even to the
pending matters but subject to two caveats provided in Surya Herbal case (supra).      

 

6.  (2018) 400 ITR 26 (SC)

Mathur
Marketing Pvt. Ltd. vs. CIT

Dated:
12.09.2017

 

Appeal to
High Court – If an issue is raised specifically before the High Court and it
has not been taken into consideration by the High Court in passing the order,
the appropriate remedy for the aggrieved party would be to file an application
for review of the said order

Vide order dated August 10,
2017, the Supreme Court had permitted the appellant to examine as to whether
the oral arguments were advanced on substantial question No.3 raised in the
memo of appeal filed before the High Court u/s. 260A of the Income-tax Act,
1961.

An affidavit had been filed
on behalf of the appellant in which it had been stated that the issue of powers
of the Commissioner (Appeals) had come in appeal under Rule 46A and were
specifically raised before the High Court.

In that view of the matter,
the Supreme Court was of the opinion that, if indeed such issue was raised
specifically before the High Court and it had not been taken into consideration
by the High Court in passing the impugned order dated January 17, 2006, the
appropriate remedy for the appellant would be to file an application for review
of the said order.

 

7.  (2018) 400 ITR 23 (SC)

CIT
vs. Chet Ram (HUF)

Dated:
12.09.2017

Capital
Gains – Compulsory Acquisition – Enhancement of Compensation

In the appeals before the
Supreme Court, the only question that arose for consideration was as to whether
the respondents-assessees who had received some amount of enhanced compensation
as also interest thereon under an interim order passed by the High Court in
pending appeals relating to land acquisition matter were liable to be assessed for
income-tax in the year in which it has been received or not.

The Supreme Court noted
that in the case of CIT vs. Ghanshyam (HUF) (2009) 315 ITR 1 (SC), it
had considered the provisions of section 45(5) of the Act and had held that in
view of the amendment in the Act, the person who has received enhanced
compensation and interest thereon even by an interim order passed by the court
would be assessed to tax for that enhanced compensation.

Following the above
decision, the Supreme Court allowed the appeals setting aside the orders of the
High Court as also for the Tribunal and held that the Respondents were liable
to pay tax on enhanced amount of compensation and interest received by them
during the year in question.

 

8.  (2018) 400 ITR 141 (SC)

DCIT
vs. ACE Multi Axes Systems Ltd.      
A.Y.: 2005-06 Dated: 05.12.2017

Section
80IB – Deduction in respect of SSI – The scheme of the statute does not in any
manner indicate that the incentive provided has to continue for 10 consecutive
years irrespective of continuation of eligibility conditions. Applicability of
incentive is directly related to the eligibility and not de hors the same. If
an industrial undertaking does not remain small scale undertaking or if it does
not earn profits, it cannot claim the incentive

The
respondent-assessee was engaged in manufacture and sale of components/parts of
CNC lathes and similar machines. Its income was assessed for the assessment
year 2005-2006 at Rs. 1,79,82,653/-. However, the Commissioner of Income Tax,
interfered with the assessment u/s. 263 to the extent it allowed deduction u/s.
80IB(3) of the Act and directed fresh decision on the said issue vide order
dated 16th January, 2009. Thereafter, the Assessing authority on 14th
December, 2009 disallowed the claim of Rs. 75,81,910/- towards deduction u/s.
80IB(3). The same was upheld by the Commissioner in appeal and the Income Tax
Appellate Tribunal in second appeal. However, the High Court had reversed the
said orders and upheld the claim.

The issue before Supreme
Court was when once the eligible business of an assessee is granted the benefit
of deduction u/s. 80-IB on satisfaction of requisite conditions (including the
condition of being small-scale industry) in the initial assessment years,
whether such benefit can be denied for subsequent years [during the qualifying
period of ten consecutive years] when it ceases to be a small-scale industry.

The Supreme Court observed
that the scheme of the statute does not in any manner indicate that the
incentive provided has to continue for 10 consecutive years irrespective of
continuation of eligibility conditions. Applicability of incentive is directly
related to the eligibility and not de hors the same. If an industrial
undertaking does not remain small scale undertaking or if it does not earn
profits, it cannot claim the incentive. No doubt, certain qualifications are
required only in the initial assessment year, e.g. requirements of initial
constitution of the undertaking. Clause 2 limits eligibility only to those
undertakings as are not formed by splitting up of existing business, transfer
to a new business of machinery or plant previously used. Certain other
qualifications have to continue to exist for claiming the incentive such as
employment of particular number of workers as per sub-clause 4(i) of Clause 2
in an assessment year. For industrial undertakings other than small scale
industrial undertakings, not manufacturing or producing an Article or things
specified in 8th Schedule is a requirement of continuing nature.

The Supreme Court on
examination of the scheme of the provision held that there is no manner of
doubt that incentive meant for small scale industrial undertakings cannot be
availed by industrial undertakings which do not continue as small scale
industrial undertakings during the relevant period. Each assessment year is a
different assessment year, except for block assessment.

The Supreme Court was
unable to appreciate the logic of the observations made by the High Court that
the object of legislature is to encourage industrial expansion which implies
that incentive should remain applicable even where on account of industrial
expansion small scale industrial undertakings ceases to be small scale
industrial undertakings. According to the Supreme Court, incentive is given to
a particular category of industry for a specified purpose. An incentive meant
for small scale industrial undertaking cannot be availed by an Assessee which
is not such an undertaking. It does not, in any manner, mean that the object of
permitting industrial expansion is defeated, if benefit is not allowed to other
undertakings.

 

9.  (2018) 400 ITR 279 (SC)

CIT
vs. Chaphalkar Brothers

Dated:
07.12.2017

Capital or
revenue receipt – Subsidy – The object of the grant of the subsidy was in order
that persons come forward to construct Multiplex Theatre Complexes, the idea
being that exemption from entertainment duty for a period of three years and
partial remission for a period of two years should go towards helping the
industry to set up such highly capital intensive entertainment centres – The
fact that the subsidy took a particular form and the fact that it was granted
only after commencement of production would make no difference – The subsidy
was capital in nature

The Supreme Court was
concerned with a batch of appeals arising from the judgements dealing with
cases came from Maharashtra and West Bengal.

The Civil Appeals relating
to Maharashtra were concerned with the subsidy scheme of the State Government
which took the form of an exemption of entertainment duty in Multiplex Theatre
Complexes newly set up, for a period of three years, and thereafter payment of
entertainment duty @ 25% for the subsequent two years. The necessary amendment
in the Bombay Entertainments Duty Act to effectuate the aforesaid subsidy
scheme was first done by way of an ordinance before 4th December,
2001, which ultimately became part of an Amendment Act.

For the sake of
convenience, the Supreme Court took the facts of one of the matters before it,
namely, Civil Appeal Nos. 6513-6514 of 2012, the assessment order in that case
(dated 21.01.2006) found that the aforesaid scheme was really to support the
on-going activities of the multiplex and not for its construction. Since the
scheme took the form of a charge on the gross value of the ticket and
contributed towards the day to-day running expenses, the Assessing Officer held
that it was in the nature of a revenue receipt. The appeal filed before the
Commissioner met with the same fate and was dismissed substantially on the same
reasoning. However, the Income-Tax Appellate Tribunal by its judgment dated
30.06.2009, went into the matter in some detail, and after setting out the
object of the aforesaid scheme allowed the appeal of the assessee. The appeal
before the High Court was dismissed.

The Supreme Court applying
the tests contained in both Sahney Steel and Press Works Ltd. vs. CIT (228
ITR 253 (SC)
as well as CIT vs. Ponni Sugars and Chemicals Ltd. (2008)
306 ITR 392 (SC
), was of the view that the object, as stated in the
statement of objects and reasons, of the amendment ordinance was that since the
average occupancy in cinema theatres has fallen considerably and hardly any new
theatres have been started in the recent past, the concept of a Complete Family
Entertainment Centre, more popularly known as Multiplex Theatre Complex, has
emerged. These complexes offer various entertainment facilities for the entire
family as a whole. It was noticed that these complexes are highly capital
intensive and their gestation period is quite long and therefore, they need
Government support in the form of incentives qua entertainment duty. It
was also added that government with a view to commemorate the birth centenary
of late Shri V. Shantaram decided to grant concession in entertainment duty to
Multiplex Theatre Complexes to promote construction of new cinema houses in the
State. According to the Supreme Court the aforesaid object was clear and
unequivocal. The object of the grant of the subsidy was in order that persons
come forward to construct Multiplex Theatre Complexes, the idea being that
exemption from entertainment duty for a period of three years and partial
remission for a period of two years should go towards helping the industry to
set up such highly capital intensive entertainment centres. This being the
case, it was difficult to accept Revenue’s argument that it is only the
immediate object and not the larger object which must be kept in mind in that
the subsidy scheme kicks in only post construction, that is when cinema tickets
are actually sold. The Supreme Court opined that the object of the scheme is
only one-there was no larger or immediate object. According to the Supreme
Court the fact that object was carried out in a particular manner was
irrelevant, as had been held in both Ponni Sugar and Sahney Steel.

The Supreme Court therefore
had no hesitation in holding that the finding of the Jammu and Kashmir High
Court in Shree Balaji Alloys vs. CIT (2011) 333 ITR 335 (J&K) on the
facts of the incentive subsidy contained in that case was absolutely correct.
Once the object of the subsidy was to industrialise the State and to generate
employment in the State, the fact that the subsidy took a particular form and
the fact that it was granted only after commencement of production would make
no difference.

The Supreme Court further held that
since the subsidy scheme in the West Bengal case was similar to the scheme in
the Maharashtra case, being to encourage development of Multiplex Theatre
Complexes which are capital intensive in nature, and since the subsidy scheme
in that case was also similar to the Maharashtra cases, in that the amount of
entertainment tax collected was to be retained by the new Multiplex Theatre
Complexes for a period not exceeding four years, the West Bengal cases must
follow the judgement that had been delivered in the Maharashtra case.

 

From the President


Dear Members,

April was a remarkable month with a golden
lining. At BCAS, we celebrated the golden anniversary of our monthly journal –
BCAJ. And India celebrated a sporting victory as it struck gold 26 times at the
21st Commonwealth Games in Australia. After a dismal performance at
Rio, India showed its true mettle by winning 66 medals and surged to the third
place behind Australia and UK. The 200 strong Indian contingent fought hard and
performed brilliantly, ensuring a steady stream of good news in the media. In
addition to many veterans, there were many first timers that did India proud.
BCAS extends its congratulations to all the sports people, coaches and
officials who kept the Indian flag flying high!

It has been a dream for millions of Indians
in lakhs of villages. A dream that was shared by Prime Minister Modi too! On 28th
April, that dream became a reality with Manipur’s Leisang village getting
connected to India’s mainline power supply network. Now all of India’s approx.
6 lakhs inhabited villages scattered across the length and breadth of the
nation have access to power. Taking to Twitter, the Prime Minister proudly
revealed, with a sense of satisfaction and achievement that, “we fulfilled a
commitment due to which the lives of several Indians will be transformed
forever.” Overcoming numerous obstacles and defying tremendous odds, the
Government left no stone unturned in ensuring all villages get electricity in
1000 days, starting 15th August 2015. The next step is providing
connections to all households and ensuring adequate supply to the villages.

Last year the world was on the edge, as North
Korean leader Kim Jong-un defiantly tested nuclear devices and missiles. The
geopolitical tensions had stock indices plummeting, erasing trillions in equity
markets. The recently concluded Inter-Korean Summit seems to have dissolved a
lot of those tensions. North Korea’s Kim has declared to President Moon of
South Korea that he will abandon nuclear weapons, if the US would formally end
the Korean war and agree not to invade his country. Last week, Kim and Moon
signed a joint declaration recognising “a nuclear free Korean peninsula and
complete denuclearisation” as a common goal of both Koreas.

However, Kim has a long way to go in winning
the world’s confidence. Critics have discounted the genuineness of Kim’s
actions and are sceptical of Kim’s sugary overtures – underlining that he never
publicly renounced his nuclear weapons. It is hoped that Kim will be sincere in
his actions and help his impoverished country to progress as the region enjoys
greater stability.

There are many reasons why India’s justice
delivery is becoming rigid and unresponsive — there are over 3.2 crore cases
pending across courts, of which over a quarter are pending for over five years
at the district courts and the high courts. Judicial-strength gaps are one. The
Government clogging the courts with mindless litigation are another. The fact
that 46% of all pending cases have been filed by the Centre and State
governments makes the “State” the most prolific litigant in the country.

Noting how frivolous and prolific litigation
by the Government has clogged justice delivery, the SC advised the Union
Government to be mindful of the burden on ordinary litigants who have to fork
out “a small fortune” to get justice, thanks to long drawn trials. To be sure,
fixing the government’s ‘fondness’ for litigation needs a raft of policy
changes.

The National Litigation Policy 2010—which
talked of making the Government an “efficient and responsible” litigant—is
hanging fire. The 2015 review was supposed to remove the anomalies of the 2010
proposal, by including provisions such as fines for officers engaged in drawing
the Government into needless litigation. But with the policy itself pending,
there seems to be no template with which the flow of government litigation can
be fixed.

On the economic front too, India has been
inching upwards! The International Monetary Fund (IMF) in its latest “World
Economic Outlook” has projected that India will grow at 7.4% in 2018 and ascend
to 7.8% in 2019. IMF acknowledges that India’s growth is the direct result of
the continued implementation of structural reforms that will raise productivity
and incentivise private investment.

India’s biggest challenge in the months ahead
is to broaden inclusiveness. Efforts have also to be directed towards achieving
fiscal consolidation and budget deficit targets. Key to sustained growth will
also revolve around the Government’s ability to ease labour market rigidities
and reduce infrastructural bottlenecks. Clearly the best is yet to come!

Data is the ‘new gold’. This surprising
revelation has surfaced in the aftermath of the data privacy scandal that has
sent shock waves across the world, even India. The crux of the matter revolves
around the unethical compilation and analysis of personal data from Facebook,
without the permission of the users. Applying complex algorithms, data
scientists were able to unlock the psychographics of the targeted people, who
were then bombarded with appropriate content to alter their preferences. This
process of personality profiling is extremely subtle and has been used to
manipulate minds during elections.

Clearly the need of the
hour is stringent regulation that will ensure that data privacy is
uncompromisingly safeguarded and not viciously employed to manipulate
commercial or political success.


In keeping with his aim of building and reinforcing relationships with
countries across the world, Prime Minister Modi made his second trip to the UK
this year. PM Modi had bilateral meeting with British PM, Theresa May where
India and the UK signed multiple agreements and MoUs. Both countries decided to
deepen ties, especially in the areas of technology, trade and investment. The
PM also attended the Commonwealth Summit – making him the first Indian PM to
attend in a decade. As UK gets ready to exit the EU, the summit is seen as an
opportunity for Britain to boost its trade and increase its diplomatic clout
with all Commonwealth countries.

For India, visa liberalisation was on top of
the agenda. New Delhi has been pushing for many years an increase in the number
of student visas and the simplification of the process. India’s participation
at the summit was also useful as it gives it the chance to talk to other Asian
countries without China ‘being in the room’. Britain is keen on signing a trade
agreement with India, as it has to aggressively explore new markets once it
leaves the EU.

By the time this edition of the Journal
reaches you the exams for the CA IPC and Finals must have resumed. I take this
opportunity to request you to convey my best wishes to all the students
connected with you for these exams.

Please feel free to
write to me at president@bcasonline.org

With kind regards

CA. Narayan Pasari

President

 

Indirect Taxes

Service Tax Updates

18. Amendment under Service Tax (Advance Rulings) Rules, 2003

Notification No. 12/2017-ST dated 31. 03. 2017

For the purpose of cases in
relation to service tax, CBEC has classified advance ruling authority as the
authority established under the Customs Act which mainly deals with the matters
in relation to the central excise & customs.

19. Amendment under Service Tax (Settlement of Cases) Rules,
2012

Notification No. 13/2017-ST dated 12. 04. 2017

CBEC has amended the form of
application for settlement of cases for service tax. The said amendment is
effective 12.04.2017.

20. Determination of point
of taxation in case of services provided by a person located in non-taxable
territory to a person in non-taxable territory

Notification No. 14/2017-ST dated 13. 04. 2017

The point of taxation in respect
of services provided by a person located in non-taxable territory to a person
in non-taxable territory by way of transportation of goods by a vessel from a
place outside India up to the customs station of clearance in India, shall be
the date of bill of lading of such goods in the vessel at the port of
export.  The same is effective
retrospective from 22.01.2017.

21. Amendments under Reverse Charge Mechanism

Notification No. 15/2017-ST dated 13. 04. 2017 [Effective
from 23.04.2017]

The business entity located in the
taxable territory who is litigant, applicant or petitioner who receives legal
services shall be treated as the person liable for payment of service tax.
Further, non-assessee online recipient has been defined. Further, importer is
liable for payment of service tax for services provided by a person located in
non-taxable territory to a person in non-taxable territory by way of
transportation of goods by a vessel from a place outside India up to the
customs station of clearance in India.

22. Amendments under Service Tax Rules, 1994

Notification No. 16/2017-ST dated 13. 04. 2017 [Effective
from 23. 04. 2017]

The definition of “person liable
to pay service tax” has been amended to include importer as such person for
services provided by a person located in non-taxable territory to a person in
non-taxable territory by way of transportation of goods by a vessel from a
place outside India up to the customs station of clearance in India.

Further, such importer shall have
the option to pay an amount calculated at the rate of 1.4% of the sum of cost,
insurance and freight (CIF) value of such imported goods.

23. Order No: 1/2017 dated 25th April, 2017

Extension of due date for filing Service Tax Returns

The due date for filing service
tax returns for the period from October 2016 
to March 2017 is  extended by 5
days and therefore the revised due date for filing service tax returns for the
above mentioned period is 30th April, 2017.

MVAT Updates

24. Exemption from payment of late fee u/s 20(6) of the MVAT
Act, 2002

Trade Circular 9T of 2017 dated 01.4.2017

The whole of the Late Fee is
exempt if it is filed as per revised dates which  for 
Monthly returns from April-2016 to February -2017 is up to 10.4.2017;
for quarterly returns April to June-2016 & July to September-2016 is up to
10.4.2017 and for monthly return March-2017 is up to 30.4.2017.

Quarterly return also made
available for October to December 2016 and may be filed up to 21.4.2017.
Quarterly return also made available for January to March  – 2017 and may be filed up to 10.5.2017.

25. Changes in the rate of tax, extension to exempted
commodities and changes in taxation of liquor under the Maharashtra Value Added
Tax Act, 2002

Trade Circular 10T of 2017 dated 06. 04. 2017

Giving effect to the budget
proposal for the year 2017-18 amendments to Schedules A, C & D have been
explained in this Circular.

26.  Maharashtra Act
No. XXXI of  2017

Notification No. VAT-1517/CR-10/Taxn-1 dated 28.2.2017

Amendments to Maharashtra Value Added Tax Act, Sugarcane
Purchase Tax Act, Profession Tax Act and Entry Tax Rules

Trade Circular 11T of 2017 dated 20. 04. 2017

To amend the above referred Acts/Rules A Bill
(L. A . Bill No. XVIII of 2017) has been passed by the legislature and has
received assent of the Governor on 15.4.2017.The Act (Maharashtra Act No. XXXI
of 2017) is published in the Maharashtra Government Gazette dated 15.4.2017.

Direct Taxes

14.  Salary income
accrued by a seafarer for services rendered outside India is not taxable in
India merely because it is received in a NRE account maintained with a bank in
India

Circular No. 13/2017 dated 11. 04. 2017

15. Finance Bill 2017 received Presidential Assent on
31.3.2017

16.  Guidelines for
waiver of interest u/s. 201(1A) of the Act 

Circular No. 11/2017 dated 24. 03. 2017

CBDT has prescribed certain guidelines to be followed by
CCITs and DGITs while considering the applications for waiver of interest u/s.
201 (1A) of the Act in following cases:

   Search and seizure cases where the assessee
was unable to ascertain the TDS liability to deduct and pay it.

   As on date of deduction of TDS, the law
prevailing was favouring the assessee and the demand has arisen due to change
of law retrospectively or due to larger bench of jurisdictional Court’s /
Supreme Court’s order against the case of the assessee.

   Default on account of non-deduction or lower
deduction of tax payment to non resident under prescribed circumstances.

It has been clarified that the waiver application would be
considered even if the assessee has paid the interest.

17.  CBDT issues FAQs
to clarify issues relating to ICDS 

Circular No. 10/2017 dated 23. 03. 2017

Miscellanea

1. Economy

6.  Salesforce Is Getting Into Blockchain. Here’s
Why That Matters

Salesforce.com (NYSE:CRM)
CEO Marc Benioff often talks about having a beginner’s mind — trying to view
the world like it’s a new place you’ve never experienced before. That thinking
is leading the company toward developing a blockchain and cryptocurrency
solution that Benioff hopes will be ready for the company’s Dreamforce 2018
software conference this September. For investors, that means Salesforce could
be the latest way to take advantage of the cryptocurrency boom … without
having to buy any bitcoin.

7.  Cryptography  and  
blockchain and  cryptocurrency, oh
my!

Cryptocurrencies are
virtual currencies, and there are lots of them — more than 1,500 as of this
writing. In some ways, they are no different than any other form of currency,
like the dollar or the euro. People agree they are worth something and they can
be exchanged for things of value.

Where cryptocurrencies
differ is that they’re completely digital and decentralized — not controlled
by a central bank or backed by a government. Instead, the currency exists in a
type of public ledger called a blockchain, and that ledger can only be altered
if certain conditions are met. Alterations are made using cryptography, the
science of encoding data to keep it safe from theft or other manipulation.

Cryptocurrencies and the
blockchain technology making them possible have garnered lots of interest and
it’s not surprising Salesforce is looking to create a product for this market.
And Salesforce has had great success starting and quickly growing new business
segments over the years, so the thought of Salesforce becoming a major player
in blockchain technology and cryptocurrency isn’t far-fetched

(Source:
International Business Times dated 19.04.2018)

 

2.  Technology

8.  One plus 6 to launch in Mumbai on May 17

OnePlus has confirmed the
launch of the OnePlus 6 for the Indian market. The company says it will be
hosting the product launch event at the Dome at NSCI, Mumbai on May 17.

OnePlus has confirmed the
launch of the OnePlus 6 for the Indian market. The company says it will be
hosting the product launch event at the Dome at NSCI, Mumbai on May 17. The
launch event will begin at 15:00 and will be live streamed across its official
social channels. OnePlus 6 will start selling in India via Amazon India
starting 12:00 IST on 21 May 2018. However, users should keep in mind that the
sale will be limited to Amazon Prime members.

OnePlus is also giving its
fans a chance to attend the launch event. The entry vouchers to attend the
event will be available via oneplus.in from 10:00 IST on Tuesday, 8 May 2018.
In addition, those who will attend the launch event will get a gift hamper full
of super add-ons and exclusive Marvel Avengers merchandise.

(Source:
The Indian Express dated 26.04.2018)

9.  Why we need to have regulation and
legislation on AI (Artificial Intelligence) and quick

Our laws will eventually
need to be amended or new laws for artificial intelligence technologies and
processes will need to be adopted to fill up existing lacunae.

Artificial Intelligence
(AI) is a global technological wave and there’s no disputing the fact that it
has entered the Indian market. India has not advanced as far as giving
citizenship rights to a robot (case in point –Sophia from Saudi Arabia), but
personalised chatbots have flooded the market, AI has forayed into the medical
stream and it is also being used to protect the cyberspace.

With greater explorations
into the space of AI, the world is moving towards a goal of near-complete
automation of services. The element of end-to-end ‘human involvement’ has been
insisted upon by most AI advanced countries such as Canada, in order to ensure
accountability and security of AI systems. AI is wholly based on data generated
and gathered from various sources. Hence, a biased data set could evidently
lead to a biased decision by the system or an incorrect response by a chatbot.

Pratik Jain, co-founder of
Morph.ai, a Gurgaon-based AI startup, says if the chatbot does not respond
correctly once deployed by the business, a human fallback is provided to
correct the error based on the data generated and provided by the business.

(Source:
The Indian Express dated 26.04.2018)

10.  Amazon Teases Fire TV Cube, A Set-Top Box
Powered By Alexa

Amazon has confirmed the
existence of a new product called “Fire TV Cube.” It’s being speculated that
the upcoming device will be a new high-end Fire TV set-top box that comes with
Amazon’s Alexa voice assistant.

Amazon has set up a new
teaser page that asks visitors “what is Fire TV Cube?” The webpage says that
details about the device will become available soon and visitors will be able
to sign up to receive an update on the upcoming product. Amazon’s new teaser
page was first discovered by AFTVNews, which appears to have already leaked the
device way back in September.

Last fall, AFTVNews posted
a leaked image of a new Fire TV dongle and a cube-shaped Fire TV set-top box.
The dongle turned out to be the 2017 Fire TV, which Amazon officially launched
in October. As for the set-top box, it wasn’t released alongside the new Fire
TV because its release date may have been pushed back to 2018. It’s now being
speculated that the set-top box will be the Fire TV Cube that Amazon is
currently teasing about.

Amazon has not confirmed
anything yet about the Fire TV Cube, but it was previously rumored to arrive
with voice recognition technology, specifically Amazon’s Alexa voice assistant.
The leaked image from last year appears to show the device as having far-field microphones,
a built-in speaker and an LED light indicator. On top, it features buttons for
volume controls, turning off the microphones and a trigger for Alexa. The
device is said to feature an IR (infrared) emitter, which suggests that users
will be able to control it with other IR remote controllers. The device looks a
lot like a cube-shaped Amazon Echo speaker.

It’s being speculated that
the Fire TV Cube will let users have hands-free interaction with Alexa to
search and play video content. Alexa might also be able to provide hands-free
playback control for music and videos. The device is also expected to arrive
with its own voice remote, which features a microphone button to trigger and
interact with Alexa.

One of Engadget’s readers
sent the site scans of a user manual for his Amazon Ethernet adapter. One of
the pages appears to show an illustration of the Fire TV Cube, and it suggests
that the new device will have an HDMI port, a power port and a port simply
marked as “Infrared.” The device also appears to have a microUSB port, which
can only be used for the Amazon Ethernet Adapter.

Amazon didn’t say when
exactly it will unveil the Fire TV Cube. But based on the teaser page and the
device’s appearance in a recent user manual, it seems like the Fire TV Cube
might launch very soon.

(Source: International Business
Times dated 25.04.2018)

Corporate Law Corner

4. 
(2018) 142 CLA 78 (NCLT – New Delhi)

Axis Bank Ltd. vs. Edu Smart Services Pvt.
Ltd.

Date of Order: 27th October, 2017

Regulations 12 and 13 of Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 – Corporate guarantee provided by Corporate debtor matured
after the commencement of insolvency resolution process – claim to accept the
invocation could not be accepted as the insolvency resolution process had
commenced prior to crystallization of liability


FACTS

E Ltd.   had  
provided   A Ltd.   a 
corporate  guarantee  of Rs. 396.76 crore in respect of loan
advanced by A Ltd. to group concern of E Ltd. A Ltd. filed a claim before the
Insolvency Resolution Professional (“IRP”) which was turned down by it. A Ltd.
filed an application before the National Company Law Tribunal (“NCLT” or the
“Tribunal”) in order to invoke a corporate guarantee after the date of
commencement of Corporate Insolvency Resolution Process (“CIRP”). The date of
commencement of the insolvency process was 27.06.2017 whereas the corporate
guarantee was invoked on 21.07.2017. E Ltd. sent a letter stating that
corporate guarantee could not be invoked as CIRP had been initiated and
moratorium was in force.

The loan agreement provides that in the
event of default by the Borrower the guarantor shall be liable to pay the
amounts payable by the Borrower. Accordingly, A Ltd. invoked the guarantee
which was not accepted by the IRP owing to the fact that date of invocation of
guarantee was much after the date of commencement of CIRP.

IRP argued that Regulations 12 and 13 of
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“the Regulations”) which deal with
submission of proof of claims and verification of claims clearly postulate that
IRP is required to verify only those claims which are existing as on the
insolvency commencement date. Accordingly, any claims which have not matured as
on the date of commencement of CIRP cannot be accepted.

IRP further pointed out that A Ltd. had
separately filed for recovery against the Borrower in a separate insolvency
proceeding and which claim has been accepted in the application filed before
NCLT.

 

HELD

The limited issue before the Tribunal was
whether A Ltd. was entitled to make a claim against E Ltd. by invoking the
corporate guarantee after the date of commencement of the insolvency process.

The Tribunal perused the terms of the loan
documents, as well as Regulations 12 and 13. It held that in order to qualify
as a ‘debt’, the provisions of the corporate guarantee must be satisfied by
raising a demand which is expressed by invoking the corporate guarantee and the
date of its invocation has to precede the insolvency commencement date. In the
present case, although CIRP commenced on 27.06.2017, the corporate guarantee
was only invoked on 21.07.2017. IRP would not be in a position to verify the
claim as it will not be reflected in the books of accounts which are supposed
to be updated as on 27.06.2017. In the absence of any record to verify the
claim, it would be impossible for the IRP to accept any such claim which became
a debt after 27.06.2017.

The Tribunal further examined the provisions
of section 3(6), 3(8), 3(10), 3(11) and 3(12) of Insolvency and Bankruptcy
Code, 2016 which defined the terms claim, corporate debtor, creditor, debt and
default in order to conclude that a debt did not exist on the date insolvency
process commenced.

A Ltd. argued that liability of guarantor
under the Indian Contract Act, 1872 is joint and several and accordingly it had
a right to enforce the liability against E Ltd. However, Tribunal held that
liability only crystallised after the commencement of CIRP and the argument put
forth had no merit. A Ltd. further urged that there is no provision in the Code
declaring the insolvency commencement date as the date to determine the claims
of the parties. The Tribunal however observed that invocation of corporate
guarantee against E Ltd. would result in enforcing of security interest and it
would thus, be in violation of the moratorium provision of section 14(1)(c) of
the Code.

The Tribunal also observed that A Ltd. had
already filed separate proceedings against the borrower and its claim was
accepted in such separate proceedings.

The Tribunal therefore, dismissed the
application filed by A Ltd.

 

5. 
(2018) 1 CompLJ 36 (NCLAT – Kol)

Surojit Kumar vs. ROC

Date of Order: 08th March, 2017

Section 128(6) of Companies Act, 2013 – The
provision comes into effect from 01.04.2014 – Accordingly, penalty stipulated
therein cannot apply to offences committed up to 31.03.2014


FACTS

S and 2 other directors (for sake of brevity
referred to as S) filed an application u/s. 621A of the Companies Act, 1956
(“1956 Act”) for compounding offence for violating section 209 of the Companies
Act, 1956 during the year ending between 31.03.2011 to 31.03.2014 (“Petition
1”).

Another application was filed u/s. 621A of
1956 Act for compounding of offence for violation of section 217(2) of
Companies Act, 1956 during the year ending between 31.03.2011 to 31.03.2014
(“Petition 2”).

Petition 1 was admitted and NCLT compounded
the offence by levying a fee of Rs. 5,000 whereas Petition 2 was admitted by
NCLT and the compounding fees levied were Rs. 10,000.

S had no objections under both the petitions
in respect of financial years ending on 31.03.2011 to 31.03.2013. However, in
so far as financial year 31.03.2014 was concerned, NCLT levied the penalty
taking into consideration provisions of section 128(6) of the Companies Act,
2013. S thus, filed the present appeal to challenge the application of
Companies Act, 2013 in respect of financial year ended on 31.03.2014 by the
NCLT.

 

HELD

ROC before the Appellate Tribunal (NCLAT)
submitted that company regularised the mistake in the financial year ended
31.03.2015. However, NCLAT proceeded to hold that prospective regularisation
cannot be used as an excuse to apply the provisions of Companies Act, 2013
retrospectively in respect of offences which were committed prior to its coming
into force.

NCLAT held that 128(6) could not be applied
in respect of violation of section 209 committed during the financial year ended
31.03.2014. It thus set aside the order of NCLT to that extent and imposed a
fee similar to what had been laid down in respect of earlier years.

The appeal filed by S was thus accepted.

Order in matter of Insider Trading in the
Scrip Of Deep Industries Limited in respect of Rupeshbhai Kantilal Savla; Sujay
Ajitkumar Hamlai and V-Techweb India Private Limited

 

6. 
SEBI/WTM/MPB/IVD/ID–6/162/2018

Date of Order: 16th April, 2018

SEBI (Prohibition of Insider Trading)
Regulations, 2015 – Persons who are friends on Facebook can be regarded as
connected persons – Likes and other activity on the social media platform can
be looked into for the purpose of determining whether such persons are
“connected persons” or not


FACTS

D Ltd was engaged in the business of oil
exploration and allied activities and its shares were listed on National Stock
Exchange (NSE) as well as Bombay Stock Exchange (BSE). Between 17.07.2015 to
14.10.2015 (“Investigation period”) D Ltd. was awarded three contracts from
ONGC for hiring of mobile drilling rigs spanning across a period of several
months.

