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From The President
“Let’s go invent tomorrow instead of worrying about what happened yesterday.” – Steve Jobs.
India is reinventing itself and is gearing up to leap into the future with aggressive digital transformation. The e-initiatives that are enabling India to take rapid strides in transforming itself — from a developing economy to a developed economy — are Unified Payment Interface (UPI), DigiLocker, eSign, Aadhaar-enabled Payment Services, e-KYC, GSTIN, TIN, Aarogya Setu, CoWIN, FASTag, E-WayBill, National Digital Library of India, ONDC and many more.
As per a NASSCOM report, in FY2023, India’s technology industry revenue, including hardware, is estimated to cross $245 Bn. The domestic technology sector is expected to reach $51 Bn, on the back of continued investments by enterprises and the government.
I also read a report and came across a few technologies that would change how we live, work, study, commute and interact: Artificial Intelligence (e.g., creative AI), Quantum Computing, Green Technology (e.g., Autonomous Vehicles), Virtual Offices, Video Conferencing, Robotics, Virtual Reality, Blockchain (e.g., Web3), Spatial Computing, Predictive Analysis, Health Tech, etc.
ONDC — REIMAGINING DIGITAL COMMERCE
A digital initiative of the Government of India, which will be a real game changer and which has the potential to bring power to the masses of India, is the Open Network Digital Commerce (ONDC).ONDC could unleash many things like:
- Boosting the direct-to-consumer (D2C) ecosystem.
- Helping self-employed professionals: One of the important aspects of ONDC is how it will put self-employed professionals on the map; self-employed people could more easily promote themselves in an open, inclusive marketplace, attracting attention and business from consumers.
- Digitalising B2B commerce: Retailers could access a wider distribution network to save time and costs, and improve margins.
- Taking financial services further: ONDC’s transaction-based data could support innovative new offerings to provide businesses with greater access to credit.
- Growing peer-to-peer commerce: The decentralised network would enable peer-to-peer commerce among consumers, peer sellers and self-employed professionals.
- Empowering people with education and skills: More learners and workers could access skills-based education, vocational training, career counselling and career opportunities, which could engender a more equitable, skills-driven labour market in India.
- Taking India to the world: India’s digital commerce infrastructure could promote cross-border trade via marketplaces, helping MSMEs become discoverable by global consumers and businesses.
For ONDC to transform digital commerce beyond the borders of India, four key enablers should ideally be in place: 1) seamless cross-border payment settlements, 2) stringent grievance redressal systems, 3) a globalised taxonomy, and 4) global cooperation to support digital commerce.
The Indian Government is not leaving any stone unturned to unleash the potential of technology for the citizens of India, thereby transforming India into a Digital Economy. I would like to highlight some of the initiatives in the technology sector taken by the Government of India.
- Centres of Excellence for:
- Internet of Things (Gandhinagar, Bengaluru, Gurugram & Vizag)
- Virtual & Augmented Reality (VARCoE) at IIT Bhubaneswar
- Gaming, VFX, Computer Vision and AI at Hyderabad
- Blockchain Technology at Gurugram
- Design, Development and Deployment of National AI Portal (INDIAai)
- POC for AI Research Analytics and Knowledge Dissemination Platform (AIRAWAT)
- Formation of Inter-Ministerial Committee for Development of Robotics Ecosystem in the country
- Global Partnership on Artificial Intelligence
- National Program on Artificial Intelligence
- Artificial Intelligence Committees’ Reports
The latest decision by the GST Council has surprised the gaming industry in India, which is estimated to be worth around $2.8 billion in FY22. Regarding online games in India, taxation and legality largely depend on whether they are considered a game of chance or a game of skill. The Finance Minister has said that the tax will be levied on the entire value. Hence, the tax will essentially be levied on the full face value of the bet placed and not on the gross gaming revenue, which the industry sought.Globally, there are two GST models in the taxation of the gaming industry: Gross Gaming Revenue (GGR) and Turnover Tax Model. As per an article in The Indian Express, GGR is essentially the total amount of money a gambling business brings in through bets, deducting the amount that is paid for the win. Meanwhile, the Turnover Tax Model is the tax levied on income from winnings of real money from online games. Here, the entire prize pool is taxed. Countries such as the UK, Australia, Italy, Sweden, Singapore, Malaysia, etc., follow the GGR Model.
From the experiences internationally, there may have to be a rethink of indirect taxation on gaming in India to ensure its survival and growing contribution to the tax kitty.
HYDERABAD VISIT
I, along with two of our past presidents, CA Uday Sathaye and CA Narayan Pasari, visited Hyderabad to meet members in person and discuss the five-year plan of BCAS. We interacted with them to understand the need on the ground and how BCAS can become a part of their professional upliftment journey. Hyderabad is the ‘city of pearls’, and many professional pearls attended this meeting at the G P Birla Auditorium on 14th July, 2023. Young CAs had also come to attend the meeting with several hopes in their eyes, a thirst for knowledge and dreams to do something new and contribute back to society. Several youngsters were interested in contributing to the research project of BCAS. The other ground requirement was to start a study circle of BCAS in their city. It was also great to interact with our members who had traveled from Secunderabad, Guntur, Madurai, Vijayawada and other nearby cities and towns.MEETING WITH THE REGISTRAR OF COMPANIES
During this month, I, along with CA Abhay Mehta, Chairman of the Corporate and Commercial Laws Committee, and CA Shardul Shah, core committee member, had a meeting with the Regional Director, ROC, Mumbai, Ministry of Corporate Affairs. We had a good discussion with regards to the importance of related-party transactions and ultimate beneficiaries. We shall have more such interactions with ROC team members.BCAS
BCAS, as its green initiative in its 75th year, has been instrumental in planting 7,500 trees in the drought-prone area of Banaskantha, Gujarat. The area where these trees are planted shall be called BCAS
(forest). We appreciate the ground-level support of Vicharta Samuday Samarthan Manch (VSSM) for this initiative of BCAS. We thank all donors for their generous contributions.REIMAGINE
On the 4th, 5th and 6th January, 2024, BCAS has organised a mega-conference, “ReImagining the Profession in the Changing Technological Environment”. The event shall cover many thought-provoking ideas for the future of the finance, consulting, assurance, and taxation professions. The event is open to all Chartered Accountants and other Finance professionals in practice or in the industry. Participants from over 40+ cities and towns have already registered in numbers.While concluding, I would like to leave a thought on technology since this communique is dealing mainly with technology and digital transformation, which India is witnessing.
Lastly, I, on behalf of the Society, congratulate team ISRO for #Chandrayaan3’s successful landing. This is a historic achievement for India’s space development program and the rise of Bharat. Compliments to the visionary leadership of our country.
“Technology is best when it brings people together.” – Matt Mullenweg
Best Regards,
Chirag Doshi
President
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Society News
On enactment of the Companies Act, 2013 has resulted in a paradigm shift in the requirement of reporting by the Statutory Auditors on adequacy of Internal Financial Controls system and the operating effectiveness of such controls.
An additional role the auditor is required to play in the current environment and which is considered very onerous is that of the role of a whistle blower. The Companies Act, 2013 has introduced provisions whereby the auditor has to report certain category of frauds to the Central Government by following the procedure laid down through Rules u/s. 143(12).
The reporting under CARO is not new to the auditors. However, after substantial deletions in the reporting requirements under CARO, 2015 as compared to CARO, 2003, on replacement of CARO, 2015 by CARO, 2016, there have been addition of some clauses which require reporting on compliance of sections 185, 186 and 188 of the Companies Act, 2013.
In view of new regulatory norms coming into effect for the Statutory Auditors to report upon, a Full Day Workshop to understand the intricacies of these three onerous reporting requirements was organized by BCAS on 15th July, 2016, at M.C.Ghia Hall, Mumbai. There were three sessions which dealt with Internal Financial Controls for Small and Medium Enterprises, Fraud Reporting under Companies Act, 2013 and CARO Reporting under Companies Act, 2013.
The inaugural address was by the President of BCAS CA Chetan Shah, who informed the participants which included many non-members, about the benefits of association with BCAS and how one can accelerate gaining professional expertise through the knowledge sharing platform of BCAS.
Later, CA Himanshu Kishnadwala, Chairman of the Accounting & Auditing Committee, briefed the participants about the importance of each topic of the Workshop.
The first session speaker CA Ms. Nandita Parekh dealt with the topic of Internal Financial Controls for Small and Medium Enterprises in very simple and lucid manner which simplified the understanding of the subject and provided the participants useful tips on the approach to deal with IFC reporting.
CA Sandeep Shah was the speaker for the second session on Fraud Reporting under Companies Act, 2013. He dealt with the process to be followed for fraud reporting as well as the circumstances under which fraud reporting has to be done as Statutory Auditors. He shared his vast experience with the participants.
The concluding session was on CARO Reporting under Companies Act, 2013 and the speaker was CA. Vijay Maniar. His presentation dealt with the new clauses introduced through CARO, 2016, modified clauses of CARO, 2015, retained clauses and the omitted clauses. He then dealt with each clause in detail and shared practical insights on how to report on each clause.
The Workshop was attended by 170 plus participants and it was encouraging that the mix of participants was both from practice and industry.
The participants had a satiating experience of knowledge enhancement at the end of the Workshop.
Lecture Meeting on Ethics and You-Practical Issues held on 3rd August, 2016
A lecture meeting on Ethics and You-Practical Issues was held on 3rd August, 2016 at BCAS Office, 7, Jolly Bhavan 2, New Marine Lines, Mumbai which was addressed by CA C. N. Vaze who explained the meaning of Ethics and Code of Ethics and practical aspects, relevance, importance and necessity of Ethics in
present day professional environment. He pointed out that Ethics means moral values. It was easier to be principled but difficult to be ethical. One can be transparent; but one
needs to be accountable.He mentioned that Code of Ethics is needed to ensure credibility which is the foundation of any profession including CA fraternity and it should always be our motto to meet society’s expectations. He also enlightened the audience about the source and present image of the code of ethics being followed by the society at large. He further touched upon the common observations on Ethics and important pronouncements of ICAI on the issue. Thereafter important principles and broad procedure of Code of Ethics were highlighted. He also talked about important amendments brought about by the Chartered Accountants (Amendment) Act, 2006, a few important items of misconduct and disciplinary proceedings, technical lapses and remedies thereof to tackle these issues. Some case studies were also briefly taken up.
The meeting was attended by over 60 participants. The meeting concluded with a vote of thanks by CA Ms. Jyoti Malkani, GM-BCAS.
Workshop on NBFC held on 4th August 2016
NBFC sector is growing at a substantial pace but it is RBI’s endeavor to ensure prudential growth of the sector, keeping in view the multiple objectives of financial stability, consumer and depositor protection, and need for more players in the financial market, addressing regulatory arbitrage concerns while not forgetting the uniqueness of the NBFC sector.
NBFCs and Internal Controls over Financial Reporting for NBFCs. Before the commencement of the Workshop, there was a release of BCAS Publication “Internal Controls over Financial Reporting (ICFR) – A Handbook for Private Companies and their Auditors”, authored by CA. Nandita Parekh. The book was released by President of BCAS Mr. Chetan Shah.The Workshop started with the inaugural address by BCAS President CA Chetan Shah, who provided his view points on the importance of NBFCs in the overall development of the financial sector in India. Later CA Himanshu Kishnadwala, Chairman of the Accounting & Auditing Committee, introduced the structure of the Workshop.The first session was conducted by CA Bhavesh Vora, who lucidly dealt with the important aspects of prudential norms & compliances. While dealing with the same, he also took participants through the overall maturing of the NBFC sector over last three decades and gave valuable insights on the functioning of the various categories of NBFCs.The second session dealing with Statutory Audit aspects under the Companies Act, 2013 was addressed by speaker CA Manoj Kumar Vijai. He dealt elaborately with the unique requirements while conducting audit of NBFCs and shared his vast experience with the participants.The third session post lunch was on Internal Audit perspective for NBFCs which was addressed by the speaker CA Smita Gune. She made the session very interactive and shared her experience of internal audit of banks and financial institutions. She provided practical insights internal audits of NBFCs.Last session was taken up by speaker CA Huzeifa Unwala, who dealt with the topic on Internal Controls over Financial Reporting of NBFCs. He explained the overall requirements of IFC, how to test the operating effectiveness of the controls and took up the instances relating to NBFCs to provide practical insights on testing the controls while dealing with NBFCs.
The Workshop was attended by 70 plus participants and it was heartening to have more participants from the industry. Overall the Workshop was an enriching one for the participants.
FEMA Study Circle Meeting held on 4th August 2016
A FEMA Study Circle Meeting was held on 04th August, 2016 where CA Dhishat B Mehta led the discussion on the topic of “Issues relating to Determination of the Residential Status under FEMA”. Large number of members participated in this meeting. The Group Leader deliberated upon nuances of determining residential status of an individual and other entities including branch. The concepts such as “Intention”, “Uncertain Period” and “Resident” were discussed at length. The Group Leader also pointed out substantive difference in the definition of “Resident” under FERA and FEMA. He also took the case studies on determining residential status of – Indian citizen coming to India, Indian citizen leaving India, Foreign citizen coming to India, Foreign Citizen leaving India, Post-marriage stay of a foreigner in India, Student etc. He also pointed out challenges in determining residential status of a second generation branch, office controlled by resident, political asylum and involuntary stay in India. In all the members got a complete understanding as to how to determine residential status under FEMA of an individual and other entities. CA Dhishat B Mehta set the tone for learning of FEMA through series of meeting planned ahead.
A total of 34 participants attended the meeting.
Workshop on Permanent Establishments – from Constitution to Attribution – a Case Study based Analysis
A Workshop on Permanent Establishments – from Constitution to Attribution – a Case Study based Analysis was held on 5th August, 2016 at BCAS, 7, Jolly Bhavan 2, New Marine Lines, Mumbai where the Speakers CA Amar Mehta and CA Shreyas Shah took up the case studies on Geotech, Bold and Beautiful, Blessed Life, and RailCo.In the workshop, Profit Attribution rules of the establishments were discussed and also far Identification including the case studies on Distributor and TOLL MFG. At the end, Triangular Situation of Income, Expense and Profit was reviewed and analyzed.A total of 114 participants attended the workshop.
CA Uday Sathaye took the participants through the procedural aspects of formation and registration of a partnership firm under the PartnershipAct 1932 including drafting of a partnership deed. He emphasized on simple, unambiguous and diligent drafting of a partnership deed. He also dealt with the frequently faced issues at the time of formation and registration of partnerships.
Mr. Saurabh Shah explained the step by step procedure for formation of a LLP and also conversion of a partnership firm or a company into LLP. He gave a birds’ eye view of the procedural differentiation between a partnership firm vs. company vs. LLP, and also global comparison with UK LLP and US LLP. He mentioned that the recent amendments clearly spelt out the provisions relating to conversion of a LLP into a company.Both the speakers responded to the queries of the participants.Programme was coordinated by CA Preeti Oza. A total of 53 participants attended the Seminar
The Meeting was jointly organized by Suburban Study Circle with Indirect Tax Laws Study CircleGroup leader CA Kush Vora explained the decision of Delhi High Court in case of Suresh Kumar Bansal vs. UOI. It was held that no service tax could be charged in respect of contracts entered into by buyers with the builders for acquiring flats in a complex which is under construction. While the legislative competence of the Parliament to tax the element of service involved cannot be disputed, but the levy itself would fail, if it does not provide for a mechanism to ascertain the value of the services component which is the subject of the levy.
Chairman CA Vikram Mehta then deliberated on the implications of the judgment with regard to refund of the service tax, time barring provisions, application in current scenario, contrary decisions etc.
Further the group leader explained the decision of Maharashtra State Tax Tribunal in case of M/s. Sumer Corporation vs The State of Maharashtra wherein it was held that construction of building for Slum Redevelopment Authority in exchange for transferable development rights (TDR) is taxable under the MVAT Act. The group then discussed the implications of above judgment on taxation of barter transactions.
The participants were benefited from the presentation and experiences shared by the chairman and the group leader.
A total of 20 participants attended the Study Circle.
Tree Plantation Drive 2016 – Visit to Dharampur – on 6th – 7th August, 2016
A visit to Dharampur was organised for two days by the Human Development and Technology Initiation Committee of BCAS jointly with BCAS Foundation, for Tree Plantation project and visit to various NGOs,at Dharampur, who are engaged in the various welfare activities for Holistic growth of Tribals located in the remote interiors.
ARCH (Action Research in Community Health) Foundation –This NGO has been founded and managed by Dr. Daxaben Patel, which is focussing on Mother and Child Care as well as promoting awareness about basic health care and empowering people with Health Education in the tribal areas of Dharampur. ARCH currently provides primary health care services to approximately 25,000 patients mainly at Mangrol dispensary and at the Dharampur dispensary along with basic health education and preventive services such as vaccinations, prenatal care, well child care, etc. The BCAS Foundation contributed Rs. 25,000/- towards their noble activities.Vanpath Trust – Founded and managed by Mr. Bhikhubhai and Smt. Kokiben Vyas, this NGO works for integrated and holistic growth of villages at Kaprada in Dharampur. Kokiben explained about the challenges faced by the villagers in agriculture, education and other basic needs of their lives. She also explained about the urgent need of planting more and more trees so as to prevent adverse effects of rapid deforestation in the future.
Due to heavy rains over there, entire life of one of the nearby villages named Avalkhandi was disturbed. There was severe damage caused to Roads/ Bridges/ crops etc. In view of helping them to rehabilitate from this nature’s fury, the BCAS Foundation contributed Rs. 25,000/- to Avalkhandi Kelavni Trust.
Sarvodaya Parivar Trust (SPT)– The SPT is a NGO, following Gandhiyan philosophy, engaged in various tribal welfare activities in the field of Education / Health / Agriculture / Water management/ Environment etc. Here a tree plantation project at village Pindval- Darbaarfalia was carried out with enthusiastic participation of the local community of the farmers, The BCAS Foundation committed for plantation of 5,000 trees here. All the members distributed saplings amongst the farmers of Pindval as planned and then moved on farms for actual plantation of trees, the members wholeheartedly participated in the drive as guided along by the farmers, who are poor and marginal, for plantation of trees. Around more than 200 Trees were planted by all members themselves, during the day over three to four different farms. The majority of trees planted were Mango and others were Custard Apple, Guava, Mahagony and Bamboo Trees.
The team also visited the Residential School run by the SPT which is home to more than 350 children from nearby villages. Members had good interactions and time with them. SPT makes sure that all the children study till 8th standard and then help them getting admissions in schools in nearby towns/cities like Valsad, Surat, Vadodara etc. for further studies. This residential school has encouraged poor labourers and farmers in the tribal areas to send their children for further studies. It has helped in reducing child labour, child marriage and other social evils which takes place mainly due to illiteracy and poverty. On behalf of BCAS foundation, team distributed 2 sets of outdoor games like cricket set/ Football/ Badminton set/ Flying Disk etc and 110 Educational Games at SPT for the children of Aashramshalla.
The Tree Plantation Drive and the trip was truly an enriching, enlightening and educational Trip for the members visited. The memories treasured from trip, would always encourage and motivate them to participate more in such events which would be ultimately beneficial for the society at large.
A Team of 28 enthusiastic volunteers (including 15 from youth group) who were willing to take active participation in this noble mission joined the trip and carried out tree plantation and various other activities.
BREXIT and its Global Effects held on 8th August 2016
The International Economic Study Circle Meeting on BREXIT on 8th August, 2016 at BCAS
The speaker Divya B. Jokhakar explained the history of European Union and Britain. Explanations on how UK is one of the most industrialized country in the world was given. She factually discussed the Schegen Treaty and it’s implication on the EU and its countries. During the discussion queries were raised as to how the migration of people into UK or out of UK of British will be affected due to UK voting for the Referendum.
Impact of Brexit on European countries and also China was explained. The speaker explained its trade impact, the repercussion on financial markets and also the relationship of these nations with the USA.
India was mentioned not to be really affected as a nation leaving EU, could not affect India and it’s trade with the trading partner. The issue of the possibilities of UK wishing to re-bond relations with India in order to keep the trading relations alive was debated. Whether world could be affected majorly by Social media was discussed as was the possibility of UK not quitting even though it voted for the exit.
A total of 26 participants attended the study group.
Human Development Study Circle Meeting on ‘Dear Stress ….. Let’s Break Up” on 9th Au-gust, 2016 at BCAS Conference Room
The discussion was led by Dr. Nirmee N. Shah (Consultant Psychiatrist), MRC Psych CCT-UK, MSc Clinical Pharmacology. She has a particular interest in complex psychotic disorders and substance misuse besides other common mental health disorders.
She spoke on the meaning on stress, types of Stress, recognizing Stress, managing Stress and what it means to have mental and Physical Health.
She mentioned some learnings from this presentation followed by interaction through questions and answers. A total of 37 participants attended the Study Circle.
Direct Tax Study Circle Meetingon ‘Tax Consequences on Forex Transaction’ held on 11th August 2016
The Group leader, CA Vallabh Gokhale which is chaired by CA Sanjeev R. Pandit had meticulously discussed a divergence of views on the treatment of forex transaction to be meted out in the books of accounts and the Indian
Tax Laws covering the plethora of decisions. Further, with an increased flow of inbound/outbound transactions and their complex dynamic structuring, the tax treatment of foreign exchange gains/losses had been surrounded by huge litigation and decision of various courts were discussed in great detail.
The Group leader, had covered various aspects including position as per ICDS which is briefly outlined hereunder:
– Exchange fluctuation difference – Landmark judgement of Hon’ble SC in case of Woodward Governor India P. Ltd1 and Sutlej Cotton Mills Ltd2
– Exchange fluctuation on capital account – Discussed the issues under section 43A (per pre and post amendment)
– Foreign currency derivatives
At the end, various issues were touched upon which one could face keeping in mind FEMA exposure. Further, based on the existence of diverse views on the captioned topic it was discussed to give proper disclosure in accounts as well as under the income tax in order to mitigate penalty exposure and maintain robust documentation.
Lecture Meeting held on 19th August, 2016 in memory of Late Narayan Varma.
The First of the Annual Series of Lecture meeting in memory of Late Narayan Varma commenced on 19th August on his birthday (20th August). The Series was conducted by 3 organizations to which he was closely associated with namely BCAS & BCAS Foundation, PCGT & Dhrama Bharati Mission. Ms Aruna Roy, a Social Activist was the guest speaker for the evening. The meeting was held at K C College, Churchgate, Mumbai.
The session commenced with the lighting of lamps by the Presidents of the 3 organizations and Mrs. Varma along with Ms. Aruna Roy. This was followed by lecture for the evening “RTI in India’s Democracy- Audit by, for and with the people” by Ms. Aruna Roy. Late Narayan Varma had always been a very strong supporter of RTI and always talked across people groups in society to promote and educate them on RTI. Ms. Aruna Roy also a strong supporter for the similar cause described her journey along the same path with Late Narayanbhai. She further talked about the scope of Social Audits and way it has brought about good governance in different parts of the country. Social audit helps in questioning the system for utilization of government funds to the public at large. It facilitates the distribution system to be answerable to the end consumer. Ms. Aruna Roy informed the audience about the various cases of such audits which have brought a lot of discrepancies to light and the necessary actions taken thereon.The second part of the session was the awards session where a category of awards were defined in Memory of Late Narayan Varma for individuals who have done tremendous social work voluntarily for the society. Each organization had nominated one person for the same.
Mr Rashmin Sanghvi from BCAS & BCAS Foundation, Professor R. S. S. Mani from the Dharma Bharati Mission & Ms.Jinal Sanghvi from PCGT, Each organization’s president handed over the award to the awardee.
BCAS & BCAS Foundation nominated Mr. Rashmin Sanghvi for the award as the Society felt that no one other than him suited the position because he had two dreams (i) To help at least one hundred Indians become experts in international taxation and FERA; (ii) To help hundred beggars become financially independent. Since 1987 he has been pursuing both the dreams. As far as FERA & International Taxation are concerned, the spread of the knowledge in India is known.
As far as helping the poor is concerned, so far it was not very well known amongst chartered accountants. It was only in the year 2016 that Mr. Sanghvi published his Gujarati book – “Dharma na Prayogo” and many chartered accountants came to know about his social service. This year happens to be 30th year of his pursuance of both dreams. And at the age of 65 years he is still pursuing. In the year 1987 he started helping hutment dwellers in Vadala. From there, he moved to Kutch in 1992 & Surendranagar in 1994 helping farmers & rural poor in water management. In the year 1998 he went to Dharampur forests in Valsad district. He realised that even with annual rainfall of 150 inches, Dharampur tribals faced acute water shortage in the period of February to June every year. He started helping local NGOs in building check dams and other forms of water management in Dharampur.
In the year 2001 Gujarat was hit with a serious earthquake. Mr. Sanghvi participated in the earthquake relief work with Narayanbhai Varma, Pradeepbhai, Mr. V H Patiland others. BCAS, Chamber of Tax Consultants & other associations jointly provided earthquake relief. In the year 2004 east coast of India was hit with Tsunami. At that time also Mr. Sanghvi participated with BCAS
Foundation in the Tsunami relief work. Again, this was under the leadership of Late Shri Narayanbhai. In the year 2010, he met Ms. Mittal Patel and started helping her in providing relief to the nomadic communities. BCAS Foundation has also helped Ms. Mittal Patel’s NGO – Vicharta Samuday Samarthan Manch (VSSM) through organisation of programme – Udat Abeel Gulal in the year 2015. All these experiences have sharpened his knowledge & understanding of spirituality.
The award was received by Mr. Pradeepbhai Shah on behalf of Mr. Rashmin Sanghvi as he was travelling. The session ended was concluded with a well-deserved Vote of thanks by BCAS Immediate Past President Mr. Raman Jokhakar who chaired the event as the president Mr. Chetan Shah was travelling.
A total of 100 participants attended the meeting The program ended with the National Anthem.
Interactive session for the Students held at RVG Hostel on 20th August 2016.
human development and technology initiatives (HDTI) Committee of BCas jointly with RVG hostel (rajasthan VidhyarthiGruh) organized a special interactive meeting for students pursuing CA. the theme of the programme was “Success in CA exams”
At the beginning, the President of BCAS CA Chetan Shah welcomed the participants, the Chairman of HDTI Committee CA Nitin Shingala gave specific guidance to the students such as avoiding distractions like WhatsApp, Social Media, etc.
CA Srinivas Joshi (Past Member of Central Council and Examination Committee of ICAI) and CA Mayur Nayak (Past President and Chairman of HDTI Committee of BCAS) were the faculty members for the programme.
Highlight of Srinivas Joshi’s Presentation
- Clarity of goal & Commitment to succeed.
- Planning & Managing time for preparation
- Scheduling the intensity of one’s study.
- Selecting qualitative/ key study materials
- Focusing on conceptual clarity
- Discussing important topic with friends and like-minded colleagues regularly
- Importance of studying publications and study materials of the ICAI.
- It is extremely important to practice problem solving and writing notes.
- Attempting mock test papers in exam like conditions.
- Selecting properly the questions while taking the exam.
- Reading questions accurately and have focused answers.
- Keeping emotional composure is essential while appearing for each paper.
He also touched upon few other tips for practical guidance for ensuring success rate and clarified on points for which students carry wrong notions.
Highlight of Mayur Nayak’s Presentation:
- Setting SMART Goals in terms of when to qualify with what desired percentage of marks/ score?
- Putting goal plan into action.
- Coping up and balancing emotional and intellectual pressure.
- Overcoming factors like discouragement, defeat, peer pressure
- Dealing with fatigue, sense of burn out and recharging.
- Significance and importance of working sincerely during articleship.
- Identifying biological rhythm and one’s physical and mental strength
- Study the most difficult subject when one is fresh/ upbeat.
- Optimum utilisation of the commuting time for recapitulating the concepts
- Group discussion help to clear doubts on intricate topics.
- Essential to focus on physical fitness and exercise.
- Chanting”japa” and engagingin contemplation regularly and consistently helps to overcome emotional and mental fatigue.
In conclusion, he helped participants with 20 minutes of guided meditation.
The organisers had also invited three rank holders Ms. Zeel Shah, Mr Chintamani Shukla and Mr Aman Kariwala of CA Exam held in May 2016. They shared their experiences with regard to their individual preparation. Their excellent tips matching with thoseof senior faculties were very useful.
Equipped with the useful tips provided by the faculty and seniors, students left feeling charged, confident and determined to perform. About 90 students attended this programme.
Experts Chat @ BCASSharing Insights on Winning in the Global Market Place
BCAS organized a programme on Experts Chat @ BCAS – “Sharing Insights on Winning in
Global Market Place” on 23rd August, 2016 at its Conference Hall, Mumbai in which eminent Speakers Mr Lee Frederiksen, PhD who specializes in professional services and Mr Nishith Desai, Advocate, addressed the audience. They also participated in a conversation to make it more interactive, narrative and thought provoking for the participants present.The event was streamed alive to enable our members to participate online and several members joined and benefited from the expert chat.
The event started with the welcome address by CA Narayan Pasari, Vice President, BCAS who mentioned that this was a new format of meeting initiated by the Society. It was followed by the release of the new BCAS Publication, Income Declaration Scheme-2016 by the hands of Mr Lee Frederiksen, Mr Nishith Desai and CA Ameet Patel, Chairman of Taxation Committee who introduced the publication. Mr Ameet Patel felt that one must spot and seize the opportunity to attain the success in life. Mr Bhadresh Doshi author of the publication was also present. Mr Nishith Desai, applauded the wonderful efforts of Mr Bhadresh Doshi, Author of IDS-2016 Book along with Mr Sanjeev Pandit and Mr.Gautam Nayak who guided and mentored Mr Doshi in vetting the publication in great detail.Mr Nitin Shingala, Chairman of Human Development and technology initiatives (HD&TI) Committee then introduced the subject of the chat. He talked about Network changes and that one should be more creative and innovative in using the network and expertise in Small and Medium Enterprises which are the most vulnerable in the present environment.
Mr Nishit Desai in his interaction mentioned that Brain Count and not Head Count is important to be positive and confidant and nothing deters you from thinking big.
Mr Lee Frederiksen then made a small presentation on Winning in the Global Market Place. He described the role and importance of referrals in brand building. He mentioned that expectations are changing and one to one relation is becoming a reality now. He also explained the distinction between the Referral Marketing and Sponsorship Marketing. Under referrals, social relationship i.e. attending a meeting/speech/seminar, reading an article, book etc and social media and networking sites such as website online search, online referrals and online search help a lot in generating business. Similarly, Sponsorship is another source of attracting the attention of clients in building the market space. However, in comparison, Sponsorship is the single largest marketing expense in the organizational marketing strategy. Mr Lee also gave more emphasis on the level of expertise and skills the professionals should possess while interacting with the clients and marketing their products like core competency in dealing with clients within the profession and outside the profession. Greater the expertise, greater the expectation in achieving and sustaining business growth. Therefore, professionals must have the ability to display and nurture expertise in building, developing and tracking capabilities. The expertise should be visible so as to market the consultancy services/ products to professionals/clients to make the small and medium firms into big enterprises and conglomerates.
After Mr Lee’s presentation, the dais was set for an interactive chat between Mr Lee and Mr Nishith before the audience and online viewers. Mr Nishith Desai raised some key issues relevant to the professional fraternity which were responded by Mr Lee Frederiksen
After the above chat, Mr Nishith Desai thanked the chief guest Mr Lee and Question and Answer session was opened to the floor. Many questions raised were answered by Dr Lee.
A total of around 70 participants attended the Experts Chat @ BCAS with an equal number live on the stream. The programme was very interactive and well appreciated by the attendees with a huge round of applause. The meeting concluded with a vote of thanks by CA Mr Kinjal Shah
Joint Seminar on Internal Financial Controls and Reporting under CARO, 2016 at Ahmedabad held jointly with Chartered Accountants Association, Ahmedabad on 23rd August, 2016.
Accounting and Auditing Committee of BCAS, with a vision of focussing increased engagement of the Society with its members by reaching out to them at their doorsteps, took a step in this direction by joining hands with Chartered Accountants Association, Ahmedabad and organising release of a BCAS Publication “Reporting under CARO – A Compilation” at Ahmedabad along with a Joint Seminar on Internal Financial Controls for Small and Medium Enterprises and Reporting under CARO, 2016. This was thought apt, since the compilers of the publication CA. Viren Shah and CA. Jeyur Shah were from Ahmedabad.
The Joint Seminar was held on 23rd August, 2016, at Shantinath Hall, Ahmedabad Branch of WIRC of ICAI, “ICAI Bhawan”, Ashram Road, Ahmedabad. The Joint Seminar was very well attended by 130 plus participants.The inaugural address was by the President of Chartered Accountants Association, Ahmedabad, CA Rajubhai Shah. He was very delighted to have BCAS joining in the knowledge sharing journey at Ahmedabad and conveyed desire to have more such joint programs for the benefit of the BCAS members in Gujarat as well as its own members. CA. Mukeshbhai Khandwala, past President of Chartered Accountants Association, Ahmedabad and member of BCAS, spoke about the long association of the two organisations which had lost connect for some years and was glad that the efforts have again been made to have exchange of professional learnings. Later, President of BCAS, CA Chetan Shah, was invited to share his thoughts. He also conveyed the feeling that BCAS was eager to extend its reach and go to the doorsteps of its members to serve them in their professional pursuit. He informed the participants about the activities of the BCAS and requested the non-members to join BCAS. His address was followed by Accounting and Auditing Committee of BCAS, Chairman, CA. Himanshu Kishnadwala, who informed the participants of the relevance of the topics chosen for the joint seminar. The first session was on the topic, “Internal Financial Controls for Small and Medium Enterprises” which was addressed by CA. Himanshu Kishnadwala. He in his inimitable style with relevant illustrations and useful tips dealt with the topic with finesse and relieved the members of the stress which was felt while dealing with IFC in small and medium enterprises.
CA Abhay Mehta was the speaker for the second session on “Reporting under CARO, 2016”. His presentation covered the recently introduced clauses and modified clauses. Later he took the participants through each clause, the relevance of such clauses and the practical way of collating information for reporting under each clause.
This session was followed with brief ceremony of release of the BCAS Publication “Reporting under CARO – A Compilation” at the hands of Past President of ICAI, CA. Sunil Talati. During his brief address he acknowledged the efforts of the compilers of the publication. He also praised the BCAS and its journal for serving the profession. He also appreciated the efforts of BCAS and CAA to reach out to the members with joint programs.
An interactive session was arranged post lunch where the posers relating to the two topics discussed in the morning session were provided to the speakers. CA Himanshu Kishnadwala replied to the IFC posers as well as some of the CARO posers. CA Abhay Mehta replied to the CARO posers.
The joint seminar was acknowledged by the participants as a knowledge gaining experience.
Tech update
(This is the concluding part of this write-up. It has been
continued from previous month’s Journal)
Other recent developments in the mobile ecosystem :
iPhone 4’s antennae problem. Apple Inc received a lot of bad
press this month. There were several customer complaints about the design of its
phone antennae.
Some complained that the smart phones, which were launched a week ago with
block-buster sales, when cupped in a way that covers the lower left corner,
strangles telecom service signal strength.
Apple Inc, had to (publicly) accept that its iPhones
overstate wireless network signal strength. Apple apologised to customers in an
open letter and said it was “stunned to find that the formula” it uses to
calculate network strength “is totally wrong” and that the error has existed
since its first iPhone. The letter also said that “Users observing a drop of
several bars when they grip their iPhone in a certain way are most likely in an
area with very weak signal strength, but they don’t know it because we are
erroneously displaying 4 or 5 bars,”. Apple shot down users and outside
engineers who said the signal problems were due to faults in its new antenna
system. The antenna is incorporated in the casing. The company stated that “big
drop in bars is because their high bars were never real in the first place”.
Further adding that when users were noticing a dramatic drop in the number of
signal strength bars on their phone’s display, it was likely due to weak network
coverage in that area.
The company said the incorrect formula was present in the
original iPhone — released in 2007 — and promised to fix it by conforming to
AT&T guidelines for signal strength display through a free software patch that
would be issued within a few weeks. The software update will also be available
for the iPhone 3GS and iPhone 3G. Apple maintained the iPhone 4’s wireless
performance remains “the best we have ever shipped.” It also reminded user
they could return their smart phones within 30 days of purchase for a full
refund.
A direct result of this issue is that
- a suit has been filed against Apple for the poor reception.
- Another class action suit has been admitted on the issue of restrictive
trade practice—Apple and AT&T’s marketing tie-up.
- A major (reputed) consumer goods publication in the US refrained from
giving iPhone 4 the much coveted ‘Buy’ recommendation.
- A senior member of the team (directly) responsible for the antenna has put
in his papers. Its being called Applegate’s first casualty.
An indirect consequence of this issue is that
- Apple has “earned” the dubious tag #fail on twitter.
- Sales of Android phones are picking up.
As per latest reports, they are higher than iPhone 4.
Microsoft discontinues Kin after 48 days. Just 48 days
after Microsoft began selling the Kin, a smart phone for the younger set, the
company discontinued it because of disappointing sales. The swift turnabout for
the Kin, which Microsoft took two years to develop and whose release was backed
with a hefty ad budget, is the latest sign of disarray for Microsoft’s recently
reorganised consumer product unit. While neither Microsoft nor Verizon Wireless,
which sold the phone exclusively, disclosed the sales figures, media reports
suggest that sales were disappointing. In fact, Verizon is said to have slashed
the prices of the phones to $50 from $200 for the higher-end model and to $30
from $150 for a stripped-down version. Microsoft said it would cancel the
pending release of the Kin in Europe and would work with Verizon Wireless to
sell existing inventories. Microsoft indicated that it would shift employees who
worked on the Kin to the team in charge of Windows Phone 7, a coming revision of
Microsoft’s operating system for smart phones, which is due in the fall.
Kin, according to the grapevine, was dubbed an absolute
failure. It surprised many that Microsoft, often regarded as a company known to
sticking with new products and improving them over time, killed a product so
quickly. Microsoft’s consumer products unit has been struggling to offer a
credible competitor to other Apple products. It has chased the iPod with its
Zune for several years with little effect. Apple’s iPhone, as well as an array
of smart phones powered by Google’s Android software, are more recent
challenges. Microsoft also recently cancelled a project to develop a tablet
computer that would compete with Apple’s popular iPad.
IBM endorses Firefox as in-house web browser.
New York State-based IBM, known by the nickname “Big Blue,”
has a corporate history dating back a century and now reportedly has nearly
400,000 workers. Firefox is the second most popular web browser in an
increasingly competitive market dominated by Internet Explorer software by
Microsoft. Despite this fact, technology giant IBM wants its workers around the
world to use free, open-source Mozilla Firefox as their window into the
Internet. All new computers for IBM employees will have Firefox installed and
the global company “will continue to strongly encourage our vendors who have
browser-based software to fully support Firefox”.
Making Firefox the default browser means that workers’
computers will automatically use that software to access the Internet unless
commanded to do differently. Rumour has it, that going forward, any employee who
is not using Firefox will be strongly encouraged to use it as their default
browser. The feeling with the management is that while other browsers have come
and gone, Firefox is now the gold standard for what an open, secure, and
standards-compliant browser should be. Open-source software is essentially
treated as public property, with improvements made by any shared with all.
While Firefox is the second most popular web browser, Google Chrome has been steadily gaining market share. Last week, it replaced Apple Safari as the third most popular web browser in the United States. The take away from this is that we will continue to see this or that the browser become faster or introduce new features, but then another will come along and be better still, including Firefox.
At the cost of repeating myself …. (refer to BCAJ Jan 2010 issue) the survival in the new mobile ecosystem is going to be really very tough. The losses listed in this battlefield as of now :
- Kin — Microsoft’s smart phone
- Google is planning to hang up on Nexus 1 and plans to shelve Wave
- Nokia is looking for a new CEO
- Applegate’s first casualty
- Blackberry is battling shrinking market share (losing to iPhone and Android phones) and is trying to crawl back in to the limelight has recently launched Blackberry Torch.
The hunter is now the hunted.
C’est la vie.
ICAI And Its Members
1. Disciplinary case :
When the case was referred to the Disciplinary Committee of ICAI (DC), the member did not appear at the time of hearing and did not make any written representation in his defence. After considering the documents and evidence produced by the complainant, the committee decided that the member was guilty of professional misconduct under clause (11) of the First Schedule (Engagement in other occupation) and of ‘Other Misconduct’ u/s.22 of C.A. Act.
The Council accepted the above finding of the D.C. The member did not appear before the Council and did not send written representation. As regards the first charge, it was decided by the Council that the name of the member be removed from the Register of Members for a period of 6 months. As regards the 2nd charge that the member was guilty of ‘Other Misconduct’, the Council recommended to the Delhi High Court that the name of the member be removed for a period of 3 months.
The Delhi High Court noted that the member did not appear before the D.C., the Council as well as the High Court. After considering the report of DC/Council, the High Court directed that the name of the member be removed for a period of 3 months. (C.A. Journal August, 2009, Page 220).
2. Valuation of Material-in-Transit (EAC Opinion) :
A govt. company is in the business of refining and marketing of petroleum products. It has refineries for processing crude oil and lube blending/filling plants. The main raw material for processing in the refineries is crude oil which is both imported and indigenously procured. On the date of Balance sheet, a few shipments of crude oil are in transit. The company also imports other products which can also be in transit on the Balance sheet date.
The crude oil cargos are generally lifted from load port on FOB basis and consequently the ownership of the goods shipped vests in the company. Once the tanker is loaded from the port, liability for associated expenses like freight, insurance, customs duty, survey fees, wharfage and handling charges (herein referred to as incidental expenses) becomes the cost to the company. The company makes provision for these expenses, irrespective of whether the material enters the Indian territorial waters or not before the Balance sheet date. The company values the crude oil-in-transit as well as other material-in-transit at the Balance sheet date inclusive of all such incidental expenses. The company sought the opinion of Expert Advisory Committee (EAC) of ICAI as to whether this method of valuation of crude oil-in-transit (material-in-transit) was in order.
The EAC has considered paras 6, 7, 11 and 13 of AS-2 (Valuation of Inventories) and given the opinion that the above method of valuation of material-in-transit was not in order. According to the EAC, only those expenses which contribute to bringing the inventory to its present location and condition can form part of the cost of the inventory. Therefore, the liability for the expenses for (i) freight, (ii) handling charges at the load port (iii) customs duty on imported cargo, and (iv) wharfage should be recognised in the books of account in respect of material-in-transit only when those are incurred or the liability in respect of the same has arisen. As regards insurance and survey fees, the same should not be included in the valuation, unless they are mandatory i.e., without which the material cannot be moved or transported from the port. (Refer page 221-222 of C.A. Journal, August, 2009).
3. Exposure Draft of AS-1 (Revised)
— Presentation of Financial Statements :
ICAI has issued the above exposure draft. This Exposure Draft is issued pursuant to the decision to converge with IFRSs in respect of accounting periods commencing on or after April 01, 2011. This corresponds with IAS-1.
The objective of the Standard is to prescribe the basis for presentation of general purpose financial statements to ensure comparability both with the entity’s financial statements of the previous periods and with the financial statements of other entities. The general purpose financial statements are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs.
The objective of financial statements is to provide information about the financial position, financial performance and cash flows of an entity that is useful to wide range of users in making economic decisions.
A complete set of financial statements comprises : (a) a statement of financial position at the end of the period; (b) a statement of comprehensive income of the period; (c) a statement of changes in equity for the period; (d) a statement of cash flows for the period; (e) notes, comprising a summary of significant accounting policies and other explanatory information; and (f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements. An entity is required to present a complete set of financial statements (including comparative information) at least annually.
This Accounting Standard is mandatory for accounting periods commencing on or after April 01, 2011.
This Standard also gives guidance for implementation and has also given illustrative presentation of financial statement. [Refer pages 317 to 334 of ICAI Journal, August, 2009].
4. Auditing standards :
The following Auditing Standards have been issued and published on pages indicated below in the CA.
Journal for August, 2009. These are effective on all audits relating to accounting periods beginning on or after 1-4-2010.
i) Standard on Auditing (SA) 320 (Revised) :
Materiality in Planning and Performing an Audit (P. 335-338).
ii) Standard on Auditing (SA) 402 (Revised):
Audit Considerations Relating to an Entity Using a Service Organisation (P. 339-346).
iii) Standard on Auditing (SA) 450 :
Evaluation of Misstatements Identified During the Audit (P. 347-350).
iv) Standard on Auditing (SA) 610 (Revised) : Using the Work of Internal Auditors (P. 351-353).
5. NBFC Auditors’ Report:
Reserve Bank of India has issued directions called ‘Non-Banking Financial Companies Auditors’ Report (Reserve Bank) Directions, 2008′. They have been notified by a Circular dated 1-7-2009 and they have come into force on that date. Full text the directions is published on P. 288-291 of CA. Journal, August 2009.
6. Transfer/Termination of articleship :
ICAl has clarified, by a Notification dated 30-6-2009, that transfer/termination of articleship of articled assistants under Regulation 56(1) will be permitted under the following circumstances only:
“(a) Medical grounds requiring discontinuance of articles for a minimum period of three months (on production of a medical certificate issued by a Government hospital).
b. Transfer of a working parent to another city involving a distance of minimum 50 kms (on production of a certified copy of the transfer order and the proof of relocation to another city).
c. Misconduct involving mortal turpitude.
d. Other justifiable circumstances/reasons:
i. Grounds already permissible in the Char-tered Accountants Regulations, 1988 (on submission of requisite proof of the act warranting transfer/termination of article-ship) :
a) Industrial training (Regulation 51).
(b) Secondment of articles (Regulation 54).
c) Conversion from PCC to lPCC (for termination of articles only. Re-registration of articles to be allowed only after passing Croup-I of lPCC).
(d) Death of Principal [Regulation 57(1)(c)]
e) Ceasing of practice by the Principal [Regulation 57(1)(a)].
f) Removal of name of the Principal from the Register of Member due to any reason [Regulation 57(1)(b)].
ii. Marriage basis (only if there is relocation to another city involving distance of 50 kms).
iii. Irregular payment or non payment of stipend with reference to Regulation 67.
iv. Articled assistant desires to serve balance period of training outside India.
v. Shifting by the principal to another city involving distance of more than 50 kms.
The articled assistants are required, in the first instance, to get the consent of the Institute before getting Form 109 signed by the Principal, in their own interest.
The request, on anyone or more of the aforesaid grounds, of an articled assistant on plain paper with recommendations of the Principal for transfer/termination of articleship accompanied by evidence/ proof (self-attested by the articled assistant) to the satisfaction of the Institute be made.”
7. Campus Placement Programme:
As in the past, ICAI has organised Campus Placement Programme for providing opportunity to our students who have qualified in CA. Final Examinations held in May, 2009. The campus placement interviews will be held at the following places on the dates mentioned below:
The Ethical Standards Board has issued certain clarifications about ICAI Ethical Standards which are published on page 192 of CA. Journal for August, 2009. The following clarifications may be noted:
i) Management consultancy companies floated by Chartered Accountants can receive remuneration from an employer based on percentage of the annual CTC of the candidate while providing services relating to recruitment or placement of such candidate. However, a firm of Chartered Accountants is not permitted to charge fees on percentage of CTC of the candidate for rendering similar services.
ii) A Member who is in practice cannot use the designation of ‘District Governor’ in his Rotary Club visiting card along with the word ‘Chartered Accountant’.
iii) It is not permissible for a member of ICAI, who is practising as an advocate, to use CA logo on his personal stationery, visiting cards, etc.
9. ICAI News:
(Note: PageNos. given below are from c.A. Journalof August, 2009)
i) lCAl Elections:
Elections to the 21st Council and 20th Regional Councils will take place on 4th and 5th December, 2009. Details about these elections are put on the web site of ICAI www. icai.org. (Page 306).
ii) lCAl MOTO Song:
ICAI MOTO song instills a sense of pride amongst members of our Institute and expresses our solidar-ity with the Institute. This is uploaded on the web site of lCAl. (Page 188).
iii) Membership Card:
ICAI is issuing membership cards. Those who have not so far obtained this card can apply to ICAl. (Page 188).
(iv) Payment of Annual Membership Fees:
ICAI has issued a clarification that the Annual Membership Fees and Certificate of Practice Fees for 2009-10was payable on 1-4-2009.If any member has not paid the fees so far he/she can make the payment on or before 30-9-2009. (Page 308)
(v) New Branch of ICAl :
119th Branch in Western Region has been opened at Vapi w.e.f. 9-7-2009. (Page 300)
(vi) Publications of ICAl :
(a) Technical Guide on Internal/Concurrent Audit of Investment Functions of Insurance Companies (Page 299)
(b) Micro Insurance (Page 299)
(c) Technical Guide on Internal Audit of Intangible Assets (Page 300)
ICAI And Its Members
1. Disciplinary case :
In the case of ICAI v. Shri Ramesh R. Kapadia,
reported on page 292 of C.A. Journal for August 2008, the complainant (Joint
Director of Industries) alleged that the member had issued the certificates of
consumption of raw materials and production in respect four units of the
enterprise. There was no correlation between the cost of raw materials and the
value of finished goods. It was also alleged that in the certificates, the value
of raw materials was shown as CIF value, whereas this value should be at landed
cost including customs duty. This was not taken into consideration by the member
while reporting the figures of production. It was further alleged that there
were no records with the enterprise and the above certificates were issued
without any verification with the records.
The Disciplinary Committee held that the member was guilty of
professional misconduct under clauses (7) and (8) of Part I of Second Schedule
to the C.A. Act. The ICAI Council accepted this decision and recommended to the
Bombay High Court that the member be reprimanded.
The Bombay High Court has accepted the findings of the
Disciplinary Committee and the ICAI Council and held that the above certificates
were issued by the member without proper care and caution. However, since the
member had admitted his mistake, the High Court held that the member be awarded
the punishment by way of a reprimand.
2. EAC opinion on provision for diminution in value of investments :
The Expert Advisory Committee (EAC) has given an opinion on
the above issue which is reported on page 145 of Volume XXII of the Compendium
of Opinions published by ICAI.
Facts :
A public sector company engaged in the business of refining,
transportation and marketing of petroleum products, acquired shares in another
public sector company at the rate of Rs.1,551 per share as against the book
value of Rs.192.58 per share and market value of Rs.876 per share as on the date
of purchase of shares. The investor company submitted that the above investment
was a strategic investment and the premium of Rs.675 per share was paid
considering the various tangible and intangible benefits such as :
(a) Maintaining the current market share.
(b) Avoidance of erosion of refining volume currently
supplied to acquired company.
(c) Higher refinery throughput.
(d) Significant potential to add value to the existing
retail marketing capabilities.
(e) Higher retail volume, thereby providing stability to
cash flow, as the retail sale is less susceptible to risk as compared to bulk
sale.
(f) Retail margins are relatively insulated as compared to
bulk sales.
(g) Access to positive cash flow and zero debt company —
significant leverage to raise debt.
On the above basis, the investor company took the view that
the shares of the investee company were acquired as a strategic investment and,
therefore, it was not necessary to provide for any diminution in the value of
investment which was a long-term investment.
Opinion of EAC :
EAC has considered the facts of this case and stated in its
opinion that the company had acquired shares of another company for strategic
reasons and it wanted to hold the shares for a long-term period. The Committee,
therefore, took the view that this was a long-term investment. Thereafter, the
Committee has considered para 17 and 32 of AS-13 and observed as under :
“On the basis of the above, the Committee is of the view
that in case of long-term investments only where there is a decline, other
than temporary, in the value of investments, the carrying amount thereof is
reduced to recognise the decline. The Committee is further of the view that to
determine whether there is a decline other than temporary in the value of
investments, an assessment should be made keeping in view of the assets of the
acquired company, its results, the expected cash flows from the investment,
etc. The market value of the shares is not the sole indicator of decline,
other than temporary, in the value of investments.”
While concluding the opinion, the Committee has stated that
the accounting treatment ‘at cost’ under the head ‘Long-term Investments’ in the
financial statements of the above public sector company, without providing for
diminution in the value, is correct and is in accordance with the provisions of
AS-13.
3. MOU with Information Systems Audit and Control Association (ISACA) :
ICAI has entered into an MOU with ISACA, which is the world’s
leading association serving IS Audit professionals. Under this MOU, our members
will be able to freely access and make use of internationally accepted
standards, guidelines and procedures of ISACA. It will not only bring increased
global acceptability of our DISA qualification in carrying out IS Audits, but
also facilitate active participation of our members in further research being
conducted by ISACA for development of IS Audit standards. The Indian corporate
sector will also benefit by having a framework within which IS Audits will be
carried out by the professionals (Refer p. 227-228 of C.A. Journal for August,
2008).
4. Examination results :
C. Girl students:
i) Out of total of 1,45,378 members, 21038 (14.47%) are women members.
ii) Out of 10,580 students who appeared in CA. Final Examination (Both Groups) held in May, 2008 2767 (26%) were girls.
iii) Pass Percentage – Girl students 27.57% – Boy students 24.09%.
iv) Out of the first five positions in c.A. Final, May, 2008 examination, three (2nd, 3rd and 4th) are girls.
(Source: P. 228 of C.A. Journal for August, 2008)
5. Measures for welfare of members and students:
As a part of the Diamond Jubilee Celebrations of the Institute, ICAI has decided as under:
i) Chartered Accountant’s Benevolent Fund (CABF) :
Chartered Accountant’s Benevolent Fund (CABF) will now make the following ex-gratia payments:
a) Rs.1 lac will be given to the legal heirs of a member in case of unnatural/premature death of a member below the age of 45 years.
b) Financial assistance to the tune of Rs.l lac will be given for medical treatment of a member for specified ailments.
c) Rate of monthly assistance given to members or his/her heirs by the above Fund has now been increased from Rs.3000/ 4500 to Rs.4000/ 5500.
ii) Benevolent Fund for CA. Students:
ICAI has decided to set up a Fund similar to CABF for C.A. Students. ICAI will raise a substantial corpus for c.A. Students Benevolent Fund to provide similar benefits for C.A. Students.
