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Stress management

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77 Stress management

A stressor is a
situation, thought or stimulus that triggers your stress response. We all need a
little stress in our lives. Good stress makes us feel alert and stimulated. But
chronic, acute stress can cause anxiety, depression and disease. Different
people may respond differently to the same stressor. It’s important to identify
what stressors cause you distress. The more you learn about your stressors, the
more likely you are to diminish, control or eliminate them.

When you’re
stressed, you lose sleep. When you lose sleep, you feel more stressed. Sleep
deprivation doesn’t just make you tired. It interferes with the natural pattern
of stress hormone production . . . . Exercise protects the body against the
effects of physical and psychological stress. But there are some caveats. First,
to reap anti-stress benefits, exercise should be aerobic. Weight training has
important health benefits, but it’s not a great stressbuster. Second, you will
get more benefits if you exercise in bouts of at least 30 minutes. This is how
long it takes for the brain to produce endorphins — those natural opiates that
give you the ‘jogger’s high’.

Third, you might
not benefit if you don’t want to exercise. When animals are forced to exercise,
they become more — not less — stressed. Take a deep breath. This is one of the
oldest stress management tips around. Take a deep breath and exhale — slowly.
When you inhale, you speed up your sympathetic nervous system. When you exhale,
you slow it down — a minitress reducer.

(Source : The Economic Times, dated 31-7-2010)

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Disaster Risk : Risk Management — Case study

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Risk

Disasters can be broadly classified as ‘Natural’ and
‘Man-made’. The following are a few examples:



Natural Disasters:
earthquakes, cyclones, tsunamis, hurricanes, famines, floods and droughts, etc.



Man-made Disasters –
wars, riots and terrorist attacks (it is not known when and where a terrorist
strike will take place), etc.

According to a United Nation study, the annual economic loss
associated with natural disasters averaged US $75.5 billion in the sixties, US
$18.4 billion in seventies, US $213.9 billion in the eighties and US $659.9
billion in the nineties. Most of these losses were incurred by developed
countries. The study also points out that:

  • The severest impact is on the people in the low
    income groups, and


  • 85% of the people exposed to natural disasters
    live in less or underdeveloped communities/countries.




Disaster Risk Reduction
– DRR – is a term adopted by the United Nations for developing an international
strategy on promoting disaster risk reduction, as it is shown to be
cost-effective. Initiatives that are focused on disaster risk reduction will
either seek to reduce the likelihood of a disaster occurring (flood protection
work by way of construction of dykes, levees and stopbanks, for example) or
enhance the community’s ability to respond to an emergency (ensuring three days
food and water). Initiatives also include increasing knowledge and creating
legal and policy frameworks. Disaster results in people being homeless, becoming
economically weak, education coming to a standstill, infrastructure being
damaged and normal everyday activity being virtually paralysed. The 2001
earthquake in Gujarat is an example of what disaster entails.

A living example of man-made or industrial disaster is the
Bhopal Gas Leak tragedy that resulted in widespread death and has left many
surviving victims still suffering without resolution of the social or legal
issues and reparation of the damages suffered, even after more than two decades!
The anniversary of the tragedy is still observed in Bhopal and religiously
reported by the media, but little action is taken, it seems, beyond paying lip
service to the cause. Hence, businesses operating in hazardous areas or
involving hazardous materials should look at their own risk exposure and
vulnerabilities, and consider appropriate ways of reducing their risks through
appropriate actions and investments in hazard monitoring and risk mitigation,
and by creating resilience. Many governments and international NGOs have begun
to look more carefully at DRR as an important part of sustainable human
development.

Businesses planning for resilience, through financial and
operational risk mitigation measures, also contribute to the resilience of the
local economic environment. This can be achieved by supporting appropriate
regulations and building social capital, as employers and employees are a part
of the community living in the area where the business operates.

Let us not forget that a disaster, wherever it may occur,
impacts both the social and economic environment of the people living in the
affected area, and also the society at large.

Disaster risk and business

Disaster at micro level adversely impacts the businesses
operating in the area where disaster happens. At the macro level it adversely
affects insurance companies. The hospitality industry in Mumbai, especially the
hotels attacked by terrorists in 2008, have still not fully restored the damage
caused to the infrastructure. The economic loss has been shared by the
shareholders in terms of their expected and actual returns, the government in
terms of loss of tax revenue and costs incurred, and the insurance companies in
terms of the compensations and losses, not to forget the trauma suffered by the
public, especially the inhabitants of South Mumbai. On the other hand, the
businesses of security agencies, suppliers of security personnel and insurance
companies, post 26/11, have increased. The Government of Maharashtra, in
collaboration with the Government of India, is, therefore, adopting DRR
measures.

Case study of the month: A beverage company

Coolsip Ltd. is a beverage company that produces and
distributes the Coolcan range of beverages like juices, soft drinks and colas in
Mumbai and across several locations in India and across the Middle East.

The CEO of the company recently attended a seminar on
“Dealing with Disasters” and is wondering whether in the event of a disaster
like a major fire, earthquake or flood or even a man-made one like a terror
strike, the company’s facilities, supply chain, distribution facilities are
well-protected and secured; and whether the company will be able to withstand a
major disaster, especially in view of what happened to the plant in Mumbai
during the 2006 floods.

He consults the CFO on the matter, who is of the opinion that
disasters are practically insurmountable and too large for a company to cope
with and are best left to the government and authorities. The other argument he
put forth was that since its inception 25 years ago, the company or its
facilities have not been affected by any major disaster except once during the
Mumbai 2006 floods, when operations were resumed within two days and losses were
covered by the insurance company. Also, if disaster strikes, with the
authorities and everyone acting swiftly, the situation normalizes in a few days.
In his opinion, the loss to physical assets is insured and, therefore, the
actual loss would work out to be much lesser compared to the elaborate costs of
being prepared for disasters. Therefore, he advised status quo.

The CEO approaches you, an external consultant, for your
views. Give your comments.

The risk management advisor’s first suggestion was that he
should be allowed to:

1. Initially visit at least two facilities including the
one in Mumbai which was affected by the 2006 flood;

2. Talk to the people at the selected two plants to
understand risks involved;

3. Discuss and determine the risks involved with a few key
executives at the corporate office in Mumbai.

After assessment work spread over three weeks, the Risk Management Consultant suggested the following ‘Disaster Risk Reduction’ – DRR measures:

    1. Initially, to create a water drainage facility next to the plant in Mumbai to reduce water clogging;

    2. Raising the plinth level of the area in which critical machines were installed to reduce the risk of damage;

    3. Acquire on rent a godown/storage facility outside the plant premises in Mumbai for storing enough finished goods to meet at least 3 days’ demand, in order to ensure continuity of supply to customers. The plant was already carrying four days inventory of finished goods. The additional cost involved was only rent and cost of a few persons. He suggested that HRD be consulted whether some existing persons could be shifted to reduce additional cost. This was to minimize loss of revenue and retain customer loyalty.

    4. The other facility he visited was at Chiplun, a city close to Koyna, an earthquake sensitive area. The suggestion was to consult an architect and ascertain how to strengthen the construction and enable it to withstand earthquake shocks, as mild tremors continue to occur. Even in January of 2010, mild tremors originating in Koyna were felt in Mumbai.

    5. He also suggested a detailed review of electrical installations at both the plants to assess the likely impact of floods and/or earthquakes on them, as damage to the power receiving and/or generating facilities could affect production.

    6. To insure against ‘loss of profit’ by making a ‘loss of profit’ insurance policy.

    7. To consider the possibility of insuring people and property against acts of terrorism.

The CEO and even the CFO who was initially sceptical of the exercise, appreciated and implemented the suggestions. The Risk Management Consultant was also commissioned to carry out a detailed review and suggest DRR measures.

Gururaj Deshpande to co-chair Obama’s Advisory Council

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76 Gururaj Deshpande
to co-chair Obama’s Advisory Council

India-born Gururaj
Deshpande, chairman of Tejas Networks, A123 and Akshaya Patra, has been
appointed co-chairman of US President Barack Obama’s National Advisory Council
on Innovation and Entrepreneurship. He will support Obama’s
innovation strategy by helping develop policies that foster entrepreneurship,
create jobs and drive economic growth.

Popularly known as
‘Desh’, Deshpande is one of the 26 members of the council which includes serial
entrepreneurs, university presidents, investors and non-profit leaders. Steve
Case and Mary Sue Coleman will serve as the other co-chairs.

(Source : Business Standard, dated 23-7-2010)

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kcr for Commonwealth Games a waste, should’ve gone to poor kids.

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75 ‘35kcr for
Commonwealth Games a waste, should’ve gone to poor kids.

A verbal spat was
initiated by Congress leader Mani Shankar Aiyar when he was asked to comment on
the rainy morning by some media persons outside Parliament House. “I am
delighted in a way because rains are causing difficulties for the Commonwealth
Games. Basically, I will be very unhappy if the games are successful, because
then they will start bringing Asian Games, Olympic Games and all those,” the
former sports minister replied.

Explaining his
opposition to the Games, Mr. Aiyar said a whopping Rs.35,000 crore were being
spent on the sporting event, when it should have been spent on children who did
not have the basic facilities to play. “Those who are patronising the Games can
only be evil. They cannot be God. Thousands of crores are being spent on
circuses like these while the common children are being deprived of basic
facilities to play,” Mr. Aiyar said, adding that all ‘expectations’ from the
Games had been belied.

Mr. Aiyar also
alleged that India had bribed other Commonwealth nations for the Games. “To take
the Games, the Olympic association of every Commonwealth country was given $ 1
lakh . . . . it was given to Australia, New Zealand, Canada, and Britain. Those
countries did not need this money,” he said adding that “I would call it a
bribe.”

(Source : The Economic Times, dated 28-7-2010)

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Desi lawyers teach English to US attorneys

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74 Desi lawyers teach
English to US attorneys

Many top US law
firms are hiring Indian lawyers to edit and make grammatical and syntax
corrections in legal drafts/contracts prepared by their lawyers. A Fortune 100
client of a US law firm, Smith Dehn LLP, has specifically requested that legal
research, analysis, writing, editing exercises that cost millions of dollars in
the US be done by Indian attorneys.

A recent American
bar council journal article compared the scenario to a man bites dog story. It
says highly-trained LPO (legal process outsourcing) attorneys in India have been
assigned the task of correcting grammatical and other mistakes of partners and
associates at some of the top 100 law firms in the US. It further said,
high-quality and effective English writing has been out of fashion in the US for
several decades.

Till some time
ago, Indian lawyers were seen to use lofty English British-style pomposity, a
vestige of colonial rule. Their sentences were long and
winding. There were too many usages of passive and indirect speech. Today, they
are good with plain, crispy, clear and clean English writing. In fact, LPO has
made them think global and grow global. American lawyers are liking it, a
high-quality second look at the draft, said Russell.

(Source : The Times of India, dated 26-7-2010)

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Double standards Case :

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72 Double standards
Case :

US :
Asbestos-related suits

India : Bhopal Gas
tragedy

 

Damage :
US : 700,000 people affected

India : 20,000
dead, 570,000 injured with possible generational impacts

 

Caused by :
US : Asbestos fibres

India : Methyl
Isocyante gas released from the factory

Liability :
US : Carbide and Amchem cases being fought by Dow

India : Dow
refuses to take liability of Carbide

 

Payments :
US : $ 487mn litigation costs, $ 1.5bn resolution costs & $ 839mn estimated
future liability

India : $ 470mn
paid by Carbide in 1989. Refuses any further payment.

 

(Source : The Times of India, 3-7-2010)

 

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Online evaluation sparks revolution

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73 Online evaluation
sparks revolution

Engineering
students pursuing their PhDs needn’t fret over errors in their results anymore.
The Visvesvaraya Technological University (VTU) has introduced online evaluation
of answerscripts for its PhD students from 2010-11.

On a pilot basis,
VTU has already scanned the 750 PhD answerscripts. If all goes well, it’ll be
extended to MTech and MBA courses, too.

Manual evaluation
leaves multiple scope for errors. In case of multiple solutions, the evaluator
will have the freedom to decide. The process take only a few minutes and the
scripts get stored in the system. A software developed exclusively for digital
evaluation helps the evaluator open the answer booklet with just a mouse-click.
Next, the screen displays a series of register numbers. The evaluator can have
his pick. The question for the particular answer is displayed on the screen,
along with the scheme of evaluation. This also allows two evaluators to check
the same answerscript simultaneously. The final evaluator draws an average. In
case of a difference of 15 marks or more, the third evaluator reassesses the
script.

(Source : The Times of India, dated 15-8-2010)

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IFAC president warns against auditor rotation

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71 IFAC president
warns against auditor rotation

Mandatory auditor
rotation makes no sense, according to International Federation of Accountants
president Robert Bunting.

“While firm
rotation might seem to remove any bias that may be attached to past decisions,
it makes no sense at all,” Bunting said.

“In most parts of
the world there are not enough choices to allow for this without forcing
companies to choose audit firms that have no expertise in their industry.”

Bunting said a
number of countries have experimented with mandatory rotation before abandoning
it as almost impossible to implement. Yet, it is still being considered as a
remedy to the Satyam scandal in India.

It would not be a
pragmatic solution and would set the country apart from nearly all of its
trading partners, Bunting said.

(Source : www.ifac.org)

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10% and 30% of the amount recovered to Whistle blowers – USA – SEC

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70 10% and 30% of the
amount recovered to Whistle blowers – USA – SEC


In what could give new meaning to the phrase — “If you see something, say
something” — a clause within the financial reform legislation is offering big
cash rewards to whistleblowers who report fraud and other wrongdoing at
U.S.-listed companies and Wall Street banks.

Under the program,
which is already live, anyone who provides a tip that leads to a successful
Securities and Exchange Commission action will be able to collect between 10%
and 30% of the amount recovered — as long as the total amount exceeds $1
million. This means the minimum payout is $ 100,000. The whistle blower could be
a company insider or a private investor, if they’re able to offer information or
analysis that leads to an action. And with potential payoffs netting millions —
or even tens of millions — of dollars, experts are bracing for a surge in
tipoffs.

The program also
protects squealers against company retaliation. Any whistleblower who is fired,
demoted, suspended, threatened, harassed or discriminated against by a company
for providing info or testifying in an SEC investigation, can file an action in
the U.S. District Court. If they succeed in proving their case, the legislation
guarantees the person’s reinstatement, two times the amount of backpay owed, and
coverage of all court and attorney fees — so long as the action is filed within
a certain time period.

Even a mid-cap
company could wind up with a consent order or suit in the millions of dollars,
says Daniel Karson, executive managing director and counsel at Kroll, a risk
consulting company. “So 10% for making a phone call is a pretty good payday,” he
says.

(Source : TIME.COM, 19-8-2010)

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The progress challenge — Dean Linsey

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20. The progress challenge — Dean Linsey


In 2010, most of us take on too many
responsibilities, try to do too much, and even own too much. Being too busy is a
big source of stress in today’s get, get, get and go, go, go world. Often, we
are so chronically over-scheduled that we never give ourselves a chance to offer
our best or to enjoy the moment. Are your days fulfilling, or are they merely
full ? It is possible that we could get more out of life by doing less. When we
internalise the difference between full and fulfilling, we realise it’s not how
many events we attend, activities we get involved in, or how much stuff we have
that’s important. We do not have to say ‘yes’ to every demand on our time. And
we shouldn’t feel bad, since we are saying ‘no’ to the event or project, not the
person.

If we are committed to working and winning in this
world of change, we must know our limits and not limit our nos. Consider your
well crafted goals and your schedule before agreeing to additional work.
Simplify — get rid of the clutter and baggage in your life and in your house.
Start your own just say no campaign to regain quality time. Review priorities
and see if a request fits. When you see things that waste time or hinder your
progress, speak up. A polite way to say no to a request for your time : “I’m
quite committed. I can be your backup, but please keep searching.” Structure is
vital for becoming a Business Attraction Magnet. Solid self-management leads to
higher productivity and reduced stress. Our desks need to be workstations, not
storage space.

(Source : The Economic Times, dated 9-10-2010)

 

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JURISDICTION IN MATTERS RELATING TO VIOLATIONS OF INTELLECTUAL PROPERTY RIGHTS INCLUDING IN CYBERSPACE

IPR Laws

Having considered what acts constitute infringement of a
registered trademark and copyright as also passing off, the next essential
question which arises is which Court would have the jurisdiction to try,
determine and dispose of a suit relating to the said issue. It may be
appreciated that apart from general rules of procedure which lay down the law
for the purposes of determining the jurisdiction of a Court, special provisions
are to be found in the Trade Marks Act, 1999 and the Copyright Act, 1957
(hereinafter referred to as the ‘Trade Marks Act’ and the ‘Copyright Act’,
respectively) which confer jurisdiction on additional fora. This month’s article
seeks to give an overview of the provisions which determine the jurisdiction of
a Court, in matters relating to violation of rights in trademarks and copyright,
with special reference to determining jurisdiction in respect of matters
relating to websites.

Code of Civil Procedure, 1908 :

The general rules for determining the jurisdiction of a Court
are to be found in S. 15 to S. 20 of the Code of Civil Procedure, 1908
(hereinafter referred to as ‘the CPC’). These provisions, inter alia, lay
down that in the first instance, a suit must be filed in the Court of the lowest
grade competent to try it. In suits for land, the same are to be filed where the
immovable property in dispute is situated. In other cases, the suit is to be
filed either where the defendant carries on business and/or actually and
voluntarily resides and/or works for gain or where the cause of action has
arisen. Hence, under the CPC, if an owner of copyright and/or registered
proprietor of a trademark wished to institute proceedings against an infringer,
he would be obliged to follow the infringer to wherever he resides and/or to the
place where the infringing goods are being sold. This would mean that, if
someone were selling goods bearing infringing trademark in a remote part of
Assam and only had an existence in that limited area, the proprietor of the
trade-mark, who may be situated in Kerala, would have to follow the said
infringer all the way to Assam and sue him there.

Special provisions :

In order to overcome this handicap/difficulty, certain
additional provisions for determining the jurisdiction of a Court are to be
found in the Trade Marks Act and the Copyright Act. S. 62 of the Copyright Act
and S. 134 of the Trade Marks Act, inter alia, allow a plaintiff i.e.,
the owner of the copyright and the registered proprietor of a trademark,
respectively, to initiate and file an action for infringement in the District
Court having jurisdiction to try the suit which shall include a District Court
within whose jurisdiction the person instituting the suit or proceeding actually
and voluntarily resides or carries on business or personally works for gain.