Some details in respect of these contracts
are as follows:

First contract: The bid for the same was
opened on 17.07.2015 and D Ltd. was declared as L1 bidder.

Second contract: The bid for the same was
opened on 01.07.2015. However, D Ltd. was not declared to be L1 bidder. ONGC
subsequently requested D Ltd. to match the evaluated day rate of L1 bidder on
17.08.2015. D ltd. submitted this bid on 18.08.2015.

Third contract: The bid for the same was
opened on 27.07.2015 and D Ltd. was declared as L1 bidder.

The stage at which the company was declared
as L1 bidder was the stage at which process of tendering got completed and what
remained pending was merely award of contract.

The receipt of these contracts was notified
to the stock exchanges after D Ltd. received the notification of award of
contract. The dates were 03.09.2015 for first and second contract and
14.10.2015 for third contract. Pursuant to these corporate announcements, there
was a rise in the price at which these scrips were being traded on the
exchanges.

 

HELD

Issues before SEBI and their disposal is as
follows:

SEBI observed that value of the two
contracts for which the announcement was made on 03.09.2015, constituted a substantial
52.47% of the annual turnover of the company for the FY 2015-16 and 87.65% of
the annual turnover for the FY 2014-15 i.e. immediately preceding financial
year. Similarly, the value of the single contract for which announcement was
made on 14.10.2015 constituted 53.40% of the annual turnover of the company for
the FY 2015-16 and 89.21% of the annual turnover for the FY 2014-15 i.e.
immediately preceding financial year. Considering the magnitude of the value of
the three contracts, the information relating to bagging of these orders by D
Ltd. constituted price sensitive information and the same was likely to
materially affect the share price of the company, once published.

UPSI periods were the periods where the
information was available with company regarding receipt of contracts and
ceased to exist on the day the same was notified to the exchanges.  Accordingly, period between 17.07.2015 and
14.10.2015 was determined as the UPSI period.

On the basis of the investigations conducted
by SEBI, R, V Ltd. and A were identified as insiders for the Investigation
period as per the Regulations.

R being the Managing director of D Ltd. was
held to be an insider as well as a connected person.

S and directors of V Ltd. were regarded as
connected persons on the basis of their being friends on social media platform
“Facebook” with R and his wife. Wife of S was also friends with wife of R. SEBI
also observed instances where they had “liked” each other’s pictures posted on
the platform. Thus, S and V Ltd. were held to be insiders and connected persons
owing to their social relationship.

SEBI observed that insiders had traded in or
brought shares of D Ltd. during the Investigation period and SEBI proceeded to
compute the gains and ordered that such gains be impounded from the insiders.

 


Allied Laws

6. Union of
India and Ors. vs. Manju Lata Tiwari AIR 2018 PATNA 28           

 Adhaar Card –
Sufficient identity proof. [Government Savings Bank Act, 1873, S.4-A]

A widow wanted
a refund of the money deposited in the savings account with the post office
deposited by her late husband who had not made it either a joint account or
declare the wife as the nominee. When a demand or claim was made by the wife,
it was rejected after quoting various rules.

It was
contended that the Post Office Savings Bank Manual Volume-I stated that in
absence of a nomination there was no occasion to release any amount up to Rs.
one lakh or above without production of a succession certificate or a probate
of a Will or letter of administration, and hence the widow was not entitled to
the refund.

The Court
observed that there were enough official evidences available including the
so-called Aadhar Card, which is being used for large number of Government
dealings for measure of identification. Aadhar Card is also being used for the
purposes of disbursement of funds by the Central Government to the so-called
beneficiaries, then why a hapless widow has to go through the rigmarole of
litigation, spend time, money and energy for years together by moving a civil
Court before she can beget her rightful claim of her deposit left behind by her
husband on this technicality is not appreciated by this Court.

In view of the
above, the Hon’ble Supreme Court held that the guidelines mentioned in the Post
Office Savings Bank Manual Volume-I, are only directive and the same cannot be
used for unnecessary harassment of a bona fide depositor or a legal heir.

7. Danamma
alias Suman Surpur and another vs. Amar and Ors. AIR 2018 SUPREME COURT 721

Hindu Law –
Coparcenary – Daughter – Suit for Partition – Entitled to share in property
since birth – Even though amendment came into effect after such birth. [Hindu
Succession Act, 1956 S.6]

A suit was
filed for partition for a share in the property, by the daughters of the
deceased. However, this suit was filed in the year 2002 i.e. 1 year after the
death.

It was observed
that, S.6, as amended, stipulates that on and from the commencement of the
amended Act, 2005, the daughter of a coparcener shall by birth become a
coparcener in her own right in the same manner as the son. It is apparent that
the status conferred upon sons under the old Section and the old Hindu Law was
to treat them as coparceners since birth. The amended provision now statutorily
recognises the rights of coparceners of daughters as well since birth. The
section uses the words in the same manner as the son. It should therefore be
apparent that both the sons and the daughters of a coparcener have been
conferred the right of becoming coparceners by birth. It is the very factum of
birth in a coparcenary that creates the coparcenary, and therefore the sons and
daughters of a coparcener become coparceners by virtue of birth. Devolution of
coparcenary property is the later stage of and a consequence of death of a
coparcener. The first stage of a coparcenary is obviously its creation as
explained above, and as is well recognised. One of the incidents of coparcenary
is the right of a coparcener to seek a severance of status. Hence, the rights
of coparceners emanate and flow from birth (now including daughters) as is
evident from sub-s (1)(a) and (b) of S.6.

In light of the
observation made, the Hon’ble Court held that, in the present case, the rights
of the appellants i.e. the daughters had crystalised when the amendment came
into effect. Hence, even the daughters would be entitled to 1/5th
share in the property.

8. Jayant Verma
and Ors. vs. Union of India (UOI) and Ors. AIR 2018 SUPREME COURT 1079

 Precedent –
Exparte judgment without discussion is Per incurium hence not binding.

The issue was
whether one of the judgements relied upon were binding on the Court.

It was observed
that where such a matter is not argued at all by the Respondent, and the
judgement is one of reversal, it would be hazardous to state that the law can
be declared on an ex parte appraisal of the facts and the law, as
demonstrated before the Court by the Appellant’s counsel alone. That apart,
where there is a detailed judgement of the High Court dealing with several
authorities, and it is reversed in a cryptic fashion without dealing with any
of them, the per incuriam doctrine kicks in, and the judgement loses
binding force, because of the manner in which it deals with the proposition of
law in question. Also, the ratio decidendi of a judgement is the
principle of law adopted, having regard to the line of reasoning of the Judge
which alone binds in future cases. Such principle can only be laid down after a
discussion of the relevant provisions and the case law on the subject. If only
one side is heard and a judgement is reversed, without any line of reasoning,
and certain conclusions alone are arrived at, without any reference to any case
law, it would be difficult to hold that such a judgement would be binding and
the same has to be followed.

In view of the
same, it was held by the Hon’ble court that such judgment was not binding on
them.

9. SRD Nutrients Private Limited vs. Commissioner
of Central Excise, Guwahati (2018) 1 Supreme Court Cases 105

Precedent –
Judicial Discipline – Reference to Larger Bench in case of contradicting views.

It was observed
by the Hon’ble Court that when a view was taken by one bench of the CESTAT Tribunal
on one issue then another view or a contrary view cannot be taken by the
co-ordinate bench of the CESTAT Tribunal. Judicial discipline warranted
reference of the matter to the Larger Bench.

In view of the
same, the Hon’ble Court held that it is also trite that when two views are
possible, one which favours the Assessees has to be adopted.


10. B. Sunitha vs. The State of Telengana
and Ors. (2018) 1 Supreme Court Cases 638

Professional Misconduct – Advocate –
Percentage of decretal amount. [Contract Act, 1872; S.23]

The proceedings
were initiated by the Respondent who is an advocate in whose favour the
Appellant executed a cheque allegedly towards his fee. The cheque was
dishonoured. The stand of the Appellant is that section 138 of the Act is not
attracted as there was no legally enforceable debt, as fee claimed was
exorbitant and against law. The Appellant having already paid a part of the
fee, stated that fee could not be demanded on percentage of amount awarded as
compensation to the Appellant which was in violation of the Advocate Fee Rules
and Ethics.

It was argued
that charging percentage of decretal amount by an advocate is hit by section 23
of the Contract Act being against professional ethics and public policy and
hence the cheque issued by the Appellant could not be treated as being in
discharge of any liability by the Appellant.

It was observed
that mere issuance of cheque by the client may not debar him from contesting
the liability. If liability is disputed, the advocate has to independently
prove the contract. Claim based on percentage of subject matter in litigation
cannot be the basis of a complaint u/s. 138 of the Act. Having committed a
serious professional misconduct, the Respondent i.e. the Advocate, could not be
allowed to avoid the adverse consequences which he may suffer for his
professional misconduct. The issue of professional misconduct may be dealt with at appropriate forum.

It was held by
the Hon’ble Court that the claim of the Respondent advocate being against
public policy and being an act of professional misconduct, proceedings in the
complaint filed by him have to be held to be abuse of the process of law and
have to be quashed.

From Published Accounts

Illustrative    Limited   
Review Report for a company where Interim Resolution Professional (IRP)
has been appointed under the Corporate Insolvency Resolution Process (CIRP)

Lanco Infratech
Ltd
(From Notes to Unaudited Standalone Financial
Results for the quarter ended December 31, 2017)

STATEMENT
OF STANDALONE RESULTS FOR THE QUARTER AND NINE MONTHS ENDED DECEMBER 31, 2017


Rs. Cr

PARTICULARS

Quarter Ended

Nine Months Ended

Year Ended

31.12.2017

30.09.2017

31.12.2016

31.12.2017

31.12.2016

31.03.2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

1

Revenue from operations                                                                 

 10.96                           

12.64

226.64

266.65

1049.07

1634.90

2

Other income                                                                                 

6.86

8.57

11.98

27.12

39.50

122.63

3

Total Income (1 + 2)                                                                                           

17.82

21.21

238.62

293.77

1088.57

1757.53

4

Expenses

 

 

 

 

 

 

 

Cost of Materials Consumed

14.34

8.87

167.19

80.33

589.09

750.10

 

Purchase of stock-in-trade

49.37

 

Subcontract Cost

10.05

14.57

63.33

107.87

229.13

388.20

 

Construction and Site
Expenses

2.86

3.79

41.01

34.95

82.81

122.21

 

Change in inventories of
construction work in progress

73.91

57.18

(5.40)

403.16

(180.84)

(82.81)

 

Employee benefits expenses

21.00

34.30

46.06

99.13

150.07

186.49

 

Finance cost

292.75

287.78

267.68

846.53

755.25

1032.13

 

Depreciation and
Amortization expense

13.01

13.86

23.53

41.93

70.31

87.78

 

Other expenses

16.12

45.73

23.54

110.76

59.67

133.58

 

Total Expenses (4)

444.04

466.08

627.14

1724.66

1755.49

2647.05

5

Profit / (Loss) before
exceptional  items and
Tax (3-4)

(426.22)

(444.87)

(388.52)

(1430.89)

(666.92)

(889.52)

6

Exceptional items

(130.56)

(1262.39)

7

Profit / (Loss) before Tax

(5 + 6)

(426.22)

(575.43)

(388.52)

(2693.28)

(666.92)

(889.52)

8

Tax Expense

9

Profit/ (Loss) for the
Period (7- 8)

(426.22)

(575.43)

(388.52)

(2693.28)

(666.92)

(889.52)

10

Other comprehensive income

 

 

 

 

 

 

 

Items that will not be
reclassified to profit
and loss

0.14

0.14

(0.10)

0.41

(0.31)

0.55

11

Total comprehensive income
for the period (9+10)

(426.08)

(575.29)

(388.62)

(2692.87)

(667.23)

(888.97)

12

Paid-up equity share capital
(face value of Re.1/- per share)

330.26

330.26

273.78

330.26

273.78

330.26

 

Earning per share (EPS) not
annualised

 

 

 

 

 

 

 

– Basic

(1.30)

(1.76)

(1.44)

(8.24)

(2.47)

(3.25)

 

– Diluted

(1.30)

(1.76)

(1.44)

(8.24)

(2.47)

(3.25)

STATEMENT
WISE REVENUE, RESULTS, ASSETS AND LIABILITIES FOR THE QUARTER AND NINE MONTHS
ENDED DECEMBER 31, 2017 – STANDALONE

 

Rs. Cr

PARTICULARS

Quarter Ended

Nine Months Ended

Year Ended

31.12.2017

30.09.2017

31.12.2016

31.12.2017

31.12.2016

31.03.2017

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

1

Segment
Revenue

 

 

 

 

 

 

 

a)                                                                                                

EPC & Construction

2.30

4.77

199.63

240.80

964.33

1533.39

 

b)

Power

1.55

1.36

19.57

5.72

55.17

63.63

 

c)

Infrastructure

7.11

6.51

7.44

20.13

29.57

37.88

 

 

Net Sales/Income from Operations

10.96

12.64

226.64

266.65

1049.07

1634.90

2

Segment
Results (Profit(+) /Loss(-) before tax and interest from each segment)

 

 

 

 

 

 

 

a)

EPC& Construction

(141.21)

(166.20)

(145.13)

(613.28)

5.22

(24.58)

 

b)

Power

(0.19)

(0.43)

9.39

0.32

24.12

27.93

 

c)

Infrastructure

1.07

0.97

1.12

3.02

4.44

5.68

 

d)

Unallocated

2.00

(1.54)

15.05

10.95

 

Total

(140.33)

(165.66)

(132.62)

(611.48)

48.83

19.98

 

Less:

 

 

 

 

 

 

 

i)

Interest

292.75

287.78

267.88

846.53

755.25

1032.13

 

ii)

Other
Un-allocable Expenses (Net of
Un-allocable income)

(6.86)

121.99

(11.98)

1235.27

(39.50)

(122.63)

 

Total
Profit/(Loss) Before Tax

(426.22)

(575.43)

(388.52)

(2693.28)

(666.92)

(889.52)

3

Segment
Assets

 

 

 

 

 

 

 

a)

EPC& Construction

5136.63

5118.20

5615.99

5136.63

5615.99

5247.78

 

b)

Power

63.80

64.76

456.49

63.80

456.49

69.94

 

c)

Infrastructure

10697.80

10693.96

11486.63

10697.80

11486.63

11336.42

 

d)

Unallocated

838.96

836.54

1313.36

838.96

1313.36

1413.82

 

 

16737.19

16713.46

18872.47

16737.19

18872.47

18067.96

4

Segment
Liabilities

 

 

 

 

 

 

 

a)

EPC& Construction

8521.27

8741.06

9144.93

8521.27

9144.93

8876.80

 

b)

Power

6.29

5.96

5.25

6.29

5.25

6.45

 

c)

Infrastructure

3.08

3.08

182.14

3.08

182.14

3.08

 

d)

Unallocated

9844.77

9183.28

8321.89

9844.77

8321.89

8143.97

 

 

18375.41

17933.38

17654.21

18375.41

17654.21

17030.30

 

1. Hon’ble National Company Law Tribunal
(NCLT), Hyderabad Bench vide order dated August 07, 2017, has initiated
Corporate Insolvency Resolution Process (CIRP) in the Company under Section 7
of the Insolvency and Bankruptcy Code, 2016 (IBC), based on the application
filed by IDBI Bank Limited, Financial Creditor of the Company. Mr. Savan
Godiawala (IP Registration No.IBBI.IPA-001/IP-P00239/2017-18/10468) was
appointed as Interim Resolution Professional (IRP) with effect from August 07,
2017 under the provisions of IBC. In the first Committee of Creditors meeting
dated September 12, 2017, Mr. Savan Godiawala has been confirmed as Resolution
Professional. The Resolution Professional has relied upon assistance provided
by members of the Audit Committee in review of the aforesaid unaudited
financial results and representations, clarifications and explanations provided
by the Managing Director & Chief Executive Officer, Chief Financial
Officer, other directors and Key Managerial Personnel of the Company in
relation to such financial results in the meetings called by the Resolution
Professional. The reviewed financial results have been examined by the
directors of the Company constituting the Board of Directors of the company
(powers of whom stand suspended in accordance with IBC) and accordingly, the
Resolution Professional, in reliance of such examination by the directors of
the Company and the aforesaid representations, clarifications and explanations,
has approved the same. It is clarified however, that the Resolution Professional
has not conducted an independent verification of these unaudited financial
results and has not certified on the truthfulness, fairness, accuracy or
completeness of these results, in so far as it pertains to the period prior to
commencement of the CIRP and his appointment. The Resolution Professional has
approved the financial results only to the limited extent of discharging the
power of the board of directors of the company which has been conferred upon
him inter alia in terms of provisions of section 17 of Insolvency and
Bankruptcy Code, 2016.

 

2. Exceptional item includes:

a)  
The company acquired Griffin Coal Mining Company Pty Limited and
Carpenter Mine Management Pty Limited referred as Griffin Coal Mine Operations
through its erstwhile wholly owned subsidiary Lanco Resources International Pte
Limited (LRIPL) to further invest in expansion to enhance the capacity.
Post-acquisition, many approvals were obtained for mine expansion and other
infrastructure related facilities. LRIPL along with its subsidiary companies
(Griffin Coal Mine Operations) has been incurring losses from acquisition
onwards. Due to circumstances beyond the control of company, the mine expansion
got delayed, resultantly anticipated incremental EBIDTA could not be earned,
thus increasing the loans from the lenders to meet the interest obligations.
Due to default in debt servicing, as per the Security Agreement entered by
LRIPL with lenders, lenders appointed the Receivers and Managers on April 27,
2017 and transferred the pledged shares to the nominee of the Security Agent of
the lenders. Consequent to this, during the quarter ended June 30, 2017,
impairment provision has been created against the receivables in respect of
said share transfer at carrying value of Rs.534.16 cr, Loans receivable along
with interest Rs.567.27 cr, and charged off the balance existing in the Foreign
Currency Monetary item Translation Difference account of  Rs.9.83 cr pertaining to the said loans
receivable.

b)  A
provision of Rs.20.57 cr is created in the quarter ended June 30, 2017 for
diminution in the value of investment of Lanco Wind Power Private Limited, a
subsidiary of the company.

c)   A
provision of Rs.130.56 cr is created in the previous quarter ended September
30, 2017,  for possible diminution in the
value of investment of Lanco Power Limited (LPL), a subsidiary of the company
which is holding the shares of Lanco Mandakini Hydro Energy Private Limited
(LMHEPL) directly and indirectly, on account of lenders proposal to invoke
change in management (outside SDR) by exercising the pledged shares of the
LMHEPL.

3. Mahatamil Mining and Thermal Energy
Limited (MMTEL), a subsidiary of the company had entered into Coal Mining
Services Agreement (CMSA) with Mahatamil Collieries Limited (MCl) for
developing and mining of Gare Pelma Sector II Coal block located in Raigarh
district in the state of Chhattisgarh. The allocation of said coal block was
cancelled by the Hon’ble Supreme Court’s order dated September 24, 2014. As per
CMSA, MMTEL has incurred an amount of Rs.204.66 cr till March 31, 2015 towards
exploration, infrastructure and performance security deposit. The amount
incurred has been claimed by MMTEL as per terms of the Coal Mines (Special
Provisions) Ordinance, 2014. The company’s investment of Rs.90.42 cr and other
advances amounting to Rs.80.84 cr made in MMTEL as on December 31, 2017, is
considered recoverable from MCL by the management based on the said claim. This
is an emphasis of matter in the auditor’s limited review report.

4. Lanco Hoskote Highways Limited (LHHL) and
Lanco Devihalli Highways Limited (LDHL), subsidiaries of the company,  have been incurring losses since commencement
of operations and also due to de-recognition of Capital Grant from Reserves as
per the requirement of Ind AS 11 Appendix – A on Service Concession
Arrangement, the Net Worth has eroded significantly as at December 31, 2017.
The Management is taking necessary steps to improve the profitability in future
and is of the view that the carrying value of Investment of the company along
with its subsidiaries aggregating to Rs.805.66 cr in LHHL & LDHL is
realisable at the value stated therein. Accordingly, no adjustments have been
made in these financials results. This is an emphasis of matter in the
auditor’s limited review report.

5. Lanco Hills Technology Park Private
Limited (LHTPPL), a subsidiary of the company has been incurring losses and the
Net Worth has eroded significantly as at December 31, 2017. The Management is
taking various initiatives to improve the profitability, and completion of
certain project components through development partners and is of the view that
the carrying value of the Investment Rs.1,332.08 cr in LHTPPL is realisable at
the value stated therein. Accordingly, no adjustments have been made in these
financials results. This is an emphasis of matter in the auditor’s limited
review report.

6. Lanco Kanpur Highways Limited (LKHL), a
subsidiary of the company, had entered into concession agreement with NHAI for
developing a road project in Uttar Pradesh state under BOOT mechanism. The
construction work is delayed due to right of way to be arranged by NHAI. During
the FY 2015-16, LKHL had received notice of termination of concession agreement
from NHAI, and LKHL issued a notice of termination of concession agreement to
NHAI. Arbitration proceedings have been initiated to settle the claims and the
counter claims associated with the termination as per the Concession Agreement.
Based on the expert legal opinion, the management is confident on the
recoverability of its claims submitted and is not expecting any liability on
counter claims filed by NHAI. The company invested in LKHL Rs.196.50 cr, other
advances receivable Rs.0.23 cr and received EPC contract mobilisation advance
of Rs.143.54 cr as on December 31, 2017. This is an emphasis of matter in the
auditor’s limited review report.

7. Diwakar Solar Projects Limited (DSPL), a
subsidiary of the Company engaged in setting up solar thermal power plant (100
MW); is affected on account of various factors beyond the control of the
management. DSPL has filed petition with Central Electricity Regulatory Commission
(CERC) for extension of Commercial Operation Date (COD) and to revise the Power
Purchase Agreement (PPA) Tariff for viability of the project on the ground that
the bid Direct Normal Irradiation (DNI) was different from the actual DNI. The
Management is confident upon tariff revision and extension of COD for executing
the project. In view of this, the company does not foresee any requirement for
adjustment in carrying value of investment of Rs.219.59 cr as at December 31,
2017. This is an emphasis of matter in the auditor’s limited review
report.           

8. During/the previous quarter ended
September 30, 2017, one of the lenders has recalled its loans given to the
Lanco Teesta Hydro Power Limited (LTHPL), an associate of the company and
invoked the pledged shares issued by LTHPL as security towards the loan
facility amounting to Rs.296.63 cr. Vide share purchase agreement dated March
30, 2012, shares held by the company in LTHPL were transferred to Lanco Hydro
Power Limited, a subsidiary of the company. The eventual financial obligation
on the company is yet to be determined and hence, no adjustments have been made
in these financial results. This is an emphasis of matter in the auditor’s
limited review report.

                 

9. During the previous quarter ended
September 30, 2017, one of the lenders has recalled its loans given to the
group companies and invoked the Corporate Guarantees issued by the company in
favour of those group companies amounting to Rs.7,266.17 cr. The eventual
financial obligation on the company is yet to be determined, hence, no
adjustments have been made in these financial results including changes that
may be warranted due to exchange fluctuations. 
This is a matter of qualification in the auditor’s limited review report.   

10. During the nine months period ended
December 31, 2017, certain customers of the Company encashed Bank Guarantees
(BG) provided by the Company towards 
advances received and performance security. In the opinion of the
management against the encashed BGs, value amounting to Rs.519.69 cr is
recoverable from the customers and necessary steps are being initiated.
Consequently, no adjustments have been made in these financial results. This is
a matter of qualification in the auditor’s limited review report.

               

11. The Company had been referred to NCLT by
one of its lenders and consequently CIRP has been initiated, as detailed in
Note 1. During the quarter ended June 30, 2017, the Company’s Net worth has
been fully eroded. The Company’s ability to meet its contractual obligations
involving EPC Contracts, financial obligations to its lenders and investment
commitments to group companies is dependent on resolution of the matters as
part of CIRP. Currently, the Company is in the process of identifying the
resolution alternatives, and accordingly, the financial results are prepared on
a going concern basis. This is a matter of qualification in the auditor’s
limited review report.

12. 
As reported in the previous periods, during the quarter the lenders of
Lanco Kondapalli Power Limited (LKPL) converted portion of their debt into
equity shares of LKPL under Strategic Debt Restructuring Scheme (SDR), RBI
guidelines. On account of SDR, the effective shareholding of the company in
LKPL reduced to 28.15% from 58.91% and ceased to be subsidiary with effect from
November 22, 2017.

From
Independent Auditors’ Review Report on Standalone Unaudited Financial Results

1. The Hon’ble National Company Law Tribunal
(“NCLT”), Hyderabad Bench, admitted the Corporate Insolvency
Resolution Process (“CIRP”) application filed by a Financial Creditor
of Lanco Infratech Limited (“the Company”), and appointed an
Interim Resolution Professional (“IRP”), in terms of the Insolvency
and Bankruptcy Code, 2016 (“the Code”) to manage the affairs of the
Company as per the provisions of the Code. The Committee of Creditors of the
Company, in its meeting dated September 12, 2017, confirmed the IRP as the
Resolution Professional (“RP”) for the Company. In view of pendency
of the CIRP, and in view of suspension of powers of Board of Directors and as
explained to us, the powers of adoption of this standalone financial results
vests with the RP.

2. Not reproduced

3. Not reproduced

4. Without qualifying our review conclusion,
attention is invited to

a) 
Note 3 to the financial results, dealing with cancellation of coal
blocks by the Hon’ble Supreme Court, which included coal mine jointly allotted
to Tamil Nadu Electricity Board and Maharashtra State Mining Corporation
Limited (“the Allottees”). Mahatamil Mining and Thermal Energy
Limited (MMTEL), a subsidiary of the Company, entered into Coal Mining Services
Agreement with the Allottees of the mine, pursuant to which, the amount
invested and advances provided aggregating to Rs.171.26 crore, the
realisability of which is dependent on the compensation to be awarded under the
Ordinance issued by the Government of India. The Company obtained a legal
opinion in this regard, based on which, the investment is considered to be
recoverable, notwithstanding the denial of obligation by the Allottees in
regard to certain cost components, and no adjustments have been made in these
financial results, pending the final outcome of claims by MMTEL.

b) Note 4 to the financial results, in
relation to the carrying value of investments in Lanco Hoskote Highway Limited
(LHHL) and Lanco Devihalli Highways Limited (LDHL), subsidiaries of the
Company, which have been incurring losses ever since the commencement of
commercial operation and accumulated losses incurred so far eroded the net
worth significantly. Taking into consideration the management’s assessment of
the situation including its efforts towards seeking further concessions from
grantors, the management of the Company is of the view that the carrying value
of the investment is realizable at the value stated therein. Accordingly, no
adjustments have been made in these financial results.

c) Note 5 to the financial results, in
relation to the carrying value of investment in Lanco Hills Technology Park
Private Limited (LHTPPL), a subsidiary of the Company, where the accumulated
losses incurred so far eroded the net worth significantly. Taking into
consideration the management’s assessment of the situation including its
efforts to complete certain project components through development partners,
the management of the Company is of the view that the carrying value of the
investment is realisable at the value stated therein. Accordingly, no
adjustments have been made in these financial results.

d) Note 6 to the financial results, in
relation to Lanco Kanpur Highways Limited (LKHL), a subsidiary of the Company,
which has received a notice of termination to the Concession Agreement from
National Highways Authority of India (NHAl) and simultaneously, LKHL has also
issued a notice of termination to NHAI. Arbitration proceedings have been
initiated to settle the claims and the counter claims associated with the
termination as per the Concession Agreement. LKHL has incurred certain costs
towards the project during the period when the concession was in force and
subsequently, aggregating to Rs.53.19 crore, the reliability of these amounts
is dependent on the outcome of the arbitration proceedings. Accordingly, no adjustments
have been made in these financial results.

e) Note 7 to the financial results, in
relation to the carrying value of investment 
amounting to Rs.219.59 crore in Diwakar Solar Projects Ltd (DSPL), a
subsidiary of the Company, which explains the management’s efforts in obtaining
the extension of revised COD and revision in tariff. In the opinion of the
management, the execution of the project with the extended timelines for
bringing the assets to its intended use with revised tariff being considered
favourably, is still viable even after considering low implementation
activities and significant time and cost overruns. Accordingly, in the opinion
of the management, no provision is required for any diminution in the carrying
value of the investment. Pending the final outcome in the matters relating to
extension of revised COD and revision of tariff, no adjustments have been
carried out to the carrying value of the investment.

f) Note 8 to the financial results, In
regard to invocation of pledged shares of Lanco Teesta Hydro Power Limited
(LTHPL), an associate of the Company, issued by the Company in favour of the
lender of LTHPL, amounting to Rs.296.63 crore. One of the lenders of LTHPL, has
filed a petition in NCLT in terms of Section 7 of the Code, which is pending
admittance by the NCLT. In view of the factors 
detailed in the said note and pending determination of the eventual
financial obligation on the Company, no adjustments have been made to these
financial results.

Our conclusion is not qualified in respect
of the matters reported in paragraph 

5. 
Attention is invited to

a) Note 9 to the financial results, in
regard to the various Corporate Guarantees extended by the Company in favour of
one of the lenders of Group Companies. The lender has invoked these guarantees
amounting to Rs.7,266.17 crore and is pursuing recovery actions against the
Company. In view of the factors detailed in the said note and pending
determination of the eventual financial obligation on the Company, the impact
on the financial results is also not quantifiable, accordingly no adjustments
have been made to these financial results.

b) 
Note 10 to the financial results, regarding encashment of Bank Guarantee
by customers of the Company amounting to Rs.949.35 crore. The management is of
the opinion that the encashment is not in accordance with the conditions
specified in the Engineering, Procurement and Construction (EPC) contract and
is of the opinion that the encashed value of Bank Guarantee, net of advances,
is fully recoverable and no adjustments have been made in these financial
results. Pending initiatives by the management against the invocation of Bank
Guarantee, had the impact been factored in these financial results, the Loss
for the Quarter would have been higher by Rs.519.69 crore with a consequential
impact on reserves, to the same extent.

c) 
Note 11 to the financial results, regarding application by the Financial
Creditor, initiating the insolvency provisions under the Insolvency and
Bankruptcy Code, 2016 (the Code) and the consequential appointment of RP under
the Code, and adequacy of disclosure concerning the Company’s ability to meet
its contractual obligation in respect of EPC Contracts including management’s
technical estimates in regard to estimated cost to completion, realisation of
value of inventories and other financial assets, financial obligations
including repayment of various loans including invoked guarantees both by
lenders and customers, unpaid interest and the ability to fund various obligations
pertaining to operations including unpaid/overdue creditors, for
ensuring/commencing normal operations and further investments required towards
ongoing projects under construction. These matters essentially require the
Company to resolve the situations specified therein within the framework
specified through the CIRP. Under these circumstances, the possible erosion in
the carrying value of Investments is also not ascertainable at this point in
time. In the absence of any specific guidance or direction that can be assessed
out of CIRP, material uncertainties exist that may cause significant doubt on
the Company’s ability to continue as a going concern. However, the
appropriateness of preparation of financial results on a going concern basis is
subject to the Company’s ability to resolve the matters through the CIRP or
such other forum or manner as specified in the said Note.

6. Based on our review conducted as stated
above, except for possible effects of the matters specified in Paragraph 5
above, nothing has come to our attention that causes us to believe that the
accompanying statement of unaudited financial results prepared in accordance
with aforesaid Indian Accounting Standards and other accounting principles
generally accepted in India, has not disclosed the information required to be
disclosed in terms of Regulation 33 of the SEBI (Listing Obligations &
Disclosure Requirements) Regulations, 2015 as modified by Circular No.
CIR/CFD/FAC/62/2016 dated July 5, 2016, including the manner in which it is to
be disclosed, or that it contains any material misstatement.

 

 

 

Goods And Services Tax (GST)

I   
High Court

1.  [2018-TIOL-24-HC-MUM-GST]
Builders Association of Navi Mumbai vs. Union of India.