(Refer page 228 of CA Journal, August, 2008)
6. ICAI News:
(Note: Page Nos. given below are from CA. Journal for August, 2008)
i) Enhancing Audit Quality:
Some of the observations made by reviewers while conducting peer review are listed on page No. 343 in order to enable the members to improve the quality of audit of corporate bodies.
ii) Guidance Notes:
The following Guidance Notes are issued by ICAI:
(a)Applicability of AS-20 ‘Earning Per Share’.
(Referpages374-376)
iii) Exposure Drafts:
a) Exposure Draft of Standard on Auditing (SA) 265 – Communicating Deficiencies in Internal Control and Explanatory Memorandum on the above subject is published on pages 378 to 387.
b) Exposure Draft of Standard on Auditing (SA) 500 (Revised) – Considering the Relevance and Reliability of Audit Evidence and Explanatory Memorandum on the above subject is published on pages 388 to 395.
iv) ICAI Publications:
Technical Guide on Internal Audit in Telecommunications Industry (Page 361).
v) For Students:
All students who have passed PE-II are permitted to appear in the Final Examination, irrespective of whether they have been registered under Final (Old) syllabus or (New) syllabus, provided they have completed practical training or are serving the last 12 months of articled training on the first day of the month in which the Final Examination is scheduled to be held and complied with other eligibility conditions. (Page 332).
Verification fees of answer books of CA. examinations has been revised. This fee will now be Rs.100 per paper, subject to maximum of Rs.400 effective from May, 2008, examination (Page 355).
Miscellaneous
Significant Accounting Policies :
Particulars of consolidation :
(ii) Borg Warner Morse TEC Murugappa Private Limited ceased to be a Joint Venture with effect from 30th September 2008, consequent to the sale of shares held in them by the Company. Accordingly, the Unaudited financial statements/information from 1st January 2008 to 30th September 2008 available with the Management have been considered for the purpose of the Consolidated Financial Statements.
From Notes to Accounts (CFS) :
Joint Ventures :
8(a) Provisioning for Standard Assets and Capital Reduction :
Considering the overall economic environment, CDFL has reviewed its past practice of provisioning for its loan portfolio and, as against the practice hitherto followed and, having regard to the principle of prudence and conservatism, has decided to voluntarily create a Provision for Standard Assets in respect of the Standard Assets in the Books of Account as at 31st March 2009 and apply such provisioning norms for the Standard Assets, suo moto, on an ongoing basis, though statutorily not required under the Non-Banking Financial (Non-deposit Accepting or Holding) Companies ‘Prudential Norms (Reserve Bank) Directions, 2007.
Pursuant to the Capital Reduction Proposal under Sections 78, 100 to 103 of the Companies Act, 1956 as approved by the shareholders of CDFL through postal ballot and the Capital Reduction Proposal confirmed by the Hon’ble High Court of Judicature at Madras on 29th April 2009, whose Order and minute dated 20th April 2009 was registered with the Registrar of Companies on 30th April 2009, an amount of Rs.323.53 Cr. (Share of the Group Rs.100.08 Cr.), being the balance in the Securities Premium Account of CDFL as at 31st March 2008 has been withdrawn for meeting the specific purposes as indicated below.
According to the Capital Reduction Order as approved by the Hon. High Court of Judicature at Madras, the following can be utilised/adjusted/set off against the balance of Rs.323.53 Cr. (Share of Group Rs.100.08 Cr.) available in the Securities Premium Account of CDFL as at 31st March 2008 :
- Utilisation towards creation of Provision for Standard Assets for an amount not exceeding Rs.200 Cr. (Share of the Group Rs.61.87 Cr.) in respect of the existing standard assets in the books of account of CDFL as at 31st March 2009 based on the provisioning norms approved by the Management for various categories of loan portfolios.
- Adjustments of the write-off of the bad debts/loan losses/other non-recoverable assets, if any, existing in the books of account of CDFL as at 31st March 2009, whether provided for or not, for an amount not exceeding Rs.100 Cr. (Share of the Group Rs.30.93 Cr.). Provisions existing for such bad debts/loan losses/other non-recoverable assets, if available, as at 31st March 209 will be credited back to the Profit and Loss Account on such write-off of bad debts/loan losses/other non-recoverable assets.
- Setting off of the provision for diminution, other than temporary, if any, in the value of the investments made by CDFL in one of its subsidiary companies, M/s. DBS Cholamandalam Distribution Limited, and setting off the provision for doubtful receivables, if any, from the said subsidiary in the books of account of CDFL as at 31st March 2009 for an amount not exceeding Rs.23.53 Cr. (Share of the Group Rs.7.28 Cr.).
Such utilisation/adjustment/set-off has been made by withdrawal of such sums from the Securities Premium Account of CDFL to the Provision for Standard Assets Account, Loss Assets Written Off Account and Provision for Diminution in the Value of Investments Account in the Profit and Loss Account.
Hence, for the year ended 31st March 2009, such Provision for Standard Assets amounting to Rs.200 Cr. (Share of the Group Rs.61.87 Cr.), Write-off of the Bad Debts/Loan Losses amounting to Rs.100 Cr. (Share of the Group Rs.30.93 Cr.) and Provision for Diminution in the Value of the Investments amounting to Rs.23.53 Cr. (Share of the Group Rs.7.28 Cr.), as determined by the Management, have been debited to the Profit and Loss Account and such sums have been withdrawn from the Securities Premium Account and credited to the Profit and Loss Account into the respective heads of account.
The said adjustments are not in accordance with the Accounting Standards notified by the Government of India under Section 211(3C) of the Companies Act, 1956 and other relevant Pronouncements of the Institute of Chartered Accountants of India.
Had CDFL not made Provision for Standard Assets in accordance with its revised provisioning policy and had the aforesaid adjustments to Securities Premium not been effected, the consequent impact on the consolidated results of the Group would have been as indicated in the table below under the head ‘Proforma Results of the Group’ :
There are certain outstanding open items in some of the bank reconciliations of CDFL (Bank Cash Credit Accounts – Net total excess of book balance over the bank statement balance as at 31.3.2009-Rs.63.35 Cr. : and Bank Current Accounts – Net total excess of book balance over the bank statement balance as at 31.3.2009 – Rs.6.74 Cr.), which CDFL is in the process of resolving. The Management of CDFL is of the opinion that adjustments, if any, arising out of clearance of such reconciling items should not have a material impact on the reported amount of assets, liabilities, income and expenses and, consequently, on the financial statements of CDFL as well as the Consolidated Financial Statements for the year ended 31st march 2009.
c) Assets de-recognised – Share of the Group:
(i) During the current year, the Gujarat High Court, in the case of Kotak Mahindra Bank v. O.L. of M/s. APS Star India Limited, held that Banks are prohibited from transferring or purchasing debts. Consequent to the above, the petitioners have filed a Special Leave Petition (SLP) with the Supreme Court. In its interim order, the Supreme Court has held that in the event of dismissal of the SLP, the assignment deals entered into by banks would be deemed not to have materialised.
However, CDFL is hopeful (If a favourable outcome to the aforesaid Special Leave Petition (SLP) filed in the Supreme Court given: that such deals are widely prevalent in the banking and financial services industry and the RBI has itself issued specific guidelines in respect of Securitisation transactions and hence, no adjustments to the financial statements have been considered necessary at this stage by the Management in this regard.
ii) There have been no Securitisation of Receivables during the current year as well as the previous year and hence the disclosure requirements under RBI Circular No. DBOD. NO.BP.BC.60/21.04.048/2005-06 have not been given. The details given above relate to Securitisation transactions prior to 31st March 2007.
d) Change in Accounting Estimates for Non-Performing Assets Provisions:
During the year, the Management of CDFL has reviewed the provisioning norms applied for Non-Performing Assets and has streamlined the same duly taking into account the stipulated minimum provisioning requirements of the Reserve Bank of India (RBI), the current economic environment and the voluntary Provision for Standard Assets of Rs.200 Cr. (Share of the Group Rs.61.87 Cr.) as at 31st March 2009 [Refer Note 8(a) above]. Such changes in the provisioning estimates by the Management used for the year ended 31st March 2009 in respect of assets identified for 100% provision as compared to the previous year ended 31.3.2008 has resulted in the share of the Group in the Provision for Non-Performing Assets for the current year being lower by Rs.20.70 Cr. and, consequently, the profit before tax for the year ended 31.3.2009 of the Group is higher by that amount.
e) Exceptional items:
The year 2008-2009 saw a global financial crisis, both in terms of liquidity and volatile interest movement. The schemes of DBS Chola Mutual Fund also were impacted as there were redemption pressures at various points of time. Therefore to protect the interest of unit holders, one of the subsidiaries of CDFL – DBS Cholamandalam Asset Management Limited absorbed the losses of Rs16.12 Cr. on account of securities (including loss of Rs.8.37 crores on Non-Convertible Debentures purchased and sold back to Mutual Fund Schemes) to correct the valuation of the securities. Accordingly the Group’s share of .such losses amounting to Rs.4.99 Cr. has been shown under Exceptional Items in the Consolidated Financial Statements.
From Auditors’ Report on CFS :
4. As stated in Note 2(ii) of Schedule 17, in the case of one of the JVs which ceased to be a JV with effect from 30.9.2008, the figures used for the consolidation are based on the unaudited financials statements/information available with the management. The Company’s share of total revenues and net profit after tax for the period 1.01.2008 to 30.9.2008 relating to the said JV considered in the Consolidated Financials Statements is Rs.6.75 crores and Rs.0.12 crores, respectively.
5. In the case of one of the joint ventures of the Company, M/ s. Cholamandalam DBS Finance Limited (CDFL) :
a) Attention is invited to Note 8(b) of Schedule 18 regarding certain outstanding open items in some of the Bank Reconciliations of CDFL, which CDFL is in the process of resolving. The Management of CDFL is of the opinion that adjustments, if any, arising out of clearance of such reconciling items should not have a material impact on the reported amounts of assets, liabilities, income and expenses and, consequently, on the financial statements for the year. Pending clearance of such outstanding open items and completion of the said Reconciliations we are unable to form an opinion in the matter.
b) Without qualifying our report, we invite attention to Note 8(a) of Schedule 18 on capital reduction by CDFL regarding utilisation/ adjustment/set-off of the Securities Premium Account towards creation of Provision for Standard Assets for an amount of Rs.200 crores, adjustment of write-off the bad debts/loan losses and other non-recoverable assets for an amount of Rs.I00 crores and setting off of the provision of diminution, other than temporary, in the value of investments in one of CDFL’s subsidiaries, M/ s. DBS Cholamandalam Distribution Limited amounting to Rs.23.53 crores, by withdrawal of such sums from the Securities Premium Account to the Profit and Loss Account of CDFL, made in accordance with the Capital Reduction Proposal under Sections 78, 100 to 103 of the Companies Act, 1956 and confirmed by the Hon. High Court of Judicature at Madras on 29th April 2009, whose Order and minute dated 20th April 2009 was registered with the Registrar of Companies, Chennai on 30.4.2009. This is not in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 and the relevant Pronouncements of the Institute of Chartered Accountants of India.
As stated in the aforesaid Note, had CDFL not made Provision for Standard Assets in accordance with its revised provisioning policy and had the aforesaid adjustments to Securities Premium not been effected, the profit after tax of the Group for the year would have been Rs.16.22 crores as against the profit after tax of the Group of Rs.54.43 crores.
c) Without qualifying our report, we invite attention to Note 8(d) of Schedule 18 regarding the change in the provisioning norms of certain loan portfolios of CDFL during the year ended 31 March 2009 by the Management of CDFL for the reasons stated therein.
6. In the case of one of CDFL’s subsidiaries, M/ s. DBS Cholamandalam Asset Management Limited (DCAML):
Without qualifying our report, we invite attention to Note 8(e) of Schedule 18 regarding the Group’s share of loss of RS.2.59 crores relating to the purchase and sale back of securities to the Mutual Fund Schemes by DCAML for the reasons stated therein.
7. In the case of one of the subsidiaries, M/ s. Cholamandalam MS General Insurance Company Limited (CMSGICL), the other auditors’ report on its financial statements for the year ended 31.3.2009 includes the following matters:
a) The actuarial valuation in respect of Incurred But Not Reported (IBNR) Claims and Incurred But Not Enough Reported (ffiNER) Claims, included under Sundry Creditors in the financial statements as at 31.3.2009, is the responsibility of the subsidiary’s appointed actuary. The actuarial valuation of liabilities as at 31.3.2009 has assumptions considered by him for such valuation are appropriate and are in accordance with the requirements of Insurance Regulatory and Development Authority (IRDA) and Actuarial Society of India in concurrence with IRDA. The auditors have relied upon the actuary’s certificate in this regard.
b) Without qualifying the opinion, attention is invited to Note 1(n) of Schedule 18 regarding a fire claim repudiated by the Company and accordingly no provision is considered necessary based on legal opinion.
8. We report that the Consolidated Financial Statements have been prepared by the Company’s Management in accordance with the requirements of Accounting Standard 21 Consolidated Financial Statements and Accounting Standard 27 Financial Reporting of Interests in Joint Ventures and on the basis of the separate audited financial statements of the Company, its subsidiaries and joint ventures included in the Consolidated Financial Statements except for the unaudited financial statements in the case of one of the joint ventures as indicated in Para above.
9. Subject to our comments in paragraphs 5(a) above and the consequential effects thereof, if any, which are not determinable at this stage, based on our audit and on consideration of the reports of the other auditors on the separate financial statements and other financial information of the entities referred to in paragraph 3 above and read with our comments in paragraphs 4, 5(b), 5(c), 6 & 7 above, and to the best of our information and according to the explanations given to us, we are of the opinion that the aforesaid Consolidated Financial Statements give a true and fair view in conformity with the accounting principles generally accepted in India.
From The President
Dear Esteemed Readers,
July and August were
eventful months not only for the Chartered Accountancy profession but also for
the world at large. In so far as our profession is concerned, the deadline for
filing income tax returns kept most of our fraternity busy till July 31, which
was extended by four days up to August 4, 2010.
The results of the CA
examinations were released in the last week of July, of which the outcome is
“Thodi Khushi, Jyaada Gam”, with the overall passing percentage falling
below double digits. The results were tough as seen from the trend of the past
few years; worse, it was toughest in recent years. Many bright students meet
with failure in CA examinations for the first time in their life. Examination
results invariably cause frustration, depression and a crisis of confidence. In
order to motivate students and help them take examinations in the right
perspective, an inspirational talk by renowned film and stage actor, Anupam Kher,
on the topic “The Power Within” was organized at K. C. College on 16th August
2010, which elicited a very good response.
Students are our future and
we, members of the profession, should shoulder the collective responsibility to
make them first and foremost good human beings, responsible citizens and better
Chartered Accountants. A sense of longing to contribute to the society what one
receives therefrom must be inculcated in students early in their career. It was
heartening to read the news in the Times of India dated 25th August 2010, that
Mr. Asit Koticha, Chairman and Founder Promoter of ASK Group and ex-student of
Poddar College donated Rs. 32 crores to the University of Mumbai and promised to
raise a further Rs.70 crores to help the University build a world-class
Convention Centre and other facilities.
It is said, there are two
certitudes in life; namely, death and taxes. Taxes are levied and collected from
times immemorial. However, the origin of income tax law is found in the Bill
passed by the Legislative Council of India for imposing duties on profits
arising from property, professions, trades and offices. It received assent from
the Governor General of India on 24th July, 1860. Mr. James Wilson, Privy
Council Member and Founder of the world-acclaimed magazine, “The Economist” was
the architect of taxation in India.
On 24th July 2010, the
Income tax Department celebrated the 150th anniversary of Tax Laws in India. On
that occasion, the Finance Minister, Mr. Pranab Mukherjee, dedicated to the
nation the revised Citizen’s Charter. While the Charter expects Indian citizens
to be truthful, prompt and regular in paying taxes, it reaffirms that there
shall be equity and transparency in tax administration. The Finance Minister in
his address on the occasion remarked as follows:
“One area of concern is
litigation with taxpayers. Department is filing appeals in a routine manner
without careful thought and examination, leading to the Department earning the
dubious distinction of being the biggest litigant within the Government of
India.”
The aforenoted comment says
it all.
The Chairman CBDT, Mr. S.S.N.
Moorthy, unveiled the Service Quality Policy and has expressed commitment to
promote voluntary compliance with Direct Tax Laws through quality taxpayer
service and fair and firm administration. He also conveyed that the Department
would endeavour not only to be transparent but also fair in its processes. Let
us hope that both, the Income tax Department and the Citizens at large would
comply with the revised Charter, both in letter and in spirit.
Some other disturbing
developments were the flash floods in many states of Northen India, agitations
in the Kashmir valley and the rising inflationary trend. We need to learn that
the environmental imbalances are causing floods in deserts and heat waves in
cold climes such as Eastern Europe – a topsy-turvy condition of sorts. The
uproar in Kashmir Valley needs to be dealt with firmly. It is high time that all
political parties rise as one to the occasion and find an acceptable and
practical solution to the problem. The time is ripe to deal firmly with our
neighbour in the matter of Kashmir, which is the root cause after all. The
goodness of India is seen as its incompetence. Even Gandhiji said: “I would
prefer violence any day to cowardliness.” Non violence and peace should be
practised from a position of strength.
The rising inflation is a
matter of concern for one and all. It is widening the divide between the “haves”
and the “have nots”. A major chunk of the Indian population live below the
poverty line, which would prove that prosperity of economic development has not
penetrated down to the grass root level. The need of the hour is “inclusive
growth” i.e. growth and prosperity for all sections of the society. When our
Members of Parliament find it difficult to survive and unabashedly unite to
increase their pay three times, what about poor people across the country? In
good old feudal days when subjects were in difficulty or facing hunger, the then
Kings used to practise austerity and donate generously for the welfare of the
suffering masses. Today, it is the opposite. Our MPs and MLAs rush to increase
their emoluments at the cost of poor. In the recently concluded 14th ITF
Conference at Udaipur, the Keynote address was delivered by Sriji Arvind Singhji
Mewar, the descendent of the Royal Dynasty of Udaipur. He regards himself as the
76th custodian of the House of Mewar. The moot point here is that Sriji and his
predecessors regarded themselves as custodians or trustees as Gandhiji said and
not owners. According to them, the real owner is Lord Eklingji (Shiva), their
Ishta Devata (ancestral deity) and they were merely trustees. The principle of
“trusteeship” was enunciated by Gandhiji. If every wealthy person lives by this
philosophy, nobody would be poor on this earth. A small beginning has been made
at BCAS. Through the efforts of the Past President Shri Pradeep Shah, members
donated a dialysis machine to the Muljibhai Patel Society for Research in
Nephrology which costs Rs. 5 Lakhs. BCAS would be instrumental in organizing two
free eye camps for cataract operations at Vansda, Dist. Valsad, Gujarat, whereby
100 plus villagers would be benefited. Efforts are on to raise funds to fund
community service projects for the Matunia village in fond memory of the Late
Shri Hiten Shah, who had a dream of transforming this backward village. Any
member who is willing to contribute to such good projects is always welcome.
The panel discussion on Service Tax went off very well. More than 85 members attended. The seminar on NBFC on 14th August was also well attended with participation from across the country. The 14th ITF Conference at Udaipur set new standards both academically and administratively. The feedback for all programmes is very encouraging.
I conclude my message with New Year greetings to the Parsis and best wishes to readers from different faiths during the oncoming festive seasons of Ramadan, Paryushan and Ganesh Utsav.
JAI HIND
From The President
You may have read the BCAS Vision Statement. There are four limbs to it. One of them deals with students. It says that “BCAS shall provide to students an environment conducive to the pursuit of knowledge, and encourage them to achieve their potential to become complete Chartered Accountants.”
Lately, we have been conducting many programmes for the benefit of students. Recently, we had organised an Annual Day for our Students’ Forum. The HR Committee worked very hard for this event and the efforts bore fruit when more than 150 young, enthusiastic and bright students gathered under one roof and had a wonderful time. My brief presence there took me down the memory lane and I recollected my student days — both in college as well as during articleship. As the cliché goes, I thought about the “good old days”.
When I compare my student days with the days that our present students are facing, I find a huge difference. Earlier, the pressure on students was much lesser. First of all, very few students did their articleship along with their graduation. I, for one, could have begun my articleship after successfully passing the Entrance Examination. But I was asked by my principal late Mr. S. V. Ghatalia to first complete graduation and then join his firm as a student. I am ever so grateful to him for giving me this advice. This not only allowed me to enjoy my college life and take part in several activities (which, in turn, have helped me a great deal in life), but also made me more mature and capable of handling the various assignments that were allotted to me during the articleship. At the same time, because we students already had the basic knowledge of tax and audit and a few other laws, we did not have to attend coaching classes. This in turn, saved us a lot of time. We were all able to leave our homes in the morning at decent timings and also reach home when our parents were awake.
In contrast today, our students are leading completely different lives. They insist on starting articleship during the graduation process. When I tried to reason with my own daughter and convince her to first become a graduate and then start articleship, I nearly started a war in the family ! Because they go to college and also for articleship, the students are out of their homes for long hours. Also, for reasons best known to them, they believe that without attending coaching classes, they cannot pass the CA examinations. And so, they also go for classes. Thus, in effect, an average CA student would leave his/her house in the morning at around 6.30 a.m. and return at around 10 p.m.
Further, the focus of today’s students is only to pass the CA examinations. They forget that the period of articleship is supposed to be the time when they have to gain know-ledge from their principals and seniors. Instead of aiming at absorbing knowledge and experience, the students channelise their energies only towards the examinations. In the process, the most important aspect of articleship i.e., learning, is either ignored or given secondary importance by the students. Also, attention span is very short nowadays. Although the younger generation is far more smart than the earlier generations, when it comes to common sense and grasping of fundamental principles, the present generation is far behind the ‘oldies’. This, of course, is a sweeping statement. But I am willing to begin a debate on this.
What is it that we CAs can do for our students ? Can we make life less stressful for them ? Can BCAS do something that will supplement the efforts of the ICAI in providing the students with much more than merely a degree ?
I believe that BCAS certainly has a very important role to play — nay, it is our duty to do something for the students. We need to bring about a paradigm shift in the thinking process of our students. First of all, we need to remove from their minds the wrong notion that without coaching classes, they cannot pass the examinations. Secondly, the students need to be mentored carefully. Today, their focus is to pass the CA examinations. The golden opportunity of gaining knowledge and experience during the articleship days has been sacrificed at the altar of examination-oriented approach. Many students make compromises in the quality of work that they do (or, in some cases, don’t do) during the articleship. I appeal to BCAS members to mould their students in the right direction. Let us impart not only technical training relating to taxes and accounting standards. Let us also educate them on how to become fine human beings apart from becoming fine professionals. Let us spend some time on how to make them good leaders and exemplary members of society in general. This year, at the BCAS, we will make sustained efforts to reach out to the students and create a sense of belonging in them towards the BCAS. Help me in taking this mission forward by enrolling your students for our programmes. Also, now that the Final CA examination results have been declared, I hope your students have qualified as Chartered Accountants. As they step into a new world and begin their careers, it would be a fitting gesture on your part to gift them an entry into BCAS. I invite you to gift one year’s membership of the BCAS to your successful students.
The recently concluded ITF Conference organised by the International Tax Committee of the BCAS was a resounding success despite the fact that participants and their family members were very worried about the repercussions of going to Lavasa which is very near Pune where the H1N1 virus is currently playing havoc with normal life. Thankfully, everything went off well for us. We would now be focussing on the new Direct Tax Code which was unveiled recently by the Finance Minister for public debate. The Annual Referencer of the BCAS which is a prized possession for many will be released shortly. The BCAS has also made two representations on tax matters — one to the Finance Minister and the other to the CBDT. Copies of the same would be printed in the BCAJ.
Lately, certain mails have been doing the rounds on the Internet which have cast our parent body — the ICAI and also its top leadership — in very bad light. One hopes that the controversy is resolved very soon. Ultimately, mud slinging of this kind and washing of dirty linen in public is bound to hurt our profession and, thereby, all of us. The ICAI elections would soon be held in early December. Let us all resolve to exercise our valuable franchise and that too wisely. Ballot is the biggest weapon in a democracy. Let us not waste it. We have worked hard to become Chartered Accountants. Can we allow a few people to let that hard work go down the drain ? Rabindranath Tagore once said — “You can’t cross the sea merely by standing and staring at the water”. Now is the time to act !
From The President
Dear Professional Colleagues,
Many of you will now be gearing up for the busy month ahead.
This year the due date for filing of corporate returns and the returns of those
assessees who are liable to tax audit has been advanced by one month. Whatever
the reason, it will leave us free to enjoy the festival of lights, though we may
have to work a little harder. One often marvels at the effort that chartered
accountants make to ensure that their clients comply with the law, while clients
themselves are in total bliss having delegated this job to the hapless
professional. We need to educate clients that while it is our duty to aid and
assist them to comply with the law, it is primarily their responsibility.
Recently the media was filled with reports of the legal
battle waged by a young couple. The lady was pregnant with a child which had
been diagnosed with a serious health problem and had few chances of leading a
normal life if born into this world. The time up to which medical termination of
pregnancy was possible had passed and the lady sought the Court’s permission to
do so. The case has many nuances which have already been discussed threadbare. I
would only salute the young lady and her husband for the respect they showed for
the law. While the order of the Court was not what she wanted, it brought to the
fore the inadequacies and limitations of the law, which will hopefully be
addressed in the future.
While on adherence to laws, many of us seem to employ double
standards. We expect others to comply with rules and regulations, while we flout
them with impunity. It is this duplicity which creates confusion, particularly
in young impressionable minds. I am reminded of an incident which occurred just
two days ago. I was driving my daughter to school early in the morning. The
signals had just started operating. I waited at the red signal, and the man
behind me started honking. I showed him the red signal. He overtook and broke
the signal, berating me on the way. I was saddened by his behaviour more due to
the fact that seated next to him was his young son, studying in the same school
as my daughter’s. The school would have taught him to wait at a red signal,
while his father not only broke the signal, but was critical of someone who was
abiding by the rules. This behaviour would obviously leave the child confused.
Such confusion may have tragic consequences in future.
Why do people break laws ? Personal and immediate gain is one
of the obvious reasons. The second is when people find that continuous violation
leads to no retribution. The third is when laws are so complex and ill conceived
that it is almost impossible to comply with them or the cost of compliance is so
high that a person is almost forced to flout them. The fourth is when the law is
totally out of sync from the ground realities or has become archaic with the
passage of time. It is the problems/issues that arise in the third and fourth
category that the government has to address at the earliest.
Finally there is an issue of the efficiency of the justice
delivery system, and the attitude of the administration. One often finds that
improving the judiciary is not on the priority list of politicians. This is
possibly because bringing about a change in the system is a painfully slow
process and it is difficult to show tangible progress in a short time. A lot of
time of the bureaucracy and the legislature is wasted in drafting laws and
enacting them, when in fact, it would be better to concentrate on ironing out
the problems in existing laws and trying to ensure that they are administered
more efficiently. The government must allocate far greater resources for
ensuring a better quality of presiding officers, better equipment in courts, and
increasing the use of information technology as a tool. Habitual litigants must
be dissuaded from clogging courts while genuine public interest litigation needs
to come to the fore.
What is true of general law is equally true of revenue
statutes. A new direct tax code is to be introduced. A similar exercise was
undertaken a decade ago, and the result is well known. Instead of embarking on
such projects it may be worthwhile to iron out the problems in existing
regulations. To illustrate, it took the government close to a year to realise
the hardship that tax deductors were facing in trying to comply with the
mandatory PAN percentage for filing TDS returns. I am conscious that such
problems will always arise, but they could have been solved earlier if the
administration had shown the right approach and attitude.
We are in a profession where we advise clients on compliance
with commercial and tax laws. In both, the dividing line between avoidance and
evasion is thin. Every professional needs to be clear about what his role is and
apprise the client about the same. This responsibility and role definition is
extremely important and needs to be well documented. Many of us are weak in this
area and should take remedial measures.
I will stop here and leave you to the arduous task of
completing your tax audits. As good professionals, we must encourage our clients
to comply with laws, and agitate for their rights before judicial forums. Out of
all the pillars of democracy it is this one which despite suffering some damage,
is serving as a lighthouse among otherwise murky and muddy waters !
With warm regards,
Anil Sathe
ICAI And Its Members
The Ethical Standards Board of ICAI has discussed some of the ethical issues at page 232 of C.A. Journal for August, 2010 as under :
2. Opinion of EAC :
On these facts, the bank has sought the opinion of the Expert Advisory Committee on the following issues :
(i) What should be the applicable rate of depreciation in respect of building purchased in 1950 ?
The Committee, after considering the introduction paragraph and the definition of the term ‘depreciable assets’ as contained in Accounting Standards (AS-6) ‘Depreciation Accounting’, has observed that as per the GAAPs prevalent in India, freehold land is considered to be having an unlimited life and, therefore, cost thereof is not depreciated. In the context of the leasehold land which is recognised as a fixed asset by the bank, keeping in view of the existing practice of reflecting leases of land in the balance sheets of the lessees, as such leases are scoped out of Accounting Standard (AS-19), ‘Leases’, the Committee noted that the land in question has a lease period of 99 years. Thus, it has a limited useful life for the bank. Accordingly, the upfront amount of Rs.99 lakh paid by the bank for the same should be amortised over its useful life i.e., 99 years, on a systematic basis. The Committee also noted that in this case, the life of the leasehold land is predetermined by the lease agreement, therefore, there is no question of revision of its estimated useful life unless the lease agreement is renewed or the lease terms undergo a change.
Further, after considering AS-6, the Committee opined that :
In respect of property purchased in 1950 the rate of depreciation on building should be determined on the basis of the depreciable amount and its remaining useful life. In case the building has been revalued, the depreciable amount would be the value assigned to the building upon revaluation less its estimated residual value, provided revaluation has been done in accordance with AS-10. The useful life of a depreciable asset is a matter of estimation and is normally based on various factors, including experience with similar types of assets. In case of building constructed on the leasehold land, the useful life of the building cannot exceed the remaining lease period of land.
With respect to the depreciable amount of an asset, the Committee is of the view that ordinarily, the depreciable amount would be the cost thereof less the estimated residual value. In the context of revaluation of buildings the depreciable amount after revaluation would be revalued amount less the estimated residual value of buildings.
(ii) In respect of property constructed in 1992 with respect to determination of rate of depreciation of the building constructed on leasehold land, the principle stated in (i) above would apply. The cost of the leasehold land acquired on lease for 99 years should be amortised over its lease term on a systematic basis.
The rate of depreciation of a building depends on the depreciable amount of the building and its expected useful life. The useful life may vary in case of each building. The depreciable amount may also vary depending on its cost of purchase/construction of its revalued amount, as the case may be, and its estimated residual value. Accordingly, the rate of depreciation may vary for each of the buildings and therefore, should be determined individually for each property.
[Refer pages 266 to 268 of C.A. Journal of August, 2010]
3. ICAI News :
(Note : Page Nos. given below are from C.A. Journal for August, 2010)
i) Special Placement Programme — June, 2010 (page 346) :
Special Placement Programme for new CA Members was organised by ICAI at major centres from 22nd to 26th June. Following was the response.
|
l (a) |
No. of candidates reported |
1148 |
|
(b) No. of organisations who |
|
|
|
|
participated |
39 |
|
(c) |
No. of interview teams |
65 |
|
(d) |
No. of jobs offered |
198 |
|
(e) |
No. of jobs accepted |
184 |
|
|
and |
|
|
(f) |
Percentage |
16.3 |
— International posting — Rs.21 lacs p.a.
— Indian posting — Rs.12 lacs p.a.
Minimum salary offered :
— Fresh C.A. — Rs. 5 lacs p.a.
— Experienced C.A. — Rs. 6 lacs p.a.
Average salary offered :
— Rs. 7 lacs p.a.
ii) Transfer or Termination of Articleship (page 354) :
Regulation 56(1) of C.A. Regulations has been modified as under :
a. Transfer/Termination of Articles is permitted without any restriction during the first year of articles.
b. During rest of the articleship period on satisfying any one or more of the conditions as stated below :
Medical grounds requiring discontinuance of articles for a minimum period of three months, on production of a medical certificate issued by a government hospital.
Transfer of parent(s) to another city.
Misconduct involving moral turpitude.
Other justifiable circumstances/reasons.
iii) ICAI publications :
a) A study on Foreign Contribution Regulation Act, 1976.
b) GST in India & Role of Chartered Accountants.
iv) New Branch in Western Region :
ICAI has opened a new branch in Western Region at Latur w.e.f. 1-7-2010 (P. 358).
(v) e-Journal :
New Hi–Tech Journal has been launched by ICAI. In this Journal one can ‘listen’ the contents of C.A. Journal every month (P. 9).
C.A. Examination results :
CPT (June, 2010) :
|
|
A |
P |
% |
|
|
|
|
|
|
Boys |
83,664 |
21,218 |
25.36 |
|
|
|
|
|
|
Girls |
43,979 |
13,950 |
31.72 |
|
|
|
|
|
|
Total |
1,27,643 |
35,168 |
27.55 |
|
|
|
|
|
PEE-II, PCE AND IPCE (May, 2010) :
|
|
|
PEE-II |
|
|
PCE |
|
|
IPCE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
P |
% |
A |
P |
% |
A |
P |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Both Groups |
4,338 |
85 |
1.96 |
44,687 |
6,065 |
13.57 |
20,135 |
2,473 |
12.28 |
|
|
|
|
|
|
|
|
|
|
|
|
Gr. I |
6,912 |
819 |
11.84 |
11,384 |
2,442 |
21.45 |
52,923 |
8,730 |
16.49 |
|
|
|
|
|
|
|
|
|
|
|
|
Gr. II |
9,357 |
841 |
8.98 |
17,774 |
6,024 |
33.89 |
22,416 |
3,804 |
16.97 |
|
|
|
|
|
|
|
|
|
|
|
Final (May 2010) :
|
|
Final |
Final (New course) |
||||
|
|
|
|
|
|
|
|
|
|
A |
P |
% |
A |
P |
% |
|
|
|
|
|
|
|
|
|
Both Groups |
13,242 |
458 |
3.46 |
7,424 |
487 |
6.56 |
|
|
|
|
|
|
|
|
|
Gr. I |
20,049 |
2,897 |
14.45 |
8.840 |
1,166 |
13.19 |
|
|
|
|
|
|
|
|
|
Gr. II |
26,517 |
2,552 |
9.62 |
8,670 |
683 |
7.88 |
|
|
|
|
|
|
|
|
The pass percentage in Final Examination (old course) in previous years was as under :
|
|
Both Groups |
Gr. I |
Gr. II |
|
|
|
|
|
|
May 2010 |
3.46 |
14.45 |
9.62 |
|
|
|
|
|
|
Nov. 2009 |
7.86 |
19.87 |
10.11 |
|
|
|
|
|
|
June 2009 |
13.85 |
32.42 |
15.03 |
|
|
|
|
|
|
Nov. 2008 |
20.27 |
27.82 |
24.15 |
|
|
|
|
|
From the above, it is evident that the trend of pass percentage in Final (old course) is declining in successive examinations. This is a grave cause for concern when Nov. 2010 is the last chance for students appearing under the old course. If this trend continues, over 50,000 students who have studied under the old course will have to appear from May, 2011, for Final examination under the New Course.
Right to Information
Whether co-operative Societies are public authorities ?
In the judgment delivered on 3-4-2009, the Kerala High Court examined under the writ petitions the applicability of the RTI Act to co-operative Societies registered under the Kerala Co-operative Societies Act (KCS Act).
The Registrar of Co-operative Societies issued Circular No. 23/06, taking the view that all co-operative Societies registered under the KCS Act, hereinafter, for short, the ‘Societies’, are under the administrative control of the Registrar and therefore, public authorities for the purpose of the RTI Act. Directions were hence issued, requiring all Societies to discharge the obligations as public authorities under the RTI Act and to follow the procedure stated therein. The information officers in the co-operative department of the State Government commenced acting on complaints for non-consideration of requests for information made by different persons to Societies. These writ petitions are hence filed, seeking to quash the aforesaid Circular and for the declaration that the RTI Act does not apply to Societies registered under the KCS Act. Certain actions taken by the officers under the KCS Act and orders issued by the State Information Commission touching the issue, in individual cases, are also under challenge.
Societies are not government organisations. S. 2(h)(ii) of the RTI Act uses the term ‘Non-Government Organisations’, one not defined in the Act. S. 2(h)(ii), therefore, refers to something that is not part of the Government; which is very true of a Society, as pointed out even by the petitioners. If a Society is substantially financed, directly or indirectly by funds provided by appropriate Government, it falls within the inclusive definition of ‘public authority’; within the expanse of that definition clause. Therefore, any co-operative Society registered under the KCS Act is a non-government organisation and if it is substantially financed, directly or indirectly by funds provided by appropriate Government, it is a public authority for the purpose of S. 2(h) of the RTI Act.
The Court then notes that the word ‘substantial’ has no fixed meaning. It ought to be understood definitely by connecting the context. The Court then quoted a few judgments of providing its meaning in the context of the code of civil procedure, the Income-tax Act, the Customs Act, etc. and as defined in the dictionary. It then said : “Such a spectrum of substantial wisdom essentially advises that the provision under consideration has to be looked into from the angle of the purpose of the legislation in hand and the object sought to be achieved thereby, that is, with a purposeful approach. What is intended is the protection of the larger public interests as also private interests. The fundamental purpose is to provide transparency, to contain corruption and to prompt accountability. Taken in this context, funds which the Government deal with are public funds, they essentially belong to the sovereign, “We, the People”. The collective national interest of the citizenry is always against pilferage of national wealth. This includes the need to ensure complete protection of public funds. In this view of the matter, wherever funds, including all types of public funding, are provided, the word ‘substantial’ has to be understood in contradistinction to the word ‘trivial’ and where the funding is not trivial to be ignored as pittance, the same would be ‘substantial’ funding because it comes from the public funds. Hence, whatever benefit flows to the Societies in the form of share capital contribution or subsidy, or any other aid including provisions for writing off bad debts, as also exemptions granted to it from different fiscal provisions for fee, duty, tax, etc. amount to substantial finance by funds provided by the appropriate Government, for the purpose of S. 2(h) of the RTI Act”.
Based on the above view and after examining as to whether the provisions of the KCS Act and Rules are relevant to decide whether the definition in clause in S. 2(h) of the RTI Act applies to co-operative Societies, the Court came to the conclusion that it is beyond doubt that the Societies are substantially financed by funds provided by Government.
The Court then rules : “It is held that co-operative Societies registered under the KCS Act are public authorities for the purpose of the RTI Act and are bound to act in conformity with the obligations in Chapter II of that Act.”
As the applicability of RTI Act to the co-operative Societies has arisen in many States and being discussed at many platforms, I reproduce three concluding paras of this judgment which are of common application in all cases :
The question for decision in every other individual case of a Society, in the event of any dispute, would be as to whether it is substantially financed by the State Government, in the light of what is stated above. That may have to be determined with reference to the financing of each Society. That question would arise for decision only when any co-operative Society refuses to act as a public authority. In such event, any citizen whose right to information is legislatively conferred as per S. 3 of the RTI Act would be entitled to trigger the duty of the State Information Commission in terms of clauses (b), (e) and (f) of S. 18(1) of the RTI Act. In that context, the State Information Commission has every jurisdiction to adjudicate and decide on the question as to whether a particular co-operative Society, against which a complaint is made u/s.18(1), is a public authority for the purpose of S. 2(h). The mere fact that the RTI Act does not expressly prescribe any limits as to finance, to determine the scope of the word ‘substantially’ in S. 2(h) does not give rise to any presumption of possible abuse of power. This is because the State Information Commission, as already found, is the authority which can determine that issue on a case-to-case basis. That power is with that high office, the quality of which is statutorily regulated. Declaration of law as made in this judgment would stand to aid as precedent, by law. Advertence to Sections 12, 15, 16, etc. would show that the Legislature has reposed the powers in such a manner that there could be really no room for any presumptive argument as to possible arbitrariness and apprehension of incompetence. Even with reference to the KCS Act, lots of yardsticks would be available. There is no ground for any such apprehension being recognised with any element of legitimacy.
Insofar as the contention that information is sought for by different individuals for no rhyme or reason is concerned, the answer is short but clear, and is found in S. 6(2), which provides that an applicant making request for information shall not be required to give any reason for requesting the information or any other personal details except those that may be necessary for contacting him.
Having found that co-operative Societies are public authorities for the purpose of the RTI Act, another issue surfaces for consideration. In some of the cases in hand, applications for the information were submitted to the statutory authorities under the KCS Act and KCS Rule requiring them to summon information from the Societies. Instead of summoning information by exercising the authority under the KCS Act and KCS Rules, those officers have forwarded those requests to the Societies, requiring them to answer the queries. The definition of information in the RTI Act includes information as is accessible through such statutory authorities. All such information as is accessible through the mechanism of the KCS Act and KCS Rules thus becomes information for the purpose of the RTI Act. Therefore, the provisions under the RTI Act themselves would be sufficient for reaching at such information. Hence, the question whether the authorities under the KCS Act and KCS Rules should have summoned the documents without requiring the Societies to communicate the information, is too technical and should necessarily give way to the primary object of the RTI Act, viz., to provide access to information. Therefore, there is no illegality in any officer vested with powers under the KCS Act and KCA Rules forwarding the request obtained by them to the concerned. Societies with a request or direction to that Society to provide information directly to the person who has sought the information.
[Thalapalam Service Co-operative Bank v. Union of India, WP (C). No. 18175 of 2006 and connected cases decided on 3-4-2009 in the High Court of Kerala at Ernakulam].
Denial of information by the Registrar of Companies:
Mr. Dharmendra Kumar Garg sought certain information from the PlO of ROC of NCT Delhi and Haryana regarding Bloom Financial Services Ltd. The same were denied. Before the Commission, the PlO submitted the following:
1. Once the information is available in the public domain accessible to the citizens, the information is automatically excluded from purview of the RTI Act as held by Hon’ble Information Commissioner Shri A. N. Tiwari in the case of ClC/ AT / A/2007 /00112.
2. S. 610 of the Companies Act, 1956 provides that any person may inspect any document kept by ROC and obtain copy of any document from the ROC concerned on payment of prescribed fee. Therefore, the complainant need not seek information under the RTI Act. This was held by the Hon’ble Information Commissioner Shri M. M. Ansari in the case of ClC/MA/ A/2006/0016.
Following is the order of ClC, Mr. .Shailesh Gandhi:
For the first argument the Respondent relied on the order number ClC/ AT / A/2007 /00112 where it was held by the Hon’ble Commission while interpreting S. 20) of the RTI Act that” …. Unless information is exclusively held and controlled by a public authority, that information cannot be said to be information accessible under the RTI Act. Inferentially it would mean that once a certain information is placed in the public domain accessible to the citizens either freely or on payment of a pre-determined price, that information cannot be said to be ‘held’ or ‘under the control of the public authority’ and thus would cease to be information accessible under the RTI Act …. ” I would respectfully beg to differ from this decision. Even if the information is in public domain, an applicant can still ask a public authority to grant him the information if it is held by it. Even if some information is available at various places, it is the citizen’s choice from where he wishes to access it. The only exemptions from disclosure of information available in the RTI Act are provided u/s.8 and u/s.9. The Commission would like to clarify that S. 2 of the RTI Act is the definitional provision and therefore S. 2(j) is not an exemption clause under the RTI Act. It merely defines the ‘right to information’. So the exemption from disclosing the information cannot be sought u/s.2(j). It is also the basic tenet of the law of statutory interpretation that no Section should be interpreted in such a manner which would violate the basic objective of the statute. The basic objective of the Right to Information Act, 2005 is to provide the information sought by the applicant from a public authority and therefore the Sections of the Act should be interpreted to further the objective of this Act. Also the information sought by the complainant here has not been provided on the internet. The information asked for is very basic information and records related to this particular information are missing. This information is very important for the complainant as he is facing a threat of arrest and needs the information to prove his innocence. Not granting such information clearly leads to violation of the fundamental right of the complainant as provided under Article 21 of the Constitution.
With regards to the second argument of the respondent about information to be sought only u/s.610 of the Companies Act, the respondent has relied on order number ClC/MA/ A/2006/0016 of the Commission where the Hon’ble Commissioner Shri M. M. Ansari upholding FAA’s order stated that “There is already a provision for seeking information u/s.610 of the Companies Act, 1956. The complainant may accordingly approach the ROC as advised by the Appellate Authority to obtain the relevant information.” If the complainant has more than one way of seeking remedy he has the freedom to opt for the way which is more convenient for him. No claim has been made by the PlO of any exemption under the RTI Act to deny the information. If a public authority has a procedure of disclosing certain information which can also be accessed by a citizen using the Right to Information Act, it is the citizen’s prerogative to decide which route he wishes to take. The existence of another method of accessing information cannot be a justification to deny the citizen this freedom to exercise his fundamental right codified under the Right to Information Act. If the Parliament wanted to restrict this right, it would have been stated expressly in the Act. Nobody else has the right to constrain or limit the rights of the Sovereign Citizen.
With the views taken as above, the ClC directed that complete information will be given to the complainant before 25th July 2009. If records are not available for any of the queries, this will be stated categorically.
[Mr. Dharmendra Kumar Garg v. Registrar of Companies & CAPIO, decision No. ClC/SG/C/2009/ 000753/4129 of 14-7-2009].
Work practices at an Information Commission:
Yutika Vora and Shibani Ghosh have made out a report on the above subject in July 2009. It is a report written with primary objectives that taken by Mr. Shailesh Gandhi, Central Information Commissioner, New Delhi may be adopted, after making necessary changes, in other Commissions across the country. Mr. Gandhi’s office is continuously striving to improve its work processes. Increasing efficiency entails that more time is available to focus on S. 4 compliance and S. 25 monitoring. The Right to Information is a fundamental right enshrined in the Constitution of India and as statutory bodies entrusted with the responsibility to uphold this right, Commissions must deliver to give this right its full meaning.
I reproduce some extracts from the said report. (Full report is posted on BCAS website www.bcasonline.org)
This report describes the working processes that have been adopted in Mr. Shailesh Gandhi’s office, which have resulted in a high rate of disposal of cases; reduced the time in which communication received by the office are responded to; and monitoring of S. 4 compliance have been initiated. The report also provides examples of documents that have been referred to in the report in the form of Annexure – such as types of responses sent by Mr. Gandhi’s office, his orders, and other documents used by the office during its working.
Mr. Shailesh Gandhi took charge as Central Information Commissioner on 18th September 2008. He brought with him the conviction that for the rule of law to be upheld, the legal system has to function in a timely manner and justice has to be delivered in time. If justice is delayed, then the rule of law becomes a fiction and the citizen is denied his rights in a democracy.
The fundamental premise on the basis of which his office works is that law is time-bound. For the information to be useful it has to ensure that it is made available within a reasonable period of time. One of the biggest strengths of the Right to Information Act, 2005 is that it requires information to be provided within a reasonable timeframe. If cases are not disposed within this timeframe, the spirit of this Act is-severely undermined. The importance of the time element in this Act is apparent when one looks at the penalty provision S. 20 of the Act. In fact, to ensure timely response by the Information commission, the first RTI Bill of 22nd December, 2004 had a provision that the Information Commission would dispose a case within thirty days.
However, this provision was dropped at the last moment without any explanation. Mr. Gandhi’s office believes that a timely response is essential and therefore makes strenuous efforts to ensure that cases are disposed within ninety days.
An Information Commissioner costs the nation about 25 lakh Rupees annually. The average yearly disposal of Information Commissioners across the country is around 600, thus the nation is spending an astounding amount of over Rs.4,100 per case only on the Commissioners. This is of course only a part of the expenditure on each case as it does not include costs to maintain an office, infrastructure, etc. If however a Commissioner could achieve an average disposal rate of 4000 cases per year, the nation would spend Rs.625 per case on the Commissioner.
Mr. Gandhi’s office has achieved an average monthly rate of disposal of 535 during 2009, with disposal of 3212 cases in the first six months of 2009. Mr. Gandhi is not the only Commissioner to have achieved such figure. Ms. Annapurna Dixit, Central Information Commissioner, has achieved an average monthly disposal rate of 345 cases by clearing 2070 cases in the same period. Setting a target of 4000 cases a year, and achieving an average monthly disposal of 330-340 case’, is not an impossible task and Mr. Gandhi and Ms. Dixit have proved it consistently.
Mr. Gandhi’s office receives on an average nearly 1600 ‘daks’ every month and a system is developed that between 4 to 6 assistants, the same are distributed, each person is given 10 to 20 daks. Most of the staff members are trained and encouraged to take up various functions in the work flow. Daks are attended within 24-48 hours. Numbers of templates have been prepared to reply to daks. Once an appeal or complaint is found in order, it is registered on the online registration system at www.rtiadmin.nic.in.
After the Second Appeal is registered, a summary is prepared. The summary is used as a preface to the order given by the Commission. The summary is available to Mr. Gandhi from at least a week before the date of hearing. The summary is also open on his desktop during the hearing and he can at any time refer to the documents which are also in front of him. Reading the summary helps Mr. Gandhi to get a gist of the case before the hearing.
It also serves as a ready reference for someone reading the order subsequently, who does not have access to the file.
Once the summary is prepared for a case, it is scheduled for hearing. Mr. Gandhi fixes 20 cases a day for hearing and notice for hearing is sent generally 25 to 45 days before the date of hearing.
In most of the cases, after hearing both the parties which takes approx 15 minutes, the decision is dictated and directly typed on the computer; the decision gets signed by Mr. Gandhi immediately and delivered on the spot. In less than 5%, the Orders are reserved and delivered on a later date after due consideration to the matter.
A very effective process for deciding a complaint is also worked out. Similar effective process is also worked out to deal with non-compliance of orders delivered by the Commission. The Commission also receives dak which are not Appeals or complaints, etc. The same are dealt with as under:
Queries with regard to RTI Act:
A few dak each week ask queries with regard to implementation of the RTI Act as well as the rights and obligations under the RTI Act. All efforts are made to send an adequate response to such queries as Mr. Gandhi believes that the Commissioner’s responsibilities are not restricted to cases brought before him, but also extend to disseminating awareness and better understanding of the RTI Act.
Communication in relation to S. 4 compliance:
The office sometimes receives communication from citizens that certain information which should have been disclosed suo moto by a public authority by 12th October 2005 and till date has not been disclosed. In such cases, after due consideration to the facts and research, a letter is sent to the head of public authority directing it to ensure that it fulfils its obligations u/s.4.
Communication in relation to monitoring u/s.25 :
U / s.25 of the RTI Act, public authorities have to submit information on the implementation of the RTI Act to the Commission. Mr. Gandhi has asked certain public authorities to submit information to him by the 10th of every month. This information can be sent to the office by email or by post in a form which is standardised.
Mr. Gandhi believes that to ensure a holistic success of the Act, emphasis needs to be laid on the fulfilment of the obligations u/s.4 of RTI Act. For this reason constant efforts are being made to bring to the attention of public authorities their obliga-tions u/ s.4 of the RTI Act.
Disposals in his office in the first six months of 2009 are more than the number received. In six months from January to June 2009, appeals and complaints registered are 1575 and 758, respectively, totalling 2333. Against the above, appeals disposed are 1975 and complaints disposed are 1219, totalling 3194.
The pendency of cases at the end of June 2009 is 618 cases, out of which 56 cases have been pending over 60 days. Mr. Shailesh Gandhi is reaching soon to his goal of all disposals of appeals and complaints within 60 days.
• Wajahat Habibullah
Sayed Nazakat in the magazine WEEK of August 16, writes:
There aren’t many bureaucrats like Wajahat Habibullah. As India’s first Chief Information Commissioner (CIC), he defends the right of common people to open information. “When someone learns to use RTI, he almost becomes addicted to it,” says Wajahat, sitting in his office in South Delhi. He explains why it is important to create more awareness about the Right to Information (RTI) : “It will bring democracy to its rightful owners – the people of India.”
The Right to Information Act was passed nearly four years ago, and Wajahat was asked to implement it. Today, it allows citizens to inspect Government records, take copies and question the authorities for a fee of Rs.10. “RTI is a magic wand. For the first time, the common man has an effective tool to fight bribery and bureaucratic apathy,” he says. “it has worked particularly well for routine tasks, such as getting passports and pensions, which previously took months or years.”
RTI has not been popular with bureaucrats who often ignore requests for information. The CIC is pondering granting of appeals which would allow people the right to access the sources of funds of anyone seeking public office.
• How effective is India’s RTI Act:
The news item in the Hindustan Times quoted a prominent Central Information Commissioner Shailesh Gandhi, warning the country that the Government and the judiciary together pose a serious threat to the RTI. Gandhi argued that the Government’s infrastructure — training, resources for implementation of the RTI is woefully inadequate. He also highlighted the role of the Courts in weakening the Act. The judiciary has been granting stays on orders of the Information Commission – which he noted is a very dangerous trend.
• Mockery of the RTI Law by some Courts:
The gap between the judiciary’s traditionally insular self-image and the public’s rising expectations of accountability from all institutions is evident from the rather surprising interpretation made by the Supreme Court and some of the High Courts on the nature of information that would fall under the ambit of the RTI.
Making a mockery of this much-vaunted legislation, these Courts have made out on their administrative side that the only kind of information that can be accessed by citizens under RTI is what is already “in the public domain”.