It may be noted that even though the provisions of S. 62 of
the Copyright Act have existed since 1957, no such provision was to be found in
the earlier Trade and Merchandise Marks Act, 1958. The Trade Marks Act
introduced such a provision for the first time in 1999. It may also be
appreciated that S. 134 of the Trade Marks Act allows a plaintiff to file a suit
where he actually and voluntarily resides or carries on business or works for
gain only in respect of the cause of action for infringement of registered
trademark and not for passing off. Hence, there could be situations where a
Court may have jurisdiction for the purposes of the cause of action of
infringement, but not for passing off. To illustrate, let us take a situation
where Hindustan Unilever Limited being the registered proprietor of the
trademark ‘DOVE’ having its registered office in Mumbai wants to sue a person
manufacturing and selling soaps, under an identical trademark, only in Ludhiana.
In such a case, since the defendant is neither itself present within the
jurisdiction of the Mumbai Courts, nor are its products available within Mumbai,
the plaintiff would be unable to file a suit for passing off in Mumbai. However,
in light of S. 134 of the Trade Marks Act, Hindustan Unilever Limited would be
entitled to file an action for infringement of its trademark in Mumbai. In such
cases at a practical level, the normal practice followed by lawyers in Mumbai,
would be to file a combined suit for both causes of action in Mumbai and then
seek leave under Clause XIV of the Letters Patent for joinder of causes of
action, thereby giving the Court at Mumbai jurisdiction to try, determine and
dispose of the suit in respect of both the causes of action. Clause XIV of the
Letters Patent is a provision whereby the Bombay High Court is empowered to
combine causes of action so as to, inter alia, avoid multiplicity of
proceedings.

Hence, in a matter relating to infringement of rights in a
trademark or copyright the above principles would apply for the purposes of
determining jurisdiction.

Websites :

The application of the above principles is relatively simple
in the real world, but causes quite a few problems when applied to the virtual
world or in cyberspace. In cases where the defendant is not resident within the
jurisdiction of the Court, but jurisdiction is sought to be fixed on the basis
that the cause of action has arisen within the jurisdiction of that Court,
several difficulties arise. It may be noted that in cases where the infringing
mark or work is found only on a website, the question which arises is under
which circumstances can it be said that a cause of action be said to have arisen
within the jurisdiction of that Court and under what circumstances can a Court
exercise jurisdiction over a website. This question has vexed lawyers and
jurists over the years as to in what circumstances can a Court exercise
jurisdiction over websites published on the worldwide web. Would the mere
accessibility of a website from within the territory of the Court confer
jurisdiction on that Court or is something further required to determine and
establish a cause of action. A website, under normal circumstances, would be
accessible to everyone in all countries. Hence, in such a case can it be said
that a cause of action arises in every jurisdiction, thereby allowing the
plaintiff to sue anywhere where the website is accessible.

This question of seminal importance has recently been
answered by a Division Bench of the Delhi High Court in Banyan Tree Holding
Private Limited v. A. Murali Krishna Reddy
1 wherein the matter
had been referred by a Learned Single Judge to the Division Bench to determine
the law applicable for determining jurisdiction over a website.

The facts of the said case were that neither the plaintiff nor the defendant had their offices within the jurisdiction of the Delhi High Court, but the suit for passing off was brought on the basis that the defendant’s website which used the impugned mark ‘Banyan Tree Retreat’ was accessible in Delhi through the website of the defendant which was not a passive website and was an interactive web-page. The concept of a passive website as against an interactive website has been evolved by Courts for the purpose of determining jurisdiction as will be evident from the following.

The Division Bench, in light of the above facts, formulated and answered the following question— What principles would apply to determine jurisdiction in passing off or infringement actions where the plaintiff was not carrying on business within the jurisdiction of the Court, but the defendant was hosting a website within the jurisdiction of that Court?

In order to answer this question, the Division Bench made a detailed analysis of the law as it stood in the U.S.A., U.K., Canada, Australia and India. The Division Bench examined how several theories have been propounded over the years for the purposes of determining jurisdiction in cyberspace.

A vast plethora of judgments of US Courts was considered on the subject and it was found that initially, the Courts in the USA used to apply the ‘Purposeful Availment’ theory which was later modified to the ‘Zippo Sliding Scale Test‘ which was thereafter modified to the ‘Effects Test.’

The Purposeful Availment theory was initially pro-pounded by the U.S. Supreme Court in International Shoe Co. v. Washington2, wherein it was held that in order to establish jurisdiction over a particular defendant the plaintiff had to show that the Defendant had minimum contacts in the forum State, i.e., the State in which the plaintiff desired to institute his action, and that the defendant must have purposefully availed of the privilege of conducting activities in the forum state. Under this theory, it was found that the Courts were tending to exercise jurisdiction over websites merely on the basis that they were accessible within the jurisdiction of the forum court. However, it was later clarified that the effect of creating a site may be felt nationwide or even worldwide but without more, it would not be an act purposefully directed towards the forum State3. This led to the concept of whether a website could be categorised to be a passive website or an interactive website and that the purposeful avail-ment theory would be satisfied only if the website were interactive to a degree that reveals specifically intended interaction with the residents of the forum state4.

Hence, questions then arose as to whether websites were passive or interactive and if interactive, what was the level of interactivity needed to establish jurisdiction. This led to the Zippo Sliding Scale test wherein the Court set out a three-pronged test being that the defendant must have minimum contacts with the forum state, the claim asserted must arise out of those contacts and that the exercise of jurisdiction must be reasonable5. The Courts, however, then felt that since almost all websites are interactive to a certain extent, a shift was necessary so as to examine in each case, the nature of the activity performed using the interactive website.

In light of the above, the effects test was pro-pounded in Calder v. Jones6 wherein it was held that for the purposes of determining jurisdiction, it was essential to identify where the effect of the website would be felt i.e., at whom and/or where was it targeted.

The effects test however, did not find favour in its application to trademark infringement cases since it was felt that the effects test as would be applicable to an individual would not be applicable to a corporation/company, since a company would not suffer harm in a particular geographic location in the same sense that an individual would7.

The Division Bench then summarised the law in the U.S.A. as being that a plaintiff would have to show that the defendant purposefully availed of the jurisdiction of the forum state by specifically targeting the customers within the forum state.

The Division Bench also considered the law in the U.K., Canada and Australia before dealing with the limited Indian law on the subject. A perusal of these foreign judgments explains the fact that mere access to a website would not confer jurisdiction on a Court and that something more would be needed.

It was in light of the above, that the judgment of a Single Judge of the Delhi High Court in Independent news Service Pvt. Ltd. v. India Broadcast Live LLC8 was referred to. The finding in that case was that in order to exercise jurisdiction over a website it was essential to show that the website was interactive and that the level of interactivity involved would also be relevant.

The Division Bench has, however, gone a step further after considering all the law on the subject and has, inter alia, laid down that:

“This Court holds that jurisdiction of the forum court does not get attracted merely on the basis of interactivity of the website which is accessible in the forum state. The degree of the interactivity apart, the nature of the activity permissible and whether it results in a commercial transaction has to be examined. For the ‘effects’ test to apply, the plaintiff must necessarily plead and show prima facie that the specific targeting of the forum state by the Defendant resulted in an injury or harm to the Plaintiff within the forum state. For the purposes of a passing off or an infringement action (where the plaintiff is not located within the jurisdiction of the court), the injurious effect on the plaintiffs business, goodwill or reputation within the forum State as a result of the defendant’s website being accessed in the forum State would have to be shown. Naturally therefore, this would require the presence of the Plaintiff in the forum state and not merely the possibility of such presence in the future. Secondly, to show that an injurious effect has been felt by the Plaintiff it would have to be shown that viewers in the forum state were specifically targeted. Therefore the ‘effects’ test would have to be applied in conjunction with the ‘sliding scale’ test to determine if the forum court has jurisdiction to try a suit concerning internet based disputes.”

Thus, it would be evident that in order to establish that a cause of action has arisen within the jurisdiction of a particular forum, it would be necessary for the Plaintiff to prima facie establish that the defendant’s website which contains the infringing material is specifically targeting customers within the forum state and that the same has caused injury or harm to the Plaintiff within the jurisdiction of that forum not merely whether a website is active or passive.

In my opinion, the above judgment, though lays down certain guiding principles as to how a court can exercise jurisdiction over infringing acts in cyberspace, it still leaves many questions unanswered such as what is the level of injury or harm necessary to establish jurisdiction or how is one to determine and identify cases of specific targeting, what would happen in cases where the targeting is of specific individuals who are normally resident in another forum but have accessed the website within a different forum, etc. These issues still remain unanswered and one can only hope that they will be answered in due course of time. The only solace is that a lamp has been handed down by the Division Bench, which will, hopefully, light the path as we walk along and lay down and make more specific the law on the subject.

Infringement vs. Passing – off

IPR Laws

This month’s article seeks to explain a fundamental aspect of
the law on trademarks, the distinction between an action for infringement of a
registered trademark and an action for passing off. Whilst the former is a
statutory wrong the latter is a tort under common law. This distinction is
crucial for any trademark owner to strategise the maintenance of their trademark
portfolios.

A trademark is a mark which connects the goods and/or
services of a person with that person in the course of trade and thereby
distinguishes it from the goods and/or services of others. The Trade Marks Act,
1999 (‘the Act’) more specifically defines a trademark, inter alia, as a mark
capable of being represented graphically and which is capable of distinguishing
the goods or services of one person from those of others.1 Therefore,
a mark in order to be a trademark need not necessarily be registered. A
trademark may also either be used or proposed to be used. These factors as to
whether a trademark is used and/or registered are factors relevant for
determining whether an action for infringement of trademark and/or an action for
passing off may be instituted.

I shall initially explain what is meant by infringement of a
registered trademark and passing off, respectively, and then proceed to deal
with the broad distinctions.

Infringement of Registered Trademark :

Chapter IV of the Act deals with the effect of registration
of a trademark. The Act specifically provides that no proceedings for
infringement of an unregistered trademark may be instituted thereby clarifying
that an action for infringement can only be taken in respect of a registered
trademark. In fact, a right granted on registration is the right to take
recourse to infringement proceedings.2 The Act also clarifies that an
action for passing off will not be affected by the Act.3

S. 29 of the Act deals with and identifies the acts that
would constitute infringement of a registered trademark. The Section seeks to
protect a registered trademark and/or a mark deceptively similar thereto from
being exploited and/or used by an unauthorised person so as to defeat the rights
of the registered proprietor of the trademark of being entitled to exclusively
use the registered trademark. The scope and ambit of acts constituting
infringement has been substantially broadened under the present Act by bringing
in concepts like dilution of trademark, erosion of distinctive character of the
trademark, parallel importation and damage to reputation, etc.

The statutory law relating to infringement of trade-marks is
based on the same fundamental idea as the law relating to passing off. But it
differs from that law in two particulars, namely, (1) it is concerned only with
one method of passing off, namely, the use of a trademark and (2) the statutory
protection is absolute in the sense that once a mark is shown to offend, the
user of it cannot escape by showing that by using something outside the actual
mark itself he has distinguished the goods from those of the registered
proprietor.4

In an infringement action, the plaintiff is, ordinarily, only
required to prove that the defendant is using the registered trademark and/or a
mark deceptively similar thereto in respect of the same goods or services cause
that would be enough to show a violation of the rights conferred on the
registered proprietor. Infringement consists in using the mark per se as a
trademark and therefore, any other distinguishing factors that may be employed
by a defendant may not be relevant in an infringement proceeding.

Any person trespassing on the rights conferred by
registration of a trademark infringes the registered trademark. The rights
conferred by registration in a particular case must be determined in the context
of any restrictive conditions or limitations entered on the Register of Trade
Marks at the time of registration of the mark.

Infringement proceedings, thus, enable a registered
proprietor to prevent any unauthorised person from using his trademark and/or
mark deceptively similar thereto in respect of similar goods or services or as
contemplated u/s.29 of the Act.

Passing off :

On the other hand, the object of the law of passing off is to
protect some form of property — usually the goodwill of the plaintiff in his
business or his goods or his services or in the work which he produces. The
trademark represents the reputation and goodwill of a business and/or the goods
and/or the services. For example, the goods sold by ‘Nike’ are considered to be
of superior quality and have an immense reputation in the market. The goods sold
under the trademark ‘Nike’ carry immense value on the basis of the fact that
they bear the ‘Nike’ trademark. If the same goods were sold without the said
trademark thereon, they would not be as valuable.

Passing off is a form of tort of deceit and/or
misrepresentation. To put it in a nutshell, passing off is a tort whereby one
person tries to pass off his goods and/or services as and for the goods and/or
services of another. Passing off in effect is also a form of unfair competition.
It is a common law remedy and has been built entirely on the basis of case law.

In Halsbury’s Laws of England, 4th Edn., Volume 48, para 144
at page 98, the essentials of the cause of action for passing off, as restated
by the House of Lords in Erven Warnink B. V. v. J. Townend & Sons, 1980 R.P.C.
31, are set out as follows :

“(1) a misrepresentation

(2) made by a trader in the course of trade

(3) to prospective customers of his or ultimate consumers
of goods or services supplied by him

(4) which is calculated to injure the business or goodwill
of another trader, in the sense that this is a reasonably foreseeable
consequence, and

(5) which causes actual damage to a business or goodwill of
the trader by whom the action is brought or, in a quia timet action, will
probably do so.”

The aforequoted dictum of Lord Diplock is the locus
classicus
on the subject and succinctly explains what is meant by the tort
of passing off.

Therefore, it may be noted that in order to enable the owner
of a trademark to sue for passing off, he would be required to show in the first
instance that the trademark is associated by members of the trade and public
solely and exclusively with the services rendered and/or goods sold by him and
that some other person by using an identical and/or deceptively similar mark in
respect of similar services and/or goods is trying to pass off his goods and/or
services as and for the goods and/or services of the owner. Confusion and
deception in the course of trade would be essential to an action in passing off.

It is common understanding that an action for passing off cannot be instituted in respect of an unused trademark, however the same is incorrect. For in a given situation passing off may even be instituted in respect of a trademark which has not been used in the market, but which has acquired reputation and goodwill on the basis of other factors such as publicity, advertisements, etc. and has therefore, come to be associated solely with the owner of the trademark.5

Distinction :

The distinction between an infringement action and a passing off action is important. As explained above, both operate in different spheres. Hence, to illustrate there could even be a situation where a registered proprietor (Plaintiff) files a suit for infringement and the defendant files a suit for passing off against the same plaintiff. This would happen in a case the defendant has a prior user of the trademark but a subsequent registration.

The issues involved in an action for infringement and an action for passing off are different and distinct. In an action for infringement the basic issue would generally be whether the registered trademark and the infringing mark are identical and/or deceptively similar and whether or not they are being used in respect of similar goods and/or services. However, in an action for passing off, in the first instance the plaintiff would have to show that the said trademark is associated solely and exclusively with his services and/or goods and that use by the defendant of such mark would cause confusion and/or deception in the course of trade and thereby people would end up buying and/or procuring the goods and/or services of the defendant thinking they were of the plaintiff. Such acts would cause wrongful loss and harm to the plaintiff.

The Supreme Court has succinctly highlighted major differences between the two remedies and the approaches involved in an action for infringement and an action for passing of in the landmark judgment of Ruston Hornsby v. Zamindara Engineering, AIR 1970 SC 1649, wherein it has laid down, inter alia, as under :

“It very often happens that although the defendant is not using the trademark of the plaintiff, the get-up of the defendant’s goods may be so much like the plaintiff’s that a clear case of passing off would be proved. It is on the contrary conceivable that although the defendant may be using the plaintiff’s mark, the get-up of the defendant’s goods may be so different from the get-up of the plaintiffs goods and the prices also may be so different that there would be no probability of deception of the public. Nevertheless, in an action on the trademark, that is to say, in an infringement action, an injunction would issue as soon as it is proved that the defendant is improperly using the plaintiff’s mark.

The action for infringement is a statutory right. . . . .
On the other hand the gist of a passing off action is that A is not entitled to represent his goods as the goods of B, but it is not necessary for B to prove that A did this knowingly or with any intent to deceive. It is enough that the get-up of B’s goods has become distinctive of them and that there is a probability of confusion between them and the goods of A. No case of actual deception, nor any actual damage need be proved.”

Another important factor of distinction is the fact that under the Act, a registered proprietor is granted an additional right to institute an action for infringement of trademark where the plaintiff’s office is situate. This provision was introduced to enable the registered proprietors take appropriate proceedings against infringers without having to follow them to every corner of the country. On the other hand, however, passing off being a common law remedy, the jurisdiction of a Court to take cognizance of the same would be in accordance with the normal rules of jurisdiction as laid down in the Code of Civil Procedure, 1908 and/or the relevant Letters Patent i.e., either where the defendant resides or carries on business or where the cause of action has arisen, etc.

To illustrate the above points of distinction, take a situation where a trader in pens is the registered proprietor of a trademark ‘KODAK’ (word per se) and has been using the same for the last decade on a yellow and red background in respect of his pens. The defendant is using the trademark ‘TODAT’ in respect of his pens on a white and green background. In such a case for the purposes of an infringement action the Court would only consider whether the trademarks KODAK and TODAT are identical and/ or deceptively similar, since the goods are identical. On the other hand, for the purposes of an action of passing off, the Court would have to consider the entirety of the package including the difference in colour schemes, nature of consumers, packaging, etc. and consider whether on an appraisal of the entire evidence it can be proved that the consumers would be confused and/or deceived into buying the pens of the defendant on the belief that they were somehow connected with the plaintiffs.

In the aforesaid illustration let us assume that the pens are sold by both traders on a red and yellow background but the trademarks involved are the registered trademark KODAK (word per se) and the unregistered trademark PILOT. In such a case even though the trademarks per se are different, an action in passing off may still lie if by colour scheme, packaging, trademark being written in small letters, etc. the consumer and general public would be confused and/or deceived into buying the defendants pens on the belief that they emanate from the plaintiff.