Writ Petition No. 12194 of
2017 dated 28th March, 2018

One time lease premium is
liable for GST

      

Facts


The Appellants are
builders/developers, constructing residential and commercial properties. The
projects are undertaken after the City Industrial and Development Corporation
of Maharashtra Ltd. (CIDCO) exercises the statutory function of town planning etc.
under the MRTP Act, 1966. CIDCO invites offers from entities to acquire on
lease residential cum-commercial plots allotted on long-term lease of 60 years.
One such plot of land was allotted to the Appellants and in addition to the
one-time lease premium, GST on the said amount was demanded separately and the
same is challenged. It was argued that the long-term lease of 60 years
tantamounts to sale of the immovable property, since the lessor is deprived of
the right to use, enjoy and possess the property and therefore section 7 of the
CGST Act has no application. Further, CIDCO discharges a Government/statutory
function and therefore should not be liable for GST. On the other hand, the
department argued that the law does not make any distinction between governmental
and non-governmental agencies and CIDCO cannot be treated as Government.

 

Held


The Hon’ble High Court
referred to section 7 of the CGST Act defining the term ‘supply’ and noted that
the definition includes activities specified in Schedule I made or agreed to be
made without consideration and activities to be treated as supply of goods or
services specified in Schedule II would be included in the definition of
supply. Section 7(1) of the Act includes all forms of supply of goods or
services or both such as sale, transfer, barter, exchange, license, rental,
lease or disposal made or agreed to be made for a consideration by a person in
the course or furtherance of business. It was observed that CIDCO is a person and in the course
or in furtherance of its business, it disposes of lands by leasing them out for
a consideration styled as one-time premium. Therefore, considering Schedule II,
section 7, Item No. 2 styled as land 
and  building and any lease,
tenancy, license to occupy land is a supply of service. It is a settled law
that the provisions have to be read together and harmoniously to understand the
nature of levy. It was noted that once the law and the schedule treats the
activity as supply of goods or supply of services, particularly in relation to
land and building and includes a lease, then, the consideration therefor as a
premium/one-time premium is a measure on which the tax is levied, assessed and
recovered. Accordingly, GST on one time premium is upheld.


2.  [2018-TIOL-23-HC-MUM-GST]
JCB India Ltd. vs. Union of India dated March 19 & 20, 2018

Clause (iv) of section
140(3) prescribing a time limit of twelve months on stocks prior to which
credit cannot be availed is not arbitrary or unreasonable


Facts


The petitioner challenges
the validity of the time period mentioned in clause (iv) of section 140(3) of
the CGST Act. The said section allows a registered dealer to avail input tax
credit of goods held in stock as on 01.07.2017 and clause(iv) of the said
section provides that such credit can be availed only when goods are purchased
after 30.06.2016. It was argued that a person who is not in possession of a
duty paying document e.g. a trader is also eligible to avail input tax credit
on a presumptive basis, but the petitioner who is in possession of all the duty
paid documents is barred from availing CENVAT credit where the invoice is
issued on or prior to 30.06.2016. This is unreasonable and results in
inequality. The ineligibility of such credit results in cascading effect of tax
and violates the mandate of Article 14 of the Constitution of India. On the
basis thereof, the present petition is filed.

 

Held


The Court noted that CENVAT
credit is a mere concession and it cannot be claimed as a matter of right.
Under the existing law as well there are conditions stipulated in Rule 4(7) of
the CENVAT Credit Rules, 2004 for availment of CENVAT credit. if right to
availment of CENVAT credit itself is conditional and not restricted or
absolute, then, the right to pass on that credit cannot be claimed in absolute
terms. Thus, there is no promise which was absolute and unconditional which was
breached by the executive or the State. Therefore, the impugned condition
mentioned in the transition provision does not defeat any accrued or vested
right and is accordingly not arbitrary or unreasonable. Accordingly, the
petition is dismissed.

 

3.  [2018] 91 taxmann.com
282 (Kerala) Ascics Trading Company vs. Assistant State Tax Officer

 

Detention on the ground
that the transportation of goods in the course of inter-state trade was not
accompanied by the prescribed documents under IGST Act / CGST Act / CGST Rules
could not be sustained in view of the fact that the power to prescribe documents
is conferred on the Central Government and no documents were prescribed by the
Central Government on that date

 

Facts


The goods belonging to the
petitioner and the vehicle carrying the goods were detained by the State
Authorities on the ground that the transportation was not accompanied by the
documents prescribed under CGST Act / IGST Act / CGST Rules. The issue for
consideration was whether the State Government was empowered to detain goods
for non-compliance with the requirement of carrying the prescribed documents
under the IGST Act.


Held


The Hon’ble High Court held
that the detention on sole reason that the transportation was not accompanied
by prescribed documents under IGST Act / CGST Act / CGST Rules cannot be
legally sustained on the ground that the power to prescribe documents that are
to accompany the transportation is conferred on the Central Government and not
on the State Government and the Central Government as on that date had not
prescribed such documents.


The Court noted that having
regard to sections 4 and 20 of IGST Act and sections 6, 129 read with Rule 138
of CGST Rules, neither the State Legislature nor the State Government would
have the power to prescribe documents to accompany transportation in the course
of inter-state trade.

 

4.  [2018] 91 taxmann.com
210 (Allahabad) R. R. Agro Industries vs. State of U.P.

 

Where the power of seizure
is clearly traceable under the relevant Act, the order for seizure cannot be
held bad in law merely because wrong provision of Act had been mentioned while
passing the same

 

Facts


The petitioner was engaged
in manufacturing and sale of an agriculture implement, “Tasla”. The goods and
the conveyance were detained and seized u/s. 129(1) of the Uttar Pradesh Goods
and Services Tax Act, 2017. It was submitted that since the transportation was
in the course of inter-state trade, the goods and the conveyance were not
liable to be seized under the
State Act.

 

Held


The Hon’ble High Court held
that the impugned order of seizure could not be held to be bad in law merely by
reason that wrong provision of the Act was mentioned in the said order as
similar provisions for power of seizure exist in CGST Act and as per section 20
of the IGST Act, in respect of matters of inspection, seizure, search and
arrest, the provisions of CGST Act shall apply mutatis mutandis. Accordingly,
the Court held that the impugned order shall be treated to have been passed
under IGST Act read with section 129 of the CGST Act.

 

II.    Authority
for Advance Ruling

     

5.  [2018-TIOL-01-AAR-GST]
Caltech Polymers Pvt. Ltd.

                

Recovery of canteen
expense from employees liable for GST.

           

Facts


The Applicant preferred an
application for Advance Ruling on whether recovery of food expenses from
employees for the canteen service provided by them comes under the definition
of outward supplies and are taxable under Goods & Service Tax Act. It was
submitted that the expenditure incurred by them in preparing the food is recovered
without any profit margin as a deduction from their monthly salary. The
facility is provided as mandatorily provided under the Factories Act, 1948. It
was contended that the activity does not fall within the scope of ‘supply’, as
the same is not in the course or furtherance of its business. They are only
facilitating the supply of food to the employees, which is a statutory
requirement, and is recovering only the actual expenditure incurred in
connection with the food supply, without making any profit. The Mega Exemption
Notification under the Finance Act, 1994 providing an exemption to food and
beverages supplied in a factory was also referred.

 

Held


The Authority noted that
there is no similar exemption provision under the GST law as under the Finance
Act. Further, the definition of business was analyzed and it was concluded that
the supply of food by the applicant to its employees would definitely come
under clause (b) of section 2(17) as a transaction incidental or ancillary to
the main business. It was further noted that under Schedule II to the GST Act,
supply by way of or as a part of service of goods being food is a declared
supply of service. Though there is no profit on the supply of food, the
transaction is considered to be a supply within the meaning of section 7(1) of
the CGST Act and is therefore taxable as a supply of service under GST.
 

Direct Taxes

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19 CBDT provides clarification on classification of income from sale of shares as capital gains or business income –

Circular No. 6/2016 dated 29.02.16

In continuation to the earlier Instruction No. 1827, dated August 31, 1989 and Circular No. 4 of 2007 dated June 15, 2007 further clarification has been provided by CBDT for determining income from sale of shares as Capital gains or Business Income:

i) If the assesse has treated the securities in his books as stock in trade the same should be accepted.

ii) In case holding period of the securities is more than a year and the assessee wants to treat it as a Capital asset, then the AO needs to accept it provided the treatment is consistently followed by the assessee in the subsequent years.

iii) In all other cases, the earlier mentioned Instructions and Circular be considered for determination the nature of income.

iv) These guidelines would not apply to transactions where genuineness of transaction is questionable.

It is further clarified that these are broad guidelines and the determination needs to be based on the facts of each case.

20 Clarification by CBDT that the provisions of India-UK DTAA would be applicable to a partnership that is a resident of either India or UK, to the extent that the income derived by such partnership, estate or trust is subjected to tax in the State as the income of a resident, either in its own hands or in the hands of its partners or beneficiaries. –

Circular No. 02/2016 dated 25.02.2016

21 CBDT extends the benefit of higher monetary limits laid down in Circular 21 of 2015 dated 10.12.2015 for filing appeals to Cross Objections filed by Department before ITAT and references made to the High Court u/ss. 256(1) and 256(2) of the Act –

Letter No: F.No.279/Misc./M-142/2007-ITJ (Part) dated 8.03.2016

22 CBDT clarifies on the status of the EPC consortiums – when to be treated as AOP –

Circular no. 7/2016 dated 7.03. 2016

Certain broad parameters are laid down for NOT treating the EPC consortiums as AOP and thereby not taxing it as a separate entity:

i) Clear independence exists between each member in terms of responsibility, resources and risk for the scope of work defined for him.

ii) Each member earns profit/loss for his scope of work though all together can share contract price at the gross level for accounting convenience.

iii) Resources in terms of men and materials used by each member are under his risk and control parameters.

iv) There is no unified control and management of the consortium and common management is for administrative convenience and co-ordination.

v) Other facts and circumstances which point out that consortium is not an AOP.

It is further clarified that this Circular shall not be applicable in cases where all or some of the members of the consortium are Associated Enterprises within the meaning of section 92A of the Act. In such cases, the Assessing Officer will decide whether an AOP is formed or not keeping in view the relevant provisions of the Act and judicial jurisprudence on this issue.

23 Guidelines for Implementation of Transfer Pricing Provisions – Instruction No. 15/2015, dated 16th October, 2015 replaced by Instruction No. 3/2016 dated 10 March 2016 ( full text available on www.bcasonline.org

24 CBDT reaffirms its view point of not adopting coercive action against payees for TDS which is not deposited by the payer and directs the AO to follow the Directives issued in letter dated 01.06.2015. –Office memorandum – no:

F.No. 275/29/2014-IT (B) dated 11 March 2016.

25 Amendment to Rule 114E and Form No.61A – Annual Information Return Notification No. 19 dated 18.3.2016- Income-tax (7th Amendment) Rules, 2016

26 Form Sahaj (ITR-1), ITR-2, ITR-2A, ITR-3, Sugam (ITR-4S), ITR-4, ITR-5, ITR-6, ITR-7 and ITR-V notified for A.Y. 2016-17 – Notification No. 24 dated 30.04. 2016 vide Income-tax (9th Amendment) Rules, 2016

27 Procedure for registration and submission of statement as per clause (k) of sub section (1) of section 285BA read with Sub rule (7) of Rule 114G of Income-tax Rules, 1962 –

Notification No. 4 dated 6.4. 2016

From the President

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Dear Members,

Greetings! It is already summer! The heat waves have been severe in many parts of the country. Bhubaneshwar, breaking a 30 year record with the temperatures touching 45.7°Celsius in April. Mumbai recorded 38°Celsius in April. About a quarter of our countrymen, spread in 10 states, are facing severe water shortage. For those of us, who receive water on tap, should certainly not take it for granted, and should rather be mindful of our water usage and support relief measures of which I have written later in this page.

ICAI Leadership visits BCAS & ICAI
The ICAI President Mr. Devaraja Reddy and Vice President Mr. Nilesh Vikamsey, both members of the Society, were kind enough to accept our invitation and visited the BCAS on 23rd April 2016. It was a wonderful opportunity to interact and exchange ideas with the leadership of our profession, get to understand their vision and extend our support in endeavours that will strengthen the profession as a whole. Both were candid, open and emphatic about challenges and pathways ahead. The new council has 15 first time entrants and we can expect a fresh set of ideas from that larger leadership. One notable development this year has been setting up of Digital Transformation initiatives which will result in superior and faster member services and experience.

You may be aware that recently Bank of Baroda cancelled the existing panel of internal auditors without giving any reasons on 30th March and launched an RfP for FY 2016-17 setting an eligibility condition of having an audit practice of Rs. 150 Cr in FY 2014-15. Obviously this is unprecedented and would disqualify most firms. The ICAI issued a notification, which was timely and required. It is worth taking a note that there could be more than what meets the eye.

The Guidance Note of CAR O 2016, was issued in record time of less than 30 days of the issue of the CARO 2016. This is commendable and deserves a special mention. I congratulate the AASB teams that worked behind the scenes. I am given to understand that several other GNs are on their way such on implementation issues in Ind AS, ICDS.

Tax Payer Data
The CBDT released an interesting paper giving data of Direct Tax collection, Contribution of Direct Taxes to total tax collection, Tax-GDP Ratio, Pre and Post Assessment collections, Cost of collection, Number of effective assessees, and disposal of cases. Although the basis and details are not adequate to decipher the exact impact, it’s a good start to see this statistically. We hope that this will develop further. You can refer to the document at: http://www.incometaxindia.gov.in/Documents/Time- Series-Data-Final.pdf

Although there is increase in number of assesses from 4.36 Cr (11-12) to 5.16 Cr (14-15) resulting in 18% growth in 3 years, it still is a low number. The cost of collection has remained around 0.60% for last 10 years in spite of rise in the tax collection by more than 3 times.

CHANGE – SPEED, EXTENT AND IMPACT
For centuries, we have thought LINEAR for growth. In recent times the growth has been EXPONENTIAL. The primary engine of this shift is the INNOVATION LIKE NEVER BEFORE. So unprecedented that it has created opportunities to leverage tools that can make an idea into a reality.

Let me explain. In 1980s the apps that your smart phone has today, would cost about $900,000 in retail. Kodak, rated as one of the top 5 brands in the world (till 1990), employed 145,000 people (in 1988), accounted for 90% of film and 80% of camera sales in America in 1976, had peak revenues of $16 billion (in 1996), but filed for bankruptcy in 2012 with 17,000 employees. In contrast, Instagram in 2012 was sold to Facebook at $1 billion, and today is valued at $35 billion. Kodak thought that its business was of chemicals and paper, whereas Instagram thought – that people wanted to store their memories (through photos) and it fulfilled that need. Paper and Chemicals were no longer needed with advancement of technology. Kodak thought that it was not worthwhile to switch from making 70 cents on a dollar to 5 cents in digital, although it invented the digital camera in 1975. A 132 years old complacent monopoly, therefore, faded forever in 2012.

The story tells us a number of things: Change – Speed – Impact. One study says that between 2010- 2020 about further 3 billion people will have access to internet. This itself, is a phenomenal opportunity. Today you can reach almost anyone, anytime, without any difficulty. Today, almost every THING is better, faster, accessible and cheaper than what they were years ago. Material has lost out to dematerialisation (tickets, paper, photos, for example), and there is huge emphasis on DEMOCRATI SATION – more and more people having access to things that seemed out of reach some years ago. Are we moving from a scarcity mindset to an era of abundance? Technology, being intangible, and changing so fast, cannot be controlled or regulated. One can control nuclear arms or drugs, but not human curiosity which drives technology. This is not causing change, but turbulence. In January, San Francisco’s largest yellow cab company was reported to be filing for bankruptcy due to Uberisation. Being UBERED is not relevant to taxi business alone, but it will reach professional services too!

Revamping of BCAS Office into a Learning Centre
In the last several months, we have launched several projects to strengthen the infrastructure at the Society. One of them was to convert the existing office into a learning centre and give more space to the administrative and support staff of the Society elsewhere. We have reached a milestone in that direction by finally converting the BCAS office at Jolly Bhavan into a learning centre which will accommodate about 90-100 people in the hall and also seat people in the overflow area outside. The renovated premises will have better infrastructure including facilities for recording and live streaming. This will allow us to have more events in house and use of technology to reach out to members where they are.

Water and Drought
To counter the drought situation, your Society is reaching out to its members through BCAS Foundation, to collect funds to support the drought affected. It will launch an appeal this month for urgent action required. We request you to support the appeal in whatever measure you can to participate in the relief work.

On the other hand, a recent water footprint numbers speak of a tragic saga. As per recent reports, 2173 litres are required for growing 1 kg of rice and we have exported 37.2 lakh tonnes of basmati. About 2 trillion litres of water out of this would be ground/surface water. Therefore, according to this report, India remains virtual exporter of water. The obvious says – we should export what we have in abundance and import that which is scarce. So the question here is should we continue to do this?

It is quite clear that there are adequate amount of water resources but not adequate amount of thought at a strategic level to see that our farmers do not suffer and die due to water shortage. Clearly, the situation is not a natural phenomena alone but has significant man made inputs.

Times have always been challenging, perhaps they will remain so for all time. There have always been opportunities, and they will remain so for all time to come. Challenges and Opportunities are embedded in the same continuum. Yet within that turbulence of change, we have Choice – to be courageous, giving, and grateful. There is something that each one of us can do, each day, to make a small difference. I leave you with the words of Tom Hanks:

When I was a kid, only Batman had a cell phone. He had a car phone. I was like: Man, can you imagine having a car phone? But technology has not altered our lives, other than how we go about them. We are still in the position of waking up and having choice: DO I MAKE THE WORLD BETTER TODAY SOMEHOW; OR DO I NOT BOTHER?

Wishing you a magnificent day, and more to come!

Corporate Law Corner

Editor’s note: For a long time, the flavour of company
law has been missing from the journal. From this issue, we recommence digesting
decisions on Company Law. We hope readers will find these useful.

1.  Esquire Electronics
vs. Netherlands India Communications Enterprises Limited

(2017) 1 CompLJ 131 (NCLT)  

Date of Order: 6th October, 2016

Sections 241 And 242 of Companies Act, 2013 – Order passed
by NCLT is a decree – Proceedings under sections 241 and 242 are in the nature
of the suit – Petition can be filed under sections 241 and 242 only if the same
is not barred by period of limitation as is prescribed under Limitation Act.

FACTS

Petitioners along with a company (SCo) and 2 other companies
entered into a Joint Venture Agreement dated 29.12.1995 wherein they decided to
establish a company in the name and style of NCo. Subsequently, all the parties
to the JV Agreement agreed to subscribe to the shares of SCo in the same
proportion as was agreed in the JV Agreement and the idea of formation of NCo
was supposedly dropped.

Petitioner alleged that NCo was secretly established in the
year 1996 with the same name as was agreed to in the JV Agreement. It was
further stated by the Petitioners that existence of this company was not
disclosed to them. Amongst other things, the Petitioners alleged various
irregularities on part of NCo such as non-conduct of Annual General Meeting
(AGM) from 2002 to 2010, non-existence of any office of NCo (violating
provisions of sections 17, 18 and 19 of Companies Act, 1956), illegal holding
of AGM in the year 2012, oppression and mismanagement by few directors of NCo,
amongst others.

Petitioners, filed a petition under sections 241 and 242 of
Companies Act, 2013 (the Act) with the National Company Law Tribunal (NCLT or
the Tribunal) against 5 respondents being NCo and its 4 directors on 25th July,
2016. The petition claims that the directors of NCo should be removed from the
company and its board be reconstituted excluding the aforesaid directors. They
have further prayed that all resolutions passed by NCo allotting shares to
various shareholders between 2000 and 2012 be declared as null and void. 

The Petitioners however, did not agitate any cause against
NCo prior to this petition.

HELD

The Tribunal observed that the last AGM of NCo was conducted
on 29.09.2012. Upon perusing the filings made to the Registrar of Companies,
the Tribunal noted that the Petitioners were neither shareholders nor directors
of NCo.  The Tribunal dismissed the
petition filed on two counts:

The Tribunal observed that section 433 of the Act makes it
patent that the Limitation Act would apply to the proceedings or appeals before
the Tribunal or the Appellate Tribunal. Referring to sections 424 and 425 of
the Act it held that it has powers vested in a Civil Court under the Code of
Civil Procedure while trying a suit in respect of specified matters and that
the orders passed by it are executable as a decree of Court. Once it is
established that the order passed by it is a decree then it follows that the
proceedings under sections 241 and 242 of the Act are necessarily proceedings
in a suit. It has all trappings of a suit. Therefore, the period of limitation
provided for suits would, ipso facto, be applicable as the Limitation
Act has been specifically made applicable by section 433 of the Act.

The Tribunal observed that since the last AGM of NCo was
conducted on 29.09.2012, in terms of Article 113 of Limitation Act, the period
of limitation would be three years from the date the right to sue accrues. The
cause of action, if any, arose to the Petitioners on 30.09.2012 and the instant
petition having been filed on 25.07.2016 was clearly beyond the period of three
years provided by Article 113 of the Limitation Act.

Further, since the Petitioners were neither directors nor
shareholders of NCo at any point of time, there was no locus standi available
for them to file the aforesaid petition.

The Tribunal, therefore, dismissed the petition with cost of
Rs. 25,000.

2.  West Hills Realty
Private Ltd. vs. Neelkamal Realtors Tower Pvt. Ltd.

[2017] 200 CompCas 179 (Bom)

Date of Order: 23rd December, 2016 

Section 433(e) of Companies Act, 1956 read with Rule 5 of
Companies (Transfer of Pending Proceedings) Rules, 2016 – Winding up petitions
which are pending before the High Court would not be transferred to NCLT if the
notice has already been served on the Respondent irrespective of whether they
have been admitted by the High Court or not

FACTS

Two company petitions were filed before the Hon’ble Bombay
High Court u/s. 433(e) r.w. section 434 of Companies Act, 1956 in April 2016
seeking winding up of respondent companies on account of inability to pay its
debts. In terms of notification dated 07.12.2016, issued by the Central
Government, all petitions relating to winding up u/s. 433(e) pending before
High Courts, and which have not been served on the Respondent as required by
Rule 26 of the Companies (Court) Rules, 1959, stand transferred to the
appropriate Bench of the National Company Law Tribunal (NCLT) exercising
territorial jurisdiction over the mater.

Respondent urged that the petitions were covered in the
mandate of the notification and stand transferred thereunder, whilst the
Petitioners submitted that the petitions having been served on the Respondent
as required by Rule 26, the transfer notification does not apply to them and
accordingly, the High Court retains its jurisdiction over them.

Since the issue would arise in several cases pending before
the Court, any interested party whose petition was pending before the Court
were allowed to appear and file submissions in this regard.

HELD

The crucial question before the Court was whether or not the
petition has been served on the Respondent “as required under Rule 26 of the Companies (Court) Rules, 1959”.

Counsel for the Respondents urged that service of petition
contemplated by Rule 26 was a post-admission service. It was submitted that the
service of a petition under Rule 26 contemplates a simultaneous service of the
notice of the petition, which, as Rule 27 provides, must be in Form No. 6 given
under the Rules. That form was to be served after the petition was admitted by
the court. It was further contended that there was no rule under the Companies
(Court) Rules, 1959, which required a pre-admission notice of the petition to
the Respondent.

Petitioner on the other hand urged that requirement under
Rule 26 was without any reference to the admission of the petition. It was
stated that service of the petition under Rule 26 and notice of the petition
under Rule 27 are two entirely different matters.

For ease of reference the said rules have been reproduced as
under:

“26. Service of petition – Every petition shall be
served on the respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge or the Registrar
may direct. Unless otherwise ordered, a copy of the petition shall be served
along with the notice of the petition.

27. Notice of petition and time of service – Notice of every
petition required to be served upon any person shall be in Form No. 6, and
shall, unless otherwise ordered by Court or provided by these Rules, be served
not less than 14 days before the date of hearing.”

The Court observed that

(i)  service of petition implied service on the
respondent or other person, as the case may be, of a copy of the petition,
whereas notice of the petition connoted notice of the hearing of the petition
before the court. Rule 26 provides for service of petition, whilst Rule 27
provides for notice of petition. 

(ii) if a respondent was named in the petition, the
requirement of service of the petition on such respondent is the requirement of
Rule 26 itself. One does not have to go to the other provisions of the Act or
the Rules or the orders of the Judge or the Registrar for such requirement.
Rule 26 has no reference to the order of admission of the petition.

Those petitions, which are pending admission and which have
been served on the respondent as required under Rule 26, shall continue to
remain in the High Court pending their admission, whilst the petitions pending
admission, which have not been served on the Respondent as required under Rule
26, shall be transferred to, and considered for admission by NCLT.

As the notice of the petitions had already been served upon
the Respondents, it held that the same were to be dealt with by the Court only.

3.  (2017) 77 taxmann.com
210 (NCLT – New Delhi)

JVA Trading (P.) Ltd., In re

Date of Order: 13th January, 2017

Sections 230, 231 and 232 of the
Companies Act, 2013 and Rules 3 and 5 of Companies (Compromise, Arrangement and
Amalgamation, Rules, 2016) – Compromise and arrangement – Tribunal does not
have the power to dispense the conduct of meeting of members / shareholders

FACTS

JCo (being a transferor) is engaged in business of trading in
electric and electronic goods whereas CS Co (being a transferee) is engaged in
the business of manufacturing the same. The Board of Directors of both the
companies had passed a resolution approving of the merger.

JCo  and CS Co  filed an application to the Tribunal under
sections 230 to 232 of the Act read with the Companies (Compromises,
Arrangements and Amalgamation) Rules, 2014 in relation to a scheme of
amalgamation proposed between JCo and CS Co 
requesting it to dispense the requirement to convene meeting of equity
shareholders of JCo and issue necessary orders / directions for conducting
meetings of creditors of JCO, equity shareholders and creditors of CS Co
amongst others. A scheme of Amalgamation was also filed with the Tribunal.

The companies also filed with the Tribunal their combined
capital structure; list of equity shareholders, secured and unsecured creditors
of both the companies; respective Memorandum and Articles of Association,
Certificate of Incorporation, provisional financial statements up to a cut off
date.  

HELD

The Tribunal upon perusing the necessary facts held that it
did not have the power to dispense with the requirement of convening the
meeting of shareholders / members under the provisions of the Companies Act,
2013.

It did proceed to give directions in respect of conduct of
meetings in respect of both the companies, appointment of Chairperson for the
aforesaid meetings, manner in which the notices would be sent, manner of
voting, amongst others.

4.  Sanjay Sadanand Varrier
vs. Power Horse India (P.) Limited [2017] 80 taxmann.com 47 (Bombay) Date of
Order: 22.03.2017

Section 433, read with sections
434 and 439 of the Companies Act, 1956 – An unpaid employee being a creditor of
the company can file a petition for winding up of the company – A winding-up
petition at instance of trade union for recovery of dues payable to its members
was maintainable

FACTS:

Petitioner (S), an employee of the Respondent Company (PCo)
was initially appointed as a Regional Sales Manager and thereafter as the
Manager, Key-Accounts and Trade Marketing. S alleged that since October 2009
till he resigned in March 2012, his entire salary was outstanding. S therefore
issued a statutory notice to PCo u/s. 434 of the Companies Act, 1956 for payment
of his dues, failing which he would initiate winding up proceedings. Since PCo
did not make the said payment, S filed a winding up petition before the High
Court. PCo relying on decision of Mumbai Labour Union vs. Indo French Time
Industries Ltd. [2002] 38 SCL 924 (Bom.)
contended that S was not a
creditor of the company and therefore, petition u/s. 439 cannot be
maintained. 

The decision rendered in the case of Mumbai Labour Union was
overruled in the case of Khandelwal Tube Mill Kamgar Sangh vs. Government of
Maharashtra [2006] 1 CLR 51
wherein it was held that workman or an
individual employee, being a creditor within the meaning of the relevant
statutory provisions of the Companies Act, can institute or file a Petition for
winding up of a Company.

The only surviving issue before the Court was whether a Trade
Union could file a Petition so as to espouse the cause of workmen who are members of such a Trade Union.

HELD:

Court examined the provisions of the Companies Act, 1956 as
well as Trade Unions Act, 1926. It was noticed that Registered Trade Unions can
prosecute or defend any legal proceeding to which the Trade Union or member
thereof is a party. The Court held that a Trade Union, though having a
legitimate claim, cannot be shut out from approaching the appropriate forum for
winding up the Company on the ground that its members have not been paid their
wages and/or salaries.

It was therefore held that an employee can maintain a
petition for winding up of a company u/s. 439 r/w sections 433(e) and 434 of
the Companies Act, 1956 as a creditor based on the claim of the recovery of his
unpaid salary and wages. Further, a winding up petition at the instance of a
Trade Union and for the dues that are payable to its members is maintainable as
it clearly fell within section 439 of the Companies Act, 1956.

5.  Shabbir Ahmed vs.
Safedabad Cold Storage and Allied Industries (P.) Ltd.

[2017] 80 taxmann.com 46 (NCLT – Kolkata)            Date of Order: 1st March,
2017

Section 13, read with sections 12 and 241, of the Companies
Act, 2013 – company having its registered officer in West Bengal had shifted
its registered office from West Bengal to state of Uttar Pradesh without
issuing any notice to a shareholder – Company had acted in a manner prejudicial
to the interest of shareholders – The shifting of office was illegal – Prayer
to shift the petition to Uttar Pradesh was not allowed

FACTS:

Directors of Respondent Company (SCo) convened an Extra
ordinary general meeting (EOGM) for shifting its registered office from the
State of West Bengal to the State of Uttar Pradesh and in the said meeting, a
special resolution was passed by the members. Petitioner (S) holding 21.76%
shares in SCo alleged that due process was not followed in convening the
meeting and that they were not served any notice of the meeting.

SCo however did not produce any proof of service of notice
upon S. S accordingly pleaded that such resolution passed should be declared as
null and void and also filed Company Petition for mismanagement and oppression
challenging the shifting of registered office amongst other things.

HELD:

SCo failed to show or prove the service of notice upon the S
or upon any other members/shareholders as was required under Rule 30 of the
Companies (Incorporation) Rules, 2014. SCo relied only on the order of Regional
Director who allowed the application for change in its registered office from
state of West Bengal to state of Uttar Pradesh.

The Tribunal also observed that office of the company was
shifted locally within Kolkata and the same was reflected in the Master data
obtained from the MCA portal. However, SCo did not produce any document to show
that due procedures were complied, in regard to the shifting of the registered
office locally within the State.

The Tribunal found that the equity was in favour of S. It
held that the conduct of the SCo and its directors was prejudicial to the
interest of the S and it would be highly unjust to allow the prayers sought by
the director of company to transfer the Company Petition to Safedabad in Uttar
Pradesh.

The Tribunal, rejecting the grant of relief stated that
relief if allowed would be highly oppressive to S as SCo had acted in the
manner not only prejudicial to the interest of the S but also acted in
violation of the established principles/procedures of law while shifting the
registered office of the company.

Company Law

1.   MCA is actively considering Aadhaar
Integration for availing various MCA21 related services. As a preparatory step,
all individual stakeholders viz. DIN holders/Directors/Key Managerial
Personnel/Professionals of the Institute of Company Secretaries of
India-Institute of Chartered Accountants of India-Institute of Cost Accountants
of India (whether in employment or in practice) are requested to obtain Aadhaar
as early as possible for integrating their details with MCA21 and also ensure
that the information in Aadhaar is in harmony with PAN. When implemented, all
MCA21 services shall be available based on Aadhaar based authentication ONLY.
The date of Aadhaar integration with MCA21 would be announced shortly.
Stakeholders are requested to plan accordingly on PRIORITY so as to avoid
future inconvenience.

2.   Form STK-2 –Form for application by company
for removing its name from register of companies is now available on the MCA
Portal.

3.   The Companies ( Registration of Charges)
Amendment Rules 2017

      The Ministry of Corporate Affairs has vide
Notification dated 7th April 2017 revised the Forms CHG-1, CHG-4 and
CHG-9. The following details are also required to be filled:

(i)   ranking of charges,

(ii)  particulars of the principal terms and
conditions of the charge,

(iii)  particulars of the property or asset(s)
charged (including complete address and location of the property),

(iv) description of document by which the
borrower/third party acquired the title etc.

(v)  If the ‘Type of Charge’ is ‘immovable property
or any interest therein’, the location parameters (Latitude and Longitude)
shall be mandatory

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/companiesRegistrationofChargesAmendmentRules_08042017.pdf

4.   Form 3 (Information with regard to Limited
Liability Partnership agreement and changes, if any, made therein) has been
mandatorily filed for initial agreement before filing of Form 8 (Statement of
Account & Solvency) and Form 11 (Annual Return of Limited Liability
Partnership (LLP).