When it challenged the Central Information Com-mission’s direction on the declaration of assets by Judges, the Se, in its petition before the Delhi HC earlier this year, had claimed that RTI’s definition “shows that the information which is required to be given must be information in the public domain.” Accordingly, it argued the application regarding declarations of assets by Judges was not maintainable inasmuch as the information sought for was neither in the public domain, nor was it required to be given or maintained under any statue or law.”
If the SC’s interpretation of the definition of information were to be valid, none of the public authorities should have been, for instance, disclosing file notings because given the confidential manner in which they are written by bureaucrats and ministers during decision-making, they are clearly not in the public domain. It is the operation of RTI that has brought into the public domain all manner of information that would have otherwise remained behind the official veil of secrecy. The wide-ranging definition of information contained in S. 2(f) of RTI does not bear out the SC’s claim that it is limited to material lying in the public domain. In fact, the SC seems to have imported the expression “in the public domain” into its petition on the basis of the rules framed by the Delhi HC
For, under the rules framed by it in 2006, the Delhi HC assumed the power to withhold “such information that is not in the public domain or does not relate to judicial functions and duties of the Court.”
• Pay-Se-Park in Mumbai :
An advocate, whose two-wheeler was towed away because he did not give in to the demand of a man who was running an illegal pay-Se-park racket, used the RTI Act to learn how BMC contractors exploit the lack of parking space to line their pockets.
Advocate Sushil Dalvi, who works with the I-T Department, says, “Parking in South Mumbai is a horrible experience. Rules provide charge for two-wheelers at Re.l per hour, but I have been charged anything between Rs.S to 40.”
Most people cough up the money as they don’t want their vehicle towed away. But Dalvi’s tolerance ended six months ago. He had parked his scooter near Cafe Noorani at Haji Ali, a spot where several two-wheelers were parked. But, when he returned after lunch, only his two-wheeler had been towed away though there were several parked in the same spot. After probing around a bit, he learnt why.
He had refused to pay a person who claimed to be running a pay-&-park business there. And, he was right in doing so because the business was illegal. The space had not been earmarked for pay-&-park and was, in fact, a no-parking zone. Dalvi got his vehicle after paying a fine.
Immediately after the incident, Dalvi filed an RTI query with the BMC demanding details of pay-Se-park contracts allotted in wards A, B, C, D, E, F (south and north) and G (south).
“When I compared the plans with the actual parking plots, I found out that most accommodate more vehicles than they are authorised to. Also they expand their area of operations by encouraging double parking, parking on both sides of the road and on footpaths. But when I pointed out these illegalities to civic officials, they simply threw up their hands.” said Dalvi.
(Source: Mumbai Mirror of August, 2009)
• Mumbai SSC Board and RTI :
Pune Information Commissioner Vijay Kuvalekar has ruled in the case pertaining to Pune SSC Board that answer sheets were not confidential since they were not covered ul s.8 of ‘he RTI Act.
However, Mumbai SSC Board’s PlO in case of Samir Kanparia, rejected the application to inspect the answer sheets and held that they are confidential as per the provisions of law, and secondly, that no public interest will be served if the student is allowed inspection of answer sheets, hence will not allow him to inspect them. Kanparia also submitted before the Board the order passed by the Central Information Commission, in which it had directed the Institute of Chartered Accountants of India to show answer sheets to a student.
Matter is now pending in appeal before CSIC, Dr. Suresh Joshi.
• Proposed Amendments to RTI Act:
• Performance at the Central Information Commission of 7 Commissioners:
The following is the chart of disposals by CICs in the first seven months of 2009.
Part B — Some recent judgments
An important Larger Bench decision : Services provided by service providers from outside India :
Hindustan Zinc Ltd. v. CCE, Jaipur 2008 TIOL 1149 CESTAT
Del. LB [2008 (11) STR 338 (Tri.-LB)]
1. Background :
1.1 The law relating to Service Tax is contained in Chapter V
of the Finance Act, 1994 (The Act) as amended from time to time. Service Tax
Rules, 1944 (The Rules) contain machinery provisions in terms of the Act. S. 68
of the Act deals with payment of Service Tax i.e., who shall pay the tax
and the manner. For easy reference S. 68 is reproduced below :
S. 68 :
“(1) Every person providing taxable service to any
person shall pay Service Tax at the rate specified in S. 66 in such manner and
within such period as may be prescribed.
(2) Notwithstanding anything contained in Ss.(1), in
respect of any taxable service notified by the Central Government in the
Official Gazette, the Service Tax thereon shall be paid by such person and in
such manner as may be prescribed at the rate specified in S. 66 and all the
provisions of this Chapter shall apply to such person as if he is the person
liable for paying the Service Tax in relation to such service.”
1.2 Thus the general rule is that person providing taxable
service is the person liable to pay Service Tax. However, U/ss.(2) of S. 68, a
clause is contained which provides that in case of ‘notified’ taxable services,
any other person as may be prescribed is liable to pay Service Tax.
1.3 In the year 2002, a new sub-clause (iv) was inserted in
Rule 2(1)(d) of the Rules with effect from 16-8-2002 (vide Notification
12/2002-ST) which reads as under :
“Rule
2(1)
(d) Person liable for paying Service Tax means —
(iv) in relation to any taxable service provided by a
person who is non-resident or is from outside India and does not have any
office in India, the person receiving taxable service in India”.
1.4 Later i.e., on December 12, 2004, the Government
issued Notification No. 36/2004-ST to come into effect from January 01, 2005
wherein persons other than service providers were specifically notified
u/s.68(2) of the Act. This inter alia also included taxable service
provided by non-resident or person from outside India and who did not have an
office in India.
1.5 Thus, the dispute related to whether the liability to pay
Service Tax could be fastened on the recipient of taxable service from January
01, 2005, the date of issue of Notification No. 36/2005-ST or August 16, 2002,
the date from which Rule 2(1)(d)(iv) was prescribed.
2. In the above background, a single member Bench of Delhi
Tribunal in the case of Aditya Cement v. CCE, 2007 (7) STR 153 in the
context of Rule 2(1)(d)(iv) observed that :
“It is well-settled law that the rules are
subservient to the Sections and if Sections do not provide for discharge of
tax by the recipient of services from non-resident having no office,
then it would be futile exercise to rely upon the rules to collect the tax”
(emphasis supplied). It also stated as follows :
“If the contention of the learned SDR is to be accepted,
then there was no necessity for the Government to issue Notification No.
36/2004-S.T. notifying the service receiver from non-resident having no
office, to pay Service Tax, as receiver. By issuing the said Notification, the
Central Government intended to tax the service receiver from non-resident,
with effect from 1-1-2005, which, in corollary would be that no Service Tax is
payable by this category prior to 1-1-2005.”
The above decision was followed by a Division Bench in case
of Ispat Industries Ltd. v. CCE, 2007 (8) STR 282 (Mum). Doubting the
correctness of these decisions in case of Samcor Glass Ltd. v. CCE, Jaipur-1
Delhi 2007 TIOL 935 CESTAT Del while hearing the stay application the Bench
observed as follows :
“Thus, the person receiving the service from abroad was by
the said clause 2(d)(iv), made liable to pay Service Tax in respect of taxable
services received. This clause is clearly relatable to the provisions of S.
68(2) which contemplates making of such provision under the rules, as is clear
from the word ‘prescribed’ which means ‘prescribed under the rule’. The
statutory effort so created cannot be reduced to a subsequently issued
notification repeating the contents of clause (iv) under sub-heading (B).
The learned Single Member has however taken a different view, while the
Division Bench has not taken into consideration the provisions of Rule
2(d)(iv) of the Rules . . . . . . We do not want to pre-empt the course of
referring the matter to the Larger Bench that may be adopted by the Bench
hearing this appeal” (emphasis supplied).
It however further observed :
“The expression ‘taxable service’ occurring in clause (iv)
of Rule 2(d) is to be understood in the concept of taxable service which are
enumerated in S. 65(105) of the Act and therefore, this Rule will apply to all
taxable services. Prima facie, there was no need to make any further
Notification to repeat what was already prescribed by the said Rule.”
3. The Larger Bench, in misc. order No. CT/85/08 analysed S.
68(2) as follows :
3.1 S. 68(2) according to the Larger Bench could be broadly
divided into two parts :
- The first part envisages specifying ‘services’ in relation to which a person other than service provider is to be made liable. Accordingly, these services have to be identified and specified and this could be done by way of issuing notification.
- The second part envisages specifying the person liable to pay service on such service notified as per the first part. This is done by the Rules already prescribed.
According to the Bench, it was not an acceptable contention that the manner of collection of tax could be extended to include the person liable to pay the tax. It observed:
“The person liable to pay is an integral component of any tax – as a concept distinct from the mechanism for its collection and recovery.”
3.2 Thus, combined reading of Notification 12/2002 notifying Rule 2(1)(d)(iv) and Notification 36/2004 notifying various persons other than service providers including non-residents or persons from outside India liable for Service Tax, would be necessary as both the notifications complemented or supplemented each other and in the absence of either, Service Tax could not be collected or received in respect of specified services. It is required to note that the levy is on rendering of taxable service and not on a person. No sooner than the taxable event takes place, tax must be collected and therefore provision has to be made to fasten the liability to pay Service Tax.
The Bench stated that the first part of the requirement of S. 68(2) had to be carried out by way of notification and the latter could be implemented by making rules. It also stated:
“It is well known that where the law provides the manner for doing something, it should be done in that manner or not at all”.
3.3 In the context of Rule 2(1)(d), it observed “sub-clause (d) of Rule 2 is the definition clause of the Service Tax Rules. The definition clause cannot be read as a substantive provision creating liability much less in a tax statute.”
Referring to Notification No. 36/2006-ST, it observed, “the service specified in Part B was omni-bus, namely, ‘any taxable service’, meaning thereby all types of taxable services provided by a person who is a non-resident or from outside India and does not have any office in India, the recipient became liable for paying Service Tax.”
The Bench also opined that in case of services provided from abroad, the service provider could not be made liable to pay Service Tax and brought un-der the tax net in absence of apparent mechanism for collection and recovery of tax from them. A different provision had to be made.
3.4 The appellant relying on Laghu Udyog Bharti v. UOI, 1999 (112)ELT 365 (SC) argued that provisions of Rule 2(d)(xii) and (xvii) of the Rules were struck down on the ground that the scheme of the Finance Act created charge on the person collecting service tax, whereas Rule 2(d)(xii) and (xvii) treated customers as the assessees, This clearly was in conflict with S. 65 and S. 66 of the Act. The Revenue on the other hand relied on the decision in the case of Gujarat Ambuja Cements Ltd. v. UOI, 2005 (182) ELT 33 (SC) and argued that amendments made with retrospective effect in this regard were upheld and therefore it could not be relied upon. The Bench observed that the Rule 2(1)(d)(xii) and (xvii) were held illegal in Laghu Udyog Bharti’s case (supra) because of charging provisions provided otherwise. When charging Section itself was amended to make the Act and the Rules compatible, criticism of the earlier law upheld by the Court cannot be availed of and that the Legislature was competent to remove infirmities and validate what was declared invalid. However, there was no question of the Finance Act, 2000 overruling the decision of the Court in Laghu Udyog Bharti as the law itself was amended.
3.5 The Revenue also referred to the explanation inserted at the end of Ss.(105) of S. 65 with effect from 16-6-2005. The Bench stated that explanation was a temporary measure to tax imports of services and was subsequently replaced by S. 66A. However, in the opinion of the Bench, the issue involved in the case had no relevance with the explanation.
There being no dispute as to the service involved viz. the consulting engineer’s service as taxable service, any reference to the erstwhile explanation in S. 65(105) was held as misplaced by the Bench.
3.6 In summation, it was held that recipient of taxable service could be held as liable for paying Service Tax only from 1-1-2005 and express concurrence to the decisions in the cases of Aditya Cement and Ispat Industries (supra) was also made.
ORDERS OF CIC
Part A : ORDER OF CIC
In the last (August 2010) issue, I reported on one full-bench
(split) decision of CIC. In this issue, I report two full-bench decisions
pronounced, one in June and the other in July.
© S. 8(1)(e) and S. 2(f) :
An interesting matter came for decision in this case. The
appellants, Sri Manohar Parrikar of Goa and two other individuals, had made RTI
applications seeking all documents including correspondence, notings,
explanations between the office of AG (Audit) and certain bodies like Goa
Infrastructure Development Corporation, Government of Goa, etc.
The PIO furnished certain documents and denied some other
information sought, including the intermediary documents. FAA held that “the
intermediary documents are merely working papers and may not come within realm
of ‘information’ under the RTI Act and the same be furnished. The PIO did not
comply with the same.
The appellants then filed appeals before CIC. Before deciding
the matter, CIC sought the advice of the Secretary General of Lok Sabha and the
comptroller and the Auditor General of India. The Commission received the same.
In the view expressed by the C&AG, it held that “audit notes,
etc. are work papers and do not contain the final view of the Accountant
General. The information therein is based on the document obtained from the
auditee only. Such information would come within the scope of S. 8(1)(c)* of the
Act and disclosing such information may cause a breach of privilege of the
Parliament. This would be against the oath taken by the C&AG to uphold the
Constitution and the laws of the land.”
The C&AG also pointed out that based upon the Audit Report,
the CBI had launched a criminal proceeding against the appellant, Shri Manohar
Parrikar in Case No. RCO0015A/2007. It was, therefore, mentioned that any
disclosure at this stage would impede the process of ongoing
investigation/prosecution and thus bring the matter within the scope of S.
8(1)(h)** of the RTI Act.
The C&AG note also cited a passage from the U.K. Freedom of
Information Act, 2000, in which audit-related matters were exempt from
disclosure. It argued that the logic of the UK Act would also apply in the
Indian context as the United Kingdom and India were both parliamentary systems.
Appellant argued before the CIC that the C&AG’s
constitutional obligation to carry out specific mandate could not be treated as
a bar on the disclosure of the information, which undoubtedly is held in the
control either of itself or the office subordinate to it. Learned counsel for
appellant cited an order of the Delhi High Court, in which it was held that
authorities entrusted with constitutional obligations also carry a moral
responsibility of transparent conduct. He argued that the information given to
the Accountant General by the departments or the authorities under the
Government — Central or State — was neither fiduciary, nor was it confidential.
To call any information as immature, preliminary, intellectual input, unfinished
and so on, could not be a reason to withhold such information from disclosure
when S. 2(f) of the RTI Act defines all such items of information — and much
more as ‘information’ within the meaning of the Act. The stage of evolving
information was not a reason to bar its disclosure. The appellants’ counsel
further pointed out that this particular Accountant General’s Report was already
placed before the Legislative Assembly of Goa State and was thereby an open
document.
The C&AG’s representative also submitted that all reports
placed before the Parliament were in fact the property of the Parliament. As
such, all material connected with such a report should also be treated as the
property of the Parliament, which could be disclosed only if the Parliament so
authorised it. He pointed out that all Accountant General and C&AG Reports
placed before the Parliament are examined by the Public Accounts Committee,
whose deliberations are not open to public and thereby are confidential. All
material relating to the C&AG or the AG Reports are, therefore, inferentially
before the Public Accounts Committee and thereby become confidential as the
deliberations before the Committee are held to be confidential.
Decision Notice :
The Three-member bench held that provisions of S. 8(1)(c) of
the RTI Act are not attracted. The decision notes :
“As has been pointed out by the Secretary General of Lok
Sabha, the Constitution does not mention items such as draft reports, half
reports, half margins or draft audit notes and so on. If these are
information within the RTI Act, their disclosure liability has to be
determined in terms of the provisions of the Act. On the subject of whether
disclosure of this variety of information would constitute premature
revelation of matters before the Parliament or the State Legislature, the
Secretary General, Lok Sabha citing Kaul & Shakdher in ‘Practice and
Procedure of Parliament’, stated that premature publicity in the press to
notices of questions, adjournment motions, resolutions, answer to questions
and other similar matters connected with the business of the House did not
comprise breach of privilege, although it may be ‘improper’. It was no-doubt
breach of privilege to publish any part of the proceeding or evidence given
before a Parliamentary Committee before such proceedings or evidence or
documents had been reported before the House, unless the Committee itself
decides that either all or part of its proceedings may be publicised.
According to the Secretary General “it is doubtful whether the report of
C&AG qualifies to be treated as the report of a Parliamentary Committee or
evidence tendered before a Parliamentary Committee. Half margins, draft
audit notes, etc., as already stated, do not have any relevance insofar as
parliamentary papers are concerned.”
The Commission also went through clauses 1.4(XII) and
(XIV) of the parliamentary procedure. It then held :
“It is then obvious from a reading of the Secretary General’s note to the Commission as well as the extracts of the parliamentary procedure, that while all evidences and depositions before the Parliamentary Committees are no doubt held secret as well as proceedings before it, it cannot be stretched to mean that every single item of information, held anywhere, that may, now or in future, become part of the proceeding before the Parliamentary Committee, or may be required to be produced as evidence before it, should also come under the exemption from disclosure. While all evidence or material, which is part of a proceeding before a Committee of the Parliament, has to remain secret until the Committee wills otherwise, every other material, which does not answer that description, is beyond the bar. In other words, while the actual material in a proceeding before a Parliamentary Committee is prohibited from disclosure, such prohibition would not apply to such material, which is not yet part of an ongoing proceeding. The audit notes, marginal notes, etc. come decidedly in the latter category.”
The Commission was also not persuaded by the C&AG’s argument that these items of information were at a very preliminary stage and should not be allowed to be disclosed for that reason. According to the C&AG’s own averments, these are items of information within the meaning of S. 2(f) of the RTI Act. And if it were so, the only reason why it should be prohibited from disclosure, was that it attracted one of the exemption Sections of the RTI Act 2005. That is not the case in the present matter. Therefore, it held that these items of documents and records, being information in themselves, merit disclosure.
Based on above, the Commission directed the CPIO to disclose all information requested by the three applicants.
[(1) Shri Manohar Parrikar, (2) Shri Jayanta Kumar Routary, (3) Shri Gurbax Singh v. (1) Accountant General, Goa, (2) Accountant General (Civil Audit), Orissa, (3) Accountant General (Audit), Punjab : Appeal No. CIC/AT/A/2007/00274, CIC/AT/ A/2008/00726 and CIC/AT/A/2009/000732, decided on 10-6-2010]
S. 8(1)(j), S. 2(f), S. 2(j) and S. 2(n):
The three-member CIC decision in the application by Mrs. Bindu Khanna has significant implication. It is my view that media has wrongly interpreted this decision.
The appellant Ms. Bindu Khanna, a teacher in a private school, namely, Pinnacle School, wanted certain information relating to her employment, mainly her service records, leave and other statutory allowances, working hours, medical facilities, pension and gratuity benefits, etc. She made various oral as well as written requests to the school. When she did not get the said information, she approached the Directorate of Education by filing an RTI application dated 11-2-2008.
When in response to her RTI application, she did not get the information sought, she had made an appeal to the Commission, which directed the Directorate to secure the information from the school and provide to the applicant.
Pinnacle School which is third party in these proceedings approached the Delhi High Court by filing writ petition No. 6956/2008 and contended before the Court that the RTI Act was not applicable to the school, inter alia, for the following reasons :
i) Pinnacle school is a private school;
ii) The Delhi School Education Act and Rules framed thereunder do not provide for disclosure of information.
The School also contended before the H.C. that the Commission passed the impugned order without hearing them and without complying with the principle of natural justice. The High Court by order dated 15th September, 2009 set aside the impugned order dated 15th September, 2008 passed by the Commission on account of failure to comply with the provisions of S. 19(4) of the RTI Act and remanded the matter back to the Commission for fresh adjudication in accordance with law.
At the time of hearing before the full bench, the petitioner submitted that the Delhi School Education Act and Rules framed thereunder are a complete code governing all aspects of functioning of aided and unaided recognised schools. A combined reading of S. 2(f) of the RTI Act and the Delhi School Education Rules
[in particular Rules 50(xviii) and (xix)] shall conclusively establish that the respondent Directorate as the governing authority of the school, has the requisite powers vested in it to access the information sought by the appellant. The petitioner further submitted that the third party by denying the information u/s.8(1)(j) of the RTI Act has already conceded the applicability of the RTI Act and had not made any representation to the effect that the information sought could not be given as the provisions of the RTI Act were not applicable to them.
The third party submitted that the RTI Act is not applicable to the private schools and it is the Directorate of Education, which had to be approached in this connection. They further contended that the Delhi School Education Act and Rules framed thereunder do not provide for disclosure of information. This stand of the third party was in contradiction of the stand already taken before the PIO and the First Appellate Authority that the information sought by the appellant was exempted u/s.8(1)(j) of the RTI Act and cannot be disclosed.
The Commission came to the conclusion that the third party had conceded in all earlier proceedings that the RTI Act applies to it and now cannot contend that the RTI Act does not apply to it. Hence, that issue was not dealt with at all.
Hence the issue for determination was:
“Whether the third party, a private school performing public function, can refuse to furnish the information u/s.8(1)(j) of the Act, particularly when the FAA of the respondent has ordered to disclosure of information.”
The Commission analysed three items of definitions from S. 2, namely, ‘information’ (2f), ‘right to information’ (2j) and ‘third party’ (2n). The Commission also looked into The Delhi Education Act and the Rules, especially 2 clauses of Rule 50, reproduced hereunder :
“Rule 50 : Conditions for recognition — No private school shall be recognised, or continue to be recognised, by the appropriate authority unless the school fulfils the following conditions, namely :
xviii) the school furnishes such reports and information as may be required by the Director from time to time and complies with such instructions of the appropriate authority or the Director as may be issued to secure the continued fulfilment of the condition of recognition or the removal of deficiencies in the working of the school;
xix) all records of the school are open to inspection by any officer authorised by the Director or the appropriate authority at any time, and the school furnishes such information as may be necessary to enable the Central Government or the Administrator to discharge its or his obligations to the Parliament or to the Metropolitan Council of Delhi, as the case may be.”
Based on the above, the Commission held:
“The order passed by the First Appellate Authority directing the third party to provide complete information to the appellant and the decision of the Commission affirming the orders of the First Appellate Authority are perfectly in compliance with the provisions of the Act. The third party is hence obliged to comply with the said orders. The Commission, therefore, directs the respondent to seek compliance of the aforementioned order from the third party-Pinnacle School to provide information as sought by the appellant.”
The Commission also in the penultimate para stated as under:
“The issues relating to management and regulation of schools responsible for promotion of education are so important for development that it cannot be left at the whims and caprices of private bodies, whether funded or not by the Government.”
It is my view that the decision does not rule that the RTI Act ‘per se’ applies to the private unfunded schools. If the school concedes that the Act applies, then it cannot escape in furnishing information if under the combined definitions u/s. 2(f) and u/s.2(j) read with the rules of the relevant Education Act, the information is covered, then it is accessible and cannot be denied.
[Ms. Bindu Khanna v. Directorate of Education, Government of NCT of Delhi, (third party, Pinnacle School, New Delhi) : Decision No. 5607/IC(A)/2010 of 14-7-2010]
PART B : THE RTI ACT
Extracts from the Article of Antara Dev Sen, editor of the Little Magazine in the AGE of 24-7-2010.
Thinking allowed:
Earlier this week, Amit Jethwa was shot dead in front of the Gujarat High Court. He was in his thirties, a caring, law-abiding citizen, committed to the environment, humanity and animal life. And like most dedicated souls, he believed that he could stem the rot in the system and make a difference by diligently using democratic tools of empowerment.
He relied heavily on the Right to Information Act to plug the holes in the system. Till the holes got him.
Amit Jethwa was fighting against illegal mining in the Gir forests, which hosts the world’s last Asiatic lions. But he was up against the mining mafia, the Forest Department and politicians involved in the racket. Not an easy fight for a lone ranger. Besides, he had made enemies by campaigning against corruption.
But he was losing faith in civil society. Barely a week before he was gunned down he had told a reporter about his disenchantment. “I know how risky it is for me and my family to wage war against mining mafia”, he lamented. “Without the support of people nothing is possible.”
Which is precisely where the power of the RTI lies. In the hands of the masses, it is a potent tool to chisel democracy with. But in the hands of a lone passionate soul, it may be a dangerous weapon ready to explode in your face.
Information is power only when you are allowed to use it. It works wonders in a free society, where people have justiciable democratic rights, where governance has not failed as miserably as in our country. The right to information can be a human right only where there has been a certain level of development, where certain democratic freedoms are protected. If the state cannot protect your right to life, it’s best not to exercise your right to information too much.
- Let’s look at some of the cases this year. In January 2010, Satish Shetty, 39, was hacked to death in Maharashtra. The activist had been battling land scams and government corruption, had received death threats and asked for police protection — which he didn’t get — and was killed while taking his morning walk.
- In February, also in Maharashtra, RTI activist Arun Sawant was shot dead near the Badlapur Municipal Office in Thane for fighting administrative corruption.
- Meanwhile in Bihar, RTI activist Shashidhar Mishra was gunned down in front of his home in Begusarai. A tireless crusader against corruption in welfare schemes and the local government, he was called ‘Khabri Lal’ for his dedication to information.
- Meanwhile in Gujarat, Vishram Laxman Dodiya, who had filed an RTI petition regarding illegal electricity connections by Torrent Power, was murdered.
- In April, RTI activist Vitthal Gite, 39, was killed in Maharashtra for exposing village education scams.
- And in Andhra Pradesh, Sola Ranga Rao, 30, was murdered in front of his home for exposing corruption in the funding of the village drainage system.
- In May, Dattatray Patil, 47, was murdered in Kolhapur, Maharashtra. A close associate of activist and RTI guru Anna Hazare. His fight against corruption had got some of the area’s top policemen removed and action initiated against local municipal corporators.
Besides murder, there are failed murder attempts, violent threats and fake police cases. Take Maharashtra:
- In March, environmentalists Sumaira Abdulali and Naseer Jalal were ruthlessly attacked by a politically backed sand mafia in Raigad, and survived only because journalists accompanying them used their influence and mobile phones. None of the accused was arrested. In April, Abhay Patil, advocate and RTI activist, had a mob clamouring for blood at his door. Apparently, they wanted him to withdraw all complaints of corruption against MLA Dilip Wagh. When his wife, a police constable, called the cops for help, they asked her to come to the police station and lodge a complaint. Later she faced fake charges and was suspended, allegedly at the behest of Home Minister R. R. Patil. Then in July, Ashok Kumar Shinde was attacked for his RTI and Public Interest Litigation (PIL) against a corruption racket in the Public Works Department linked to the Bombay High Court.
- Worse than physical assault is abusing the law to attack activists. Take the case of E. Rati Rao, senior scientist, activist and journalist, in Karnataka. In March she was charged with sedition and attempting to cause mutiny or communal discord for protesting against ‘encounters’ and atrocities on dalits, tribals, Muslims and other minorities. Meanwhile, in distant Orissa, another activist-journalist, Dandapani Mohapatra, was targeted by the police, his home raided and his books and magazines confiscated without a warrant. He was labelled as a suspected Maoist.
- An activist fighting for our rights cannot win without our muscle. Once an RTI activist is killed, civil society must force the police to investigate not just the murder, but all that he was unearthing. Only then will we be able to stop this murderous silencing of the activists.
- By not protecting the RTI activists, by allowing cases of harassment they file to be closed without punishing the perpetrators, the state is failing to uphold the spirit of the RTI Act. And weakening the spirit of democracy.
Part C : InformatIon on & around
Info on funds of political parties:
An analysis of the Income-tax Returns of political parties accessed by the ADR under the RTI Act has revealed that the BSP had a maximum growth rate of 59% in total asset from 2002-03 to 2009-10, followed by the NCP (51%) and SP (44%).
It appears that all political parties are in the pink of financial health :
|
|
Income |
Aggregate income : |
|
|
for 2009-10 |
2002-03 to 2009-10 |
|
|
|
|
|
Congress |
497 |
1518 |
|
BJP |
220 |
— |
|
BSP 182 |
— |
|
|
CPI |
1 |
7 |
|
RJD 4 |
15 |
|
|
SP |
39 |
263 |
|
NCP 40 |
109 |
|
|
CPM 63 |
339 |
|
|
|
|
|
Emergency period in India’s history:
An RTI query was made to get certain documents pertaining to emergency period 1975-77. Request was for correspondence between the then president Fakhruddin Ali Ahmed and the Government. Both the Ministry of Home Affairs and National Archives of India replied that they have no such records.
15 questions listed in the RTI application pertain to the competent authority’s duly attested copy of all relevant records or documents, including the noting portion, on causes leading to the declaration of emergency and its nature, on the proceedings, recommendation and resolution adopted by the Union cabinet to declare the state of emergency and the names of those who attended the cabinet meeting, on how the recommendation was conveyed to the President and by whom, orders, directions, guidelines, wireless, telex and telegraphic messages issued by the Government to impose the state of emergency.
The presumption is that they (the officers) have either destroyed them or they don’t want to give them.
The complaint u/s 18 of the RTI Act is made to Chief CIC, but so far he has not responded to the same.
Assets disclosure by the Ministers of the Central Government:
All efforts under the RTI Act to get details of assets of the Ministers in the Central Government so far have brought no results.
When PMO was asked to furnish such information, it referred the matter to the Lok Sabha Secretariat (LSS) to get its nod to disclose the Ministers’ assets.
In reply LSS stated that there is no provision of such permission under the RTI Act and that the PMO itself has to take a call on such sensitive matter. Now PMO has to take a decision whether to disclose or deny.
Brihanmumbai Municipal Corporation (BMC):
If you wish to lodge a complaint with BMC, you no longer have to search for the name of the officer concerned. After an RTI query, the BMC has now decided to create 3,000 e-mail addresses based on officers’ designations instead of their names.
After pursuing the matter for a year, RTI activist Vihar Durve finally succeeded in getting general e-mail addresses created for the BMC officials.
“These days people are more comfortable writing e-mails than sending letters or going and meeting the officials personally. Though the BMC has a provision for mentioning e-mail addresses, it had not posted any e-mail address on website” said Durve.
The BMC has now created and posted e-mail addresses of top officials like the Commissioner and Additional Municipal Commissioners on its website. For the rest of the officers, the same are in the process of being created and posted on the website.
An interesting write-up in MIDDAY(30 July, 2010) by Hemal Ashar:
Once upon a time in Mumbai
Now that the movie ‘Once Upon a Time in Mumbai,’ about the city’s underworld has been released amidst much controversy, here is what actually happened Once Upon a Time in Mumbai.
We could go to the movies for Rs.20 a ticket and spend Rs.10 on samosas and Rs.10 on a popcorn packet while touts would murmur outside in a sinister, hush-hush manner, “70 rupees mein black.” Beggars would actually be happy with the Re.1 you gave them and not look like you are entitled to give them a blue-chip share instead.
Getting your children into school did not mean intense stress levels, high BP and cardiac conditions like blocked arteries resulting in an angioplasty as admission day neared.
A flat in the city’s toniest South Mumbai area would go for Rs.3 lakh and South Mumbai’s swish club like Willingdon offered the much-coveted life memberships at Rs.15,000, that too, payable in instalments. Page 3 was just another page in a book, newspaper or magazine and not a description of a person.
People thought that RTI always stood for Ratan Tata Institute on Hughes Road where you went to buy baby clothes and Parsi-style embroidered nightwear and not Right to Information to dig out dope on corrupt deals.
Your English teacher would scoff at this junk you are reading saying, “think of all the trees being chopped down to print the rubbish this columnist has written and here you are wasting time reading it” and you would hang your head in shame instead of laughing like you are doing now.
Court’s view on ‘information’ under the RTI Act:
The gap between the judiciary’s traditionally insular self-image and the public’s rising expectations of accountability from all institutions is evident from the rather surprising interpretation made by the Supreme Court and some of the High Courts on the nature of information that would fall under the ambit of the RTI.
Making a mockery of this much-vaunted legislation, these courts have made out on their administrative side that the only kind of information that can be accessed by citizens under RTI is what is already ‘in the public domain’.
When it challenged the Central Information Commission’s direction on the declaration of assets by judges, the SC, in its petition before the Delhi HC earlier this year, had claimed the RTI’s definition “shows that the information which is required to be given must be information in the public domain.” Accordingly it argued that the application regarding declarations of assets by judges under a 1997 resolution of SC judges was “not maintainable inasmuch as the information sought for was neither in the public domain, nor was it required to be given or maintained under any statute or law.”
If the SC’s interpretation of the definition of information were to be valid, none of the public authorities should have been, for instance, disclosing file notings because, given the confidential manner in which they are written by bureaucrats and ministers during decision-making, they are clearly not in the public domain. It is the operation of RTI that has brought into the public domain all manner of information that would have otherwise remained behind the official veil of secrecy. The wide-ranging definition of information contained in S. 2(f) of RTI does not bear out the SC’s claim that it is limited to material lying in the public domain. In fact, the SC seems to have imported the expression ‘in the public domain’ into its petition on the basis of the rules framed by the Delhi HC.
For, under the rules framed by it in 2006, the Delhi HC assumed the power to withhold “such information that is not in the public domain or does not relate to judicial functions and duties of the court.”
(Extracts from The Times of India of 14th August)
Right to Information
Part A : CIC’s decisions
Mr. D. E. Robinson of Goa requested for certain financial information from the
Commissioner of Income Tax, Panjim in respect of all the contesting candidates
for election in Goa in the year 2006.
The information sought was :
Whether in all the cases where the contesting candidates have
declared immovable property viz. ‘urban land’ as defined in S. 2(ea),
explanation 1(b) of the Wealth Tax Act, (including agricultural land situated
within the 8 km limit of notified towns), the values declared were verified in
the context of tax liability under the Wealth Tax Act.
Further he had asked in how many cases such lands were
declared in the tax records or not declared and in how many cases action was
taken to bring the said properties to tax under the Wealth Tax Act, etc.
The information was declined citing exemption u/s.8(1)(j) of
the RTI Act. Reply also stated that the matter was under verification and the
results could be disclosed only after the process was completed.
The Appellate Authority interestingly dealt the matter very
differently. He held that information requested by the appellant was general
statistical information and there was no question of referring it to a third
party — as was done by the CPIO — as the requisite information was not supplied
by that third party. He noted that this information was presented by private
persons/party in the affidavits filed before the Election Commission. The CPIO,
according to the AA, was responsible only to furnish information held by his
office and not which was held by other public authorities such as the Election
Commission. He noted that information requested covered information relating to
all candidates who contested election in Goa in the year 2006, which according
to the Appellate Authority was ‘general in nature’. He advised the appellant to
identify and specify the information required by him and to submit a fresh
application to the CPIO where the information was known to be held. The
Appellate Authority dismissed the first appeal of the appellant.
The appellant before CIC contested the conclusion of the
Appellate Authority with very detailed submissions in writing. In one of the
paras he also wrote : “It is evident from the facts that neither the field
officers, nor their superiors took any action to collect the revenue
legitimately due to the State by performing their bounden duty. In such
circumstances, the CPIO should have informed the appellant that no action had
been taken and the field officers and the Commissioner have failed to do their
duty. The reply given by the CPIO is evasive and seeks to cover up serious lapse
on the part of the Department.”
CIC gave interesting decision. He praised the appellant as a
public-spirited person who wishes to use the RTI Act to bring into open,
attempts by certain candidates in the elections to State Legislatures and the
Parliament to escape public scrutiny of the statements they make to the Election
Commission and to the Income-tax authorities as well as to other State agencies
about their personal wealth. The appellant believes — and rightly so — that if
declarations by these candidates were to be carefully analysed by public
authorities dealing in tax collection as well as those engaged in conducting
free and fair elections such as the Election Commission, a number of skeletons
will come tumbling out of cupboards. He bemoaned the fact that public
authorities failed to take coordinated action to prevent, what he believed to
be, manifest violation of the laws of the land by contesting candidates in
election.
However the issue is decided as under :
The response of the Appellate Authority (AA) has been to
examine the matter strictly within the four-corners of the RTI Act. Hence his
conclusion that the CPIO was required only to give that information which he
held and not what was in the control of other public authorities. AA did not go
into the subject of the obligation of the Income-tax Department to collect all
information from wherever it might be available in order to make a correct tax
assessment of an assessee and especially when such assessee happens to be a
candidate contesting in an election, which requires him to make a correct and
complete disclosure of his income and wealth.
The force of the logic employed by the appellant is
compelling. All he urges is that public authorities expand the focus of their
responsibilities and travel beyond the narrow limits of their assignments to
reach out to the information held at multiple points in order to make a correct
assessment which will have vast implications for tax collection as well as for
the sanctity of elections. One would be tempted to grant him the information he
has requested, but the difficulty is that the type of information he has asked
for is not maintained centrally by the public authority to which his RTI
petition is addressed.
In view of the above, it is not possible for the Commission
to go against the decision of the Appellate Authority. The type of information
which the appellant has requested is decidedly not maintained centrally in the
usual course of business. The RTI Act cannot be invoked to force a public
authority to collect information in a particular manner. In fact, it can only
direct disclosure of the information that is available. As such, in spite of
empathy with the spirit of the appellant’s RTI application, this Commission is
unable to order the public authority to provide him the requested information.
However, considering much of what this appellant has said in his RTI submissions – which from all accounts, appears to be an expression of the anguish of a public-spirited and a concerned Indian citizen about overt violations of law regarding various types of disclosures – the public authorities connected with the type of information he has requested, viz. the respective Income-tax Departments and the Election Commission, may take note of these submissions to consider putting in place systems and mechanisms which would create conditions for automatic cross-check and scrutiny of incomes and wealth statements filed, not only before the Income-tax authorities, but also before authorities such as the Election Commission by contesting candidates. The system, if devised, has the potentiality to help the long reach of law to force candidates in elections (who also happen to be tax assessees) to act truthfully and responsibly in matters of disclosure of incomes.
CIC then directed that a copy of his order may be sent to the Chief Election Commission as well as to the Revenue Secretary of the Government of India and the Chairman of the CBDT for such action as they may deem fit, given the objectives spelt out above.
[Mr. D. E. Robinson v. Income-tax Department, ENo. CIC/ AT/ A/2007 /01522 of 27-6-2008]
• What is the Third Party infonnation?
Shri R. K. Sarkar in his RTI application sought information pertaining to Shri Kalyan Chowdhury, who was the Commissioner of Income-tax, Burdwan. The queries were generally related to whether any enquiry was conducted against Shri Chowdhury by his superiors as, according to the appellant, Shri Chowdhury attended office only thrice a week on account of he residing in Kolkata although his posting was at Burdwan. Besides, the appellant wanted to know the details of reimbursement of his telephone bills and so on.
The information was denied on the ground that this was personal information and exempt u/s.8(1)(j) of the RTI Act.
CIC in his decision held that the reasoning of the respondents is flawed. The queries which the appellant has made were regarding Shri Kalyan Chowdhury’s functioning as a government employee and there is no reason why such information should be withheld from the appellant. The Commission in the past has authorised disclosure of information related to individual government servants, which concerned his function as such public servant.
In view of the above, the matter was remitted back to the Appellate Authority to examine the issue denovo with regard to the each query in the light of the observations made as above and to give his finding within 4 weeks from the date of receipt of the order.
[Shri R. K. Sarkar v. Income-tax Department, ENo. CIC/ AT/ A/2008/00232 of 30-6-2008]
Part B : The RTI Act
In the August issue, I had reported on some of the major recommendations on ‘Enforcement of S. 4 of the RTI Act’ of the conference of all ercs and SICs. In this issue, I report on some interesting recommendations of the said conference on other issues connected with the RTI Act.
1. There are instances of non-compliance of orders passed by the Commission. Specific provisions may be included in the RTI Act itself for dealing with contempt proceedings.
2. S. 20 of the RTI Act provides that subject to the contents and conditions of that Section, CIC/ SIC shall impose a penalty.
Issue is: What is the meaning of the word ‘shall’. Does it mean that it is mandatory on CIC/SIC to levy the penalty if the conditions of the Section are covered or is it discretionary?
To reduce uncertainty in this matter, the conference recommends: S. 20 should be amended so as to give discretion to the Commission to decide the quantum of penalty. The word ‘shall’ appearing in S. 20(1) may be substituted by the word ‘may’.
3. Today, only PIOs are made accountable under the Act, the conference recommends: Accountability of public authorities and First Appellate authorities should be ensured: Amendments may be made in S. 20 and S. 2l.
4. The conference also recommends that the Commission be given power to dismiss frivolous or vexatious complaints and the power to review its own decisions.
5. For furthering evolution of the RTI regime, the conference recommends:
- The RTI Act should be included in the syllabus at high school and college-level education.
- Information of public interest can be taken to door-steps of citizens.
- Commissions can prioritise second appeals/ complaints, which are of public interest, over the ones which are self-centric and self-serving.
- Uniformity in fees, further fees (costs) and charges for inspection, etc. throughout the country.
- Uniformity as regards disclosure obligations for items such as Annual Confidential Reports (ACRs), Annual Property returns (APRs), DPC proceedings, Income-tax returns, etc.
- More publicity on the RTI Act should be done by Doordarshan and All India Radio. Alternatively, the Central Information Com-mission can run its own private TV channel dedicated to RTI.
- RTI journal be made for circulation among the Commissions.
- Honorarium/incentives to PIOs/ APIOs for doing additional work.
Part C : Other News
Good governance:
N. Vittal, the former CVC writes regularly in Mumbai Mirror. In one of his recent articles, what he has written is very relevant for all of us to read:
Non-governmental organisations represent a growing significant element in the dynamics of better governance in our country. In a backward State like Rajasthan, the activism shown by Aruna Roy and her Mazdoor Kisan Shakti Sangathan (MKSS)have made the Right to Information (RTI) Act a significant element in checking and monitoring programmes affecting the public. The national Rural Employment Scheme, perhaps, is best monitored in that State, thanks to the tradition of MKSS activism.
An interesting aspect was highlighted by a visiting American professor, Sussman, an expert on the Freedom of Information Act in the United States, who has been studying the implementation of the Right to Information Act in India. He found that in West Bengal, the bureaucracy was very defensive, making access to information as difficult as possible. All applications have to be made on a Rs.10 stamp paper, which most of the time is not available. On – the other hand, in Bihar, he found that the Government and the media were going out of the way to introduce jingles and advertisements to educate the public about the right available to them under the RTI Act. In Tamil Nadu, the Information Commissioner is optimistic that in due time, this Act may turn out to be effective in empowering the people by bringing greater transparency in the system.
Using the Right to Information Act, active NGOs can effectively monitor the performance of bureaucracies and ensure that there is greater transparency and less corruption. This is the formula needed for good governance.
Travel bills of the Ministers of Maharashtra Government:
Ministers of Maharashtra Government ran up travel bills worth over Rs.7 crore in the first three years of their tenure. The public exchequer had to shell out these funds to pay for Ministers’ trips to their constituencies as well as some foreign jaunts.
Chief Minister Vilasrao Deshmukh’s globe-trotting took him to the top of the list as he incurred expenses of Rs.63.96 lakh. The CM’s domestic travel expenses came to Rs.32.45 lakh, while his foreign jaunts cost Rs.31.51 lakh.
Next in line whose travel bills ran up to Rs.47.86 lakh is Anil Deshmukh, Public Works Department. Maharashtra’s Ministers incurred a total travel bill of Rs. 7.44.crore from April 1, 2004 to March 31,2007, according to figures provided by the Pay and Accounts Office of the State Government in reply to the RTI query.
• Do MPs/ MLAs constitute public authorities? :
UPA Chairperson Sonia Gandhi, who played a pivotal role in seeing the RTI Act through, is herself in the dock. As an MP, she faces the possibility of being penalised Rs.250 per day for not responding to an RTI plea, as a citizen has complained to the Central Information Commission (CIC).
Whether information sought by an applicant from public representative qualifies as information sought under the RTI is the issue. Whether an individual, as an MP or an MLA, constitutes a public authority is also an issue. The Lok Sabha Secretariat (LSS) has taken a stand implying that an MP is not a public authority as defined under the RTI Act.
An RTI. application is also made to MP Rahul Gandhi seeking information on recommendations made by him or his representatives to Ministries and Departments on assistance to NGOs.
The CIC has taken up hearing of five complaints under the RTI, two against Sonia Gandhi and one each against MP Rahul Gandhi, MLA Sahib Singh Chouhan, and Sunita Sharma, municipal councilor. As the issues were related, the complaints were grouped together.
The CIC, in its interim decision, held that an MP has been conferred a specific authority by the Constitution, in return of which he receives remuneration from public funds. But, before taking a decision in this regard, it felt that the interested parties be given an opportunity to be heard.
The CIC has asked the Central Public Information Officer of LSS to appear before it on September 15.
CAG wants to conduct ‘performance audit’ of the Central Information Commission:
In a clash between two apex bodies of accountability, the Central Information Commission (CIC) has reacted adversely to the ‘performance audit’ proposed by the Comptroller and Auditor General (CAG) on the implementation of the Right to Information Act.
CIC questions the very jurisdiction of CAG to hold it to account. It asked CAG to ‘specify the terms of the reference’ of the proposed performance audit before it takes a call on whether it should submit at all to the constitutional body’s jurisdiction.
In an attempt to give a legal cover to its jurisdictional objection, the CIC pointed out that it was “an autonomous entity and the orders passed by it are final and binding, subject to scrutiny only by way of a writ under the Constitution of India.”
Already, very sensitive issue, whether the RTI Act covers the Courts beyond their administrative matters is under controversy. Now this becomes another sensitive issue.
• Power bills:
In the July issue, report was made on power bills of the President of India. Now the RTI application has brought to light ‘light’ bills of the Maharashtra Ministers. The following table shows two interesting figures where the bills in 2007-08 cross Rs.I0 lakhs.
The elected representatives defended themselves stating that the power bills are’ quite normal’ as the residential area is huge and they also have servant quarters which have connection from the same meter. “We see to it that the power consumption is minimised in all ways. Strict instructions have been given to all those who are employed here to use the power judiciously”, Bhujabal said.
• Driving licence:
The RTI query reveals that the three RTOs in Mumbai issued 11.12 lakh duplicate licences in the last five years, while they issued 12.12 lakh new licences during the same period.
This effectively means that Mumbaikars lose 609 licences every day, which looks more like a Ripley’s believe-it-or-not factoid.
• PMO does not respect the spirit of RTI :
On taking the oath of office, every Minister is handed a copy of the code of conduct. It says, among other things, that Ministers should disclose to the PMO details of their assets, liabilities and business interests along with those of their family members.
On 6-11-2007, ‘India Today’ invoked the RTI, seeking information from the Prime Minister’s Office (PMO) whether Union Ministers had filed details of their assets and liabilities.
No information is provided on this application except replies that “the matter is under consideration of the competent authority and the information/reply will be sent in due course.”
Three reminders have been sent, but there is no action. Complaint has been made to CIC on 17-3-2008. Even that is yet not taken up for action.
• RTI fee may be scrapped:
A Parliamentary Committee has decided to recommend scrapping of fees at the time of filing applications seeking information from Government Departments under the Right to Information Act. The Parliamentary Committee, headed by Dr. E. M. Sudarasna Natchiappan, has said scrapping of fees at the initial stage would help in effective implementation of the two-year old law.
“The technicality of admitting an application only on receiving a fee of Rs.10 is undermining such a revolutionary law. We feel that there is an urgent need to do away ‘With this step which reflected a bureaucratic mindset,” Natchiappan told HT.
Study efficacy of RTI :
The Department of Personnel and Training has decided to get international accounting firm Pricewaterhouse Coopers to study the efficacy of the Right to Information Act as it marks its third year on October 12. The RTI Act has been showcased by the UPA Government as one of its key achievements.
Suspicious that this study could end up helping babus instead of citizens, leading RTI activists, including Aruna Roy and her Mazdoor Kisan Shakti Sangathan (MKSS) and Shekhar Singh and his National Campaign for People’s Right to Information (NCPRI) have launched their own alternative study.
They have formed RAAG (RTI Accountability and Assessment Group) which will examine what they call/the RTI regime.’ Significantly, Google Foundation has stepped in to make this study possible by offering $ 250,000 as an initial grant.
• PAN card:
In one appeal before ClC, the appellant wanted to know from the Income-tax Department as to what has happened to his application for cancellation of his PAN card. In reply, the Department has informed the appellant that the Income-tax Department was not empowered to cancel any PAN card once it was issued.
Readers may consider whether information furnished is correct. Ss.(7) of S. 139(A) provides:
7) No person who has already been allotted a permanent account number under the new series shall apply, obtain or possess another permanent account number.
All those who were issued two PAN cards were compelled to surrender one. Obviously the same must have been cancelled by the Income-tax Department. Further, what happens after the PAN holder dies, the firm which is allotted PAN gets dissolved, etc. Are PAN numbers not to be cancelled?
Limited Liability Partnerships
1.1 An LLP is required to maintain prescribed books of account relating to its affairs. The accounts can be maintained on cash or accrual basis and must be according to the double entry system of accounting. The books must be sufficient to show and explain the LLP’s transaction and must be able to disclose with reasonable accuracy its financial position at any time. They must also enable the partners to ensure that the Statement of Account and Solvency prepared by them complies with all the requirements of the Act.
1.2 The books must specifically deal with the following :
(a) Details of all receipts and payments.
(b) Record of all assets and liabilities of the LLP.
(c) Statement of cost of goods purchased, stock, work-in-progress, finished goods and cost of goods sold.
(d) Such other particulars as may be decided by the partners. Thus, the partners can incorporate additional requirements.
As required under the Companies Act, the books are to be preserved for a period of 8 years.
1.3 Within a period of 6 months from the end of the financial year, the LLP shall prepare a Statement of Account and Solvency in Form 8 for the financial year ended. This Statement must be filed with the Registrar of Companies within 7 months from the end of the year to which it relates. The filing fees in relation to the same range from Rs.50 to Rs.200 depending upon the amount of contribution of the LLP. This Statement must be signed by the designated partners. This Statement contains a Statement of Assets & Liabilities (Balance Sheet) and a Statement of Income and Expenditure (P&L Account) of the LLP. The Appendix to this Statement contains various other details, such as :
(a) Details of charges created
(b) Particulars of property on which the charge is created
(c) Instruments creating charge.
2. Auditing requirements :
2.1 The accounts of the LLP are required to be audited in case :
(a) its turnover exceeds Rs.40 lakhs, or
(b) its contribution exceeds Rs.25 lakhs.
The turnover limit of Rs.40 lakhs is the same as that laid down for tax audit for a business. However, there is no distinction between an LLP which carries on a business and one which carries on a profession. The auditor must be appointed every financial year by the LLP.
2.2 The designated partners may appoint an auditor at any time for the first FY or at least 30 days prior to the end of any other FY or to fill a casual vacancy.
2.3 If the LLP Agreement so provides, the partners may remove an auditor at any point of time by following the procedure laid down therein. If the Agreement is silent on this point, then the consent of all the partners is required.
2.4 An auditor may resign or specify his unwillingness to be reappointed by giving a notice to the LLP.
3. Annual Return :
3.1 Every LLP must file an Annual Return with the RoC within 60 days of the end of its FY. The Return must be filed in Form 11 and must be signed by a designated partner.
3.2 If the LLP’s turnover is up to Rs.5 crores or it has a contribution of up to Rs.50 lakhs, then the Return must be accompanied by a certificate from a designated partner other than the one signing the Return. The certificate must state that the Return contains true and correct information.
3.3 If the LLP’s turnover exceeds Rs.5 crores or it has a contribution of more than Rs.50 lakhs, then the Return must be accompanied by a certificate from a practising Company Secretary. The certificate must state that the CS has verified the particulars from the books and records and found them to be true and correct. The filing fees in relation to the same range from Rs.50 to Rs.200 depending upon the amount of contribution of the LLP.
3.4 The Return contains the following information :
(a) Contact details of the LLP
(b) Details about the designated and other partners
(c) Particulars of penalties imposed, compounding of offences.
4. Conversion into LLP :
4.1 One of the best features of the Act is that it provides for the automatic conversion of certain entities into an LLP. Chapter X of the Act provides for the following :
(a) Conversion of a firm into an LLP
(b) Conversion of a private limited company into an LLP
(c) Conversion of an unlisted public limited company into an LLP.
This Chapter is similar to the Chapter IX of the Companies Act, 1956, under which a firm can be converted into a company.
4.2 For the purposes of effecting a conversion of any of the above entities into an LLP, certain Statements must be filed with the RoC. On receiving the documents, the RoC will register the documents and issue a certificate of registration. It may be noted that other than registering the prescribed documents with the RoC, nothing further needs to be done. One of the essential conditions for conversion into an LLP is that all the partners in the case of a firm / all the shareholders in the case of a company must become partners of the LLP.
There is no transfer and no conveyance of the assets from the firm/company to the LLP. There is no liquidation of the company by way of a court-appointed liquidation or a voluntary liquidation. Once the LLP is registered, the company is deemed to have been dissolved and removed from the records of the RoC. There is an automatic change of status of the entity from a firm/company to an LLP.
4.3 If the RoC is not satisfied about certain information, then he may refuse to register the entity as an LLP. An appeal lies against this refusal to the National Company Law Tribunal. Till such time as the Tribunal is notified, the Company Law Board would prevail in the interim.
4.4 All pending proceedings by or against the entity would continue by or against the LLP. In any agreements, deeds, contracts, bonds, instruments, etc., executed by such entity, the LLP would be sub-stituted for such entity /The LLP steps into the shoes of the firm/company. All employees of the firm/ company would continue with continuation of employment under the LLP. Thus, the employees are not worse off by reason of change in status.
4.5 Once the LLP is registered on conversion, the firm/company shall be deemed to be dissolved/ removed from the records of the RoF or RoC, as the case may be.