A perusal of the above would evince the fact that the two wrongs are different. Therefore, it is essential for owners of trademarks to understand that even if their trademark is not registered, they may still maintain an action in passing off. In fact, in a given case a trader who may not have used the trademark in the Indian market, but whose trademark has acquired a transborder reputation in India may maintain an action in passing off. A situation may also arise where even if a trademark is registered, use of the same may be restrained by a prior user of the trademark.

Therefore, there can be no general answer as to which proceeding is better and/or preferred and the course of action and must be determined on a case-by-case basis.

Financial black holes : Financial Misstatements

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SAP

Accounts manipulation is the deliberate misreporting or
concealment of facts in order to create profit or loss in the current period; to
defer profit or loss to a subsequent period; or to misreport performance
statistics and management information. Under both the common and the statutory
law, this is treated as fraudulent activity. In case of deliberate misreporting,
the possibility of repetition of the event is higher, since they are intentional
and for a specific fraudulent purpose. In such a situation, the organisation in
question needs to be more vigilant and stringent with their policies as well as
people. It is, however, important to recognise that financial misstatement can
also happen because of error or systematic problems. In either case, it can
leave an organisation exposed to both the market forces and the regulatory
challenges.

In this article, I have set out some danger signs to look for
and provide an overview of actions to consider in the event that such misconduct
is discovered. I hope this helps to ensure that the ‘modesty’ of many
organisations continues to be preserved.

The potential impact :

The shockwaves caused by accounts manipulation can be severe
and invariably spread far wider than the organisation concerned; the sector as a
whole may be affected or at a larger level, the economy may be hit as well. The
demise of Enron is an obvious example. Another case in point is Satyam, where
the stakeholders are shocked at the size as well as the duration of time for
which the fraud went unnoticed.

The discovery of accounts manipulation will inevitably have a
far-reaching impact, even if it has not caused the victim organisation an actual
cash loss. Loss of reputation is a bigger loss than cash loss, as this loss is
not quantifiable and has far-reaching effects on the organisation as a whole.
The management will be distracted from effective operational stewardship; time
and focus will be lost as they seek to determine the facts of the manipulation,
and then develop and execute a communication and remediation strategy with
various stakeholders. Management credibility is also likely to suffer, the event
has come to light ‘on their watch’ irrespective of where the blame actually lies
— a robust response is a good start in this battle (the related elements are
discussed further
below).

Stakeholders in the outcome of any investigation and
remediation are numerous, and will include the organisation’s lenders and
shareholders and may also include regulators and law enforcement agencies. Any
restatement of the financial statements may lead to, or indicate, lending
covenants being breached, with the consequence that finance lines are withdrawn
or renegotiated. In the current lending environment, this is to be taken very
seriously. Shareholders, especially ‘active’ or institutional investors, may
take the view that their investment decisions have been taken on the basis of
misleading information and commence court action. The potential for the share
price to suffer is also high.

The cost and impact of regulatory and law enforcement
involvement is also significant due to the need to involve external lawyers and
accountants. This is especially relevant if the organisation is a listed entity.
Not only will the share price fall, but it will also adversely affect the
capability of the organisation to raise further capital from public in future.
Even non-listed companies would be adversely affected in terms of their future
listing capabilities. Individual management, the staff as well as the
organisation itself may be targets, with criminal as well as civil sanctions
available.

One impact that is often given less consideration is that the
perpetrators may be in senior positions in the organisation. Through their
dismissal, the
organisation may suffer a shortage of skills or experience, with a likely period
of flux as their replacements bed down into their new roles.

Drivers, risk areas and red flags :

What then, are the indicators that one should be vigilant
for ? In this section, I will examine three areas : the organisational factors
that could put an organisation at risk; the areas within financial statements
that are vulnerable to manipulation; and the signs that something may already be
wrong.

Drivers :

Many cases of accounts manipulation have their roots in
organisational change within the victim organisation. Many organisations choose
decentralisation as a key strategy and encourage the staff to be more
competitive and entrepreneurial. Normally, the empowered local management team
is rewarded on performance, particularly by reference to profitability and the
achievement of budgets. The stakes are also rising, with many more layers of
management now receiving a material proportion of pay linked to performance
targets. Decentralisation can often be accompanied by much of the control
function at head office being removed; as well as division of profile leading to
specialisation. This will result in the lessons learnt in one part of a business
being no longer
effectively communicated across the business as
a whole. Not surprisingly, this combination can make an organisation vulnerable
to accounts
manipulation.

Where accounts manipulation has been orchestrated by the
senior group management and
key management personnel, it can be difficult to detect and investigate, often
involving
either the collusion of a number of senior staff or a very dominant personality
who commands fear within the organisation. The organisation’s
control environment is also a vital factor : it is likely to be weak; or, in the
case of senior
management orchestration, capable of being overridden and window dress the
financial statements. Fraud motivation at this level can be
varied, and is usually more complex than simply financial gain.

Risk areas :

Experience gained through assisting clients, as well as my
observations of other reported events has shown that certain items within the
financial statements are especially prone to manipulation. These, together with
the forms that the manipulation can take, are illustrated in the figure below :


(An illustrative list only)

Red flags :

Warning signs are usually present in the financial
information of a subsidiary, division, joint venture or a group; and, can
sometimes be painfully obvious with hindsight. While the precise signs are
dependent on the sector or industry in which the organisation operates, I have
highlighted a few generic indicators as shown below : (an illustrative list
only
)


‘Red Flags’ — A few Classic Examples

Reported results are consistently in line with the budget. This may be accompanied by soft accruals to align the actuals with the budget

Areas of low scrutiny or lack of clarity of accountability for some costs, often accompanied by a failure to perform reconciliations or maintain adequate control accounts

Items within the profit and loss account are based on judgment rather than hard data

High levels of manual journals and accruals without automatic adjustment

Unusual fluctuations in sales or forward purchase orders, particularly around the year end

Revenue and profit trends appear inconsistent with other known information

Profits do not appear to be converted into cash
Poor quality or patchy management accounts, which typically comprise only a profit and loss account

Undue concern about audit visits

Employees feeling of lack of job security in the organisation without proper reasoning from the higher management

No proper basis regarding the provisions made in the financial statements.

Auditors’ responsibility for fraud detection?: Stakeholders of the companies and the general public rely on the auditors for unearthing indications of financial statement fraud. We have observed in recent times how the competencies of the auditors have been questioned for not being able to detect the signals of fraud early enough. Although audit is not a fact-finding exercise, but rather a review of the financial statements, yet it is possible to detect the warning signals by adopting appropriate procedures. Some of these are discussed below?:

Professional Skepticism?: Auditors need to overcome some natural tendencies — such as over reliance on client representations — and approach the audit with a skeptical attitude and questioning mind. They should set aside past relationships and not assume that all clients will be totally transparent.

Discussion among engagement personnel?: Extensive brainstorming among the engagement teams at different stages of the engagement about the client’s susceptibility to fraud will help to identify the critical areas for audit.

Identification and assessment of fraud risk?:
Identify the fraud risk and perform an assessment of the identified risks to determine where the client is most vulnerable to material misstatement due to fraud, the types of frauds that are most likely to occur and how those material misstatements are likely to be concealed.

Developing audit procedures to mitigate the identified fraud risks?: The key to designing effective audit tests is to perform an effective synthesis of the identified risks. Appropriate procedures should be developed so as to detect any indication of fraud.

Considering client’s anti-fraud programmes and controls?: Review client’s anti-fraud programmes and controls that mitigate or exacerbate the identified risks of material misstatement due to fraud. Such review will help the auditor to identify potential control weaknesses.

Risk of management override of internal controls?: Auditor should be aware of the fact that executives can perpetrate financial reporting frauds by overriding established control procedures and recording unauthorised or inappropriate journal entries or other post-closing modifications (for example, consolidating adjustments or reclassifications). To address such situations, auditor should test the appropriateness of journal entries recorded in the general ledger and other adjustments.

Retrospective review of accounting estimates?:
Accounting estimates are particularly vulnerable to manipulation, because they depend heavily on judgement and the quality of the underlying assumptions. Auditors should perform a retrospective review of prior-year accounting estimates for the purpose of identifying bias in management’s assumptions underlying the estimates.

Business rationale for significant unusual transactions?: Many financial reporting frauds have been perpetrated or concealed by using unusual transactions that are outside the normal course of business. Auditor should use his knowledge about the client and the industry to recognise any unusual transactions. Auditor should then obtain appropriate business rationale for such unusual transactions.

Evaluating audit evidence?: Auditor should evaluate the evidence gathered through analytical and substantive procedures to assess whether such evidence indicate any indication of misstatement that was not considered earlier.

Last but not the least, the auditor should demonstrate highest standard of professional integrity and must be independent not only in spirit, but must also appear as independent to all reasonable persons.

How to respond effectively??

Corporate Governance may be defined as ‘A set of systems, processes and principles which ensure that a company is governed in the best interest of all stakeholders.’

It ensures commitment to values and ethical conduct of a business, transparency in business transactions, statutory and legal compliance, adequate disclosures and effective decision-making with a view to achieving corporate objectives.

Clause 49 of the SEBI guidelines on Corporate Governance (which came into effect from 31st December 2005) has made major changes in the definition of independent directors, strengthening the responsibilities of audit committees and improving the quality of financial disclosures, including those relating to related-party transactions and proceeds from public/rights/preferential issues, which call for CEO/CFO certification, the adoption of a formal code of conduct by the Boards and the improvement of disclosures to shareholders. Certain non-mandatory clauses like a whistle-blower policy and the restriction of the term of independent directors have also been included.

According to the Internet, the revised version of Clause 49 has come into effect since 1st Jan. 2006.

In the event that an instance of accounts manipulation is uncovered, it is imperative that the organisation responds both effectively and robustly. A dedicated committee (containing requisite financial expertise) should be considered to oversee the response. Convening such a body not only enables the management to remain operationally focussed, but also ensures that the response is independently managed and free of any perception of conflict of interest.

The committee should aim at rapidly mobilising an investigation team to identify the root cause and quantum of the problem. This will help determine the immediate measures that will need to be taken to mitigate the impact on the business and should also assist in a complete identification of stakeholders.

The latter exercise will enable the reporting and ongoing communication needs of each issue to be assessed and a strategy to be developed. The importance of a credible engagement with the stakeholders at the earliest opportunity cannot be underestimated.

The next stage is to consider whether and to what extent the organisation wishes to utilise external professional advisors. Often, forensic accountants and lawyers are key resources who can contribute with their rich experience and perspective from previous investigations, as well as strategic and investigative input, including assistance with the capture of data to the standards required by regulators or the courts.

Ensuring that the relevant hard and soft copy data is gathered in an evidentially sound manner is a vital element of the response. This will require some preliminary consideration of the accounts affected — for example, customer and supplier details may be kept in a different module from financial statement data. An organisational chart will help identify individuals who process and manage data in the affected area. This will inform the custodians about which employee data needs to be analysed. The organisation should also consider issuing a data preservation notice to all relevant employees.

Conclusion?:

Economic indicators suggest that the current climate is likely to persist for the next couple of years. It is challenging in a business context, both in terms of the trickling effect from the recession in the US and current lack of resources. At the same time, the costs of inputs have been rising. Organisations continue to be under pressure to produce growth and returns for shareholders and to comply with lenders’ covenants. This environment may provide a stimulus for accounts manipulation to take place and organisations would be well advised to be vigilant.

Income-tax — Instruction No. 7/2009, dated 22nd/23rd December, 2009 — F. No. 275/23/2007-IT(B) — Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi.

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  1. Income-tax — Instruction No. 7/2009, dated 22nd/23rd
    December, 2009 — F. No. 275/23/2007-IT(B) — Government of India, Ministry of
    Finance, Department of Revenue, Central Board of Direct Taxes, New Delhi.

 

To,

All Chief Commissioners & Directors Generals of Income Tax,
All Commissioners of Income Tax (TDS),
Director of Income Tax (TDS).

Certificate of lower deduction or non-deduction of tax at
source under Section 197 of Income-tax Act — matter reg.

I am directed to bring to your notice on the subject of
issue of certificates under Section 197. Instruction No. 8/2006, dated
13-10-2006, was issued stating that certificates for lower deduction or nil
deduction of TDS u/s.197 are not to be issued indiscriminately and for issue
of each certificate, approval of the JCI/Addl. CIT concerned need to be taken
by the Assessing Officer (AO). Further, a letter of even number dated
16-10-2008 was issued stating that power of issue of certificates under
Section 197 would ordinarily be exercised by the officers manning TDS
Administration. However, instances are being brought to the notice of Board
that the AOs are issuing certificates for lower or non-deduction of tax at
source u/s.197 indiscriminately, in contravention of relevant Income-tax Rules
and Instructions.

I am, therefore, directed to communicate to you that
further to the contents of Instruction No. 8/2006, prior administrative
approval of the Commissioner of Income-tax (TDS) shall be taken (where the
cumulative amount of tax foregone by non-deduction/lesser rate of deduction of
tax arising out of certificate under Section 197 during a financial year for a
particular assessee exceeds Rs.50 lakh in Delhi, Mumbai, Chennai, Kolkata,
Bangalore, Hyderabad, Ahmedabad and Pune stations and Rs.10 lakh for other
stations. Once the CIT (TDS) gives administrative approval of the above, a
copy of it has to be endorsed invariably to the jurisdictional CIT also.

The content of the above instruction may be brought to the
notice of all officers working in your charge for strict compliance.

Sd/-

(Ansuman Pattnaik)
Director (Budget)

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Income-tax — Instruction No. 6/2009, dated 18-12-2009 F. No. 225/11/2006/ITA. II, Government of India, Ministry of Finance, Dept. of Revenue, CBDT, New Delhi.

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  1. Income-tax — Instruction No. 6/2009, dated 18-12-2009 F.
    No. 225/11/2006/ITA. II, Government of India, Ministry of Finance, Dept. of
    Revenue, CBDT, New Delhi.

To,

All Cadre Control Chief Commissioners of
Income-tax/Directors General of Income-tax

 

Scheme for improving quality of assessments — regarding :

For past sometime the Board has been concerned about the
need for improving general quality of scrutiny assessments on a sustainable
basis. In this connection, reference is invited to Board’s Instruction No.
2/2006, dated 27-4-2006 which required monitoring of scrutiny assessments by
Range Heads under the powers available to them under Section 144A of the
Income-tax Act. Instructions have also been issued from time to time for
strengthening the machinery for review of assessments and inspection of
assessment charges. However, it is felt that there is significant scope for
improving the quality of scrutiny system. The matter came up for discussion
during 25th Annual Conference of Chief Commissioner of Income-tax held in
August 2009. A presentation was made by the CCIT Chandigarh outlining a scheme
for improving quality assessments implemented in NWR Region. After taking into
account various suggestions, it was decided to devise a similar scheme with
appropriate flexibility for country-wide implementation.

2. Accordingly, it has now been decided that the following
scheme for improving quality of assessments shall be implemented from calendar
year 2010 onwards :

(i) At the beginning of each calendar year i.e.,
in the month of January, the Range Head in consultation with the concerned
Assessing Officer would identify at least 5 pending time-barring assessment
cases in respect of each Assessing Officer of his Range for monitoring.
These should normally include cases taken up for scrutiny with the
permission of the CCIT. The selection should be done jointly by the Range
Head and the concerned Assessing Officer. Cases of PSUs and loss-making
concerns should normally not be identified for this purpose. This exercise
should also include those Ranges which are held as additional charge by a
Range Head in January.

(ii) The Range Head would issue directions u/s. 144A in
the identified cases for the guidance of the Assessing Officer regarding the
course of investigation to enable him to complete these assessments in a
proper manner. This should be done at the earliest available opportunity so
as to allow the Assessing Officer to have sufficient time to complete the
assessment proceedings. A copy of the directions issued by the Range Head
would also be endorsed to the CIT. The Range Head should also monitor the
subsequent developments in the assessment proceedings in these cases.

(iii) On completion of the assessment the Assessing
Officer shall send a copy of the assessment order to the Range Head and the
CIT.

(iv) In the event of a Range Head holding more than one
Range, the concerned CCIT may appropriately relax the requirement for issue
of directions u/s.144A in respect of the cases of the Range(s) held as
additional charge.

(v) For the purpose of this instruction, a quality
assessment would be one in which issues arising for consideration are
clearly identified, investigation of basic facts in respect of these issues
is carried out, adequate opportunity to rebut adverse evidence is given to
the assessee, the rival evidence are suitably analysed and evaluate in the
light of correct interpretation of law, and these efforts result in
substantial addition to the returned income. The benchmark for the quantum
of addition to the returned income, which may quality for being a quality
assessment, may be decided by the concerned CCIT depending upon the
potential of the given Range/Charge. Normally, this should not be less than
Rs.5 lakh, excluding additions on account of recurring issues. It is
expected that the selected cases will meet the parameters for quality
assessment.

(vi) As regards the remaining scrutiny assessments, it is
expected that 30% of assessments completed by the Range Head, 20% of the
remaining scrutiny assessments completed by DC/ACIT and 10% of ITOs will
result in quality assessments. These benchmarks can be reviewed once the
scheme has been in operation for some time.

(vii) The parameters for determining whether an
assessment is a quality assessment should be decided by the concerned Chief
Commissioner in the light of the above and should be widely circulated at
the beginning of the calendar year i.e., in the month of January of
every year.

(viii) At the end of the financial year, the data
regarding assessments, completed by Assessing Officers of the CCIT Region
shall be got evaluated by the concerned CCIT in the month of next April
according to the parameters decided earlier. The overall results will be
tabulated in the enclosed proforma and circulated in the CCIT (CCA) Region
for information. Separate performance ranking should be done for Range Heads
in respect of cases completed by them u/s.143(3) out of the cases selected
under Instruction 4 of 2007, dated 16-5-2007, and those monitored by them
under this instruction.

(ix) CCsIT may also devise methods for commending good
performance of AO in the area of quality assessments and reflecting the same
in the annual appraisals. Important cases involving large successful
additions may be reported to the Board in monthly D.O. letters. These can
also be sent to DTI (RSP&PR) for inclusion in the Annual Report of good
assessment cases.

3. These instructions may please be brought to the notice
of all officers working in your Cadre Control region immediately for proper
compliance.

Sd/-

(S.
S. Khan)

Member (Income Tax)
sessing Officers


New rules for valuation of perquisites and ESOPs notified — Notification No. 94/2009, dated 18-12-2009.