5.   The Companies ( Removal of Names of
Companies from the register of Companies ) Amendment Rules 2017

    The Ministry of Corporate Affairs has vide
Notification dated 12th April 2017 inserted the following Proviso
after the proviso to Rule 7 (1) which provides for the  publication of the Public notice pursuant to
it and  Section 248(1) and 248 (4) of the
Companies Act 2013 in the format as per Form No STK-5A

  The full notification can be accessed
athttp://www.mca.gov.in/Ministry/pdf/CompRemovalofNamesRules_13042017.pdf

6.   Companies (Meetings of Board and its Powers)
Amendment Rules, 2017.

     The Ministry of Corporate Affairs has vide
Notification dated 30th March 2017 amended the Companies (Meetings
of Board and its Powers) Rules, 2014. In rule 15, in sub-rule (3), in clause
(a)—

     in item (i), item (ii), item (iii) and
item (iv), for the words “exceeding ten per cent.” Whereverthey occur, the
words “amounting to ten per cent. or more” shall be substituted;

      and(b) in item (iii), for the words “ten
per cent. of turnover” the words “ten per cent. or more ofturnover” shall be
substituted.

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesMeetingsofBoard_31032017.pdf

7.   The Companies (Indian Accounting
Standards)(Amendment) Rules, 2017

      The Central Government, in consultation
with the National Advisory Committee on Accounting Standardshas vide
Notification dated 17th March 2017 amended the the Companies (Indian
Accounting Standards) Rules, 2015

      The full notification can be accessed at

       http://www.mca.gov.in/Ministry/pdf/CompaniesIndianAccountingStandards_21032017.pdf

8.   Section 234 of the Companies Act 2013
pertaining to Merger and Amalgamation of company with Foreign Company notified

      The Ministry of Corporate Affairs has vide
Notification dated 13th April, 2017 informed that Section 234 of
Companies Act 2013 pertaining to Merger and Amalgamation of company with
Foreign Company is effective w.e.f 13th April 2017.

      The full notification can be accessed at

      http://www.mca.gov.in/MinistryV2/companiesact2013.html

9. The Companies (Compromises, Arrangements and
Amalgamations) Amendment Rules, 2017

      The Ministry of Corporate Affairs has vide
Notification dated 13th April 2017, inserted Clause 25A pertaining
to Merger or Amalgamation of a foreign Company with a Company and vice
versa.

   The full notification can be accessed at
http://www.mca.gov.in/Ministry/pdf/CompaniesCompromises_14042017.pdf

10. Amendments to Schedule III of the Companies Act
2013

      The Central Government has vide
Notification dated 30th March 2017 
no G.S.R. 308(E) issued the following 
amendments to Schedule III of the said Act with effect from the date of
publication of this notification in the Official Gazette, namely:-

      In the Companies Act, 2013 in Schedule
III, in Division I, in Part I under the heading “General instructions for
preparation of Balance Sheet” in paragraph 6, after clause ‘W’, the following
clause shall be inserted namely:-

“X.
Every company shall disclose the details of Specified Bank Notes (SBN) held and
transacted during the period from 8th November, 2016 to 30th
December, 2016 as provided in the Table below:-

 

SBNs

Other
denomination

Notes

 

Total

Closing cash in hand as on
08.11.2016

 

 

 

(+) Permitted receipts

 

 

 

(-) Amount deposited in
Banks

 

 

 

Closing cash in hand as on
30.12.2016

 

 

 

  

Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”

In the Companies Act, in Schedule III, in Division II, in
Part I under the heading “General instructions for preparation of Balance
Sheet” in paragraph 6, after clause ‘J’, the following clause shall be inserted
namely:-

“K. Every company shall disclose the details of
Specified Bank Notes (SBN) held and transacted during the period 08/11/2016 to
30/12/2016 as provided in the Table below:- 

 

SBNs

Other
denomination

Notes

 

Total

Closing cash in hand as on
08.11.2016

 

 

 

(+) Permitted receipts

 

 

 

(-) Amount deposited in
Banks

 

 

 

 

 

 

Closing cash in hand as on
30.12.2016

 

 

 

 Explanation : For the purposes of this clause, the
term ‘Specified Bank Notes’ shall have the same Meaning provided in the
notification of the Government of India, in the Ministry of Finance, Department
of Economic Affairs number S.O. 3407(E), dated the 8th November, 2016.”.

Full Notification can be
accessed at 
http://www.mca.gov.in/MinistryV2/companiesact2013.html

RBI /FEMA

Given below are the highlights
of certain RBI Circulars & Notifications

17.  Notification No.
FEMA.387/2017-RB dated March 09, 2017

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

This notification contains two
amendments to Notification No. FEMA 20/2000-RB dated 3rd May 2000 –
Foreign Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2017.

The amendments are as under: –

1.    Insertion of new sub-regulations in
Regulation 2: –

(ii E) E-commerce:

a. ‘E-commerce’ means buying and selling of goods and services including
digital products over digital & electronic network.

b. ‘E-commerce entity’ means a company incorporated under the Companies
Act, 1956 or the Companies Act, 2013 or a foreign company covered under section
2 (42) of the Companies Act, 2013 or an office, branch or agency in India as
provided in Section 2 (v) (iii) of FEMA 1999, owned or controlled by a person
resident outside India and conducting the e-commerce business.

c. ‘Inventory based model of e-commerce’ means an e-commerce activity
where inventory of goods and services is owned by e-commerce entity and is sold
to the consumers directly.

d. ‘Market place model of e-commerce’ means providing of an information
technology platform by an e-commerce entity on a digital & electronic
network to act as a facilitator between buyer and seller.

2.    Substitution of existing entry 16.2 in Annex
B to Schedule 1:
    (Table given below)

16.2

E-Commerce

%
of equity/FDI Cap

Entry
Route

16.2.1

B2B
E-commerce activities

100%

Automatic

 

Such
companies would engage only in Business to Business (B2B) e-commerce and not
in retail trading, inter alia implying that existing restrictions on
FDI in domestic trading would be applicable to e-commerce as well.

16.2.2

Market
place model of e-commerce

100%

Automatic

16.2.3

Other
Conditions

 

 

 

a)
  Digital & electronic network will
include network of computers, television channels and any other internet
application used in automated manner such as web pages, extranets, mobiles
etc.

b)
  Marketplace e-commerce entity will be
permitted to enter into transactions with sellers registered on its platform
on B2B basis.

c)
   E-commerce marketplace may provide
support services to sellers in respect of warehousing, logistics, order
fulfilment, call centre, payment collection and other services.

d)
  E-commerce entity providing a
marketplace will not exercise ownership over the inventory i.e. goods
purported to be sold. Such an ownership over the inventory will render the
business into inventory based model.

e)
  An e-commerce entity will not permit
more than 25% of the sales value on financial year basis affected through its
marketplace from one vendor or their group companies.

f)
   Goods/services made available for
sale electronically on website should clearly provide name, address and other
contact details of the seller. Post sales, delivery of goods to the customers
and customer satisfaction will be responsibility of the seller.

g)
  Payments for sale may be facilitated
by the e-commerce entity in conformity with the guidelines of the Reserve
Bank of India.

h)
  Any warranty /guarantee of goods and
services sold will be responsibility of the seller.

i)
    E-commerce entities providing
marketplace will not directly or indirectly influence the sale price of goods
or services and shall maintain level playing field.

j)     Guidelines
on cash and carry wholesale trading as given in S.No. 16.1.2 (stated above)
shall apply to B2B e-commerce activities.

Note:
FDI is not permitted in inventory based model of e-commerce.

16.2.4

Sale
of services through e-commerce shall be under automatic route subject to the
sector specific conditions, applicable laws/regulations, security and other
conditionalities.

28. A. P. (DIR Series) Circular No. 41 dated March 21, 2017 Notification
No. FEMA No.384/2017-RB dated March 17, 2017

Risk Management and Inter-bank
Dealings: Operational flexibility for Indian subsidiaries of Non-resident
Companies

This circular has amended the
provisions of Notification No. FEMA.25/RB-2000 dated May 3, 2000 dealing with
Foreign Exchange Derivatives Contracts.

This circular now permits, subject
to certain terms and conditions, a non-resident to enter into a foreign
exchange derivative contract with a bank in India to hedge an exposure to
exchange risk of and on behalf of its Indian subsidiary in respect of the said
subsidiary’s transactions.

The detailed terms and conditions,
etc. are contained in 2 Annex’s to this circular.

29. A. P. (DIR Series) Circular No. 42 dated March 30, 2017

Purchase of foreign exchange from
foreign citizens and others

This circular has withdrawn the
restrictions on purchase of foreign exchange from customers by authorised
persons and restored the position as contained in paragraph 4.4 (e) (iii) of
Annex to A.P. (DIR Series) Circular No.17 dated November 27, 2009.

The said paragraph provides as
under: –

iii) (a) Requests for payment in
cash in Indian Rupees to resident customers towards purchase of foreign
currency notes and / or Travellers’ Cheques from them may be acceded to the
extent of only US $ 1000 or its equivalent per transaction.

(b) Requests for payment in cash
by foreign visitors / Non-Resident Indians may be acceded to the extent of only
US $ 3000 or its equivalent.

(c) All purchases within one month
may be treated as single transaction for the above purpose and also for
reporting purposes.

(d) In all other cases, APs should
make payment by way of ‘Account Payee’ cheque / demand draft only.

30. A. P. (DIR Series) Circular No. 43 dated March 31, 2017

Investment by Foreign Portfolio
Investors in Government Securities

This circular has increased the
limits for investment by FPI in Central Government Securities and State
Development Loans (SDL) for the quarter April-June 2017 by Rs. 110 billion and
Rs. 60 billion respectively.

The details of the revised limits
are as under: –

Rs. Billion

 

Central Government securities

State
Development Loans

Aggregate

 

For all FPI – General Category

Additional for Long Term FPI

Total

For all FPI (including Long Term FPI)

 

Existing Limits

1,20

680

2,200

210

2,410

Revised limits for quarter April-June, 2017

1,565

745

2,310

270

2,580

Allied Laws

5. Precedent –
Contrary decisions of co-ordinate benches – Decision with better of reasoning
to be chosen [Central Excise Act, 1944; Section 11AC].

CCE vs. Otis Elevator Co. (I) Ltd. 2017(345) E.L.T. 512
(Bom.)(HC)

The issue in the case was with respect to application of a
provision retrospectively or prospectively. While resolving the issue, several
case laws were quoted where contrary views were expressed. However, one of the
case laws did not have threadbare discussion or reasoning.

Relying on the decision of the Court in the case of Kamleshkumar
Ishwardas Patel vs. Union of India, 1994 Mh.L.J. 1669 (FB)
, it was held
that when the Court is confronted with contrary decisions of higher courts,
both being binding on the subordinate courts by reason of their hierarchy, the
courts have to undertake the unpleasant task of choosing that one which appears
to be one with better reasoning.

6. Advocate, no
Objection Certificate of earlier Advocate not required – Appointment of New
Advocate – Party to litigation has absolute right to appoint advocate of
choice. [Constitution of India; Art.225, Advocate Act, 1961. Section 35]

Karnataka Power Transmission Corporation Ltd. Mysore vs.
M. Rajashekar and others. AIR 2017 Kar. 1

The issue in question was whether a new Advocate’s
Vakalatnama can be accepted in the absence of a no objection certificate from
the earlier advocate?

It was held that a party to the litigation has an absolute
right to appoint an advocate of his choice, to terminate his services and to
appoint a new advocate. A party has the freedom to change its advocate at any
time and for whatever reason.

However, fairness demands that the party should inform his advocate
already on record, though this is not a condition precedent to appoint a new
advocate. There is nothing known as an irrevocable Vakalatnama. The right of a
party to withdraw the authorisation given is an absolute one. On discharging
the advocate, the party has the right to have the case file returned to him.
However, if the advocate, on being discharged, has a genuine claim against the
client relating to the fee payable to him, the appropriate course for him is to
return the brief and to agitate his claim in an appropriate forum, in
accordance with law.

Hence the Registry will not ask for ‘No Objection’ of an
advocate already on record, to accept the Vakalatnama filed by a new advocate.

7. Evidence –
Newspaper Report – Only hearsay Evidence – Editor to be examined. [Evidence
Act, 1872; Section 3]

Govind Rhukhdu Ji Sirvi vs. Ranjana Baghel (Smt.) AIR 2017
Madhya Pradesh 41.

The election result of the Respondent was called in question
on several grounds w.r.t. malpractices before the Court. One of the ground was
that the respondent visited a village where she, by way of gratification of
voters, distributed currency notes of Rs.1,000/-. Photographs of the incident
were taken and distributed to various daily newspapers.

In the matter at hand, it was alleged that the respondent had
distributed currency notes which amounted to corrupt practices. The Petitioner
adduced the newspaper reports, ocular evidence and the photographs.

However, this allegation was denied by the respondent’s
Counsel on the ground that a news item as such is no evidence in the eyes of
law. Hence, the evidence should not be admissible.

It was held that a newspaper report by itself is no evidence
of its contents and that such evidence is only hearsay evidence. To prove the
contents of the newspaper reports, the reporter, editor or the publisher who
can testify as to how, when, from where and in what manner the material
published in the newspaper was collected should be examined.

8. Power of
Attorney executed outside India – Power of Attorney notarised in accordance
with law – Document to be admissible and not impoundable [Registration
Act,1908; Section 85].

Active Promoters Pvt. Ltd. vs. Assotech Reality Pvt. Ltd.
& Another AIR 2017 Punjab and Haryana 41

A Revision petition was filed before the court in a suit for
specific performance of the sale agreement. The Petitioner had moved an
application for the impounding of the special power of attorney, having been
executed outside India.

Plaintiff-Respondent filed
a suit for specific performance of the sale agreement under which the
Defendant-petitioner had agreed to sell his land. A written agreement was
executed between the parties for which the defendant-petitioner received
earnest money as well.

When the Defendant failed
to execute the sale deed, the Plaintiff filed Civil suit seeking specific
performance of the agreement to sell. Suit was at the stage of the Plaintiff’s
evidence. When the evidence of a special power of attorney was furnished, no
objection was raised for months and an issue was raised thereafter for
impounding the special power of attorney.

It was held that since the document, which was notarised by
the Notary Public of State of Florida, strictly in accordance with the laws of
America, met the requirements of law contained in section 85 and section 32 of
the Indian Evidence Act, and since no objection had been raised by the
opposition w.r.t the admission of the evidence at the inception, the evidence was
admissible.

However, any plea w.r.t. the evidentiary value could be
raised at the appropriate stage. Hence, the Special Power of Attorney was not
to be impounded by the Court.

9. Judgment – To
be pronounced in open Court, signed and dated – Mere declaration does not
amount to judgment. [Criminal Procedure Code, 1974; Section 353]

Ajay Singh and Another vs. State of Chhattisgarh and
Another AIR 2017 Supreme Court 310.

The issue was whether the Trial Court could pass an order
acquitting the accused as per a judgment typed separately.

The issue in the Trial Court was with respect to dowry death,
cruelty, etc., wherein finally the Judge passed a judgment stating in
the Order sheet that recorded that the accused persons had been acquitted as
per the judgment separately typed, signed and dated.

A complaint was filed before the Registry of the High Court,
appropriate action was taken and all the cases before the concerned Trial Judge
were transferred before the High Court for re-hearing.

Hence, two issues cropped up namely, whether the Trial Judge
had really passed an order for acquittal and whether the High Court had the
power to transfer the cases adjudicated upon by the Trial Court already, for
rehearing.

On verification, it was held that the Trial Court had not
pronounced any judgment in the open court.

According to section 353, the process and method of passing a
judgment is defined, wherein it specifies that a judgment has to be pronounced
in the Open Court, either immediately after the trial or at some subsequent
day, with prior notice given to the Parties. Section 363 provides that a copy
of judgment should be given to the accused and the other persons.

It was held that, the provisions clearly spelt
out that it was imperative on the part of the learned Trial Judge to pronounce
the judgment in the open court by delivering the whole of the judgment or by
reading out the whole the judgment or by reading out the operative part and
explaining the substance of the judgment.

From Published Accounts

Section A: 

Disclosures and reporting in financial statements for the year
ended 31st March 2017 for ‘Specified Bank Notes’ (SBN)

Compilers’ Note

The Ministry of Corporate Affairs vide notifications dated
March 30, 2017 notified the Companies (Audit and Auditors) Amendment Rules,
2017 and Amendment to Schedule III to the Companies Act, 2013. Pursuant to
these notifications, a new clause (d) has been inserted in Rule 11 of the
Companies (Audit and Auditors) Rules, 2014 requiring auditors to report on
whether the company had provided requisite disclosures in its financial
statements as to holdings as well as dealings in Specified Bank Notes during the
period from 8th November, 2016 to 30th December, 2016 and
if so, whether these are in accordance with the books of accounts maintained by
the company. Amendment has also been made to Schedule III to the Companies Act,
2013 to require that every company shall disclose the details of Specified Bank
Notes held and transacted during the period from 8th November, 2016
to 30th December, 2016 in the specified format.

The ICAI, looking to the urgency to provide guidance to
members for the disclosure and reporting as per the above MCA notifications,
has on 15th April 2017 issued an implementation guide for the
same. 
 

Given below is an illustration of disclosure and reporting
for the above in the financial statements for 2016-17.

Infosys Ltd. (financial statements dated 13th April
2017)

From Notes to Accounts

Disclosure on Specified Bank Notes (SBNs)

During the year, the company had specified bank notes or
other denomination note as defined in the MCA notification

GSR 308(E) dated March 31, 2017 on the details of Specified
Bank Notes (SBNs) held and transacted during the period from 8th November,
2016 to 30th December, 2016, the denomination wise SBNs and other
notes as per the said notification is given below:

In Rs.

Particulars

SBNs*

Other denomination notes

Total

Closing cash in hand on
November 8, 2016

232,000

352,117

581,117

(+) permitted receipts

561,236

561,236

(-) permitted
payments

(98,000)

(765,438)

(863,438)

(-) Amount deposited
in banks

(134,000)

(134,000)

Closing cash in hand as on
December 30, 2016

147,915

147,915

*For the purpose of this
clause, the term ‘Specified Bank Notes’ shall have the same meaning provided in
the notification of the Government of India, in the Ministry of Finance,
Department of Economic Affairs number SO 340E, dated the 8th
November, 2016. 

From Auditors’ Report

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

i.   

ii.  

iii.  

iv.           the
Company has provided requisite disclosures in its standalone Ind AS financial
statements as to holdings as well as dealings in Specified Bank Notes during
the period from 8th November, 2016 to 30th December, 2016
and these are in accordance with the books of accounts maintained by the
Company. Refer Note 2.27 to the standalone Ind AS financial statements.

Part D ETHICS, GOVERNANCE & ACCOUNTABILITY

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Corporate Transparency
There is considerable debate on how corruption must be reduced in the government. It spawned a movement, – which shook the nation;- and subsequently a political party. Most organisations in Western countries do not have specific Vigilance departments, whereas most of our government departments cannot do without these. Since the Vigilance departments are ineffective we have an Anticorruption bureau. To ensure independent investigation we have a CBI. Since these are not adequate we have the CVC, and now the talk of a Lokpal as the panacea for corruption.

The objective of this article is to see whether a method can be evolved to curb the corruption which takes place by collusion between big business and government functionaries. This hurts the nation seriously, since it is now estimated to be in millions of dollars. As many people point out, there are basically two types of corruption in government offices:

1) Extortionist- where bribes are demanded for a legitimate service or as a price to avoid harassment.

2) Collusive- where the giver is eager to give bribes so that he can indulge in an illegal act, or enrich himself at the cost of the public. This is usually of very large value and hurts public finances significantly.

This piece is an attempt to suggest that non-government action can lead to reduction of the second kind of corruption, which results in huge scams and great cost to public exchequer. Let me make an attempt to outline how this could be achieved. I am basing my suggestions on the following assumption:

A small percentage of the corporate would collapse if corruption were to be curtailed, since their profits depend on them. A comparable number of corporate lose a lot of business opportunities to the former because of unwillingness to adopt unethical practices. Most of the corruption of the collusive kind is indulged in by the former. For corporate of the second kind, there is a business need to curtail the collusive corruption. Apart from this there may be a consideration of ethics and a genuine desire to curb corruption. If a few such companies decide to take active steps to curtail corruption, and are quite clear that they will not adopt this route of getting unfair or unjust advantage from the government, they can make a difference to the overall national scenario. Taking a proactive role to achieve this goal is in their business interest and could translate to higher profits.

Unfair advantages by collusive corruption are obtained by paying lower taxes or getting unfair reliefs in paying taxes. Another area is getting lands or other infrastructure in a manner which gives them an effective subsidy. One more avenue is to bid competitively for providing services or for public private partnerships, and subsequently changing the conditions to affect public interest adversely. The idea is that those who wish to promote honesty and look at it as their social responsibility publicly pledge to display all transactions with governments on their websites.

Companies could also declare a policy for disclosure in which they could declare that certain information, which may harm their commercial interests would not be displayed. This would be very little, which might harm the legitimate commercial interests of the companies. They could declare the kind of information in government transactions which they would not display and explain their reasons. Many business leaders regret the lack of transparency and the corruption in government. They can take the lead and demonstrate their willingness to be transparent and also to transform the nation. It would be very good if a few businesses got together and announced their commitment to be transparent in their transactions with government. If they have taken a conscious decision to refuse the route of corruption to get undue advantage they would lose nothing and certainly gain respect from citizens and peers. Businesses may well argue that citizens should get the information from the government departments. These departments usually do not give information which would reveal favours despite this being a violation of their obligation in Right to Information Act. There could be two benefits for companies who publicly announce and practice transparency in all transactions with government:

1) They would be recognized by public for their commitment to transparency and corporate social responsibility.

2) Over a period of time if more companies follow suit, it would create a pressure on others to accept this level of transparency.

As the law stands most of this information should be accessible to citizens from government departments using RTI , except that which is exempt. However, when large corruption is involved, the information is usually denied and a citizen finds it difficult to battle this unjust denial.

Private action could have the potential of curbing corruption. I am hoping a few will take the lead. Corporates can make an effective contribution to bringing transparency and accountability and reducing corruption in the nation. Will some corporate take the lead? This could also be achieved if regulatory agencies,- like SEBI in India,- make it mandatory for all companies.

Part C Information on & Around

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Haryana: Charge for RTI application reduced from Rs. 50 to Rs. 10
The Haryana government has reduced the charge for filing an application under Right to Information (RTI ) Act from Rs. 50 to Rs. 10. The Haryana Right to Information Rules, 2009, has been amended and now will be known as the Haryana Right to Information (Amendment) Rules, 2016. A spokesman of the Administrative Reforms Department said that a notification to this effect had been issued. He said that according to the amendment, an application for obtaining any information would warrant a fee of Rs. 10.

Delhi HC directs Central Information Commission to start maintaining daily order sheets within six months
In a recent order, Justice Manmohan of Delhi High Court has directed the Central Information Commission to start maintaining daily order sheets within six months. The direction came while disposing the writ petition filed by R. K. Jain, a renowned authority on indirect taxation, and the Editor of Excise Law Times. In his order, Justice Manmohan held that since the CIC is a quasi-judicial body, its records must reflect a true and correct state of affairs. Dr. L. C. Singhvi, counsel for CIC, told the court that the CIC was willing to maintain daily order sheets, and sought time to evolve a procedure. Jain had complained that during hearing of his appeal in a recent case, it was allowed by the CIC, but in the order which was passed by CIC after a long delay, the appeal was dismissed.

RTI query exposes scam in appointments at CCSU
A report obtained under the Right to Information Act (RTI ) has thrown light on alleged corruption in the appointment procedure of assistant professors at Chaudhary Charan Singh University(CCSU).

As per the interview procedure, a suitable candidate is judged on the basis of his performance in the academic record & research programme and domain knowledge. In the 13 appointments made in February 2015, marks in domain knowledge were allegedly increased that led to the appointment of these aspirants.

However, a complaint was filed against one such aspirant following which the appointment was terminated. However, the remaining 12 candidates continue to be staff members.

Three Public Sector Banks With High Non-Performing Assets Rejected Most RTI Requests in 2014-15

A day after the Reserve Bank of India (RBI) submitted a list of the big defaulters – those who owe banks over Rs. 500 crore each – before the Supreme Court, with the plea that the names not be made public, an analysis of the data on the disposal of right to information (RTI ) applications has revealed that three public sector banks (PSBs), which figure high on the list of those with large non-performing assets (NPAs), rejected the most number of applications. While the rejection rate of some banks was less than 12%, many banks had a rate as high as 50%, indicating that perhaps they have something to hide, said RTI activist Venkatesh Nayak, programme coordinator at the Commonwealth Human Rights Initiative (CHRI), who examined the annual reports released by the Central Information Commission, which contains RTI application statistics submitted by 24 PSBs u/s. 25 of the RTI Act.

SIC imposes Rs. 5K fine on town planning officers

The Nagpur bench of State Information Commission (SIC) levied a fine of Rs. 5,000 on the public information officer of town planning department here for not complying with its earlier order for providing answers to queries under Right to Information (RTI ) Act, 2005. Commissioner Vasant Patil directed to recover this amount from information officer and be paid to RTI activist Mangesh Gakre, who had lodged a complaint.

Part B RTI Act, 2005

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Four law students take Delhi High Court to Court over exorbitant RTI fees; win

In a landmark decision, the Division Bench headed by the Chief Justice of Delhi High Court, amended the RTI Rules 2006 of the HC, while hearing a PIL filed by four law students, bringing the fees at par with other public authorities

Students objected to the following rules:

a) Exorbitant Fees prescribed under Rule 10 of the Delhi High Court RTI Rules, 2006 i.e. Rs. 50 as application fee and Rs. 5 per page for obtaining the photocopy/ physical/ Xerox Copies.

b) No provision for supply of information at free of cost for the citizens falling below poverty line (BPL) category, which is a mandatory provision under the main Act to provide free access to information to such citizens.

c) Provision of filing separate applications for each unrelated information as per Rule 3 of the Delhi High Court RTI Rules, 2006

They filed a public interest litigation (PIL) in the Delhi High Court in October 2015. Paras Jain and Kumar Shanu argued this matter in person without taking help from any advocate before the Division Bench of Chief Justice of Delhi High Court. They got the first two rules a) and b) amended in conformity with the provisions of the main RTI Act. The Bench, however, rejected main contention of the petitioners (students) on quashing of Rule 3 of the Delhi, which requires a separate RTI application for each information.

Jain says, “There is no provision in the RTI Act for filing separate applications in case of unrelated information, but Rule 3 of the Delhi High Court Rules states that for each piece of information sought, a separate application should be made.” The Court stated that the provision was required as it prevents frivolous applications seeking roving inquiries into various subjects.

Part A Decision of CIC

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CIC finally slams BCI hard for continuously failing to disclose information required by RTI Act

The Bar Council of India (BCI) has not satisfactorily complied with the Right to Information Act 2005 (RTI Act) provision which requires that it publish all its affairs on its website, held the Central Information Commission (CIC). The CIC said it is inclined to impose maximum penalty on BCI chairman Manan Kumar Mishra, if the BCI does not comply in a definite amount of time.

Chief Information Commissioner Prof Sridhar Acharyulu, formerly Registrar at Nalsar Hyderabad, stated in his 7th April, 2016 order:

“It is noticed that the Bar Council of India has not satisfactorily complied with the section 4(1) (b) requirements. It is a major breach of RTI by prestigious organization called BCI. It is also surprising that they are repeatedly taking a plea that, though they have such information in computer, they have not posted it on website. They have already exhausted 10 years of time in fulfilling this obligation. Commission directs the public authority to furnish annual report in compliance with 4(1)(b), as required u/s. 19(8)(a)(vi) and directs the PIO to show cause why maximum penalty should not be imposed for this breach of RTI. Commission directs the Chairman, BCI to file an affidavit explaining when they would be complying with 4(1)(b) on their official website. All the responses should reach the commission by May 9, 2016. If not, Commission will be compelled to initiate appropriate action against the Chairman, BCI for non-compliance of section 4(1)(b).”

Ethics and U

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(Negligence)

 Shrikrishna (S) — Arjun, I met your friend the other day. The one whom you introduced to me last Sunday.

Arjun (A) —Oh! He came to my office yesterday and was very much under tension.

S — Why? Any love letter from your Institute?

A — Yes! How do you know?

S — I guessed it. He was enquiring about some formalities under the Company Law, asking me how serious it is! I could make out that he was worried about it.

A — Actually, he has a client which is a private limited company. There was a dispute between two groups of shareholders and directors.

S — That is very common. When two persons come together for business, one should take it for granted that they are bound to quarrel between themselves one day or the other.

A — You said it! Nowadays, no relation is cordial forever! It is bound to break.

S — Not even matrimonial! Ha Ha Ha! We are in kaliyug. But what happened to that company?

A — The two groups separated. The outgoing group had some loans given to the company. They started demanding it back.

S— But how was your CA friend involved?

A — The continuing group played a trick. They showed a backdated allotment of shares to the outgoing shareholders at a very high premium; and loan was adjusted.

S — Just to ensure that their shareholding does not become a majority holding. Right?

A — Absolutely. And they got the return of allotment prepared in Form No. 2. The form was certified as correct by this CA friend of mine; and uploaded to ROC!

S — Oh! But didn’t he verify the requirements?

A — He checked things like the resolution in the Board meeting, entries in the books of account and so on.

S— But did not check the share application form. Correct?

A — Yes. And I tell you Lord, in a private limited company, no one is really bothered about share application form. Everything goes on good faith. Oral understanding.

S — But when the allotment is backdated, that too at a high premium and especially in the name of a disputing group, your friend should have been more cautious.

A — The real story is that the dispute between the two groups has gone to the CLB and the CLB also has pointed out the same flaw. All other things may be there; but the basic factor is the application or consent of the allotttees.

S — Obviously. Such small things have great importance. Actually, you people tend to take it lightly, thinking that it is an internal document, not required to be submitted any where!

A — You are right. Previously, none of us used to take any appointment letter for audit assignments of small organisations. But now, for filing the forms to the ROC, we have started taking it. It’s a good thing, we now realise!

S — Actually, you feel irritated when the Regulators ask you to upload more and more things. But that brings discipline in corporate functioning; and indirectly can protect you as auditor.

A — Same is the case with Board meetings. They are just shown to have been held on paper; and minutes are written. But in reality, there are no notices on record, no signatures of attendance, no circulation of minutes.

S — Everything is doctored later on! But it is dangerous to leave such loose ends. I understand the practical realities; but one has to cover them up by timely paper work. Otherwise, it could be fatal.

A — Till the time everything is smoothly going on, nobody bothers. But once there are disputes or when any third party enters – like when you are selling out a company, all these things come to surface.

S— Especially in the case of your friend, he should have been on the guard since he was obviously aware of the dispute. It should trigger suspicion.

A — Fortunately, at the time of separation, there was a Memorandum of Understanding signed by both the parties that the unsecured loans would be covered by allotment of shares at a premium.

S— Good! Something to fall back on. So what did CLB say on this?

A — The complainant is disowning his signature on MOU. Now it is with handwriting expert; and disputed in court.

S — It is a good lesson to all of you; even the certificates required for your tax audit are not actually taken from the management.

A — True! We just say –‘Yes- certificate is obtained’. But in reality ………

S — So the Regulator is actually helping you by framing a specific question in form 3CD but you take it lightly. Many times clients disown any such confirmation given by them if it is not taken in writing.

A — I agree. Henceforth, I will also start insisting on such documents. My poor friend is being held guilty for negligence. We should, henceforth, also verify the signatures.

S— And it also brings disrepute to the profession. It is a lack of due diligence.

A — Lord! Now, you only save my friend.

S— You know that God helps only the diligent! Now, leave it to Destiny.

Don’t take things for granted.

Om shanti !!!!!

From Published Accounts

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Section A :
Reporting on Internal Financial Controls as per section 143(3)(i) of the Companies Act, 2013

Compilers’ Note
Reporting u/s. 143(3)(i) by an auditor is mandatory from FY 2015-16 onwards. The said clause requires the auditors to comment, “whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls”. ICAI has, in September 2015, issued a Guidance Note on Audit of Internal Financial Controls over Financial Reporting wherein the role of the auditor, procedures to be followed and manner of reporting are discussed in detail. Given below are some illustrations of such reporting for the year ended 31st March 2016.

G.M.Breweries Ltd .
In our opinion, the company has, in all material respects, an adequate internal financial controls, system over financial reporting and such internal financial control over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the company.

Kitex Garments Ltd .
On the basis of the information and explanation of the Company provided to us, the internal financial control framework, the report of the internal auditors and in our opinion, the Company has adequate internal financial controls systems in place and the operating effectiveness of such controls.

Bajaj Corp Ltd .
With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate report in Annexure B.

Annexure B
Annexure to the independent auditor’s report of even date on the Standalone financial statements of Bajaj Corp Limited Report on the Internal Financial Controls under Clause (i) of sub-section 3 of section 143 of the Companies Act, 2013 (“the Act”) We have audited the internal financial controls over financial reporting of Bajaj Corp Limited (“the Company”) as of March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls
The Company’s management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act.