4.6 The LLP may have to make consequential changes in respect of documents/records standing in the name of the erstwhile firm/company. For instance, for any property registered in the name of the erstwhile company, the Record of Rights/Property Card/Index Il, etc., standing with the Sub-Registrar of Assurances would have to be amended and the LLP’s name would have to be added instead of the company’s name. It should be noted that this change is not taking place by virtue of any transfer. Hence, there should not be any liability to registration fees and/or stamp duty. It would be desirable if the Government enacts amendments to clarify this matter beyond any doubt, since often there is a gap between what is legally correct and what is practically happening.
5. Amalgamations and arrangements:
5.1 The Act contains provisions for the amalgamation, arrangement and reconstruction of LLPs. S. 60 to S. 62 deal with the same. These provisions are similar to S. 391-S. 394 of the Companies Act, but not as wide in its ambit as S. 391-S. 394. S. 60 to S. 62.
5.2 The following schemes are possible:
a) A compromise or an arrangement between an LLP and its creditors.
b) A compromise or an arrangement between an LLP and its partners.
c) A reconstruction of an LLP.
d) An amalgamation of two or more LLPs.
5.3 In order that any such scheme can be approved, a majority of 3/4th in value of the creditors/partners must at a meeting called for this purpose sanction the compromise/ arrangement/ amal-gamation. An application for the same must be made to the Company Law Tribunal. However, till such time as the CLT is notified, the High Courts would have such powers.
5.4 Every order sanctioning the scheme will be made only if the Court is satisfied that the LLP has disclosed all material facts, its latest financial position and details of any pending investigations. While passing the order, the Court would have power to supervise the carrying out of any compromise or arrangement and can also make such modifications in the scheme as it considers necessary. The order must be filed with the RoC in Form 22 within 30 days of making of the order.
5.5 The Act also provides for the merger of two or more LLPs. While passing such an order, the Court may make a provision for the following matters:
a) Transfer of the undertaking of the transferor LLP.
b) Continuation by or against the transferee LLP of any pending legal proceedings by or against the transferor LLP.
c) Dissolution without winding up of the transferor LLP. However, no order for the dissolution will be made until the Official Liquidator first submits his report that the LLP’s affairs have not been conducted in a manner prejudicial to the partners or public’s interest.
d) Provision for any person who dissents to the amalgamation.
e) Such incidental, consequential and supplemental matters as are necessary to fully carry out the amalgamation.
The above provisions also apply to any reconstruction or compromise or arrangement of an LLP.
5.6 Rule 35 of the LLP Rules, 2009 lays down the procedure to be followed in respect of any compromise, arrangement or reconstruction of LLPs. Some of the key provisions are as follows:
(a) An application calling a meeting of the creditors/members must be supported by an affidavit.
(b) The Court may call a meeting or dispense with it. At the meeting voting by proxy is permitted.
(c) The notice calling the meeting will be advertised in newspapers, if so directed.
(d) A chairman will be appointed for the meeting. He must prepare a report of the proceedings of the meeting.
(e) The report of the meeting’s Chairman and the petition must be presented to the Court.
5.7 The Rules also lay down the procedure for an arrangement for the revival and rehabilitation of an LLP. Some of the key provisions in this respect are as follows:
(a) An arrangement for revival and rehabilitation of any LLP may be proposed in the following circumstances:
(i) If the LLP has outstanding debt which it has failed to pay withn 30 days of the service of the notice of demand or has failed to secure or compound it to the reasonable satisfaction of the creditors and if its creditors representing 50% or more of such debt make a demand; or
(ii) If a petition for winding up of an LLP is pending before the Court and such directions are given by the Court.
(iii) Where the Official Liquidator has filed his report before the Court, in terms of directions given by the Court on the report of the Liquidator.
(iv) Alternatively, the LLP or any creditor or partner, or the Official Liquidator, may make an application for the sanction of the arrangement for revival and rehabilitation before the Tribunal.
(b) An application under sub-rule (12) shall be accompanied by :
(i) A statement of account and solvency of LLP for the immediately preceding financial year, in case the application is made by the LLP;
(ii) Particulars and documents relevant to the scheme including commitments expected from various parties or, proposed restructuring or rescheduling of the debts, undertaking or in case from bank or financial institution through a letter or in any other case through an affidavit of concerned party or parties;
iii) proposed scheme of revival and rehabilitation of the LLP induding a proposal for appointment of an LLP Administrator. The LLP administrator shall be appointed from a panel maintained by the Central Government for winding up and dissolution of LLPs.
c) The Court may hear all the parties concerned and admit or dismiss the application.
d) The LLP Administrator proposed in the scheme shall submit his preliminary report.
(e) On consideration of the report of the LLP Administrator, if the Court is satisfied that the creditors representing 3/4th in value have resolved that it is not possible to revive and rehabilitate the LLP, it may, within 60 days of the receipt of such report, order that winding-up be initiated or sanction the arrangement for revival and rehabilitation of LLP, induding making orders for continuation of the LLP Administrator.
f) The order of sanction of the arrangement by the Tribunal may make provisions, for all or any of the following matters:-
i) powers and functions of the LLP Administrator;
ii) the time period within which various actions proposed in the arrangement to be completed;
iii) any such direction to the LLP or its officers or to the creditors, or to the LLP Administrator or to any other person, as may be considered necessary, for the purpose of implementation of the arrangement of revival and rehabilitation; and
(iv) any other order or orders as may be considered necessary.
(g) The LLP Administrator shall complete all his actions and submit his final report before the Court within 180 days of the Court’s order.
Company Law
The New Companies Bill with 29 chapters, 470
sections and 7 schedules, was passed by the Lok Sabha on December 18,
2012 and then transmitted to the Rajya Sabha for concurrence. The Rajya
Sabha made 9 amendments to the Bill before passing it on August 8th,
2013. Thereafter the Lok Sabha has agreed to the amendments made by the
Rajya Sabha to the Companies Bill 2012. The Bill was awaiting
Presidential assent.
The highlights of the Companies Bill 2012 as passed
by the Rajya Sabha can be seen at
Indirect Taxes
Guidelines -institution of prosecution and compounding of offences
Trade Circular 5T of 2013 dated 24-07-2013
In this circular guidelines regarding institution of prosecution and compounding of offences in case of non-filing of returns or late filing of returns have been provided.
SERVICE TAX UPDATE
91. VCES- CBES Clarification Circular No. 170/5/2013 -ST dtd. 18th August, 2013
The Voluntary Compliance Encouragement Scheme, 2013 (VCES) which has come into effect from 10-5- 2013 has given rise to a number of practical problems. Some of the issues raised with reference to the Scheme have been clarified by the Board vide Circular No. 169/4/2013-ST, dated 13-05-2013. Further to encourage the defaulting assessee to pay the tax dues for the period prescribed in the scheme with immunity from interest, penalties and other consequences of such non-payment, the CBEC has issued this circular in the question answer form to clarify all the doubts in a very simple and lucid manner.
Direct Taxes
85. Central Government notifies differential rate of interest in respect of rupee denominated bond of an Indian company for the purpose of section 194LD of the Act – Notification no. 56/2013 dated 29th July, 2013
86. Income-tax (11th Amendment) Rules, 2013 – Amendment in Rule 21AB and introduction of Form 10F
– Notification no. 57/2013 dated 1st August, 2013 –
A non-resident proposing to claim benefit under Double Tax Avoidance Agreement entered into between India and his country of residence is required to furnish an undertaking in Form 10F along with the Tax Residency certificate. The amendment is effective from 1stApril, 2013.
87. INSTRUCTION NO.10/2013[F.NO.225/107/2013/ ITA.II], DATED 5th August, 2013 relating to the procedure and criteria for selection of scrutiny cases under compulsory manual during the financial year 2013-14.
88. Income-tax (12th amendment) Rules, 2013 – amendment in Rule 37BB and amendment to Form 15CA and 15CB- Notification no. 58/2013 dated 5th August, 2013
Rule 37BB is amended with effect from 1st October, 2013, which prescribes the procedure to be followed by a person responsible for making a payment to a non-resident. Form 15CA i.e., the form to be filled by the person making remittance and Form 15CB, a certificate to be issued by the Chartered Accountant are amended.
89. Income tax (13th amendment) Rules, 2013 – amendment in Rule 12C and amendment to Form 64- Notification no. 59/2013 dated 5th August, 2013 –
Income paid or credited to by the Venture Capital company or venture capital fund is required to be furnished in Form 64. Form 64 is to now to be furnished electronically under digital signature.
90. Central Government authorises 14 entities to issue during the financial year 2013-14, tax free, secured, redeemable, non-convertible bonds-Notification no. 61/2013 dated 8th August, 2013
Ethics and u
Series 4
Shrikrishna (S) – My dear Arjuna, you are looking very tired today. It seems the 30th September fever is on.
Arjuna (A)– I have lost my sleep! Anything can happen, our profession is so vulnerable!
S – I agree. Your Institute’s motto is ya esha suptesju jagarti – You have to be constantly awake.
A – That refers to mental awakening, but I have even lost physical sleep.
S – Why? You only need to be diligent—and vigilant. Is it that difficult?
A – In the last few meetings, you have been telling me about due diligence and gross negligence. But what exactly should one do? Tell me specific things…
S – In the eleventh chapter of the Geeta, I showed you my ‘vishwa-roop’ – no end to the forms in which I manifest myself. I mean the forms in which I appear before you. In the same way, there cannot be an exhaustive list of instances of negligence!
A – I understand that, but today I heard a story— so alarming, I don’t know whether it is negligence or misfortune! It is beyond imagination.
S – What did you hear?
A – What to tell you. The story is like a nightmare!
S – Arjuna. In this month of September, you don’t have much time. So, be quick. What happened?
A – My friend was the auditor of a company for six years. He left the audit 3 years back. Big Company. Turnover 600 crores!
S – What was its business?
A – It had some mines in Bihar. Suddenly, he received a complaint filed by a bank.
S – What was it about?
A – That big company had turned into an NPA. And the auditor was being made a scapegoat.
S – This is very common. It is strange that the auditor is blamed for such things, as if the company’s performance depends on the auditor! But that auditor must have committed some blunder.
A – Actually, the company’s corporate office was in Mumbai; the auditor says he used to do 100% audit.
S – But did he ever visit the business site?
A – Of course! During six years, he visited the mines on two to three occasions.
S – Then what is the problem? Why did he give up the audit?
A – There was some issue about his fees.
S – Ok. But what is the problem? He has to simply show how he conducted the audit. He has to show working papers, audit programme, noting, management representation, etc.
A – All that, he has done. He has taken everything on record. Stock statements, bank statements, bank’s certificates, copies of other important documents.
S – Then he need not worry. If the business has failed, what can he do?
A – Actually, the management was thinking of an IPO!
S – Very good. At least common investors will be saved.
A – But the real story is that there was a CBI raid on the company. The auditor was also summoned, and interrogated.
S – This is also common. But the auditor has to answer it without fear if he has done the job properly.
A – The shocking revelation was that the company did not have any real business at all! Everything was fake and fabricated. Bank statements, correspondence, banks certificates, contracts, licences, bills, invoices, vouchers and practically all records were false!
S – But what about those mines?
A – God alone knows. They showed some mines. What does an auditor understand about mines? When we go for stock taking, we are really not capable of understanding anything. It is a futile exercise. Even about machinery, what do we know?
S – Strange. Really intelligent, what massive planning!
A – I feel banks should have known this earlier. If there are no business transactions through a bank, they should know immediately. Yet they keep on renewing the facilities.
S – Actually, that underlines the importance of third-party evidence. Middle-level audit firms avoid writing directly to debtors, bankers, suppliers, and other concerned parties. They don’t verify records of other laws—like VAT, excise, labour laws.
A – But a fraudster can produce any fabricated documents.
S – Leave this extreme case alone. The fact remains that third party evidence can reveal so many things that are important for audit.
A – The moral of the story is that we should suspect everything. There is no use acting merely as a watchdog. We should becomebloodhounds only.
S – Times have changed. Bad elements are becoming stronger. Proportion of truth in every walk of like is reducing. This calls for ‘professional scepticism’ —don’t act too much in good faith.
A – The story is a real eye-opener. We must train our staff, try to follow all that we learnt in audit books, be more assertive with clients.
S – You said it! Ganesh festival is approaching. The Lord will save you only if you are alert and diligent. God bless you.
Om Shanti !
The above dialogue between Shri Krishna and Arjuna is a continuation of earlier dialogues published in BCA Journals of May 2013 and June 2013. It deals with the terminologies ‘gross negligence’ and ‘lack of due diligence’ used in Clause (7) of Part I of Second Schedule. This is the most important and serious charge of misconduct. Discussion on this clause will continue.
FROM THE PRESIDENT
Thou art the rulers of the minds of all people,
dispenser of India’s destiny.
Thy name rouses the hearts of Punjab, Sind, Gujarat
and Maratha,
Of the Dravida and Orissa and Bengal;
It echoes in the hills of the Vindhyas and Himalayas,
mingles in the music of Yamuna and Ganga and is
chanted by the waves of the Indian Sea.
They pray for thy blessings and sing thy praise.
The saving of all people waits in thy hand,
thou art the dispenser of India’s destiny,
Victory, victory, victory to thee.
Gitanjali
Where The Mind Is Without Fear
Where the mind is without fear and the head is
held high
Where knowledge is free
Where the world has not been broken up into
fragments
By narrow domestic walls
Where words come out from the depth of truth
Where tireless striving stretches its arms towards
perfection
Where the clear stream of reason has not lost its
way
Into the dreary desert sand of dead habit
Where the mind is led forward by thee
Into ever-widening thought and action
Into that heaven of freedom, my Father, let my
country awake.
Here’s wishing everyone happiness and love.
With Warm Regards
Naushad A. Panjwani
PART d: Good Governance
- Progress of Governance
Writing on Narendra Modi, Mr. Pavan Varma (former diplomat and currently adviser to the Bihar C.M.) writes-
And, finally—and this is something that touches the life of every Indian—of what good is governance if it revives communal strife thereby jeopardising the very project of governance?
- From TISCO’s annual report under the title “Governance Systems”
Policies
A number of policies have been put into place to ensure that governance standards are met. They are based on zero tolerance towards corruption and unethical behaviour. These include:
• The Gift Policy
• Whistle Blower Policy
• Whistle Blower Reward Policy
• Vendors Whistle Blower policy
• Sexual Harassment Prevention and Redressal Guidelines
PART C: Information on & Around
- Pending cases at magistrate courts in Mumbai:
In 75 magistrate courts in Mumbai as on 01-04- 2013, pending cases as per reply received to the query made under RTI are 3.82 lakh. As on 31- 07-2013 number is 3.72 lakh. When classified it reveals that 8464 cases are pending for more than 20 years, 51074 pending more than 10 years and 67721 are pending since more than 5 years. Highest number of cases, (11953), are in 26th court, Borivali and lowest, (102) in 19th court, Esplanade.
- Relief to sexual crime victims
Gopal Kansara has proved that RTI is potent weapon in the hands of humble citizens.
Acting on the 2011 Supreme Court directive to States to formulate a plan to provide relief and rehabilitate women who had been assaulted or raped, Kansara has used RTI to make sure the verdict is implemented. In the process, he has brought succor to a minor rape victim in his locality, a woman publicly molested in Guwahati and several trafficked children in Delhi.
“On January 2 this year, newspapers reported that a minor girl had been raped by a driver nearby. I wrote to the district collector seeking monetary relief for her,” said Kansara. As he got no response to his letter or fax, Kansara filed an RTI in February asking for a copy of the FIR, the medical report, action taken report and details of rehabilitation.
“After the RTI application, the collector wrote to the local authorities and Rajasthan chief minister. Soon Rs. 3 lakh was sanctioned for the girl and deposited in a bank,” he said.
He did something similar in the case of the public molestation of a 20-year-old girl outside a Guwahati pub by over a dozen men in mid-2012. “I did not know her, nor have I ever been to Assam. But I strongly felt I should do something. I filed an RTI application with the Assam government asking what relief had been given to her [as per the SC order]. Soon she was given Rs. 50,000 by the state government,” he added.
Since 2006, Kansara has filed more than 750 RTI applications on a range of issues and says he will continue to do so even though he has been threatened with murder several times. “The RTI has done what no other law in the country has done. It has made the common man a VIP. It has freed him from approaching local politicians every time for little things.”
- Refund of Security Deposit etc. by Kelkar College:
RTI activists, Ranjit Mahanti in reply to his RTI application to Kelkar College, Mulund was informed that data he had sought would require much work and asked him if the activist will pay for the expense involved in compiling information sought. Mr Mahanti had sought information from the college about the practice in refunding security deposit taken from its students. College replied:
“We wish to inform you that information required by you about security deposits is extremely large work. It may require one year’s time. It is not possible for us to complete this during our routine work, for which we have to appoint two additional employees on contract basis. Kindly let us know whether you are ready to pay for the expenditure towards this work for information required by you.”
In this connection it is worth noting the judgment of S.C. in the case of Institute of Chartered Accountants vs. Shaunak H. Satya reported in A.I.R. 2011 S.C. 3336, [RTIR IV (2011) 82 (SC)]
“One of the objects of democracy is to bring about transparency of information to contain corruption and bring about accountability. But achieving this object does not mean that other equally important public interests including efficient functioning of the Government and public authorities, optimum use of limited fiscal resources, preservation of confidentiality of sensitive information, etc. are to be ignored or sacrificed.“
PART B: RTI Act, 2005
- When the Government announced that it will bring the bill in the Parliament to do away with the decision of CIC ruling that political parties are covered u/s 2(h) of the RTI Act (see BCAJ of July 2013) RTI Activists all over the country huddled together in a group and held the view that it is appropriate that political parties should be considered as “public authority”. Disregarding civil society’s strong objection as all political parties are in favour of exempting themselves from the RTI Act, Government tabled the bill in the Lok Sabha on 14-08-2013. Same reads as under:
BE it enacted by Parliament in the Sixty-fourth year of the Republic of India as follows: –
1. (1) This Act may be called the Right to Information (Amendment) Act, 2013 (2) It shall be deemed to have come into force on the 3rd day of June, 2013.
2. In section 2 of the Right to Information Act, 2005 (hereinafter referred to as the principal Act), in clause (h), the following Explanation shall be inserted, namely:-
‘Explanation- The expression “authority or body or institution of self-government established or constituted” by any law made by Parliament shall not include any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951.’
3. After section 31 of the principal Act, the following section shall be inserted, namely:-
“32. Notwithstanding anything contained in any judgment, decree or order of any court or commission, the provisions of this Act, as amended by the Right to Information (Amendment) Act, 2013, shall have effect and shall be deemed always to have effect, in the case of any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951 or any other law for the time being in force and the rules made or notifications issued thereunder.”
It is interesting to note that Prime Minister in his Independence Day speech on 15-08-2013 covered RTI as under:
“Through the Right to Information Act, the common man gets more information than ever before about the work of the government. This legislation is being used on a large scale at all levels. The Act frequently brings to light irregularities and corruption and opens the door for improvements. I am sure that the RTI will lead to further improvements in the way the government functions.”
Isn’t this a contradiction that in his speech he states “I am sure that the RTI will lead to further improvements in the way the government functions,” while by introducing the RTI Amendment Bill it excludes the way political parties function?
• In BCAJ of June 2013, it was reported that online RTI facility is created by the Government. The portal is a facility for Indian citizens to file RTI applications online and first appeals and also to make online payment of RTI fees. The facility was then made available only by a few ministries/ departments.
Now DoPT has extended facility of online filing of RTI Application and the first appeal to all ministries. Office Memorandum, dated 30-07-2013 reads as under:
Subject: Extension of RTI web portal for online filing of RTI application.
1. In continuation of this Department’s O.M. of even number dated 22-04-2013, it is intimated that the facility of RTI online web portal has been extended to 37 Ministries/ Departments of Government of India, so far (list enclosed). It is planned to extend this facility to all the remaining Ministries/Departments of Government of India by mid-August, 2013. This facility is presently not proposed to be extended for field offices/attached/subordinate offices.
2. It is again requested that training to all the CPIOs and First Appellate Authorities (FAAs) may be provided by the concerned Ministry/ Department, through the officials trained by DoPT/NIC. If required, further training can be provided by DoPT/NIC, on the request of the concerned Ministry/Department. User name/ password to all the CPIOs and FAAs are to be provided by RTI Nodal Officers of the concerned Ministry/Department. It is imperative that the RTI Nodal Officers update the details of the CPIOs/ FAAs in the system and issue user name and password to them at the earliest.
List of 37 ministries/departments include: –
1. DEPARTMENT OF ECONOMIC AFFAIRS
2. DEPARTMENT OF REVENUE
3. DEPARTMENT OF HEAVY INDUSTRY
4. MINISTRY OF SHIPPING
5. MINISTRY OF CORPORATE AFFAIRS
Full list & further details can be viewed on https:// rtionline.gov.in
• Mrs. Deepak Sandhu succeeds Shri Satyananda Mishra as Chief Information Commissioner at Central Information Commission.
From published accounts
Losses on account of Robbery of Plant and Machinery, Factory shed and building etc.
Vikash Metal & Power Ltd (15 months ended 30-06-2012)
From Notes to Financial Statements
As the incident of the Robbery had taken place on 12th April, 2012, depreciation on the item lost was taken till that date and removed from the gross block and accumulated depreciation and booked as Loss Due to Robbery under Extraordinary Item. The Written Down Value as on date of incident was booked as Loss under the Profit & Loss Account. The company has filled the Insurance Claim but as the company predicts the time period will be long to get the claim thus loss was booked to show the clear picture of Financial Statements
Note on inventories:
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a) Raw Materials b) Work in progress c) Finished goods d) Stock in trade f) Others (Steel Scrap) |
C.Y (Rs.) – – – – – – |
P.Y (Rs.) 684,043,644 12,556,443 396,346,810 1,916,244 13,746,757 108,972,788 – 1,217,582,686 |
From Auditor’s Report
1. We have audited the Balance sheet of VIKASH METAL & POWER LIMITED as on 30th June, 2012 and also the Profit & Loss Account and the Cash Flow Statement for the period from 01.04.2011 to 30.06.2012, annexed thereto. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
2. We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards required that we plan perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion but restricted to the following:-
Since in the referred period, a major incident took place at the work site of the company. A robbery took place at the works site and major parts of plants has been reported lost and looted thus putting the question on the going concern concept of the company and moreover the company operation was suspended from October, 2011.
The management of the company has explained to us that in the said robbery, many important papers were found missing and the company is trying to recreate all the missing papers.
Further, the management has explained that during the said period the company has loss to tune of Rs. 16,064.84 lakh which has eroded the company capital and the net worth becomes negative and still the liabilities on the company are huge. The company is indebted to bankers; statutory liabilities are also here and not being paid up from more than six months and outstanding liabilities to many trade payables which is again a point of concern.
4. Further to our comments in the annexure referred to in paragraph 3 above, we report that:
a) The management could not provide us all the information and documents due to papers destroyed in robbery as explained by the management.
b) Limitation of Scope, In our opinion, proper books of account, are maintained as required by law, and kept by the Company so far as appears from our examination of those books kept at the company’s office, but we are unable to form any opinion on factory accounts as we were not in a position to examine the books kept at factory due to its destruction during robbery.
c) The management has not ascertained the impairment loss, if any, required to be provided form in accordance with the requirement of mandatory Accounting Standard-28 “Impairment of Assets” issued by the Institute of Chartered Accountants of India. In view of it involving judgment of the management, we are unable, to quantify the same;
d) As explained by the management, no actuary valuation for gratuity has been made by the actuarial as no employees was there as on 30th June, 2012.
e) The Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts maintained.
f) In our opinion, the Balance Sheet, Profit & Loss Account and Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in s/s. (3C) of Section 211 of the Companies’ Act, 1956;
g) On the basis of the written representations received from the directors and taken on record by the Board of Directors, none of the directors of the Company is disqualified as on 30th June, 2012 from being appointed as a director in terms of clause (g) of s/s. (1) of Section 274 of the Companies Act, 1956;
h) In our opinion and to the best of our information and according to the explanation given to us, the said statement of accounts, read with the Accounting Policies & Notes thereon, give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principle generally accepted in India:
1) in the case of the Balance Sheet, of the state of affairs as on 30th June, 2012,
2) in the case of the Profit and Loss Account, of the Company for the period from 01-04-2011 to 30-06-2012, and
3) in the case of the Cash Flow Statement, of the cash flows of the Company for the period from 01-04-2011 to 30-06-2012.
Society News

L to R: Mr. Himanshu Kishnadwala (Speaker), Ms. Nina Kapasi (Speaker), Mr. Gautam Nayak, Mr. Naushad Panjwani (President) and Mr. Jagdish Punjabi
The Taxation Committee at BCAS had organised a full-day workshop for students and fresh Chartered Accountants on “How to conduct a Tax Audit”. This workshop was intended to revisit the nuances of Tax Audit in light of the revised Guidance Note issued by the ICAI as well as the e-filing procedures recently prescribed. The speakers amplified the knowledge of the audience with their rich experience and case studies.
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Himanshu V. Kishnadwala |
Overview and expert |
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observations on the |
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including the recent |
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note issued by the |
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Anil J. Sathe |
Overview and expert |
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observations on the |
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clauses of Form 3CD |
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the recent guidance |
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by the ICAI |
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Sonalee A. Godbole |
Tax Audit – Clause – 12A to 21, 25 |
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to 27 |
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Nina P. Kapasi |
Discussion on 3CD Clauses – 1 to |
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Samir L. Kapadia |
E-filing of Tax Audit Report |
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first time, a practical demonstration was given for e-filing of the tax audit report which was appreciated. Considering the popularity of this workshop held in the past, this year a bigger venue was chosen in the western suburbs (Vile Parle) wherein more than 400 participants benefitted from the workshop.
The video recording of the same is available at www.bcasonline.tv to all subscribers.
Tree Plantation-Visit to Dharampur, 2nd August 2013
The Human Resource Committee of the Society, in their pursuit to contribute to the conservation of nature and rural economic development, organised a tree-plantation programme at Dharampur – Pindval on 2nd and 3rd August 2013, with the support of the Sarvodaya Parivar Trust.
This was a landmark project of planting about 25,000 trees of different types with the twin purpose of developing Gram Vans on village land (to take care of environmental crises) as well as carrying out captive plantation on the land of farmers.
The members of BCAS and their friends donated generously for the project in their endeavour to contribute to this noble task. The group of 15 members from BCAS, looking ahead for active participation in the venture, visited Dharampur.
They distributed 1,500 saplings of mango trees to the farmers. Along with the farmers of village, they planted some mango trees. It was indeed a most satisfying feeling to be with those farmers on the field for a few hours and touch the roots of their life.
They had also great opportunity of sparing time at Nandigram and had a chance of sharing time with Smt. Kundanikaben Kapadia who is the founder trustee of Nandigram. Along with the earlier efforst of Respected Late Shri Makarandbhai Dave, she has also dedicated her life for the upliftment of this tribal area.
We learned about the fantastic contribution of these NGOs towards rural economic development, nursery developments, healthcare, education, environment and water management, among other areas.
It was an excellent, enriching, elevating and divine experience for the participants.
17th International Tax & Finance Conference, 2013
The 17th Residential International Tax & Finance Conference organised by the International Taxation Committee from 15th August to 18th August 2013 at ITC Rajputana, Jaipur, received an enthusiastic response from over 180 participants from various parts of India including Hyderabad, Bangalore, Chennai, Coimbatore, Delhi, Ahmedabad, Pune, Goa, Secunderabad, Jamnagar, Kolkata and Mumbai.
The following papers were presented by eminent faculties:
Papers for Group Discussion
• Recent trend in Indian Treaties including Tax Information Exchange Agreements by Mr. T. P. Ostwal who analysed recent trends in Indian tax treaties in respect of various topics such as taxation of partnership firms, persons covered, appropriate adjustments arising from transfer pricing additions, anti-abuse provisions, user-based royalty, service PE and automatic review of treaty provisions. The faculty also dealt with Tax Information Exchange Agreements including Foreseeable relevance and concept of Fishing Expedition.
• FII, Participatory Notes, Private Equity – Structuring, regulatory and taxation aspects by Mr. Siddharth Shah who dealt with regulatory framework of foreign investment into India such as FDI, FVCI, FII & QFI, indirect FDI, FVCI investment into VCF, FII regulations, FII investment under FDI route, investment in NCDs, Participatory Notes and Derivative Instruments, domestic PE investments, structuring for PE funds and key taxation issues.
• Cross border outsourcing— Tax aspects including transfer pricing—Case Studies by Mr. Padamchand Khincha who analysed intricate issues in respect of outbound outsourcing such as interplay of sections 5 and 9, detailed analysis of section 9, treaty provisions, other relevant areas of concerns such as reimbursement of expenses whether taxable as FTS, location savings, employee secondment or deputation, body shopping and transfer pricing.
• Cross Border Merger/ Demerger—Tax and relevant regulatory aspects by Mr. Pranav Sayta who presented intricate case studies involving issues such as indirect transfer, investments structured by way of CCPS or CCD, taxation of dividend, inbound and outbound mergers and demerger of a PE by a foreign company.
Papers for Presentation
• Real estate investment in India—Structuring, regulatory and taxation aspects presented by Mr. Nishchal Joshipura who covered regulatory milestones, various investment regimes, types of instruments, FDI policy on real estate, permitted investments, NCD structure & comparison with CCD, FII vs. QFI, Singapore listing, regulatory & tax challenges and key structuring issues.
• The Foreign Account Tax Compliance Act (FATCA) of the US including Bilateral FATCA Agreements presented by Mr. Sunil Kothare on behalf of Mr. David Weisner where the learned faculties highlighted key provisions of the FATCA and implications in India.
The participants gained rich knowledge from the knowledge and experience shared by eminent faculties, group discussions and informal interactions. The audience also appreciated the overall ambience and comfort at the venue.
Representation
13th August 2013
To,
The Hon’ble Chairperson
Central Board of Direct Taxes
North Block, Parliament Street,
New Delhi – 110001.
Madam,
1. Hardships in respect of Electronic furnishing of the report of audit under section 44AB, 92E or 115JB of the Act
1.1 Proviso to Rule 12(2) of the Income-tax Rules, 1961 [the Rules], inserted by IT (Third Amdt.) Rules, 2013 notified on 1-5-2013 w.r.e.f. 1-4-2013, provided as under:
“Provided that where an assessee is required to furnish a report of audit under section 44AB, 92E or 115JB of the Act, he shall furnish the same electronically.”
1.2 After the notification, the forms and the utility files were hosted on the efiling website in the month of July 2013 and have undergone several changes. After each change, an assessee, who has partly filled in a report but has not uploaded it, is required to re-feed the entire data, verify and then upload in the latest version for the report to be furnished on the website.
1.3 Considering the time involved in re-entering the voluminous data in the specified format for uploading the reports in Form 3CD, considerable time will be required by each assessee / tax practitioner / Chartered Accountant to upload a tax audit report.
1.4 In addition, there are many issues / difficulties in filling in the various clauses / columns of electronic Form 3CD, which requires immediate attention and clarification. For example:
i) Attachment of the Financial Statements – It is not clear as to whether the Financial Statements to be attached MUST BE A SCANNED COPY of manually signed statements or a PDF file digitally signed will be treated as sufficient compliance.
ii) Clause 14 – Depreciation – There is no column to give details of additional depreciation. Whether date wise details of all the minor items of additions to fixed assets are to be given? This data could run into a few thousands for many businesses, and would take substantial time to reenter. Is there any limitation on the number of items one can enter?
iii) Clause 15 – Under sub clauses a) & b) is it necessary to select each section & put ‘0’ in the amounts column if there is nothing to report under this clause? Or can we simply skip filling any information in this clause?
iv) Clause 17 & 17A – Under sub clauses a) & b), h)B) of Clause 17 & Clause 17A, it is normal practice to give appropriate comments by the assessee / tax auditor. But for e filing form, the space provided is not sufficient. So in that case is it proper for the assessee tax auditor to keep the appropriate comments / remarks / explanation in the hard copy but in the online form we only fill “NIL’ or ‘0’?
v) Clause 19 – Under this clause whether we have to select each section and fill NIL ‘0’ or we can skip filling this clause, if there is no information to be reported?
vi) Clause 21 – Under sub clause (i)(B) (b), normally the Tax Auditor fills the information till the date of signing of the Audit Report. If the payment is made after the date of Audit Report but before the due date of filing ITR u/s 139(1) of the Act the same is allowed u/s 43B of the Act. Now if the Tax Audit Report is signed on 20.6.2013 and the amounts unpaid are shown under the above sub clause and the Form 3CD is being uploaded on 16.8.2013, by which time the said amounts have already been paid, what information should be filled in this sub clause? Further suppose the payment is not yet made, and the Form 3CD is uploaded on 16.8.2013 and the assessee makes the payment after 16.8.2013 but before 30.9.2013, and while uploading the ITR does not disallow the amounts u/s 43B of the Act, will there be a problem of disallowance while processing the ITR by CPC, Bengaluru?
vii) Clause 24 – Under sub clauses a) & b) if the loan is accepted or repaid by way of any journal / transfer entry or electronic funds transfer, the remark to that effect is given in Tax Auditor’s report. However, in the e filing of the Form 3CD, the assessee/ tax auditor has to only state whether the amount was accepted / repaid by otherwise than by account payee cheque or demand draft, and options available are only ‘Yes’ or ‘No’. In this case, selection of option ‘No’ without appropriate remarks may lead to penal proceedings under the Act.
viii) Clause 27 – Under sub clause a), the tax auditor normally gives the appropriate remarks/comments/explanation in this regard. But in the online form 3CD, only ‘Yes’ or ‘No’ options are provided under this sub clause. So in that case is it proper that in tax auditor’s hard copy he keeps the appropriate remarks / comments / explanation, but in the online form he only fills “Yes’ or ‘No’?
ix) Clause 27-Sub clause b)(ii) – Besides the normal short deduction, a Tax Auditor normally reports the cases wherein the tax is deducted under wrong section resulting in short deduction, e.g. if tax is deducted u/s 194C instead of u/s 194J. However, in the online form 3CD, short deduction only in the respective section can be reported. Under these circumstances, how does one report the fact of short deduction due to wrong section?
x) Clause 27 – Sub clause b)(iii) – In addition to the late deduction, the tax auditor normally gives the information about tax deducted but paid late i.e. after the due date of payment. However, there is no such option in the online form 3CD. In that case is it proper that the tax auditor gives this information in the hard copy but no reporting is done in the online form3CD?
xi) Clause 27 (b)(iv) – Normally nowadays there is no such situation wherein tax is deducted but not paid to the Central Govt. as in such a situation the entire expense gets disallowed. However, it is possible that till conclusion of the Tax Audit Report, the TDS may not have been paid. So in a situation wherein the Tax Audit Report is finalized on 20.6.2013, and under this clause a default is reported. Till uploading of the online Form 3CD, say on 16.8.2013, the TDS is not paid. The assessee pays the TDS after 16.8.2013 but before 30.9.2013 and uploads the ITR without disallowing any amount U/S 40(a)(ia). What will be the consequences?
xii) Clause 28 – This clause deals with quantitative details. In case of Trading / Manufacturing Unit normally the data is available. But if the same is not available, the tax auditor simply reports “Information Not Available”. Now the questions are 1) If the data is not available at all till uploading of the report, can a tax auditor skip this clause? 2) If the data is made available after signing of the Tax Audit Report but before uploading the Form 3CD, whether the same should be filled in? In that case, whether the signed Tax Audit Report needs to be revised?
xiii) Clause 28(b)(A) – In case of manufacturing assessees, if yield is more than 100%, the utility does not accept it.
xiv) Clause 32 – In case of service industry or professionals, normally the tax auditors report states that “The activity of the assessee is neither trading nor manufacturing – as such these ratios are not applicable.”
In the online filing there is no space for this comment. In this situation can a tax auditor simply skip this clause? In that case, is it proper that a tax auditor gives this statement in the hard copy but no reporting is done in the online form3CD?
xv) In addition, many other clauses of Form 3CD need appropriate disclosures by way of Notes etc. No disclosure can be made unless space is provided in required fields, e.g. Disclosure of section 145A, Payments made by cheque or bank draft for section 40A(3), 269SS and 269T, etc.
xvi) The Annexure II is still part of the Form 3CD. However, from A.Y. 2010-11 the provisions of FBT are made ineffective. The online Form 3CD also does not provide this Annexure II. What is the exact position? Are tax auditors supposed to report NIL under this annexure? Normally, tax auditors report NIL and the fact that provisions of FBT are made ineffective from A.Y. 2010-11 is also reported.
1.5 Certain voluminous data needs to be keyed in into the utility, such as asset wise addition to fixed assets, which would take a considerable amount of time for many assessees. Presently, no software is readily available which will automatically convert existing tax audit reports in word or excel format into xml files.
1.6 Suggestions
a. In view of the above difficulties/issues, it is suggested that the requirement of furnishing report of audit electronically be made applicable from Assessment Year 2014-15 (i.e. next year) onwards, by which time appropriate software would be available for conversion.
b. Alternatively, the due date for furnishing the report of audit be extended to 31st December 2013 instead of 30th September 2013 (i.e. extension of three months for furnishing the report), while the return can still be uploaded by the due date of 30th September/30th November, as the case may be.
c. Clarification should be issued immediately in respect of various issues arising in respect of electronic filing of Form 3CA/3CB/3CD, as pointed out above.
2. Schedule AL in Form ITR-3 & ITR-4
2.1 From Assessment Year 2013-14, in Return Forms ITR 3 and ITR 4, an additional Schedule AL is inserted. In cases, where the assessee’s total income exceeds Rs. 25 Lakh, he is required to disclose the cost of certain assets, which are not business assets, which includes cost of Land, building, balance in bank, shares and securities, Insurance policies, loans and advances given, cash in hand, jewellery, bullion, drawings, painting, vehicles, yachts, air crafts, etc.
2.2 There are various issues / difficulties in giving the cost of certain assets mentioned above, some of which are as under:
i) Insurance policies: What is the meaning of ‘cost’ of life insurance policy? Whether bonus to be included? It is not clear whether the premiums paid, or the surrender value or the maturity value is to be mentioned. Premiums may have been paid by either parent or spouse, and may not necessarily have been paid by the assessee. It is not clear as to what the cost should be taken as in such cases. Whether only life insurance or also general insurance?
In cases of partial cash back received, whether cost to be reduced? By amount of cash back or proportionately?
ii) Land/ building and Jewellery / bullion: These may have been acquired by way of gift or inheritance. The cost would be zero in such cases. In case of self acquired assets, the exact cost may not be known if the property is old and same is not shown in personal Balance Sheet of the assessee. It is also not clear whether it includes property agreed to be purchased – possession & conveyance pending? Whether includes property agreed to be purchased & possession taken – conveyance pending? Cost – whether payment yet to be made to be included? In relation to Cost – whether includes stamp duty, registration fee, transfer fee, brokerage? Whether pre-EMI interest on housing loan forms part of cost? Whether interest on loan for purchase of land forms part of cost? All this need clarification.
iii) Archaeological Collections, Drawings, Paintings, Sculptures, Works of Art: Many works of art may have been received as gifts, etc. from friends or relatives. The schedule does not draw any distinction between works of art costing a few hundred rupees, and works of art costing a few thousand rupees. Assessees may not have details of the cost of inexpensive works of art. It is also not clear whether the following have to be included:
• Stamp Collections
• Coins/Currency Note Collections
• Valuable Old Edition Books, Maps
• Photographic Collections etc.
iv) Deposit in banks: It is not clear whether the Savings bank balances to be mentioned have to be – as per bank passbook/ statements or as per personal accounts of assessee? Fixed Deposits – whether interest accrued to be added? PPF Account/ Senior Citizens Savings Scheme Account with banks – whether to be included? Whether Post Office MIS Deposits or Savings Accounts to be included?
v) Loans and Advances given: Interest bearing as well as interest free loans to be taken.
Whether to include loans to partnership firm by partner? Advances for purchase of property/other assets – whether to be taken?
vi) Whether in case of non-residents, foreign assets and liabilities are to be included in this schedule? How to disclose assets received as gift/inheritance?
In addition, there are various other practical difficulties in filling up this schedule.
2.3 Suggestions:
a. It is therefore strongly suggested that further thought needs to be given to the applicability of this schedule and hence Schedule AL should not be mandatory for Assessment Year 2013-14.
b. Schedule AL should be made applicable from Assessment Year 2014-15 to all taxpayers with income exceeding Rs. 50 lakh.
c. Clarifications should be issued in respect of various issues in this regard particularly, what is meant by cost in different situations, with an additional column of remarks in the ITR, so that the assessee can make appropriate disclosure.
3. Today there is no provision for making disclosure of certain debatable claims while filing the income tax returns. At times, this gives rise to unnecessary litigation regarding levy of penalty u/s.271(1)(c) for concealment. In such cases, though there is no intention to conceal, no disclosure can be made on account of the e return format.
Just as in the case of tax audit report, where scanned copies of signed accounts have to be annexed, provision should also be made in the e return for attaching a pdf statement making disclosures which the assessee desires to make. This will avoid unnecessary litigation.
In view of above, we therefore request you to grant extension of time for filing Report u/s 44AB & 115JB at the earliest, to defer the applicability of the Schedule AL to AY 2014-15 and to permit filing of disclosures in pdf format as attachments to the e return. Your early action in this regard shall be highly appreciated.
Yours truly,
For Bombay Chartered Accountants’ Society
Naushad Panjwani
President
Gautam Nayak
Chairman
Taxation Committee
ICAI and its members
The Ethical Standards Board of ICAI has given answers to some ethical issues raised by our members. These are published on pages 226 to 228 of C. A. Journal for August, 2013. Some of these issues are as under:
Issue:
What is Code of Ethics?
Every profession has its own Code of Ethics. The Chartered Accountants Act, 1949 has been enacted by Parliament for the regulation of the profession of Chartered Accountants and for the purpose of carrying out the object of the Act, the Chartered Accountants Regulations, 1988 have been enacted. The Act has two schedules i.e., First Schedule and Second Schedule.
The first Schedule has four parts:
Part I – Professional misconduct in relation to Chartered Accountants in Practice.
Part II – Professional misconduct in relation to Members of the Institute in Service.
Part III – Professional misconduct in relation to Members of the Institute generally.
Part IV – Other Misconduct in relation to the Members of the Institute generally.
The Second Schedule has three parts:
Part I – Professional misconduct in relation to Chartered Accountants in Practice.
Part II – Professional misconduct in relation to Members of the Institute generally.
Part III – Other misconduct in relation to members of the Institute generally
These two schedules along with the decisions of the Courts on profession misconducts, decisions, directions, guidelines, statement, clarifications and also interpretations of the Council on the various clauses of these two schedules constitute the Code of Ethics for the accountancy profession.
Issue:
What is Professional or other misconduct?
Section 2 of the Act defines professional or other misconduct as follows:
For the purposes of this Act, the expression “professional or other misconduct” shall be deemed to include any act or omission specified in any of the Schedules, but nothing in this section shall be constructed to limit or abridged in any way the power conferred or duty cast on the Director (Discipline) u/s.s. (1) of Section 21 to inquire into the conduct of any members of the Institute under any other circumstances.
What constitutes “misconduct under any other circumstances” has to be determined on a caseto- case basis keeping in view the facts of the circumstances of each case. Fraud, intention to deceive and committing an act which affects the public or society at large could be in the ambit of such misconduct. Following are few examples of “misconduct under any other circumstances” by a member:
1. Conviction by a competent Court for an offence involving moral turpitude punishable with imprisonment or for an offence not of a technical nature committed by a member in his professional capacity.
2. Retention of books and documents of the client and failure to return these to the client on request without a reasonable cause.
3. Material misrepresentation e.g. misrepresenting to a firm, while seeking employment as an accountant, that he has worked for three years as a senior assistant with another firm.
4. Publishing an advertisement in a newspaper with mala fide intention to malign any person.
5. Using objectionable, derogatory and abusive language or/and making irrelevant, incoherent, irresponsible and insane statements in his correspondence with a person.
Issue:
Whether a member in practice is permitted to undertake the management of NRI funds?
No, the member is not permitted to undertake such assignment because the same is not covered under “Management Consultancy and Other Services” permitted to be rendered by the practicing members of the Institute.
Issue:
Can a Chartered Accountant provide ‘Portfolio Management Services’ (PMS) as part of CA practice?
No, the Explanation to Clause (xix) of the definition of “Management Consultancy and other Services” expressly bars the activities of broking, underwriting and Portfolio Management.
Issue:
Whether a Chartered Accountant in practice is not required to obtain any trade license for practicing?
No, a Chartered Accountant in practice is not required to obtain any trade license for practicing as a professional. The certificate issued by the Institute is the only requirement to practice as a Chartered Accountant.
Issue:
Can a Chartered Accountant in practice work as a Collection Agent/Recovery Agent?
No, a Chartered Accountant in practice cannot work as a Collection Agent. However, he can act as a Recovery Consultant as provided in clause (xxv) of “Management Consultancy and other Services”.
2. EAC Opinion:
Adjustment of losses on Sale of Fixed Assets, Writing-Off Inventory and Doubtful receivables against Capital Reserves Arising Out of Acquisition of Business, Capital Redemption Reserves and Revaluation Reserves.
Facts
A company (hereinafter referred to as ‘the company’) is a 50:50 joint venture between two companies. The company is in the business of manufacture and sale of power/telecom cable joining kits, transformers, gas meters, energy meters & corrosion protection products and providing services. During the financial year 2010- 11 (i.e., w.e.f. 24th September, 2010), the company acquired the energy business, consisting of manufacture and sale of connectors, fittings and insulation products from another company, ‘A’ Pvt. Ltd, Bangalore, on a going concern basis under slump sale agreement. Based on valuation report from an independent valuer, the company has recognised fixed assets, inventories and liabilities at fair value and a capital reserve of Rs. 1476.72 lakh being excess of assets acquired over purchase consideration paid. A part from the above-mentioned capital reserve, the company also has capital redemption reserve and revaluation reserve in its books as on 31-03- 2011. This break-up is as follows:
Revaluation reserve 82.17
Capital redemption reserve 250.00
1,808.89
2. During the financial year 2012-13, the company has passed the following two entries by debiting the above capital reserve:
(i) Non-moving inventory acquired out of the above acquisition amounting to Rs. 1,06,813.10 written off by debiting the above capital reserve.
(ii) Fixed assets acquired out of the above acquisition have been scrapped and loss amounting to Rs. 1,04,117.81 has been debited to the above capital reserve.
Query
In this context, the querist has sought the opinion of the EAC as to whether the correct accounting treatment has been applied by the company by debiting the above-mentioned reserves as per the provisions of the Accounting Standards and the Companies Act or any other law?
Opinion:
The Committee noted that the basic issue raised by the querist relates to adjustment of losses on sale/disposal of fixed assets, writing-off inventories and old and doubtful receivables against capital reserves created from business acquisition, and capital redemption reserves and revaluation reserves already standing in the books of the company.
The Committee notes that the Companies Act, 1956, does not specifically contain any provision for utilisation of capital reserve and revaluation reserve, Further, the Companies Act, 1956, does not envisage utilisation of capital redemption reserve for writing-off losses on sale of fixed assets as well as for writing-off inventory and doubtful receivables.
As regards accounting for non-moving inventories, the Committee is of the view that these represent obsolescence of inventories which would be reflected in the determination of net realisable value of the inventories. In the context of writing down the inventories to their net realisable value, the Committee after considering paragraphs 5 and 12 of Accounting Standard (AS) 5, ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’, notified under the ‘Rules’, is of the view that write-off of non-moving inventory should be included in the statement of profit and loss.
Further, as regards write-off of inventories due to shortages observed in the acquisition of business and writing off of old and doubtful receivables, the Committee is of the view that these represent losses. The Committee after considering paragraphs of the Framework for the Preparation and Presentation of Financial Statements, issued by the Institute of Chartered Accountants of India, is of the view that losses also represent expenses and accordingly, these should be charged to the statement of profit and loss as per the requirements of paragraph 5 of AS 5.
Accordingly, the Committee is of the view that any write-off of inventories and receivables cannot be adjusted against capital reserves, capital redemption reserves and revaluation reserves.
[Please refer to pages 263 to 265 of C.A. Journal, August vbn, 2013]
3. ICAI News:
a) Non-applicability of SA 700 on Tax Audit Reports:
The members are well aware that all audit reports in respect of audits of financial statements for the period beginning on or after 1st April, 2012 have to be issued in accordance with the requirement of SA 700 (Revised) – “Forming on opinion and Reporting on Financial Statements”. The ICAI has clarified that since all the tax audit reports i.e., Form No./3CA/3CB are now mandatorily required to be filed online and that format of tax audit report is prescribed by the Central Government requires suitable changes in the forms, the applicability of SA 700 (Revised) on tax audit report is deferred by one year.
[Refer Page 203 & 204 of C. A. Journal, August, 2013]
b) Examination Results:
Results of C. A. final and CPT examinations held in May, 2013 have been declared in July 2013. The details of percentage of candidates passed along with percentage are given below:
c) Certificate course on concurrent Audit of Banks:
Members can take advantage of certificate course conducted by ICAI on Concurrent Audit of banks
[For details, refer Page 341 of C. A. Journal, August, 2013]
d) New ICAI Publications:
i) Compendium of Implementation Guides to Engagements and Quality Control Standard
ii) Implementation Guide to Standard on Auditing (SA) 501 “Audit Evidence – Specific Consideration for Selected Items”
iii) Compendium of Technical Guides on Internal Audit (Five volumes)
iv) Compendium of Standards on Internal Audit
[Please refer pages 347 & 348 of C.A. Journal, August, 2013]
Direct Taxes
The Double Tax Avoidance Agreement signed between Estonia and India on 19th September, 2011 has been notified to be entered into force on 20th June, 2012. The treaty shall apply from 1st April, 2013 in India.
DTAA between India and Lithuania notified : Notification No. 28/2012 dated 25th July, 2012
The Double Tax Avoidance Agreement signed between Lithuania and India on 26th July, 2011 has been notified to be entered into force on 10th July, 2012. The treaty shall apply from 1st April, 2013 in India.
Income tax (Eighth amendment) Rules, 2012 – Amendment in Rule 12 and substitution of ITR 7 – Notification no- 29/2012 [F.No. 142/31/2011-TPL] dated 26th July, 2012
Due date of filing returns for assessee required to file their return by 31st July extended till 31st August 2012 – Direct Tax Order F.No. 225-163-2012-ITA.II dated 31st July, 2012
Disallowance of expenses u/s 37(1) incurred in providing freebees to Medical Practitioner by pharmaceutical and allied health sector Industry – Circular No. 5/2012 dated 1st August, 2012
The Medical Council of India (Governing Body) has imposed a prohibition on the medical practitioner and their professional associations from taking any Gift, Travel facility, Hospitality, Cash or monetary grant from the pharmaceutical and allied health sector Industries. It has been clarified by the Board that in cases where such freebees are provided, such expenses would be disallowed as per the provisions of section 37(1) read with its Explanation. Since such expenses would be covered under “prohibited by any law”, and cannot be claimed as business expenses. Further, the AOs of such medical practitioners and their professional associations have been directed to look into and consider the value of such freebees as either business income or income from other sources as the case may be.
Mandatory E-filing of return of income by representative assessees of non-residents and in the case of private discretionary trusts relaxed for assessment year 2012-13 – Circular No. 6/2012 [F.No. 133/44/2012-SO (TPL)] , dated 3rd August, 2012
It would not be mandatory for agents of nonresidents, within the meaning of section 160(1) (i) of the Income-tax Act and for ‘private discretionary trusts’ to electronically furnish the return of income for assessment year 2012-13, though its total income exceeds Rs 10 lakh.
Tax Information Exchange Agreement (TIEA) entered with Guernsey – Notification No. 30 dated 9th August 2012 – India has entered into a TIEA with Guernsey for sharing of information with respect to taxes. The Agreement shall enter into force from 11th June, 2012.
Business Etiquette
Mobile phone etiquette
It was not a long time ago that there were training sessions on how to speak on the landline telephone. While technology is making landline telephones obsolete with introduction of mobile phones, fundamentals have not changed on how to communicate effectively on the phone. In fact, the need to know basic etiquette norms for handling conversations on the mobile phones has increased because of breach of privacy it can create. Hence, while some basic etiquette, such as speaking softly, introducing yourself if you are the caller and always asking for the person by his name followed by a designation when dialling a board-line in large organisations is taken for granted, some of the points that one must bear in mind about mobile etiquette are discussed below.
- Always ask whether the receiver is comfortable taking the call at that time. If not, find out what time would suit him.
- Please be careful in selection of the ring tone of the mobile. A wild ring tone will be very embarrassing in the business circle and will not be appreciated, as it could label you as frivolous. Imagine the negative impact a ring tone of a crying baby can create when you are in public place with business associates. As a professional, your ring tone as well as caller tune should be as sober as possible since it reflects who you are and your work culture.
- Always keep your mobile on silent or vibration mode during business meetings or while in club, auditorium, hospital or dispensary. Sometimes mobile phone usage is prohibited at certain public places, especially overseas; hence it is better to check the signs before using the mobile. For instance, there are some compartments in long-distance trains abroad where mobile phones are not allowed to be used.
- Do not ever listen to music on mobile phone at a public place without using headphones.
- If your phone is not responded, follow up by a text message with a request to call up when free. If your call is diverted to a voice mail, then leave a brief message as to why you called up and end with a date and time. If there is urgency, then state that on the voice mail. For instance, you may say that you called up to inform that you have not received the missing information which is required for submission of appeal and you should be contacted urgently to discuss the same.
- Do not take a call when you are in an important business meeting or consultation. It is extremely insulting and irritating to other members. If still unavoidable, then excuse yourself, walk away a short distance and quickly finish the call. Do not let it happen too frequently.