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  1. New rules for valuation of perquisites and ESOPs notified —
    Notification No. 94/2009, dated 18-12-2009.

Post FBT, Budget 2009 had restored taxation of perquisites
given to employees. The perquisite valuation rules (Rule 3) has been notified
with retrospective effect from 1st April 2009. Even the rule for ESOP
valuation and taxation thereof has been notified with effect from 1st April
2009.

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Clarification regarding applicability of Section 194J to Third Party Administrators — Circular No. 8/2009, dated 24-11-2009.

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  1. Clarification regarding applicability of
    Section 194J to Third Party Administrators — Circular No. 8/2009, dated
    24-11-2009.

It has been clarified in this Circular that payments made
by TPAs to the hospitals on behalf of the insurance companies are liable to
deduct tax at source under Section 194J of the Act. However, in case, in the
past defaults have occurred in this matter, the Board has clarified the
following :



  •  No
    proceedings u/s.201 be initiated after expiry of six years from end of
    financial year of default


  •  No demand
    u/s.201(1) be enforced if TPAs are able to satisfy the jurisdictional TDS
    officer that the hospitals have duly paid the taxes along with a certificate
    to this effect from the auditors of hospitals.



However, the liability of interest u/s.201(1A) of the Act
till payment of taxes by hospitals as well as penalty implications would apply
to the TPAs.

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Clarification on remittances of consular receipts — Circular No. 9/2009, dated 30-11-2009.

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  1. Clarification on remittances of consular receipts —
    Circular No. 9/2009, dated 30-11-2009.

It has been clarified by the Board that for the purpose of
remittance of consular receipts abroad, diplomatic missions in India need to
submit only a self-certified undertaking in Form No. 15CA to the remitter
bank. They are not required to obtain a certificate from an
accountant/certificate of Assessing Officer in Form 15CB, since their receipts
are tax exempt.

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Auditing your Auditor

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When telecommunications provider IDT decided to switch
auditors from Ernst & Young to Grant Thornton in early 2008, the “driving force
was to save money,” says CFO Bill Pereira. It worked. Part of a companywide
effort to reduce corporate overhead, the move cut IDT’s $ 4.3 million audit bill
almost in half. Although initially “we were fearful of leaving the Big Four,”
says Pereira, “in retrospect, we are really happy with the decision.”

In fact, the switch went so smoothly that IDT declined to
announce the renewal of Grant Thornton’s contract in its most recent proxy —
because IDT was open to switching again. “We knew there had been changes in the
market and we wanted to evaluate where fees stood,” says Pereira. “We didn’t
just make the automatic assumption that we’d stick with Grant Thornton. We felt
it was our responsibility to do our homework.” (IDT eventually did renew with
Grant Thornton — and cut its bill by nearly another million dollars, to $ 1.42
million last year.)

Welcome to the new auditor-client relationship. In the wake
of the Sarbanes-Oxley Act of 2002, audit fees soared, auditors dumped risky
clients by the hundreds, and ‘value-added’ services all but vanished under the
weight of new independence rules. Today, the reverse is true. Audit fees have
been dropping across the board since 2007. In 2004, more than a third of auditor
changes were the result of audit firms walking away from clients. Last year, 82%
of auditor changes were because companies fired their auditors (among the Big
Four, the number was 90%). And companies aren’t just negotiating lower fees;
they are also demanding more value — read ‘services’ — covering everything from
corporate-board education to competitive intelligence.

Publicly traded companies alone spent $16 billion on audit
and audit-related fees in 2008, with nearly 7,000 companies paying more than $
100,000 each year, and 2,585 paying more than $ 1 million, according to CFO’s
analysis of data from Audit Analytics. Little surprise, then, that half of all
CFOs now say they regularly (at least every two years) benchmark what their
company pays its external auditor against what their peers pay, according to the
latest Duke University/CFO Magazine Global Business Outlook Survey.

Unusually low or high fees both can signal trouble: weak
audits for the former and potential conflicts of interest for the latter.
“Companies paying the highest fees (may do so to gain) more flexibility and
aggression in accounting,” says Whisenant. He has done studies that suggest that
fees that are unexpectedly high or low “can both lead to conditions where the
shareholders do not benefit.”

Take, as an extreme case, Fannie Mae, which in 2003 paid a
surprisingly low $ 2.7 million for its audit by KPMG. An accounting scandal the
following year subsequently caused the company’s audit bill to soar to $ 203
million (paid to Deloitte & Touche after KPMG was dismissed).

More recently, in building its case against David Friehling,
auditor of Bernie Madoff’s Ponzi scheme, the SEC charged him with raking in
“substantial fees.” But, in fact, the opposite is true : that Madoff’s
multi-billion-dollar fund paid the tiny audit firm of Friehling & Horowitz a
mere $ 186,000 per year should have been a glaring red flag.

(Source : CFO.com, 1-4-2010)

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ICAI says Shahajahan scam may run into crores

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In the wake of a chartered accountancy student’s arrest last
week for allegedly forging documents using a CA’s stamps and seals, the Pune
branch of the Institute of Chartered Accountants of India (ICAI), now suspects
the accused may have misused stamps and seals of more chartered accountants in
the city.

Shahajahan Khurshid Khan allegedly made duplicates of stamps
and seals of CA Sunil Shankar Yelol with Yelol’s ICAI membership number for tax
audit of M/s. Jagtap Automobiles and duped Yelol of Rs.9.80 lakh.

The incident came to light when Jagtap Automobiles decided to
hand over their audit work to another CA, Vijay Anpat. Following the CA
protocol, Anpat called up Yelol to obtain his no-objection certificate about the
handover. Yelol realised that Jagtap was not his client, but the stamps and
seals carried his membership number.

According to the ICAI legal advisor, advocate V. B. Khatri,
Khan may have used the stamps and seals for people who had applied for bank
loans to get TDS refunds and so on.

(Source : forum4finance.com, 21-3-2010)

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Case pile-ups a danger for democracy : PM

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The Congress leadership expressed concern over mounting
judicial pendency with Prime Minister Manmohan Singh and UPA chief Sonia Gandhi
saying they were robbing the sheen from the democratic system which aims to
provide speedy justice to aam admi.

The duo, while seeking a way out from the halting wheels of
justice, said the Gram Nyayalayas Act would prove a big step in removing the
pendency. The PM urged the states to take immediate steps to operationalise the
law. Sonia said 2.5 crore cases were pending at various levels across the
country. In a telling comment, the PM mentioned the concern over judicial
backlog while adding that democracy will have little meaning for the common man
if he could not “secure basic rights and easy access to speedy justice”.

While Sonia was mild in her observations, she added that
“speedy, effective and affordable justice” was a party objective. She said the
Gram Nyayalaya Act would bring justice at the doorsteps of rural masses. It will
add 5000 courts for which the Centre will give Rs.1400 crore, she said, adding
they will cut the arrears that stood at 2.5 crore.

(Source : The Times of India, dated 28-3-2010)

 

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Crisis of merit in lower judiciary

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Judiciary faces a crisis of merit at a crucial layer as
majority of the states are finding it difficult to fill 25% of district judge
posts through a limited departmental examination that was devised to give talent
a speedy promotion route.

This became clear before the Supreme Court as senior advocate
Vijay Hansaria as amicus curiae pointed to the large number of vacancies in
district judge posts, which is the highest level in the lower judiciary
responsible for fighting the huge pendency of nearly 2.6 crore cases. The large
number of posts falling under the cadre of Higher Judicial Service was mainly
vacant due to failure of existing judicial officers to clear the tough
departmental competitive test. The situation is so bad that in Tripura, eight
posts were advertised under the speedy promotional route but only two candidates
applied, Hansaria said. This was the situation in almost all states.

Rao gave a chart of the vacancies under 25% quota for speedy
promotion through competitive examination. It said West Bengal had 50 vacancies,
Uttar Pradesh 24, Maharashtra 42 and Orissa 12. The Apex Court had noticed on
January 13 that in Bihar, though 16 posts were available, the HC could fill only
two.

(Source : The Times of India, dated 26-3-2010)

(Note : The origin of the problem lies in very poor
remuneration and pathetic quality of education and training in Law. The Law
Colleges are proliferating as it requires only a few class-rooms and a few book
shelves for a library. There is no supervision or control over quality of
education and training provided. Many persons enrol in these colleges ‘to be
student’ and enjoy the privileges, benefits and protection bestowed on
students.)

 

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DTC not to override tax treaties

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The government might drop the draft Direct Taxes Code (DTC)
proposal that virtually gives Indian tax laws supremacy over the Double Taxation
Avoidance Agreements (DTAAs) with other countries.

The move’s implication is that the India-Mauritius DTAA,
which underpinned the emergence of the small island nation as the largest source
of foreign investment in India, along with more than 70 other bilateral tax
treaties, would not automatically become subservient to the Code when it kicks
in from April 1, 2011.

The revised draft would be ready in about two months. While
the proposed EET (exempt-exempt-tax) method for taxation of savings is a concern
for individual taxpayers, the proposal to impose MAT on gross assets (opposed to
book profits now) is worrisome to corporate India. When asked about these
proposals, Moorthy said, the revised DTC draft would reflect conceptual changes
in these proposals as well.

(Source : The Financial Express, dated 25-3-2010)

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Representation to the Hon’ble Finance Minister, Government of India by Bombay Chartered Accountants’ Society on Direct Taxes Code, 2009 — Revised Discussion Paper

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Representation

Foreword :

1. At the outset, we appreciate the initiative taken for
circulation of Revised Discussion Paper (RDP) revealing some of the conceptual
changes to be made in the proposals contained in the Direct Taxes Code, 2009 (DTC),
which is going to replace the current Income-tax Act, 1961 (I.T. Act). This
shows that the Government appears to have an open mind to address the genuine
concerns raised by the taxpayers and others in response to the proposals
contained in the DTC. We also believe that the same approach will continue till
the final DTC gets enacted and becomes the law of the land as the same will
reflect the Direct Taxes Policy of the Nation for a long time to come.

2. In the DTC, many conceptual changes have been proposed
with regard to tax system and its administration as compared to the I.T. Act.
Many of such proposals have been found highly objectionable/debatable. For this,
a detailed representation has been made by the BCAS, in which each chapter, in
most cases, has been divided into two parts, namely, (a) Structural changes
(where the policy/concept itself required reconsideration/change), and (b)
Changes suggested with regard to specific provisions contained in the DTC. The
RDP deals with only some of the conceptual changes to be made in the DTC in
certain areas. However, it is completely silent with regard to the concerns
raised at conceptual level in respect of many other areas of the DTC and for
which no mention is found in the RDP, such as : Taxation of Business Income, Tax
Deduction at Source (TDS), Branch Profit Tax, Wide Powers for Tax
Administration, etc.
The taxpayers and the people at large are in dark with
regard to the approach of the Government in respect of the remaining areas which
are also equally of great concern to the taxpayers and others. We only hope that
the rational view will be taken in respect thereof while drafting the final
proposals to be incorporated in the Bill.

3. In the introduction part of the RDP, it is stated that
there are a number of other issues which have been raised in the public
feedback, which, though do not form the part of the RDP, will be considered
while finalising the Bill for introduction in the Parliament.
We believe
that the suggestions with regard to the conceptual changes made in the remaining
areas of the DTC as well as the suggestions made with regard to the specific
provisions contained in the DTC in our earlier representation will be seriously
considered and will find positive response in the final proposals contained in
the Bill for introduction in the Parliament. Therefore, those suggestions
have not been reiterated in this representation.


4. We also take this opportunity to recognise some of the
welcome decisions taken by the Government which are stated in the RDP, such as:
continuance of provisions relating to Minimum Alternative Tax (MAT) based on
book profits, continuance of EEE for tax treatment of certain savings,
continuance of the currently available exemption in respect of retirement
benefits of the employees, realignment of house property tax to actual rent
basis, continuance of present system of levying wealth tax, etc. However, some
of the proposals contained in the RDP require reconsideration/modification as
they are likely to create genuine hardships to the taxpayers considering the
ground realities of the tax administration in the country. In this
representation, attempt has been made to point out such cases for
reconsideration of the decisions taken as mentioned in the RDP with the hope
that the same will get serious consideration and positive response before
introducing the Bill in the Parliament for enacting the DTC.

5. It would not be out of place to reiterate that in the
Indian context, proposal for continuance of discretionary and arbitrary General
Anti Avoidance Rules (GAAR) is highly undesirable even with some of the apparent
safeguards mentioned in the RDP. The continuance of such discretionary and
arbitrary powers may create an unmanageable situation in the times to come and
will also keep uncertainty and apprehension in the minds of taxpayers even with
regard to the genuine commercial decisions taken by them. In this context, we
need to recall the experience of provision empowering assessing officers to make
prima facie adjustments and consequent levy of additional tax u/s.143(1A) while
processing the Return of Income introduced from the A.Y. 1989-90 and the havoc
that the provision created for few years. Ultimately, the said provision had to
be withdrawn by the Finance Act, 1999. In the anxiety of catching few smart
assessees who may have abused some of the provisions of the Act, it would be
totally unjustified to introduce such unfettered arbitrary powers.

If at all such provisions are found essential for any reason,
the same should only be applied only to international transactions and that too
after providing substantial higher threshold for the same, so that the common
taxpayers do not suffer with regard to their normal commercial decisions.

In view of the above, it is earnestly requested that each of
the suggestions made in this representation needs serious consideration and
proper debate
with open mind before final decision is taken in the matter.

1. Chapter I — Minimum Alternate Tax — Gross Assets
vis-à-vis Book Profit :


1.1 One of the widely welcomed proposals in the RDP is that
of dropping the levy of a flat 2% tax on assets in favour of the present regime
to levy tax on book profits. We welcome this change and hope that the same
existing MAT provisions will get
reintroduced in DTC.

1.2 MAT is supposed to be collection of tax in advance on the
basis of book profit and not to deny the benefits to the taxpayer. With this
objective MAT credit was introduced. However, MAT credit is allowed to be
carried forward for ten assessment years immediately succeeding the assessment
year in which tax credit becomes allowable.

It is, therefore, suggested that under the DTC, the MAT
credit should be made available for indefinite period.

2. Chapter II — Tax Treatment of Savings — Exempt Exempt
Tax (EET) vis-à-vis Exempt Exempt Exempt (EEE) basis :


2.1 We welcome the continuation of the EEE method of taxation
for Government Provident Fund, Public Provident Fund and Recognised Provident
Funds and pension scheme administered by Pension Fund Regulatory and Development
Authority, Approved Pure Life Insurance Products and Annuity Scheme in the
proposed Direct Tax Code (DTC).

2.2 The Revised
Discussion Paper (RDP) contemplates continuation of the EEE method only for
specified categories of provident funds, pension schemes and pure life
insurance products. Consequently all other investments will fall in the EET
category. Para 3.1 of the RDP already provides that investments made prior to
the commencement of the DTC will continue to enjoy the EEE method for the
tenure of the financial instrument. It is suggested that all investments in
or subscriptions to any scheme made prior to 1st April 2011 (the proposed
commencement date of the DTC) should continue to be governed by the earlier EEE
method of taxation.

 

2.3 It is an
accepted fact that India is in need of substantial investment in
infrastructure. It is therefore suggested that investment in, or
contribution to, infrastructure schemes/funds (including subscription to
deposit of companies, bank deposits), should continue to enjoy the EEE method
of taxation under the DTC. The funds so collected should be used for meeting
the requirements of the funds for the Government for development of
infrastructure needs of the country.

 

2.4 The RDP
recognises that our country does not have in place a social security net for
senior citizens. In view thereof it is suggested that even after the DTC
comes into force, a withdrawal from any scheme which is otherwise covered by
the EET method, by a senior citizen should not be taxed i.e., it should enjoy
the EEE method. This will to some extent augment the social security for the
senior citizen.

 

3.         Chapter III — Taxation of Income from
Employment — Retirement Benefits and Perquisites :

 

Reintroduction
of Standard Deduction :

3.1 A salaried
employee incurs certain expenses wholly and exclusively for the performance of
office duties, which are not reimbursed by the employer. The employee is not
allowed any deduction for such expenses incurred. It is therefore suggested
that a standard deduction, as was provided earlier in the present Act, should
be reintroduced, so that the employee pays tax on his real income.

 

4.         Chapter IV — Taxation of Income from
House Property :

 

4.1 The policy
decision to tax income from house property only on the basis of actual rent and
not on any notional basis is a step in the right direction. This will avoid
litigation in future with regard to the determination of the amount of gross
rent for the purpose of taxation as currently, litigation is going on in large
number of cases with regard to determination of ‘annual value’ (which is the
current basis of taxation) for the purpose of taxation of income from house
property.

 

4.2 In the DTC,
it is provided that income from house property shall be the gross rent less
specified deduction. It is also proposed to reduce specified standard deduction
(for repairs, etc.) to 20% from 30% currently available under the I.T. Act.

 

It may be noted
that even the current deduction of 30% provided under the I.T. Act itself is
not adequate and is having a very adverse effect in large number of cases. This
is on account of the fact that apart from the repairs, in most cases, the
assessee has also to pay lease rent, insurance premium at a higher amount for
various valid reasons. Further, the society charges in the metros and most of
the larger cities, administrative and other statutory expenses incurred in case
of corporate entities, etc. are also very high. Apart from this there is also
no clarity as to deductibility of various taxes and cesses levied by the State
Governments, for which litigation is on under the I.T. Act.

 

In view of the
above, it is suggested that specified standard deduction should be retained at
least at the current level of 30% and specific provisions should be made for
deduction of all taxes/cesses paid to the State Governments in respect of house
property.

 

4.3 In the DTC,
it is provided that letting of machinery, plant, furniture or any other
facility, if inseparable from the letting of the house property, then the same
will be taxed under the head ‘Income from House Property’. In such cases, the
standard deduction of even 30% (assuming that the present proposal of 20% will
be increased to 30% as suggested above) will be totally inadequate. Therefore,
in such cases, adequate provisions should be made for allowance of depreciation
in respect of such other assets, which are let out with house property due to
its nature of being inseparable. Alternatively, the income in such cases should
be taxed under the head, ‘Income from Business’ and not under the head ‘Income
from House Property’.