Auditor’s Responsibility
Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting (the “Guidance Note”) and the Standards on Auditing, issued by ICAI and deemed to be prescribed u/s. 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting
A company’s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorisations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion
In our opinion, the Company has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2016, based on the internal control over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India.

Stewards & Lloyds of India Ltd
With respect to the adequacy of the internal financial controls over financial reporting of the company and the operating effectiveness of such controls, refer to our separate report in Annexure I.

Annexure I
We have audited the internal financial controls over financial reporting of Bajaj Corp Limited (“the Company”) as of March 31, 2016 in conjunction with our audit of the standalone financial statements of the Company for the year ended on that date.

Management’s Responsibility for Internal Financial Controls
Not reproduced since same as above

Auditor’s Responsibility
Not reproduced since same as above

Meaning of Internal Financial Controls over Financial Reporting
Not reproduced since same as above

Inherent Limitations of Internal Financial Controls over Financial Reporting
Not reproduced since same as above

Qualified Opinion
According to the information and explanations given to us and on our audit, the following material weaknesses have been identified as at 31st March 2016.

a) The company did not have an appropriate internal control system for review of its performance pertaining to execution of contracts resulting in customer dissatisfaction and dispute leading to recognition of revenue without establishing reasonable certainty of ultimate collection in earlier years from sundry debtors affecting cash flows adversely.

b) The internal auditor of the company has also pointed out in their report material weakness in internal financial controls stating that the company is not having any ERP system to manage the different operational activities. Due to its present condition, it is also functioning with some minimum staff strength. Accordingly, many of the operations which would have been taken care by a computer system and controls are being managed manually. Hence there is some limitation in control system and processes which have been mentioned in a separate annexure.

A material weakness is a deficiency or a combination of deficiencies in internal financial control over financial reporting such that there is reasonable possibility that a material misstatement of the Companies’ annual or interim financial statements will not be prevented or detected on timely basis.

In our opinion, except for the possible effects of the material weaknesses described above on the achievement of the objectives of the control criteria, the company has maintained in all material respects adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as of 31st March 2016 based on the internal financial controls over financial reporting criteria established by the company considering the essential components of internal financial controls stated in the Guidance Note on audit of internal financial controls over financial reporting issued by the Institute of Chartered Accountants of India.

We have considered material weaknesses as identified and reported above in determining the nature, timing and extent of audit test applied in our audit of March 31, 2016 financial statements of the company and these material weaknesses do not affect our opinion on the financial statements of the company.

Section B:
Reporting on Companies (Auditors’ Report) Order, 2016

Compilers’ Note
The Ministry of Company Affairs has vide notification dated 29th March 2016 notified u/s. 143(11) of the Companies Act, 2013 issued the Companies (Auditors’ Report) Order (CARO, 2016). As per the said order, every report made by the auditor u/s. 143 of the Companies Act, 2013 on the accounts of every company audited by him, to which this Order applies, for the financial years commencing on or after 1st April, 2015, shall in addition, report on matters specified in paragraphs 3 and 4 of the order. Given below is an illustration of reporting as per CARO, 2016 for the year ended 31st March 2016. ICAI has also issued in April 2016 Guidance Note on CARO, 2016 which needs to be adhered to while reporting on the clauses.

Infosys Ltd (report issued before release of ICAI GN)

As required by the Companies (Auditor’s Report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure A, a statement on the matters specified in the paragraph 3 and 4 of the order.

Annexure – A to the Auditors’ Report
The Annexure referred to in Independent Auditors’ Report to the members of the Company on the standalone financial statements for the year ended 31st March 2016, we report that:

i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of fixed assets

(b) The Company has a regular programme of physical verification of its fixed assets by which fixed assets are verified in a phased manner over a period of three years. In accordance with this programme, certain fixed assets were verified during the year and no material discrepancies were noticed on such verification. In our opinion, this periodicity of physical verification is reasonable having regard to the size of the Company and the nature of its assets.

(c) According to the information and explanations given to us and on the basis of our examination of the records of the Company, the title deeds of immovable properties are held in the name of the Company.

ii) The Company is a service company, primarily rendering software services. Accordingly, it does not hold any physical inventories. Thus, paragraph 3(ii) of the Order is not applicable to the Company.

iii) The Company has granted loans to five bodies corporate covered in the register maintained u/s. 189 of the Companies Act, 2013 (‘the Act’).

(a) In our opinion, the rate of interest and other terms and conditions on which the loans had been granted to the bodies corporate listed in the register maintained u/s. 189 of the Act were not, prima facie, prejudicial to the interest of the Company

(b) In the case of the loans granted to the bodies corporate listed in the register maintained u/s. 189 of the Act, the borrowers have been regular in the payment of the principal and interest as stipulated.

(c) There are no overdue amounts in respect of the loan granted to a body corporate listed in the register maintained u/s. 189 of the Act.

iv) In our opinion and according to the information and explanations given to us, the Company has complied with the provisions of section 185 and 186 of the Act, with respect to the loans and investments made.

v) The Company has not accepted any deposits from the public.

vi) The Central Government has not prescribed the maintenance of cost records u/s. 148(1) of the Act, for any of the services rendered by the Company.

vii) (a) According to the information and explanations given to us and on the basis of our examination of the records of the Company, amounts deducted/ accrued in the books of account in respect of undisputed statutory dues including provident fund, income-tax, sales tax, value added tax, duty of customs, service tax, cess and other material statutory dues have been regularly deposited during the year by the Company with the appropriate authorities. As explained to us, the Company did not have any dues on account of employees’ state insurance and duty of excise. According to the information and explanations given to us, no undisputed amounts payable in respect of provident fund, income tax, sales tax, value added tax, duty of customs, service tax, cess and other material statutory dues were in arrears as at 31st March 2016 for a period of more than six months from the date they became payable.

(b) According to the information and explanations given to us, there are no material dues of duty of customs which have not been deposited with the appropriate authorities on account of any dispute. However, according to information and explanations given to us, the following dues of income tax, sales tax, duty of excise, service tax and value added tax have not been deposited by the Company on account of disputes: (table not reproduced)

viii) The Company does not have any loans or borrowings from any financial institution, banks, government or debenture holders during the year. Accordingly, paragraph 3(viii) of the Order is not applicable.

ix) The Company did not raise any money by way of initial public offer or further public offer (including debt instruments) and term loans during the year. Accordingly, paragraph 3 (ix) of the Order is not applicable.

x) According to the information and explanations given to us, no material fraud by the Company or on the Company by its officers or employees has been noticed or reported during the course of our audit.

xi) According to the information and explanations give to us and based on our examination of the records of the Company, the Company has paid/provided for managerial remuneration in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act.

xii) In our opinion and according to the information and explanations given to us, the Company is not a nidhi company. Accordingly, paragraph 3(xii) of the Order is not applicable.

xiii) According to the information and explanations given to us and based on our examination of the records of the Company, transactions with the related parties are in compliance with sections 177 and 188 of the Act where applicable and details of such transactions have been disclosed in the financial statements as required by the applicable accounting standards.

xiv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not made any preferential allotment or private placement of shares or fully or partly convertible debentures during the year.

xv) According to the information and explanations given to us and based on our examination of the records of the Company, the Company has not entered into non-cash transactions with directors or persons connected with him. Accordingly, paragraph 3(xv) of the Order is not applicable.

xvi) The Company is not required to be registered u/s. 45- IA of the Reserve Bank of India Act 1934.

Glimpses of Supreme Court Rulings

3.  Capital or Revenue receipt – The principle
that unless the grant-in-aid received by and assessee is utilied for
acquisition of an asset, the same must be understood to be in the nature of
revenue receipt, is not applicable to all situations – Subvention monies paid
by a parent company to its loss making Indian company are to be understood to
be payments made in order to protect capital investment of the assessee-company
and could not be treated as revenue receipts

Siemens Pub.
Communication Network P. Ltd. vs. CIT[(2017) 390 ITR 1 SC)]

The  assessee 
was engaged in the business of manufacturing digital electronic
switching systems, computer software and also software services. The return of
income for the assessment year 1999-2000 was filed declaring a loss of
Rs.9,08,30,417. In the statement of computation, the assessee had shown a sum
of Rs.21,28,40,000 as monies received from Siemens AG Germany, its principal
shareholder. In the course of the assessment proceedings the assessee explained
the said sum, as “subvention payment” from principal shareholder, made for two
reasons, namely, the company was potentially sick company, and that its
capacity to borrow had reduced substantially leading to shortage of working
capital. Siemens AG in its letter explained that as a parent company it had
agreed to infuse further capital by reimbursing the accumulated loss. The assessee
contended that the subvention monies were capital receipt and could not be
treated as income.

The Assessing Officer
rejected the contention of the assessee. The first appellate authority however
allowed the appeal holding the said monies as capital receipt. The Tribunal, in
the appeal filed by the Revenue, upheld the findings of the first appellate
authority. On a further appeal by the revenue, the High Court restored the
order of the Assessing Officer by relying on the two decisions of the Supreme
Court in Sahney Steel and Press Works Ltd vs. CIT [(1997) 228 ITR 253 (SC)]
and CIT vs. Ponni Sugars and Chemicals Ltd [(2008) 306 ITR 392 (SC)] in
which it was held that unless the grant-in-aid received by the assessee is
utilised for acquisition of an asset, the same must be understood to be in the
nature of revenue receipt.

On an appeal by the
assessee, the Supreme Court held that the understanding of the High Court that
the principle of law laid down in the aforesaid two decisions was applicable to
all situations was not correct. According to the Supreme Court, the aforesaid
view overlooked the fact that in both the above decisions the subsidies
received were in the nature of grant-in-aid from public funds and not by way of
voluntary contribution by the parent company as in the present case. The above
apart, the voluntary payments made by a parent company to its loss making
Indian company could also be understood to be payments made in order to protect
capital investment of the assessee-company. If that was so, the payments made
to the assessee-company by the parent company for the assessment year in
question could not be held to be revenue receipts. The Supreme Court approved
the decision of the Delhi High Court in CIT vs. Handicrafts and Handlooms
Export Corporation of India Ltd [(2014) 360 ITR 130 (Del)]
which had taken
a similar view.

The Supreme Court allowed
the appeal setting aside the order of the High Court.

4.  Writ – Existence of alternative remedy – The
High Court was not justified in dismissing the writ petition filed by and
assessee challenging the issuance of notice u/s. 148 as not maintainable

Jeans Knit Private
Limited v. DCIT [(2017) 390 ITR 10 (SC)]

The High Courts in the
batch of cases that were before the Supreme Court had dismissed the writ
petitions preferred by the assessee challenging the issuance of notice u/s. 148
and the reasons which were recorded by the Assessing Officer for reopening the
assessment. These writ petitions were dismissed by the High Courts as not
maintainable. According to the Supreme Court, the aforesaid view taken by the
High Courts was contrary to the law laid down by the Supreme Court in Calcutta
Discount Co. Ltd. vs. ITO [(1961) 41 ITR 191 (SC)].
The Supreme Court,
therefore, set aside the impugned judgments and remitted the cases to the
respective High Courts to decide the writ petitions on merits.

The Supreme Court however clarified that it had not made any
observations on the merits of the cases, i.e. the contentions which were raised
by the assessee challenging the move of the Income-tax authorities to reopen
the assessment and that each case would be examined on its own merits keeping
in view the scope of judicial review while entertaining such matters, as laid
down by the Supreme Court in various judgments.

The Supreme Court while
coming to the aforesaid conclusion was conscious of the fact that the High
Court had referred to the judgment of the Supreme Court in CIT vs. Chhabil
Dass Agarwal [(2013) 357 ITR 357 (SC)].
According to the Supreme Court the
principle laid down in the said case did not apply to these cases.

The Supreme Court further
directed that the stay of reassessment that was granted during the pendency of
these appeals would continue till the disposal of the writ petitions before the
High Courts.

The Supreme Court allowed the appeals in the aforesaid terms.

5.  Exemption – Residential Palace – Though a
part of the residential palace is found to be in occupation of the tenant and
remaining is in occupation of the Ruler for his residence, the Ruler is
entitled to claim exemption for the whole of his residential palace u/s.
10(19A)

Maharao Bhim Singh of
Kota vs. CIT (2017) 390 ITR 532 (SC)

Principle of Res
judicata
– Though the principle of res judicata does not apply to
income-tax proceedings and each assessment year is an independent year in
itself, yet, in the absence of any valid and convincing reason, Revenue should
not pursue the same issue again to higher Courts. There should be a finality
attached to the issue once it stands decided by the higher Courts on merits.

Rule of interpretation –
If two Statutes dealing with the same subject use different language, then it
is not permissible to apply the language of one Statute to other while
interpreting such Statutes.

Rule of interpretation –
Once the Assessee is able to fulfill the conditions specified in section for
claiming exemption under the Act then provisions dealing with grant of
exemption should be construed liberally because the exemptions are for the
benefit of the Assessee.

The Appellant was the
Ruler of the princely State of Kota, now a part of State of Rajasthan. He owned
extensive properties which, inter alia, included his two residential
palaces known as “Umed Bhawan Palace” and “City Palace”.
The Appellant was using Umed Bhawan Palace for his residence.

In exercise of the powers
conferred by section 60A of the Indian Income-tax Act, 1922 (XI of 1922), the
Central Government issued an order called “The Part B States (Taxation
Concessions) Order, 1950” (hereinafter referred to as “The
Order”). It was issued essentially to grant exemptions, reductions in rate
of tax and the modifications in relation to specified kinds of income earned by
the persons (Ruler and his family members) from various sources as specified
therein. The Order was published in the Gazette of India, extraordinary, on
02.12.1950.

Paragraph 15 of the Order
dealt with various kinds of exemptions. Item (iii) of Paragraph 15, provided
that the bona fide annual value of the residential palace of the Ruler of a
State which is situated within the State and is declared by the Central
Government as his inalienable ancestral property would be exempt from payment
of Income-tax.

In pursuance of the powers
conferred under item (iii) of Paragraph 15 of the Order, the Central
Government, Ministry of Finance (Revenue Division) issued a notification
bearing No. S.R.O. 1619 dated 14.05.1954 declaring the Appellant’s
aforementioned two palaces, viz., Umed Bhawan and City Palace as his official
residences (Serial No. 21 of the Table).

On 20.09.1976, the
Ministry of Defence requisitioned portion of the Umed Bhawan Palace (918.26
Acres of the land including houses and other construction standing on the land)
for their own use and realized Rs. 80,000/- as rent by invoking the provisions
of Requisition and Exhibition of Immovable Property Act, 1952. According to the
Appellant, the period for which the land was requisitioned expired in 1993
though the land still continued to remain in the occupation of the Ministry of
Defence.

A question arose in the
Appellant’s income-tax assessment proceedings regarding taxability of the
income derived by the Appellant (Assessee) from the part of the property
requisitioned by the Defence Ministry, which was a portion of the Appellant’s
official residence (Umed Bhawan Palace). The question was whether the rental
income received by the Appellant from the requisitioned property by way of rent
was taxable in his hands. In other words, the question was as to whether the
Appellant was entitled to get full benefit of the exemption granted to him u/s.
10A(19A) of the Income-tax Act, 1961 (for short, “the I.T. Act”) from
payment of income-tax or it was confined only to that portion of palace which
was in his actual occupation as residence and the rest which was in occupation
of the tenant would be subjected to payment of tax.

The Commissioner of Income
Tax (Appeals) answered the question in Appellant’s favour and held that since
the Appellant was in occupation of part of his official residence during the
assessment year in question, he was entitled to claim full benefit of the
exemption for his official residence as provided u/s. 10(19A) of the I.T. Act
notwithstanding the fact that portion of the residence was let out to the
Defence Ministry. The Revenue, felt aggrieved, carried the matter in appeal
before the Income Tax Appellate Tribunal. The Tribunal affirmed the order of
the Commissioner of Income Tax and dismissed the Revenue’s appeal. The
Tribunal, however, on an application made by the Revenue u/s. 256(1) of the
I.T. Act referred the following question of law to the High Court of Rajasthan
for answer.

“Whether on the facts and
in the circumstances of the case, the Tribunal was justified in holding that
the rental income from Umed Bhawan Palace was exempt u/s. 10(19A) of the IT
Act, 1961?”

The Division Bench of the
High Court while hearing the reference noticed cleavage of opinion on the
question referred in this case in two earlier decisions of the High Court of
Rajasthan. One was in the case of Maharawal Laxman Singh vs. C.I.T. (1986)
160 ITR 103 (Raj.
) and Anr. was in Appellant’s own case, C.I.T.
vs. H.H. Maharao Bhim Singhji (1988) 173 ITR 79 (Raj.)
. So far as the case
of Maharwal Laxman Singh (supra) was concerned, the High Court had
answered the question in favour of the Revenue and against the Assessee,
wherein it was held that in such factual situation arising in the case, annual
value of the portion which was in the occupation of the tenant was not exempt
from payment of Income-tax and, therefore, income derived therefrom was
required to be added to the total income of the Assessee, whereas in case of
H.H. Maharao Bhim Singhji (supra), the High Court answered the question
against the Revenue and in favour of the Assessee holding therein that in such
a situation, the Assessee was entitled to claim full exemption in relation to
his palace u/s. 10(19A) of the I.T. Act notwithstanding the fact that portion
of the palace was let out to a tenant. It was held that any rental income derived
from the part of his rental property was, therefore, not liable to tax. The
Division Bench, therefore, referred the matter to the Full Bench to resolve the
conflict arising between the two decisions and answer the referred question on
merits.

The Full Bench of the High
Court answered the question against the Appellant (Assessee) and in favour of
the Revenue.

It was held that so long as the Assessee continued to remain
in occupation of his official residential palace for his own use, he would be
entitled to claim exemption available u/s. 10(19A) of the I.T. Act but when he
was found to have let out any part of his official residence and at the same
time was found to have retained its remaining portion for his own use, he
becomes disentitled to claim benefit of exemption available u/s. 10(19A) for
the entire palace. It was held that in such circumstances, he was required to
pay income-tax on the income derived by him from the portion let out in
accordance with the provisions of the I.T. Act and the benefit of exemption
remained available only to the extent of portion which was in his occupation as
residence.

The Supreme Court observed
that in order to claim exemption from payment of income-tax on the residential
palace of the Ruler u/s. 10(19A), it is necessary for the Ruler to satisfy that
first, he owns the palace as his ancestral property; second, such palace is in
his occupation as his residence; and third, the palace is declared exempt from
payment of income-tax under Paragraph 15 (iii) of the Order, 1950 by the
Central Government.

According to the Supreme
Court, where part of the residential palace is found to be in occupation of the
tenant and remaining is in occupation of the Ruler for his residence, a
question would arise as to whether in such circumstances, the Ruler is entitled
to claim exemption for the whole of his residential palace u/s. 10(19A) or such
exemption would confine only to that portion of the palace which is in his
actual occupation. In other words, whether the exemption would cease to apply
to let out portion thereby subjecting the income derived from let out portion
to payment of income-tax in the hands of the Ruler.

The Supreme Court noted that this very question was examined
by the M.P. High Court in the case of Bharatchandra Banjdeo [(1985) 154 ITR 236
(MP)] in detail. It was held that no reliance could be placed on section 5(iii)
of the Wealth Tax Act while construing section 10(19A) for the reason that the
language employed in section 5(iii) was not identical with the language of
section 10(19A) of the I.T. Act. Their Lordships distinguished the decision of
Delhi High Court rendered in the case of Mohd. Ali Khan vs. CIT (1983) 140
ITR 948 (Delhi),
which arose under the Wealth Tax Act. It was held that
even if the Ruler had let out the portion of his residential palace, yet he
would continue to enjoy the exemption in respect of entire palace because it is
not possible to split the exemption in two parts, i.e., the one in his
occupation and the other in possession of the tenant.

The Supreme Court held
that in section 10(19A) of the I.T. Act, the Legislature has used the
expression “palace” for considering the grant of exemption to the
Ruler whereas on the same subject, the Legislature has used different
expression namely “any one building” in section 5(iii) of the Wealth
Tax Act. It could not ignore this distinction while interpreting section
10(19A) which, according to the Supreme Court, was significant.

The Supreme Court was of
the view that if the Legislature intended to spilt the Palace in part(s), alike
houses for taxing the subject, it would have said so by employing appropriate
language in section 10(19A) of the I.T. Act. However, no such language was
employed in section 10(19A).

The Supreme Court noted
that section 23(2) and (3), uses the expression “house or part of a
house”. Such expression does not find place in section 10(19A) of the I.T.
Act. Likewise, there is no such expression in section 23, specifically dealing
with the cases relating to “palace”. According to the Supreme Court,
this significant departure of the words in section 10(19A) of the I.T. Act and
section 23 also suggest that the Legislature did not intend to tax portion of
the “palace” by splitting it in parts.

According to the Supreme
Court, it is a settled Rule of interpretation that if two Statutes dealing with
the same subject use different language then it is not permissible to apply the
language of one Statute to other while interpreting such Statutes. Similarly,
once the Assessee is able to fulfill the conditions specified in section for
claiming exemption under the Act then provisions dealing with grant of
exemption should be construed liberally because the exemptions are for the
benefit of the Assessee.

The Supreme Court held
that the view taken by the M.P. High Court in Bharatchandra Banjdeo’s case (supra)
and the Rajasthan High Court in H.H. Maharao Bhim Singhji’s case (supra)
was a correct view.

The Supreme Court further noted that the question involved in
this case had also arisen in previous Assessment Years’ (1973-74 till 1977-78)
and was decided in Appellant’s favour when Special Leave Petition (C) No. 3764
of 2007 filed by the Revenue was dismissed by it on 25.08.2010 by affirming the
order of the Rajasthan High Court referred supra.

In such a factual
situation where the Revenue consistently lost the matter on the issue then,
according to the Supreme Court, there was no reason much less justifiable
reason for the Revenue to have pursued the same issue any more in higher
courts.

The Supreme Court held
that though the principle of res judicata does not apply to income-tax
proceedings and each assessment year is an independent year in itself, yet, in
the absence of any valid and convincing reason, there was no justification on
the part of the Revenue to have pursued the same issue again to higher Courts.
There should be a finality attached to the issue once it stands decided by the
higher Courts on merits. This principle, according to the Supreme Court,
applied to this case on all force against the Revenue. [see Radhasoami Satsang,
Saomi Bagh, Agra’s case (1992) 193 ITR 321 (SC)].

In the light of foregoing
discussion, the Supreme Court held that the reasoning and the conclusion
arrived at by the High Court in the impugned order including the view taken by
the Rajasthan High Court in Maharaval Lakshmansingh’s case (supra) did
not lay down correct principle of law whereas the view taken by the M.P. High
Court in cases of Bharatchandra Bhanjdeo (supra), Commissioner of
Income-Tax vs. Bharatchandra Bhanjdev (1989) 176 ITR 380 (MP)
and H.H.
Maharao Bhim Singhji (supra) laid down correct principle of law.

The appeal was accordingly
allowed. The impugned order was set aside. As a consequence, the question
referred to the High Court in the reference proceedings out of which this
appeal arose was answered in favour of the Appellant (Assessee) and against the
Revenue.

From The President

Dear Members,

March 20, International Day of
Happiness
slipped by like a ship without lights in the night. There was no
deluge of messages on social media or a blast of advertisements trumpeting
‘happiness offers’ as this day has yet to be noticed and commercialized. What
caught my attention was a relatively inconspicuous piece in the newspapers
about the World Happiness Report. Going through it I felt a tinge of
unhappiness as India was poorly rated – plunging four ranks from 118 to 122…and
rubbing salt into the wound was the fact that altogether there were155
countries being ranked. 

Jeffrey Sachs, the report’s
co-editor said, “The World Happiness Report continues to draw global attention
to the need to create a sound policy for what matters most to people – their
well-being.” The happiness ranking is derived from six criteria: GDP per
capita, healthy years of life expectancy, social support, corruption level in
govt and business, freedom to make life decisions and generosity. From the
elaborate analysis, it is clear that happiness is not just about money, though
it is a part of it. This is evident in the fact that oil-rich Norway (which
toppled three-time leader Denmark) zoomed to the top despite depressed oil
prices and a gloomy future for energy.

There is a lot that is going right
with India – we have an economy that’s growing at a healthy pace; strong global
inflows into the financial markets; proven credentials in space; several
successfully implemented programs and reforms that are the envy of the world…We
are even on the verge of rolling out GST which would be another remarkable
achievement for an economy that’s so complex. So with such an upbeat scenario
why is there such a strong disconnect between happiness and Indians? More
importantly, should we sweep the World Happiness Report with all its analysis
and insights under the carpet? Hopefully not! There’s much to be gained from
tackling the demons that plague the well-being of the Indian citizens
especially the rampant corruption, meagre social welfare and ideological
repression that’s sweeping the nation.

It is a little late, but I would
like to celebrate World Happiness Day with all of you by sharing a few of my
favourite quotes that could be beacons of inspiration in riding the ‘downs’ in
our lives.

“Happiness is when what you
think, what you say and what you do are in harmony.” Mahatma Gandhi

“If you want to live a happy
life, tie it to a goal, not to people or objects.” Albert Einstein

“Folks are usually about as
happy as they make their minds up to be.” Abraham Lincoln

“Some cause happiness wherever
they go; others whenever they go.” Oscar Wilde

GST –
Inching Forward

GST is the other news that
dominates the media and is being eagerly anticipated by all – individuals and
businesses of all sizes across India. Ten years in the making, GST is set to
harmonize the indirect tax system by creating one of the largest trade zones in
the world. Prime Minister Narendra Modi is confident that GST implementation
will result in the economy notching at least two percent growth. Finance
Minister Arun Jaitley believes the economic growth in India could escalate to
over eight percent in the immediate future. Defining the immense potential of
the Indian economy, a research paper from the US Federal Reserve projects a
4.2% upswing in real GDP depending upon the tax rates…the lower the rate, the
bigger the boost!

The ball is clearly in the court
of the GST Council to ensure that the supporting rules are framed and the
applicable tax rates for different product classes and sectors are clearly
defined in good time and in a manner which will not leave much ambiguity in
classification. This is essential as both the rules and rates have to be
configured into the systems of the businesses to facilitate the seamless
transition to GST. Some businesses and opinion leaders have suggested differing
the launch to September to enable organizations to re-orient their accounting,
compliance and regulatory processes for GST.

GST is a win-win reform for
everyone. Companies are looking at a simplified tax structure that will boost
productivity and lower costs. The formalization of the economy will minimize
corruption and substantially boost tax compliance; providing larger revenues
for development. In subsuming most of the indirect taxes, GST will eliminate
tax ambiguity and improve the ease of doing business…ultimately attracting even
more investments. With the elimination of the cascading impact of taxes, Indian
exports will become more competitive and be in greater demand across the world.
However, with the states insisting on ePermits for interstate transfer of
goods, the major benefit of borderless states for goods will be lost and the
truck queues at the check nakas will still remain.

Society is going all out in
organizing workshops, seminars and lecture meetings on GST in the coming few
months. It is reaching out to various trade associations to impart systematic
training based on the NACEN guidelines. We are committed to the Government to
shoulder some of its responsibilities of training maximum trade, industry and
stakeholders to be GST ready.

Bulls
on a roll

In a not so surprising
development, a 30 kg cake was cut to celebrate the BSE bellwether index Sensex
successfully scaling the 30,000 mark. The Sensex had earlier crossed the 30,000
milestones in intra-day trading on two occasions but for the first time closed
at this level. The strong perception that the enhanced political stability will
facilitate progressive reforms and in turn channelize investments is one of the
pivotal reasons of the D-Street buoyancy.

The strong cues of a revival in
global economic growth particularly in Europe and Japan have lifted investor
sentiment, ensuring substantial inflows from foreign portfolio investors and
domestic mutual funds. Keeping pace with the Sensex, the Nasdaq Composite too
crossed the 6,000 mark for the first time reflecting Wall Street’s optimism
about President Trump’s much-awaited tax reforms. The first round of the French
presidential elections which hints at a centrist victory too has sent stocks
spiraling upwards across the globe.

Clearly, the bulls are ruling
the market right now and happy times are here again…I hope India will climb in
the World Happiness Report next year.

eLearning
platform

BCAS has initiated a programme on
how to reach out to its members who are located at far off places away from
Mumbai but are so very keen to attend the various workshops, seminars and long
duration courses organised. The Society will soon be launching an eLearning
platform which is cloud-based and works on a “responsive” framework. It will
have an option to allow the members to access content using any device, from
any location and at any time. The possibilities of its training initiative are
limitless. So, you will now be able to see and hear the expert speakers right
at your location. Through this initiative, the Society also intends to reach
out to the CA fraternity and students who are yet not the members of the
Society. I request all my dear readers to popularize this platform once
launched.

Honing
skills of CAs

There is always a comparison
between a CA and a MBA and it boils down to the conclusion that CAs are
academically much more sound and great number crunchers but lack management
skill sets due to which many a times MBAs are preferred as leaders. To put an
end to such a dogma and to equip our members to acquire management and
entrepreneurial skills, a course has been launched by BCAS along with Indian
School of Management and Entrepreneurship (ISME) termed as “Executive MBA for
CAs” – “CAMBA”. I am sure members would avail the benefit of this
course.

Warm Regards,

Chetan Shah

FROM THE PRESIDENT

Dear Members,


One more month, one more
opportunity for communication, in a slightly relaxed month of May, the
preferred month for taking vacations. Vacation for anybody is a chance to take
a break from work, see the world and enjoy time with your near and dear ones. Today’s
world is full of choices – right from the choice of destination and
accommodation to the travel options, the sight-seeing itinerary and the like.
In an attempt to optimise the vacation benefits, at times, we cramp too many
goals into one vacation. As if there is no tomorrow!

 

The objective of vacations
is to increase the happiness levels. The attempt is not only to increase
happiness levels but to portray happiness. Substantial time is spent in taking
selfies, photographs and updating social media rather than really sinking into
the new environment and enjoying the moment. In an attempt to capture and store
the moments, do we compromise on the real feel of the environment?

 

A slew of notifications was
issued under the GST Law to implement the GST Council recommendation of a lower
rate of tax for builders and developers. The objective was to simplify, but a
cursory look would suggest that the outcome is complex. The taxpayer is
expected to procure at least 80% of goods and services from registered vendors.
What is the genesis of such a provision? Is it the mindset of the taxpayer to
use every possible opportunity to optimise tax outflows or is it reflective of
the government mindset to not trust the taxpayers enough? Whatever may be the
genesis, one thing is certain, we are back to the old days of complex laws,
litigation and uncertainty. Before things really go out of hand, we need to
bring back the much desired simplicity in the law.

 

GST Law prescribes for a
mandatory audit in case of assessees having aggregate turnover above Rs. 2
crore. This audit represents an opportunity as well as a challenge. In view of
the implementation of GST from the middle of the financial year and the concept
of rectification in subsequent periods rather than revision of returns, the
approach towards audit will have to be fine-tuned. At the same time, by its very nature there will be substantial
transactional volume. Initial months of GST resulted in a lot of chaos. The
auditor will have to walk the tightrope of ensuring strict compliance as per
the law as well as be sensitive to the compliance and portal-related issues.
With this challenge also comes the opportunity of showcasing the abilities of
the members to rise to the occasion and provide valuable and balanced inputs through
the audit report both to the government officials and the assessees.

 

The renewal fees for
ordinary memberships, subscriptions for journals (including new life members)
and study circles have become due and the Society has already sent emails in
this regard. I am happy to inform that a substantial percentage of renewals are
already effected. In case you have missed the email in view of your busy
schedule, I urge you to kindly renew your memberships or subscriptions at the
earliest.

 

The ITF Conference to be
held in August, 2019 has already been announced. The preparations for the Jal
Erach Dastur CA Students Annual Day event “Tarang 2K19” are in full swing. This
event will be held in June, 2019 where about 500 CA students will showcase
their talent in various extra-curricular activities. The Youth RRC, specially
designed by young chartered accountants, has also been announced and is
receiving encouraging response. In addition to the above, your Society has
lined up a series of educational programmes, the details whereof are available
alongside. I would request you to participate in large numbers and take benefit
of the same.

 

Regards

 

 

 

 

CA.
Sunil Gabhawalla

President

 

SOCIETY NEWS

CORPORATE AND ALLIED LAWS COMMITTEE

“Company Law Conclave – 2019” held on 15th & 16th March, 2019

A two-day Company Law Conclave – 2019 was organised by the Corporate & Allied Laws Committee on 15th & 16th March, 2019 at Hotel Orchid, Mumbai, with distinguished speakers and panellists sharing their in-depth knowledge and experience on the subject. President CA. Sunil Gabhawalla gave the inaugural remarks, followed by opening comments from the Chairman of the Corporate and Allied Laws Committee, CA. Chetan Shah.