- While sending text messages, be brief and discreet. Never send any message of a sensitive nature. It is better to convey such message during one-on-one conversation. The reason is that you do not have control over the confidentiality on the recipient’s mobile.
- If you have put the call on a speaker phone, then inform the other side. Unaware, he could blurt out something that might not be appropriate for others to hear.
Etiquette for business meeting
It is important to set the agenda for the business meeting and set the time duration in advance. This is expected to be generally done by the initiator in consultation with the person with whom meeting is requested. It is always preferable to clarify whether any special hardware/software or Internet will be required during the meeting, so that arrangements could be made in advance. Having a back-up arrangement, should something fail, always saves embarrassment.
Be punctual. In case of an unavoidable delay, call up, apologise and request for revised time. If meeting for the first time, remember a few protocols. The host should introduce himself first with the guest and then his colleagues. The guest should then introduce his colleagues to the host and allow his members to self introduce to the members from the host side. Exchange of visiting cards should be done with the right hand or both hands with a slight bow. Do not put the visiting card in the wallet if you are a male. It literally means that you are sitting on someone in your pocket. As far as possible, let the visiting card remain in front of you on the table during the meeting, so that you are constantly reminded of the name and designation of the other person. It is advisable to distribute your card only to the main member and not to all the participants in the meeting unless asked specifically by someone.
In formal meetings, wait for the Chairman to take the seat and sit where directed. Never jump to business talk without a few positive and polite statements of gratitude and appreciation. There are a few ice-breakers or a small talk on subjects of common interest like weather, current events, etc. which always helps set the ball in motion. Keeping time limit in mind give lead to get on with business. The lead could be something like . . . I will not take much of the precious time of the participants who have kindly consented to be present and with their permission whether it will be alright to move on to the first point of agenda.
After understanding the hierarchy, while presenting your point of view, always keep your eyes focussed on the anchor person. However, keep others also engaged with occasional eye-contact and enrolment by taking a small pause and asking if you are understood well enough. Keep your voice and body language soft and steady. Always voice your disagreement positively. For instance, you could say that you respect their viewpoint but you have certain practical considerations to be having a different viewpoint. Never show your impulse however unreasonable the contention from other side may be. Leave an escape vent to say that you are sure if that argument has come from person as distinguished as him then there must be some substance behind it and you will require some time to mull over it.
Start winding up before 5 minutes of the allotted time by summarising and end the meeting with thank you and wish to meeting again.
ICAI News
(b) Technical Guide on Audit in Automobile Industry (Page 340)
(c) A Study on Prevention of Money Laundering Act, 2002
(d) A Study on, Drafting, Conveyancing, etc. of Commercial and other Documents
(ii) CA firms and SMP (a) ICAI has arranged a MCA 21 Compliance Software viz. ‘ICAI-ROC’ for members in practice and CA Firms (Page 341)
(b) ICAI has launched its exclusive website www.icai.org.in for members in practice and CA Firms (Page 341)
(iii) ICAI — Tax Suite ICAI has arranged a Tax Compliance Software viz. ICAI-Tax Suite for members in practice and CA Firms (Page 342)
Code of ethics
Lecture Meetings
A lecture meeting on the subject of ‘Taxation of Shares & Securities — Current Developments’ was addressed by Pradip Kapasi, Chartered Accountant and Past President of the Society on 3rd August 2011 at the Walchand Hirachand Hall, IMC.

Other programmes
Visit to Dharampur — Kaprada — Bilpudi — Vansada for Tree Plantation and Development Activities
Human Resources Committee of the Society organised a visit to Dharampur — Kaprada — Bilpudi — Vansada in Dist. Valsad and Dist. Navasari, Gujarat for tree plantation and development activities on 19th and 20th June 2011.

The tree plantation was carried out in memory of late Hiten C. Shah, a very active member of the Society, at village Matuniya. This village had been adopted by late Hiten C. Shah and the group pledged to continue the good work done by him. Chartered Accountant; and Introduction to International Taxation by Mayur Nayak, Chartered Accountant.
Students’ Annual Day Celebrations
The Students’ Annual Day now renamed as “The Jal E. Dastur Students’ Annual Day” in loving memory of Jal E. Dastur was celebrated on 6th August 2011 at Direct I-Plex, Andheri. Over 150 students enthusiastically participated in the programme. The students were addressed by Padmashri T. N. Manoharan on the topic ‘Design to Win’. This was followed by hotly contested elocution and quiz competitions.
The winners at the competitions were:
Elocution competition
1. Rutu Shah
2. Ashish Arvind Shukla
Quiz competition
1. Ajay Joshi and Janam Oza
2. Hrushabh Pai and Sagar Kothari Sohrab E. Dastur, Senior Advocate was present throughout the programme and blessed the students.

International Tax & Finance Conference 2011
The 15th International Tax & Finance Conference 2011 was organised by the International Taxation Committee of the Society from 12th August 2011 to 15th August 2011 at the very vast and scenic campus of the Infosys Leadership Institute at Mysore. The papers for group discussions were: ‘Qualification and Characterisation Issues’ by P. V. Srinivasan, Chartered Accountant; ‘General Anti-avoidance Rules’ by T. P. Ostwal, Chartered Accountant; and ‘Case Studies on International Taxation’ by Pranav Sayta, Chartered Accountant. The following technical papers were also presented : ‘Inbound Investment — Private Equity Fund, VCF, FII — Structuring, Regulatory and Tax Aspects’ by Shefali Goradia, Chartered Accountant; and ‘Cross-border Service-tax Issues’ by K. S. Ravishankar, Advocate.
A panel discussion on ‘Case Studies on International Taxation’ was presented by H. Padamchand Khincha, Chartered Accountant and Chythanya K. K., Advocate.

At the Certificate Distribution Programme jointly organised by BCAS and H.R. College of Commerce & Economics, Dr. (Mrs.) Indu Sahani, Principal was felicitated on her appointment as a ‘Member of University Grant Commission’, New Delhi.
From the President
The events of the past few days makes one feel that India is passing through turbulent times. We are witnessing a strong movement led by Shri Anna Hazare against corruption, with the passing of the Jan Lokpal bill as its immediate aim. We have seen a whitewash of the Indian cricket team in the recently concluded Test series in England. Our country has also felt the tremors of downgrading of the US economy by Standard and Poor the renowned rating agency.
However, I believe that there is one common thread running through these three different events occurring in different countries. That common factor is the weightage that society is giving to the quantum of money one earns and spends, irrespective of the manner that it is earned and the way that it is spent. We have seen a gradual downfall in the value system with a corresponding rise in the importance of wealth. There are many other reasons for corruption but the social recognition that wealth has is a very significant factor. It is on account of the desire to earn the maximum money in the shortest possible time that people adopt undesirable means and our cricketers are no exception. In the US there is uncontrolled spending and consumption, without paying heed to earning abilities. This results in borrowing beyond one’s ability to repay and its consequences have already been experienced by the world.
However, even if one is worried at the turn of events there is still hope. From 13th of August the BCAS had arranged its International Tax and Finance Conference at the Infosys training centre in Mysore. The experience of those four days is something that all participants will cherish for a long time to come. The foresight with which this institution has been built makes one’s heart swell with pride. We were fortunate to experience the world class facilities of the centre as well as the high ethical standards of its creators. It is institutions like these that will ensure that India’s march towards becoming a global power continues unhindered.
Coming back what one witnessed on the streets of Mumbai, scenes which were also replicated all over the country is evidence of the fact that the youth of this country want a change and they are willing to participate in an agitation for that purpose. It is this enthusiasm that needs to be harnessed so that many other illnesses that face this country can also be addressed. I would suggest that those in charge of the agitation at Delhi pay heed to this aspect and use their resources to give direction to this large pool of youth energy.
At the micro level, the Society has been live to the problems that members face while complying with the requirement to file returns electronically. A large number of returns were filed electronically last year and the number has more than doubled this year. Unfortunately, the processing of these returns has created a number of problems. To address these, the Society had organised a visit to the Central Processing Centre, Bangalore and had interacted with the officials there. I am happy to note that the response was very positive and some issues have already been sorted out and others will also be addressed through further interaction in the near future.
Apart from the requirement to file returns electronically, the Ministry of Corporate Affairs has also made furnishing of accounts mandatory for a certain class of companies in the new business reporting language XBRL. The Society has already organised a couple of programmes to increase member awareness and will continue doing so in the days to come. This requirement which is applicable to a limited number of companies in this year will be extended in the coming years to other companies. The new schedule VI has already been notified and the Society has also held a lecture meeting to discuss various issues emanating from the same.
ICAI and its members
The Ethical Standards Board of ICAI has given answers to some of the ethical issues raised by our members. These are published on pages 254-256 of CA. Journal for August, 2012. Some of these issues are as under:
(i) Issue:
Can a member in practice indicate in a book or an article, authored/contributed/ published by him, his association with any firm of Chartered Accountants?
As per Para (c) under Clause (6) of Part 1 of First Schedule to the Act as appearing in the Code of Ethics, 2009, a member is not permitted to indicate in a book or an article, authored/contributed/ published by him, the association with any firm of Chartered Accountants.
(ii) Issue:
Whether the word “Chartered Accountants” and name of city after the name of the members of the Institute be mentioned in the articles contributed by such members and published in the Institute’s Journal?
Under Clause (6) of Part 1 of the First Schedule to the Act, there is no restriction in the Code of Ethics for mentioning the word “Chartered Accountant” and also the name of city in an article contributed by a member in the Institute’s Journal as well as in newspapers and other periodicals.
(iii) Issue:
Whether sponsorship or prizes can be instituted in the name of Chartered Accountants or a firm of Chartered Accountants?
An individual Chartered Accountant or a firm of Chartered Accountants can institute or sponsor prizes, provided that the designation “Chartered Accountant”, is not appended to the prize and the Clause (6) of the First Schedule regarding advertisement and publicity is complied with.
(iv) Issue:
Can a Chartered Accountants firm give advertisement in relation to Silver, Diamond, Platinum or Centenary celebration of the firm?
While considering the implications of Clause (6) & (7) of Part 1 of the First Schedule of the Act in relation to such advertisements and also the need of interpersonal socialisation/relationship of the members through such get-together occasions, the advertisement for Silver, Diamond, Platinum and Centenary celebrations of the firms has been permitted to be published in any newspaper or in the newsletters.
(v) Issue:
A Chartered Accountants firm issued circulars to the non-clients that a Chartered Accountant who was the former partner in-charge of Taxation of one of the largest accounting firms of the world, had joined them as partner. Can they do it?
Clause (6) of Part 1 of the First Schedule to the Act prohibits solicitation of clients or performing work either directly or indirectly by circular, advertisement, personal communication or interview or by any “other means”. The issuance of circular to persons who are not clients, but may likely require services of a chartered accountant would be tantamount to advertisement, since it is solicitation of professional work by making roving enquiries. As per Clause (7) of Part 1 of the First Schedule to the Act, the usage of the words “one of the largest accounting firms of the World” and the specification of specialisation in “taxation” would also amount to advertisement and, thus, constitute professional misconduct.
2. EAC Opinion
Accounting Treatment of Liability for Unbilled Work-in-Progress in the Books of Executing Agency.
Facts:
A government company was set up as a special purpose vehicle for executing the infrastructure development and related projects in a State with quality and speed. The projects are identified by the Government and these projects are entrusted for execution to the company.
For executing the projects, the company engages the services of various contractors who are required to use their own men, materials and machines and the company does not supply any of these. The company has also clarified that it has not received the projects from the Government in the capacity of a contractor, rather, the Government has entrusted the work in the capacity of executing agency through Memorandum of Understanding (MOU). The projects have not been sub-contracted by the company. Further, as per the company, the ownership interest relating to contract assets and liabilities vest with the Government.
The company is not raising any bill for the work executed by it. The company is charging development fees at certain pre-fixed percentage of the development expenditure incurred, to the Government towards the services rendered.
As per agreed terms of contract, the contractor raises running account (R.A.) bills on the company for the work done by him and final bill is raised after completion of the project. The billing period generally falls into two or more financial years.
The company is providing for the liability towards work executed upto the financial year end based on bills received till the finalisation of accounts. However, on the basis of advice from the Comptroller and Auditor General of India (CAG), the company started providing for work executed till financial year end towards the work for which bills have not been received on the basis of estimated value worked out by the engineering department of the company.
Query:
On the above facts, the company has sought the opinion of the Expert Advisory Committee as to whether or not the company should recognise liability in respect of unbilled work-in-progress.
Opinion:
The Committee notes from the Facts of the Case that the company in this case is acting merely as an execution agency of the Government, for which it is getting a development fee for rendering its services. The Committee further notes that the terms ‘Assets’ and ‘Liabilities’ are defined in paragraphs 49(a) and 49(b) respectively of the ‘Framework for the Preparation and Presentation of Financial Statements’.
After considering the said paragraphs, the Committee notes that in this case, the future economic benefits from the project assets are not expected to flow to the company. On completion of the project, the assets would be taken over by the Government. Further, the Committee notes from the MOU between the company and the Government that the project assets are not funded by the company. In substance, they are funded by the Government. Accordingly, the liabilities which arise during the transactions are those of the Government and not that of the company. Thus, all the significant risks and rewards relating to the ownership of project assets and liabilities vest with the Government. In so far as the company is concerned, the Committee is of the view that the project assets and project liabilities do not meet the definitions of “Assets and Liability” respectively and as such, the project assets and liabilities of the said business should not be recorded in the books of account of the company.
On the basis of the above, the Committee is of the view that the liability for work-in-progress and the corresponding asset, viz. the work-in-progress (billed or unbilled) in respect of the project, if any, should not be recognized in the books of account of the company.
[Pl. refer pages 287 to 289 of C. A. Journal of August, 2012]
3. Examination Results
(i) Results for CA Final Examination held in May, 2012, were declared in July, 2012. 16.38% candidates passed in Both Groups. 25.32% candidates passed in Group I and 29.62% passed in Group II. Abhishek Gupta (Kolkata), Divyang Bhandari (Chennai) and Shruti Sodhani (Bangalore) secured 1st , 2nd , and 3rd Rank respectively in the Final Examination.
(ii) Results for CPT examination held on 17-6-2012 have been declared. 37.56% of candidates passed in this examination. Girls have taken a lead over Boys by a margin of 2% i.e. 40.04% against 37.56%
(Refer Page 238 of CA Journal of August, 2012.)
4. Elections to Regional and Central Council
The next elections to the Central Council and Regional Councils of ICAI are scheduled to be held on Friday, 7th December and Saturday, 8th December, 2012 in cities having more than 2,500 Members. In other places, the elections will be held on Saturday, 8th December, 2012. Members from Mumbai, Kolkata and New Delhi, where there are more than one polling booth, have option to select the booth of their choice. For this purpose, they have to exercise option in writing before the specified date. Full details about the procedure for elections is hosted on ICAI website www.icai.org (Refer Page 362 of CA Journal of August, 2012).
5. ICAI News
(Note : Page Nos. given below are from CA Journal of August, 2012)
(i) New ICAI Publications
(a) Compendium of Accounting Standards (Up dated as on 1-7-2012) (P. 376)
(b) Technical Guide on Internal Audit of Infrastructure Industry (P. 377)
(c) Technical Guide on Internal Audit of Not-for-profit Organisation ) (P. 377)
(d) Technical Guide on Internal Audit of Mining and Extractive Industry (P. 378)
(ii) Annual Membership Fees
Annual Membership Fees for 2012-13 can be paid on or before 30-9-2012 (P. 387)
(iii) Certificate Courses
Members can take advantage of Certificate Courses conducted by ICAI, including those on Indirect Taxes, Enterprise Risk Management, Concurrent Audit of Banks, Internal Audit, Master in Business Finance, International Taxation, Forensic Accounting & Fraud Detection using IT & CAATs and International Financial Reporting Standards. Interested members must consult ICAI website for the list of the complete courses available. Many post-qualification courses are available to promote and enhance members’ career prospects. List of these courses include Information Systems Audit (ISA), CPE Course on Computer Accounting and Auditing Techniques (CAAT), Diploma in Insurance and Risk Management (DIRM), etc.: for complete list of such courses, members must refer to ICAI website (Page 250).
(iv) International Assignments
Members interested in international assisnments can take advantage of the existing memorandums of understanding (MoUs), mutual recognition agree-ment (MRAs), and joint declarations of ICAI with international institutions. The list is available on the ICAI website. At present, there is an MRA with The Canadian Institute of Chartered Accountants (CICA), CPA Australia and CPA Ireland. ICAI has MoUs with The Institute of Chartered Accountants in Australia (ICAA), The Institute of Chartered Accountants in England and Wales (ICAEW), Higher Colleges Of Technology, Ministry Of Higher Education And Scientific Research, UAE, and University of Djbouti. ICAI has signed a joint declaration with the Bahrain Institute of Banking and Finance and a License Agreement with ISACA (Page 250).
FROM THE PRESIDENT
Kudos, to our young TEAM INDIA for lifting the ICC Under 19 Cricket World Cup. As of date, India holds both the Senior and Junior O.D.I. World Cup titles. A proud moment for every Indian.
The months of August and September are festival months. Last month, we saw different festivals being celebrated all across the country. Rakshabandhan, Janmashtami, Nowruz, Ramzan Id, and Paryushan were celebrated with the same zest. This diversity of culture is one thing of which we are proud of. These festivals were celebrated by distinct religious groups, while Independence day was celebrated by one and all.
With Ganesh Chaturthi less than a fortnight away, millions of devotees of the elephant god are eager to celebrate the 11 day long festival, which is observed with great fervour. I pray to Lord Ganesha to shower his blessings on all, to overcome the hectic Audit season without any stress.
On the Society front, I am happy to share with you that the Indirect Tax and Allied Laws Committee of BCAS had made a timely representation to the Government of Maharashtra, on the most debated and controversial issue of VAT Liability on builders and developers, on the sale of Flats in construction buildings. This tax affects a large number of flat purchasers across the state. In response to the said representation, the office of the Commissioner of Sales Tax, has released FAQ which would be of great help.
Last month, we had various programmes like seminars and lecture meetings on varied topics of current interest, and the ITF Conference at Goa. I, on behalf of the Society, am grateful to all those who contributed to the success of these events. The enthusiastic participation of members motivates us to plan more programmes. I would request you all to give your suggestions and feedback, which will help us to serve you better and give what you desire.
In this communiqué, I would like to express my thoughts on issues related to our youth, in general and to those in our CA fraternity in particular. The idea arose when I read an article last month about United Nations’ International Youth Day (IYD) which is celebrated worldwide on 12th August.
Just as other awareness days, it is an awareness day meant as an opportunity for the Government and others to draw attention to youth issues worldwide, and to develop and engage in partnership with and for the youth. Many activities and events take place around the world on IYD to promote the benefits that young people bring to the world.
Talking about our Youth, we have pretty amazing statistics. 51% of Indians are less than 25 years of age. Recently, the Indian Government drafted a proposal to cap the age of ‘youth’ at 30 – scaling it down from previous limit of 35.
Young people represent a growing class, that is yearning to have its voices heard and make its presence felt. Today, the feeling is that we have failed to provide young people our constant support, and the opportunity to realise their basic aspirations. Their growth is hampered by the problems we all face, from security issues and the economy to changes in governments and society.
We have all witnessed, over the last few years, that the youth are shaping the political landscape in other countries. It has been seen that young people are driving innovations, and economic and social entrepreneurship in every region of the world. I believe that the best solutions to our problems will come from supporting and harnessing the energy and creativity of our youth.
Today, everyone sees in the youth a lot of talent and innovative minds. At the same time we do feel that the attitude of the Youth constantly harp on the line – if it directly doesn’t affect our life, it’s not our problem.
So the challenge before us is to find out : What does the young Indian care about the most ??
Coming to the Youth in our Profession, as per the latest statistics, as of April 2012, ICAI has more than 192,000 registered members, out of which around 53% are below the age of 35, and around 12% in the age group of 35-40. Further, the number of youths wanting to take up CA is increasing as never before and we have about 10 lakh CA students.
Hon’ble Prime Minister Mr Manmohan Singh recently said, “An Indian CA is recognised worldwide as being among the best and the brightest in the profession, and I sincerely hope the best is yet to come.”
The young CAs have a distinct advantage today. Almost all the major laws where CAs work (in Industry or practice) are changing substantially , viz Ind AS( IFRS), Service Tax, Companies Bill, Direct Tax Code , Goods and Service Tax. The older CAs have issues of time, as also unlearning what they have learnt and practised for number of years. New CAs will not be carrying the same burden viz., they will have time to learn the new changes and will also have an open mind to accept the same. So, together we need to work towards developing the necessary knowledge, insights, network & commitment to take advantage of these opportunities. Thus, the world of young CA is expanding its horizon.
At the same time, we see that young Chartered Accountants today face pressing challenges such as high level of competition, placements, etc on account of recession in industry, and to some extent because of Government policy paralysis. The only soothing factor is that we CAs are better off than others.
The other issue is that a majority of our young CAs prefer to work in the industry rather than to be in practice. They also shy away from taking up responsibilities and involve themselves in giving their much needed services to voluntary bodies.
It is incumbent on the seniors in profession – to mentor and to cultivate the next generation. It is only through the guidance and support that we can equip young people with the skills, resources, and networks they need, while also empowering them to be agents of change in our profession, and in turn building our nation.
We should thus stand with young CAs everywhere, so as to work to build a brighter future together. For that, a majority of us have to come on board and contribute in developing these young creative minds.
I firmly believe that the full potential of these young CAs has to be tapped and constantly be supported by the experienced ones.
Let us attempt to discover ways to make them more actively involved in making a positive contribution to our noble profession.
I would end by an Inspirational Quote by Swami Vivekanand, that our youth should remember :
“Struggle hard to get money, but don’t get attached to it”.
With warm regards
Deepak R. Shah
PART C: Information on & Around
The Comptroller and Auditor General (CAG) of India wants the Centre to grant to Right to information (RTI ) powers as it has been facing problems in securing details relevant to its audits of government finances and decision- making.
CAG Shashikant Sharma has written a letter of finance minister Arun Jaitley demanding that the federal auditor be given RTI powers to access information and a penal provision be included in the existing CAG’s Duties and Powers Act (DPC Act) to make it mandatory for furnishing of information in a time bound manner.
The federal auditor has issued a note on how information denial has been causing the problems.
PART B: RTI Act, 2005
The above Act received the assent of the President on the 9th May, 2014. The objectives of the Act are noted here under:
AN ACT to establish a mechanism to receive complaints relating to disclosure on any allegation of corruption or willful misuse of power or willful misuse of discretion against any public servant and to inquire or cause an inquiry into such disclosure and to provide adequate safeguards against victimisation of the person making such complaint and for matters connected therewith and incidental thereto.
Please note that in mentioning year 2011 in the title is not my or printing mistake. The fact is that the Bill was introduced in the Parliament in 2011. It took 4 years to finally become an Act. It may also be noted that though it is now an Act, it is not in operation because no rules and regulations are notified per section 27 of the Act. The said section reads:
” 27. The Competent Authority may, with previous approval of the Central Government or the State Government, as the case may be, by notification in the official Gazette, make regulations not inconsistent with the provisions of the Act and the rules made there under to provide for all matters for which provision is expedient for the purposes of giving effect to the provisions of this Act.”
It may also be noted that both the central and state Governments are authorised to make rules, The State Government is authorised to make regulations also.
PART A: Decision Of CIC
Vide an RTI application dated 15-05-2012 the appellant sought information on thirteen issues as contained in his RTI Application.
The first appeal was filed on 13-08-2012. As the desired information was not provided by the CPIO vide Order dated 14-08-2012, First Appellate Authority held that the Order of the CPIO is modification to this extent that the information pertaining to the undersigned is already available in public domain at SI. No. 183 of the Civil List, 2012.
Decision
It is to be seen here that the appellant, vide his RTI Application dated 15-05-2012, sought some information from the respondents on 13 issues. During the hearing of the appeal it was submitted by Sh. Harinder Dhingra, appellant that he had not been provided the required information on any issues of his RTI application dated 15- 05-2012. However, it was rebutted by the respondents by stating that the required information, as sought for, was provided to the appellant vide their letter dated 06-07- 2012. It was further submitted by the appellant that his First Appeal was decided by the same officer, in respect of whom, the information was sought and it is against the Law.
Being aggrieved by the aforesaid response, First Appeal was filed by the appellant on 13-07-2012 before the FAA (Sh. Arun Kumar Addl, Commissioner (IGI) Airport, T-3 New Delhi 37), who vide his order dated 14-08-2012, upheld the decision of CPIO. Hence, a Second Appeal was preferred before this Commission.
On careful perusal of the record, it was revealed that the appellant sought some information in respect of Sh. Arun Kumar, Addl. Commission (ING), who decided the First Appeal. It has also been corroborated by the Sh. Arun Kumar, Asstt. Commissioner & CPIO, Sh. Dalveer Solanki, Asstt. Commissioner & CPIO, present before the Commission for making the submissions on behalf of the respondents, in the case.
It is a well settled position in the eyes of Law that there should be no judge of his own cause. This is one of the principles of natural justice and no one should violate the same.
Even the Hon. Judges of the High Court & Supreme Court take care of this Rule while deciding the cases. In the present case, it is now admitted fact that the person against whom the information was sought became a First Appellate Authority and decided his own case i.e. as to whether information in respect of himself is to be provided or not to the appellant.
Thus, the First Appellate Authority (Sh. Arun Kumar) violated the principles of natural justice. It is immaterial whether he has decided the case rightly or wrongly.
In view of the above, the order passed by FAA is not legally tenable and deserves to be quashed and set aside. Therefore, it is quashed accordingly. Thus, the case is remanded back to the respondents with a direction to put up the case to another FAA (to be nominated by the head of the department in case Sh. Arun Kumar is still acting as FAA ) for its disposal in accordance to the provisions of Law, within 30 days from the date of receipt of this order under intimation to this Commission.
(Harinder Dhingra vs. O/o the Addl. Commissioner of Custom, IGI Airport, Terminal 3, New Delhi, File No. CIC/ SS/A/2012/003238/KY decided on 02-04-2014. Citation: RTIR II (2014) 238 (CIC)
From published accounts
Disclosures in quarterly results (Q1 of FY 2014-15) regarding adoption of revised norms for depreciation as per Schedule II of Companies Act, 2013
Compilers’ Note:
The Companies Act, 2013 has, effective 1st April 2014, made it mandatory to apply the revised norms of depreciation as per Schedule II to the Act. Schedule II requires re-assessment of useful life of the tangible fixed assets of a company vis-à-vis the useful life mentioned by the Schedule as well as requires depreciation to be provided on separate components of fixed assets based on the components individual useful life.
Given below are some diverse practices followed by listed companies in their unaudited results (which have been subjected to limited review by the statutory auditors) for the quarter ended 30th June 2014 for calculation of depreciation as per Schedule II. The disclosures are as submitted by the respective companies to the stock exchanges.
Bajaj Auto Limited:
Consequent to the enactment of the Companies Act, 2013 (the Act) and its applicability for accounting periods commencing after 1st April 2014, the Company has reworked depreciation with reference to the estimated economic lives of fixed assets prescribed by Schedule II to the Act or actual useful life of assets, whichever is lower. In case of any asset whose life has completed as above, the carrying value, net of residual value, as at st April 2014 has been adjusted to the General Reserve and in other cases the carrying value has been depreciated over the remaining of the revised life of the assets and recognized in the Statement of Profit and Loss.
As a result the charge for depreciation is higher by Rs.16 crore for the quarter ended 30th June 2014.
Century Textiles & Industries Limited
In accordance with the provisions of the Companies Act 2013, effective from 1st April, 2014, the Company has reassessed the remaining useful lives of its fixed assets. As a consequence of such reassessment, the charge for depreciation for the period is lower than the previously applied rates by Rs. 2,822 lakh, correspondingly as the transitional impact of Rs. 2,234 lakh (net of deferred tax Rs.1,151 lakh) has been adjusted to retained earnings.
TVS Motor Company Limited
During the quarter ended 30th June 2014, in accordance with Part A of Schedule II to the Companies Act 2013, the Management, based on Chartered Engineer’s technical evaluation, has reassessed the remaining useful life of assets with effect from 1st April 2014. As a result of the above, depreciation is higher by Rs. 0.71 crore for the quarter ended 30th June 2014. For assets that had completed their useful life as on 1st April 2014, the net residual value of Rs. 2.74 crore has been adjusted to Reserves.
Oberoi Realty Ltd.
The useful life of fixed assets has been revised in accordance with Schedule II to the Companies Act, 2013. The impact of change in useful life of fixed assets on depreciation expense for the quarter amounts to Rs. 323.45 lakh and on opening balance of general reserve amounts to Rs. 33.50 lakh (net of deferred tax).
Reliance Infrastructure Ltd.
During the quarter, the useful life of the fixed assets other than in respect of Electricity business has been revised in accordance with Part C of Schedule II to the Companies Act, 2013. Accordingly depreciation expense for the quarter ended 30th June, 2014 is higher by Rs. 3.88 crore. Similarly, in case of assets whose life has been completed as on 31st March, 2014 the carrying value (net of residual value) of those assets amounting to Rs. 4.75 crore has been debited to General Reserve.
Exide Industries Ltd.
Effective from 1st April, 2014, the Company has charged depreciation based on the revised remaining useful life of the assets as per the requirement of Schedule II of the Companies Act, 2013. Due to the above, depreciation charge for the quarter ended 30th June, 2014 is higher by Rs. 0.55 crore. Further based on transitional provision provided in Note 7(b) of Schedule II, an amount of Rs. 2.41 crore (net of deferred tax) has been adjusted with retained earnings.
PI Industries Ltd.
The useful lives of fixed assets have been revised in accordance with the Schedule II to the Companies Act, 2013 which is applicable from accounting periods commencing on or after 1st April 2014. Accordingly, an amount of Rs. 3.86 crore (net of deferred tax) representing assets beyond their useful life as of 1st April 2014 has been charged to General Reserve and in respect of the remaining assets, an additional depreciation amounting to Rs. 1.55 crore has been charged to the Profit and Loss statement for the current quarter based on residual useful life. Further, in respect of plant and machinery, management is evaluating useful life of certain components, impact of which, if any, would be accounted for in subsequent quarter(s).
Tata Coffee Ltd.
Pending detailed assessment of the useful life and clarification from the Ministry of Corporate Affairs, the depreciation charge for the quarter has been provided as in earlier period. Necessary effect, if required, will be given in the subsequent quarters.
From Limited Review Report
Without qualifying our report, we draw attention to: Note regarding depreciation being provided based on existing method pending evaluation of estimated useful life as required under Schedule II of the Companies Act, 2013.
Thermax Ltd.
Depreciation for the quarter has been computed based on the Company’s evaluation of useful lives of its fixed assets (including significant components thereof, if any) which in certain cases are different from those mentioned in Schedule II to the Companies Act, 2013. The auditors have qualified their report in this regard as in their opinion it is not permissible to have useful lives longer than specified for same class of assets in Schedule II.
From Limited Review Report Basis of Qualified Conclusion
Depreciation for the quarter has been computed based on company’s internal evaluation of useful lives of its fixed assets (including significant components thereof, if any) which in certain cases are more than those mentioned in Schedule II to the Companies Act, 2013. In our opinion useful lives of assets cannot be longer than those indicated in Schedule II. The impact of this on depreciation and profit and loss for the quarter under review has not been computed by the company hence we are unable to comment on the same.
Tata Steel Ltd.
During the quarter, the company and some of its subsidiaries have revised depreciation rate on certain fixed assets as per the useful life specified in the Companies Act, 2013 or re-assessed by the company based on technical evaluation. Accordingly, depreciation of Rs. 136.82 crs (net of deferred tax Rs. 69.64 crore) [Rs. 129.01 crore (net of deferred tax Rs. 66.43 crore) in the stand-alone] on account of assets whose useful life is already exhausted as on 1st April 2014 has been adjusted to retained earnings. Had there been no change in useful life of assets, depreciation for the quarter would have been lower by Rs. 22.74 crore (Rs. 22.33 crore in the stand-alone).
Tata consultancy services ltd.
The group has revised its policy of providing depreciation on fixed assets effective 1st April, 2014. Depreciation is now provided on straight line basis for all assets as against the policy of providing on written down value basis for some assets and straight line basis for others. Further, the remaining useful life has also been revised wherever appropriate based on evaluation. The carrying amount as on 1st april, 2014 is depreciated over the revised remaining useful life. as a result of these changes, the depreciation charge for the quarter ended 30th june, 2014 is higher by rs. 6,063 lakh and the effect relating to the period prior to 1st april, 2014 is not credit of rs. 48,975 lakh (excluding deferred tax of rs. 11,890 lakh) which has been shown as an “exceptional item’ in the statement of profit and loss.
Hindustan Petroleum Corporation Ltd.
Pending the determination of useful life and componentisation of assets, as required under schedule ii of the Companies act, 2013, the company has provided depreciation at the rates and in the manner as prescribed in the schedule XiV of the Companies act, 1956. The impact of the same is not quantified and will be recognised in subsequent quarters. the PSU oil marketing Companies, have made representation to MCA for providing extension to comply with schedule ii of the Companies act, 2013 by mandating application only for annual accounts for 2014-15 and not for quarterly accounts during 2014-15.
From Limited Review Report
As stated in Note No. 5 of the financial results, the company has continued to provide depreciation at the rates and in the manner as prescribed in the schedule XiV of the Companies act, 1956 pending determination of estimated useful life and componentisation of assets as required under schedule ii to the Companies act 2013. As informed to us, the company has also made representation to the ministry of Corporate affairs for providing extension to comply with requirements schedule ii of the Companies act, 2013. The impact of this matter on depreciation and profit for the quarter under review, is not quantified. Hence, we are unable to comment on the same. Based on our review conducted as above, except for the effects of the matter described in the above paragraph, …
Godrej Industries Ltd
Consequent to the enactment of the Companies act, 2013, (the act) and its applicability for accounting periods commencing on or after 1st april, 2014, the Company has adopted the estimated useful life of fixed assets as stipulated by schedule ii to the act, except in the case of plant and machinery where the Company, based on the condition of the plants, regular maintenance schedule, material of construction and past experience, has considered useful life of plant and machinery as 30 years instead of 20 years useful life as prescribed in schedule ii of the act.
Accordingly, the Company has re-worked depreciation with reference to the estimated useful lives of fixed assets as prescribed by schedule ii to the act. in case of assets whose useful life has been completed based on such estimates, the carrying value, net of residual value and taxes, as at 1st april, 2014, amounting to rs. 3.67 crore has been adjusted in the opening balance of retained earnings and in other cases the carrying value is being depreciated over the remaining useful life of the assets and recognised in the Statement of Profit and Loss. As a result of the above mentioned changes, the charge for depreciation is lower by rs. 3.07 crore for the quarter ended 30th june, 2014.
ICAI and its members
ICAI publication on ‘Disciplinary Cases’ gives decisions by the Disciplinary Committee. Some of these decisions are given below. Names of members are not given for the sake of confidentiality. Page Numbers given below are from the Publication Vol.I – (Part II)
(i) Re. SRK:
If this case the CIT, Mumbai, had written to the Institute that the member had conducted Tax Audit u/s. 44 AB of an assessee for A/Y: 2004-05. In this case, the assessee had claimed Rs. 3.74 crore as interest paid to Bank on Loan. Out of this Rs.3.10 crore was not paid. According to CIT this was not allowable u/s. 43B. This fact was not pointed out by the member and this amounted to gross negligence on the part of the member.
The defence of the member was that section 43B(e) of the Income tax Act was amended w.e.f. 2004 -05 whereby the interest to Bank on loans and advances, if not paid by due date, was not allowed. Prior to this amendment the provision applied to interest on term loan from bank. Moreover, the assessee had brought forward losses of Rs.10 crore and therefore there was no loss to revenue. The member pleaded that it was only due to oversight that he failed to notice this amendment and therefore failed to give effect to it in the Tax Audit Report.
The DC has held that A.Y 2004-05 was the first year wherein the said amendment was made applicable and the member should have been careful in giving effect to it. Further, due to past losses, there was no loss of revenue by this non-disclosure. The D.C. was of the view that there was negligence on the part of the member but there was no mala fide intention on the part of the member. On this basis, the member was held to be “Not Guilty” of any Professional misconduct (P. 144 – 147)
(ii) Re. TRM: In this case, the outgoing auditor of a co-operative Bank had complained that the Member had accepted the audit for the subsequent year without first communicating with him and that the Bank had not paid his fees. The defence of the member was as under.
(a) T he appointment was made through empanelment with Registrar of Co-operative Dept and not by the Bank.
(b) T he communication about the appointment was made by a letter to the previous auditor which was sent through Courier. This letter was not by Regd. Post or Speed Post but there was evidence that it was received by the previous auditor.
(c) A s regards the outstanding fees the member was informed by the Bank that the audit fees fixed by the Registrar were only Rs. 9,000/- but the previous auditor had raised bill of over Rs. 66,000/-. Hence, this was in dispute and therefore not paid by the Bank.
The DC has held as under:
(a) T here was evidence to the effect that the member had sent communication about his appointment to the previous auditor and, therefore, this charge was not proved.
(b) A s regards the Fees it was proved that there was dispute with the Bank. It was also proved that subsequently the undisputed amount of audit fees of Rs. 9,000/- was paid by the Bank to the previous auditor.
On the basis of the above finding, the D.C. held that the member was not guilty of professional misconduct (P 167 – 172).
2 Financial reporting review board (frrb):
ICAI has published a “Study on compliance of Financial Requirements”. Some of the observations from this publication are given below.
(i) Disclosure about Prior Period Items: In some published Annual Reports disclosure about prior period items is made as under.
(a) Prior period expenses and income are adjusted in respective heads of expenses and income in the Profit & Loss A/c.
(b) P rior period expenses are shown under the head of selling and administrative expenses. (c) P rior period adjustment (net) is shown in the P & L A/c.
(d) P rior period expenses are shown under the head of other expenses.
(e) D epreciation charged during the year includes an amount of depreciation pertaining to previous year.
Observation of FRRB:
The disclosures are contrary to Para 15 of AS.5. Under AS-5, the nature of prior period items is required to be disclosed in the P & L in the schedules or in the Notes. Clubbing the prior period adjustments in their respective heads does not enable the reader to understand the effect of such adjustments on the current profit or loss which is against the requirements of AS-5.
(ii) Disclosure of Depreciation Policy:
Annual Report of one of the Companies stated that “Depreciation Rates on some of the Fixed Assets have been revised so as to keep them as per the requirements of Schedule XIV of the Companies Act”.
Observation of FRRB:
When Depreciation Rates are revised during the year, it will lead to change in Accounting Estimate as provided in Para 27 of AS-5. This may result in provision of depreciation which may be of higher or lower amount then that of provision at pre-revised rates. This will have material impact on the finance statements. In this particular case, the company has not complied with Para 27 of AS-5. The Company should have disclosed the aggregate effect of the revision in depreciation rates on the Profit/Loss for the year.
3 Accounting Treatment of Expenditure incurred on Stamp Duty and Registration Fees for Increase in Authorised Capital:
(Page 249 – 253)
A company was incorporated under the Companies Act, 1956 as a private Limited company. The company is registered as a non-banking financial company (NBFC) (non deposit accepting) as defined u/s. 45-1A of the Reserve Bank of India Act, 1934 (RBI). The company is primarily engaged in the business of lending for purchase of equipments.
The Company’s Authorised Share Capital as on 31st March, 2013 was Rs.7,00,00,000/- The Company received share application money of Rs. 55,62,55,000/-. To be able to allot further equity shares, the shareholders of the company, have approved increase in authorised share capital to Rs. 75,00,00,000/-. The company has incurred an expenditure of Rs. 47,60,000 /-(Rs. 34,00,000 towards stamp duty and Rs.13,60,000 towards registration fees paid to the Registrar of Companies) for the said increase in authorised share capital.
Post increase in authorised capital, the Board of Directors of the company has passed a resolution for allotment of 5,56,25,500 equity shares of the company of Rs. 10/- each at par amounting to Rs. 55,62,55,000/-.
The issue relates to accounting treatment of the expenditure of Rs. 47,60,000/- incurred by the company for increase in authorised capital.
Query:
On the basis of the above, opinion of the EAC is sought by the company, whether the company can treat the whole of the expenditure incurred on increase in authorised capital as ‘share issue expenses’?
EAC Opinion:
The Committee noted from the Facts of the Case that the company has received share application money in excess of the authorised share capital and subsequently increased its authorised share capital and made allotment of shares. The Committee notes that the query raised is in relation to expenses (stamp duty and registration fee) incurred for increase in authorised share capital of the company.
After considering paragraph 5 of accounting standard (AS) 26 ‘intangible assets’ and Guidance note on terms used in financial statements, the Committee is of the view that increase in authorised share capital is an independent process which does not necessarily lead to issue of shares. The need to increase the authorised capital and to incur expenses for increasing the same would not have arisen had the additional allotment of shares was within the limits of existing authorised capital. Accordingly, the Committee is of the view that the expenses incurred on increase in authorised share capital are distinct and separate from the expenses incurred on share issue. additionally, the Committee is of the view that accounting depends on the nature of expense and the fact that the share application money was received before increase in authorised share capital will not change the nature of expense. further, increase in authorised share capital does not represent issue of additional share capital and only sets a limit for the paid up capital of a company at any given point of time. Accordingly, the Committee is of the view that the expenses incurred on increasing the authorised share capital cannot be termed as share issue expenses
Further considering the paragraph 6.2 of as 26, the Committee notes that if an expenditure does not result into acquisition of an asset, it should be recognised as an expense as and when incurred. the Committee also notes that the amount spent towards increase in authorised share capital does not give rise to any resource controlled by the enterprise. in fact, such expenses are only permitting the company to enhance the limit for the paid up capital of the company which does not ensure any flow of funds to the company. Accordingly, it does not meet the definition of an asset. Thus, the amount aggregating to rs. 47,60,000/- incurred towards stamp duty and fees paid to the registrar of Companies should be recognised as expense in the statement of profit and loss as per the requirements of paragraph 56 of as26.
[Pl. Refer page nos. 249 to 253 of C. A. Journal – August,2014]
4 ICAI News
Note: (page numbers given below are from C.A. journal of august, 2014)
(i) Final C.A Examination (May 2014) results (TOI 9.8.2014)
final C.A., may 2014, examination results were declared on 8th august 2014. a comparative chart of pass percentage for last 3 examinations is as under.
In may, 2014, examination out of 42,533 students who appeared for the examination in both Groups only 3100 passed. Names of first three Rank Holders are as under:
|
Group |
may, 2014 |
november, |
may, 2013 |
|
Both Groups |
7.29 |
3.11 |
10.03 |
|
Group I |
13.50 |
5.67 |
13.79 |
|
Group II |
10.66 |
7.35 |
18.65 |
First : Shri sanjay nawandhar (jaipur)
Second : Shri Kunal jethani (jodhpur)
Third : Ms. harsha Bhatted (pune)
Our Congratulations and Best Wishes to each of the above candidates.
(ii) New Publication of ICAI(278)
Technical guide on internal audit of it software industry.
(iii) Ind AS Implementation (P.147)
The president in his presidential message has stated that the finance minister has proposed in paragraph 128 of the Budget speech for the year 2014-15 that there is urgent need to converge current indian accounting standards with international financial reporting standards (IFRS) and that the new indian accounting standards (ind as) converged with ifrs shall be adopted by the Indian Companies from the financial year 2015- 16 voluntarily and from the financial year 2016-17 on mandatory basis.
Company Law
1. Company Law Settlement Scheme, 2014
The
Ministry of Corporate Affairs, vide General Circular No. 34/2014 dated
12-08-2014, has launched the Company Law Settlement Scheme, 2014
(CLSS-2014), to enable companies who have failed to file annual
statutory documents (Annual Return and Financial Statements) an
opportunity to file them and enable them:
1. To make their default good by filing belated documents at a reduced additional fee of 25% of actual fees.
2. Avoid penal action, especially disqualification of the Directors u/s. 164(2) of Companies Act, 2013.
3.
I nactive companies can get their companies declared as ‘dormant
Company’ u/s. 455 of the Act by completing the filing at reduced penalty
and get themselves declared as ‘Dormant Company’ by filing e-form MSC- 1
at 25% of the fee for the form or apply for strike off by filing e-form
FTE at 25% of fee payable.
4. Grants immunity from prosecution
for delayed filing. Under the Companies Act, 2013 the quantum of
punishment has been enhanced for repeated defaults in section 451.
The Scheme is in force from 15th August, 2014 to 15th October, 2014.
CLSS shall not apply to the filing of belated documents other than the following:
1. Form 20B-Form for filing annual return by a company having share capital.
2. F orm 21A-Particulars of Annual Return for the company not having share capital.
3. F orm 23AC, 23ACA, 23AC-XBRL and 23ACA-XBRLForms for filing Balance Sheet and Profit & Loss account.
4. Form 66-Form for submission of Compliance Certificate with the Registrar.
5. F orm 23B-Form for intimation for Appointment of Auditors.
Further, CLSS shall not apply in the following cases:
1.
Companies against which action for striking off the name under s/s. (5)
of section 560 of Companies Act, 1956 has already been initiated by the
Registrar of Companies; or
2. Where any application has already
been filed by the companies for action of striking off name from the
Register of Companies; or
3. Where applications have been filed for obtaining Dormant status under section 455 of the Companies Act, 2013;
4. Vanishing companies.
Companies
need to file an application in the e-Form CLSS 2014 to seek immunity
for filing belated documents. After granting the immunity, the Registrar
concerned shall withdraw the prosecution(s) pending, if any, before the
concerned court.
2. Clarification With Regard Section 139 (5) and 139 (7) of Companies Act, 2013
The
Ministry of Corporate Affairs has vide General Circular No. 33/2014
dated 31st July, 2014 issued clarification regarding appointment of
Auditors to deemed Government Companies as no specific provisions of
deemed Government Companies are included in the New Act. It is clarified
that the new Act does not alter the position with regard to audit of
such deemed government Companies through C & AG and thus such
companies are covered under s/s. (5) and (7) of section 139 of the new
act.
Further, the Shareholders Agreement and the Articles of
Association envisaging control, are to be taken into account to decide
whether an individual Company other than those refereed above is covered
under the provisions of s/s. (5) and (7) of section 139 of the Act.
Also, clarified that where a newly incorporated Company requires the
appointment of Auditor by the C & AG, it is the primary
responsibility of the Company to inform the same to the C & AG and
to share such intimation to the relevant Government so that the
Government can also send a suitable request to the C & AG.
3. Clarification On Transitional Period For Resolutions Passed Under Companies Act, 1956
The
Ministry of Corporate Affairs has vide General Circular No. 32/2014
dated 23rd July, 2014, clarified that resolution approved or passed by
Companies under the relevant applicable provisions of the old Act during
the period 1st September, 2013 to 31st March, 2014, can be implemented,
in accordance with the Old Act, notwithstanding the repeal of the
relevant provision subject to the conditions:
(a) that the implementation of the resolution actually commenced before 1st April, 2014; and
(b)
that this transitional arrangement will be available upto expiry of one
year from the passing of the resolution or 6 months from the
commencement of the corresponding provision in the New Act whichever is
later.
It is also clarified that any amendment to the resolution must be in accordance with the relevant provision of the New Act.
4. Companies (Meetings of Board and its Powers) Rules, 2014
The
Ministry of Corporate Affairs has vide notification dated 14th August,
2014, issued the Companies (Meetings of Board and its Powers) Second
Amendment Rules, 2014, in exercise of the powers conferred u/s. 173,
175, 177, 178, 179, 184, 185, 186, 187, 188, 189 and section 191 read
with section 469 of the Companies Act, 2013 (18 of 2013), which shall
come into force on the date of their publication in the Official
Gazette.
In the Companies (Meetings of Board and its Powers) Rules, 2014:
(1)
in Rule 3, in sub-Rule (6), the words and commas,“which shall be in
India,” shall be omitted whereby the scheduled venue of the Board
meeting through video conferencing or audio visual will be the place
where the recording takes place.
(2) (a) in Rule 4, (a) in sub-Rule (1), for the brackets, figure and word “(1) The,” the word “The” shall be substituted;
(b)
in Clause (iv), for the words “consideration of accounts,” the words
“consideration of financial statement including consolidated financial
statement, if any, to be approved by the Board under s/s. (1) of section
134 of the Act” shall be substituted, i.e, Audit Committee meetings for
consideration of accounts is to now read, the Audit Committee Meetings
for consideration of any financial statement including Consolidated
Financial Statement cannot be done through video conferencing.
(3) in Rule 15, for sub-Rule (3), the following sub-Rule shall be substituted, namely:-
“(3)
For the purposes of first proviso to s/s. (1) of section 188, except
with the prior approval of the company by a special resolution, a
company shall not enter into a transaction or transactions, where the
transaction or transactions to be entered into, –
a. as
contracts or arrangements with respect to clauses (a) to (e) of s/s. (1)
of section 188, with criteria as mentioned below –
i) sale,
purchase or supply of any goods or materials, directly or through
appointment of agent, exceeding ten per cent. of the turnover of the
company or rupees one hundred crore, whichever is lower, as mentioned in
Clause (a) and Clause (e) respectively of s/s. (1) of section 188;
ii)
selling or otherwise disposing of or buying property of any kind,
directly or through appointment of agent, exceeding ten per cent. of net
worth of the company or rupees one hundred crore, whichever is lower,
as mentioned in Clause (b) and Clause (e) respectively of s/s. (1) of
section 188;
iii) leasing of property of any kind exceeding ten per cent. of the net worth of the company or ten per cent. of
turnover of the company or rupees one hundred crore, whichever is
lower, as mentioned in Clause (c) of s/s. (1) of section 188;
iv) availing or rendering of any services, directly or through appointment of agent, exceeding ten per cent. of the turnover of the company or rupees fifty crore, whichever is lower, as mentioned in Clause (d) and Clause (e) respectively of s/s. (1) of section 188:
Explanation- It is hereby clarified that the limits specified in sub-Clauses (i) to (iv) shall apply for transaction or transactions to be entered into either individually or taken together with the previous transactions during a financial year.
b. is for appointment to any office or place of profit in the company, its subsidiary company or associate com- pany at a monthly remuneration exceeding two and half lakh rupees as mentioned in Clause (f) of s/s. (1) of section 188; or
c. is for remuneration for underwriting the subscription of any securities or derivatives thereof, of the company exceeding one per cent of the net worth as mentioned in Clause (g) of s/s. (1) of section 188.
Explanation.-
(1) the turnover or net Worth referred in the above sub- rules shall be computed on the basis of the audited Financial Statement of the preceding financial year.
(2) in case of a wholly-owned subsidiary, the special reso- lution passed by the holding company shall be suf- ficient for the purpose of entering into the transactions between the wholly owned subsidiary and the holding company.
(3) the explanatory statement to be annexed to the notice of a general meeting convened pursuant to section 101 shall contain the following particulars, namely:-
a. name of the related party;
b. name of the director or key managerial personnel who is related, if any;
c. nature of relationship;
d. nature, material terms, monetary value and particulars of the contract or arrangement;
e. any other information relevant or important for the members to take a decision on the proposed resolution.”
5. Second amendment to Companies (Management and administration) rules, 2014
The ministry of Corporate affairs has on 24th july, 2014 vide Gsr 537(e) amended the Companies (manage- ment and administration) rules, 2014 by insertion of the following:
i. in rule 9 after sub-rule (3) – “provided that nothing contained in this rule shall apply in relation to a trust which is created, to set up a mutual fund or Venture Capital fund or such other fund as may be approved by SEBI.”
ii. and in rule 13 the words “either value or volume of the shares “shall be and the explanation shall be omitted.
iii. In Rule 23 (1) for the words “not less than five lakhs rupees,” the words “not more than five lakh rupees” substituted.
iv. In rule 27, in sub-rule (1) and in the explanation, for the word “shall”, the word “may” shall be substituted.
6. Addition to Schedule VII – of Companies act, 2013
The Central Government vide Notification dated 6th August, 2014, Gsr 568 (e) has made the following amendment to schedule Vii pertaining to Corporate social responsibility:
insertion of
“(xi) slum area development.
Explanation – for the purposes of this item, ‘slum area’ shall mean any area declared as such by the Central Government or any state Government or any other Com- petent authority under any law for the time being in force.”
7. ‘Class of Companies “ for the purposes of Section 203 (1) of the Companies act, 2013
Vide Notification No. S O 1913(E) the Ministry of Corpo- rate Affairs has on 25th July, 2014 it has notified that public Companies having :
a) paid up Capital of Rs. 100 crores or more; and
b) annual turnover of Rs. 1,000 crores or more; and
c) which are engaged in multiple businesses; and
d) have appointed Chief Executive Officer for each such business shall be the ‘class of Companies’ for the purposes of section 203 (1) of the Companies act, 2013 which pertains to appointment of Key managerial personnel.
8. Companies (removal of Difficulties) Sixth Order, 2014
The ministry of Corporate affairs has vide s o 1894 (e) dated 24th july, 2014, issued the Companies (removal of Difficulties) Sixth Order, 2014. To overcome the difficulties arising, and resultant disharmonious interpretation of Clause 76 of section 2 pertaining to related party, due to absence of the word ‘relative’ in clause (iv), the Central Government has issued the said order and amended section 2 as follows:
“In Clause (76) in sub-Clause (iv) after the word ‘manager’ the word ‘or his relative’ shall be inserted.”
Direct Taxes
[F.No.142/1/2015-TPL dated 29 July, 2015 – Income tax (Tenth amendment)
Rules, 2015
New forms FORM ITR-3, FORM ITR-4, FORM ITR-5, FORM ITR-6 and FORM ITR-7 have been notified.
85. Due date for filing Return of wealth extended – Circular No. 328 dated 27 July 2015
86.