 

5.         Chapter V — Taxation on Capital Gains :

 

5.1 At the
outset, it must be recognised that the scope of the Chapter relating to Capital
Gains has been substantially narrowed down in the Direct Taxes Code (DTC), as
the same applies only to Investment Assets. In the Income-tax Act, 1961 (I.T.
Act), the Chapter relating to Capital Gains covers every Capital Asset whether
related to business or not. Unfortunately, under the DTC, business-related
Capital Assets are excluded from the scope of this Chapter and hence, the
profit/loss on transfer of Business Capital Asset (BCA) is governed by the
Chapter relating to business income as per the proposal contained in the DTC.
This is totally unfair and unjust. This is the major issue which has not been
addressed and considered in the Revised Discussion Paper (RDP) as the same only
deals with the treatment of Capital Asset, being Investment Asset.

 

Therefore, it is
suggested that all capital assets including Business Capital Assets should be
governed by the provisions relating to Capital Gains and accordingly, the
Chapter relating to Capital Gains should be made applicable to all Capital
Assets on the lines of similar provisions contained in the present I.T. Act.

 

5.2 As against
the total exemption presently available to Long-Term Capital Gain arising on
transfer of listed equity shares (Equity Shares) or unit of equity-oriented
fund (Specified Units), it is now proposed to grant deduction at the specified
rates while computing such Capital Gain without any indexation. It is suggested
that in respect of Capital Gain/Loss arising on investments made in such assets
up to 31-3-2011, the present treatment of exemption should continue and
appropriate provision in that respect should be made in the DTC. This will
effectively continue the present position of total exemption with regard to old
Investments and that will also obviate huge transactions in the capital market
before the commencement of the DTC with a view to claim exemption before that
date and/or to increase cost for future. Such large-scale sales in the stock markets
will have a destabilising effect which ought to be avoided.

 

It is also
noticed that in case of such Equity Shares or Specified Units, there is no
provision for option to substitute cost of acquisition by fair market value as
on 1-4-2000. There is no reason not to make such provision as in the case of
other capital assets. Therefore, alternatively, option to substitute the cost
of acquisition by fair market value as on 1-4-2000 should be provided to the
taxpayer.

 

5.3 In the RDP,
it is also proposed that in case of such loss, the same also will be scaled
down in the similar manner. It is totally unfair to scale down such long-term
loss in the similar manner as in the case of such capital gain. The deduction
at the prescribed percentage is necessary while computing gains as a large
portion of such gain may be on account of inflation. However, if the assessee
suffers a loss in such investments, then he will be hit twice, firstly on
account of financial loss and secondly, on account of scaling down of loss for
the purpose of taxation.

 

In view of the
above, it is suggested that in case of such long-term capital loss, the same
should not be scaled down as proposed, but provision should be made to enhance
the cost of acquisition by making appropriate indexation provision.

 

5.4 It is also
proposed not to introduce any Capital Gain Savings Scheme under the DTC. This
is totally unfair and unjust. The assessee must have an opportunity to claim
exemption from the long-term capital gain by making investment in such scheme,
which may be framed on lines of present S. 54EC of the I.T. Act with one
change, that is, there should not be any limit on the amount of investment
which can be made in the scheme. Till the year 2007, there was no limit for
such investments under the I.T. Act. In fact, the amount available out of such
investments can be used for the purpose of meeting the requirements of funds
for various infrastructure projects.

 

Therefore, it is
suggested that appropriate provision for the Capital Gain Savings Scheme on the
lines of present S. 54EC (without any ceiling on the amount of investment)
should be introduced in the DTC.

 

5.5 In the RDP,
it is proposed that the Securities Transaction Tax (STT) will be calibrated
based on the revised taxation regime for capital gain as the STT is a tax on
specified transactions and not on income. This is totally unfair. The STT was
introduced by the Finance (No. 2) Act, 2004 and that was effectively in
consideration for the exemption granted to long-term capital gain and providing
concessional rate of tax for short-term capital gain in such cases at that
time. This is evident from the speech of the Hon. Finance Minister made at that
time while introducing the relevant Finance Bill, in which he has stated as
under (at para 111 of his speech) :

 

“Capital gains
tax is another vexed issue. When applied to capital market transactions, the
issue becomes more complex. Questions have been raised about the definitions of
long-term and short-term, and the differential tax treatment meted to the two
kinds of gains. There are no easy answers, but I have decided to make a
beginning by revamping taxes on securities transactions. Our founding fathers
had wisely included Entry 90 in the Union List in the Seventh Schedule of the
Constitution of India. Taking a cue from that Entry, I propose to abolish the
tax on long-term capital gains from securities transactions altogether.
Instead, I propose to levy a small tax on transactions in securities on stock
exchanges. . . . . . . ”

 

In view of the
reintroduction of tax on such capital gain, the STT should be abolished as the
basis on which it was introduced would no longer exist.

 

6.         Chapter VI — Taxation of Non-Profit
Organisations :

 

6.1 The law
relating to exemption of charitable and religious trust has now got fairly well
settled. It is, therefore, suggested that the existing basic scheme of
exemption of charitable and religious trusts contained in S. 11 to S. 13 of the
Income-tax Act, 1961, should be continued in the DTC.

 

6.2 The revised
discussion paper on the Direct Taxes Code (DTC) deals with public religious
institutions in para 3(b). If the trust/institution is wholly for public
religious purposes, it will be exempt subject to conditions (A) to (H)
mentioned therein. Sub-paragraph (c) also envisages exemption for partly
religious and partly charitable institution for which conditions are specified
as follows :

 

6.2.1 the
predetermined ratio between charitable and religious activities required to be
set out in the Trust Deed/Memorandum should not pose much difficulty for
societies or S. 25 companies, which can carry out the amendment through a
resolution. However, for trusts, the procedure for amending a trust deed
involves a long-drawn court procedure, taking more than 6 months. It is,
therefore, suggested that in case of trusts set up prior to 1-4-2011, the
predetermined ratio need not be set out in the trust deed, but can be
determined in a resolution of the Board of Trustees passed within one year of
commencement of the Direct Taxes Code.

 

6.2.2 The
requirement of separate books of account to be maintained for religious and
charitable activities will be too cumbersome, as most of the religious trusts
may be having limited resources. Further, the common expenses will have to be
split up between the two sets of books where there may be difference of opinion
by the AO. Hence it is better to have one set of books of account and financial
statements with separate ledger accounts for religious and charitable expenses.
If necessary, a requirement of additional statement of Income & Expenditure
Account in respect of charitable activities may be prescribed for such trusts.

 

6.3 Accumulation
for 3 years is not sufficient. A period of at least 5 years should be allowed
for accumulation. A trust wanting to fund a major project may not be in a
position to do so in 3 years. Further, the restriction on the amount of
accumulation would defeat the very purpose of accumulating funds for large
projects. There should be no limit on the amount of accumulation.

 

6.4 Permitting
only cash system of accounting on the ground of simplicity and easy
administration is not justified, as the mercantile system being followed by the
trust is not difficult, and trusts are used to the said system. The mercantile
system is the more accurate method of accounting whereas the cash system may
not show the true and correct position of the trust by deferring the income or
expenses. The concept of real income for NPOs is well settled and should not be
disturbed with an artificial concept of income. Both cash and mercantile
methods of accounting should be permitted for NPOs.

 

6.5 Only
specified outgoings are allowed as deduction. Therefore several outgoings may
not be allowed as a deduction. All outgoings should be allowed as a deduction.

 

6.6 Taxation of
NPOs on the net worth is extremely harsh and may result in double or even
triple taxation.

 

6.7 Trusts set
up prior to 1961 should continue to be treated as NPOs, even if they are for
the benefit of a particular caste.

 

6.8 There should
be provision for setting off deficit of one year against the income of
subsequent year(s).

 

6.9 Capital
gains on transfer of investment assets, being financial assets, are to be
computed under the head ‘Capital Gains’, and will not be exempt. The present
position of S. 11(1A) for taxation of gains on such asset as income and
exemption of such income as spent for charitable or religious activities if
reinvested, should not be altered. The term ‘Financial Asset’ needs to be
clearly defined.

 

6.10 Loss of
exemption if any property of the value of exceeding Rs.1,000 is diverted to the
specified persons u/s.13(3), is too harsh. The limit should be raised to at
least Rs. 10,000.

 

6.11 Limit for
applying for registration should be extended to 6 months from the end of the
relevant financial year. There should be provision for condonation of delay in
filing application for registration in genuine cases.

 

6.12 Any surplus
resulting from activities in the nature of trade or commerce will result in
denial of exemption for a trust advancing objects of general public utility. If
such activity is meant to feed charitable objects, there is no reason to deny
exemption.

 

7.         Chapter VII — Special Economic Zones —
Taxation of Existing Units :

 

7.1       It 
is  laudable  that 
the  provision  for 
the extension of the profit-linked deduction (for the unexpired period)
to the existing SEZ units has been brought in the revised DTC proposal. This is
certainly a welcome change.

 

However, it is
suggested that for the purpose of development and growth of exports, the
incentives should be made available for newly set up SEZ units also.

 

8.         Chapter VIII — Concept of residence in
the case of a company incorporated outside India :

 

Introduction of
the provisions of Controlled Foreign Corporation :

 

8.1 The
provisions of Controlled Foreign Corporation (CFC) are proposed to be
introduced to avoid deferral of tax of the passive income earned by a foreign
company which is controlled directly or indirectly by a resident in India and
where such income is not distributed to the shareholders.

 

8.2 Presently,
barring two tax treaties (i.e., Singapore and Mauritius) the underlying tax
credit is not available to the Indian MNCs for the dividends received from the
foreign subsidiaries. Also, India does not have Participation Exemption Regime.

 

8.3 Introduction
of CFC provisions will reduce international competitiveness of Indian MNCs.
Moreover, when transfer pricing regime is in place and ‘Place of Effective
Management’ is being introduced, it is premature to introduce CFC provisions
and it can be deferred for the time being.

 

8.4 Therefore,
it is suggested that the introduction of the CFC provisions at this stage seems
untimely and premature. Time may not be ripe for introduction of such
provisions in India as the Indian MNCs are still in their nascent stage of
going outbound.

 

9.         Chapter IX — Double Taxation Avoidance
Agreement (DTAA) vis-à-vis Domestic Law :

 

DTAA
vis-à-vis Domestic Law :

 

9.1 The
discussion paper proposes that in case of conflict, the Domestic Law or the
DTAA whichever is more beneficial to the taxpayer shall apply. It is also
proposed that DTAA will not have preferential status over the domestic law in
the following circumstances :

 

(i)         When GAAR is invoked

(ii)        When CFC provisions are invoked

(iii)       When Branch Profit Tax is levied

 

9.2 A unilateral
amendment of this nature in the domestic tax law leading to an override of the
existing treaties should be avoided. We suggest that this proposal be applied
in respect of only new treaties signed after the introduction of DTC.

 

9.3 If domestic
law is to be applied over the treaty, it should be done through the process of
Mutual Agreement Procedure to enable the non-resident to avail tax credit in
the residence country.

 

10.  Chapter X — Wealth Tax :

 

10.1 For giving
effect to exempted productive assets from wealth tax, the current definition of
assets u/s.2(ea) of the Wealth-tax Act, 1957 should be adopted.

 

10.2 Exemption
with respect to any one house or part of a house or a plot of land should be
made available irrespective of the date of its acquisition and/or construction.
It should not be restricted to those acquired or constructed before the 1st day
of April, 2000 as is proposed in the Direct Tax Code.

 

11.       Chapter XI — General Anti Avoidance Rule
:

 

11.1 The
discussion paper clarifies that very arrangement for tax mitigation would not
be classified as an ‘impermissible avoidance arrangement’.

 

11.2 An
arrangement would have to satisfy any one of the following conditions to
qualify as an ‘impermissible avoidance arrangement’ :

 

(i)         It is not at arm’s length;

(ii)        It represents misuse or abuse of the
provisions of the DTC;

(iii)       It lacks commercial substance;

(iv)       It is carried out in a manner not
normally employed for bona fide business purposes.

 

11.3 GAAR
creates a high degree of subjectivity in the application of tax laws and unless
it is approached with extreme caution, it may lead to several unintended
consequences. GAAR provisions would continue to allow the tax authorities to
override the tax treaty provisions. GAAR provisions in its current form would
have an impact on several cross-border investments and M&A structures.

 

11.4 The
Proposed GAAR is so wide in its scope and has far-reaching implications that it
is going to affect ordinary, everyday business transactions. It will introduce
uncertainty in even normal business transactions. Though, the purpose of the
GAAR is to serve as a deterrent to impermissible tax avoidance/ evasion
transactions, but its introduction in the present form will have an adverse
impact on the business of the honest taxpayer. Therefore, in our view, it would
not be appropriate to introduce GAAR in its current form.

 

11.5 If at all,
GAAR provisions need to be introduced, we suggest as under :

 

11.5.1 At least,
GAAR provisions should apply only to international transactions and not to the
domestic transactions in any circumstances. Presently, the Department has
enough power to unearth domestic transactions of the resident taxpayer under
domestic law and take penal action.

 

11.5.2 A
threshold limit of substantially higher transaction value should be set for
which GAAR provisions could be applied.

 

11.5.3 Whenever
the question involved is of determining the beneficial owner, the GAAR
provisions should provide that the treaty of the country of the beneficial
owner so determined would apply. This is with a view to clarify that the treaty
benefits would not be denied totally.

 

11.5.4 The Code
should provide for establishment of a GAAR Authority similar to the Authority
of Advance Rulings, comprising experts to invoke these Rules and deal with the
consequences under the Rules. A process such as that prescribed for the AAR
rulings must be prescribed for the administration of GAAR to achieve the stated
objectives of the Code: reduction of litigation, transparency, fairness of
administration of tax, certainty and voluntary compliance.

 

11.5.5 The
factor of ‘transaction not at an arms length’ is already addressed by the
Transfer Pricing provisions and hence should be deleted vis-à-vis GAAR
provisions.

 

11.5.6 The term
‘commercial substance’ should be objectively defined to specifically mean as a
transaction which is backed by a reasonably strong commercial reason.

 

11.5.7 The
factor of ‘misuse or abuse of the provisions of the DTC’ and the term ‘bona
fide business purpose’ is subjective and should be deleted.

Another writ petition filed against foreign law firms and LPO

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Keeping in tune with the weather, the heat on practice of law
by foreign advocates in India has just been turned up. Petitioner A. K. Balaji,
a practising advocate of Tamil Nadu (‘Petitioner’), has filed a writ petition in
High Court of Madras (‘High Court’) alleging non-action on part of various
government bodies. The petitioner has claimed that numerous foreign law firms
are allegedly violating provisions of Indian Advocates Act, 1961 (‘Advocates
Act’) by providing legal services in India.

The petitioner has filed a writ petition against Bar Council
of India, Government of India, a business-process outsourcing firm and several
well-known foreign law firms (‘Respondents’) alleging violation of the Advocates
Act, Immigration laws and the Income-tax Act, 1961.

The petitioner has claimed that the interpretation of the
Advocates Act is to allow only an ‘Advocate’ registered under the Advocates Act
to practise law anywhere in India. As such the Advocates Act allows a foreign
citizen to practise law in India only if the person possesses necessary
educational qualification and the country of citizenship allows Indian citizens
to practise law in their country on a reciprocal basis. In absence of a
reciprocal arrangement, Indians are not allowed to practise law in most
jurisdictions without taking further set of educational courses and other tests,
such as QLTT in case of UK or the state bar examination in case of the US. No
such requirement of taking a qualifying examination or programme, apart from a
qualifying legal education, is necessary for enrolling as an ‘Advocate’ under
the Advocates Act.

The petitioner has made various government bodies such as
Income-tax Department, Ministries of Finance and Law, and other immigration
offices responsible for not taking cognizance of the alleged violation of
various laws by the respondents. The petitioner claims to have made a
representation in the past to these agencies, and due to lack of responsiveness,
has filed a writ petition with the High Court under Article 226 of the
Constitution of India against the government and its agencies to take
further action in this respect.

(Source : nda@ndalaw.com, dated 23-3-2010)

 

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JD(S) chief defends tainted netas

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Former Karnataka Chief Minister and JD(S) chief H. D.
Kumaraswamy brazenly stated that he saw nothing wrong in fielding criminal
candidates for elections if they looked ‘winnable’.

Kumaraswamy said his criterion for handing tickets to
criminals was simple : he should have the support of party workers and people,
and be able to win. Asked whether it was right to bring criminals into politics,
he asked, “What’s wrong ? It’s a chance to reform them. If they change, isn’t it
better for society ? Moreover, if people want a criminal to contest, how can we
reject him only because of his
background ? There are so many politicians with clean image but engaged in
anti-social activities. Why aren’t such white-collar criminals ever questioned
?’’ Kumaraswamy asked.

(Source : The Times of India, dated 23-3-2010)

(Note : What kind of public welfare programmes and policies
these criminals, when elected, will frame ? What happens if they hold a cabinet
berth ? And, what happens if they become CM or PM ? Can you expect any
political, social, judicial or educational reforms from such criminal elements
?)

 

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New foreign asset disclosure rules enacted

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On March 18, 2010, President Obama signed H.R. 2847, the
Hiring Incentives to Restore Employment (HIRE) Act, into law. There are a number
of international tax provisions in the Act.

One of the provisions is new Code § 6038D. This section,
titled ‘Information with Respect to Foreign Financial Assets,’ is effective for
taxable years beginning after March 18, 2010 (2011 for calendar year taxpayers).

Code § 6038D applies to individuals who hold one or more
interests in ‘specified foreign financial assets,’ if the aggregate value of all
such assets exceeds $ 50,000. If the section applies, the individual must attach
to his/her tax return for that year certain basic information about the foreign
financial assets. The rule also applies to domestic entities formed or availed
of to hold specified foreign financial assets.

The penalty for failure to disclose is the (standard) $
10,000 with a reasonable cause exception. The penalty can increase where the
taxpayer has been notified of the failure to file and the taxpayer continues to
not file.

(Source : intltax.typepad.com/intltax, dated 18-3-2010)

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Operations of foreign accounting firms — India would want full reciprocity

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Turning the table on the Big Four audit firms about their
India plans, Corporate Affairs Minister Salman Khurshid has asked them to spell
out unambiguously if they intend to start full-fledged operations in India, and
be fully accountable for their operations in the country if permits are given.
Also, India would want full reciprocity —that is, permission for Indian
accounting firms to carry out full-fledged operations, with the same level of
freedom, in the Big Four’s home countries.