CA. Nilesh Vikamsey, Past President of ICAI, delivered the keynote address and highlighted the journey of various amendments in the short period since the enactment of the Companies Act, 2013 including a statistical analysis thereof; he also highlighted the challenges faced, especially by professionals, in various compliances thereunder.

The first technical session was taken up by CA. Bhavesh Vora who dealt with the topic Significant Beneficial Ownership (SBO). He explained the difference between registered owner and beneficial owner, stages of Money-laundering leading to the rationale behind the introduction of SBO declarations, the applicability and non-applicability of SBO declarations, etc. He also gave valuable insights on provisions of the Companies Act, 2013 relating to Acceptance of Deposits and Dematerialisation of Shares and touched upon the Banning of Unregulated Deposit Schemes Ordinance, 2019 which was promulgated on 21st February, 2019.

The second session was a panel discussion on Recent Trends of actions from Regulators such as SEBI, Stock Exchanges and MCA with respect to Audit Committees, Auditors and Directors, including Independent Directors. The esteemed panellists were CA. Shailesh Haribhakti, CA. Dolphy D’Souza and CA. Bhavesh Vora. The session was ably moderated by CA. Sandeep Shah who made the proceedings informative and interesting.

In the third session, CA. Manish Sampat, Vice President, BCAS, explained the relevant provisions of the Companies Act, 2013 relating to Loans and Investments, Borrowings, Related Party Transactions and Foreign Companies – establishing liaison/project/branch office in India and shared his practical experience. He also gave a brief overview of FEMA provisions.

Thereafter, Mr. Amit Tandon apprised the participants about the Dawn of proxy/voting advisory firms in India and corporate governance trends evolving in India. He expressed the view that shareholder engagement had been increasing in India in the recent past and shared specific examples of how effective shareholders’ engagement had resulted in not allowing the Board to have its own way.

In the last session on Day 1, CA. Avil Menezes dealt with Corporate Insolvency (winding up) in IBC Era. He explained the liquidation process under the IBC and responded to several queries of the participants in this regard.

Day 2 began with the session on Accounts, Audit and CSR’ under the Companies Act, 2013 by CA. Himanshu Kishnadwala. He elaborated the financial statements – AS and Ind AS, reopening of financial statements, declaration of dividend, NFRA and CSR provisions applicable to the companies, and shared insights on audit and auditors’ responsibilities and other services that can be rendered by the auditor/its affiliate or associate.

This was followed by a panel discussion on Role & Responsibilities of Directors, Conflicts of Interest other than related party transactions and Directors’ Potential Liabilities in Insolvency. The distinguished panellists, viz., CS. Shailesh Rajadhyaksha, CA. Uday Chitale and Adv. Bharat Vasani, shared their views and rich experience. Adv. Bharat Vasani, with his legal background, threw light on the Directors’ responsibilities and liabilities under the Companies Act as well as some other laws. The session was ably moderated by CA. Nawshir Mirza who made the interaction more educative and effective.

Thereafter, the session on Schemes of Compromises, Arrangements and Amalgamations – Procedural aspects was taken up by Adv. Bhumika Batra. She, inter alia, covered the benefits, governing statutes and various stages of schemes of compromise and arrangements. The concluding session on Day 2 was taken up by CS B. Renganathan on Schemes of Compromises, Arrangements and Amalgamations – Some Peculiar Illustrations. He discussed some of the path-breaking schemes of compromises and arrangements.

The event garnered good response and saw attendance from outstation participants from various cities. Overall, the Company Law Conclave was an enriching experience for the participants.

Training Session on “Practical Aspects of Bank Audit from Article’s Perspective” held on 22nd March 2019 at BCAS Conference Hall

The Students’ Forum under the auspices of the HRD Committee organised a training session on the above-mentioned topic on 22nd March, 2019 in the BCAS Conference Hall which was led by CA. Pankaj Tiwari, a proficient speaker on the subject. Ms. Divya Jadav, the student co-ordinator, introduced him to the participants. She was followed by CA. Jigar Shah, HRD Committee member, who also addressed the students.

CA Pankaj Tiwari spoke about the current banking scenario and briefed the students on various recent circulars issued by the RBI. He covered several issues and aspects which needed to be looked into by the article students while conducting a bank audit. He meticulously explained the issues involved through case studies and practical examples; he gave useful tips to the article students on how to effectively conduct Bank Audit and provided a checklist of the critical areas to be focused upon.

The training session ended with Mr. Jason Joseph, student co-ordinator, proposing the vote of thanks to the speaker for sparing his valuable time and the audience for participating in huge numbers. With the “Bank Audit season” round the corner, the topic had its own importance which could be easily seen by the tremendous response received from the students. Overall, the session was very informative and the participants benefited a lot from it.

ITF STUDY CIRCLE

Study Circle on “Agency PE – Analysis of Amendment under the Act and MLI” held on 25th March, 2019 at BCAS Conference Hall

The ITF Study Circle organised a meeting on Agency PE – Analysis of Amendment under the Act and MLI on 25th March, 2019 in the BCAS Conference Hall. It was led by the Group Leader, CA. Kartik Badiani who took the members through the various provisions of Article 12 of the Multilateral Instrument relating to the measures for preventing avoidance of a permanent establishment. He explained the commissionaire arrangement and why it is not very relevant in the Indian context.

CA. Kartik Badiani also described the expanded scope of the agency PE arising out of the new provisions, especially regarding activities of dependent agents in respect of contracts for the transfer of the ownership of, or for the granting of the right to use property owned by that enterprise, or that the enterprise has the right to use for the provision of services by that enterprise.

He then compared the MLI provisions with the newly-substituted Explanation 2(a) to section 9(1)(i) of the Income-tax Act. The scope of the substituted explanation and its applicability to purchasing activities for export or otherwise was also discussed.

The meeting was very interactive and presented a huge takeaway for the participants.

Lecture Meeting on “The Banning of Unregulated Deposit Schemes Ordinance, 2019” held on 28th March, 2019 at BCAS Conference Hall

The Bombay Chartered Accountants’ Society organised a lecture meeting on ‘The Banning of Unregulated Deposit Schemes Ordinance, 2019’ on 28th March, 2019 in the BCAS Conference Hall which was addressed by CA. Sandeep Shah.

CA. Sandeep discussed the background of the Ordinance and its applicability and then covered key definitions, the genesis, salient features, administration and challenges and confusion, as also the offences under it. He touched upon the Reserve Bank of India Act, 1934 and the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 to put forth his views. He also talked about the types of schemes such as “Ponzy” and “Pyramid Schemes” and explained the applicability and the exemptions under the Ordinance. He described the characteristics of regulated and unregulated deposit schemes and the offences covered by the Ordinance, i.e., inducement and punishment, etc., thereof.

Thereafter, the speaker described the challenges and confusions faced in implementing the Ordinance and the administrative aspects and penalties imposed for indulging in contravention of the Ordinance, including imprisonment, fines, etc. He also outlined and emphasised the role of an auditor in stricter compliance of the Ordinance and the consequences of non-compliance with laws and regulations of the Ordinance.

The lecture was followed by a Q&A session in which the participants raised queries which were emphatically answered by the learned speaker. The participants were enlightened with the interesting and important developments in the financial domain which were effectively explained by the speaker, CA. Sandeep Shah.

“Blood Donation Drive” organised on 29th March, 2019 at BCAS Conference Hall

BCAS continues with its initiative of connecting with and contributing to the society at large for a non-professional cause. Its blood donation drive encourages a sense of “Personal Social Responsibility” (PSR) among its members, their relatives and friends.

The BCAS Foundation, along with the Seminar and Membership Development (SMD) Committee, organised its 3rd Blood Donation Drive on 29th March, 2019 at BCAS Conference Hall in collaboration with Tata Memorial Hospital (TMH), one of the renowned hospitals in Mumbai with its sophisticated blood bank facilities. TMH also provided a knowledge desk for platelet donation for the benefit of members and for creating awareness about the basics of platelet donation.

Awareness and messages were widely spread by the BCAS team for the drive, especially in all the offices, educational institutions and government offices in and around the New Marine Lines area. CA. Sunil Gabhawalla, President, BCAS, and CA. Narayan Pasari, Chairman, SMD Committee, led the drive along with some committee members and encouraged and inspired many people to become donors.

For the blood donation, the donors had to follow a step-by-step procedure covering various parameters before actually donating blood. The specialised team of doctors and supervisors from TMH was very careful with regard to the health and physical condition of the donors to ensure that he/she was fit for donating blood and also completely fit and fine after donating blood.

The donors were given Blood Donation Certificates by TMH and BCAS along with a token gift in appreciation of their participation. BCAS received an overwhelming response to the drive and TMH officials were very happy with the units of blood collected.
It was a great team effort by the 12 volunteers from TMH, the coordinators of the event from the SMD Committee, CA. Sohail Kapasi, CA. Maitri Ahuja and CA. Yogesh Patel, along with other members of the BCAS and the BCAS staff who actively extended their support. It was indeed a memorable experience through which BCAS gave an opportunity to inculcate/nurture a sense of PSR amongst members as well as non-members.

(Note: PSR can be called a “twin sister” of CSR which stands for “Corporate Social Responsibility”.)

BCAS TECH SUMMIT 2019 HELD ON 30th MARCH, 2019

The Technology Initiatives Committee of the BCAS organised the 1st BCAS Tech Summit 2019 on 30th March, 2019 at Courtyard by Marriott. The event commenced with an inaugural address by President CA. Sunil Gabhawalla, followed by the opening address by CA. Nitin Shingala, the Chairman of the Committee.

The keynote address was delivered by CA. Deepak Ghaisas, Chairman and Chief Mentor, Gencoval Group, and Vice-Chairman, i-flex Solutions. He highlighted the technological trends affecting different sectors and how each trend is an enabler for a chartered accountant to expand his practice.

The panel discussion on Accounting Softwares was led by the moderator, CA. Shariq Contractor. The participants included Ms. Aditi Puri Batra, Intuit, CA. Harsh Vardhan Dawar and CA. Prashant Gupta. The panel discussed the current requirements of the clients and ways to identify accounting software that meets a client’s needs. They also discussed the tools integrated with accounting software that would enable customisation of information. In addition, the panel highlighted transformation in the accounting software with cloud-based accounting applications.

CA. Ameet Patel led the panel discussion on Tax & Compliance Software. The panellists were CA. Raj Mullick, Reliance Industries, CA. Harit Gandhi, TCS, Mr. Rakesh Dube and Mr. Vijaya Mankaragod. While CA. Raj Mullick shared his journey of adapting to technologies to manage GST compliance, CA. Harit Gandhi spoke about developing technologies for GST and VAT compliance and offered his insights into the proposed changes in GST compliance.
Mr. Vijaya Mankaragod highlighted the practices adopted by developed countries in digitising taxation and how Indian tax administration is adapting to these changes. He described the big data analytics being adapted by tax administrations across the world and shared his views on future trends that would drive the taxation sector. Mr. Rakesh Dube, on the other hand, explained the need for having a tax compliance software that worked well with the ERPs to ensure timely compliance with various tax laws. CA. Ameet Patel made the session lively with his wit and humour.

The panel discussion on HR, Payroll & Labour Law compliance software was led by CA. Nitin Shingala, Chairman of the Technology Initiatives Committee himself, and those who took part in it were Mr. Madhu Damodaran, CA. Harish Chopra and Mr. Girish Rowjee.

CA. Nitin initiated the discussion with the current scenario impacting payroll management as nobody could go without pay day except when grounded. Mr. Madhu Damodaran shared his experiences in administering complex HR processes and ensuring employment law compliance through setting up businesses/processes/vendor management systems. CA. Harish Chopra and Mr. Girish Rowjee highlighted trends in payroll accounting and management, future opportunities available and shared tips on how to grow HR and payroll practices.

Another panel discussion, on Practice Management — Leveraging Digital Technologies for Accelerated Growth, was led by CA. Vaibhav Manek. The panellists included CA. Rajeev Sharma, Mr. Suresh Kumar and Mr. Kris Agarwala, Wolters Kluwer. They discussed the trends driving practice management by CA firms and the use of software and applications to ensure efficiency, productivity and training of the employees, when partners can focus on client management.

The session on Robotics Process Automation (RPA) was jointly led by Mr. Ashish Sharma and Mr. Prasad Godbole. They introduced participants to the future trend of robotic accounting and explained how robots can undertake end-to-end transaction processing. The future opportunities available in such a scenario were also highlighted; the case studies and examples discussed by them kept the audience engrossed.

The venue of the 1st BCAS Tech Summit 2019 also featured an exhibition section with product demonstration by Wolters Kluwer, Intuit — Quickbooks, Reliance Jio, TCS IoN, Clear Tax, Firmway, Greytip, Tax Genie and Kredence Digital, all of which opened new vistas for the participants at the event.

The sharing of insights and experiences by the experts, and also the interactions during the networking breaks brought a sense of wonder and created some unforgettable memories of the 1st BCAS Tech Summit 2019.

HUMAN DEVELOPMENT AND TECHNOLOGY INITIATIVES COMMITTEE

Human Development Study Circle meeting on “Vidur Niti from Mahabharata” held on 9th April, 2019 at BCAS Conference Hall

The Human Development Study Circle organised an interesting discussion on “Vidur Niti (containing the lessons of wisdom narrated by Vidur to Dhrutrashtra before Mahabharta War) on 9th April, 2019 at BCAS Conference Hall which was presented by CA. C. N. Vaze. The Speaker talked about some important teachings in relation to human behaviour i.e. Sandhi (Joining), Vigraha (Disconnect), Yana (Aggression), Asana (Sit on compound – non-aligned) and Dwaidhibhav (create dilemma) and also sources of happiness such as to stay healthy, fearless, debt free, in company of good people, be professional and do justice to the profession etc.

Vidur was one of the most respected gurus in the Kingdom of Hastinapur. He had vowed allegiance to the throne (and not to the person occupying it), as a result of which he had to face a lot of hardships when things started going wrong in the kingdom. Before and during the period of the Mahabharata war, he continued to live in Hastinapur – but he did not eat even a single morsel of food from the King’s kitchen. For his consumption, he grew his own grains, fruits and vegetables because he did not want to be contaminated by consuming food served by the “evil” forces that were ruling the land and the ill wind that was blowing over it. He lived by himself and was always willing to give advice in the court – but there was hardly anyone to listen to him. It was his disciples who noted down his sermons and came up with what is called “Vidur Niti”.

It was an extremely interesting session and the participants learned about several hitherto unknown aspects of the respected sage, seer and guru, Vidur.

HUMAN RESOURCE DEVELOPMENT COMMITTEE

Full-Day Workshopon “Effective Leadership and Executive Presence” held on 13th April, 2019 at the BCAS Conference Hall

The HRD Committee organised a full-day workshop for enhancing executive gravitas and developing better leadership acumen. It was conducted by the young and dynamic CA. Mudit Yadav who is a skilled and internationally-certified success coach.

He stressed on the following 4 modules:

(1) How a leader can motivate his team by making subtle changes in his vocabulary and leadership style that will inspire his team and hence get more work done.

(2) How to convey feedback in an effective manner that hurts the least but hits the most and thus being able to identify the strengths of the team and balance them with opportunities and team expectations.

(3) How to influence people like successful political leaders, by learning techniques in interpersonal interactions with the team and clients and making effective presentations, speeches and the use of a power vocabulary.

(4) What to wear, how to walk and ways to talk to enhance your presence and thus building respect and reverence in the minds of your colleagues, further addressing the body language, wardrobe and postures that leaders can apply on themselves to build greater presence.

The session was very interactive and the group activities conducted by CA. Mudit Yadav helped the participants to sharpen their skills and take home a valuable lesson at the end of the workshop.

INTERNATIONAL ECONOMICS STUDY GROUP

International Economics Study Group meeting on “How Foreign-Funded NGOs (Professional Agitators) are Hurting Economic Growth” held on 16th April, 2019 at BCAS Conference Hall

The International Economics Study Group held its meeting on 16th April, 2019 at BCAS Conference Hall to discuss “How Foreign-Funded NGOs (Professional Agitators) are Hurting Economic Growth.”

CA. Deepak Karanth led the discussions and presented his thoughts on the subject, describing how concerted efforts by select foreign-funded NGOs ran “rent-an-agitation” stirs to “take down” mega developmental projects in India in order to adversely impact the economic growth of the country.

Thousands of NGOs were involved in genuine social service and health-related activities; they had become part of a wide variety of activities: aid, development, healthcare, education, feminism, the environment, human rights, conscientisation (sic), organisation, etc. But sometime back, the Intelligence Bureau had submitted a report to the PMO suggesting that many foreign-funded NGOs protesting against coal and mining projects in the country were stalling India’s development and had negatively impacted GDP growth by 2 to 3%.

Many such “Professional Agitators” (funded by well-known philanthropies in western countries) had tried to stall large projects. These NGOs had received funds in the form of “research funding”. Cracking the whip on this trend, approximately 20,000 NGOs in the country had been barred from receiving foreign funds by the government following cancellation of their FCRA registrations, said CA. Deepak.

The Intelligence Bureau report said that among the agitations pursuing ”anti-developmental activities” were those that were against nuclear infrastructure development, coal-fired power plants, genetically-modified organisms; Posco in Orissa, Vedanta in Orissa, the Narmada Bachao Andolan; the agitations against extractive industries in the North East and the agitation against the Kudankulam Nuclear Power Project.

CA. Paresh Budhdev led the discussion on the impact of debt defaults arising out of cases like IL&FS on mutual funds’ debt schemes and provident and pension funds (government as well as privately-run employees’ PFs) and the overall debt market.

The meeting was very interactive and participants benefited a lot from the discussion.

MISCELLANEA

1. Technology

 

5. Amazon workers are listening to what you tell Alexa

 

Tens of millions of people use smart speakers and their voice software
to play games, find music or trawl for trivia. Millions more are reluctant to
invite the devices and their powerful microphones into their homes out of
concern that someone might be listening.

 

Sometimes, someone is.

 

Amazon has employed thousands of people around the world to help improve
the Alexa digital assistant powering its line of Echo speakers. The team
listens to voice recordings captured in Echo owners’ homes and offices. The
recordings are transcribed, annotated and then fed back into the software as
part of an effort to eliminate gaps in Alexa’s understanding of human speech
and help it better respond to commands.

 

The Alexa voice review process, described by seven people who have
worked on the programme, highlights the often-overlooked human role in training
software algorithms. In marketing materials Amazon says Alexa “lives in the
cloud and is always getting smarter.” But like many software tools built to
learn from experience, humans are doing some of the teaching.

 

The team comprises a mix of contractors and full-time Amazon employees
who work in outposts from Boston to Costa Rica and from India to Romania,
according to the people who signed non-disclosure agreements barring them from
speaking publicly about the programme. They work nine hours a day, with each
reviewer parsing as many as 1,000 audio clips per shift, according to two
workers based at Amazon’s Bucharest office, which takes up the top three floors
of the Global Worth building in the Romanian capital’s up-and-coming Pipera
district. The modern facility stands out amid the crumbling infrastructure and
bears no exterior sign advertising Amazon’s presence.

“We have strict technical and operational safeguards and have a zero
tolerance policy for the abuse of our system. Employees do not have direct
access to information that can identify the person or account as part of this
workflow. All information is treated with high confidentiality and we use
multi-factor authentication to restrict access, service encryption and audits
of our control environment to protect it.”

 

Amazon, in its marketing and privacy policy materials, doesn’t
explicitly say humans are listening to recordings of some conversations picked
up by Alexa. “We use your requests to Alexa to train our speech recognition and
natural language understanding systems,” the company says in a list of
frequently asked questions. In Alexa’s privacy settings, Amazon gives users the
option of disabling the use of their voice recordings for the development of
new features.

 

(Source: www.bloomberg.com; 11th April, 2019)

 

6. Huawei can bring 5G to India in 20 days if given the green light

 

At a time when Indian telecom operators are looking to speed up 5G
roll-outs, Huawei India said that it is fully prepared to bring 5G to the
Indian market and can do so in a matter of 20 days once given the green light.
Addressing the India Mobile Conclave, Huawei India CEO Jay Chen said, “We are
committed to the India market and will be happy to work with service providers
and enterprises to bring 5G faster, safer and smarter to this market.”

 

Chen said that India’s rapid pace of digital adoption is being driven by
the government’s commitment towards digitising key aspects of the digital
economy. “In the last couple of years almost every new innovation introduced to
this market is introduced by Huawei. Massive MIMO is a word we first introduced
in India 5 years back.”

 

Elaborating on the potential of 5G for an emerging digital economy like
India, Chen said that “5G is like electricity” which will enable all industries
and help realise the digital mission and the goals set by the National Digital
Communications Policy (NDCP). Huawei is a global leader in 5G and it already
has 30 5G commercial contracts globally,” Chen added.

 

(Source: The Economic Times; 22nd March, 2019)

 

2.  World News

 

7. Executions are falling worldwide

 

By one measure, at least, the world might be getting a bit less grisly.
The number of death sentences carried out worldwide fell by 30%, from 993 in
2017 to 690 last year, according to the latest annual count published by
Amnesty International, a human rights organisation. Those numbers are
consistent with the downward trend since the recent high of 2015 when 1,634
people were executed.

 

A reason to rejoice? Perhaps not. Amnesty’s count includes only known
executions, so it should be treated as the lowest possible estimate of judicial
killings. China, which is considered the most ruthless country when it comes to
capital punishment, has not been included in the total since 2009. Executions
there are thought to be in the thousands.

 

(Source: www.economist.com; 10th April, 2019)

 

8. Uber warns it might never make a profit

 

Uber Technologies has 91 million users, but growth is slowing and it may
never make a profit, the ride-hailing company said in its initial public
offering filing. The document gave the first comprehensive financial picture of
the decade-old company that was started after its founders struggled to get a
cab on a snowy night and has changed the way much of the world travels.

 

The S-1 filing underscores the rapid growth of Uber’s business in the
last three years and also how a string of public scandals and increased
competition from rivals have weighed on its plans to attract and retain riders.
The disclosure also highlighted how far Uber remains from turning a profit,
with the company cautioning that it expects operating expenses to
“increase significantly in the foreseeable future” and it “may
not achieve profitability”. Uber lost $ 3.03 billion ($ 4.25 billion) in
2018 from operations. The filing with the US Securities and Exchange Commission
revealed that Uber had 91 million average monthly active users on its
platforms, including for ride-hailing and Uber Eats, at the end of 2018. This
is up 33.8% from 2017, but growth slowed from 51% a year earlier. Uber in 2018
had revenue of $ 11.3 billion, up around 42% over 2017, again below the 106%
growth the previous year.

 

Uber set a placeholder amount of $ 1 billion but did not specify the
size of the IPO. It was reported this week that Uber plans to sell around $ 10
billion worth of stock at a valuation of between $ 90 billion and $ 100
billion. Investment bankers had previously told Uber it could be worth as much
as $ 120 billion. Uber would be the largest IPO since that of the Chinese
e-commerce company the Alibaba Group in 2014, which raised $ 25 billion.

 

After making the public filing, Uber will begin a roadshow of investor
presentations on April 29. The company is on track to price its IPO and begin
trading on the New York Stock Exchange in early May. Uber faces questions over
how it will navigate any transition towards self-driving vehicles, a technology
seen as potentially dramatically lowering costs but which could also disrupt
its business model.

 

One advantage Uber will likely seek to play up to investors is that it
is the largest player in many of the markets in which it operates. Analysts
consider building scale is crucial for Uber’s business model to become
profitable.




(Source: www.afr.com; 12th April, 2019)

 

9. Will technical factors push Bitcoin to $ 50,000 in the coming years?

 

Veteran trader Peter Brandt recently made a bold prediction, saying that
Bitcoin could reach $ 50,000 in the next two years. Credited with forecasting
Bitcoin’s more than 80% decline in 2018, Brandt cited market history and
technical analysis when providing this estimate.

 

“I believe that charts reflect underlying supply and demand fundamentals
and that’s how we have to look at it,” he stated on Yahoo Finance YFi PM. After
bottoming out in 2015, Bitcoin prices enjoyed a parabolic advance, emphasised
Brandt. Now, he expects crypto currencies will once again enter a parabolic
bull market.

 

While several analysts emphasised that Brandt’s prediction certainly
could materialise, many were understandably sceptical, emphasising their
wariness of price forecasts. “Peter Brandt’s assessment is purely based on
technical indicators and market history,” noted Joe DiPasquale, CEO of crypto
currency fund of hedge funds, BitBull Capital. “While technical analysis has a
place in all markets, past performance is no guarantee for future results,” he
stated.

 

“Meanwhile, however, the current rally is consolidating nicely and we
can expect further price appreciation if the trend continues,” added
DiPasquale. Several analysts emphasised the key importance of Bitcoin expanding
its user base, noting that if the digital currency makes enough progress on
this front, it could hit $ 50,000.

 

(Source: www.forbes.com; 10th April, 2019)

 

10. Vietnam orders monks to stop profiting from karma rituals

 

Vietnamese authorities have ordered monks at a popular Buddhist pagoda
to stop “soul summoning” and “bad karma eviction” ceremonies after an
investigation found the rituals were a scam.

 

Tens of thousands of worshippers have been paying the 18th
century Ba Vang pagoda in northern Quang Ninh province between one million and
several hundred million dong ($ 45 to $ 13,500) to have their bad karma
vanquished, according to the state-run Lao Dong (Labour) newspaper. The
Committee for Religious Affairs, a government body, issued a statement on its
website on Friday saying “the ritual goes against Buddhist philosophy and
violates Vietnam’s law on religion and folk beliefs.”

 

“It has a negative impact on social order and security,” it added.

 

Three times a month, monks hold a two-day ceremony to “summon wandering
souls” and “remove bad karma,” demanding donations, supposedly representing
good deeds, to help cure bad karma and make up for supposed bad deeds in
previous lives. Such rituals have been going on for years, but the practice has
drawn unfavourable attention as the amounts demanded by the monks soared to the
point where they began taking payments by bank transfers and by instalments.

 

Ba Vang pagoda was built on a mountain slope in Uong Bi district of
Quang Ninh province. It was recently renovated and expanded to become one of
Vietnam’s largest pagoda complexes. Only a minority of Vietnam’s 95 million
people follow Buddhism, but many non-Buddhists go to pagodas and temples and
practise a form of folk religion that includes some Buddhist practices.
Religions that are not registered with the government are prohibited. The Ba
Vang pagoda belongs to a registered Vietnamese Buddhist association.

 

(Source: www.apnews.com; 22nd March, 2019)

 

11. Black hole snapped: How the picture of one of the universe’s most
secretive objects was clicked

 

By definition, a black hole can’t be seen. As a cosmic gobbler of all
matter on its periphery, these sinkholes have gravitational fields so powerful
that even light cannot escape them, rendering their contents invisible. As the
concept of black holes (the cemeteries of spent stars above a certain mass and
massive cosmic objects) followed from Einstein’s theories of general
relativity, scientists have had intricate mathematical descriptions and
speculation on how they look, how many of them exist, how they behave, where
they might be located and their relationship to the universe. Based on this,
there has been a plethora of visual and artistic descriptions of black holes.
However, there has never been visual confirmation of their existence, until
now.

 

On 10th April, 2018 astronomers shared an image, now
christened on Indian Twitter as a “giant medu vada in the sky,” from the
black hole at Messier 87 or M87. It was a blurred, yellowish orange frame
surrounding a black centre. While this wasn’t vastly different from how
astronomers and artists have visualised black holes for decades, it’s still
great to see reality correspond to imagination. The black hole measures 40 billion
km. across – three million times the size of the earth – and is 55 million
light years from earth. (A light year is about 9.46 trillion km.). It is bigger
than our entire solar system and a scientist described it to the BBC as “the
heavyweight champion of black holes in the universe.” The image has been
analysed in six studies co-authored by 200 experts from 60-odd institutions and
published in Astrophysical Journal Letters.

 

Since the 1970s, astronomers have known that there are “super massive”
black holes (about a billion times heavier than the sun) in the Milky Way or
galaxies close to it. While black holes themselves are invisible, the region
around them – the luminous frenzy of charged particles from matter in their
vicinity – is, in theory, “visible”. Since black holes are the result, mostly,
of heavy stars collapsing in on themselves, radiation emitted by particles
within the disc are heated to billions of degrees as they swirl around the
black hole at close to the speed of light, before vanishing into them.

 

The astronomers used a technique known as interferometry, which combines
radiation from eight telescopes from around the world in a way that it appears
as one single telescope capture. What this virtual telescope could capture were
traces – electromagnetic radiation – from jets of particles spewed from the
event horizons of the black hole. This faint radiation, in the form of mostly
radio waves, would have travelled trillions of kilometres and for the telescope
to observe them would be the equivalent of trying to snap a picture of an ant
from the moon.

 

(Source: www.thehindu.com; 13th
April, 2019)
   

 

BOOK REVIEW

“Democracy
on the Road – A 25-Year Journey Through India” by Ruchir Sharma

 

Ruchir
Sharma is the head of the Emerging Markets Equity team at Morgan Stanley and is
responsible for
managing
over $ 25 billion (as AUM or assets under management). He has been with the
firm for 19 years and
is currently a member of the executive committee of Morgan’s investment
management division.

 

The
World Economic Forum in Davos selected him as one of the world’s “Top Young
Leaders” in 2007. In 2012,
he
was named one of the top global thinkers by Foreign Policy magazine. And
Bloomberg said in 2015 that he was one
of the “Top 50 Most Influential” people in the world.

Ruchir Sharma has been
writing for many years, drawing
on
his travels as a global investor. He typically spends one week every month in a
different emerging market where he meets
leading CEOs and top politicians, among others. He writes for the New York
Times, Foreign Affairs, The Wall
Street
Journal, Financial Times
and The Times
of India.

 

His
first two books, Breakout Nations (2012) and The Rise and
Fall of Nations (2016)
, were both international bestsellers.

 

Passionate
about politics, he is part of an informal group of senior editors and writers
who travel extensively before
major
state and national elections; logging over 1,000 miles in 4 to 5 days, they
meet with the nation’s top leaders
to get a first-hand feel of local politics. At times this group calls itself
the “limousine (or Cadillac) liberals”.

 

In
Democracy on the Road, Ruchir takes readers along on his travels
through India. On the eve of the landmark
2019
election, he offers an unrivalled portrait of how India and its democracy work,
drawing from two decades on the
road, chasing election campaigns across every major state, travelling the
equivalent of a lap around the earth.
Democracy takes
readers on a rollicking ride with this merry band of scribes as they talk to
farmers, shopkeepers and
CEOs from Rajasthan to Tamil Nadu and interview leaders from Narendra Modi to
Rahul Gandhi.

 

Few
books have traced the arc of modern India by taking readers so close to the
action. Offering an intimate glimpse
into
the lives and minds of India’s political giants and its people, he explains how
the complex forces of family, caste and community, economics and development, money
and corruption, Bollywood and godmen have conspired to elect and topple leaders
since Indira Gandhi. The most encouraging message from his travels is that while
democracy is retreating in many parts of the world, it is thriving in India.

 

The
book is divided into 6 parts and 40 chapters. Starting from his childhood and
student days, it provides
a
ringside view of Indian elections from 1998 onwards. The concluding part, “Back
in Balance”, deals with the current
political situation in which Ruchir summarises his observations, offers his
conclusions and shares
the
wisdom gained from a close assessment of Indian elections as an international
investor.

 

Here
are some nuggets from the cauldron of Indian electoral politics:

  •  “The odds are
    against Indian politicians holding on to their offices. In theory, the seated
    government has big
    advantages,
    starting with the fund-raising capacity to meet the ever-growing expenses
    involved in fighting an
    election.
    It can dole out favours and contracts…”
  •  “Yet,
    incumbents don’t usually win, challengers do. Voters, though glad to pocket
    expensive campaign gifts,
    still
    vote their own minds.”

  •  “Ultimately,
    power resides not with the candidates or their moneybags but with the Indian
    voter.”
  •  “Small shifts
    in the vote, or the allegiance of one small alliance partner, can make or break
    state or national
    governments.
    It all looks like a recipe for instability.”

  •  “But minority
    governments, built on compromises among rival parties, are not a special
    problem of Indian
    democracy.
    They are a standard feature of parliamentary democracy.”

  •  “A multi-party
    parliamentary democracy can produceserial political and economic crises, as in
    Italy, but also
    long-term
    success, as in Germany.”