CBDT has extended the ‘due date’ for filing Return of Income for
assessment year 2015-16 in respect of assesses falling under clause (c)
of explanation 2 of sub-section (1) of section 139 of the Income-tax Act
from 31.7.2015 to 31.8.2015. In view of the same, the ‘due date’ for
filing Return of wealth by such assesses for assessment year 2015-16
also stands extended from 31st July 2015 to 31st August 2015.
87.
Rules 114F, 114G and 114H inserted and Form 61B introduced in respect
of registration of persons, due diligence and maintenance of
information, for matters relating to statement of reportable accounts
-Notification No. 62 [S.O. 2155(E)] dated 7 August 2015 – Income-tax
(11th Amendment) Rules, 2015
88. Rule 126 inserted for providing
method for Computation of period of stay in India in case of seafarers –
Notification No. 70 dated 17 August 2015 – Income-tax (Twelfth
Amendment) Rules, 2015
89. Clarification on grant of
approval and exemption claim for income of universities and educational
institutions u/s. 10(23C)(iv) of the Act- Circular no 14/2015 dated 17
August 2015
CBDT has clarified on issues like scope of
inquiry while granting approval, necessity for registration u/s. 12AA
while seeking approval /claiming exemption u/s. 10(23C) (iv) of the Act,
generation of surplus out of gross receipts, collection of amounts
under different heads of fees from students and impact of extraordinary
powers of the Managing Trustees to appoint, remove or nominate other
trustees in this Circular.
Cancerous Corruption
ACB raided State Information
Commissioner Deepak Deshpande, who had been appointed by Bhujbal after
he retired as PWD secretary. ACB found that he has one flat each in
Thane and Aurangabad and three in Pune. Deshpande also has four plots
and five hectares of land in Aurangabad, 1.53 kg. gold, 27 kg. silver,
investments of Rs.2.68 crore, 6,360 shares of companies and two cars.
ACB is yet to scan three bank accounts and four lockers. Sources said
the cabinet would advise removal of Deshpande from his post. When Mumbai
Mirror called Deshpande, he refused to comment.
He has since resigned from his post.
My
comments: If the RT I Information Commissioner, who is the instrument
for containing corruption turns out to be corrupt, it is a sad story.
Anti – Corruption Bureau:
The
number of corruption cases reported till April this year has risen. The
state’s Anti-Corruption Bureau registered a 23% hike in the number of
cases recorded in the first four months of 2015 as compared to 2014.
A
total of 479 offences were registered until April this year as compared
to 369 till April last year. Another 48 offences were registered in May
this year. A new trend witnessed in recent complaints is the rise in
the use of technology. Besides a helpline phone number, the
Anti-Corruption Bureau has also launched a mobile app and Facebook page
which have proved to be handy tools for the public to lodge complaints
and for the agency to nab offenders.
Within three months, the bureau’s Facebook page has been ‘liked’ by 24,478 people.
Director
General of Police (anti-corruption) Praveen Dixit said that their
Facebook page and helpline number 1064 have helped in nabbing corrupt
officials. “We hope to reach to even more people through our mobile
application which is becoming very popular especially with youngsters,”
said Dixit.
Until May this year, of the 527 cases registered, 50
pertained to disproportionate assets, and the bureau unearthed Rs.7.97
crore worth of assets acquired by public servants through illegal means,
of which assets valued at Rs.1.27 crore have been seized.
The
revenue department continues to lead the graft chart with 160 officials
caught in the first four months this year, followed by 142 from the
police department.
The bureau has also seen a sharp rise in the
conviction rate. This year the rate of conviction has also gone up to
50% as compared to last year, which was 22%.
An official from
the bureau said that the number of corruption cases was quite high in
the early part of the year. “Despite conducting awareness programmes in
government offices, corruption continues to plague various departments,”
said this official who asked not to be named.
CM Chandrababu Naidu:
The
Telangana Anti-Corruption Bureau (ACB) filed a charge sheet in the
cash-for-vote case identifying the person referred to as ‘Babu’, ‘Boss’
and ‘Naidu’ by the main accused as Andhra Pradesh chief minister
Chandrababu Naidu.
“We mentioned the name of Chandrababu Naidu
in the chargesheet after taking into consideration the details of
conversations of the accused and also the statement of complaint Elvis
Stephenson recorded by a magistrate u/s. 164 of the CrPC,” ACB special
public prosecutor Surendra Rao told TOI.
The ACB has narrated
how the accused in the case – Reddy, Sebastian, and Reddy’s aide, Udaya
Simha, and Sebastian’s friend, Jerusalem Mathaiah – held negotiations
with Stephenson to offer him with Rs. 5 crore in cash, of which Rs.50
lakh was delivered to Stephenson. The ACB recorded this cash delivery
with audio-visual equipment after Stephenson filed a formal complaint
about the allurements he was receiving from the TDP.
Can you believe? Yakub Memon in 2013 when he was in Central jail wrote an essay, in which the following lines were written:
“In
spite of a great Constitution, greed and corruption are posing a threat
to unity and India’s reputation as a civilised nation. People of India
need moral and spiritual cleansing to see that we do not succumb to the
evil of greed and corruption”.
Analysing the essay, a city
psychiatrist, who does not want to be named, said, “Fear of being hanged
cannot impair one’s basic intelligence. Yakub is well-educated.
Sometimes what you believe also reflects in what is said or written
spontaneously.”
Psychiatrist Dr. Sudhir Bhave said, “It may be a means to create an impression that he is indeed loyal to the country.”
Corruption in BMC:
The
Brihanmumbai Municipal Corporation (BMC), embarrassed by the spotlight
on it for all the wrong reasons as corrupt civic officials are routinely
trapped by the Anti-Corruption Bureau (ACB), has now made the
‘supervisory officer’ responsible, if more than one officer from their
department is caught.
The decision was taken after a meeting
held recently by municipal commissioner Ajoy Mehta with civic officials.
The commission, in a meeting told officials that when a citizen
approaches the civic body, he should be provided a reply within a time
limit. He said the direct supervisor should know what his staff is
doing. For instance, he said, the supervisor of the department issuing
birth certificates should know how many people have asked for a birth
certificate and how many were provided. If a certificate has not been
issued within a specific time limit, the supervisor should question the
concerned officers.
Complaint of corruption at ACB :
Over
64,000 corruption complaints were received by the Central Vigilance
Commission last year, a rise of 82 % than the preceding year.
The
Commission received 64,410 complaints, including 2,048 brought forward,
during 2014. “It is for the first time that the Commission had received
such a high number of corruption complaints,” a senior CVC official
said. Railways topped the list of government bodies with over 12,000
complaints of alleged corruption last year. It was trailed by 6,836
against bank officials, 3,572 against Delhi government employees and
3,468 against IT officials as per the annual report.
Out of
64,410 complaints received by the CVC, 36,115 were vague or
unverifiable, 758 were anonymous or pseudonymous and 24,012 were for
officials not under CVC.
There were 1,214 verifiable complaints
which were sent for inquiry or investigation to Chief Vigilance Officers
(CVOs), who act as distant arm of the CVC, and CBI.
Railways
topped the list of government organisations against whom maximum number
of complaints of alleged corruption – 12,776 – were received by the
CVOs, followed by 6,836 complaints against bank officials, 3,572 against
Delhi govt employees and 3,468 against Income Tax officials in 2014.
The
CVC had received 37,039, 16,929 and 16,260 complaints in 2012, 2011 and
2010 respectively, according to its annual reports for the respective
years.
Part B RTI Act, 2005
Maharashtra’s Chief Information Commissioner Ratnakar Gaikwad has applauded a BMC circular issued by Civic Commissioner Ajoy Mehta, aimed at reducing red tape over the implementation of the Right to Information Act, and now wants the state government to issue the very same circular to all state departments.
The BMC circular talks of how citizens who seek information under the RT I Act are often summoned to inspect documents even when the information they seek is not voluminous, or when they have not asked for an inspection. The circular asks BMC officials not to do so. Instead, they have been instructed to send the information directly to applicants, they should count the number of pages asked for, and charge the applicant for the information per page.
When the information sought is voluminous and an RT I applicant is called for an inspection, the circular says, applicants should not merely be dumped with the information, but the documents should be indexed and the pages numbered so that it is easy for applicants to find the information they are looking for.
(Also see in the issue of August 2015: page 94, Inspection of Documents.)
Grant for online filing of RTI Applications:
States can get financial aid from the Centre to set up facilities for the online filing of applications under the Right to Information (RT I) Act and other initiatives aimed at simplification and promotion of the transparency law. Various Administrative Training Institutes (AT Is) working under the states can also get grant of a maximum of Rs.4 lakh for setting up a helpline in regional languages for answering queries of the general public under the RT I Act, the Department of Personnel and Training (DoPT) announced on Thursday. “The facility of filing RTI applications and appeals online through the RT I online web portal has been launched and is being implemented in all the ministries or departments of the Government of India situated in New Delhi.
Part A Decision of CIC
[CIC/SA/A/2015/000743 dated 24.07.2015; A. S. Berar vs. Dte of Education (East)]
In response to a RT I application, the Central Commission writes:
Neither the Act nor Rules state anywhere that the Public Authority should charge Rs.2 for writing a response or answering certain points under RT I, like ‘yes’ or ‘no’ or “information attached”. The Act does not provide for pricing the information or for collecting cost of searching the files or writing notes from them. Charging Rs.2 for the covering letter, or typing on paper, information collected from other files, is unheard of. These methods by the Public Authority will lead to delay or denial of the information.
The Commission also found that certain RT I sections are wasting paper in many ways. They write ‘letter is attached’, and that letter contains two sentences like ‘information sought is not available’. Such letter sent through three or four wings of the office reflect the office’s response and responsibility. At each stage, a file was built, letter was written after the file noting was approved and then posted.
In a response from the Ministry of Communications and IT Department of Posts on 18th October 2013 to a RTI petition filed by Mr. Subhash Chandra Agrawal, sent through the Ministry of Finance, it was stated: “As per costing exercises 2011-12, the operational cost of a postal order is Rs.37.45”. This means to realise IPO of Rs.6, the department has to spend Rs.37.45, besides wasting man-hours and stationery for writing the letter. The cost must have increased in 2015.
There are the commonsense points that PIO failed to notice.
(a) Postal order for less than Rs.10 is discontinued, thus asking for Rs.6 is meaningless.
(b) Even if IPO for Rs.10 is given to pay Rs.6, the public authority has to incur operational cost for IPO Rs.37.45 to transfer the cash.
(c) In writing a letter to appellant to demand Rs.10, the public authority has to spend at least one manhour.
(d) To post the letter, the IPO has to spend Rs.17 (for local speed post, Rs. 28 for non-local), or Rs. 22 (17 plus 5 Registered Post, for every next 20 grams or part of it Rs.5 additional), Rs. 27 (Registered Post-Acknowledgement Due).
Chief Information Commissioner Sri Satyananda Mishra in his order on 30.05.2012, in a second appeal filed by Subhash Chandra Agrawal cautioned the PIOs “It is not prudent to ask for Rs.2 per page in giving one page of information, because in the process, much more public money is lost in correspondence”. The IPOs for Rs.1, 2, 5, 7 were discontinued, but IPO of Rs. 10 is retained, perhaps for helping payment of Rs. 10 RT I fee. Because of non-availability of IPOs of smaller denominations, the applicants have to |pay more money than what is prescribed. For instance to pay Rs.12 copying charges, one has to take IPO of Rs.20.
In order to avoid all these complex and costly affairs, considering delay and wastage of money in collecting fee and charges, the Commission recommends to the Government of India, especially, the Department of Personnel & Training and the Department of Posts, to arrange exclusive stamps for RT I on the lines of Radio licensing stamps, which were used to collect the license fee decades ago. (a picture of those stamps is given below, * how these stamps were fixed in a license book for Radio can also be seen). It will be useful and easy to pay RT I fee or cost of copying if these RT I stamps are made in different denominations of Rs.2, 10, 50, and 100.
The Commission directs the respondent authority not to deny information on such trivial causes and not to waste public money in demanding small amounts. If charges to be paid are not worth the cost of typing and posting a letter etc., they should avoid it. The Commission directs the respondent authority to train the personnel in the RT I wing and sensitise them to understand the difference between fee, cost and value of letter or sheet containing information.
The Commission is also not convinced with the demand for refund of 6. Appellant is right in questioning the demand of a paltry amount as explained above, but Lt. Col. A. S. Berar should not have sought refund of Rs.6, because even in doing so, the Public Authority has to spend once again unnecessarily.
The respondent officer submitted that she would furnish the information after the remaining school responded to her forwarded letters. The Commission directs the respondent authority to furnish the information for the remaining 42 schools which might not take more than a page, without asking an IPO for Rs.2, within one month from the date of receipt of this order.
With the above observations, the appeal is disposed of. Mr. Subhash Chandra Agrawal commenting on the above judgement writes:
In a colorful pictorial CIC-verdict dated 24.07.2015 in appeal – number CIC/SA/A/2015/000743 wherein strongly reasoned recommendations citing RT I responses and earlier CIC-verdict are given for introducing RT I stamps in denominations of Rs.2, 10, 50 and 100 as the most convenient and enormous revenue-saving (of crores of rupees) mode for payment of RT I fees and other charges under the RT I Act.
CIC-verdict comes as a ready reckoner for concerned departments, namely Department of Posts and Department of Personnel & Training (DoPT) when it incorporates colorful photos of Radio and TV License fees stamps on lines of which RT I stamps can be issued.
With postal-orders below Rs.10 discontinued, there is no practical mode for making payments in fractions like Rs.2, 4, 6 and 8. High handling cost of Rs.37.45 to get RT I fees of Rs.10 is the other reason for suggesting RT I stamps.
Red-tapism and ‘jaisa hai chalne do’ bureaucratictheory has obstructed issuing of RT I stamps earlier also suggested in a full-bench CIC-verdict dated 27.08.2014 in appeal-number CIC/BS/C/2013/000149/LS when Department of Posts informed that Security Printing Presses at Nasik and Hyderabad expressed inability to print RT I stamps because of shortage of paper. At least now sincere and serious steps should be made for immediate introduction of RT I stamps.
Direct Taxes
CBDT extends the due date for obtaining and filing the tax audit report u/s. 44AB of the Act for non-transfer pricing assessees to 30th November, 2014 since new formats have been issued for tax audit report. It has been clarified, that the tax audit report filed till 24th July, 2014 in the old format will be treated as valid reports.
Committee constituted for deciding on cases covered under the retrospective amendments relation to transfer of assets – Notification No. F.No. 149/141/2014-TPL dated 28th August, 2014
CBDT has passed an order u/s. 119 of the Act constituting a Committee consisting of three members of the CBDT viz. i) Joint Secretary (FT&TR-I), (ii) Joint Secretary (TPLI) and (iii) Commissioner of Income-tax (ITA ).
Any case pertaining to period before 1st April, 2014 wherein the AO feels that income deems to accrue or arise in India through transfer of capital assets in India as covered under the Amendments made u/s. 2 (14), 2(47), 9(1)(i) and section 195, such case would be referred to this Committee subject to conditions prescribed. The AO needs to seek approval from the Committee for any action in this matter. The Committee after giving an opportunity to the assessee, shall endeavor to decide the reference within 60 days of the receipt of the reference in writing, a copy of which would be given to the assessee. The decision of the Committee would be binding on the AO. The AO would proceed in the matter following the directions of the Committee.
CBDT has issued an office memorandum to all the officers instructing them to maintain the schedule of appointment given to the tax payers and not wasting their time by making them wait. – F.N.: DIR(Hqrs)./Ch.DT/20/2013 dated 22nd August, 2014
From Published Accounts
Vedanta Ltd . (31-3-2015)
From Notes to Financial Statements
Exceptional Items (Extracts)
Provision for impairment of goodwill includes:
(i) Non-cash impairment charge of acquisition goodwill, in respect of the group’s ‘Oil and Gas’ business aggregating Rs.19,180 crore. The impairment of goodwill was triggered by significant fall in the crude oil prices. For the purpose of impairment testing, goodwill has been allocated to the ‘Oil and Gas’ cash generating unit (“CGU”). The recoverable amount of the CGU was determined based on the net selling price approach, as it more accurately reflects the recoverable amount based on management view of the assumptions that would be used by a market participant. This is based on the cash flows expected to be generated by the projected oil or natural gas production profiles up to the expected dates of cessation of production sharing contract (PSC)/ cessation of production from each producing field based on current estimates of reserves and resources. It has been assumed that the PSC for Rajasthan block would be extended till 2030 on the same commercial terms. Discounted cash flow analysis used to calculate net selling price uses assumption for short term (five years) oil price and the long term nominal price of US$ 84 per barrel derived from a consensus of various analyst recommendations. Thereafter, these have been increased at a rate of 2.5% per annum. The cash flows are discounted using the post-tax nominal discount rate of 10.32% derived from the post-tax weighted average cost of capital. The impairment loss relates to the ‘Oil and Gas’ business reportable segments, however this has been shown as exceptional items and does not form part of the segment result for the purpose of segment reporting.
(ii) The mining operations at Copper Mines of Tasmania Pty Limited (“CMT”), Australia were temporarily suspended in January 2014 following a mud rush incident at the mines. On June 27, 2014, a rock fall occurred in the Prince Lyell mine affecting an access drive which connects the lower levels of the mine to surface. As a consequence, mining operations were put into Care and Maintenance. Non-cash impairment charge of acquisition goodwill, in respect of CMT aggregating to Rs.281.28 crore was recognised during the year ended March 31, 2015. The impairment of goodwill was as a result of continued care & maintenance of the operations with nil production and consequent delay in startup of operations which is dependent on fresh exploration efforts. For the purpose of impairment testing, goodwill has been allocated to the ‘CMT’ cash generating unit (“CGU”). The recoverable amount of the CGU was determined based on the net selling price approach. This is based on the cash flows expected to be generated by projected exploration & production profile of copper reserves. Discounted cash flow analyses used to calculate net selling price uses assumption for prices derived from the market projections. The cash flows are discounted using the post-tax nominal discount rate of 9.14% derived from the post-tax weighted average cost of capital. The impairment loss relates to the ‘Copper’ business reportable segment; however this has been shown as exceptional item and does not form part of the segment result for the purpose of segment reporting.
Tata Global Beverages Ltd . (31-3-2015)
From Notes to Financial Statements
During the year the Group recognised a non-cash impairment loss relating to its businesses in China and Eastern Europe. The impairment relating to the China business, a subsidiary company under joint venture control, of Rs.2,484 lakh within tea segment is on account of delays in start-up and stabilisation of technology for an enhanced product range. A pre-tax discount rate of 15.1% has been used for value in use computation.
In the case of Eastern Europe, the goodwill impairment mainly relates to Russia within coffee segment and to a lesser extent to Czech Republic within tea segment. In Russia, the impairment of Rs.4,480.51 lakh is arising due to adverse macroeconomic environment with resultant adverse impact on interest and discounting rates used for impairment assessment. A pre-tax discount rate of 20.4% has been used for value in use computation. In the case of Czech Republic, the impairment of Rs.2,573.91 lakh has been recognised based on current expectation of business performance. A pre-tax discount rate of 6.3% has been used for value in use computation. The impact of impairment has been accounted under exceptional items and is disclosed as unallocated items in the segment report.
Tata Steel Ltd . (31-3-2015)
From Notes to Financial Statements
Exceptional Items (Extracts)
During the year the Company has recognised a non-cash write down of goodwill and fixed assets of Rs.6,052.57 crore. The impairment is primarily due to the external economic environment and macro-economic conditions in each geography of operation, the underlying demandsupply imbalance facing the global steel industry, significant volatility in iron ore and coal prices in the last twelve months and the current long term view of steel and its raw material prices.
The impairment review was performed for cash generating units (CGUs) which were generally taken as legal entities or businesses within the group. The recoverable amount of CGUs and other assets were primarily based on their value in use. The discounting rates used for the value in use calculations were based on the pre-tax weighted average cost of capital and are in the range of 6% – 12%.
The impairment loss on tangible and intangible assets relate to the following primary business reportable segments, however the same has been shown as an exceptional item and does not form part of segment result for the purpose of segment reporting.
Tata Chemicals Ltd . (31-3-2015)
From Notes to Financial Statements
Exceptional Items (Extracts)
During the current year, the Group has recognised a noncash write down of goodwill of Rs.8.52 crore (previous year Rs.619.77 crore) and other assets (including capital work-in-progress and commitments in respect thereof) aggregating to Rs.188.43 crore (previous year Rs.363.91 crore) primarily relating to the Chemical and Bio-fuel overseas business (previous year relating to the Group’s Kenyan operations and the Fertiliser and Biofuel operations in India).
FROM THE PRESIDENT
In this address, the Prime Minister raised an important and extremely critical issue that has been largely unaddressed in Independent India. An all pervasive filthiness has plagued large parts of our beloved country. A search on Google reveals millions of web pages full of articles about filth in India with nasty comments that make us feel deeply ashamed. Some critiques also allege that Indians by nature are unhygienic! The then environment minister Jairam Ramesh went to the extent of saying that if there was to be a Nobel Prize for dirt and filth, India would get it.
It has come as a pleasant surprise that the topmost leader in independent India is leading from the front in the combat against this menace of filth. Given the magnitude, this push coming from the highest level was perhaps overdue. As rightly stated by the Prime Minister Modi, the solution requires whole-hearted participation from every single Citizen of India. Mahatma Gandhiji made cleanliness an important priority in his ashrams, teachings and writing. He gave us the golden quote “Cleanliness is next to Godliness” He also said “…a meticulous sense of cleanliness, not only personal, but also in regard to one’s surroundings is the alpha and omega of corporate life”. Indeed a Clean India will be the right tribute to Mahatma Gandhi on his 150th birth anniversary in 2019. Let us all commit ourselves to this noble cause and contribute our mite to it.
It is not just physical space, the way society conducts itself has been affected by this filth. Corruption has enhanced the decline in ethical standards. Various institutions and organisations too have been afflicted by this malaise of corruption. They are in need of urgent clean-up as well. A case in point is recent revelations exposing corruption in Judiciary by Justice Katju in his blog. This has created a storm and triggered a debate about one of the most important pillars of our democracy. In reply to allegations that exposing corruption defames the judiciary, Justice Katju has rightly asked: does corruption by Judges defame the judiciary, or does exposing such corruption defame it? Hitherto, the response from the custodians has been largely to brush such issues under the carpet.
Going by the well-known quote by the U.S. Supreme Court Justice Louis Brandeis, “Sunlight is the best disinfectant” from his book “Other People’s Money, and How the Bankers Use It” published in 1914, such open forum discussions will certainly help in the clean-up process. Incidentally, Justice Brandeis, while being a counsellor to President Woodrow Wilson, continued his investigations of the implications for democracy of the growing concentration of wealth in large corporations and set down his anti-monopoly views in this book that remain relevant even 100 years after it was first published.
In this season of being candid and forthright, the RBI Governor Raghuram Rajan, while delivering a lecture last month, expressed his concerns about crony capitalism. It was an admission that allegedly the rich and the influential have received land, natural resources and spectrum in return for payoffs to venal politicians. He lamented on how the vicious circle has perpetuated, whereas the poor and the underprivileged need the politician to help them get jobs and public services. The crooked politician needs the businessman to provide the funds that allow him to supply patronage to the poor and fight elections. The corrupt businessman needs the crooked politician to get public resources and contracts cheaply. And the politician needs the votes of the poor and the underprivileged.
The Governor suggests direct cash transfer instead of the promise of free or cheap public service as a solution to this problem. He believes that the financial inclusion and direct benefits transfer can be a way of liberating the poor from dependency on indifferently delivered public services, and thus indirectly from the venal but effective politician. This new approach seems ambitious and puts faith in the market economy. Let us hope that this innovation will eliminate corruption, reduce poverty and drive India towards true political independence.
As per the Annual Report of the Ministry of Finance for 2013-14, the gross non-performing assets (NPA s) of the public sector banks (PSBs) increased from Rs.1,55,890 crores (GNPA Ratio 3.84%) in March, 2013 to Rs.2,04,249 crores (GNPA Ratio 4.44%) in March 2014 (provisional). The Ministry reasons that the increase is due to sluggishness in the domestic growth in the recent past, slowdown in the recovery in the global economy and continuing uncertainty in the global markets. The recent arrest of the Chairman and Managing Director of a Public Sector Bank, however, suggests that growing political and bureaucratic interference in governance of the PSBs that has led to corrosive corruption is perhaps the major factor behind increase in the NPA s.
It seems that no lessons have been learnt from past episodes of such scandals and consequent bailouts. Bank finance is one more area that is in dire need of a clean-up. The debate is on as to how to improve the quality of governance in banks. Various suggestions are pouring in. However, the most effective remedy lies in stern and timely actions against the highly connected perpetrators without fear or fervour. While addressing recent meetings in Haryana and Maharashtra, the Prime Minister has termed corruption as a “disease and sin” deadlier than cancer and reiterated his Government’s commitment to banishing it from the country. One hopes these statements will translate into concrete and quick actions and help change the reality on the ground.
On the BCAS front, the new committees are lining up a slew of activities. The Human Resources Committee with the help of the Youth Brigade has planned a very ambitious program “JhanCAr”, a “Togetherness and Networking Carnival” for Chartered Accountants on 13th and 14th December, 2014. Do go through the announcement and look for further details of this very exciting event.
By the time this message reaches you, we will be celebrating the Teachers’ Day on 5th September. Our profession requires each one of us to be a student as well as a teacher and hence this day is special for us as well. I fondly remember all my Gurus, including my principals and seniors during my articleship and at the BCAS, and offer my deepest respect to each one of them. When we remember our great teachers, we should also think of how we should be a good teacher and mentor to the younger generation and be remembered for having inspired them and bringing positive changes in them.
Indirect Taxes
Dealer may file any of the returns for periods up to February, 2014 along with payment of tax and interest up to 30-09-2014 with reduced late fee of Rs.1,000/- instead of Rs.5,000/-.
Computerised Desk Audit (CDA) for the period 2011-12
Trade Circular 14T of 2014 dated 06-08-2014
Department has developed a system by which a facility is provided to the dealer to access and comply with the findings of the department electronically on the website and no need to visit sales tax officer if he agrees with the findings of the CDA system. This facility is not available to dealer whose case is selected for comprehensive assessment. Parameters for selection of cases in CDA and procedure to comply with findings are explained in this trade circular.
Amendments to various Acts administered by the Sales Tax Department
Trade Circular 15T of 2014 dated 06-08-2014
Salient features of the various amendments as per Maharashtra Act No. XXVII of 2014 have been explained in this trade circular.
Direct Taxes
106. CBDT issues Standard Operating Procedures (SOP) for handling AIR transactions which do not have valid PAN –
CBDT Directive File no: F No. 225/193/2016/ ITA.II dated 22 July 2016
107. Due date for furnishing returns due on 31 July 2016 extended till 5August 2016 –
F.No. 225/195/2016/ITA.II dated 29 July 2016
108. Income Declaration Scheme (Third Amendment) Rules, 2016 –
Notification No. 74/2016 dated 17 August 2016
IDS Scheme rules has been amended to provide an option to the tax payer to take the stamp duty value as increased by the same proportion as Cost Inflation Index for the year 2016-17 bears to the Cost Inflation Index for the year in which the property was registered or fair market value as on 1.4.1981 whichever is applicable, provided the property declared is evidenced by a registered deed with a competent authority as prescribed.
109. Additional clarifications issued on IDS Scheme –
Circular no. 29/2016 dated 18 August 2016
Miscellanea
1. Economy
7. With 109 Chinese firms making
it to the Fortune Global 500-2017, where does India Stand?
While Walmart topped the Fortune
Global 500 list, China’s State Grid, oil giant Sinopec Corp and China National
Petroleum were ranked second, third and fourth. Seven Indian firms made it to
the list.
While India, as well as numerous
other nations, believe that the United States tops the list of the global
economic powers, not many realise the kind of impact China has been making. The
Fortune Global 500 list for the year 2017 was released on Thursday, July 20,
and 109 Chinese firms have made it to the list.
While US retail giant Walmart
topped the list, China’s State Grid, oil giant Sinopec Corp and China National
Petroleum were ranked second, third and fourth.
Among the 109 firms that have made
it to the list, 10 are debutants. These 10 names include e-commerce brand Alibaba,
internet giant Tencent, Anbang Insurance Group and real estate developer
Country Garden.
In
comparison, only seven Indian firms have made it to the Fortune Global 500 list
this year. India’s economic expansion is expected to have accelerated in the
April-June quarter and is likely to grow in the second quarter as well.
(Source: International Business
Times dated 21.07.2017)
8. India has a Leader Who Believes
in Disruption
In his latest avatar as the
Chairman of US Chairman of US India Business Council, John Chambers is
convinced that India is at an inflection point. In a chat with ET’s TV
Mahalingam, Chambers, who is also Cisco’s executive chairman, spoke about his
reading of the Modi-Trump dynamics & how India has changed in the last three
years.
Excerpts:
What’s your reading of the
recent meeting between President Trump & PM Modi?
I turned positive on India three
years ago & I volunteered to be Chairman of US India Business Council
(USIBC). Even though I have been involved with India for 20 years with Cisco, I
think the inflection point in India is a record in terms of this opportunity.
The meeting between the two leaders could not have gone better.In the CEOs
session with him, the PM was incredibly effective in listening to each of the
20 business leaders in the room & coming back on key issues. On a scale of
1 to 10, how did the meetings go? It was 11.
This target of $500 billion of
two-way trade between the two countries that USIBC has set, how achievable is
that & what needs to be done?
I was the one to bet on China in
1995 when almost nobody else did. When I forecast a few years ago that France
would be a start-up nation due to digitisation, nobody believed me. Guess which
was the top startup nation in Europe last year? France.When it comes to India,
I think we have not seen anything yet. This is a win-win. If you look at going
from the current level of $115 billion to $500 billion -the amount of jobs this
will create is massive.If you look back at 2000, we were just at $20 billion.
Now these are doable goals based on the confidence of the Indian & American
business leaders.
(Source:
ET Q&A – The Economic Times dated 12.07.2017)
2. Sports
9. IPL broadcast rights war: Can
Jio topple Facebook, Twitter for digital space?
18 big names from across the globe
bought tender documents last year. With most of them likely to enter the fray
again, the Invitation to tender is all set to be available from 21st July
2017.
There was a jump of 454% in the
fee to retain Indian Premier League (IPL) title rights when Chinese mobile
manufacturing brand Vivo extended its deal for the next five years (2018-2022)
for whopping sum of Rs. 2199 crore.
The Board of Control for Cricket
in India (BCCI) is expecting another such windfall as it is set to open the
Invitation to Tender (ITT) for IPL broadcast & media rights on 21 July
2017.
Sony Pictures Network India (SPN)
hold the television rights (2008-2017) while Star India has been in charge of
digital broadcast of the cash-rich 20-20 tournament for the last few seasons.
However, the competition for the
next term is going to be intense as quite a few big names including Discovery,
Facebook, Jio & Twitter are expected in the race.
(Source: International Business
Times dated 21.07.2017)
3. Industry
Why this is Indian IT
Industry’s Kodak Moment?
Once-great companies like Kodak,
Digital and Nokia with capable CEOs and vast resources come to an ignominious
end not because they do not see the tsunami coming — they die or fade into
irrelevance because they are unable to respond forcefully. Kodak invented the
digital camera as early as 1975. It had all the technology, resources, brand,
and distribution to prevail. Yet it failed.
A major reason why once-dominant
firms like Kodak fade away like old photos is culture. Culture trumps strategy.
A combination of complacence & overconfidence (“this cannot happen to
us”) prevented Kodak from adapting quickly. Its leadership was indecisive
and changed strategy many times. Despite having a venture capital arm, it took
years to make its first acquisition and never made any bets big enough to
create breakthroughs. Kodak offered the first service that allowed customers to
post and share pictures online but failed to follow through forcefully to
create what might have become Instagram or Snapchat. It diversified into
chemicals and pharmaceuticals but without much conviction; these businesses
fizzled and were sold off. Unlike Fuji, Kodak obsessed about its core developed
markets and did not seize the opportunity in emerging markets, especially a
rising China. Having failed to become a printing powerhouse, Kodak is now
trying to license its rich portfolio of patents.
There are a set of reasons that
make it difficult for even well managed companies to navigate industry
disruptions the way Fuji did or Microsoft has. High on the list is complacence,
even arrogance. When a company is sitting on lots of cash, fat margins & a
good market share, it is hard to create a sense of urgency in the organization
& among its shareholders.Today, India’s IT companies are struggling to
navigate a tectonic industry shift. Its leaders have seen the technological
& regulatory shifts coming for the last decade. They have recognized the
limits of wage arbitrage and understood the need to shift from renting IQ to
creating IP, and becoming more global. They see the giant new opportunities
afforded by the digital revolution. But as the story of Kodak shows, seeing is
not enough. Acting decisively and forcefully is crucial. More than ever,
India’s IT companies need the same caliber of courageous and entrepreneurial leadership
that created them in the first place.
‘The
snake that cannot shed its skin must die’ — Friedrich Nietzsche.
(Source: Extracts from an
Article by Shri Ravi Venkatesan, Co-chairman of Infosys in the Times of India
dated 02.07.2017)
4. Others
10. Skill, re-skill and re-skill again. How to keep up with
the future of work?
“Every
five years, your skills are about half as valuable as they were before”
The jobs market is well into the
21st century. So why isn’t our education system?
Today’s jobs are vastly different
than they were a generation ago. All of us, from Gen Zers to Boomers, are
facing a working world that is more changeable and unpredictable than ever.
The days of working for 40 years
at one job and retiring with a good pension are gone. Now the average time in a
single job is 4.2 years, according to the US Bureau of Labor Statistics. What’s
more, 35% of the skills that workers need — regardless of industry — will have
changed by 2020.
That rapid pace of change in jobs
and skills means there is a growing demand to update skills as well. According
to a new report on workforce re-skilling by the World Economic Forum, one in
four adults reported a mismatch between the skills they have and the skills
they need for their current job.
Skills for the wrong century
Here is the problem briefly: the
job opportunities that are available today are 21st century jobs.
However, the way most people perform these jobs is still stuck in the previous
century. As is the way, our society is training and educating people.
In the 19th century, there was a
massive movement of the population from rural to urban centres. The primary and
secondary education system was created to train the workforce for the “new”
world of manual and clerical work in cities.
In the 20th century,
work was dominated by factory jobs. The education system that was built in the
previous century was, with some modifications, still suited to training good
factory workers and their managers. Management focused on a series of tools to
optimize this kind of work: operational efficiency, something called Taylorism,
and eventually some management philosophies called Six Sigma. Management was
mostly done face to face, while health insurance, a social safety net, and
other benefits were bundled into inflexible labour contracts.
Today, in the 21st
century, we are seeing the rise of new work models such as freelancing and
remote work. In the most advanced companies, teams are learning to be more
agile, to work with distributed and remote teams, and to scale up and down to
adapt to ever-changing conditions. This is the future of work.
Yet education has not kept pace.
We still send our children through a fixed set of primary and secondary
education steps, only now a college degree has been added on as a virtual
prerequisite for the best jobs. The model does not actually prepare anyone well
for a flexible world, in which skills are typically outdated by the time you
finish a four-year degree.Further, on-the-job training is not enough to close
the gap. The World Economic Forum report found that 63% of workers in the US
say they have participated in job-related training in the past 12 months. Yet
employers are reporting the highest talent shortages since 2007.
What individuals can do
Given this situation, people in
the workforce should proactively steer their own ongoing skills development. In
other words, recognize that you need ongoing training, and realize that you
hold the responsibility for your own education. Do that and you can improve
your marketability for years to come?
The first step is to ask yourself:
Are my skills still in demand? What is the outlook for these skills? In
addition, what skills could I work on today that would increase my income
potential in the coming years?
Do this exercise every few years?
If the half-life of a job skill is about five years (meaning that every five
years, that skill is about half as valuable as it was before), you want to get
ahead of that decline in value. Assess your own skills every two or three years,
and get started learning new skills sooner rather than later.
For example, if you are a truck
driver, you can see that autonomous vehicles are a likely threat to your
employment — maybe not this year or next year, but certainly within 5 or 10
years. Do not wait until self-driving trucks are a common sight on the highways
to start building skills for your next job. Start doing it this year, so you
will be ready when the time comes.
Do not feel like you have to
retrain yourself completely, all at once. First, as pointed out by the New York
Times this week, many of the skills needed to do fading jobs are applicable to
growing jobs. For skills, you do need to acquire, consider step changes. In
computer science, we are trained to break down large problems into smaller
chunks that can be more easily solved, one at a time. You are not going to turn
yourself from a coal miner into a data miner overnight. Nevertheless, you can
acquire basic skills leading in the direction you want to go.
As your career progresses, make
decisions about which work to take based on how much you will learn. Prioritize
jobs where you will learn valuable new skills.
(Source: World Economic Forum
dated 31.07.2017)
11. Indian Scientist wins Marconi Lifetime prize
Thomas Kailath, who grew up in
Pune and is now an emeritus professor at Stanford, has been conferred the
lifetime achievement award by the US-based Marconi Society. This is only the
sixth time the lifetime award has been given by the prestigious society in its
43-year history.
Kailath has been recognized for
his contributions to information and system science over six decades, as well
as his sustained mentoring and development of new generations of scientists.
Among his many significant contributions is a classic textbook in linear
systems that changed the way that subject was taught.
Kailath and his doctoral student
Arogyaswami Paulraj, currently emeritus professor in the electrical engineering
department at Stanford University, are joint holders of the original US patent
for MIMO (multiple input, multiple output) technology which underpins the
technology that drives every Wi-Fi, 4G, and 5G network today and helps to make
them more efficient.
The scientist was born in 1935 in
Pune, to a Malayalam speaking family, according to Wikipedia. He studied at St.
Vincent’s High School, Pune, and received his engineering degree from the
Government College of Engineering, University of Pune, in 1956. He received his
Master’s degree in 1959 and his doctoral degree in 1961, both from the
Massachusetts Institute of Technology (MIT). He was the first Indian student to
receive a doctorate in electrical engineering from MIT, says Wikipedia.
The Marconi prize has been
instituted by the Marconi Society, which was established in 1974 by the
daughter of Guglielmo Marconi, the Nobel laureate who invented radio. Previous
winners of Indian origin have been educationist and former UGC chairman Yash
Pal in 1980 and Stanford University emeritus professor and wireless antennae
pioneer Arogyaswami Paulraj in 2014. In June, the Marconi Society announced
that Arun Netravali, the engineer- scientist who grew up in Mumbai and
pioneered work on video compression standards, is the awardee for this year.
Kailath and Netravali will be awarded their respective prizes in October.
(Source: The Times of India
dated 15.08.2017)
12. Leadership Quotes
– Jeff Bezos –
“When It’s Tough, Will You
Give Up, Or Will You Be Relentless?”
– Donald Trump
–
“Think Big and Make It
Happen”
– Larry Page –
on Important Things. You’re excited to get up in the Morning”
From The President
As I pen this message, the curtain has come down on the 2016 Olympics in Rio in a grand and spectacular closing ceremony. Around ten thousand sports people competed aggressively for 2,488 gold, silver and bronze medals. Amidst the outstanding victories and whisker-close defeats, one message comes out very strongly – “Good is the enemy of best”. India has to learn this lesson well if it is going to score in the 2020 Tokyo Olympics. The Indian contingent will have to be truly world-class – wellhoned physically and mentally to win. Clearly, mediocrity, inconsistency, and half measures won’t take us anywhere near the victory stand!
With India’s encouraging six medals in the London Olympics in 2012, and its large Olympic contingent, which exceeded 100 participants for the very first time, expectations were running high. With just two medals, the “Make in India’ lion has returned to India to lick its wounds and do some serious introspection…and maybe some passing the buck too!
The silver lining in the dismal performance is that the women of India have clearly demonstrated where the ‘Citius, Altius and Fortius’ lie. Undoubtedly, the sportswomen have proven their prowess and their power to win in spite of all odds that sports persons have to face in our country. It is the time that the women in India, especially in the smaller towns and villages are empowered to live their dream and go on to achieve…not just in the Olympics but in the everyday journey called life!
Sindhu and Sakshi have returned to a hero’s welcome with people lining streets to applaud their grit, determination, and success. The central government, state governments, sports federations, companies, and individuals have been falling over themselves to shower them with cash, cars, land, jobs. Several companies also are lining up to sign them up as brand ambassadors. One wonders if all these resources and facilities were provided earlier, wouldn’t it have changed our medal tally?
GST – Ultimately
Let us leap to another very significant happening in the last month, the passing of the Goods and Services Tax (GST) Bill. It took sixteen long years in the making and was finally cleared in both houses in the first week of August. The Prime Minister, Shri Narendra Modi promptly tweeted: “GST will give strength to our economy and all parties are to be thanked for its passage.”
GST is now at our doorstep and is set to be the biggest game changer in the Indian economy by creating a common Indian market and cutting out the cascading effect of tax. Its implementation demands a complete overhaul of the current indirect tax system, right from tax structure, incidence, computation, payment and compliance to credit utilization and reporting. The impact of GST will be far reaching and require a revamping of pricing, supply chains, IT, accounting, and tax compliance. There’s huge opportunity staring us in the face!
Being a major tax reform, the GST will stoke several conflicts: between political parties; the union and state governments; and between producing and consuming states. The Centre is keen on rolling out GST by April 2017, but there are several challenges that need sorting out to ensure its smooth implementation. Replacing several taxes and harmonizing them across the union and state governments is a giant challenge. The IT platform for implementing GST will need to be all encompassing to accommodate state, central and integrated GST provisions.
All these daunting challenges have rallied the captains of industry to request the government to defer the switchover to GST for another six months. Over 40,000 suggestions have poured in, offering a wide range of comments and feedback. Whatever happens, let’s get GST ready! BCAS has planned full day workshops on GST Model Law this month, and the response has been tremendous.
The CBEC invited the BCAS for an interactive meeting with the policy makers on GST at the North Block. From the BCAS, Mr. Govind Goyal and Mr. Sunil Gabhawalla attended the meeting and made a detailed representation of the draft model GST Law. The authorities found some of the representations unique and practical to implement. A copy of the representation is available on the website.
Income Declaration Scheme
Let us now shift our focus to the government’s Income Declaration Scheme (IDS) that has been in the daily news. Stung by repeated criticism about its inaction in tackling the herculean black money problem, the government hurriedly launched a one-time compliance window to attract black money squirreled abroad. The scheme predictably bombed. Now we have an India avatar of the scheme to draw undeclared income and assets into the tax net. Tax evaders are being urged to declare their unaccounted assets voluntarily, pay the applicable tax, cess, and penalty aggregating 45% of the undisclosed income; and enjoy total immunity from any further penalty or prosecution under the Income Tax Act or Wealth Tax Act.
The government has taken pains to reiterate that the IDS is not an amnesty scheme to reward dishonest tax evaders by giving them an escape window. The ten amnesty schemes that were launched at regular intervals between 1951 and 1997 were largely misused. Tax evaders escaped stringent action and on the contrary paid lower than normal taxes, yet got blanket immunity. Assets declared under many of the schemes were grossly undervalued for tax purposes, and so the corresponding tax collection was much lower.
The IDS in its current form must, therefore, appear very harsh, and as of now, the response seems to be lukewarm. There are many reasons that may have deterred tax evaders from coming clean but importantly immunity is currently granted only from Income Tax and Wealth Tax, leaving the evader open to prosecution from Service Tax, Sales Tax, and other authorities.
BCAS, along with three other associations, made a detailed representation pointing out the anomalies, most of which were taken care in the latest FA Qs issued by the CBDT. Additionally, BCAS has brought out an excellent publication on IDS to help professionals understand the contours of the scheme and make their filings accordingly.
Meeting of revenue targets – is this the way?
There was a small article in the corner of the newspaper which I thought I should draw your attention to. It pertained to the unfair and deceitful means adopted by IT officials to ensure tax targets were met. Colluding with SBI officials, IT officials quietly collected Rs. 10,000 crore on 30th March and promptly refunded it on 1st April. This modus operandi including altogether stopping from issuing refunds in the first quarter of each year was being employed with several corporate entities, and it ensured robust figures that made the books look good. On investigating the massive refunds in the first week of April, the scam came to light, and officials got transferred. The Finance Ministry has taken a tough stand, warning officials that engage in ‘taxtortion’ that they will be dealt with sternly. As CAs we are all aware of such modus operandi and now it is the time not to take things lying in case our clients also suffer such unjust.
International Tax Conference
The International Tax and Finance conference (ITF) a popular event of the Society crossed borders for the first time, it was successfully held in Sri Lanka. The participants included participants from all across the country as well as some international participants There was a balanced combination of learning with fun. The day used to be full of brainstorming sessions and discussion with enlightenment from elite speakers, whereas the evenings used to be full of interaction and amusement. The highlight of the conference was the one to one interaction with the Minister of Finance of Sri Lanka who was very candid and appreciative of India and its prowess.
Ganapati Bappa Morya! Micchami Dukkadam!
Company Law
The Ministry of Corporate Affairs has vide Notification No GSR 639 (E ) dated 29th June 2016, notified amendments to the Companies (Acceptance of Deposit) Rules, 2014. Among other amendments, it has excluded an amount of Rs. 25 Lakh or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.
A Start-up Company means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification number G.S.R. 180(E) dated 17th February, 2016 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.
A Convertible Note means an instrument evidencing receipt of money initially as a debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of the start-up company upon occurrence of specified events and as per the other terms and conditions agreed to and indicated in the instrument.
In Rule 3 to the Principal rule which limits the eligible Company to accept or renew any deposit from its members, the limit has been increased from 25% to 35% of the aggregate of the paid-up share capital and free reserves of the company.
Also the following proviso to Rule 3 of the Principal rules, after sub Rule 3 has been inserted-
“Provided that a private company may accept from its members monies not exceeding one hundred per cent of aggregate of the paid up share capital, free reserves and securities premium account and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.
Rule 16 A pertaining to “Disclosures in the financial statement” has been introduced as follows:
(1) Every company, other than a private company, shall disclose in its financial statement, by way of notes, about the money received from the director.
(2) Every private company shall disclose in its financial statement, by way of notes, about the money received from the directors, or relatives of directors.
The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/Rules_30062016.pdf
2. Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016
The Ministry of Corporate Affairs has vide notification No. G.S.R. 646(E) dated 30th June 2016 issued amendments to the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014.
The disclosures applicable to listed companies as mentioned in Rule 5 of the principal rules, sub-rule (1), “clauses (v), (vi), (vii) and (ix) to (xi)” have been omitted:
(v) the explanation on the relationship between average increase in remuneration and company performance;
(vi) comparison of the remuneration of the Key Managerial Personnel against the performance of the company;
(vii) variations in the market capitalisation of the company, price earnings ratio as at the closing date of the current financial year and previous financial year and percentage increase over decrease in the market quotations of the shares of the company in comparison to the rate at which the company came out with the last public offer in case of listed companies, and in case of unlisted companies, the variations in the net worth of the company as at the close of the current financial year and previous financial year;
(ix) comparison of the each remuneration of the Key Managerial Personnel against the performance of the company;
(x) the key parameters for any variable component of remuneration availed by the directors;
(xi) the ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year;
Following Disclosures in the Directors report are also required:
Details of remuneration of every employee drawing in excess of Rs 1,02,00,000/- pa or Rs. 8,50,000/- per month is to be disclosed alongwith the names of the top ten employees in terms of remuneration drawn.
Further the filing of Form No. MR-1 for the appointment of Chief Executive Officer, Chief Financial Officer and Company Secretary has been omitted.
The full notification can be accessed at http://www. mca.gov.in/Ministry/pdf/AmendmentRules_01072016. pdf
3. Removal of Difficulties Third Order – Rotation of Auditors
The Ministry of Corporate Affairs has vide Order no S.O. 2264(E) dated 30th June 2016, issued the Removal of Difficulties Third Order, which is deemed to be effective from 1st April 2014.
The third proviso of section 139 (2) (pertaining to Appointment of Auditors) of the Companies Act 2013 states that every company existing on or before the commencement of the Act and falling within the ambit of section 139 (2) (i.e. provisions relating to rotation of auditors) of the Act, are required to comply with the requirements of the said sub-section within 3 years from the date of commencement of the Act.
Given the above, difficulties have arisen regarding compliance with the provisions of the third proviso to section 139 (2) of the Act in so far as they relate to the period within which companies would comply with the provisions of section 139 (2) of the Act. In this regard, the Central Government has made the order by which, the third proviso to section 139 (2) of the Act would be substituted with the following proviso:
“Provided also that every company, existing on or before the commencement of this Act which is required to comply with the provisions of this sub-section, shall comply with requirements of this sub-section within a period which shall not be later than the date of the first annual general meeting of the company held, within the period specified under sub-section (1) of section 96, after three years from the date of commencement of this Act.”
This order aims to remove the difficulties that have arisen regarding compliance with Rotation of Auditors. The provisions of third proviso to section 139(2)in so far as they relate to the period within which companies would comply with provisions of section 139(2) of the said Act is substituted as follows:
The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/ROD_Third_Order_2016.pdf
4. Companies (Incorporation) Third Amendment Rules, 2016
The Ministry of Corporate Affairs has vide Notification No G.S.R. 743(E) dated 27th July 2016 issued Companies (Incorporation) Third Amendment Rules, 2016 to amend the Companies (Incorporation) Rules 2014.
Rule 3(2) has been substituted as follows:
“(2) A natural person shall not be member of more than a One Person Company at any point of time and the said person shall not be a nominee of more than a One Person Company”
Rule 26 with respect to Publication of the name of the Company has been substitutes as follows :
(1) Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.”
In Rule 28(2) the following proviso has been added after 2nd Proviso:
“Provided also that on completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed. R ule 29 (1) is substituted as follows:
“(1) The change of name shall not be allowed to a company which has not filed annual returns or financial statements due for filing with the Registrar or which has failed to pay or repay matured deposits or debentures or interest thereon:
Provided that the change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.”
The rule for Conversion of unlimited liability company into a limited liability company by shares or guarantee have been incorporated in newly added Rule 37.
The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesThridAmendementRules_28072016.pdf
5. Companies (Share Capital and Debentures) Fourth Amendment Rules, 2016
The Ministry of Corporate Affairs has vide Notification No G.S.R. 791(E) dated 12th August 2016 notified amendments to Companies (Share Capital and Debentures) Rules, 2014.
Rule 18, after Sub-rule (10), the following sub-rule shall be inserted.
“(11) Nothing contained in this rule shall apply to rupee denominated bonds issued exclusively to overseas investors in terms of A.P. (DIR Series) Circular No. 17 dated September 29, 2015 of the Reserve Bank of India.”
The full notification can be accessed at http://www.mca.gov.in/Ministry/pdf/CompaniesFourthAmendmentRules_17082016.pdf.
Part D ETHICS, GOVERNANCE & ACCOUNTABILITY
In its simplest sense, business transparency means clear, unhindered honesty in the way that s/he does business. But it’s more than that. One business dictionary defines transparency as a “lack of hidden agendas or conditions, accompanied by the availability of full information required for collaboration, cooperation, and collective decision making.” The same source describes it as an “essential condition for a free and open exchange whereby the rules and reasons behind regulatory measures are fair and clear to all participants.” Meanwhile, another source defines transparency as “the full, accurate, and timely disclosure of information.”
In many cases, the word transparency is used as little more than a buzzword, a marketing opportunity. Whether it’s a corporate executive looking to win back disillusioned consumers and shareholders or a politician making whatever promises necessary to obtain public office, this term seems to have earned a bad rap over the years. And as a result, many have come to question the authenticity of those who use transparency as a part of their normal vernacular.
While observing the steady decay of this word would be a fascinating study in itself, there is another, more beneficial lesson to be learned in the wake of this linguistic disaster— particularly as it pertains to the way businesses are run.
This lesson can be learned, at least in part, by simply rediscovering what true transparency is—what does transparency actually mean? After that, one can utilize that understanding to discern the purpose of remaining transparent in the way s/he does business, as well as the often detrimental consequences of flouting that responsibility. Finally, with that new-found understanding, one can generate useful, ingenuous action plan for increasing transparency in his or her own business.
Transparency is one of those subtle things that can make a dramatic impact on a business. Yes, it will impact your bottom line. But that’s not the whole point. The point is that it helps everyone do business better—you, your clients, your team member. A culture of transparency is the way business ought to be done
RTI Clinic in September 2016: 2nd, 3rd, 4th Saturday, i.e. 10th, 17th, and 24th 11.00 to 13.00 at BCAS premises.
Part C Information on & around
The Maharashtra government is proposing a series of RTI rules, which, if implemented, would sound the death knell of the Act. Earlier, during the tenure of the previous government, some RTI rules were made.
What are the controversial proposals?
One is that an applicant would not be given details that “involve fresh collection of non-available data” or “compilation of existing data”. The other is not to give information on queries that seek “justification”.
How will the proposals kill the Act?
Already, there are complaints that many public information officers (PIOs) do not part with information largely because they do not even keep the records properly with them. The proposals also take away the onus of giving reasons for not providing information from the PIOs. The government is also looking to set a limit on the information it can provide online.
PMO discloses salary of its staff; IAS officer Bhaskar Khulbe highest paid
The monthly salary of all officers working in the prime minister’s office (PMO) has been made public as part of suo motu disclosure under the Right to Information (RTI ) Act with senior Indian Administrative Service (IAS) officer Bhaskar Khulbe the highest paid at Rs.2.01 lakh.
Khulbe, who is secretary to the prime minister, gets a monthly remuneration of Rs.2.01 lakh, according to details of the salary as on 1 June 2016 put on the PMO website.