The Minister said that these audit firms — KPMG, Deloitte
Touche Tohmatsu, Ernst & Young and PricewaterhouseCoopers — haven’t stated
clearly enough how they would roll out their operations in India.

President of the Institute of Chartered Accountants of India
Amarjit Chopra echoed the Minister’s views, stating that though foreign firms
are very keen to carry out full-time practice in India they shy away from taking
any responsibility. “Foreign audit firms are doing surrogate practice in India.
They want to practice here, but do not want to take any responsibility. That’s
astonishing,” he said. Chopra added even ICAI would look at ways to tighten the
auditing practice in India in the coming months.

(Source : www.indianexpress.com, dated 19-3-2010)

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Ancestral property cannot be gifted away, says Bombay HC

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No part of an ancestral family property can be ‘gifted’ away,
the Bombay High Court has held in a significant order while resolving the
dispute over a 69-year-old gift deed. Justice C. L. Pangarkar declared as void
the document dating back to 1941, which said that Miraj resident Mallapa had
gifted a portion of his ancestral property to his second wife Chandrabai ‘out of
love’.

Referring to Hindu laws, Justice Pangarkar held that the
‘coparcener’ or co-heir had no power to gift a joint family property, unless he
is the sole surviving legal heir.

Justice Pangarkar pointed out that as per Mitakshara, a
person can gift a portion of the family property only during certain
eventualities — “during distress for the sake of the family and especially for
pious purposes’’.

(Source : The Times of India, dated 18-3-2010)

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Include CAs in CBI teams on corporate scam probes

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The CA institute is keen on having a role in the probes
undertaken by the Central Bureau of Investigation (CBI) or Serious Frauds
Investigation Office (SFIO) on any financial irregularities or corporate scams.
“We want an ICAI representative to be included in their (CBI or SFIO) team
whenever they go to any State. A chartered accountant would come in handy in
tracking the money flows in any such scams,” Mr. Chopra said. The decision to
approach the Government for this purpose was taken at a specially convened
meeting of the ICAI Central Council here.


(Source : The Hindu Business Line, dated 14-3-2010)

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Hyundai’s Chung told to pay $ 60 mn

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Hyundai Motor Co. Chairman Chung Mong Koo was ordered to pay
70 billion won ($ 60 million) to the carmaker following his 2008 conviction for
breach of duty.

The Seoul Central District Court also today ordered Kim Dong
Jin, the carmaker’s former vice-chairman, to pay 55 billion won to the company,
court spokesman Kim Seong Soo said by phone.

Solidarity for Economic Reform, which led shareholders suing
for damages, said it would appeal to a higher court to seek more money. Chung,
71, was found guilty of embezzlement and breach of duty in 2008 and given a
three-year suspended jail sentence before being pardoned by South Korean
President Lee Myung Bak. “We welcome the court’s ruling that management had a
clear responsibility in this case,” Kim Hong Kil, a researcher at Solidarity for
Economic Reform. The group had asked the court to force Chung and Kim to pay
563.1 billion won to the automaker.

(Source : Business Standard, dated 9-2-2010)

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IIM-A grads look for money and more

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The lure of high salaries is back on IIM campuses this
placement season, but students aren’t getting swayed. They’re looking for job
offers that give them a work-life balance.

Students at the country’s premier management institute, the
Indian Institute of Management Ahmedabad (IIM-A), have moved up many notches on
the hierarchy of needs. The bulge of pay packets isn’t the only thing that
entices them in selecting an employer.

“There seems to be an increasing awareness about work-life
balance in Generation Y. Their outlook on life is far different from the
youngsters of the 1980-90 generation. The general perception that youngsters in
age group of 20-25 years offer to work for longer hours is fast changing,” he
says.

(Source : The Economic Times, dated 24-2-2010)

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49 lakh I-T refunds pending : Govt.

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The government today said around 49 lakh cases of income-tax
refunds are pending with the Revenue Department. The statutory time limit to
process the return and issue refund in financial year 2009-10 is March, 31,
2011,” Minister of State for Finance S. S. Palanimanickam informed the Rajya
Sabha in a written reply. Guidelines have been issued by the CBDT to process all
returns and issue refunds expeditiously.


(Source : Business Standard, dated 9-3-2010)

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Idle chitchat can leave you miserable — Indulging in deep and meaningful conversations makes people happier

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Those idle chats at the coffee machine about the weather or
last night’s TV may seem perfectly harmless. But don’t be so sure. Indulging in
chitchat, gossip and small talk can leave you feeling miserable, scientists
claim. According to psychologists from the University of Arizona in the US, a
person’s well-being is directly related to indulging less in small trivial talks
and more in deep and meaningful conversations. “Profound conversations have the
potential to make people happier. The findings suggest that a happy life is
social and conversationally deep, rather than solitary and superficial,”
co-author Matthias Mehl said.

The other, less surprising, finding was that happy people
tend to spend less time alone. The happiest participants spent 25% less time
alone and 70% more time talking than the unhappiest.

(Source : The Times of India, dated 8-3-2010)

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IFRS convergence : CBDT to start talks with CA institute

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The Central Board of Direct Taxes (CBDT) plans to intensify
discussions with the ICAI to examine the direct tax issues arising out of the
proposed convergence of the Indian Generally Accepted Accounting Principles (GAAP)
with the IFRS. “We have not addressed the issue of IFRS so far. But we intend to
do that and talks will begin in right earnest in this regard with the Institute
of Chartered Accountants of India (ICAI),” Mr. S. S. N. Moorthy, Chairman of the
Central Board of Direct Taxes (CBDT), told Business Line here. The convergence
with IFRS is expected to happen in three phases beginning April 1, 2011.

The draft Direct Taxes Code, in the present form, is very
averse to IFRS and does not recognise fair value measurements or the concept of
present values for taxation purposes. It could however benefit Indian companies
with international presence or even multinationals here as they would be able to
support their transfer pricing claims in a better manner through the common IFRS
platform now available in many countries. Another important issue is that IFRS-based
financial statements are consolidated financial statements and there is concept
of group tax. But in India, there is no concept of group tax and the Indian
Income-tax Department looks at each entity separately. Meanwhile, ICAI
Vice-President, Mr. G. Ramaswamy, said that the CA institute had recently set up
a joint study group comprising CBDT and Income-tax Department officials and that
the discussions are expected to intensify in coming days.

(Source : The Hindu Business Line Newspaper, dated 5-3-2010)

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India v. China — The roads not taken

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China stimulated its economy with a huge burst of capital
investments while India chose to spend more on salaries and subsidies. The
numbers speak for themselves. In 2009, the Chinese government built or renovated
35 airports, threw open 4,640 km of highways, laid out 5,200 km of new rail
lines, upgraded 264,000 km of power lines and renovated 800,000 buildings for
good measure.

India continues to nurture a massive revenue deficit while it
cuts essential capex.

(Source : Quick Edit in Mint, dated 9-3-2010)

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Coaching classes to hire CAs

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At Ahmedabad-based Fountainhead, a little-known coaching
academy for chartered accountants, February 20 was a day of celebration. The
two-year-old chartered accountants’ training institute was playing host to a
recruiting team from global consulting firm Ernst & Young (E&Y), rated among the
world’s top four. It got 11 of its students placed with the consulting firm.

Corporates, including international audit and consulting
firms like E&Y, KPMG and PWC, are looking beyond placement through apex
professional body Institute of Chartered Accountants of India (ICAI) and
directly approaching training institutes in smaller cities to save on costs and
meet the growing requirement for CAs in a recovering economy.

E&Y and PWC have been visiting coaching classes in Jaipur,
Indore and Chandigarh for the past two years. Ahmedabad is the latest addition
in their hiring itinerary. Jaipur, India’s largest centre for CA training,
contributes 10-12% of the total number of chartered accountants every year.

Costs play a huge role in companies going directly to
training academies. ICAI, which plays a facilitator in recruitments, invites
companies and charges them around Rs.1.5 lakh.

With economic growth slated to reach 8%-plus levels this
year, the demand for chartered accountants is expected to see a 50% rise. ICAI
hopes to place 3,000 CAs, up from 2,000 graduates last year.

(Source : The Economic Times, dated 5-3-2010)

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Over 30,000 cases in ITAT pending, 77% filed by taxmen

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Over 30,000 tax litigations
are pending in the Income-tax Appellate Tribunals across the country, though
most of these appeals are filed by the tax department and not the assessees,
Minister of State for Finance S. S. Palanimanickam said in the Lok Sabha today.


(Source : The Times of India, dated 9-12-2009)

(Compiler’s Note : This is due to repetitive appeals
routinely filed by the department without application of mind and nobody is held
accountable. The ITAT is not able to dispose of the appeals due to frequent
adjournments sought by the DRs.)

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Soon, stamp registration offices will be open till 9 p.m.

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Offices of the
sub-registrars of the stamp and registration department will be more
people-friendly now. Many offices in Mumbai, Thane and Pune will be relocated
and operate in two shifts from 7 a.m. to 9 p.m. Besides, 29 new offices will be
opened in the three cities, for which the stamps and registration department is
buying properties.

The number of documents
which come for registration has increased. As a result, 29 new posts of
sub-registrars and 116 staffers have been created. Officials said the department
had purchased 1,01,185 sq.ft. of office space in Mumbai, Thane and Pune, worth
Rs.108 crore.

(Source : The Times of India, dated 25-2-2010)

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Some thoughts on working late

LIGHT ELEMENTS

The President of the Society had in his column in the March
2010 issue of the BCA Journal, brought the attention of readers to some of the
rare qualities of CA Aditya Puri (the Managing Director of HDFC Bank who had
recently won a prestigious award), particularly his time management skills which
help him to leave his office every day at 5.30 p.m. The President had requested
readers to apply their thought on that aspect, considering the fact that
Chartered Accountants — both in practice and in employment — are generally prone
to working late. Taking the cue, the author tries in a lighter vein to analyse
the culture of working late which has now spread to almost all sectors of
commercial activity in the country.

Globalisation has brought many things to India, and working
late is one among them. Not that we Indians are not used to late working hours.
We do work late when need arises. What is new is the culture of regularly and
compulsively working into the late hours of night. Those working in today’s
so-called sunrise sectors are always seen working well past sunset. For them
apparently the sun only rises, it never sets.

Some are sceptical — and sometimes even a bit suspicious — of
people working late. Probably they carry such thoughts out of their past
experiences. When there are different views on the virtues and weaknesses (not
necessarily vices !) of working late, it will be good examining the different
aspects of late working.

The common impression that a person working late — or an
organisation that encourages employees working late — conveys is that they are
so busy and overloaded with work that they cannot complete their work without
putting in longer hours. But on closer scrutiny one often finds that this is not
true. Organisations which follow the modern (read American) management-style
employ less people than what is required, so that they can pay higher
remuneration to employees without increasing their total wage bill. As a result,
their limited number of employees are forced to slog it out. It is with this
aspect in mind that management schools train their students to study and work in
sleep-deprived environment without losing their senses. Most business
enterprises are not bothered by studies that show that deprivation of sleep
adversely affects the productivity of employees.

Even in the modern business organisation where the office is
always open late into the night, and all employees are present, it is
questionable whether everyone is actually working. When employees working in
frontline IT companies say that everyday they work from 8 a.m. to 11 p.m. and so
on, one is naturally a bit curious. If one asks an employee, in confidence, what
exactly is the work that is done late into the night one can expect a reply
somewhat like this : “I actually work for 3 or 4 hours maximum. The rest of the
time I am awaiting my senior’s instruction to start working with him. My senior
is always doing something unrelated to work, and mostly roaming around.
Everyday, right from morning, I ask him at intervals of a couple of hours ‘Shall
we start ?’, but every time he replies, ‘No, wait’. Finally, by 8 p.m. or so, he
asks me to join him, and we start working. No wonder we will reach somewhere
only by 11 p.m.” This is found to be the case with many people working in the
so-called emerging businesses. The blogs of employees in the Internet too
confirm this.

Even if it is not the policy of an organisation to make every
employee regularly work overtime, employees do sit up late for different
reasons. The obvious reason is to impress the bosses. But there are less obvious
reasons too.

For some habitual late workers — whether employed or
self-employed — their work-place is not their ‘second home’ but ‘first home’
itself. These unfortunate guys do not get peace of mind in their homes for some
reason, and so they remain in offices as long as possible to minimise time spent
at home. What they do at their offices in the after-hours is anyone’s guess —
chatting with friends on or off phone or net, partying (with or without booze),
reading and sending out unnecessary emails, browsing the net or taking a nap. If
possible, they encourage lot of visitors to their offices after office-hours,
thus converting the office into some kind of a club. Some carry the idea of
‘home’ to such an extent that they actually have a bed too in their offices. In
such cases, the public cannot be blamed for suspecting something.

The accounting profession is famous for continuing to work
after everyone else has gone home. But accountants working late are sometimes
viewed with suspicion too. There is the story of a chief accountant in an
organisation who was working well past midnight everyday. The accounts were,
however, very much in arrears. The late sitting was also justification for the
accountant to come late — by late afternoon — everyday. He thus reached the
office when everyone was preparing to leave, and he was working all alone
(presumably) all through night. When there was a change of management, he was
told to follow regular working hours, and an inquiry was made into the accounts
being maintained by him. As skeletons started falling from every cupboard, the
chief accountant was fired.

To be fair to those working late, all of them must not be
equated with the accountant in the above story. Not everyone is doing illegal or
unnecessary things — or entertaining themselves — while burning midnight oil.
One of the reasons is that not everyone is competent enough to handle different
types of work during normal working hours. Many bank managers, for instance,
cannot gather the mental concentration required to scrutinise loan applications
or monitor their non-performing parties during normal hours when they are
attending to customers. They therefore sit up late to do those jobs. Such
employees deserve sympathy, not scorn.

Some others overburden themselves, as they do not delegate
work. For many in this category, the problem is that they do not trust any of
their subordinates. For some others, it is a way of making themselves
indispensable. They follow the age old maxim : ‘Keep things pending, so that the
pending will keep you’.

At the other extreme there are those who do not trust themselves but trust their juniors completely. They delegate all their work and go about doing practically nothing. They will, nevertheless, be present in office until everyone leaves so that their enviable style of working will always remain a best kept secret. How do they kill their abundantly surplus time?? They devise all sorts of ingenious methods. Presiding over or participating in endless meetings is a time-tested trick. Meetings are now referred to as training sessions, presentations, seminars, workshops and so on. Whatever the nomenclature, they serve the purpose of the wandering late worker by consuming his surplus time. The worst part of these workshops is that they take away a lot of time of the productive employees too. Sometimes, to keep the subordinates engaged, the inefficient senior makes them do dummy projects without saying so, or ask them to submit several lengthy reports on work already done.

In today’s IT-enabled environment, working late within one’s office is not always necessary. For the Chief Executive and other senior executives, there is no such thing as ‘working hours’ as they have to be available on call on a 24/7 basis. In the case of the lower-rung executive too, he can work from home or anywhere else — while on the move too. Even team assignments can now be carried out by persons sitting at different places. That being the environment now, regularly working late in one’s seat in office has become practically unnecessary. Not surprisingly, a few organisations have started discouraging late working — disabling computer servers, ordering closure of offices and switching off of mains at a specific time to push out die-hard late sitters.

Having thought of some of the aspects of late working one can only warn both individuals who work late, and organisations that encourage employees working late, to determine whether the late working is really necessary, productive and economical. If it is not, then trying to merely create an image through late working will not be rewarding in the long run.

Simplification of Tax Laws and the Lion’s Den

Light Elements

Once upon a time, the Indian Finance Minister lost his way
and found himself in a dense jungle just before presenting the union budget in
parliament. Perhaps, while mulling over how to boost tax collection, one way or
the other, he lost his way. Anyway, he kept strolling through the jungle,
holding the draft finance Bill and New Tax Code in his arms. Suddenly he
realized somebody was following him. He looked back over his shoulder. Oh, it
was a jackal– the most cunning animal of the jungle; the protagonist of most
Aesop’s fables we’ve heard during our childhood. Both the minister and the
jackal stopped short of each other. It was the jackal who broke the silence,
leading the conversation. “Hey! Hello Finmin, how are you?” “Fine”, answered the
Finmin with a heavy tone.

After swapping information as to the general state of affairs
in their respective personal lives (I mean—how are you? how is your health? How
is your family?, etc, the jackal fired an impromptu salvo which made the Finmin
shudder. “How is the economy?”he asked. “Oh, better than other developing
countries,” mumbled the Finmin. “But not up to the mark?” questioned the jackal.
“You know there is recession in the world and we are not an exception,” retorted
the Finmin, looking at the ground (rather ground realities maybe). “I heard the
prices of essential goods such as food grains and vegetables are on the rise
with every passing day, after your party assumed power at the centre, making the
aam aadmi’s life miserable,” was the next salvo fired by the jackal.

The Finmin shifted awkwardly in a clumsy attempt to avoid the
jackal’s penetrating eyes. He seemed to be struggling to find a convincing
enough answer. Looking at him fumbling, the jackal promptly changed the subject
and started discussing other matters like growing terrorism, global warming,
decline in population of wild animals, population explosion, falling moral
standards, etc. Having exhausted all topics of mutual interest, it was the
jackal’s turn to fidget. So he decided to march onwards on his original mission
to meet the King of the jungle. “So it was nice seeing you Finmin. Take care of
the economy and have a nice budget session in parliament. It’s time for me to
leave now,” said the jackal. As he walked ahead, he heard the Finmin call out, “Jackalbhai,
jackalbhai, just a moment”. So he retraced his steps hurriedly. “What’s the
matter, Finmin?”, he asked. “Actually, me and my predecessors have been obsessed
with one issue,” said the Finmin. “What is it?”, asked the jackal. “How to boost
tax collection,” finally the Finmin blurted out.

“Oh, a most interesting issue. Once upon a time, the king of
our jungle, I mean, the Lion, was facing a similar kind of problem. One day, I
called on the king in his den located at a high altitude, at his request.
Somehow I managed to get there after several bruises on my body. I fumbled a
number of times on the rocks on the way to the den. It was quite a bumpy path to
tread. When I climbed half way, I even thought of postponing the visit to some
other day and as soon as I turned back, I heard the Lion roar. I climbed back. I
felt like riding on the high tide when eventually I reached the den. The king
asked me to enter his den. It was difficult entering the den and the den wasn’t
big enough to accommodate more than two or three persons. Well, the king
narrated his problem. He had become old and he was starving. Old age meant he
could not hunt as frequently as he used to earlier. Not a single animal, big or
small, had appeared in his area since quite some time. He asked me how to get to
the prey.