  •  “Have weak
    minority governments hurt India’s development? History suggests not. The
    economy limped along at the so-called ‘Hindu rate of growth’ under mostly
    strong Congress governments until the 1980s, then started to reform and pick up
    speed under the weak coalition governments that followed.”
  •  “India has so
    many parties because it has so many different communities, separated by caste,
    religion, tribe
    or
    language and each one wants its own representative.”

  •  “While in some
    opinion polls Indians express a growing desire for a strong leader, unshackled
    from an
    often
    gridlocked parliament, the electoral reality is that the country rebels against
    domineering political bosses.”

  •  “Ever since
    Indira Gandhi imposed the Emergency and fell in the backlash, no Prime Minister
    has been able
    to
    gain political momentum without triggering fears that they were growing
    dangerously strong and inspiring the
    fragmented
    opposition parties to unite…Modi may face a similar obstacle.”
  •  “Supporters
    praise Modi for raising India’s stature in the world. But more than once we
    have seen Indian
    leaders
    lionised by the global elite from Mumbai to New York, only to be thrown out by
    the Indian voters who care
    more
    about the government’s impact on their daily lives.”
  •  “Voters express
    impatience with the pace of progress and at unresponsive democracy, but not all
    take it out on
    politicians
    with the same intensity.”

  •  “When do seated
    leaders buck the odds? While single factors such as high inflation, spiralling
    corruption
    scandals,
    or a united opposition can bring down the incumbent, winning is more
    complicated;….to win,
    political
    parties have to pass a series of tests.”
  •  “A shortlist
    culled from my years on the road would include tests of community, family,
    inflation, welfare,
    development,
    corruption and money. They are not equally weighted. For all the social
    progress that India has made,
    community
    identity is still the key to politics.”
  •  “Understanding
    the dynamics of caste and religion down to the local and personal level is the
    necessary
    condition
    for winning, but it is often not sufficient.”

  •  “Family
    dynasties pervade our politics. Though it is bitterly critical of the Gandhi
    dynasty, the BJP has many
    leaders
    with children active in politics.”

  •  “More and more
    single politicians are rising to power on the argument that freedom from family
    ties protects
    them
    from the temptation to profit from office. The cultural winds suggest single
    candidates will maintain their
    advantage
    going forward…”
  •  “The point is,
    there is no consistent formula: Candidates can pursue any mix of development
    and welfare models,
    but…the
    elections will remain as unpredictable as a ‘cat on the wall, which way will it
    jump’?”

  •  “Alongside
    inflation, corruption is the other big incumbent killer, though it works in
    strange ways…one of
    the
    supreme ironies of Indian politics is that corruption charges seem to hurt more
    than convictions.”

  •  “In other
    emerging countries politicians may come back after a jail term, but rarely does
    time in the lock-up
    provide
    a career boost the way it does in India.”

  •  “Winning
    campaigns need to understand the ties that bind Indian voters to community and
    family, their
    frustration
    with government and the slow pace of economic progress, the pain of rising
    prices, and their
    sense
    of disgust with both corruption and the justice system…Often, challengers
    prevail by simply watching
    the
    incumbent fail one or more of these tests.”

 

The
author concludes on a positive note. He opines that the bigger lesson is that
there are many reasons for optimism.
India’s
political DNA is fundamentally socialist and statist. The same socialist DNA
runs through the veins of all the leading parties.
There is no real support for systematic free-market reform, either amongst the
voters or the political elite, and no
sign
of what is generally considered good economics will ever become a consistent
election-winning strategy. The more powerful
a politician gets, the more voters expect, and the more frustrated they get
when those expectations are not met.
India
does not grow as one economy, it grows as many, less like the United States
more like the European Union. It is less a
country than a continent, more diverse in its communities and languages than
Europe or the Middle East.

 

The
real strength of our democracy – both economic and political – lies in its
diversity. In no country are the
community
and the family roots of political battles more complex or intense, or the
behind-the-scenes battles to build
winning alliances more fierce.

 

Finally,
Ruchir says the 2019 election is being cast as a nationwide showdown between
Modi and the rest, a
referendum
on India’s appetite for a strong man’s rule and commitment to democracy…and
the outcome will depend on whether
the opposition parties work together to unseat him.

The 2019 ballot will offer
a choice between two different
political
visions, one celebrating the reality of many Indias and the other aspiring to
build One India. Clearly, when democracy
is in retreat worldwide, it is thriving in India.

FROM PUBLISHED ACCOUNTS

ILLUSTRATION OF STATUTORY AUDIT REPORT AS
PER SA 700 (REVISED) AND SA 701


Compiler’s Note

SA 700 (revised) ‘Forming an Opinion and Reporting
on Financial Statements’ and SA 701 ‘Communicating Key Audit Matters in the
Independent Auditor’s Report’ (applicable only to audits of listed entities)
which are effective for audits of financial statements for periods beginning on
or after 1st April, 2018. The format of the report has undergone
several changes and due care should be taken before issuing audit reports for
the year ended 31st March, 2019.

 

Given below is an illustration of one of the first
audit reports issued for the year ended 31st March, 2019.

 

INFOSYS LTD (31ST MARCH, 2019)

Report on Audit of Standalone Financial
Statements

 

Opinion

We have audited the accompanying standalone
financial statements of Infosys Limited (“the Company”), which comprise the
Balance Sheet as at 31st March, 2019, the Statement of Profit and
Loss (including Other Comprehensive Income), the Statement of Changes in Equity
and the Statement of Cash Flows for the year ended on that date, and a summary
of the significant accounting policies and other explanatory information
(hereinafter referred to as “the standalone financial statements”).

 

In our opinion and to the best of our
information and according to the explanations given to us, the aforesaid
standalone financial statements give the information required by the Companies
Act, 2013 (“the Act”) in the manner so required and give a true and fair view
in conformity with the Indian Accounting Standards prescribed u/s. 133 of the
Act read with the Companies (Indian Accounting Standards) Rules, 2015 as
amended (“Ind AS”) and other accounting principles generally accepted in India,
of the state of affairs of the company as at 31st March, 2019, the
profit and total comprehensive income, changes in equity and its cash flows for
the year ended on that date.

 

Basis for Opinion

We conducted our
audit of the standalone financial statements in accordance with the Standards
on Auditing specified u/s. 143(10) of the Act (SAs). Our responsibilities under
those Standards are further described in the Auditor’s Responsibilities for the
Audit of the Standalone Financial Statements section of our report. We are
independent of the company in accordance with the Code of Ethics issued by the
Institute of Chartered Accountants of India (ICAI) together with the
independence requirements that are relevant to our audit of the standalone
financial statements under the provisions of the Act and the Rules made
thereunder, and we have fulfilled our other ethical responsibilities in
accordance with these requirements and the ICAI’s Code of Ethics. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our audit opinion on the standalone financial statements.

 

Key Audit Matters

Key audit
matters are those matters that, in our professional judgement, were of most
significance in our audit of the standalone financial statements of the current
period. These matters were addressed in the context of our audit of the
standalone financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. We have determined
the matters described below to be the key audit matters to be communicated in
our report.

 

 

 

Sr. No.

Key Audit Matter

Auditor’s Response

1

Accuracy of recognition, measurement,
presentation and disclosures of revenues and other related balances in view
of adoption of Ind AS 115 “Revenue from Contracts with Customers” (new
revenue accounting standard)

 

The application of the new revenue accounting standard involves
certain key judgements relating to identification of distinct performance
obligations, determination of transaction price of the identified performance
obligations, the appropriateness of the basis used to measure revenue
recognised over a period. Additionally, the new revenue accounting standard
contains disclosures which involve collation of information in respect of
disaggregated revenue and periods over which the remaining performance
obligations will be satisfied subsequent to the balance sheet date.

 

Refer Notes 1.4a and 2.16 to the Standalone Financial
Statements.

 Principal Audit Procedures

We
assessed the company’s process to identify the impact of adoption of the new
revenue accounting standard.

Our
audit approach consisted of testing of the design and operating effectiveness
of the internal controls and substantive testing as follows:

•  Evaluated
the design of internal controls relating to implementation of the new revenue
accounting standard.

•  Selected a sample of continuing and new contracts, and tested
the operating effectiveness of the internal control, relating to
identification of the distinct performance obligations and determination of
transaction price. We carried out a combination of procedures involving
inquiry and observation, re-performance and inspection of evidence in respect
of operation of these controls.

Tested the relevant information technology systems’ access and
change management controls relating to contracts and related information used
in recording and disclosing revenue in accordance with the new revenue
accounting standard.

Selected a sample of continuing and new contracts and performed
the following procedures:

• Read, analysed and identified the distinct
performance obligations in these contracts.

• Compared these performance obligations with
that identified and recorded by the company.

• Considered the terms of the contracts to
determine the transaction price including any variable consideration to
verify the transaction price used to compute revenue and to test the basis of
estimation of the variable consideration.

• Samples in respect of revenue recorded for time
and material contracts were tested using a combination of approved time
sheets including customer acceptances, subsequent invoicing and historical
trend of collections and disputes.

• In respect of samples relating to fixed price
contracts, progress towards satisfaction of performance obligation used to
compute recorded revenue was verified with actual and estimated efforts from
the time recording and budgeting systems. We also tested the access and
change management controls relating to these systems.

• Sample of revenues disaggregated by type and
service offerings was tested with the performance obligations specified in
the underlying contracts.

• Performed analytical procedures for
reasonableness of revenues disclosed by type and service offerings.

• We reviewed the collation of information and
the logic of the report generated from the budgeting system used to prepare
the disclosure relating to the periods over which the remaining performance
obligations will be satisfied subsequent to the balance sheet date.

2.

Accuracy of revenues and onerous obligations in
respect of fixed price contracts involves critical estimates

Estimated effort is a critical estimate to determine revenues
and liability for onerous obligations. This estimate has a high inherent
uncertainty as it requires consideration of progress of the contract, efforts
incurred till date and efforts required to complete the remaining contract
performance obligations.

 

Refer
Notes 1.4a and 2.16 to the Standalone Financial Statements.

Principal Audit Procedures

Our audit approach was a combination of test of internal
controls and substantive procedures which included the following:

   Evaluated the design of
internal controls relating to recording of efforts incurred and estimation of
efforts required to complete the performance obligations.

   Tested the access and
application controls pertaining to time recording, allocation and budgeting
systems which prevents unauthorised changes to recording of efforts incurred.

   Selected a sample of
contracts and through inspection of evidence of performance of these
controls, tested the operating effectiveness of the internal controls
relating to efforts incurred and estimated.

 

 

   Selected a sample of
contracts and performed a retrospective review of efforts incurred with
estimated efforts to identify significant variations and verify whether those
variations have been considered in estimating the remaining efforts to
complete the contract.

   Reviewed a sample of
contracts with unbilled revenues to identify possible delays in achieving
milestones, which require change in estimated efforts to complete the
remaining performance obligations.

   Performed analytical
procedures and test of details for reasonableness of incurred and estimated
efforts.

3.

Evaluation
of uncertain tax positions

The company has material uncertain tax positions including
matters under dispute which involves significant judgement to determine the
possible outcome of these disputes.

 

Refer
Notes 1.4b and 2.22 to the Standalone Financial Statements.

 

Principal
Audit Procedures

Obtained details of completed tax assessments and demands for
the year ended 31st March, 2019 from management. We involved our
internal experts to challenge the management’s underlying assumptions in
estimating the tax provision and the possible outcome of the disputes. Our
internal experts also considered legal precedence and other rulings in
evaluating management’s position on these uncertain tax positions.
Additionally, we considered the effect of new information in respect of
uncertain tax positions as at 1st April, 2018 to evaluate whether
any change was required to management’s position on these uncertainties.

4.

Recoverability
of indirect tax receivables

As at 31st March, 2019 non-current assets in respect
of withholding tax and others includes CENVAT recoverable amounting to Rs.
503 crore which are pending adjudication.

 

Refer
Note 2.8 to the Standalone Financial Statements.

Principal
Audit Procedures

We
have involved our internal experts to review the nature of the amounts
recoverable, the sustainability and the likelihood of recoverability upon
final resolution.

 

Information Other than the Standalone
Financial Statements and Auditor’s Report Thereon


The company’s Board of Directors is
responsible for the preparation of the other information. The other information
comprises the information included in the Management Discussion and Analysis,
Board’s Report including Annexures to Board’s Report, Business Responsibility
Report, Corporate Governance and Shareholder’s Information, but does not
include the standalone financial statements and our auditor’s report thereon.

 

Our opinion on the standalone financial
statements does not cover the other information and we do not express any form
of assurance / conclusion thereon.

 

In connection with our audit of the
standalone financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially
inconsistent with the standalone financial statements or our knowledge obtained
during the course of our audit or otherwise appears to be materially misstated.

 

If, based on the work we have performed, we
conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.

 

Management’s Responsibility for the
Standalone Financial Statements


The company’s Board of Directors is
responsible for the matters stated in section 134(5) of the Act with respect to
the preparation of these standalone financial statements that give a true and
fair view of the financial position, financial performance, total comprehensive
income, changes in equity and cash flows of the company in accordance with the
Ind AS and other accounting principles generally accepted in India. This
responsibility also includes maintenance of adequate accounting records in
accordance with the provisions of the Act for safeguarding the assets of the
company and for preventing and detecting frauds and other irregularities;
selection and application of appropriate accounting policies; making judgements
and estimates that are reasonable and prudent; and design, implementation and
maintenance of adequate internal financial controls, that were operating
effectively for ensuring the accuracy and completeness of the accounting
records, relevant to the preparation and presentation of the standalone financial
statements that give a true and fair view and are free from material
misstatement, whether due to fraud or error.

 

In preparing the standalone financial
statements, management is responsible for assessing the company’s ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless management
either intends to liquidate the company or to cease operations, or has no
realistic alternative but to do so.

 

The Board of Directors are responsible for
overseeing the company’s financial reporting process.

 

Auditor’s Responsibilities for the Audit
of the Standalone Financial Statements


Our objectives
are to obtain reasonable assurance about whether the standalone financial
statements as a whole are free from material misstatement, whether due to fraud
or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with SAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these standalone financial statements.

 

As part of an audit in accordance with SAs,
we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:

 

  •    Identify and assess the
    risks of material misstatement of the standalone financial statements, whether
    due to fraud or error, design and perform audit procedures responsive to those
    risks, and obtain audit evidence that is sufficient and appropriate to provide
    a basis for our opinion. The risk of not detecting a material misstatement
    resulting from fraud is higher than for one resulting from error, as fraud may
    involve collusion, forgery, intentional omissions, misrepresentations, or the
    override of
    internal control.
  •    Obtain an understanding of
    internal financial controls relevant to the audit in order to design audit
    procedures that are appropriate in the circumstances. U/s. 143(3)(i) of the
    Act, we are also responsible for expressing our opinion on whether the company
    has adequate internal financial controls system in place and the operating
    effectiveness of such controls.
  •    Evaluate the appropriateness
    of accounting policies used and the reasonableness of accounting estimates and
    related disclosures made by management.
  •    Conclude on the
    appropriateness of management’s use of the going concern basis of accounting
    and, based on the audit evidence obtained, whether a material uncertainty
    exists related to events or conditions that may cast significant doubt on the
    company’s ability to continue as a going concern. If we conclude that a
    material uncertainty exists, we are required to draw attention in our auditor’s
    report to the related disclosures in the standalone financial statements or, if
    such disclosures are inadequate, to modify our opinion. Our conclusions are
    based on the audit evidence obtained up to the date of our auditor’s report.
    However, future events or conditions may cause the company to cease to continue
    as a going concern.
  •    Evaluate the overall
    presentation, structure and content of the standalone financial statements,
    including the disclosures, and whether the standalone financial statements
    represent the underlying transactions and events in a manner that achieves fair
    presentation.

 

Materiality is the magnitude of
misstatements in the standalone financial statements that, individually or in
aggregate, makes it probable that the economic decisions of a reasonably
knowledgeable user of the financial statements may be influenced. We consider
quantitative materiality and qualitative factors in (i) planning the scope of
our audit work and in evaluating the results of our work; and (ii) to evaluate
the effect of any identified misstatements in the financial statements.

 

We communicate with those charged with
governance regarding, among other matters, the planned scope and timing of the
audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.

 

We also provide those charged with
governance with a statement that we have complied with relevant ethical
requirements regarding independence and to communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence and, where applicable, related safeguards.

 

From the matters communicated with those
charged with governance, we determine those matters that are of most
significance in the audit of the standalone financial statements of the current
period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about
the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of
such communication.

 

Report on Other Legal and Regulatory
Requirements


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

a) We have sought and obtained all the
information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.

b) In our opinion, proper books of account
as required by law have been kept by the company so far as it appears from our
examination of those books.

c) The Balance Sheet, the Statement of
Profit and Loss including Other Comprehensive Income, Statement of Changes in
Equity and the Statement of Cash Flow dealt with by this Report are in
agreement with the relevant books of account.

d) In our opinion, the aforesaid standalone
financial statements comply with the Ind AS specified u/s. 133 of the Act, read
with Rule 7 of the Companies (Accounts) Rules, 2014.

e) On the basis of the written
representations received from the directors as on 31st March, 2019
taken on record by the Board of Directors, none of the directors is
disqualified as on 31st March, 2019 from being appointed as a
director in terms of section 164 (2) of the Act.

f) With respect to the adequacy of the
internal financial controls over financial reporting of the company and the
operating effectiveness of such controls, refer to our separate report in
“Annexure A”. Our report expresses an unmodified opinion on the adequacy and
operating effectiveness of the company’s internal financial controls over
financial reporting.

g) With respect
to the other matters to be included in the Auditor’s Report in accordance with
the requirements of section 197(16) of the Act, as amended: In our opinion and
to the best of our information and according to the explanations given to us,
the remuneration paid by the company to its directors during the year is in
accordance with the provisions of section 197 of the Act.

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

 

i. The company
has disclosed the impact of pending litigations on its financial position in
its standalone financial statements.

ii. The company
has made provision, as required under the applicable law of accounting
standards, for material foreseeable losses, if any, on long-term contracts
including derivative contracts.

iii. There has
been no delay in transferring amounts, required to be transferred, to the
Investor Education and Protection Fund by the company.

 

2.  As required by the Companies (Auditor’s
Report) Order, 2016 (“the Order”) issued by the Central government in terms of
section 143(11) of the Act, we give in “Annexure B” a statement on the matters
specified in paragraphs 3 and 4 of the Order.
 

 

CORPORATE LAW CORNER

2. 
Principal Director-General of Income-tax vs. Synergies Dooray Automotive
Ltd.
[2019] 103 taxmann.com 361 (NCLAT)  Company Appeal (AT) (Insolvency) No. 205
of 2017 and 309, 559, 671 & 759 of 2018
Date of Order: 20th March,
2019

 

Section
5(20) of the Insolvency and Bankruptcy Code, 2016 – Income-tax Department,
Sales tax department and other statutory bodies fall within the ambit of
“operational creditors” and the monies owed to them on account of these
statutory dues is an “operational debt”

 

FACTS


Various regulatory
authorities preferred appeals against resolution plans approved by the National
Company Law Tribunal (“NCLT”) where the demands owed by the corporate debtors
to them were classified as operational debt and their names were included as
operational creditors of such companies. Accordingly, the demands owed were
substantially reduced under the resolution plans and they were not given an
opportunity to attend the meetings of the committee of creditors (“COC”). As
the legal issue arising in the appeals was the same, all of them were combined
and heard together.

 

HELD


There were arguments from
both sides on interpretation of the term ‘operational debt’ as defined u/s.
5(21) of the Code. The National Company Law Appellate Tribunal (“NCLAT”)
examined the definition and observed that there was no ambiguity in it. NCLAT
further observed that ‘Operational Debt’ in normal course meant a debt arising
during the operation of the company (‘Corporate Debtor’). The ‘goods’ and
‘services’, including employment, were required to keep the company (‘Corporate
Debtor’) operational as a going concern. If the company (‘Corporate Debtor’) is
operational and remains a going concern, only in such case will the statutory
liability, such as payment of Income-tax, Value Added Tax, etc., arise. As the
‘Income Tax’, ‘Value Added Tax’ and other statutory dues arising out of the
existing law arises when the Company is operational, it was held that such
statutory dues had a direct nexus with operation of the company. It was further
held that all statutory dues including ‘Income Tax’, ‘Value Added Tax’, etc.,
came within the meaning of ‘Operational Debt’.

 

As the statutory
authorities were treated at par with similarly situated ‘operational
creditors’, there was no reason to interfere in the orders passed by the NCLT.

 

NCLAT dismissed the appeals
so filed.

 

3.  Forech India Limited vs. Edelweiss Assets
Reconstruction Co. Ltd.
[2019]
101 taxmann.com 451 (SC) Civil
appeal No. 818 of 2018
Date
of Order: 22nd January, 2019

 

Section
255 of the Insolvency and Bankruptcy Code, 2016 read with Rule 5 of the
Companies (Transfer of Pending Proceedings) Rules, 2016 as well as Rules 26 and
27 of the Companies (Court) Rules, 1959 – In a winding-up petition filed before
the High Court where a notice has been served and which is pending in the High
Court, application to transfer the same to NCLT under the Code can be made –
High Court would transfer such a proceeding and it would be treated as an
insolvency petition under the Code

 

Sections
11 and 10 of the Insolvency and Bankruptcy Code, 2016 – Application of section
11 is limited in nature – It merely bars a corporate debtor from initiating a
petition u/s. 10 of the Code in respect of whom a liquidation order has been
made – It does not follow that until a liquidation order has been made against
the corporate debtor, an Insolvency Petition may be filed u/s. 7 or u/s. 9 as
the case may be

 

FACTS


F Co filed a winding-up
petition against the corporate debtor in the year 2014 for inability to pay its
dues. Notice in this petition had been served, the existence of debt or
liability has been admitted. Meanwhile, E Co being the financial creditor moved
to the National Company Law Tribunal (“NCLT”) and filed an insolvency petition
u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) in May/June,
2017. This petition was admitted on 07.08.2017. F Co filed an appeal against
the order of admission before the NCLAT and the same was dismissed on the
ground that since the winding-up order had not been passed by the High Court,
insolvency petition was maintainable in the eyes of law.

 

F Co argued that in light
of the provisions of the law, it should be the winding-up petitions filed before
the High Court that should be allowed to continue and not the insolvency
petitions filed by the creditors before the NCLT. E Co, on the other hand,
contended that the whole object of the Code would be frustrated if petitions
for winding up in the High Court were to continue in the face of the insolvency
petitions that have been filed under the Code.

 

HELD


The Supreme Court examined
various arguments and referred to section 255 of the Code along with various
amendments brought out by the Eleventh Schedule to the Code, section 434 of the
Companies Act, 2013 (which relates to transfer of certain pending proceedings),
Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, as well
as Rules 26 and 27 of the Companies (Court) Rules, 1959.

 

It was pointed out that
there were divergent views on the interpretation of the aforesaid rules. The
Bombay High Court in Ashok Commercial Enterprises vs. Parekh Aluminex Ltd.
[2017] 80 taxmann.com 359/141 SCL 363
, had stated that the notice referred
to in Rule 26 was a pre-admission notice and hence, held that all winding-up
petitions where pre-admission notices were issued and served on the respondent
will be retained in the High Court. On the other hand, the Madras High Court in
M.K. & Sons Engg. vs. Eason Reyrolle Ltd. in CP/364/2016 held that
the notice under Rule 26 is referable to a post-admission position of the
winding-up petition and accordingly held that only those petitions where a
winding-up order is already made can be retained in the High Court. For this
purpose, the Madras High Court strongly relied upon Form No. 6 appended to Rule
27 and the expression “was admitted” occurring in the Notice of
Petition contained in the said Form.

 

The Supreme Court held that
the view taken by the Bombay High Court was correct in law and the reasoning
laid down by the NCLAT in its order was incorrect.

Further, in the context of
section 11 of the Code it was observed that the same was of limited application
and only barred a corporate debtor from initiating a petition under section 10
of the Code in respect of whom a liquidation order has been made. From a
reading of this section, it does not follow that until a liquidation order has
been made against the corporate debtor, an Insolvency Petition may be filed
u/s. 7 or section 9 as the case may be.

 

The financial creditor’s
application which was admitted by the Tribunal was held to be an independent
proceeding which would be decided in accordance with the provisions of the
Code. The order of the NCLAT dismissing appeal was upheld by the Supreme Court
and F Co was granted an opportunity to apply before the Supreme Court under the
proviso to section 434 of the Companies Act (added in 2018), to transfer the
winding-up proceeding pending before the High Court of Delhi to the NCLT, which
can then be treated as a proceeding u/s. 9 of the Code.

 

4.  SGM Webtech (P.) Ltd. vs. Boulevard Projects
(P.) Ltd.
[2019]
103 taxmann.com 176 (NCLT –  New Delhi) Company
petition (IB) No. 967(PB) of 2018
Date
of Order: 8th February, 2019

 

Sections
5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016 – Commercial Unit
allotted in a real estate development project was not completed in time –
Amounts advanced had to be refunded to the allottee and default in doing so
constituted a default in repayment of financial debt as contemplated under the
Code – Proceedings under the Code could be initiated for the default

 

FACTS


S Co, a private company,
agreed to purchase a commercial unit in a project being developed by B Co. Over
a period of time, B Co raised various demands on S Co which were duly met by
it. An “Office/Unit Buyer Agreement” dated 08.01.2013 was entered into between
the parties. The agreement fructified the terms between the parties qua
the rights of S Co in the commercial unit and the project, B Co’s obligations
of delivery of completed commercial unit as per specifications within 36 months
and consequences of delay thereof including penalty for the period of delay, S
Co’s right to terminate the agreement and also to seek refund with interest.

 

B Co, despite repeated
assurances, failed to complete the construction in the stipulated time. Various
letters were issued by S Co demanding the refund of its money along with
interest for which no reply was furnished by B Co. S Co further stated that a
failure on part of B Co would necessitate further action under Real Estate
(Regulation and Development) Act, 2016. The said action was initiated and the
U.P. Real Estate Regulatory Authority (“UPRERA”) and the authority levied
penalty on B Co.

 

B Co owed money to S Co
which had fallen due on various dates on account of its default in completion
of the allotted unit within time and the default in re-payment (despite
demands) of amount paid by S Co along with compound interest @ 18% per annum
from the actual dates of receipt of payment by B Co till date of repayment
to/realisation of the entire amount to S Co, and penalty thereon as ordered by
UPRERA.

 

S Co thus filed a petition
initiating Corporate Insolvency Resolution Process (“CIRP”) under the
Insolvency and Bankruptcy Code, 2016 (“the Code”) and proposed the name of Amit
Agarwal for appointment as Interim Resolution Professional. B Co, on the other
hand, had filed a further petition with UPRERA and it was contended that since
the proceedings there were pending, the proposed application may not be
proceeded with. It was further contended by B Co that delay arose due to
demonetisation and the order passed by the NGT in respect of the Okhla Bird
Sanctuary; and that in view of force majeure, the claim of S Co was
premature.

 

HELD


The National Company Law
Tribunal (“NCLT”) examined the provisions of section 5(7), 5(8), 7(1) read with
the Insolvency and Bankruptcy (amendment) Ordinance, 2018. The Ordinance provided
that any amount raised from an allottee under a real estate project shall be
deemed to be an amount having the commercial effect of a borrowing and thus
will come within the definition of ‘Financial Debt’ under the Code. The
definition of ‘Financial Debt’ has been amended to specifically include dues of
home buyers and the home buyers are recognised as “Financial
Creditor” under the Amendment Act.

 

The Tribunal observed that
S Co had advanced a sum of Rs. 4,10,68,472 to B Co and a Builder-Buyer Agreement
had also been executed between the parties. It was observed that the present
application was filed by S Co u/s. 7 and all the relevant files and documents
as required for the same along with Form I had been duly filled.

 

The only point of
contention that remained was whether a default in payment of financial debt was
committed by B Co. In that connection, NCLT observed that B Co had failed to
show how the demand made by S Co was premature. The fact that the claim of S Co
had been admitted by UPRERA established that the said claim was in fact a
financial debt as defined under the Code and that there was default on the part
of B Co in repayment of financial debt.

 

NCLT thus admitted the
petition to initiate the CIRP against B Co and declared moratorium in terms of
section 14 of the Code with a direction to the IRP to take further steps as
prescribed under the Code.

 

5.  Satyendra Jain vs. OmwayBuilestate (P.) Ltd. [2019]
103 taxmann.com 111 (NCLT – New Delhi) Company
petition (IB) No. 1013 (PB) of 2018
Date
of Order: 12th February, 2019

 

Section
238A read with section 7 of the Insolvency and Bankruptcy Code, 2016 –
Insolvency Resolution Process can be initiated against the corporate debtor
even though recovery suit has already been filed and decree has been passed
more than 5 years ago – The applicable period of limitation being 12 years,
application under the Code was maintainable

 

FACTS

O Co took a loan of Rs.
4.35 crore from Mr. S in the year 2010 which it failed to repay as per the
agreed terms and conditions. Mr. S filed a recovery suit before the Delhi High
Court which passed a decree on 19.03.2013 for Rs. 5.75 crore along with pendente lite and future interest. O Co did
not pay its dues even 5 years after the passing of the decree. Mr. S has claimed
that as on 20.07.2018, the total outstanding amount including interest due was
Rs. 10.14 crore.

 

O Co has objected to the
application primarily on the ground that the claim of Mr. S was barred by
limitation. It was further submitted that the Delhi High Court had passed a status
quo
on the assets of O Co which was still in operation and hence no action
could be taken against it.

 

Mr. S brought to the notice
of the National Company Law Tribunal (“NCLT”) that the decree dated 19.03.2013
was modified by the High Court on 04.02.2016 and the said decree had still not
been satisfied by O Co.

 

 

HELD


The
primary objection to the admission of the application was that the claim was
barred by limitation. NCLT examined section 238A of the Insolvency and
Bankruptcy Code, 2016 (“the Code”) which makes the provisions of the Limitation
Act, 1963 applicable to proceedings or appeals applicable to the Code. However,
NCLT observed that Article 136 of the Limitation Act, 1963 provides for a
period of 12 years with respect to execution of order or decree of a Civil
Court. In light of this, the argument of application being barred by limitation
did not hold good and NCLT rejected the same.

 

The fact of existence of
the loan which is recoverable with applicable interest has not been disputed by
either parties. Either parties also do not dispute the default of O Co in
repayment of loan in accordance with agreed terms. Mr. S had filled out a duly
complete form along with necessary documents to initiate the proceedings u/s. 7
of the Code.

 

Thus, the application of
Mr. S was accepted by the NCLT and Mr. Lekhraj Bajaj was appointed as the
Interim Resolution Professional (“IRP”). NCLT further declared moratorium in
terms of section 14 of the Code with a direction to the IRP to take further
steps as prescribed under the Code.

 

 

Service Tax

I. TRIBUNAL

 

10. [2019-TIOL-914-CESTAT-MUM] ABM Knowledge Ltd. vs. Commissioner of
Customs, Mumbai, Appeal-III  Date of Order: 12th February, 2019

 

Registration of premises is not a condition
precedent to avail CENVAT credit.

 

FACTS


Whether the Appellant is entitled to avail
input credit on invoices which are issued in the name of the premises other
than the registered premises?

 

HELD


The Tribunal
noted that there is no condition in the CENVAT Credit Rules, 2004 which
prescribes that registration of premises is a condition precedent for claiming
CENVAT credit and in its absence the claim has to be rejected. It was held that
it is a settled legal principle that any beneficial provision should be
interpreted liberally. There is also no dispute that there is a lapse, but it
is merely a procedural lapse for which the substantive benefit of CENVAT credit
cannot be denied. Thus, the appeal is allowed.

 

11.
[2019-TIOL-931-CESTAT-MUM] Kalika Steel Alloys Ltd. vs. Commissioner of Central
Excise, Customs and Service Tax, Aurangabad Date of Order: 25th April, 2018

 

Since appellant was entitled for CENVAT
credit on the excess paid service tax, the entire exercise is revenue neutral.

 

FACTS


The appellant
paid service tax on GTA on 100% of the amount without availing abatement of 75%
as available and availed the credit of the entire tax paid. Objection was
raised that since, as per notification, tax is payable only on 25%, the credit
of the service tax paid on 75% is inadmissible. The credit was reversed as
advised by the audit party and the excess payment was adjusted against tax
liability for the subsequent period. Revenue’s allegation is that such adjustment
can be made only during the succeeding month and not beyond that. Accordingly,
the present appeal is filed.

 

HELD


The Tribunal noted that unlike in Central
Excise law, wherein the unconditional notification is to be followed
mandatorily, similar provision is missing in service tax. Therefore, payment of
service tax on GTA on 100% of the amount is legal and correct. Further, since
the entire exercise is revenue neutral, the impugned order is unsustainable and
hence set aside.