Update details of officers handling RTI matters: Govt to depts
All central government departments have been asked to ensure that updated details of officers responsible for handling RTI applications are available in the public domain.
One of the items to be disclosed proactively by the public authorities (or government departments) under the Right to Information (RTI) Act pertains to the names, designations and other particulars of the Central Public Information Officers (CPIO) and its updation on a yearly basis.
Army canteens most profitable retail chain in India, ahead of Future & Reliance Retail
Which is the most profitable Retail chain in India? Answer: The defence canteen stores. Its earnings exceeded those of all other chains, including Future Retail and Reliance Retail. The Canteen Stores Department (CSD), which, incidentally, is a not-for-profit organisation, earned Rs 236 crore during FY14-15, according to a Right to Information query. Comparatively, Avenue Supermart, which runs D’Mart stores, made a profit of Rs 211crore.
118 sexual harassment cases filed in BMC in 4 years, reveals RTI
In the last four years (2013-16) the Brihanmumbai Municipal Corporation (BMC) officials have registered 118 cases of sexual harassment in its offices, reveals a right to information (RTI ) response.
In a reply to the RTI filed by activist Anil Galgali requesting number of sexual harassment complaints filed in the civic administration and action taken, the civic body replied saying 21 sexual harassments cases were registered by its women employees till June this year.
According to this information, from 2013 to 2016, the average number of complaints registered with committee which works under Women Sexual Harassment Prevention chief and ‘Savitribai Phule Women Resource Centre each year should be 29. While in 2013 and 2014, 32 and 34 complaints were lodged respectively, there was marginal decline in 2015 as 31 cases were filed.
Part B RTI Act, 2005
A five-judge Constitution bench of the Supreme Court will decide whether the apex court is liable to disclose information on judicial appointments under the Right to Information Act.
The bench will hear a case filed by its administrative wing through the Central Public Information Officer.
A three-judge bench led by Justice Ranjan Gogoi referred the question to the country’s top court, following a case filed by the CPIO of the Supreme Court against an earlier Delhi High Court ruling.
The Delhi High Court in 2014 upheld a similar order by the Central Information Commission and ruled that the Supreme Court is not exempt from disclosing information under the RTI . The high court thus allowed the public to seek information related to appointment of judges, and number of cases pending and disposed off in the apex court through RTI applications.
The Delhi High Court directed the Supreme Court registry to maintain all records, even judgments that had been reserved, to ensure that all information is available under RTI .
In 2011, the CIC had given a similar direction to the Supreme Court to maintain its records regarding all cases in such a way that information can be made available to RTI applicants. The Supreme Court has however, refused to give any directions with respect to divulging any details under the RTI during hearings of several public interest litigations.
The CIC gave its order in 2011 based on the apex court’s 2001 ruling in the case titled Anil Rai vs. State of Bihar. This judgement has been cited in most cases pleading for transparency in judiciary’s functioning on account of observations made on maintaining confidence of litigants. Several drafts of the Memorandum of Procedure prepared by the government for appointment of judges exclude appointments from the ambit of the RTI .
Part A Decision of CIC
GM mustard trials: CIC asks govt to reveal bio-safety data
The Central Information Commission (CIC) has directed the environment ministry to reveal safety data regarding trials of genetically modified (GM) mustard without further delay, noting that “any attempt to postpone or delay the disclosure will block the public discussion” on the controversial issue.
In April, the information panel had pulled up the Union ministry of environment, forest and climate change (MoEFCC) over its lack of transparency on trials of GM crops and directed it to make public all information, including bio-safety data, related to the field trials of the GM mustard crop before 30 April.
The CIC also directed the ministry to put in the public domain bio-safety data pertaining to all other GMOs (genetically modified organisms) in the pipeline.
The CIC’s directions came on an application by environment activist Kavitha Kuruganti, who sought information regarding field trials of GM mustard from the MoEFCC, but was denied.
“Instead of furnishing information as ordered by 30 April 2016, the public authority requested for two more months. The public authority did not honour its own commitment to furnish in that time and on 28 June they sought another extension, this time for 90 days. To furnish a copy of a report or to place the agenda and minutes of the GEAC (Genetic Engineering Approval Committee) meeting, they need no time at all. They are just asking for time though they do not require it,” information commissioner M. Sridhar Acharyulu noted in his order.
He also held that there appears “to be no seriousness in seeking extension” and the environment ministry is “routinely asking for extension without specifying the period”.
In his order, Acharyulu said that the information sought is of “high public importance, concerning public health, and it should have been in (the) public domain”.
“Public authority is attempting to keep vital information out of public discussion. It amounts to prevention of constitutionally guaranteed freedom of speech and expression of the appellant, who are interested in discussing the pros and cons of GMOrelated issues of GM mustard, which if permitted would cause serious impact on the public health of consumers on a large scale,” he said.
From Published Accounts
Compilers’ Note
As per the roadmap issued by the Ministry of Company Affairs (MCA), listed and other companies with a net worth of over Rs. 500 crore (as on 31st March 2014) have to adopt ‘Ind AS’ set of standards as notified by the Companies (Indian Accounting Standards) Rules, 2015 as amended by Companies (Indian Accounting Standards) Amendment Rules, 2016.
To overcome the initial problems likely to faced by companies on Ind AS implementation, SEBI has also vide Circular dated 5th July 2016 given certain exemptions from disclosures for Q1 and Q2 results for companies who have to adopt Ind AS.
Given below are disclosures by 2 large listed companies for the quarter ended 30th June 2016 who have adopted Ind AS.
Reliance Industries Ltd
Transition to Ind-AS:
The Company has adopted Ind AS with effect from 1st April 2016 with comparatives being restated. Accordingly the impact of transition has been provided in the Opening Reserves as at 1st April 2015 and all the periods presented have been restated accordingly.
RECONCILATION OF PROFIT AND RESERVE BETWEEN IND AS AND PREVIOUS INDIAN GAAP FOR EARLIER PERIOD AND AS AT MARCH 31, 2016
Notes:
I. Change in accounting policy for Oil & Gas Activity – From Full cost method (FCM) to Successful Efforts Method (SEM): The impact on account of change in accounting policy from FCM to SEM is recognised in the Opening Reserves on the date of transition and consequential impact of depletion and write offs is recognised in the Profit and Loss Account. Major differences impacting such change of accounting policy are in the areas of;
– Expenditure on surrendered blocks, unproved wells, abandoned wells, seismic and expired leases and licenses which has been expensed under SEM.
– Depletion on producing property in SEM is calculated using Proved Developed Reserve, as against Proved Reserve in FCM.
II. Fair valuation as deemed cost for Property, Plant and Equipment: The Company and its subsidiaries have considered fair value for property, viz land admeasuring over 33000 acres, situated in India, with impact of Rs. 51,101 crore and gas producing wells in USA Shale region with impact of Rs.(-) 5,829 crore in accordance with stipulations of Ind AS 101 with the resultant impact being accounted for in the reserves. The consequential impact on depletion and reversal of impairment is reflected in the Profit and Loss Account.
III. Fair valuation for financial Assets: The Company has valued financial assets (other than investment in subsidiaries, associate and joint ventures which are accounted at cost), at fair value. Impact of fair value changes as on the date of transition, is recognised in opening reserves and changes thereafter are recognised in Profit and Loss Account or Other Comprehensive Income, as the case may be.
IV. Deferred Tax:
The impact of transition adjustments together with Ind AS mandate of using balance sheet approach (against profit and loss approach in the previous GAAP) for computation of deferred taxes has resulted in charge to the Reserves, on the date of transition, with consequential impact to the Profit and Loss account for the subsequent periods.
V. Others: Other adjustments primarily comprises of:
a. Attributing time value of money to Assets Retirement Obligation: Under Ind AS, such obligation is recognised and measured at present value. Under previous Indian GAAP it was recorded at cost. The impact for the period subsequent to the date of transition is reflected in the Profit and Loss account.
b. Loan processing fees / transaction cost: Under Ind AS such expenditure are considered for calculating effective interest rate. The impact for the periods subsequent to the date of transition is reflected in the Profit and Loss account.
Tech Mahindra Ltd
The Company has prepared its first Ind AS compliant Financial Statements for the periods commencing April 1, 2016 with restated comparative figures for the year ended March 31, 2016 in compliance with Ind AS. Accordingly, the Opening Balance Sheet, in line with Ind As transitional provisions, has been prepared as at April 1, 2015, the date of company’s transition to Ind AS. In accordance with Ind AS 101 First-time Adoption of Ind AS, the Company has presented a reconciliation from the presentation of financial statements under Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 (“Previous GAAP”) to equity under Ind AS as at March 31, 2016, June 30, 2015 and April 1, 2015 and of the total comprehensive income for the quarter ended June 30, 2015.
The principal adjustments made by the Company in restating its “Previous GAAP” statement of profit and Loss for the quarter and year ended March 31, 2016 and quarter ended June 30, 2015 are as mentioned below:
Footnotes to the reconciliation between “Previous GAAP” and Ind AS.
i) Fair Value Through Other Comprehensive Income (FVTOCI) Financial assets:
Under “Previous GAAP”, the Group accounted for long term investments in unquoted and quoted equity shares as investment measured at cost less provision for other than temporary diminution in the value of investments. Under Ind AS, the Group has designated such investments (other than subsidiary and associate) as FVTO CI investments. Ind AS requires FVTO CI investments to be measured at fair value. Due to difference between the investments fair value and “Previous GAAP” carrying amount, total comprehensive income has been increased by an amount of Rs.1160 Lakh for quarter ended June 30, 2015 and decreased by an amount of Rs.2785 Lakh and Rs.546 Lakh for quarter and year ended March 31, 2016 respectively.
The Group, under the “Previous GAAP” had made provision for diminution in value of quoted investments in earlier years, now since investments are accounted at fair value, provision for diminution, no longer required has been reversed by the company and corresponding effect has been given by crediting retained earnings Rs. 2515 Lakh as at transition date. During the quarter ended June 2015, company had already reversed the amount of provision for diminution in value of quoted investment of Rs.2435 Lakh in “Previous GAAP” financials and on reversal on transition date, the profit under Ind As has been decreased by an amount of Rs.2435 Lakh for quarter ended June 30, 2015 and year ended March 31, 2016.
ii) Share based payments:
Under “Previous GAAP”, the Group recognised stock compensation cost based on intrinsic value method. Ind AS 102, Share-based Payment, requires compensation cost to be recognised on fair value as at grant date to be determined using an appropriate pricing model over the vesting period. Accordingly, profit has been decreased (excess of cost determined on fair value basis over intrinsic value basis) by an amount of Rs.1051 Lakh, Rs.860 Lakh and Rs.3269 Lakh for quarter ended June 30, 2015, quarter and year ended March 31, 2016 respectively.
iii) Foreign currency translations:
In “Previous GAAP”, fixed assets of integral foreign operations were carried at historical exchange rate and now in accordance with Ind AS 21, Property, Plant and Equipment of integral foreign operations has been restated at closing rate and other comprehensive income has been increased by an amount of Rs.149 Lakhs, Rs.600 Lakh and Rs.600 Lakh for quarter ended June 30, 2015, quarter and year ended March 31, 2016 respectively.
iv) Fair Value Through profit or loss in respect of Financial assets:
Under “Previous GAAP”, the company accounted for current investment in mutual funds on the basis of cost or Net realizable value whichever is lower. Ind AS requires the same to be measured at fair value. Accordingly, current investment in mutual funds have been measured at fair value and profit has been decreased by an amount of Rs, 91 Lakh for quarter ended June 30, 2015 and increased by an amount of Rs.167 Lakh and Rs.230 Lakh for quarter and year ended March 31, 2016.
v) Deferred tax:
Certain translation adjustments lead to temporary differences and accordingly, the group accounted for deferred tax, as applicable on such differences. Deferred tax adjustments are recognised in correlation to the underlying transaction either in retained earnings or a separate component of equity.
These adjustments have resulted in decrease in profit by an amount of Rs. 435 lakh and Rs.2349 Lakh for quarter ended June 30, 2015 and March 31, 2016 respectively and increased by an amount of Rs. 4183 Lakh for year ended March 31, 2016.
Tax adjustments are primarily on account of deferred taxes recognised for undistributed earnings of subsidiaries.
vi) Other Comprehensive Income:
Under the “Previous GAAP”, the Group has not presented other comprehensive income (OCI) separately. Now, under Ind AS, actuarial gain/loss on defined benefit liability, effective portion of cash flow hedges (amounting to loss of Rs.14984 Lakh for quarter ended June 30, 2015 and gain of Rs.10890 Lakh and Rs.11741 Lakh for quarter and year ended March 31, 2016 respectively) and currency translation reserve has been shown separately and routed through OCI.
Corporate Law Corner
1. Jella Jagan Mohan
Reddy, In re
(2017) 82 taxmann.com 422 (NCLT – Hyd.)
Date of Order: 5th June, 2017
Sections 211, 621A of Companies Act, 1956 read with Schedule
VI – Incorrect disclosure of Issued Capital in the Balance Sheet of the Company
was in violation of section 211 – The submission that there was no prejudice
caused to the members, creditors or public did not hold good – The application
for compounding was accordingly dismissed
FACTS
JCo was incorporated on 14.11.2006 as a private limited
company and was converted to a public company on 12.01.2009 under Companies
Act, 1956 (the Act). The Office of Regional Director carried out an inspection
of books of accounts of JCo for the years 2006-07 to 2012-13 and found that it
had violated provisions of section 211(1) read with Schedule VI of the Act. The
Balance Sheet of JCo as at 31.03.2009 disclosed the Issued Capital as Rs. 84.41
crore instead of Rs. 100 crore. The same allegedly resulted in a disclosure of
false particulars in the said Balance Sheet.
JCo admitted to the default and submitted that the same was
not intentional and that it was of a nature that did not prejudice interest of
members, creditors or others dealing with the company. JCo further pleaded that
the default did not in any way affect the public interest. JCo therefore filed
an application u/s. 621A for compounding of offence.
ROC highlighted that JCo did not mention how the offence was
made good and therefore be put to strict proof of
the same.
HELD
The Tribunal observed that it had the necessary power to
compound the offence as was established under Cambridge Technology Enterprises
Ltd., In re (2017) 77 taxmann.com 270 (NCLT – Hyd.). The Tribunal
observed that the Balance Sheet of JCo as at 31.03.2008 disclosed its Issued
capital as Rs. 106.41 crore whereas the same was reflected as Rs. 84.41 crore
in the Balance Sheet as at 31.03.2009. There was no mention of any reduction
being carried out in any of the Balance Sheets of JCo. Both the Balance Sheets
were signed by two whole-time directors of the Company, its Company Secretary
and reputed firm of Chartered Accountants.
The Tribunal further observed that the Balance Sheet was an
important financial statement used by the stakeholders for various purposes.
The factual error therein was not in accordance with section 211(1) of the Act
in as much as “True & Fair view” was not depicted in the Balance
Sheet, thereby resulting in disclosure of false particulars of Issued Capital.
In light of the aforesaid observations, it was held that the submission that
the error did not cause any prejudice to the creditors or members does not hold
good and the Tribunal proceeded to dismiss the application for compounding.
2. Hasmukh Bachubhai Baraiya
vs. Symphony Ltd.
(2017) 82 taxmann.com 420
(NCLT – Ahd.)
Date of Order: 26th April,
2017
Sections 56, 58 and 59 of Companies Act, 2013 – Tribunal
does not have power to issue directions for issue of duplicate share
certificate – The dispute as to title of shares has to be heard by a Civil
Court and the National Company Law Tribunal (NCLT) does not have the authority
to decide upon the same.
FACTS
H, a shareholder of SCo, a listed public company, alleged
that he misplaced the share certificates of the company. H made a request to
the share transfer agent of SCo for issue of duplicate share certificates
through a letter dated 11.09.2015. Subsequent letters were written to the Share
transfer agent on 07.10.2015 and 02.11.2015 for the same purpose. H visited the
office of Share transfer agent on 15.10.2015 and the office of SCo on
16.10.2015 and produced the relevant documents for verification in respect of
application for issue of duplicate share certificates. Upon failure of SCo and
Share transfer agent to issue the duplicate share certificate, H filed an
application before the NCLT under sections 56, 58 and 59 pleading it to issue
directions for issue of duplicate share certificate.
There was another Party who contested the ownership of the
shares in question stating that the same were acquired by him in the year 1997.
The said Party also sent the transfer deeds to the Share transfer agent but was
not issued the share certificates because there was a deficit in payment of
stamp duty. This claim of ownership by the Party has been disputed by H.
The Party had filed a civil suit to establish its case for
ownership and the said suit was pending in the Civil Court. SCo directed H and
Party to settle their dispute or produce an order from a Competent Court of
law.
HELD
Tribunal held that relief u/s. 58 was not available to H
since it was not his case that SCo refused to register his name in the register
of members.
Section 59 deals with rectification of Register of Members if
the name of any person is without sufficient cause entered into the Register of
members of a Company or without sufficient cause omitted the name of a Member
from the Register of Members or in case where a default was made or unnecessary
delay was made in making entry in the Register of Members. As the case of H did
not fall under any of the said categories, relief u/s. 59 was also held to be
not available to H.
Upon examining the provisions of section 56, the Tribunal
observed that where the instrument of transfer had been lost, the power to
issue duplicate shares was available with the Board of the Company. There was
nothing in section 56 which indicated that the Tribunal can give a direction to
the Company to issue duplicate shares.
The Tribunal proceeded to state that there was no specific
provision under the Companies Act, 2013 or rules framed thereunder which gave
it the authority to issue directions to a company for issue of duplicate
shares. When the Statute creates a right to obtain duplicate shares upon
satisfying the Board of a company about loss of shares and when the Board did
not exercise its discretion in the manner in which it is expected to exercise,
then the judicial authorities or quasi- judicial authorities are certainly
entitled to give appropriate directions.
It however observed that although H alleged that shares were
misplaced, he did not specify when they were misplaced. H did not inform the
Police about misplacement of shares either at the time when they were misplaced
nor when the Party contested his claim for ownership of the shares.
Also, in the aforesaid case, the challenge involved a dispute
as to title of the shares. The Tribunal dismissed the Petition by observing
that such title disputes could not be decided by it and only a Civil Court had
the jurisdiction to decide upon the same.
3. Himalay Dassani vs.
Isolux Corsan India Engineering & Construction (P.) Ltd.
(2017) 82 taxmann.com 143 (NCLT-Chd.)
Date of Order: 8th May, 2017
Section 9 of Insolvency and Bankruptcy Code, 2016 – Where an
application was already filed u/s. 9 against the subsidiary of Corporate Debtor
for recovery of debt, parallel proceedings on the same cause of action could
not be initiated against the Corporate Debtor.
FACTS
ICo being the respondent was incorporated on 25.06.2008. ICo
availed consultancy service of H (being the operational creditor) in respect of
awarding of a project for developing and executing the transmission system at
Mainpuri and associated works on a build, own, operate and transfer (BOOT)
basis. ICo entered into a Service Agreement for the same with H on 08.07.2010
by virtue of which it agreed to pay a consultancy fee of Rs. 84 crore plus
applicable taxes in respect of the services to be rendered by H. The amount was
payable within 120 days of signing the agreement or upon financial closure of
project; whichever was later. H alleged that final financial closure of the
project took place on 1.5.2014.
On 15.03.2016, ICo entered into a Final Settlement and
Consultancy Agreement dated 15.03.2016 (Final Settlement Agreement) in order to
fully and finally settle its claims and dues with H. H alleged that the same
was done fraudulently and without an intention to honour the obligations. In
terms of Final Settlement Agreement, SCo, a subsidiary of ICo had undertaken to
pay H a sum of Rs. 38 crore along with applicable taxes in full and final
settlement of amount due by ICo. H filed a petition before Allahabad Bench of
NCLT in order to take recourse against SCo u/s. 9 of the Code for payment of
sum of Rs. 59.2 crore due in terms of Final Settlement Agreement. H
subsequently filed an application before this Tribunal u/s. 9 of the Code for
recovering an amount of Rs 96.6 crore.
HELD
The Tribunal observed that there were two different amounts
recorded as payable in respect of the same service rendered by H. The date of
default in the present application was stated to be 1.5.2014, whereas before
the Allahabad Bench, the date of default against SCo was 15.03.2016. Thus, the
Tribunal held that there was a dispute so far as the ICo is concerned, and
hence, the present petition u/s. 9 could not be admitted.
The Tribunal further held that as H had alleged fraud and
inducement on part of ICo and there was a counter defence to the same by ICo;
the existence of dispute could not be ruled out. Final Settlement Agreement did
not have a provision that if the payment was not honoured, H would be entitled
to fall back on the original agreement of the year 2010.
The said recourse was further denied as H had already
commenced the proceedings against SCo.
place with SCo and proceedings for default under the same were already
initiated, the application was dismissed by the Tribunal and a cost of Rs.
50,000 was imposed upon H.
Glimpses of Supreme Court Rulings
14. Capital Gains – Cost of Acquisition – Value as on
1-4-1974 – High Court not to interfere with the finding of fact by the Tribunal
unless the same is palpably incorrect and therefore perverse – Assessing
Officer and Commissioner of Income Tax valued the land at Rs. 2 or 3 per sq.
yard while the Tribunal determined the value at Rs.150/- per sq. yard which
finding was reversed by the High Court.
Ashok Prapann vs. CIT (2016) 389 ITR 462 (SC)
The assessment year in question was 1989-90. The Assessee has
been subjected to payment of income-tax on capital gains accruing from land
acquisition compensation and sale of land. It was not in dispute that the land
in question was sold for Rs.150/- per sq. yard. The dispute was as to how the
cost of acquisition was to be worked out for the purposes of deduction of such
cost from the receipts so as to arrive at the correct quantum of capital gains
exigible to tax under the Income-tax Act, 1961 (for short “the Act”).
The Assessing Officer as well as the first appellate authority took into
account the declaration made in the return filed by the Assessee under the
Wealth-tax Act (Rs. 2 per square yard) in respect of the very plot of land as
the cost of acquisition. Some instances of comparable sales showing higher
value at which such transactions were made (Rs. 70 per square yard) were also
laid by the Assessee before the Assessing Officer. The same were not accepted
on the ground that such sales were subsequent in point of time, i.e., 1978-79
whereas u/s. 55(2) of the Act the crucial date for determination of the cost of
acquisition was April 1, 1974.
The learned Tribunal took the view that the comparable sales
could not altogether be ignored. Therefore, though the comparable sales were at
a higher value of Rs. 70 per square yard, the learned Tribunal thought it
proper to determine the cost of acquisition at Rs. 50 per square yard. In the
second appeal, the High Court exercising jurisdiction u/s. 260A of the Act
reversed the said finding.
The Supreme Court observed that a declaration in the return
filed by the Assessee under the Wealth-tax Act would certainly be a relevant
fact for determination of the cost of acquisition which u/s. 55(2) of the Act
to be determined by a determination of fair market value. Equally relevant for
the purposes of aforesaid determination would be the comparable sales though
slightly subsequent in point of time for which appropriate adjustments can be
made as had been made by the learned Tribunal (from Rs. 70 per square yard to
Rs. 50 per square yard). The Supreme Court held that comparable sales, if
otherwise genuine and proved, could not be shunted out from the process of
consideration of relevant materials. The same had been taken into account by
the learned Tribunal which is the last fact finding authority under the Act.
Unless such cognizance was palpably incorrect and, therefore, perverse, the
High Court should not have interfered with the order of the Tribunal. According
to the Supreme Court, the order of the High Court overlooked the aforesaid
severe limitation on the exercise of jurisdiction u/s. 260A of the Act.
The Supreme Court further noted that apart from the above, it
appeared that there was an on-going process under the Land Acquisition Act,
1894 for determination of compensation for a part of the land belonging to the
Assessee which was acquired [39 acres (approx.)]. The reference court enhanced
the compensation to Rs. 40 per square yard. The above fact, though subsequent,
would not again be altogether irrelevant for the purposes of consideration of
the entitlement of the Assessee. However, as the determination of the cost of
acquisition by the learned Tribunal was on the basis of the comparable sales
and not the compensation awarded under the Land Acquisition Act, 1894 (the
order awarding higher compensation was subsequent to the order of the learned
Tribunal) and the basis adopted was open for the learned Tribunal to consider,
the Supreme Court was of the view that
in the facts of the present case, the High Court ought not to have interfered
with the order of the learned Tribunal.
Consequently and taking into account all the reasons stated
above, the Supreme Court allowed the appeal. The order of the High Court was
set aside and that of the learned Tribunal was restored.
15. Cost of Construction – Reference to the Department
Valuation Officer though made in 1997 was valid in view of insertion of section
142A by Finance (No.2) Act, 2014 w.r.e.f. 15-11-1972 and subsequent amendments,
as the assessment had not become final and conclusive because appeal filed by
Revenue u/s. 260A was pending before the High Court but the order of the High
Court not interfered with in view of the finding recorded by the Tribunal that
local Public Work Department rates are to be applied and adopted in place of
Central Public Works Departments rates.
CIT vs Sunita Mansingha (2017) 393 ITR 121
The proceedings for block assessment year 1997-98 were
initiated against the Respondents as a result of search conducted at the
residence of assessee u/s. 132 of the Act on 24.3.1997. The Assessing Officer inter
alia found that the assessee had half share in a farm house cum swimming
pool and she owned a residential House at 13-37, Shastri Nagar, Bhilwara. The
said properties were referred to the Departmental Valuation Officer (DVO) for
valuing the cost of construction. By a report dated 2.6.1997, the cost of farm
house was determined at Rs.23,54,200 as against Rs.5,82,600 declared as cost of
construction. The 50% difference in the cost of construction, which worked out
at Rs.8,81,300 was added to income of the assessee as income from undisclosed
sources. Similarly, an addition of Rs.12,19,145 was made on account of
undisclosed investment in cost of construction of house at Shastri Nagar as per
the report of DVO.
The Commissioner of Income-tax (Appeals) sustained the
addition to the tune of Rs.2,56,691 on account of alleged unexplained
investment in the construction of residential house at Shastri Nagar, Bhilwara.
The Tribunal deleted the entire amount added by the Assessing Officer.
A question was raised before the High Court regarding
deletion of addition on account of unexplained investment in construction of
house property on the basis of reference to Departmental Valuation Officer. The
High Court noted that no question was raised regarding deletion of addition of
Rs.8,81,300 though the same had been deleted for the same reason.
The High Court, following the decision of Supreme Court in Smt.
Amiya Bala Paul vs. CIT (2003) 262 ITR 407 (SC), held that the Assessing
Officer could not have made addition of certain amount by way of unexplained
investment in construction of immovable property namely residential house
situated at Bhilwara and farm house situated at Atun on the basis of valuation
report obtained by referring the issue to DVO, as no power existed under the
Act of making such a reference.
The Supreme Court observed that even though the Tribunal had
held that the reference to the Departmental Valuation Officer in question was
not valid, in view of the decision of the Supreme Court in the case of Smt.
Amiya Bala Paul vs. CIT (supra), it had also held that it was a settled
principle of law that in place of Central Public Works Department rates, local
Public Works Department rates were to be applied and adopted to determine the
cost of construction.
The Supreme Court held that in view of the fact that section
142A was inserted by the Finance (No. 2) Act, 2004 (23 of 2004) w.r.e.f. 15th
November, 1972 and subsequently again substituted by the Finance Act, 2010 (14
of 2010) w.e.f. 1st July, 2010 and the Finance (No. 2) Act, 2014 (25
of 2014) w.e.f. 1st October, 2014, as the proviso to sub-section (3)
of section 142A as it existed during the relevant period, reference to the
Departmental Valuation Officer could have been made because assessment in the
present case had not become final and conclusive because the appeal preferred
by the Revenue u/s. 260A of the Income-tax Act, 1961 was pending before the
Rajasthan High Court.
However, in view of the finding recorded by the Tribunal that
the local Public Works Department rates were to be applied and adopted in place
of Central Public Works Department rates, the Supreme Court did not find any
good ground to interfere in the impugned judgment on this issue on merits. The
appeal was thus dismissed.
16. Capital or Revenue Expenditure – Interest and other
expenditure towards creation of assets is revenue expenditure and is to be
allowed as deduction in the year it is incurred though capitalized in the
books.
CIT vs. Shri Rama Multi Tech Ltd. (2017) 393 ITR 371 (SC)
For the assessment year 2000-01, the Respondent, a public
limited company, had incurred an expenditure of Rs.3,37,84,348 towards payment
of interest on loans taken and other items for setting up the industry. Even
though it had capitalised the said amount and claimed depreciation before the
assessing authority, however, in appeal, the Respondent raised additional
ground claiming deduction of the aforesaid amount on interest paid with some
other expenditure on other items connected therewith as revenue expenditure.
The Commissioner of Income-tax (Appeals) vide order dated
March 5, 2004, allowed the claim of the Respondent-Assessee only to the extent
of interest amount of Rs. 2,92,45,670 paid on loans taken by it for
establishing the industry. He, however, disallowed the other expenditures,
namely, financial charges, professional expenses, upfront fee, etc.
The Revenue, feeling aggrieved by the said allowance,
preferred an appeal before the Income-tax Appellate Tribunal which vide order
dated December 2, 2004 upheld the order of the Commissioner of Income-tax
(Appeals) in so far as it related to the allowance of the expenditure claimed
towards payment of interest and also allowed expenditure on other items connected
therewith. The High Court did not interfere in the appeal preferred by the
Revenue on the ground that the Tribunal has followed the decision of the
Gujarat High Court in the case of Deputy CIT vs. Core Healthcare Ltd.
[2001] 251 ITR 61 (Guj).
Feeling aggrieved, the Commissioner of Income-tax has
preferred appeal before the Supreme Court.
The Supreme Court noted that it had in the case of Deputy
CIT vs. Core Health Care Ltd. [2008] 298 ITR 194 (SC) had affirmed the view
taken by the Gujarat High Court.
In this view of the matter, the Supreme Court held that the
Income-tax Appellate Tribunal was justified in allowing the expenditure of Rs.
3,37,84,348 towards the interest paid on the loans taken and expenditure on
other items connected therewith for establishment of the unit, while affirming
the order of the Commissioner of Income-tax (Appeals).
Learned Counsel for the Revenue-Appellant submitted before
the Supreme Court that the Respondent cannot claim depreciation on the amount
of interest which has been allowed as revenue expenditure and therefore, the depreciation referable to such interest expenditure be reversed.
Learned Counsel for the Respondent however, submitted that
there was nothing on record to show that depreciation on this amount had been
taken by the Respondent.
The Supreme Court, in view of the aforesaid contentions,
directed that if as a fact the Respondent has taken any depreciation on the
amount of interest and other items which has been allowed as revenue
expenditure, that much depreciation should be reversed by the assessing
authority.
Subject to the aforesaid observations, the appeals were
dismissed.
17. Capital Gains –
Slump Sale – Section 50 (2) applies to a case where any block of assets are
transferred by the Assessee but where the entire running business with assets
and liabilities is sold by the Assessee in one go, such sale could not be
considered as “short-term capital assets”.
CIT vs. Equinox Solution Pvt. Ltd. (2017) 393 ITR 566 (SC)
The Respondent-Assessee was engaged in the business of
manufacturing sheet metal components out of CRPA & OP sheds at Ahmedabad.
The Respondent decided to sell their entire running business in one go. With
this aim in view, the Respondent sold their entire running business in one go
with all its assets and liabilities on 31.12.1990 to a Company called
“Amtrex Appliances Ltd.” for Rs. 58,53,682/-.
The Respondent filed their income tax return for the
Assessment Year 1991-1992. In the return, the Respondent claimed deduction u/s.
48 (2) of the Act as it stood then by treating the sale to be in the nature of
“slump sale” of the going concern being in the nature of long term
capital gain in the hands of the Assessee.
The Assessing Officer did not accept the contention of the
Assessee in claiming deduction. According to the Assessing Officer, the case of
the Assessee was covered u/s. 50 (2) of the Act because it was in the nature of
short term capital gain as specified in section 50 (2) of the Act and hence did
not fall u/s. 48 (2) of the Act as claimed by the Assessee. The Assessing
Officer accordingly reworked the claim of the deduction treating the same to be
falling u/s. 50 (2) of the Act and framed the assessment order.
The Assessee, felt aggrieved, filed appeal before the CIT
(Appeals). The Commissioner of Appeals allowed the Assessee’s appeal insofar as
it related to the issue of deduction. He held that when it was an undisputed
fact that the Assessee has sold their entire running business in one go with
its assets and liabilities at a slump price and, therefore, the provisions of
section 50 (2) of the Act could not be applied to such sale. He held that it
was not a case of sale of any individual or one block asset which may attract
the provisions of section 50 (2) of the Act. He then examined the case of the
Assessee in the context of definition of “long term capital gain” and
“short term capital asset” and held that since the undertaking itself
is a capital asset owned by the Assessee nearly for six years and being in the
nature of long term capital asset and the same having been sold in one go as a
running concerned, it cannot be termed a “short terms capital gain”
so as to attract the provisions of section 50 (2) of the Act as was held by the
Assessing Officer. The CIT (Appeals) accordingly allowed the Assessee to claim the deduction as was claimed by them before the Assessing Officer.
The Revenue felt aggrieved of the order of the CIT (Appeal),
and filed an appeal before the Income Tax Appellate Tribunal. The Tribunal
concurred with the reasoning and the conclusion arrived at by the Commissioner
of Appeal and accordingly dismissed the Revenue’s appeal.
The Revenue, felt aggrieved of the order of the Tribunal, and
carried the matter to the High Court in further appeal u/s. 260-A of the Act.
By impugned order, the High Court dismissed the appeal holding that the appeal
does not involve any substantial question of law within the meaning of section
260-A of the Act.
It was against this order that the Revenue felt aggrieved and
carried the matter to the Supreme Court in appeal by way of special leave.
The Supreme Court held that no fault could be found in the
reasoning and the conclusion arrived at by the CIT (Appeals) in his order
which, according to the Supreme Court was rightly upheld by the Tribunal and
then by the High Court and called for no interference by it.
According to the Supreme Court, the case of the Respondent
(Assessee) did not fall within the four corners of section 50 (2) of the Act.
Section 50 (2) applies to a case where any block of assets are transferred by
the Assessee but where the entire running business with assets and liabilities
is sold by the Assessee in one go, such sale could not be considered as
“short-term capital assets”. In other words, the provisions of
section 50 (2) of the Act would apply to a case where the Assessee transfers
one or more block of assets, which he was using in thw running of his business.
Such was not the case here because in this case, the Assessee had sold the
entire business as a running concern.
The Supreme Court drew
support with the law laid down by it in Commissioner of Income Tax, Gujarat
vs. Artex Manufacturing Co. 1997 (6) SCC 437 and in Premier Automobiles
Ltd. vs. Income Tax Officer and Anr. 264 ITR 193
appeal and was accordingly dismissed.
From The President
Dear Members,
“The achievement we celebrate today
is but a step, an opening of opportunity, to the greater triumphs and
achievements that await us. Are we brave and wise enough to grasp this
opportunity and accept the challenge of the future?” These words
of Jawaharlal Nehru at midnight on 14th August 1947 still hold
tremendous truth and remain valid even today. As India celebrated its 70 years
of Independence, the citizens have much to be proud of and can look to a future
that is radiant with opportunity.
Prime Minister Narendra Modi
re-echoed this optimism as he spoke from the ramparts of the 17th
century Red Fort in New Delhi. In his fourth Independence Day address to the
Nation, he called upon the citizens of India to build a New India that
will be free from the shackles of caste and religion…where terrorism and
corruption will be defeated and people will have access to better standard of
living. His speech reflected his vision for a New India…where people
will come together to realize the dreams of youth, women and farmers…where shanti,
ekta and sadbhavana shall flourish.
The PM stressed that we need to
work with determination, in an environment where all are equal…no one is big
or small. To accelerate ahead on the path of development, he said we need to
give up the “chalta hai” attitude and be driven by “badal
sakta hai”. He emphasized in the past it was the “Bharat Chhodo”
for freedom…today it is “Bharat Jodo” for a New India!
From enumerating his high
expectations from the people of India, PM Modi went on to explain what the
government and he were working on to transform India. Good governance
remains a priority but with greater speed and simplification of processes. The
fight against corruption has been initiated and is expected to continue relentlessly.
Technology, he promised is increasingly being used to harness and track
corruption as well as to facilitate greater transparency in all government
actions. The PM explained how his government is working with universities to
expand their operations. In the last three years his government has been
instrumental in setting up six IITs, seven IIMs and eight IIITs. In addition to
education, the focus is also on more affordable and widespread availability of
critical medical facilities besides capping of prices of vital drugs.
At the macro level too, there is
change. The PM talked of cooperative federalism and competitive federalism in
which the Centre and the State now work more closely together. The Centre is
now lending a helping hand to the States in implementing policies such as: GST,
Swachh Bharat Abhiyaan, Smart Cities and Ease of Doing Business.
The PM’s speech clearly mirrors
India – a young nation, comprised of yuva shakti that is already
growing fast, but poised to grow a lot faster. The government has embarked on
several initiatives to step up the pace of the economy.
Ganesh Chaturthi is an auspicious
time when the Lord removes obstacles and paves the way for progress and
happiness. And by a happy coincidence, the Supreme Court delivered a landmark
ruling which elevates privacy to a fundamental right and declares that it is
intrinsic to right of life and personal liberty. What’s remarkable is this that
the largest bench of the SC was ever constituted…and that the nine-member
bench was unanimous in their verdict. This ruling is probably the finest in the
history of the Court but is likely to set open a Pandora’s box of cases and
legislations.
The absolute right to privacy
resides in Article 21 and other fundamental freedoms contained in the Constitution.
But for long they have remained obscured from public attention. It was the
petition challenging the Aadhaar project that provided the spark for this
judgement. Overturning a 63-year old verdict, this historic 547 pages ruling
boldly demarcates the limits of the state’s intervention in the lives of
citizens. Coming on the back of India’s 71st Independence Day, the
Right to Privacy, I hope, will open a new era of freedom and well-being for the
citizens of India.
Disruption appears to be a negative
word, but in the world of technology it appears to be the guiding force.
Researchers are constantly seeking ways to innovate by upsetting the applecart.
Participants at the ITF Conference in Pune last month organised by the Society,
were taken down the ‘road not taken’ and shown how technology is re-inventing
our world and lives. Keynote speaker, Mr. Ravi Pandit, CEO, KPIT Technologies
and a CA too, shared how cutting-edge technologies in robotics, nanotech,
genetics, software, computers and sensors are disrupting the normal.
Another vital facet was the rapid
proliferation of technology. He traced how it took 119 years for spindles to
reach the 50 million mark, TV happened a lot faster with 50 million users in
just 30 years. Internet spread much faster, getting 50 million users in just 4
years. Jio was exceptional, got 50 million users in 83 days! Clearly change is
here to ‘stay’ so let’s keep pace!
“Champions of Change” is a novel
initiative of NITI Aayog, the government’s think tank to spark innovative ideas
of change. This two-day deliberation of around 200 young CEOs from all corners
of India was a platform for brainstorming; to chart out a blueprint for “New
India” and drive Transformation across sectors. The young CEOs had a
unique opportunity to interact with each other as well as with secretaries and
cabinet ministers of various ministries. Among their many concerns were the
high number of regulators…they also questioned as to who evaluates the
performance of the regulators.
The young minds were divided into
six groups and were assigned an issue which is a challenge for policy making.
The issues included: world-class infrastructure, reforming financial sector,
doubling farmer’s incomes, smart cities, Make in India and New India 2022. They
made their presentations to PM Modi, who told them, “You are my team, and we
need to work together to take India forward.” He urged them to adapt to change
as they work for the welfare of the people and the nation.
Clearly, the nation is heading for
even better times with abounding opportunities and enhanced stability. World
leaders, renowned economists and multinational heads have all reiterated the
vast potential and immense optimism they believe India possesses. To help us
chart our way ahead we return to the question that Pandit Nehru posed at the
dawn of India’s independence…“Are we brave and wise enough to grasp this
opportunity and accept the challenge of the future?”
The festive
season has set in. Hope you enjoyed the Ganpati Festival. Wishing you a Happy
Dussehra in advance!!
Feel free to write to me on
president@bcasonline.org
With kind regards,
CA. Narayan Pasari
President
Allied Laws
Doctrine of Merger – Dismissal of
appeal by High Court – Thereafter, Tribunal’s order merged with High Court’s
Order.
Ratnadip Shipping Pvt.
Ltd. vs. Commr. of Cus. (General) 2017 (345) E.L.T. 148 (Trib. – Mum)
The only issue in the
present case was whether the Revenue could file a Miscellaneous application for
the implementation of the Tribunal’s order after it had filed an appeal to the
High Court which was dismissed.
The Tribunal held that the
Tribunal’s order stood merged with the Hon’ble High Court’s order. After the
Hon’ble High Court’s order, this Tribunal cannot pass any order for
implementation as the Hon’ble High Court’s order is
in force and this Tribunal has no jurisdiction to pass any order after the
Hon’ble High Court’s order. Therefore, the present miscellaneous application
has become infructuous, hence dismissed.
Foreign Court – Order executable
under the Civil Procedure Code. [Code of Civil Procedure, 1908 – Sections 13,
35(3), and 44A]
Alcon Electronics Pvt.
Ltd. vs. Celem S.A. of FOS 34320 Roujan, France and Ors. AIR 2017 SUPREME COURT
1
In the present case, the
English Court dismissed the claims of the Appellant w.r.t. the ground raised of
infringement of rights of the Appellant and further directed it to pay the
costs of application to the Respondents. The Appellant agreed to pay the costs
and sought for some time.
When the Respondents filed
a petition for execution of the decree of the Foreign Court in India, the
Appellant opposed it in an application on the ground that the order of English
Court was not executable. The executing Court dismissed the same which was
confirmed by the High Court. Hence, the Appellant filed the present appeal before
the Supreme Court.
The Court analysed whether
an order passed by a foreign court fell within Exceptions to Section 13 of
Code. It observed that a “foreign judgement” is defined under section
2(6) as judgment of a foreign court. “Judgement” as per section 2(9)
of Code of Civil Procedure means the statement given by the Judge on the
grounds of a decree or an order. Order is defined u/s. 2(14) of Code of Civil
Procedure as a formal expression of any decision of the Civil Court which is
not a ‘decree’. Explanation 2 to section 44A(3) says “decree” with
reference to a superior Court means any ‘decree’ or ‘judgment’. As per the
plain reading of the definition ‘Judgement’ means the statement given by the
Judge on the grounds of decree or order and order is a formal expression of a
Court. Thus, “decree” includes judgement and “judgement”
includes “order”. On conjoint reading of ‘decree’, ‘judgement’ and
‘order’ from any angle, the order passed by the English Court falls within the
definition of ‘Order’ and therefore, it is a judgement and thus becomes a
“decree” as per Explanation to section 44A(3) of Code of Civil
Procedure.
It was held by the Supreme Court that in the case of the
judgment passed by the foreign court, Indian Courts are very much entitled to
address the issue for execution of the interest amount. The right to 8%
interest as per the Judgments Act, 1838 of UK can be recognised and as well as
implemented in India. Therefore, the Execution Petition filed by the
Respondents for execution of the order passed by the English Court was
maintainable under the relevant provisions.
Fundamental Duty – To safeguard the
public properties from illegalities – By every citizen. [Constitution of India;
Art. 51A; Bombay Police Act, 1951 – Section 33; Maharashtra Municipal
Corporations Act, 1949, Section 244; Maharashtra Prevention of Defacement of
Property Act, 1995, Sections 2, 3]
Suswarajya Foundation
vs. The Collector, Satara AIR 2017 (NOC) 521 (Bom.)(HC)
A PIL was filed w.r.t.
every town and city in the State of Maharashtra having a large number of
illegal banners/hoardings/posters, etc., displayed mainly by political
leaders/workers.
The definition of
‘Defacement’ as contained in the Maharashtra Prevention of Defacement of
Property Act, 1995 (The ‘Act’) to better understand the act is as under:
“S.2(b): ‘defacement’
includes impairing or interfering with the appearance or beauty, damaging
disfiguring, spoiling or injuring in any way whatsoever and the word
“deface” shall be construed accordingly;”
Section 3 of the Act also
provides for imprisonment of 3 months in case a person defaces any place open
to public view.
The Court held that the
citizens including political workers and leaders follow the mandate of Article
51A of the Constitution of India by safeguarding the public properties from
such illegalities.
Commenting on the duties
of citizens and political parties, the Court laid down the directions to be
followed as under:
– There
shall be a senior inspector who shall be responsible for the implementation of
the provisions of the Act.
– The
Officers or the Committees, as the case may be, shall be responsible for
expeditious removal of illegal hoardings, banners, flexes, temporary arches,
posters etc.
– The Senior Inspector of Police or the Officer
In-charge of the concerned local police station shall extend adequate police
protection and police help to the Municipal staff and Municipal officials while
taking action of removal of the illegal hoardings, banners etc.
– Minimum two armed constables shall accompany
the municipal officials and the staff at the time of removal of illegal
hoardings, banners, flexes, temporary arches, posters etc.;
– Even on receiving any oral information, the
officer-in-charge shall be under an obligation to take appropriate action.
– Anonymous complaints shall be entertained on
the toll free numbers. If the citizens find that no action is being taken on
the basis of the complaints made on toll free numbers, it will be open for them
to make a complaint in writing to the Nodal Officers of the Municipal
Authorities as well as the Nodal Revenue Officers of the State Government who
shall take action on the basis of such complaints;
The court thus provided
interim relief in the manner above in the case.
Gift Deed – Subsequent revocation of
the deed is void and invalid [Transfer of Property Act, 1882; Section 126].
Syamala Raja Kumari and
Ors. vs. Alla Seetharavamma and Ors.AIR 2017 HYDERABAD86
The only issue was whether
a gift deed transferred unconditionally in favour of someone can be revoked
subsequently?
One Mr. Narapa Reddy
executed a gift settlement deed in favour of the plaintiffs (his daughters) and
his wife out of love and affection. Under the said document, life interest
right was retained by the donor and after the death of donor, his wife was to
enjoy the property without any right of alienation till her death and
thereafter, the donees-plaintiffs could enjoy the property with absolute
rights. But subsequently, the donor executed a revocation deed by giving the
reason that the plaintiffs were not taking care of him and his wife and they
were not visiting his house and they had lost his confidence and so, he revoked
the gift settlement deed executed. The donor executed another revocation deed
wherein he mentioned that the plaintiffs obtained the gift settlement deed by
misrepresenting him. But the said fact is not mentioned in the earlier
revocation deed. Thereafter, the donor’s wife died.
Section 126 of the
Transfer of Property Act was reproduced to show that the donor and donee may
agree that on the happening of any specified event which does not depend on the
Will of the donor, a gift shall be suspended or revoked; but a gift, which the
parties agree shall be revocable wholly or in part, at the mere will of the
donor, is void wholly or in part, as the case may be.
The Court held that the
plaintiffs would get absolute rights in respect of the property. By executing
the said gift settlement deed, the donor had divested his right in the property
so he could not unilaterally execute any revocation deed for revoking the gift
settlement deed executed by him in favour of the plaintiffs.
The revocation deeds
executed by the donor were not binding on the plaintiffs as the said deeds were
not valid. Once the donor had no right to revoke the gift settlement deed
validly executed by him in favour of the plaintiffs, he cannot alienate the
property.
Succession – Class I legal heir to
have a better title than the nominee – Absence of Will paved way for following
the course of succession over the rules of nomination. [Hindu Succession Act,
Chapter IV, Schedule u/s. 8]
Sham Singh vs. Kashmir
Kaur and Ors. AIR 2017 (NOC)473(P.&H.)
The husband of the plaintiff
namely Darshan Singh (deceased) had deposited a sum of Rs. 50,000/- in the post
office of Village Tibber, under Kisan Vikas Patra Scheme. Appellant-defendant
No. 1 (Sham Shingh), who was the son of the real sister of Darshan Singh
(deceased) had withdrawn Rs. 1 lakh on maturity of the said Kisan Vikas Patra
scheme from the post office. It was pleaded by the plaintiff-respondent i.e.
widow of the depositor, that Sham Singh was not entitled to and had no right to
withdraw the amount.
The court observed that
where the Will propounded by the appellant is concerned, the same has not been
brought on record of this case by the appellant nor any evidence to prove the
execution of the said Will, has been produced.
The Court ultimately held
that even though appellant-defendant was appointed as a nominee by
deceased-Darshan Singh, it is a settled principle of the law that the
nomination cannot alter the course of succession as per the provisions of Hindu
Succession Act.
The nomination only
indicates the hand which is authorised to receive the amount on payment of
which the post office was to get a valid discharge of its liability but the
legal heirs of deceased are entitled to claim the said amount in accordance
with law of succession governing them.
plaintiff-respondent is the widow of deceased-Darshan Singh is not disputed
that, so she being his widow was his class I legal heir and was certainly
entitled to the amount received by Sham Singh from the post office on maturity
of the Kisan Vikas Patras purchased by her deceased husband Darshan Singh.
From Published Accounts
Option at transition date available in Ind AS 101 “First
time Adoption of Indian Accounting Standards”, used to substitute fair value as
deemed cost for Property, Plant and Equipment and Investments with
corresponding impact of retained earnings on transition date
Reliance Industries Ltd. (Year ended 31st March
2017)
Transition to Ind AS:
The Company has adopted
Ind AS with effect from 1st April 2016 with comparatives being
restated. Accordingly, the impact of transition has been provided in the
Reserves as at 1st April 2015 and all the periods presented have
been restated. The reconciliation between Ind AS and the previous Indian GAAP
for profits and reserves was first presented in Q1 FY 2016-17, under limited
review by the auditors. The audited reconciliation of convergence to Ind AS is
presented below along with the additional details.
RECONCILIATION OF PROFIT AND OTHER EQUITY BETWEEN Ind AS AND PREVIOUS INDIAN GAAP FOR
EARLIER PERIODS AND AS AT MARCH 31, 2016
(Rs. Crore)
|
Sr. No. |
Nature of adjustments |
Note ref. |
Profit Year ended 31-Mar-16 |
Other Equity As at 31-Mar-16
|
|
|
Net profit/Other Equity as per Previous Indian GAAP |
|
27,417 |
236,944* |
|
1 |
Change in accounting policy for Oil |
I |
279 |
(20,217) |
|
2 |
Fair valuation as deemed cost for |
II |
– |
41,292 |
|
3 |
Fair Valuation for Financial Assets |
III |
167 |
4,110 |
|
4 |
Deferred Tax |
IV |
(349) |
(10,588) |
|
5 |
Others |
V |
(130) |
(783) |
|
|
Total |
|
(33) |
13,814 |
|
|
Net profit before OCI/Other Equity as per Ind AS |
|
27,384 |
250,758 |
*Including share application
money pending allotment.
Notes:
I. Change in accounting policy for Oil & Gas
Activity – From Full Cost Method (FCM) to Successful Efforts Method (SEM):
The impact on account of change in accounting policy from FCM to SEM is
recognised in the Opening Reserves on the date of transition and consequential
impact of depletion and write-offs is recognised in the Profit and Loss
Account. Major differences impacting such change of accounting policy are in
the areas of;
– Expenditure on surrendered blocks, unproved
wells and abandoned wells, which has been expensed under SEM.
– Depletion on producing property in SEM is
calculated using Proved Developed Reserve, as against Proved Reserve in FCM.
II. Fair valuation as deemed cost for Property,
Plant and Equipment: The Company have considered fair value for properties,
viz, land admeasuring over 30,000 acres, situated in India, with impact of Rs.
41,292 crore in accordance with stipulations of Ind AS 101 with the resultant
impact being accounted for in the reserves.
III. Fair valuation for Financial Assets: The
Company has valued financial assets (other than investment in subsidiaries,
associate and joint ventures which are accounted at cost), at fair value.
Impact of fair value changes as on the date of transition, is recognised in
opening reserves and changes thereafter are recognised in Profit and Loss
Account or Other Comprehensive Income, as the case may be.
IV. Deferred Tax: The impact of transition
adjustments together with Ind AS mandate of using balance sheet approach
(against profit and loss approach in the previous GAAP) for computation of
deferred taxes has resulted in charge to the Reserves, on the date of
transition, with consequential impact to the Profit and Loss Account for the
subsequent periods.
V. Others: Other adjustments primarily
comprise of:
a. Attributing time value of money to Assets
Retirement Obligation: Under Ind AS, such obligation is recognised and measured
at present value. Under previous Indian GAAP, it was recorded at cost. The
impact for the periods subsequent to the date of transition is reflected in the
Profit and Loss Account.
b. Loan processing fees / transaction cost: Under
Ind AS, such expenditures are considered for calculating effective interest
rate. The impact for the periods subsequent to the date of transition is
reflected in the Profit and Loss Account.
Tata Steel Ltd. (Year ended 31st March 2017)
Reconciliation between
Standalone/Consolidated financial results as reported under erstwhile Indian
GAAP (referred to as ‘I GAAP’) and Ind AS are summarised as below:
(a) Profit reconciliation
|
Rs. Crores |
||
|
Particulars |
Standalone Financial Year ended on 31.03.2016 |
Consolidated Financial year ended on 31.03.2016 |
|
Net profit as per I GAAP |
4,900.95 |
(3,049.32) |
|
Reversal |
(3,570.51) |
(3,570.39) |
|
Additional |
(967.46) |
7,207.40 |
|
Increase/(decrease) |
5.01 |
(1,707.18) |
|
Others |
(50.22) |
(110.02) |
|
Tax |
637.88 |
732.42 |
|
Net Profit as per Ind AS |
955.65 |
(497.09) |
|
Other |
(3,407.13) |
(1,898.17) |
|
Total Comprehensive Income as per Ind AS |
(2,451.48) |
(2,395.26) |
Other Comprehensive Income primarily includes impact of fair
valuation of quoted non-current investments and re-measurement gains/losses on
actuarial valuation of post-employment defined benefits. The consolidated other
comprehensive income also includes effect of foreign currency translation on
consolidation.