I thought for a while and then came up with the solution,
which was based on my own experience of reaching the den. I first told the king
that he should change the location of his den, making it neither too high nor
too low. I meant his den should be located ideally so that he could keep a watch
on possible prey without being seen. Around the den, there should be sufficient
flat land on which grass can grow. The opening of the den should be wide enough
plus it should be sufficiently deep inside so that if an animal enters
reluctantly, the king can capture him effortlessly.

I explained to the king the reasoning behind this arrangement
of the den. If the den was located at a reasonable height from the ground, one
might be tempted to venture there. Green grass, being a favorite fodder for
small animals, it would attract them into his den.

He understood my strategy, “simple and easy access with some
attraction keeping the prey engaged for a while so that he could attack the prey
easily”. The king thanked me from the bottom of his heart. Thereafter, he
changed the location of his den as suggested by me and started living retired
life comfortably.

“So Finmin, the moral of the story is that you should evolve
simple tax compliance procedures, particularly about tax collection matters.
Your existing procedures are like the erstwhile den of the king. So, you have
been starving for tax collection…”

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Recent Developments in Direct Taxation

Lecture MeetingDate
: 14th July, 2010


Venue : IMC Hall, Churchgate, Mumbai


Speaker : Pinakin D. Desai, Chartered Accountant


Subject :
Recent Developments in
Direct Taxation




1. After a brief
introduction of the topic for the evening, the learned speaker took up for
discussion the Source Rule. The amendment by the Finance Act, 2010 had widened
the source rule for interest, royalty and fees for technical services. As a
result, in case if technical services are rendered by a Non-Resident (NR) in
India, then even if the NR does not have a residence/place of business/business
connection in India or the NR has not rendered services in India, still a case
could be made out that the non-resident will be chargeable to tax in India.

The learned speaker explained the decision of Ishikawa
Jima Harima Heavy Industries Ltd. v. CIT,
(288 ITR 408) (SC) which had laid
down the theory of Territorial Nexus for taxing the income of a non-resident in
India. The learned speaker was of the view that the retrospective amendment by
the Finance Act was made with a view to overrule the said decision as well as
the ratio of :




  •   Jindal Thermal Power Co. Ltd. (Kar.) (225 CTR 220)



  •   Clifford Chance v. DCIT, (Bom.) (221 CTR 1)



Subsequent to the amendment, the Mumbai Tribunal in the case
of Ashapura Minichem Ltd. (2010) (5 Taxman 57) made a distinction between
rendering of service in India and provision of service in India, viz.,
provision of service in India does not require that the service must be
performed or rendered in India. The speaker observed that in the context of
territorial nexus the rendition and provision of service should have been
regarded synonymous conditions. However, since this aspect was not addressed by
the Tribunal, the controversy in regard to whether or not the test of Ishikawa
is satisfied in case of a NR performing service from outside India remains open.

In the opinion of the speaker the following situations would
not be affected by amendment :




  •   Absence of Article on Fees for Technical Services (FTS) in DTAA



  •   DTAA on restrictive fees for included services (FIS) concept



  •   Cases protected by Independent Personal Services Article



  •   Interest/royalty/FTS paid for business/source of income outside India
    [Domestic Source Rule exception — in S. 9(1)(vi)(b)]



2. The next development discussed was the taxability of
shares received by non-corporates. S. 56 was amended w.e.f. 1st June 2010 to
hold that in case of a partnership firm or a closely-held company, if there is
receipt of shares of a closely-held company, without consideration or for a
consideration less than the fair market value (FMV), then such shares would be
liable to tax in the hands of the recipient if the difference between the FMV
and the consideration exceeds Rs.50,000.

As per the explanatory memorandum, the purpose of this
provision was to capture the clandestine transactions in the transfer of
property through the medium of shares. The speaker felt that this intent may not
be appreciated by lower judicial forums and that could result in problems in
respect of genuine transactions.

According to the learned speaker the amendment would not
apply to the following assets :




  •   Mutual fund units



  •   Convertible or non convertible debt instrument



  •   Coupon/warrants



Areas of concern would be receipt of bonus shares, rights
shares, receipt of shares on amalgamation, conversion, split, etc.

3. The third amendment was the insertion of S. 47(xiiib). The
speaker was of the view that the following conditions specified may pose a
challenge for a smooth conversion of a company to an LLP :




  •   All shareholders of company to become partners in the LLP : This
    would mean that even the preference shareholders should become partners in
    the LLP. This might not be an acceptable criteria and some remedial action,
    such as redemption or conversion of preference shares to debt, might need to
    be undertaken.



  •   Shareholders not to receive any benefit except by way of profit share &
    capital contribution
    : The safest position would be to convert the
    accumulated profits to capital contribution and not to withdraw the same for
    3 years. Salary and interest could be continued to be paid as they are not
    payments on conversion to LLP.



  •   Sales/Turnover/Gross Receipts in business to not exceed Rs.60 lakhs in
    the first 3 years
    : It could be contended that if the company is not in
    business, i.e., it is not carrying on any business activity, this
    condition would not apply. If the company is in profession, this condition
    may still apply because business includes profession.



Another issue would be as regards the operation of S. 79. In
the opinion of the speaker, the term shareholding has been defined very
restrictively by courts and hence, conversion to LLP could constitute change in
shareholding and as a result the benefit of carry forward of losses may be lost.

The fourth issue was regarding losses in respect of transaction in derivatives. The learned speaker felt that the CBDT issued Instruction to Assessing Officers to disallow losses in respect of such transactions decision of the Apex Court in Woodward Governor India P. Ltd. (312 ITR 254]  Actual losses allowable only if the transactions qualify as ‘eligible derivative transactions’ under clause (d) of proviso to S. 43(5)  : There have been judicial decisions that if a derivative transaction, not covered by S. 43(5)(d), is a hedging transaction, then the onus is on the assessee to prove the same. However, once it has been proved, then the transaction has to be treated as a business transaction and not as a speculation transaction. Hence, this part of the instruction is also questionable.

  4.  The speaker then discussed various proposal mooted by the Direct tax code (DTC) the concept of place of effective management (POEM) proposed by the DTC. According to judicial forums POEM would be where the Board of Directors or Executive Directors make their decisions. In such a case a wholly-owned foreign subsidiary of an Indian company would have a POEM in India and therefore become resident.

The provision regarding Controlled Foreign Company (CFC) proposes to tax passive undistributed income of a CFC of a resident. In respect of the passive income earned by a Foreign Company (FCo) controlled directly or indirectly by an Indian resident, the DTC proposes that income not distributed shall be deemed to be dividend received from FCo.

As a result, there could be double taxation. The income of the CFC would be taxed once in the hands of the FCo on the basis of residential status and again, in the hands of the ICo on the basis of the CFC provisions.

General Anti-avoidance Rules (GAAR), gave immense powers to the Assessing Officer to disregard an arrangement that had been entered into by a taxpayer for the purpose of obtaining a tax benefit. According to the speaker, GAAR would apply to a transaction if while obtaining a tax benefit, the transaction fulfils any one of the following four conditions  :

  •     The arrangement not at arm’s length

  •     It represents misuse or abuse of the provisions of the Direct Tax Code

  •     Lacks commercial substance

  •     I sentered in a manner not normally employed for bona fide business purposes

The learned speaker then discussed the concerns regarding the implementation of GAAR provisions.

  5.  Finally, the following recent rulings were discussed by the learned speaker  :

  •     Vijaya Bank (SC) 320 ITR 577  :

Credit entry in debtor’s account not necessary to constitute ‘write-off’ for the purposes of bad debt write-off deduction u/s.36(1)(vii).

  •     Kelvinator of India (SC) (LB) 320 ITR 56  :

AO does not have power to ‘review’ his own order. S. 147 permits reassessment where there is ‘reason to believe’. Reassessment on change of opinion is review of order.

  •     Kanchanganga Sea Foods Ltd. (2010 TIOL 03 SC-Intl.)  :

S. 5(2) creates charge for NR Company, inter alia, in respect of income received in India. If first receipt in kind is in India, subsequent sale and realisation outside India does not impact taxation.

  •     Times Guarantee (Mum. SB) (ITA No. 4917 and 4918/Mum./2008)  :

Law as applicable on 1st day of relevant assessment year applies to carry forward and set-off of Unabsorbed Depreciation (UD). S. 32(2) was amended substantively from A.Y. 2002-03 and position applicable to A.Y. 1996-97 was restored. Such amendment is not applicable to UD of the period from A.Y. 1997-98 to A.Y. 2001-02.

ETHICAL PRACTICE IS A DELIBERATE EFFORT

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Namaskaar

“Like the sharp edge of a razor is that path difficult to
cross and hard to tread — thus the wise say”

(Kathopanishad)

Things around us do not auger well, not only for the human
mankind but also for all other living beings on this earth. There is rampant
corruption, greed, dishonesty and selfishness pervading our lives that we have
often forgotten of what it is to be ethical. I know not if these are the
characteristics of the so-called ‘Kaliyuga’, but suffice it to say that human
greed and dishonesty have broken all barriers and may be it is on account of
this that the quality of our lives both mentally and physically has waned.

In such an environment, there is a tendency to overlook
ethics, ethical practices and good values as all of us, or most of us, are in
the rat race. When one is approached and a topic of ethics is broached for
discussion, defences are built up to say that it is difficult to confront
negative tendencies in the environment. It is believed that it is easier to
behave like the masses, as that gets results rather than confronting the system.
This choice arises as individuals have the desire to stay away from difficulties
or that it creates a sense of insecurity.

To be ethical requires a great deal of determination. It has
to necessarily be both in thought and action. It has to be cultivated and
gradually nurtured to reach a stage of personal satisfaction and a character par
excellence. It is not a matter of recognition but it is a matter for deep
contemplation and personal satisfaction; a satisfaction for the soul. It is a
feeling beyond expression. To express is to lose the feeling of it, and it has
to be instantaneous without forethought. The terrain is a difficult one and
therefore requires constant endeavour, deliberate effort and sincerity in
approach. It is a path of dedication and requiring lot of sacrifices along the
way.

It is indeed not an easy task to expect any transformation
overnight. The ways of the world are tricky. But as Lord Gautama Buddha says
that to accept ethical living requires dispassionate reflection upon one’s
conduct. Such a one should develop positive skills and thinking so that human
mankind’s humane possibilities may be realised. If this is so, then this is
beyond monetary considerations, material comforts and mundane living. Can we
accept this challenge ? May be yes, but it requires building up tremendous
potential and grit of conviction for one to be there.

Public recognises money, recognises power and therefore
people tend to gravitate towards the wealthy and powerful. No attempt is made to
segregate the chaff from the grain. It is there for us to see as an everyday
phenomena and we bother not to worry about the methods or the means. We are awed
by their positions or with their possessions. On the other hand, we have no
respect for people who fall short of stature in public life. People who have
towed ethical lines may not have achieved anything in life, for obvious reasons,
but we tend to ignore them or praise their virtues for it is neither endowed
with riches or with positions in public life. Public life is replete with such
examples and requires no examples for substantiating it.

We are all aware that there are numerous examples in Mahatma
Gandhi’s life which are worthy of emulation. It was easy for him to live and
swear by those values, only because he had given up every material possession
and hence was beyond fear. When you have no fear of losing anything, you get the
liberty and freedom of behaving without causing harm to the living environment.
You can refuse and desist to actions beyond ethics. Therefore the bottom-line
for adopting ethical values stems from the thought of willing to lose and the
willingness to let go.

We cannot be lured by money, we cannot be lured by material
comforts and we are not going to be influenced by mass psychology. God has given
us the mind to think and therefore we think for the general good of mankind. We
shall desist to efforts which have the tendency of thwarting natural methods of
living. This then gives us the strength of acting and behaving without fear.

Let us not have a false sense of insecurity in our lives. Let
us live our lives fully without fear and this requires a constant endeavour of
living with values and virtues. Sacrifices are a must and we have to consciously
be aware to let go things that cannot be obtained or achieved through natural
means. Hence, ethical practice is by choice and deliberate efforts.


“Your only obligation in any lifetime is to be true to
yourself.”

— Richard Bach

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Consistency

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Namaskaar

What is consistency ? We know it, we realise it, we practise
it. As a matter of fact — we accountants practise it with a fetish. For
example :

  •  We
    seek ‘consistency’


  •  in accounting policies to make financial statements true and fair.


  •  in disclosure practices to make financial statements easily understandable and
    comparable.


  •  in the quality of food we eat. Restaurants which are consistent with the
    quality of food are patronised and successful.



  •  We
    seek consistency





  •   to improve the quality of service we render.



  •   in the improvement of the quality of services we receive.



  •   in satisfaction and happiness.



  •   to improve ourselves because without this continuous and consistent
    improvement we will either stagnate or more often than not deteriorate.



Law affirms ‘consistency’ despite ‘estoppel’. There are
innumerable court decisions affirming consistency.

Consistency in action and behaviour is thus what we
continuously practise. Sadguru Jaggi says we are a ‘joy factory’ and we must
continuously and with consistent practice improve the quality and quantity of
joy.

It has been rightly said that ‘consistency’ (repetition) in
action leads to ‘habit’ and habit builds character and character in human beings
is what we not only seek in our lives but also seek in others. Character is what
makes a man and a nation. Character is what Ram sought to build in people by
being an example — that is why he is named ‘Maryada Purushottam’. Character is
what Bhishmapitamaha advised Yudhishthir when he sought his advise on ‘how to be
a good ruler’. Character is what Gandhi sought to build in us Indians by
practising what he preached. I repeat, character is the product of
‘consistency’.

Above all, we seek success and it can be achieved by creating
a congenial and rewarding work environment. Hence, let us continuously and
consistently practise the concept ‘bloom wherever we are planted’.

Another ‘C’ we should consistently practise to make our lives
rewarding is ‘Compassion’. Let us never forget that there is a difference
between charity and compassion. ‘Compassion’ is an emotion — emotion of taking
care — care from the heart and without even seeking any form of acknowledgement.
The practice of this ‘C’ enriches our lives.

Though not relevant to the subject of this ‘C’ — I would like
to share a thought with you on the two ‘C’s one should always shun and
these are: ‘conceit’ and ‘cunning’. They are twin sisters and have
a disastrous influence on our lives. Let us not forget that wars have been
fought due to conceit — whether it is the Ram-Ravan fight, or The Mahabharat or
world wars. Families and business houses have been destroyed because of the
conceited and/or cunning behaviour of one individual. These are emotions from
which all of us suffer and the fullness of life is marred by them. So let us
with conviction and consistency shun them to make our life happy.

We have talked about four ‘C’s earlier — that is —
commitment, conviction, comparison and conditioning. I intend to close this ‘C’
series with ‘consistency’. I also believe that adopting any one of these five
‘C’s will automatically lead to the adoption of the other four ‘C’s. So let us
adopt and practise these ‘C’s to make our lives rewarding, successful and above
all, contended and happy.

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Non-resident tax updates: Non-residents can work on Indian projects only on employment visa; business visa norms to be tightened

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Non-resident tax updates: Non-residents can work on Indian projects only on
employment visa; business visa norms to be tightened


In the present liberalized economic environment, Indian
companies are awarding work for execution of projects/contracts to foreign
companies, including the Chinese. This has resulted in inflow of foreign
nationals, including the Chinese, for execution of projects/contracts in several
sectors e.g. steel, power etc. It has come to the notice of the government that
a large number of foreign nationals, including Chinese were coming for execution
of projects/contracts to India on business visas instead of employment visas.

The matter has, therefore, been reviewed by the government
and it has been decided that henceforth a business visa will be issued only to
bona fide foreign businessmen who want to visit India to establish an
industrial/business venture or to explore possibilities to set up an
industrial/business venture in India or who want to purchase/sell industrial or
commercial products or consumer durables, etc., according to provisions of the
official visa manual.

It has also been decided that all foreign nationals coming
for execution of projects/contracts to India, will have to come only on an
employment visa. And that such visa will be granted only to skilled and
qualified professionals appointed at a senior level, skilled position such as
technical expert, senior executive or in a managerial position, etc., and will
not be granted for jobs for which a large number of qualified Indians are
available. Suitable instructions/guidelines have been issued to the Indian
missions abroad to effectively regulate employment and business visa regimes and
ensure that these are issued strictly as per the prescribed norms.

As per the guidelines issued by the government, employment
visas for foreign personnel coming to India for execution of projects/ contracts
may be granted by Indian missions to highly skilled personnel and professionals,
to the extent of 1% of the total persons employed on the project and subject to
a maximum of 20. However, this has been raised to 1% or maximum of 40 for the
power and steel sector projects till June 2010. In case more foreign nationals
are required for any project, then a clearance from the Ministry of Labour &
Employment is required.

(Source: Internet & Media Reports, dated 04.01.2010)

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Introduction of the UTN, which tax payers need to quote along with PAN, shelved

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Introduction of the UTN, which tax payers need to quote along with PAN, shelved


The government has decided to shelve the introduction of the
Unique Transaction Number (UTN) which tax payers need to quote along with
Permanent Account Number (PAN), when tax is deducted/collected at source. The
scheme was to come into force from the New Year.

(Source:
Internet & Media Reports, dated 31.12.2009)


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Declaration of Assets by SC Judges under RTI Act -Supreme Court should accept verdict

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Declaration of Assets by SC Judges under RTI Act -Supreme Court should accept
verdict


The ruling by a three-member bench of the Delhi High Court is
truly historic. It upheld an earlier judgment of a single judge of the same
court, dismissing an appeal by the Supreme Court (SC) that the office of the
Chief Justice of India (CJI) comes within the ambit of the Right to Information
(RTI) Act. Doing so, the High Court has sent a clear message: No one is above
the law.

This is the most sacred principle in any democratic society
and it is heartening that the High Court sees no case as an exception. The prime
minister and the president are already covered by the RTI Act; so why not the
apex court judges? The ruling comes in a dispute over whether assets declared by
SC judges to the CJI should be disclosed under the RTI Act.