 

12.
[2019-TIOL-1013-CESTAT-HYD] Commissioner of Customs, Central Excise &
Service Tax vs. Vignan Tutorials Date of Order: 4th January, 2019

 

The cost of study materials and textbooks
cannot be included in the value of services rendered for commercial coaching
and training centre.

 

FACTS


The appellant
is engaged in providing commercial training and coaching services. The Revenue
authorities were of the view that the amounts collected towards the cost of
study material needs to be included in the value of service. The Adjudicating
Authority, after following due process of law, confirmed the demand raised. The
First Appellate Authority held in favour of the appellant and accordingly the
present appeal is filed.

 

HELD


The Tribunal noted that separate invoices
are prepared for the services rendered for coaching and for the textbooks.
Further, it was also noted that the textbooks are available to any other person
not joining the coaching and training service centre as the books are freely
available in the market. Accordingly, it was held that the value of books is
not includible in the value of service and the appeal was dismissed.

 

13.  [2019-TIOL-864-CESTAT-MAD] VLCC Healthcare
Ltd., Chennai vs. the Commissioner of GST and Central Excise, Chennai South Date of Order: 11th February, 2019

 

The department cannot force the assessee to
pay 5% or 6% of the value of exempted services when the assessee has exercised
the option of reversing the proportionate credit.

 

FACTS


The assessee
provides “Beauty Treatment Service” and “Health Club and Fitness Service”. They
are also doing trading activity and selling their products to their customers.
Trading activity is deemed to be an exempted service with effect from
01.04.2011. The department alleges that since separate accounts are not
maintained, they have to pay an amount equal to 6% of value of their exempted
clearances for the reason that they have not intimated the department about
exercising the option.

 

HELD


The Tribunal noted that the appellants have,
in fact, issued a letter to the jurisdictional Range Officer explaining that
they were availing only the proportionate credit on the value of taxable
services, which is also reflected in their balance sheet as well as their ST-3
returns. It was held that the department cannot force them to pay 5% or 6% of
the value of exempted services when the option of reversing the proportionate
credit is exercised. Relying on the decision of Mercedes Benz
[2015-TIOL-1550-CESTAT-MUM]
, the demand was set aside.

 

14.  2019 [21] G.S.T.L. 37 (Tri. Chennai) MAS Logistics
vs. Principal Commr. of C.T. & C. Ex., GST, Chennai Date of Order: 25th September, 2018

 

Logistic services provided in India to
foreign company for re-export of return goods, amounts to export of service.
Eligible for refund of tax on input services used for such re-export of return
goods.




FACTS


The appellant assessee provided logistic
support service of return of imported goods on instruction of the shipper,
namely, Jinneng Energy Technologies Ltd., China (JETL, for short) and received
consideration in convertible foreign exchange. They also availed various input
services for export of logistic services; hence they filed a refund claim. The
said refund claim of the appellant was rejected by the Revenue stating that it
did not appear to be in relation to export of service, rather, it seemed to be
incurred for import of goods. The same was upheld by the Commissioner
(Appeals). Aggrieved, the appellant preferred an appeal before the Tribunal.

  

HELD


The Hon’ble Tribunal held that the allegation
of the department, that appellant acted as intermediary and so place of
provision of service within India cannot be sustained, as the appellant was
engaged by H & H, China, to whom they actually provided service and raised
invoices on account of facilitating re-export of goods. As the contract between
the shipper (JETL) and the importer was cancelled, the delivery of goods was
not taken by the importer and consequently goods were taken back to China,
resulting in re-export of the goods. The input services availed for doing such
return of goods to China are services availed for exports only. It was H &
H, China who acted as an intermediary and as recipient of logistic services
situated outside India, for which consideration was paid in convertible foreign
exchange, so it is export of service. Consequently, the appeal filed by the
appellant was allowed and the refund along with consequential relief was
granted.

 

   15.  2019 [21] G.S.T.L. 167 (Tri. Mumbai) Onward
E-Services Ltd. vs. Commissioner of Service Tax, Mumbai
Date of Order: 19th April, 2018

 

Penalty against suppression not sustainable
when defaulted tax paid along with interest before issuance of show-cause
notice.

 

FACTS


The appellant assessee, a provider of
software maintenance and repair services and information technology software
services, short-paid service tax during the period April, 2011 to August, 2012.
Although he subsequently paid the said amount along with interest before
issuance of a show-cause notice and also intimated the department to conclude
the matter in light of section 73(3) of the Finance Act, 1994, the Revenue
authorities still issued show-cause notice and confirmed the demand along with
interest and imposed  penalty u/s. 78 and
77 of the Act, alleging suppression.

 

HELD

The Hon’ble
Tribunal, on noting that the appellant furnished the details of the records in
the ST-3 returns and only defaulted in the payment of the tax collected, thus
provided with immunity
u/s. 73(3) of the Act, it set aside the penalty u/s. 78 in absence of suppression, holding that mere
default in the payment of tax could not amount to evasion of tax. The Tribunal
allowed the appeal in light of similar observations and various precedents.

 

16.  2019 [21] G.S.T.L. 165 (Tri-All.) Bhootpurva
Sainik Security & Detective Service vs. C.C.E., Allahabad Date of Order: 13th February, 2018

 

Show-cause
notice issued in the name of firm after death of partner, no liability on legal
heir for any dues.

 

FACTS


The appellant provided certain services and
was liable to pay service tax on the same. The show-cause notice was sent
through Speed Post but was returned undelivered; consequently, the same was
pasted at the address obtained from the records by the department and was also
displayed on the notice board of the division office of Varanasi. An ex-parte
order was passed confirming the demand along with penalty under the Finance
Act, 1994. Later, Revenue failed to trace any of the partners of the firm
against whom the order was confirmed. However, they could find the legal heir
(Mr. Shashi Bhushan Pandey) of one of the partners for recovery of dues.

 

Mr. Shashi Bhushan filed a first appeal
against the confirmed order stating that neither any show-cause notice was issued
upon him nor was any order communicated. Rather, the order was communicated to
the legal heir (Mr. Bhushan) after 3 years and 8 months of passing of the
order. But the first appeal was rejected and, thus aggrieved, the legal heir
filed an appeal before the Tribunal. The legal heir also filed a miscellaneous
application to bring on record that the partnership deed stated that the late
person was a partner in the firm along with two other partners.

 

HELD


The Hon’ble Tribunal held that the legal
heir of the late partner was not liable for any dues of the appellant as the
show-cause notice was issued after the death of the partner. Revenue was
directed to locate the remaining partners for recovery of dues. Also, there was
no proper authority with the Hon’ble Tribunal to pass the impugned order as it
was not evident from the show-cause notice whether it was issued on the
proprietorship or on the partnership firm. The appeal was, thus, allowed.

 

 

II. SUPREME COURT

 

17.  [2019-TIOL-150-SC-ST] Commissioner of Service
Tax, Mumbai-II vs. Greenwich Meridian Logistics (I) Pvt. Ltd. Date of Order: 1st April, 2019

 

Appeal
dismissed on account of inordinate delay in filing the same.

 

FACTS


The assessee is a multi-modal transport
operator engaged in booking cargo space in shipping lines and thereafter
allotting space to its customers. A demand of service tax was raised on the
difference between the freight received and freight paid under the category of
business auxiliary service. The Tribunal held that the slots are purchased by
the assessee and therefore they are neither promoting nor marketing the
services of the shipping line, nor is the shipping line their client.
Accordingly, the demand was set aside. Thus, the present appeal is filed by the
department.

 

HELD


The Court noted that there is an inordinate
delay of 1,180 days in filing the appeal; therefore, the appeal is dismissed.

GLIMPSES OF SUPREME COURT RULINGS

2. Vijay
Industries vs. CIT (2019) 412 ITR 1 (SC)

 

Newly-established
industrial undertakings or hotel business in backward areas – Deduction u/s.
80HH – Prior to insertion of section 80AB from 01.04.1981 – Deduction to be out
of profits and gains without deducting therefrom depreciation and investment allowance

 

In the appeals before the
Supreme Court, the issue related to the interpretation to be accorded to the
provisions of section 80HH, as it existed at the relevant time, during the
Assessment Years 1979-80 and 1980-81. Section 80HH provides deduction from
income at specified rates in respect of certain industrial undertakings which
are covered by the said provision.

 

The Supreme Court noted the
provisions of section 80HH as it stood at the relevant time and observed that
the section grants deduction from profits and gains to an undertaking engaged
in manufacturing or in the business of a hotel. The deduction is admissible at
the rate of 20% of the profits and gains of the undertaking for 10 assessment
years. Certain conditions are to be fulfilled in order to be eligible for such
a deduction. According to the Supreme Court, the conflict in the appeals before
it was confined to one aspect, viz., 20% deduction of gross profits and gains
or net income. Whereas the Assessee wants deduction at the rate of 20% of
profits and gains, i.e., gross profits, the stand of the Income Tax Department
is that deduction at the rate of 20% is to be computed after taking into
account depreciation, unabsorbed depreciation and investment allowance.

 

To put it otherwise, as per
the Department, the income of the Assessee is to be computed in accordance with
the provisions contained in sections 28 to 44DB which are the provisions for
computation of “income” under the head “profits and gains of business or
profession”. Once income is arrived at after the application of the aforesaid
provisions, 20% thereof is allowable as deduction u/s. 80HH. The Assessee, on
the other hand, submits that section 80HH uses the expression “profits and
gains” which is different from “income”. Therefore, whatever profits and gains
are earned by an undertaking covered by section 80HH of the Act, 20% thereof is
admissible as deduction. As a corollary, from such profits and gains of the
industrial undertaking, depreciation or unabsorbed investment allowances, which
are the deductions admissible u/s. 32 and 32AB of the Act, cannot be taken into
consideration.

 

The Supreme Court noted that in the case of Motilal
Pesticides (I) Pvt. Ltd. vs. Commissioner of Income Tax (2000) 9 SCC 63
it
had taken the view which was favourable to the Department. This view was
followed by the High Court in the impugned judgement thereby dismissing the
appeals of the Appellants/Assessees herein. The Assessees in the present
appeals submitted that the aforesaid view taken in the Motilal Pesticides case
was not a correct view as it ignored certain earlier judgements on this very
issue. Therefore, according to them, the Motilal Pesticides case needed a
re-look. The Division Bench of the Supreme Court, after hearing the arguments
advanced by the counsel for the parties on the aforesaid lines, noted the
conflict and passed orders dated 05.11.2014, thereby referring the matter to a
larger Bench.

 

The Division Bench of the
Supreme Court had noted that sub-section (1) of section 80HH allows “a
deduction from such profits and gains of an amount equal to 20% thereof” in
computing the total income of the Assessee. Thus, so far as deduction
admissible under this provision is concerned, it is from the “profits and gains”.
In this context the first question would be: what meaning is to be assigned to
the expression “profits and gains”? According to the Supreme Court, the
reference order dated 05.11.2014 rightly made a distinction between “profits
and gains” and “income”, which captured the legal position lucidly and
succinctly. The High Court noted the argument of the Assessee that the concept
“profits and gains” is a wider concept than the concept of “income”. The
profits and gains/loss are arrived at after making actual expenses incurred
from the figure of sales by the Assessee. It does not include any depreciation
and investment allowance, as admittedly these are not the expenses actually
incurred by the Assessee. However, the term “income” does take into
consideration the deductions on account of depreciation and investment
allowance. Therefore, the term profits and gains is not synonymous with the
term “income”. The High Court, however, held that it was bound by the judgement
of the Supreme Court in Motilal Pesticides (I) Pvt. Limited (supra).

 

In that case, the Supreme
Court set out section 80HH in para 2 and section 80M in para 3 of the
judgement. It was noticed that whereas section 80HH uses the expression
“any profits and gains derived from”, section 80M uses the expression
“any income”. Section 80M was held, in the Cloth Traders (P) Ltd.
vs. CIT (1979) 118 ITR 243 (SC)
, to mean that for the purpose of that
section, deduction is to be allowed on the gross total income and not on net
income. This was overruled in Distributors (Baroda) Pvt. Ltd. vs. Union of
India (1985) 155 ITR 120 (SC).

 

The Division Bench of the
Supreme Court, which made a reference to the larger bench, in its order dated
05.11.2014 noted that Bhagwati, J. who was party to the earlier decision in the
Cloth Traders’ case, delivered a judgement in the Distributors (Baroda) case
holding that the cloth traders’ case was obviously incorrectly decided because
the words “any income” could not possibly refer to gross total income
but referred only to “net income”. Further, the Distributors (Baroda)
case followed the judgement of this Court (the Supreme Court) in Cambay
Electric Supply Industrial Co. Ltd. vs. CIT (1978) 113 ITR 84 (SC)
which
decision concerned itself with section 80E of the Income-tax Act. The Supreme
Court noted that in marked contrast to the section under consideration in this
appeal, i.e. 80HH, section 80E uses the expression “total income [as
computed in accordance with the provisions of this Act]” and goes on to
speak of any profits and gains, so computed, for the purpose of deduction u/s.
80E. In the present case, the said words are conspicuous by their absence in
section 80HH even though the expression “profits and gains” is the
same expression used in section 80E.

 

According to the Division
Bench of the Supreme Court, therefore, the finding in paragraph 4 in Motilal
Pesticides (supra) that the language of section 80HH and section 80M is
the same was, with respect, prima facie, incorrect. Conceptually,
“any income” and “profits and gains” are different under
the Income-tax Act.

 

The Supreme Court also
noted that section 80M read with section 80AA and AB and section 80T which
speak of “any income” and section 28 which speaks of “income
from profits and gains”, showed that conceptually the two expressions were
understood as distinct in law.

 

The Division Bench of the
Supreme Court further noted that in paragraph 5 of the judgement in Motilal
Pesticides (supra), the learned senior counsel appearing for the
appellant had submitted that both Cloth Traders and Distributors (Baroda) were
cases which pertained to section 80M only and the Supreme Court had no occasion
to consider the application of section 80AB with reference to section 80HH of
the Act. The Court in repelling this contention referred to another decision in
H.H. Sir Rama Varma vs. CIT (1994) 205 ITR 433 (SC), which dealt with
the then newly-enacted section 80AA and 80AB. Both these sections again were
relatable to deductions made u/s. 80M; and section 80T with which that
judgement was concerned, also uses the expression “any income” as
opposed to “profits and gains”. According to the Division Bench of
the Supreme Court, therefore, prima facie Varma’s case again had very
little to do with the concept of “profits and gains” with which it
was concerned here.

 

The Supreme Court held that
reading of section 80HH along with section 80A would clearly signify that such
a deduction has to be of gross profits and gains, i.e., before computing the
income as specified in sections 30 to 43D of the Act. It was correctly pointed
out by the Division Bench in the reference order that in the Motilal Pesticides
case the Court followed the judgement rendered in the Cloth Traders (P) Ltd.
case, which was a case u/s. 80M of the Act, on the premise that the language of
section 80HH and section 80M were the same. This basis was clearly incorrect as
the language of two provisions is materially different. The judgement of
Motilal Pesticides was, therefore, erroneous. The Supreme Court overruled this
judgement.

 

The Supreme Court was also
unable to subscribe to the contention of the learned senior counsel for the
Revenue that section 80AB, which was inserted by Finance (No. 2) Act, 1980 with
effect from 01.04.1981 was clarificatory in nature. According to the Supreme
Court, it was a provision made with prospective effect as the very Amendment
Act said so. Therefore, it could not apply to the Assessment Years 1979-80 and
1980-81, when section 80AB was brought on the statute book after these
assessment years. This position became clear from the reading of Circular No.
281 dated 22.09.1980 issued by the Central Board of Direct Taxes itself. This
circular inter alia described the reasons for adding new section 80AA
and 80AB. It referred to the judgement in the M/s. Cloth Traders case and
mentioned that the directions specified in the aforesaid sections would be
calculated with reference to the net income as computed in accordance with the
provisions of the Act (before making any deduction under Chapter VIA) and not
with reference to the gross amount of such income, subject, however, to the
other requirements of the respective sections. Notwithstanding the same, this
circular also categorically mentioned that it will take effect from 01.04.1981.

 

The Supreme Court allowed
all the appeals.

 

3. CIT
vs. Rashtradoot (HUF) (2019) 412 ITR 17 (SC)

 

Appeal to
the High Court – Section 260A – The High Court could not have dismissed the
appeal after hearing both parties without having framed question(s) and
answered them by assigning reasons – Matter remanded

 

Income tax proceedings were
initiated against the Respondent (Assessee) on the basis of a search operation
which was carried out by the Income-tax Department in the Assessee’s premises
on 04.09.1997. This gave rise to initiation of assessment proceedings for the
block period from 01.04.1987 to 04.09.1997 (Assessment Years 1987-88 to 1996-97
and 1997-98 up to 04.09.1997) against the Assessee to determine their tax
liability as a result of search operations carried out in their premises. The
matter, out of the block assessment proceedings, reached the Tribunal (ITAT) at
the instance of the Respondent against the order of the assessing authorities.
The Tribunal, however, decided the various issues arising in the case in favour
of the Respondent (Assessee) by allowing the Respondent’s appeal, which gave
rise to filing of the appeal by the Revenue before the High Court u/s. 260A of
the Income-tax Act, 1961.

 

The High Court by impugned
judgement dismissed the Revenue’s appeal, which gave rise to filing of the
appeal by way of special leave by the Revenue in the Supreme Court.

 

According to the Supreme
Court, the High Court neither discussed nor assigned any reason in support of
its conclusion for the dismissal of the appeal. Apart from the above, the High
Court while deciding the appeal heard the learned counsel for the parties and
yet did not frame any substantial question of law arising in the case.

 

According
to the Supreme Court, the High Court has jurisdiction to dismiss the appeal
filed u/s. 260A of the Act on the ground that it does not involve any
substantial question of law. Such dismissal is considered as a dismissal of the appeal in limine, i.e., dismissal without issuing any
notice of appeal to the Respondent and without hearing the Respondent. The High
Court also has the jurisdiction to dismiss the appeal by answering the
question(s) framed on merits or by dismissing the appeal on the ground that the
question(s) though framed, such question(s) does/do not arise in the appeal.
The High Court, although it may not have framed any particular question at the
time of admitting the appeal along with other questions, yet it has the
jurisdiction to frame additional questions at a later stage before final
hearing of the appeal by assigning reasons as provided in proviso to section
260A (4) and section 260A (5) of the Act; and lastly, the High Court has
jurisdiction to allow the appeal but this the High Court can do only after
framing the substantial question(s) of law and hearing the Respondent by
answering the question(s) framed in the Appellant’s favour.

 

However, in this case, the
Supreme Court found that the High Court did not dismiss the appeal in limine
but dismissed it after hearing both the parties. In such a situation, according
to the Supreme Court, the High Court should have framed the question(s) and
answered them by assigning the reasons accordingly one way or another by
exercising powers under sub-section (4) and (5) of section 260A of the Act.

 

In the absence of any
discussion and/or the reasoning/ground as to why the order of ITAT does not
suffer from any illegality and why the grounds of Revenue are not acceptable
and why the appeal does not involve any substantial question(s) of law, or
though framed cannot be answered in Revenue’s favour, the Supreme Court held
that the impugned order suffered from jurisdictional errors and, therefore, was
legally unsustainable for want of compliance of the requirements of sub-section
(4) and (5) of section 260A of the Act.

 

The Supreme Court thus
allowed the appeal, setting aside the impugned order and remanded the case to
the High Court with a request to decide the appeal filed by the Revenue
(Commissioner of Income Tax) afresh on merits in accordance with law.


4. Kakadia Builders Pvt. Ltd. and Ors. vs. ITO
(2019)
412 ITR 128 (SC)

 

Settlement
Commission – Waiver of interest – The Commission does not have the power to
reduce or waive interest statutorily payable u/s. 234A, 234B and 234C except to
the extent of granting relief under the circulars issued by the Board u/s. 119
of the Act – The terminal point for the levy of interest u/s. 234B would be up
to the date of the order u/s. 245D (1) and not up to the date of the order of
settlement u/s. 245D (4) – Commission cannot reopen its concluded proceedings
by invoking section 154 of the Act so as to levy interest u/s. 234B

 

On 19.01.1994, a search and
seizure operation was carried out in the premises of the Appellants (Assessee)
under the Income-tax Act, 1961.

 

During pendency of the
assessment proceedings, which were initiated for determination of the tax
liability as a result of search and seizure operation, the Appellants on
12.03.1996 and 03.09.1996 filed the settlement applications before the
Settlement Commission and offered to settle their tax matter in accordance with
the procedure provided under Chapter XIXA of the Act.

 

On 11.08.2000, the
Settlement Commission passed an order u/s. 245D (4) of the Act. By the said
order, the Settlement Commission made certain additions and waived interest
chargeable u/s. 234A, 234B and 234C of the Act.

 

The Appellants (Assessee)
felt aggrieved and filed rectification applications before the Settlement
Commission on 29.12.2000 for amending its order dated 11.08.2000. The Revenue
(Commissioner of Income-tax) also felt aggrieved by the order dated 11.08.2000
and filed a rectification application u/s. 154 of the Act before the Settlement
Commission on 26.07.2002.

 

By order dated 11.10.2002,
the Settlement Commission dismissed the applications filed by the Appellants
(Assessee) and partly allowed the application filed by the Respondents
(Revenue) rectifying its order dated 11.08.2000 insofar as it pertained to
waiver of interest, which was granted to the Appellants (Assessee). The
Appellants (Assessee) felt aggrieved by the order dated 11.10.2002 passed by
the Settlement Commission and filed petitions in the High Court of Gujarat.



The High Court, by order
dated 03.03.2014, allowed the petitions and set aside the order dated
11.10.2002 passed by the Settlement Commission and granted liberty to the
Revenue to follow the remedies as may be available to it against the order
passed by the Settlement Commission dated 11.08.2000.

 

The Revenue, therefore,
felt aggrieved and filed petitions against the order dated 11.08.2000
questioning its legality. The High Court, although in the concluding paragraph
observed that the petitions are disposed of, yet in substance it allowed the
petitions and modified the order dated 11.08.2000 of the Settlement Commission
by reversing the waiver of interest in terms of the Settlement Commission’s
directions contained in its order dated 11.10.2002.

 

The Appellants (Assessee)
felt aggrieved by the said order and filed the appeals by way of special leave
in the Supreme Court.

 

The short question which
arose for consideration in the appeals before the Supreme Court was whether the
High Court was justified in allowing the petitions and thereby was justified in
modifying the order dated 11.08.2000 passed by the Settlement Commission.

 

At the outset, the Supreme
Court noted that the issue involved in the appeals was governed by the law laid
down by the decision of two Constitution Benches of the Supreme Court. One was
rendered on 18.10.2001 in Commissioner of Income-tax, Mumbai vs. Anjum M.H.
Ghaswala and Ors. (2001) 252 ITR 1 (SC)
and the other was rendered on
21.10.2010 in Brij Lal and Ors. vs. Commissioner of Income-tax, Jalandhar
(2010) 328 ITR 477 (SC).

 

So far as the decision
rendered in Ghaswala (supra) is concerned, the question involved therein
was whether the Settlement Commission constituted u/s. 245B of the Act has the
jurisdiction to reduce or waive the interest chargeable u/s. 234A, 234B and
234C of the Act while passing the order of settlement u/s. 245D of the Act.
After examining the scheme of the Act in the context of the powers of the
Settlement Commission, it was held that the Commission in exercise of its power
u/s. 245D (4) and (6), does not have the power to reduce or waive interest
statutorily payable u/s. 234A, 234B and 234C except to the extent of granting
relief under the circulars issued by the Board u/s. 119 of the Act. So far as
the decision rendered in Brijlal (supra) is concerned, the Supreme Court
examined the following three questions:

 

(I) Whether section 234B
applies to proceedings of the Settlement Commission under Chapter XIX-A of the
said Act?

(II) If the answer to the
above question is in the affirmative, what is the terminal point for levy of
such interest – whether such interest should be computed up to the date of the
order u/s. 245D (1), or up to the date of the order of the Commission u/s. 245D
(4)?

(III) Whether the
Settlement Commission could reopen its concluded proceedings by invoking
section 154 of the said Act so as to levy interest u/s. 234B, though it was not
so done in the original proceedings?

 

After examining these
questions, the Supreme Court answered the questions as under:

 

(1) Sections 234A, 234B and
234C are applicable to the proceedings of the Settlement Commission under
Chapter XIX-A of the Act to the extent indicated hereinabove.

(2) Consequent upon
conclusion (1), the terminal point for the levy of interest u/s. 234B would be
up to the date of the order u/s. 245D (1) and not up to the date of the order
of settlement u/s. 245D (4).

(3) The Settlement
Commission cannot reopen its concluded proceedings by invoking section 154 of
the Act so as to levy interest u/s. 234B, particularly in view of section 245I.

 

The Supreme Court noted
that when the Settlement Commission passed the first order on 11.08.2000
disposing of the application of the Appellants (Assessee), the issue with
regard to the powers of the Settlement Commission was not settled by any
decision of this Court. These two decisions were rendered after the Settlement
Commission passed the order in this case. Therefore, the Settlement Commission
had no occasion to examine the issue in question in the context of law laid
down by this Court in these two decisions. However, the issue in question was,
at that time, pending before the High Court in the petitions.

 

According to the Supreme
Court, in a situation like the one arising in the case, the High Court instead
of going into the merits of the issue, should have set aside the order dated
11.08.2000 passed by the Settlement Commission and remanded the case to the
Settlement Commission for deciding the issue relating to waiver of interest
payable u/s. 234A, 234B, and 234C of the Act afresh keeping in view the scope
and the extent of powers of the Settlement Commissioner in relation to waiver
of interest as laid down in the said two decisions.

 

The
Supreme Court was of the view that the High Court had committed a
jurisdictional error when it observed that they (the High Court) adopted the
directions contained in the order of the Settlement Commission dated 11.10.2002
and then went on to make the said directions as a part of the impugned order in
relation to waiver of interest. This approach of the High Court was wholly
without jurisdiction.

 

The High Court failed to
see that the order dated 11.10.2002 of the Settlement Commission was already
set aside by the High Court itself in the first round vide order dated
03.03.2014 in the light of law laid down by this Court in Brijlal (supra)
wherein it is laid down that the Settlement Commission has no power to pass
orders u/s. 154.

 

The Supreme Court allowed the appeal setting aside the impugned
order and the order dated 11.08.2000 passed by the Settlement Commission to the
extent it decided the issue in relation to waiver of interest and remanded the
case to the Settlement Commission to decide the issue relating to waiver of
interest payable by the Assessee afresh keeping in view the law laid down by
this Court in Ghaswala (supra) and Brijlal (supra) after
affording an opportunity to the parties concerned.

 

 

ALLIED LAWS

5. Attachment –
Bank accounts of directors cannot be attached when company is in default for
payment of taxes [Central Goods and Services Tax Act, 2017; Section 2, Section
89]

 

H.M. Industrial Pvt. Ltd. vs. Commissioner
of CGST and Central Excise 2019 (22) G.S.T.L. 13 (Gujarat)

 

By a provisional attachment order u/s. 83,
the bank accounts of the directors of the petitioner-company were attached. The
question was whether the bank accounts of the directors of the company can be
attached?

 

Section 83 of the CGST Act shows that it
empowers the Commissioner to attach provisionally any property, including bank
accounts, belonging to the taxable person. The term “taxable person”
has been defined under sub-section (107) of section 2 of the CGST Act to mean a
person who is registered or liable to be registered u/s. 22 or u/s. 24 of that
Act.

 

In the present case, it was the
petitioner-company which was registered under the provisions of the CGST Act
and was, therefore, the taxable person. Under such circumstances, provisions of
section 83 could not have been invoked against the directors of the
petitioner-company.

 

It was argued by the respondents (i.e.
Commissioner of CGST) that section 89 of the CGST Act permits recovery of the
dues of a private company from its directors in case such amount cannot be
recovered from the company. However, the Court dismissed the arguments of the
respondent on the grounds that section 89 of the Act relates to recovery of any
tax, interest or penalty due from a private company in respect of supply of
goods or services and hence is not applicable to the current case.It was
further mentioned that even if such amount cannot be recovered from the private
company, the directors of the company do not ipso facto become liable to
pay such amount and it is only if the director fails to prove that non-recovery
cannot be attributed to any gross neglect, misfeasance or breach of duty on his
part in relation to the affairs of the company, that the same can be invoked.

 

In view of the same, it was held that the
attachment of the bank accounts in the present case was without any authority
of law and hence the bank accounts were directed to be released.

 

6. Attachment – Provisional attachment immediately after issuance of
show-cause notice – Department asked to explain the urgency – Bank accounts
released [Gujarat Goods and Services Tax Act, 2017; Section 83]

 

Mono Steel (India) Ltd. vs. State of
Gujarat 2019 (22) G.S.T.L. 184 (Gujarat)

 

Show-cause notices were issued and
immediately thereafter, the order of provisional attachment was made. The bank
statement showed huge cash reserves lying at the disposal of the company with
the banks concerned which were attached.

 

It was observed by the Court that the
assessee was not a fly-by-night operator, i.e., the assessee was not someone
who could not be trusted and would desperately try to avoid the payment of the
taxes due. This observation was due to the reason that the assessee had paid
duty to the tune of more than Rs. 100 crore in the previous year. Under such
circumstances, the respondent was asked to explain the expediency and rationale
behind ordering attachment of all the bank accounts.

 

It was held that the bank accounts were to
be released subject to the petitioner/assessee maintaining a certain amount in
one of its bank accounts.

 

7. Courts,
Tribunals – Duty to exercise power in accordance with law though the litigant
does not point out the relevant principles and provisions of law

 

Champa Lal vs. State of Rajasthan and Ors.
(2018) 16 SCC 356

 

The litigation revolves around two
notifications issued by the state government.

 

It was observed by the Court that various
parameters mandatorily required were not taken into consideration in the two
above-mentioned notifications. Therefore, it was observed that the two
notifications cannot be treated as notifications.

 

It was held by the Hon’ble Court that,
unfortunately, this aspect had not been noticed by the High Court obviously
because it was not brought to its notice. The fact that a litigant before the
Court does not point out the relevant principles and provisions of law does not
prevent the Court from examining the issues involved in the lis, more
particularly, when the process which is the subject matter of litigation before
the Court is inconsistent with the mandate of the Constitution. It is a settled
principle of law that Courts are bound to take note of the Constitution and the
laws.

 

8. Hindu law –
Inheritance of property – Individual property and not ancestral property or
joint Hindu family property [Hindu Succession Act, 1956, Section 8]

 

Jagat Ram vs.
Rajo AIR 2019 Punjab and Haryana 38

 

The issue in the present case was whether
the property inherited by Class-I heir Mr. P (Father) from his father (Mr. T)
as per section 8 of the Hindu Succession Act, 1956 would be his (Mr. P’s)
individual property or would it be ancestral property or joint Hindu family
property?

 

It was observed by the Court that the
property came to Mr. P u/s. 8 of the Hindu Succession Act, 1956. Once, on the
death of a common ancestor, property has devolved upon his Class-I heirs or
Class-II heirs as per section 8 of the Hindu Succession Act, 1956, such heirs
would become the absolute owners of the property and such property would not be
either joint Hindu family or coparcenary or ancestral property in the hands of
such legal heirs, in absence of any other evidence to this effect.

 

It was held that, in the present case, the
entire property which came to be inherited by Mr. P (Father) from Mr. T (Mr.
P’s Father) is individual property of Mr. P (Father).

 

9. Unregistered sale agreement – Admissible in evidence for specific
performance of a contract [Registration Act, 1908 – Section 17 and Section 49]

 

Sanjeeva Shetty vs. B. Chittaranjan Rai and
Ors. AIR 2019 Karnataka 36

 

The Trial Court permitted to tender the
unregistered agreement of sale as evidence in a suit for specific performance
of the contract.

 

It was observed that proviso to section 49 of
the Registration Act, 1908 reads as under:

“Provided that an unregistered document
affecting immovable property and required by this Act or the Transfer of
Property Act, 1882 (4 of 1882), to be registered may be received as evidence of
a contract in a suit for specific performance under Chapter II of the Specific
Relief Act, 1877 (3 of 1877) or as evidence of any collateral transaction not
required to be effected by registered instrument.”

 

In appeal before the High Court, it was held
that if section 17(1A) and proviso to section 49 of the Registration Act, 1908
are read conjointly, it is evident that there is no prohibition under proviso
to section 49 of the Registration Act, 1908 for receiving an unregistered
document as evidence of a contract in a suit for specific performance under
Specific Relief Act, 1877. In view of the clear statutory proviso in this
regard, it was held that the Trial Court had rightly admitted the unregistered
document in a suit for specific performance of the contract.