(b) Equity Reconciliation
|
Rs. Crore |
|||
|
|
Standalone |
Consolidated |
|
|
Particulars |
As on 31.03.2016 |
As on 01.04.2015 |
As on 31.03.2016 |
|
Equity as per I GAAP |
70,476.72 |
31,349.41 |
28,478.86 |
|
Fair |
3,929.62 |
10,458.08 |
3,904.78 |
|
Deemed |
(24,582.16) |
13,956.40 |
21,012.11 |
|
Re-classification |
2,275.00 |
2,275.00 |
2,275.00 |
|
Reversal |
935.15 |
943.15 |
946.37 |
|
Fair |
– |
(7,229.09) |
(7,677.03) |
|
Others
|
(421.70) |
2,614.85 |
1,836.36 |
|
Tax impact on above adjustments |
(3,700.25) |
(6,399.99) |
(6,262.96) |
|
Equity as per Ind AS |
48,912.38 |
47,967.81 |
44,513.49 |
Note (i): In accordance with Ind AS 101 “First time
Adoption of Indian Accounting Standards”, the Company has elected to treat fair
value as deemed cost for certain items of its property, plant and equipment and
investments held in certain subsidiaries as at
April 01, 2015.
the stand-alone consolidated financial statement resulted in an increase in
deemed cost of property, plant and equipment and a decrease in the deemed cost
of investments.
GLIMPSES OF SUPREME COURT RULINGS
14. Snowtex Investment Ltd. vs.
Pr. CIT; [2019] 414 ITR 227 (SC)
Loss – Set off – Speculative transaction – The assessee having made an
admission on a statement of fact that the principal business activity was
trading in shares and securities, must bind it – The principal business of the
assessee thus not being of granting loans and advances during the assessment
year, the deeming fiction under section 73 was attracted – The provisions which
were contained in the Finance Act (No. 2) 2014 insofar as they amended the
Explanation to section 73, were not clarificatory
The appellant was registered as a non-banking financial company under
the Reserve Bank of India Act, 1934. The appellant filed its return of income
for the assessment year 2008-09 on 27th September, 2008. By an order
dated 14th December, 2010 the AO recorded that the principal business
activity of the assessee was trading in shares and securities. The loss from
share trading was held to be a speculation loss. The AO further held that in
view of the provisions of section 43(5)(d), activities pertaining to futures
and options could not be treated as speculative transactions. The loss from
speculation was held not to be capable of being set off against the profits
from business.
Against the AO’s order for the assessment year 2008-2009, an appeal was
filed before the CIT(A). The CIT(A) rejected the contention of the assessee
that the AO had erred in not allowing the speculation loss to be set off
against profits of trading in futures and options.
The assessee appealed against the decision of the CIT(A). The Income Tax
Appellate Tribunal, by its decision dated 6th November, 2015 held
that the claim of the assessee for setting off the loss from share trading
should be allowed against the profits from transactions in futures and options,
since the character of the activities was similar. The ITAT held that the
assessee who was in the business of share trading had treated the entire
activity of the purchase and sale of shares, which comprised both of
delivery-based and non-delivery-based trading, as one composite business.
The Revenue appealed before the High Court which, by its judgement dated
22nd November, 2016 accepted its submission. The High Court held
that the profits which had arisen from trading in futures and options were not
profits from a speculative business. Hence, the loss on trading in shares could
not be set off against the profits arising from the business of futures and
options.
On an appeal by the assessee, the Supreme Court noted that the
provisions of section 43(5) were amended by the Finance Act, 2005. Prior to the
amendment, section 43(5) defined a ‘speculative transaction’ to mean a
transaction in which a contract for the purchase or the sale of any commodity
including stocks and shares is settled otherwise than by the actual delivery or
transfer of the commodity or scripts. The impact of the amendment by the
Finance Act, 2005 was that an eligible transaction on a recognised stock
exchange in respect of trading in derivatives was deemed not to be a
speculative transaction. With effect from 1st April, 2006 trading in
derivatives was by a deeming fiction not regarded as a speculative transaction
when it was carried out on a recognised stock exchange. The circular of the CBDT
dated 27th February, 2006 indicated that this amendment was
occasioned by the changes which were introduced by SEBI both at the legal and
the technological level for bringing in greater transparency in the market for
derivatives.
The Supreme Court further noted that section 73 deals with losses from
speculation business. Under sub-section (1) of section 73, a loss computed in
relation to speculation business carried on by an assessee can only be set off
against the profits and gains of another speculation business. The Explanation
to section 73 contains a deeming fiction where certain businesses shall, for
the purposes of that section, be deemed to be speculation businesses. The
Explanation also carves out an exception in respect of certain specified businesses
which shall lie outside the fold of the deeming fiction. Prior to amendment of
the Explanation by the Finance (No. 2) Act, 2014 with effect from 1st
April, 2015, the business of trading in shares carried on by a company was not
excluded from its purview. However, by the amendment which was brought into
force from 1st April, 2015, the Explanation to section 73 further
excluded from the deeming fiction a company whose principal business was
trading in shares or banking.
The Court observed that while, on the one hand, Parliament amended
section 43(5) with effect from 1st April, 2006 as a result of which
trading in derivatives on recognised stock exchanges fell outside the purview
of the business of speculation, a corresponding amendment to the Explanation to
section 73 in respect of trading in shares was brought in only with effect from
1st April, 2015.
The submission which had been urged on behalf of the appellant was that
there was no logical reason to exclude from the purview of speculation business,
trading in shares, whereas trading in derivatives was excluded, from the ambit
of section 43(5) after 1st April, 2006.
The Supreme Court first dealt with the first submission, namely, that
the Explanation to section 73, as it stood prior to the amendment, excluded
from the deeming definition of a speculation business a situation where the
principal business of a company was granting of loans and advances.
The Court noted that there was no dispute about the fact that the
assessee was registered as an NBFC under the provisions of the Reserve Bank of
India Act, 1934. Before the Supreme Court it was urged that the principal
business was of granting of loans and advances. According to the Court, the
correctness of this aspect of the submission was not required to be determined
in the facts of the present case since the High Court had relied upon the
specific admission of the assessee that during the assessment year in question
its sole business was of dealing in shares.
The Supreme Court noted that while the assessee had given loans and
advances of Rs. 11.32 crores during the assessment year, it included
interest-free lending to the extent of Rs. 9.58 crores.
Having regard to these facts and circumstances, the specific admission
of the assessee before the AO assumed significance. According to the Supreme
Court, the assessee had made an admission on a statement of fact which must
bind it. Thus, the principal business of the assessee was not of granting loans
and advances during the assessment year. As a consequence, the
deeming fiction under section 73 was attracted. Hence, the finding of the High
Court on the first aspect could not be faulted.
So far as the second submission which was canvassed in the course of the
hearing of the appeal was concerned, the Supreme Court held that it was
difficult to hold that the provisions which were contained in the Finance Act
(No. 2) 2014 insofar as they amended the Explanation to section 73 were
clarificatory or that notwithstanding the provision by which the amendment was
brought into force with effect from 1st April, 2015, that it should
be given retrospective effect.
FROM PUBLISHED ACCOUNTS
MULTIPLE KEY AUDIT MATTERS IN INDEPENDENT
AUDITORS’ REPORTS
RELIANCE INDUSTRIES LTD. (31st MARCH,
2019)
From Auditor’s Report on Consolidated
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 Consolidated Financial Statements
for the financial year ended 31st March, 2019. These matters were
addressed in the context of our audit of the Consolidated Financial Statements
as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. For each matter below, our description of
how our audit addressed the matter is provided in that context. We have
determined the matters described below to be the Key Audit Matters (KAMs) to be
communicated in our report.
We have fulfilled the responsibilities described in the auditor’s
responsibilities for the audit of the Consolidated Financial Statements section
of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the Consolidated Financial Statements.
The results of audit procedures performed by us and by other auditors of
components not audited by us, as reported by them in their audit reports
furnished to us by the management, including those procedures performed to
address the matters below, provide the basis for our audit opinion on the
accompanying Consolidated Financial Statements.
KAM: Capitalisation of property, plant and
equipment, intangible assets and related depreciation and amortisation
The holding company has identified capitalisation of property, plant and
equipment as a KAM. As a part of the gasification project, the holding company
has incurred additional capital expenditure for modification of power plant
equipments, i.e., gas turbines, auxiliary boilers, HRSGs, process furnaces,
etc., to make them compatible with multiple feedstock, including those received
from petcoke gasifier. Currently, all units of the gasification complex, its
associated utilities and offsites have been started and the complex is under
stabilisation. The testing phase of the project is under progress as at 31st
March, 2019 as it has not achieved the quality and efficiency parameters.
Accordingly, significant level of judgement is involved to ensure that
capitalisation of property, plant and equipment meet the recognition criteria
of Ind AS 16 Property, Plant and Equipment, specifically in relation to
determination of the trial run period and costs associated with trial runs for
it to be ready for intended use. As a result, the aforesaid matter was
determined to be a KAM.
The auditors of Reliance JioInfocomm Limited (‘RJIL’), a subsidiary of
the holding company, have reported a KAM on capitalisation of property, plant
and equipment / intangible assets and amortisation / depreciation of spectrum
costs and related tangible assets as it is a material item on the balance sheet
of the subsidiary in value terms. The property, plant and equipment and
intangible assets of the subsidiary as at 31st March 2019 is Rs.
134,000 crores. While the subsidiary has capitalised the wireless
telecommunication project, it continues to augment capacity therein and
continues to invest in setting up the wireline telecommunication project. Items
of property, plant and equipment and intangibles are capitalised when they are
ready for use as intended by the management.
Further, spectrum costs and the related tangible assets are amortised /
depreciated to appropriately reflect the expected pattern of consumption of
expected future economic benefits from continued use of the said assets (Refer
Note B.3 [e] of the Consolidated Financial Statements). Determination of timing
of capitalisation as well as rate of amortisation / depreciation in order to
ensure compliance with the stipulation of the applicable Accounting Standards
involve estimates, significant use of technology and significant judgement. Accordingly,
valuation and completeness are key assertions related to capitalisation of
property, plant and equipment and intangible assets, while accuracy is the key
assertion in respect of depreciation / amortisation charge.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
Assessing the nature of the costs incurred to substantially modify the
existing power plants to test whether such costs are incurred specifically for
trial runs and meet the recognition criteria as set out in paras 16 to 22 of
Ind AS 16.
Evaluating the assessment provided by
third-party vendors involved in the construction and testing process to
determine whether capitalisation ceased when the asset is in the location and
condition necessary for it to be capable of operating in the manner intended by
the management.
In respect of the KAM reported by the auditors of RJIL, we performed
inquiry of the audit procedures performed by them to address the same. As
reported by the subsidiary auditor, the following procedures have been
performed by them:
(i) Testing the design, implementation and operating effectiveness of
controls in respect of review of capital work in progress, particularly in
respect of timing of the capitalisation with source documentation;
(ii) Testing controls over determination of
expected economic benefits from the use of relevant assets and monitoring
actual consumption thereof to true-up (sic) the expected pattern of
consumption during an accounting period;
(iii) Testing, including substantial involvement of internal telecom and
information technology specialists, to validate the expected pattern of
consumption of the economic benefits emanating from the use of the relevant
assets, as well as testing the relevant application systems used in monitoring
of actual consumption of the expected economic benefits;
(iv) Substantive testing procedures, including testing necessary
authorisations for capitalisation of items of PPE and intangible assets,
testing supporting documentation for consumption of capital goods inventory,
comparison of actual pattern of consumption of benefits for the current year
with the budget and testing the mathematical accuracy of computation of amortisation
/ depreciation charge for the year.
Obtained and read the financial statements of RJIL to identify whether
disclosure for capitalisation of property, plant and equipment and intangible
assets including spectrum and related amortisation / depreciation has been
appropriately disclosed in the consolidated financial statements of the group.
KAM: Changes in useful life and residual
value of plant and machinery
As at 31st March, 2019 the holding company had a gross block
of Rs. 228,340 crores in plant and machinery which constitutes 52.1% of the
property, plant and equipment. In the current year, the holding company has
revised the useful life and residual value of the plant and machinery used in
the refining segment. Assessment of useful lives and residual values of plant
machinery in an integrated and complex plant involves management judgement,
consideration of historical experiences, anticipated technological changes,
etc. (Refer Note 1.7 of the Consolidated Financial Statements). Accordingly, it
has been determined as a KAM.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
(a) Evaluating the reasonableness of the assumptions considered by the
management in estimation of useful life and residual values;
(b) Examining the useful economic lives and residual value assigned with
reference to the holding company’s historical experience, technical evaluation
by third party and our understanding of the future utilisation of assets by the
holding company;
(c) Assessing whether the impact on account of the change has been
appropriately recognised in the financial statements;
(d) Review of the disclosures made in the financial statements in this
regard.
KAM: Estimation of oil reserves and decommissio-ning
liabilities
Refer to Note 30.2 on proved reserves and production, both on product
and geographical basis, and Note C(A) on estimation of oil and gas reserves,
Note C(C) on depreciation, amortisation and impairment charges and Note B.3(k)
on provisions. The determination of the holding company’s oil and natural gas
reserves requires significant judgements and estimates to be applied. Factors
such as the availability of geological and engineering data, reservoir
performance data, acquisition and divestment activity, drilling of new wells
and commodity prices, all impact the determination of the holding company’s
estimates of oil and natural gas reserves. The holding company bases its proved
reserves estimates considering reasonable certainty with rigorous technical and
commercial assessments based on conventional industry practice and regulatory
requirements. Estimates of oil and gas reserves are used to calculate depletion
charges for the holding company’s oil and gas assets.
The impact of changes in estimated proved reserves is dealt with
prospectively by amortising the remaining carrying value of the asset over the
expected future production. Oil and natural gas reserves also have a direct
impact on the assessment of the recoverability of asset’s carrying values
reported in the financial statements. Further, the recognition and measurement
of decommissioning provisions involves use of estimates and assumptions
relating to timing of abandonment of well and related facilities which would
depend upon the ultimate life of the field, expected utilisation of assets by
other fields, the scope of abandonment activity and pre-tax rate applied for
discounting. Accordingly, the same is considered as a KAM. The auditors of
Reliance Holding USA Inc. (‘RHUSA’), a subsidiary of the holding company, have
also reported a KAM on the aforesaid topic.
How our audit addressed the KAM
Our procedures have focused on the management’s estimation process in
the determination of oil and gas reserves and decommissioning liabilities. Our
work included, and was not limited to, the following procedures:
(I) Understand the holding company’s process and controls associated
with the oil and gas reserves estimation process;
(II) Evaluate the objectivity, independence and competence of the
internal specialists involved in the oil and gas reserves estimation process;
(III) Test that the updated oil and gas reserve estimates were included
appropriately in the holding company’s consideration of impairment, accounting
for amortisation / depletion and disclosures of proved reserves and proved
developed reserves in the financial statements;
(IV) Test the assumptions used in determining the decommissioning
provisions. And compare these assumptions with the past year and inquire for
reasons for any variations;
(V) In respect of the KAM reported to us by the auditors of RHUSA, we
performed an inquiry of the audit procedures performed by them to address the
same. As reported to us by the subsidiary auditor, they have performed
procedures in relation to the approach used; test of controls performed with
regard to data input into the system for calculation of oil and gas reserves;
audit report issued by external experts appointed by the subsidiary relating to
the audit of the key data and assumptions used by the management for estimating
the oil and gas reserve and the future net income as at the year-end;
competence and objectivity of the external experts; calculation of the
depletion charge and future net income and reasonableness of the discount rate
used by the subsidiary for calculating the future net income for impairment
calculation;
(VI) With respect to RHUSA, obtain and read its financial statements to
identify whether the disclosures on estimation of oil reserves have been
included in the Consolidated Financial Statements of the group.
KAM: Litigation matters (oil and gas)
The holding company has certain significant open legal proceedings under
arbitration for various complex matters with the Government of India and other
parties, continuing from earlier years, which are as under:
(i) Disallowance of certain costs under the production-sharing contract
relating to Block KG-DWN-98/3 and consequent deposit of differential revenue on
gas sales from D1D3 field to the gas pool account maintained by Gail (India)
Limited (Note 30.3 and 30.4 [b]);
(ii) Claim against the holding company in respect of gas said to have
migrated from neighbouring blocks (KGD6) (Note 30.4 [a]);
(iii) Claims relating to limits of cost-recovery, profit-sharing and
audit and accounting provisions of the public sector corporations, etc.,
arising under two production-sharing contracts entered into in 1994 (Note 30.4
[c]);
(iv) Suit for specific performance of a contract for supply of natural
gas before the Hon’ble Bombay High Court (Note 30.4 [d]). Due to the complexity
involved in these litigation matters, management’s judgement regarding
recognition and measurement of provisions for these legal proceedings is
inherently uncertain and might change over time as the outcomes of the legal
cases are determined. Accordingly, it has been considered as a KAM.
How our audit addressed the KAM
Our audit procedures included, and were not limited to, the following:
(a) Assessing management’s position through discussions with the
in-house legal expert and external legal opinions obtained by the holding
company (where considered necessary) on both the probability of success in the
aforesaid cases and the magnitude of any potential loss;
(b) Discussion with the management on the
developments in these litigations during the year ended 31st March,
2019;
(c) Roll out of inquiry letters to the holding company’s legal counsel
(internal / external) and studying the responses received from them. Assessing
that the accounting / disclosures made by the holding company are in accordance
with the assessment of the legal counsel;
(d) Review of the disclosures made in the financial statements in this
regard;
(e) Obtaining a representation letter from the management on the
assessment of these matters.
KAM: IT systems and controls over financial
reporting
We identified IT systems and controls over financial reporting as a KAM
for the holding company because its financial accounting and reporting systems
are fundamentally reliant on IT systems and IT controls to process significant
transaction volumes, specifically with respect to revenue and raw material
consumption. Automated accounting procedures and IT environment controls, which
include IT governance, IT general controls over programme development and
changes, access to programmes and data and IT operations, IT application
controls and interfaces between IT applications, are required to be designed
and to operate effectively to ensure accurate financial reporting.
How our audit addressed the KAM
Our procedures included and were not limited to the following:
(I) Assessing the complexity of the IT environment by engaging IT
specialists and through discussions with the head of IT;
(II) Assessing the design and evaluation of the operating effectiveness
of IT general controls over programme development and changes, access to
programmes and data and IT operations by engaging IT specialists;
(III) Assessing the design and evaluation of the operating effectiveness
of IT application controls in the key processes impacting financial reporting
of the holding company by engaging IT specialists;
(IV) Assessing the operating effectiveness of controls relating to data
transmission through the different IT systems to the financial reporting
systems by engaging IT specialists.
KAM: Impairment of goodwill
The group’s balance sheet includes Rs. 11,997 crores of goodwill,
representing 1% of its total assets. In accordance with Ind AS, goodwill is
allocated to cash generating units (CGUs) which are tested annually for
impairment using the discounted cash-flow approach of each CGU’s recoverable
value compared to the carrying value of the assets. A deficit between the
recoverable value and the CGU’s net assets would result in impairment. The
impairment test includes sensitivity testing of key assumptions, including
revenue growth, operating margin and discount rate. The annual impairment
testing is considered a significant accounting judgement and estimate and a KAM
because the assumptions on which the tests are based are highly judgemental and
are affected by future market and economic conditions which are inherently
uncertain.
How our audit addressed the KAM
With respect to goodwill relating to material subsidiaries, our audit
procedures included and were not limited to
the following:
(i) Obtaining and reading the financial statements of the material
subsidiaries. Assessing the appropriateness of the methodology applied in
determining the CGUs to which goodwill is allocated;
(ii) Assessing the assumptions around the key drivers of the cash flow
forecasts including discount rates, expected growth rates and terminal growth
rates used, including engaging valuation specialists in certain cases;
(iii) Assessing the recoverable value headroom by performing sensitivity
testing of key assumptions used;
(iv) Discussing potential changes in key drivers as compared to previous
year / actual performance with management in order to evaluate whether the
inputs and assumptions used in the cash flow forecasts were reasonable.
KAM: Revenue recognition
The accounting policies of the group for revenue recognition are set out
in Note B3(p) to the Consolidated Financial Statements. The auditors of
Reliance JioInfocomm Limited (‘RJIL’), a subsidiary of the holding company,
have reported revenue recognition as a KAM due to the high volume of the
transactions, the high degree of IT systems involvement and considering that
accounting for certain tariff schemes involves exercise of judgements and
estimates, thereby affecting occurrence, cut-off and accuracy assertions in
respect of revenue recognition. Reliance Retail Ventures Limited (‘RRVL’), a
subsidiary of the holding company, trades in various consumption baskets on a
principal basis and recognises full value of consideration on transfer of
control of traded goods to the customers which most of the time coincides with
collection of cash or cash equivalent. The auditors of the subsidiary have reported
revenue recognition as a KAM due to the high volume of the transactions and
reconciliation of mode of payments with revenue recognised.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
(a) Obtaining and reading the financial statements of RJIL and RRVL to
identify whether the revenue recognition policies are included in the
consolidated financial statement of the group;
(b) In respect of the KAM reported by the auditors of RJIL, we performed
an inquiry of the audit procedures performed by them to address the same. As reported by the subsidiary auditor, the
following procedures have been performed by them:
(i) involvement of IT specialists and testing of the IT environment inter
alia for access controls and change management controls over the subsidiary
company’s billing and other relevant support systems;
(ii) evaluation and testing of the design and operating effectiveness of
the relevant business process controls, inter alia controls over the
capture, measurement and authorisation of revenue transactions and involvement
of IT specialists for testing the automated controls therein;
(iii) evaluation of substantive testing involved, testing collections,
customer ratings for new products and tariffs introduced in the year, testing
the reconciliation between revenue as per the billing system and the financial
records and testing supporting documentation for manual journal entries posted
in revenue to ensure veracity thereof;
(iv) validation of the judgements and estimates exercised by the
management regarding the application of revenue recognition accounting standard
with respect to certain tariff schemes, particularly in view of adoption of
Ind AS 115;
(c) In respect of the KAM reported to us by the auditors of RRVL, we
performed an inquiry of the audit procedure performed by them to address it. As
reported to us by the subsidiary auditor, the following procedure had been
performed by them:
(v) Evaluation of the design, testing of the implementation of internal
controls and review of the operating effectiveness of the controls relating to
reconciliation of consideration with store sales by selection of samples from
different stores and dates throughout the period of audit and re-performance of
the reconciliation between store sales and the mode of payment collection
report.
KAM: Inventory
The auditors of Reliance Retail Ventures Limited (‘RRVL’), a subsidiary
of the holding company, have reported existence of inventory as a KAM due to
involvement of high risk on the basis of and the nature of the retail industry
wherein value per unit is relatively insignificant but high volumes are
involved which are dispersed across different points of sale and warehouses.
Refer Note B.3(i) to the Consolidated Financial Statements of the group.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
In respect of the KAM reported to us by the auditors of RRVL, we
performed an inquiry of the audit procedures performed by them to address the
same. As reported to us by the subsidiary auditor, the following procedures
have been performed by them:
(I) Evaluation of the design and testing of the implementation of
internal controls relating to physical inventory counts on a test basis;
(II) Performance of test of controls over verification of documentary
evidence of controls including the calculation of shrinkages;
(III) Performance of test of details through sample selection of stores
as part of the inventory verification programme, including verification of
inventory from floor to documentary evidence and vice versa and
verification of shrinkage.
KAM: Transfer of the fibre undertakings
Pursuant to a Composite Scheme of Arrangement between Reliance
JioInfocomm Ltd. (RJIL), Jio Digital Fibre Private Limited (JDFPL) and Reliance
JioInfratel Private Limited (RJIPL) (the Scheme), RJIL has demerged its optic
fibre cable undertaking to JDFPL upon the scheme becoming effective on 31st
March, 2019. As per the scheme, RJIL transferred the undertaking to JDFPL at
book value and adjusted the carrying amount of net assets in reserves. Further,
JDFPL applied the purchase method of accounting in accordance with Ind AS 103
as mentioned in the scheme and recorded assets and liabilities of the
undertaking at their respective fair values and issued equity shares of Rs. 3
crores (fair value Rs. 497 crores) and optionally convertible preference shares
with surplus rights (OCPS) of Rs. 544 crores (fair value Rs. 77,701 crores) to
the company, being the shareholders of RJIL. Pursuant to the receipt of these
equity shares and OCPS, the holding company in its standalone financial
statements (SFS) has allocated its cost of investments in RJIL to RJIL and JDFPL
and elected to value its investment in OCPS at fair value through other
comprehensive income (FVTOCI).
Subsequently, the holding company sold its controlling equity stake in
JDFPL to Digital Fibre Infrastructure Trust resulting in a gain of Rs. 246
crores recognised in the consolidated statement of profit and loss. The
management has determined that the holding company has no control or
significant influence over JDFPL post the controlling stake sale. Further, the
remaining equity investment in JDFPL is measured at FVTPL and OCPS is measured
at FVTOCI in the Consolidated Financial Statements (Refer Note 2.2 of the
same). The auditors of RJIL have also reported a KAM in respect of the
accounting treatment applied for the scheme in its financial statements. The
above is considered as a KAM as the same has been reported as a significant
transaction that occurred during the current year which involves exercise of
judgement and interpretation of the relevant Indian Accounting Standards and
applicable tax and other statutes / regulations.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
(i) Obtaining and reading the composite scheme of arrangement for
demerger of the optic fibre cable undertaking;
(ii) Obtaining the memo prepared by the holding company in consultation
with external experts (including related assumptions and accounting policy
choice) on the accounting treatment to be applied in the financial statements;
(iii) Evaluating whether the accounting treatment of the said
transaction is in line with the applicable Indian Accounting Standards;
(iv) Performing substantive testing procedures, including involvement of
valuation specialists for testing of the valuation reports provided by the
management for appropriateness of assumptions involved and testing of the
computation;
(v) Assessing whether the accounting entries recorded in the books are
in line with the accounting treatment assessed above, including the
arithmetical accuracy of the same;
(vi) In respect of the KAM reported by the auditors of RJIL, we
performed inquiry of the audit procedures performed by them to address the
same.
As reported by the subsidiary auditor, the following procedures have
been performed by them:
(I) Evaluation and testing of the internal controls over the
management’s assessment of the accounting treatment of the said transaction in
terms of the applicable Indian Accounting Standards and applicable tax and
other statutes / regulations, identification of assets and liabilities related
to each of the two undertakings;
(II) Substantive testing procedures including involvement of tax
specialists to validate the management position on tax implications of the
transaction and testing of tax computation for appropriate application of tax
laws, involvement of valuation specialists for testing of the valuation reports
provided by the management for appropriateness of assumptions involved and
testing of the computation, accounting of the transactions and the disclosures
for compliance with the requirements of the applicable accounting standards.
KAM: Impairment of assets of subsidiaries of
Reliance Industrial Investments and Holding Limited
The auditors of Reliance Industrial Investments and Holdings Limited (‘RIIHL’),
a subsidiary of the holding company, have reported a KAM on the impairment of
investment and loans given to subsidiaries as the recoverability assessment
involves significant management judgement and estimates (Refer Note B.3 [j] of
the Consolidated Financial Statements). Though these investments and loans are
eliminated at the consolidated level, the assets of the RIIHL subsidiaries are
included on a line-by-line basis in the Consolidated Financial Statements.
Accordingly, the impairment of these assets is considered to be a KAM.
How our audit addressed the KAM
Our audit procedures included and were not limited to the following:
(a) Obtaining and reading the financial statements of RIIHL and its
subsidiaries to identify whether any impairment has been recorded in the
current year;
(b) In respect of the KAM reported to us by the
auditors of RIIHL, we performed an inquiry of the audit procedures performed by
them to address the KAM. As reported to us by the subsidiary auditor, the
following procedures have been performed by them for material subsidiaries:
(i) Assessment of
the net worth of RIIHL subsidiaries / associates on the basis of latest
available financial statements;
(ii) Assessment of the methodologies applied to
ascertain the fair value or, as the case may be, value in use of the assets of
the subsidiaries / associates, where the net worth was negative;
(iii) Assessment of the accuracy and reasonableness
of the input data and assumptions used to determine the fair value of
subsidiaries’ assets, cash flow estimates, including sensitivity analysis of
key assumptions used.
Allied Laws
25.
Hindu law — Joint family property – Co-sharer can only alienate to the
extent before partition which is the undivided interest of the coparceners in
the joint property – Sale of specific portion of property can only be done
after partition has been effected
Parmal Singh and Ors. vs. Ghanshyam and
Ors. AIR 2019 Madhya Pradesh 131
The plaintiffs had filed a suit against the
defendants for declaration of title and permanent injunction against the sale
of a specific part of the joint family property. A sale deed was executed by
defendant No. 1 in favour of defendant No. 2 and, thereafter, by defendant No.
2 in favour of defendant No. 3. Defendant No. 3 has purchased the land in
dispute from defendant No. 2 by registered sale deed dated 21st
August, 1997 after making payment of the entire consideration amount and he has
also been placed in possession.
The question that arose was whether specific
portion of the land could be sold without partition or not?
It was held that when the property in
dispute is joint in nature, then although the co-sharer can sell the property
to the extent of his share, he cannot sell the specific piece of land. All that
a co-sharer purchases at the execution of sale is the undivided interest of the
coparcener in the joint property. No title to any defined share in the property
was acquired and hence was not entitled to joint possession from the date of
his purchase. The rights could only be worked out by a suit for partition and
his right to possession would date from the period when a specific allotment
was made in his favour. Accordingly, it was directed that in case if the
defendant Nos. 1, 2 and 3 file a suit for partition within a period of three
months, then the purchaser shall continue to remain in possession of the land
purchased by him till the actual partition is done. The specific piece of land
would be decided only after the partition is done.
26.
Limitation – Alienation of property by natural guardian – Prayer to set
aside such alienation to be within 3 years by minor / legal representative
[Hindu Minority and Guardianship Act, 1956, S. 8; Limitation Act, 1965, Art.
60]
Murugan and Ors. vs. Kesava Gounder (Dead)
thr. L.Rs. and Ors. AIR 2019 Supreme Court 2696
Mr. B executed a sale deed on behalf of his
minor son P. The plaintiffs were cousins of Mr. B. Their case was that Mr. B
had no authority to execute a sale deed on behalf of his minor son P and that
the same was voidable and prayed that the plaintiffs were entitled for
declaration and possession of the properties from the defendants. The issue was
whether the sale deed executed could be set aside even after a lapse of three
years from the date of death of the minor?
The Appellate Court held that since the
minor son P died in 1986, the suit to set aside sale deeds and for possession
should have been filed within three years of his death. The suit filed in 1992
was barred by limitation. For this, the Appellate Court relied on article 60 of
Limitation Act.
The plaintiffs filed a second appeal in the
High Court. The Court held that the alienations made by Mr. B could be
construed only as voidable alienations and not void alienations. The High Court
held that the Plaintiffs’ suit ought to have been filed within three years as
per article 60 of the Limitation Act. The Court dismissed the second appeal.
Aggrieved by the judgement, an appeal was filed in the Supreme Court.
The Supreme Court held that the first
Appellate Court and the High Court had rightly held that limitation for the
suit was governed by article 60 and the suit was clearly barred by time.
The Court observed that in case of
alienation by natural guardian in contravention of section 8 of the Hindu
Minority and Guardianship Act, 1956 a sale deed was voidable. Alienations,
which were voidable, at the instance of a minor or on his behalf, were required
to be set aside before relief for possession could be claimed by the
plaintiffs. The suit filed on behalf of the plaintiffs without seeking a prayer
for setting aside the sale deed was, thus, not properly framed and could not
have been decreed. When a registered sale deed was voidable, it was valid till
it was avoided in accordance with the law. Rights conferred by a registered
sale deed were good enough against the whole world and the sale could be
avoided in case property sold was of a minor by a natural guardian at the
instance of the minor or any person claiming under him. A document which was
voidable had to be actually set aside before taking its legal effect.
In the present case, it was necessary for a
person claiming through the minor to bring an action within the period of
limitation, i.e., within three years from the date of death of the minor, to
get the sale deed executed by Mr. B set aside. The sale deed executed by Mr. B
was not repudiated or avoided within the period of limitation as prescribed by
the law. Accordingly, the appeal filed by the plaintiffs was dismissed.
27.
Partition – Deed of partition or a memorandum showing list of past
partition – To be determined with reference to recitals therein and not by its
title for the purpose of determining the applicability of stamp [Indian Stamp
Act, 1899, S. 35]
Koyya Ganga Venkata Satya Bhaskara Rao and
Ors. vs. Koyya Rama Krishnudu and Ors. AIR 2019 Andhra Pradesh
An issue arose when a document purported to
be a memorandum of past partition was attached as an annexure to the plaint by
the plaintiff. The defendants objected to the tendering of a deed of partition
as evidence since the said document was not stamped and registered and hence
inadmissible in evidence. The AR for the plaintiffs argued that the document
was a mere memorandum of past partition and not a deed of partition, hence no
registration or stamp was required due to which the said document should have
been admissible.
The trial Court, having referred to the
contents of the document as well as the precedents cited before it, upheld the
objection of the defendants and recorded a finding that the document in
question was a deed of partition and was liable to be charged with required
stamp duty. The aggrieved plaintiffs preferred revision.
The short question was whether the document
in question was a deed of partition chargeable with duty or a memorandum of
partition, or a partition list evidencing a transaction of past partition?
It was observed that the nature of a
document had to be determined with reference to the recitals therein and the
substance of the transaction embodied in the instrument and not with reference
to the title, caption or name given to the instrument. The name or the caption
given to the document is not determinative and the nature or character or the
substance of the transaction contained in the document is the only determinative
factor.
From the perusal of the said document, it
was understood that the recitals therein made it manifest that under the very
document the immovable properties were permanently partitioned once and for
all.
It was held that the said document was a
Deed of Partition and not a Memorandum of Partition showing a list of past
partition. Accordingly, it was held that since the document was not stamped, it
could not be admitted even for collateral purpose unless the required stamp
duty and penalty collectable on the instrument were paid and collected.
28.
Recusal – Litigant cannot insist on a judge to not hear the case – Judge
can recuse himself by choice but not at the request of the litigant
Seema Sapra
vs. Court on its own motion [2019]; Writ Petition No. 13 of 2018; Dated: 14th
August, 2019
During the course of the hearing, the
appellant-in-person made an oral request that the bench ought to recuse from
hearing the matter which fact was noted. While dealing with the gravamen of the
apprehension of the appellant as to why she has insisted for recusal of one of
the judges, the Court observed that the apprehension of the appellant is
founded on the allegation that she may not get justice from the bench as one of
the judges was well acquainted with the advocates who incidentally are members
of the Supreme Court Bar Association against whom personal allegations have
been made by her in the accompanying writ petition.
In respect of the limited point of recusal,
the Court held that indubitably it is always open for a judge to recuse at his
own volition from a case entrusted to him by the Chief justice. But recusing at
the asking of a litigant party cannot be countenanced unless it deserves due
consideration and is justified. It was further mentioned that ‘it must be never
forgotten that an impartial judge is the quintessence for a fair trial and one
should not hesitate to recuse if there are just and reasonable grounds. At the
same time, one cannot be oblivious of the duties of a judge which is to
discharge his responsibility with absolute earnestness, sincerity and being
true to the oath of his / her office. After perusal of the assertions made in
the I.A.s, we have no hesitation in holding that the same are devoid of merit
and without any substance.’
29.
Hindu Law – Female Hindu – Property held by male governed by any school
of Hindu law other than Dayabhaga dies, his widow shall have the same right in
the property as the deceased had – Accordingly, property possessed by female
Hindu whether acquired before or after the commencement of the Hindu Succession
Act, shall be held by her as the full owner thereof and not as a limited owner
[Hindu Succession Act, 1956, S.14; Hindu Women’s Right to Property Act, 1937,
S.3]
Jagannath Waman Undre vs. Yamunabai Sitaram
Kadam AIR 2019 Bombay 143
The plaintiff (sister) filed a suit for
declaration of her rights in the suit property. The defendant was the
plaintiff’s brother whose name alone was entered in the records of rights of
the suit property after their mother’s death. The district court reversed the
order of the trial court and passed the order in favour of the plaintiff. The
appellant-defendant is in appeal before the high court.
The learned trial court held that under the
coparcenary law a wife or a widow or a daughter though a member of Joint Hindu
Family, was not entitled to any share or interest in the coparcenary property
of that joint family, except to the extent of the right of maintenance and
residence or marriage expenses. The trial court thus held that a woman, whether
wife or widow or daughter, could not claim share separately. On this ground
alone, the suit was dismissed.
The Appellate Court held that under sub-section
(2) of section 3 of the Hindu Women’s Right to Property Act, 1937 when a Hindu
governed by any school of Hindu law other than Dayabhaga dies having at the
time of his death interest in Hindu joint family property, his widow shall have
the same right in the property as the deceased. However, such interest shall be
limited interest known as Hindu woman’s estate.
Further, in
view of the provisions of section 14 of the Hindu Succession Act, 1956 the
mother of the plaintiff and the defendant became absolute owners of their share
in the suit property which was the limited interest or Hindu woman’s estate.
Accordingly, the mother’s interest in the property would devolve as per the
scheme in terms of section 15 of the Hindu Succession Act, 1956. Thus, her property
will devolve upon her sons, daughters and husband and not only on the son as
seen in the present case.
FROM THE PRESIDENT
Dear Members,
It has
been just a month since I communicated with you, but the events that have
unfolded in the last 30 days make it appear as if a long period of time has
elapsed. There have been some major developments (both positive and negative)
in the socio-economic and political landscape of our country that would have a
significant impact on our future. Beginning with the successful launch of the
Chandrayaan 2 mission to the moon, the scrapping of Article 370 of the
Constitution which provides a special status to the state of Jammu and Kashmir,
the passing of the Triple Talaq – Muslim Women (Protection of Rights on
Marriage) Bill, 2019, the floods situation across many states, the enactment of
the Companies (Amendment) Act, 2019, re-emergence of the Direct Tax Code and,
above all, the Prime Minister’s meetings with the Finance Minister and the
industry leaders on the state of the economy.
I was
recently reading a report which points out that the just-concluded budget
session of Parliament was the most productive in decades. It was one of the
busiest sessions in the past 20 years, both the houses spent nearly half their
time on legislative business, passing 30 bills and working more than 70 hours
extra. As citizens of the country we feel proud of this but, at the same time,
also hope that a healthy debate has taken place before any enactment and that
the Government has taken all the stakeholders on board.
Is it
fair?
The
Companies (Amendment) Act, 2019 received the assent of the President on 31st
July, 2019; this has made a U-turn on certain provisions relating to Corporate
Social Responsibility (CSR) spending by companies. Initially, when CSR was
introduced in the Companies Act, 2013 it was purely voluntary and without any
penal provisions. However, the said Amendment Act introduces provisions like
deposition of funds for mandatory CSR expenditure for a given fiscal in an
escrow account in case of certain ongoing projects and transfer of unspent
funds (within three years) to the National CSR Fund. Further, if a company does
not have an ongoing project that requires funding in stages, then such a
company will be required to transfer unused CSR funds to the National CSR Fund.
For the first time, non-compliance would attract a fine and imprisonment for
the officer in default. We need to ask the question: ‘Is it fair to all
concerned? Are such provisions aiding in the Government’s efforts of “Ease of
doing business in India”?’
It
gives me immense pleasure to inform you that we had made a joint representation
to the Hon’ble Union Minister of State for Finance and Corporate Affairs who
gave us a personal hearing; a number of major points causing difficulties to
tax payers and professionals were explained to the Minister. Both direct and
indirect tax issues were brought to the table and explained in detail. He was
appreciative of the various issues raised by us and we hope that, as in the
past, many of our suggestions would be accepted and concrete corrective action
would be taken in time.
The
Consumer Confidence Survey of the Reserve Bank of India indicates that not only
was the sentiment negative for three of the five parameters in the month of
July, but it was expected to deteriorate further compared to two months ago. We
are witnessing a weak consumer sentiment which is also reflecting in the
business sentiment, with businesses being less upbeat about production, order
books and capacity utilisation. The good news is that the Government is aware
of the overall slowdown in the economy and might take corrective action very soon.
This, coupled with the upcoming festival season following a healthy monsoon, is
expected to bring cheer to the stressed sectors of the economy in the second
half of the fiscal.
Fortunately,
soon after I penned the above thoughts, the Finance Minister announced a
recovery package to provide immediate succour to some of the worst pain points
of the economy in the hope of effecting a turnaround – including a rollback of
CSR violations being treated as a criminal offence!
Wishing
all of you all the best for the upcoming busy September tax audit season.
With
Best Regards,
CA
Manish Sampat
President
FINANCIAL REPORTING DOSSIER
This article provides key recent updates in
financial reporting in the global space that could soon permeate into Indian
financial reporting; insights into an Ind AS accounting topic, viz., other
comprehensive income, tracing its roots, developments and relevance; compliance
aspects of capital disclosures under Ind AS; and a peek at an international
reporting practice in audit committee reports
1. KEY RECENT UPDATES
1.1 From disclosing ‘significant accounting
policies’ to disclosing ‘material accounting policies’
The IASB on 1st
August, 2019, proposed amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2 Making Materiality Judgements.
A threshold for disclosing accounting policies is clarified by replacing the
requirement to disclose ‘significant’ accounting policies with ‘material’
accounting policies. Materiality in this context is a threshold that can
influence users’ decisions based on the financial statements.
1.2 Exception to recognising deferred tax upon
first-time recognition of assets or liabilities
The IASB has
proposed amendments to IAS 12 Income Taxes on 17th July, 2019
clarifying accounting for deferred tax on leases and decommissioning
obligations. IAS 12 exempts recognising deferred tax upon recognition of assets
or liabilities for the first time. As per the exposure draft, this exemption
would not apply to leases and decommissioning obligations – transactions for which
companies would recognise both an asset and a liability. Recognition of
deferred tax on such transactions would therefore be required.
1.3 Useful information on ECL estimation for Ind
AS stakeholders
The FASB has issued
a Staff Q&A on Developing an Estimate of Expected Credit Losses on
Financial Assets. Akin to IFRS 9, USGAAP requires financial assets held at
amortised cost to be subject to impairment testing using the ECL approach. This
approach requires an entity to consider historical experience, current
conditions and reasonable and supportable forecasts. The Q&A issued on 17th
July, 2019 provides guidance in this area.
1.4 Revisions to the international code of ethics
for professional accountants
The IESBA issued an
Exposure Draft on 31st July, 2019, Proposed Revisions to Promote
the Role and Mindset Expected of Professional Accountants that inter
alia enhances robustness of the fundamental principles of integrity,
objectivity and professional behaviour.
2. RESEARCHING – OTHER
COMPREHENSIVE INCOME (OCI)
2.1 Introduction
Comprehensive
income as a reported accounting measure is new in the Indian context. The
notion of income is wider under comprehensive income in comparison with a
narrower income statement (profit and loss) concept.
2.2 Setting the context
Analysis of three
sample companies’ total comprehensive income (TCI) dissecting their composition
and growth in terms of profit after tax (PAT) and other comprehensive income
(OCI) is provided below:
|
Company 1 – Walt Disney, US listed (Dow |
|||||
|
|
2017 |
2016 |
2017 (%) |
2016 (%) |
Growth % |
|
PAT |
9,366 |
9,790 |
96% |
120% |
(4.3)% |
|
OCI |
426 |
(1,656) |
4% |
(20%) |
|
|
TCI |
9,792 |
8,134 |
100% |
100% |
20.4% |
|
Company 2 – Power Finance Corporation, |
|||||
|
|
2019 |
2018 |
2019 (%) |
2018 (%) |
Growth % |
|
PAT |
6,953 |
4,387 |
103% |
108% |
58.5% |
|
OCI |
(207) |
(324) |
(3%) |
(8%) |
|
|
TCI |
6,746 |
4,063 |
100% |
100% |
66.0% |
|
Company 3 – British Petroleum, US and UK |
|||||
|
|
2018 |
2017 |
2018 (%) |
2017 (%) |
Growth % |
|
PAT |
9,578 |
3,468 |
126% |
41% |
176.2% |
|
OCI |
(1,980) |
5,016 |
(26%) |
59% |
|
|
TCI |
7,598 |
8,484 |
100% |
100% |
(10.4%) |
As can be seen from
the table above, Company 1 reported an increase of 20.4% at the TCI layer,
while the PAT witnessed a ‘de-growth’ of 4.3%.
Volatility in OCI could
amplify or mask total comprehensive income. Do investors focus on PAT or TCI as
a measure of financial performance? Is TCI an important measure for investors?
In this section an
attempt is made to address the following questions:
|
1. |
Is the concept of OCI new under Ind AS or did it exist under |
|
2. |
Was IFRS the first GAAP to introduce this concept? |
|
3. |
Did OCI develop as an accounting concept or as a practice? |
|
4. |
What have been the historical and current developments? |
|
5. |
Is OCI relevant to investors? |
2.3 The current position in India
Other Comprehensive
Income (OCI) as an accounting concept and a reporting measure made its way into
India Inc.’s corporate balance sheets with the introduction of Ind AS. OCI
comprises items of income and expenses that are not recognised in profit or
loss as required or permitted by other Ind ASs.
Ind AS 1 Presentation
of Financial Statements lists the components of OCI that inter alia
include changes in revaluation surplus of items of property, plant and
equipment, gains and losses arising from translating the financial statements
of a foreign operation, gains and losses from investments in equity instruments
designated at FVTOCI, gains and losses on financial assets measured at FVTOCI,
re-measurement of defined benefit plans and the effective portion of gains and
losses on hedging instruments in a cash flow hedge.
Schedule III to the
Companies Act requires Ind AS companies to report other comprehensive income in
the statement of profit and loss as a separate measure. Investors are provided
in a single statement the accounting measures of profit for the period, other
comprehensive income and total comprehensive income.
2.4 Background
2.4.1 India
In the Indian GAAP
(AS) dispensation, revaluation of fixed assets was permitted and the process of
consolidating a foreign subsidiary generated a resulting foreign currency
translation reserve (FCTR). These two line items have been taken up for the
purpose of this discussion.
AS 10 Accounting
for Fixed Assets before it made its way to AS 10 Property, plant and
equipment, permitted an increase in net book value arising on revaluation
of fixed assets to be credited directly to owner’s interests under the head of
revaluation reserve (paragraph 30).
AS 11 the
Effects of changes in Foreign Exchange Rates requires a non-integral
foreign operation to use translation procedures whereby the resulting exchange
differences should be accumulated in an FCTR until disposal of the investment
(paragraph 24).
The concept of
OCI is new in India despite the fact that items like revaluation surplus and
FCTR were also accounted under AS. The AS treatment
for these items bypassed income and had direct entry to the balance sheet,
whereas converged Ind AS does not permit direct entry to the balance sheet.
2.4.2 The United
States
IFRS (IAS in its
previous avatar) was not the first GAAP to introduce the concept of
comprehensive income.
Comprehensive
income was defined for the first time in USGAAP in 1980. Although the term was
defined, reporting standards for the same did not evolve for a considerable
period of time.
The origin of other
comprehensive income reporting in global accounting literature can be traced to
a 1997 USGAAP Statement of Financial Accounting Standard (FAS) – Reporting
Comprehensive Income. This statement issued by the Financial Accounting
Standards Board (FASB) established standards for reporting and presenting
comprehensive income and its components.
The relevant
concepts surrounding how globally accounting income reporting was historically
characterised in terms of a contrast between a ‘dirty surplus’ and a ‘clean
surplus’ income concept is highlighted in the table below:
|
Current operating performance income |
All-inclusive income concept |
|
Dirty Surplus in Accounting Theory |
Clean Surplus in Accounting Theory |
|
Current operating performance income |
All-inclusive income concept |
|
Extraordinary and non-recurring gains |
All revenues, expenses, gains and losses |
Until 1997, the
FASB followed the all-inclusive income concept but it did make exceptions by
requiring that certain changes in assets and liabilities not be reported in the
income statement but instead be included in balances within a separate
component of equity in the balance sheet. Some examples include foreign
currency translation, accounting for certain investments in debt and equity
securities akin to Indian GAAP ‘AS’ revaluation gains (AS 10, now replaced) and FCTR treatment (AS 11).
In 1997, as a step
in implementing the concept of comprehensive income, the FASB required that
changes in the balances of items that were reported directly in a separate
component of equity in the balance sheet be reported in a financial statement
that is displayed as prominently as other financial statements, viz.,
‘Comprehensive Income’.
The purpose of
reporting comprehensive income is to report a measure of all changes in equity
of an entity that result from recognised transactions and other economic events
of the period other than transactions with owners in their capacity as owners.
OCI and TCI reporting developed more as a practice
than a concept. Further developments and improvements are expected both under
USGAAP and IFRS.
2.4.3 The United
Kingdom
In 1992, the UK Accounting Standards Board issued a financial reporting
standard – Reporting Financial Performance. It introduced a ‘Statement
of Total Recognised Gains and Losses’ financial statement component that was
analogous to the US comprehensive income.
2.4.4 IFRS
OCI and
Comprehensive income reporting was introduced in IFRS in 2007 with a revision
to IAS 1 Presentation of Financial Statements requiring inter alia
components of OCI to be displayed in the statement of comprehensive income and
total comprehensive income to be presented in the financial statements.
2.5 Recent
developments
The IFRS Conceptual
Summary revised by the IASB in 2018 lends relatively more clarity to the
distinction between net profit and OCI. In the development of standards, the
IASB may now decide in exceptional circumstances that income or expenses
arising from a change in the current value of an asset / liability be included
in OCI when it results in the statement of profit or loss providing more
relevant information or a more faithful representation of financial
performance.
In December,
2018, the ICAI issued an Exposure Draft of AS 1 – Presentation of Financial
Statements, to replace the extant AS 1 – Disclosure of Accounting
Policies. The wider income concepts of OCI and comprehensive income have
been introduced in this IGAAP exposure draft.
2.6 Is OCI relevant to investors?
The IASBs-IFRS
Conceptual Framework (2018 revised) states that an understanding of financial
performance requires analysis of all recognised income and expenses, i.e., PAT
and OCI. The expected focus is therefore on TCI.
Net earnings for
the period as reported by the measure PAT lends itself to assessment of
forecast cash flows from a dividend distribution perspective.
The ground reality
globally is that Alternate Performance Measures (APMs) are fast becoming
mainstream. Progressive companies continue to strive to provide insights into
real value creation using measures that are alternates to accounting measures,
including TCI.
3.
COMPLIANCE: CAPITAL DISCLOSURES (Ind AS)
Capital
disclosures
This Ind AS
disclosure requirement ensures that users of financial statements are provided
useful information about entity-specific capital strategies.
This disclosure in the notes is mandatory for all entities and, moreover
is in addition to other disclosures related to equity and reserves. The
disclosure requirements are contained in Ind AS 1 Presentation of Financial
Statements (paragraphs 134 to 136). A reporting entity also needs to
consider paragraphs 44A to 44E of Ind AS 7 Statement of Cash Flows
(Changes in Liabilities Arising from Financing Activities) to comply with Ind
AS 1 capital disclosure requirements.
The capital
disclosures are applicable to all companies and not only to companies that are subject
to externally imposed capital requirements like banks / NBFCs.
An entity is required to disclose information that enables users of its
financial statements to evaluate its objectives, policies and processes for
managing capital. In complying with this, qualitative and quantitative
disclosures are required.
|
Qualitative disclosures |
Quantitative disclosures |
|
Description of what an entity manages as |
Summary quantitative data about what it |
|
How it is meeting its objectives for |
|
|
For entities subject to externally |
|
Capital for the
purpose of this disclosure has to be understood the way it is considered as
part of corporate financial management text / practices. Capital is not just
share capital or equity but includes liability components, too.
Capital
disclosures should be based on the information provided internally to key
management personnel (KMPs). For instance, some
entities may consider lease liabilities and / or overdrafts as components of
capital for capital management, while others may not.
4.
GLOBAL ANNUAL REPORT EXTRACTS: AUDIT COMMMITTEE REPORT
Extracts from ‘Audit Committee Report’
Section of Annual Report
Company: BAE Systems PLC (2018
revenues GBP 16.8 billion)
The Audit
Committee reviews all significant issues concerning the financial
statements. The principal matters it considered concerning the 2018
financial statements were (see table below):
|
Principal matters considered by Audit |
||
|
Taxation |
Computation |
Whilst |
|
Pensions |
Accounting |
Recognising |
5. FROM THE PAST – ‘IMPROVED OUTSIDE AUDITING
IN THE FINANCIAL REPORTING BUSINESS’
The Former
Securities Exchange Commission’s Chairman, Mr. Arthur Levitt’s 1998 remarks (NYU
Center for Law and Business) are relevant even today. Extracts of the same
are reproduced below:
‘As I look at
some of the failures today, I can’t help but wonder if the staff in the
trenches of the profession have the training and supervision they need to
ensure that audits are being done right. We cannot permit thorough audits to
be sacrificed for re-engineered approaches that are efficient, but less
effective.
Numbers in the abstract are just that – numbers. But
relying on the numbers in a financial report are livelihoods, interests and,
ultimately, stories: a single mother who works two jobs so she can save
enough to give her kids a good education; a father who laboured at the same
company for his entire adult life and now just wants to enjoy time with his
grandchildren; a young couple who dreams of starting their own business.
These are the stories of American investors. Our
mandate and our obligations are clear. We must re-dedicate ourselves to a
fundamental principle: markets exist through the grace of investors.’