“The higher the judge is placed in the judicial hierarchy,
the greater the standard of accountability and the stricter the scrutiny of
accountability of such mechanism,” said the bench. We could not agree more.

(Source: The Economic Times, dated 14.01.2010)

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Late or dozing in court? Judges may be in dock

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Late or dozing in court? Judges may be in dock


Schoolchildren who resent being penalised for coming in late
or for falling asleep in the class can take heart. Hopefully, from the next
year, even the Supreme Court and High Court judges will be in serious trouble if
they come late to court or nod off during arguments. Indeed, they can face
inquiry and risk incurring punishment stretching from censure to removal.

These are among the high standards and accountability
criteria proposed for judges of the higher judiciary in the new Judicial
Standards and Accountability Bill, 2009, which, after undergoing 18 drafts, is
ready to go before the cabinet in a day or two, law ministry sources told TOI.
Courts have not been immune to the problem of lack of punctuality, seen by many
as a national trait because of its spread across regions, demographics and
institutions. The late “latifs” among SC and HC judges have so far got away
because of the absence of any mechanism to chastise these holders of
constitutional posts. The government now seems keen to wean them off their
fondness for Indian Standard Time — a euphemism used to describe the cultural
problem that sees punctuality as alien to desi ethos. 5-yr jail is likely for
bid to frame judge

The new Judicial Standards and Accountability Bill, 2009, a
brainchild of the law minister Veerappa Moily, and drafted and re-drafted with
assistance from the Attorney General G E Vahanvati and Solicitor General Gopal
Subramaniam, has a provision that will surely make the judges of the higher
judiciary sit up and take notice—”punctuality and devotion towards duty’’.

Anyone who finds a judge not punctual or not devoted to duty,
dozing off once too often during hearings or being habitually late in delivering
judgments, could lodge a complaint against that judge with an Oversight
Committee, specifically provided to receive such complaints.

The committee would thoroughly scrutinise the complaint and
its veracity. If the complaint was found to be false, the complainant would be
proceeded against and could end up behind bars for up to five years.

Apart from making voluntary asset declaration by judges,
according to the apex judiciary’s resolution of May 7, 1997 a statutory
requirement, the bill gives a wider meaning to assets and liabilities.

(Source: Internet & Media Reports, dated 12.01.2010)

(Note: What about similar accountability bill for our
law makers who are passing legislation without debate and discussion in the
Parliament? Why are they not made accountable?)

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Court backlog must be cut, but a cess isn’t the solution

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Court backlog must be cut, but a cess isn’t the solution


The law ministry is considering a cess to help clear the
three crore cases clogging the courts. Though the proposal is only at a
discussion stage, it must be nipped in the bud. We’ve already had an education
cess and it is unclear how much of this has reached the real beneficiaries and
if it has led to any perceptible improvement.

Obviously the ever-increasing pile-up of cases in our courts
is a major cause for concern. Of the three crore cases pending in the courts,
roughly 2.5 crore are in lower courts, 40 lakh in the high courts and around
52,000 in the Supreme Court. The backlog has not only paralysed delivery of
justice but also exacted a high economic cost. Finance minister Pranab Mukherjee
recently said that delays in the courtroom were having an adverse impact on the
country’s GDP. This is mainly because of the inordinately long time taken to
enforce a contract in India.

Among the other proposals include the filling up of vacancies
in courts quickly. It has been suggested that some 15,000 judges be appointed in
trial courts for a two-year term who will work in three shifts. There are other
proposals that could also be considered. Retired judges could be drafted to help
tackle the shortage of personnel; the long vacation for judges, a holdover from
colonial times, should be reduced; out-of-court settlements should be
encouraged; and there should be better pay for judges to attract the best talent
from among the legal profession. The Law Commission has also rightly suggested
that adjournments be resorted to only if absolutely necessary.

(Source: The Times of India, dated 30.12.2009)

(Note: The government is the biggest litigant. The
officials in all departments issue Show Cause Notices / Penalty Notices, even
for minor or technical infractions of law and file appeal against judicial
orders as a routine, without application of mind. There is no accountability on
the part of litigant officials. Litigation is used as a means to harass the
citizens and extract a price. The judiciary has commented upon this time and
again but to no avail. If frivolous litigation by the government stops, the
problem of backlogs would be sold substantially.)

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Corporate governance cannot be mandated: Irani

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Corporate governance cannot be mandated: Irani


Tata Sons Ltd Director Jamshed Irani has said that corporate
governance is a culture that cannot be mandated, but has to be built up
gradually with strong link between the board and the management of the company.

Delivering a lecture on ‘’Corporate governance through the
lens of an Indian corporate’’ here last night, Mr Irani said corporate
governance has become a major cause of concern following the Satyam scam. He
believes that frequency of financial reporting is not so important, but accuracy
and efficiency of the same is more crucial to ensure quality governance.

Asserting that with change in business environment ‘’we
should also change the way we look at the governance and also our mindset,’’ Mr
Irani said corporate governance and financial governance are two main parts of
the governance.

As far as corporate governance is concerned, he said,
provisions like clause 49 can make some difference, but if the Chief Executive
Officer or Chief Financial Officer is determined to do something wrong, no one
can stop him.

‘’But when it comes to punishment, certainty is more crucial
than its severity. Hopefully, the new law will also bring in transparency and
proper disclosure norms, which will ultimately lead to desired accountability in
the entire system,’’ he said.

[UNI, January 9 2010]

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ASIC cracks down on auditors

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ASIC cracks down on auditors


ASIC has accepted enforceable undertakings from two partners
of accounting firm Moore Stephens Sydney after an investigation found that
audits they had conducted were inadequate.

The enforceable undertakings provide that Christopher
Chandran and Scott Whiddett must not practice as registered auditors for 12
months.

They must both participate in an additional 15 hours of
continuing professional audit-related education during that 12 month period and
have their next five audits following the 12 month period reviewed by an ASIC
approved registered auditor.

An ASIC investigation found that an audit of Estate Property
Group for the financial year ended 30 June 2006 conducted by Chandran was
inadequate, and that as lead auditor he failed to ensure the audit complied with
Australian Auditing Standards as required by the Corporations Act 2001.

[www.moneymangement.com.au 11 January, 2010]

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One in four company accounts flagged by auditors

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One in four company accounts flagged by auditors


One in four financial statements lodged by Australian listed
companies were flagged by auditors in the past year, as the global financial
crisis cast doubt on asset values and the ability of companies to refinance
debt.

According to figures provided by the Australian Securities
Exchange, 25 per cent of the 967 financial statements lodged up to June 30 —
those of 239 companies — contained a modified independent audit report, with
most related to whether the company would continue to operate as a ‘’going
concern’’. The figures exclude junior mining companies.

A modified audit report means the auditor has decided to
include information not contained in a standard report. Most audit modifications
are likely to involve an ‘’emphasis of matter’’ paragraph, which highlights
potential problems that may affect a company’s status as a going concern — its
ability to pay debts and continue operating. A ‘’qualified opinion’’ is a more
serious modification.

[Sydney Morning Herald, January 11, 2010]

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An insight into Draft Point of Taxation Rules

1.
Introduction :

Given the fact
that frequent change in the rate of tax on services over a period of time has
caused confusion and uncertainty both among tax officers and assessees as to
the criteria based on which the tax may be levied, the Government has decided
to provide framework to determine point of taxation in different situations by
publishing Draft Point of Taxation (for Services Provided or Received in India)
Rules, 2010 (the POT Rules). The said POT Rules are also accompanied by a
preamble letter and Explanatory Notes on the POT Rules. The Government has
clearly expressed that the proposed rules are meant to provide the regulatory
framework and clarity to determine point of taxation whenever there is a change
in the rate of service tax. Similar difficulty is faced in determining point of
tax in the cases of continuous services. The taxable event under the law takes
place on provision of service. However, the liability to pay service tax
currently arises only on the receipt of the payment. In the POT Rules, there is
a shift proposed by providing a link to the payment of tax with raising of
invoice or payment for service provided or to be provided or provision of
service, whichever is occurring earlier. According to the Government, the
current rule allowing payment of tax on receipt basis does not fall in line
with the Central Excise law and the VAT laws of the states of India. In both
these cases, the payment is required to be made on accrual basis i.e., on the
event of clearance of goods in the case of former and issue of invoice in the
case of latter and that Goods and Service Tax (GST) which is in the offing is
likely to follow this practice. Thus, the proposed POT Rules appear to be a
precursor to GST, which is likely to be implemented in April, 2011.

2. Taxable
event and point of taxation :

In any fiscal
legislation, specific provisions exist for charge of tax and collection of tax.
Under the service tax law, the charge of tax is created by S. 66 of the Finance
Act, 1994 (the Act) on prescribed taxable services. ‘Taxable Service’ is
defined as a service provided or to be provided. Therefore when a service is
provided or agreed to be provided, there takes place the taxable event. As
against this, the POT Rules seek to define ‘taxable event’ as the event which
causes the tax liability to arise, namely, the provision of service, issuance
of invoice or the receipt of payment. The events of issuance of invoice and
receipt of payment are deemed as provision of service under a fiction proposed
to be created under the law. When an invoice is issued or payment is received
prior to providing the service by a service provider, the service would be
deemed to be provided at the time the invoice was issued or the payment was
received, whichever occurred earlier and the liability to pay tax would arise
at this point. Referring now to the collection of service tax, currently Rule
6(1) of the Service Tax Rules, 1994 provides that service tax liability arises
when payment for taxable services Is received. In the POT Rules however, ‘Point
of Taxation’ is defined to mean the point of time when the tax becomes payable
to the Government. Thus, the POT Rules have proposed to shift the point of
taxation away from the receipt of payment for the service to either at the time
of provision of service or the issuance of invoice for the service or the receipt
of payment, based on various situations as envisaged in the Rules, but
essentially on the concept of accrual rather than solely on the receipt of
payment.

3. Key
features :

3.1 The POT
Rules essentially provide framework to determine the point of taxation mainly
under the following situations :

à When any advance payment is received towards any
taxable service.

à When there is a change in the rate of tax with regard
to existing taxable service whether exempt or otherwise and there is a
difference in date and timing of provision of
service, raising of invoice and date of receipt of payment.

à When there is a change in the rate of tax with regard
to service which is taxed for the first time.

à When there is a continuous supply of a service or a
service provided on a long-term basis.

à When there is a transaction between associated
enterprises.

à In case of royalty and similar payments.

3.2 Advances
towards taxable services :

Under Rule 4,
the point of tax for advances is dealt with. It provides that service tax is to
be paid on the date of receipt of the advance towards provision of a taxable
service and the rate applicable would be the rate prevailing at the time of
receipt of such advance. Thus, the tax payment under this rule falls in line
with the basic principle underlying the provisions in the POT Rules that the
tax payment is linked to the issuance of invoice or receipt of payment,
whichever is earlier. The Government in its explanatory note in this regard has
clarified that once the tax is charged on the payment, the determination of tax
would be final. Further, it is expressly provided in the rule that no tax is to
be paid on interest-free refundable deposits.

3.3 Change in
rate of tax – Existing services :

Rule 5 seeks to
determine the point of taxation where there is a change in the rate of tax as
regards existing taxable services whether exempt or otherwise and there is a
difference of time between provision of service, raising of invoice and the
time of receipt of payment of taxable service. Table 1 sets out the
determination of point of taxation under the said rule.

 The principle followed in the above rule is that when two points of taxation have occurred, the ear-lier of the two would be the point of taxation.

3.4 Introduction of new services in the tax net :

Table
2

Sr.

Provision

Issue of

Receipt of

Point of

No.

of service

invoice

payment

taxation

 

 

 

for service

 

 

 

 

 

 

(i)

Before the

Irrelevant

Irrelevant

No tax

 

date of

 

 

 

 

new levy

 

 

 

 

 

 

 

 

(ii)

Irrelevant

Before

Before

No tax

 

when

the date

the date

 

 

provided

of new

of new

 

 

 

levy

levy

 

 

 

 

 

 

(iii)

After the

After the

Before

No tax

 

date of

date of

the date

 

 

new levy

levy but

of new

 

 

 

within 14

levy

 

 

 

days of

 

 

 

 

receipt of

 

 

 

 

payment

 

 

 

 

 

 

 

Rule 6 provides for determination of point of taxation when a service is brought in the tax net for the first time. Refer Table 2. This rule however does not apply to services provided on a continuous or long-term basis. (Rule 7 deals with services supplied continuously or for a long duration of time.)

3.5 Continuous supply of services :

Sr.

Provision of service

Issue of invoice

Receipt of payment

Point of taxation

No.

 

 

for service

 

 

 

 

 

 

(i)

Before change

After change

After change

Date of invoice or payment,

 

in rate

in rate

in rate

whichever is earlier

 

 

 

 

 

(ii)

Before change

Before change

Within 30 days of

Date of invoice*

 

in rate

in rate

invoice date

 

 

 

 

 

 

(iii)

After change

Before change

After change

Date of payment

 

in rate

in rate

in rate

 

 

 

 

 

 

(iv)

After change

Before change

Before change

Date of payment or invoice,

 

in rate

in rate

in rate

whichever is earlier

 

 

 

 

 

Continuous supply of services is defined to mean services supplied under a contract for a period exceeding six months or services as specified by the Government to be in continuous supply. The proposed Rule 7 provides that the rate of tax would be the rate applicable on the date of payment becoming due in terms of the contract irrespective of whether or not payment is received or invoice is raised. If the payment becomes due on completion of any milestone in terms of the contract, the date of completion of such milestone is the point of taxation. If the contract does not contain any clause for date of payment or mile-stone, the service tax is required to be paid on raising of invoice or receipt of payment, which occurs earlier.

It is further provided that when the service supplied continuously is covered under this rule is introduced for the first time in law, no service tax is required to be paid on payments received prior to service becoming taxable, even if the service is provided subsequently. The Government has clarified that in case of ongoing contracts of construction, the tax is liable to be paid on the basis of raising of invoice or the date provided for payment in the contract or the actual date of payment, as the case may be. When payment for construction is received prior to applicability of service tax and commencement of construction occurs after the levy coming into force, no service tax would be levied on such payments made prior to the applicable date.

3.6 Services provided to associated enterprises:

In case of transactions with associated enterprises, Rule 8 has provided that the relevant date is the date of debit or credit in the books of account or issuance of debit or credit note or the date of payment, which is earlier.

3.7  Royalty and similar payments:

As regards royalties and similar payments where the whole amount of consideration for service is not ascertainable at the time of performance of service and subsequently the use or the benefit of these services by a person other than the supplier gives rise to any payment of consideration, Rule 9 has provided that the service would be deemed to be provided at the time of each payment is made or invoice is raised, which is earlier.

    At the end:

While the attempt of the Government to introduce framework of POT Rules should be regarded as a welcome step since it is done with the basic objective of addressing some of the prevailing certainty and open issues under the current dispensations of law, there exists certain aspects which appear to add to complexity and difficulty of implementation. For instance :

    As aforesaid, currently the charging S. 66 of the Act determines the taxable event and which is ‘provision of a service’. To redefine this rudimentary aspect of the fiscal statute under the rules proposed to be issued in exercise of the powers conferred u/s.94(2) of the Act seem to be going beyond the Finance Act, 1994 and to this extent, re-consideration of this very fundamental aspect appears necessary.

    The objective of the Government as indicated in the preamble letter and Explanatory Notes is to specify point of taxation as the date of raising of invoice, provision of service or receipt of payment, whichever is earlier, whereas the POT Rules have dealt with only specific conflicting situations and not the remaining or residuary situation/s. If the point at which the service provider should pay tax is changed, it is not indicated whether the existing Rule 6(1) of the Service Tax Rules, 1994 would be amended consequent upon the proposed POT Rules coming into force. Or else, is it to be contended that the point of taxation except in the case of specified situations, would be still the time of receipt of payment? In any case, the proposed rules should be consistent with the provisions of the Service Tax Rules 1994, existing or suitably amended.

    Provision of multiple parameters under different situations if introduced without modification, is likely to pose a serious challenge in implementation as Rules 5, 6 and 7 are complex and keeping a track of all the three events viz. provisions of service, raising of invoice and receipt of payment under any of these rules is a huge task for businesses after understanding and interpreting the said rules.

    The POT Rules have not dealt with a situation when services are provided from outside India i.e., when reverse charge mechanism operates u/s.66A of the Act. Specific consideration for this also appears necessary.

    Rule 4 provides that interest-free refundable deposit would not attract service tax. Does this mean that when interest is payable on a refundable deposit, the tax is payable? If intention is not so, suitable change is required on this issue.

    The class of service providers in India is not analogical to that of manufacturing units or VAT dealers. There could be tremendous cash flow issue for a number of service providers when one is required to pay at the point of raising of invoice or provision of service which may result in delay in compliance of law followed by penal action and litigation. Further, the POT Rules as proposed are silent over the treatment of non-payment for services or bad debts, cancellation of invoice, discounts, etc. Similarly, in the current scenario also, there already exists the issue of availability of CENVAT credit (in terms of existing CENVAT Credit Rules) when service tax is paid on advances. If multiple taxable events as proposed are introduced, well-thought out consequential amendments in CENVAT Credit Rules, 2004 also would be required. Further, one could envisage a chaotic condition while taking CENVAT credit as complexity in record maintenance would also arise again resulting in litigation.

Since the Government has invited public comments on the Draft POT Rules before September 01, 2010, it can be hoped that major creases would be ironed out if the Government is keen on notifying the Rules. As a matter of fact, since GST is soon likely to be a reality, it would be a better proposition to implement broad-based rules along with GST rather than half-baked rules as precursor to GST, which may only worsen the already uncertain scenario.

Part B : Some Recent Judgments

    High Court :

1. Penalty :

Whether penalty u/s.76 can be reduced below the limit prescribed.

Commissioner of C.Ex. & Customs v. Port Officer, 2010 (19) STR 641 (Guj.)

The short issue before the High Court was whether penalty u/s.76 could be reduced below the mini-mum limit.

The High Court observed as follows :

    a. As per S. 76, a person who failed to pay tax, shall in addition to tax and interest, pay penalty for such failure. The penalty shall not be less than Rs.100 per day to Rs.200 per day during which failure continues, but the penalty shall not exceed the service tax not paid.
There is no provision in the Section to provide the authority with any discretion to reduce the penalty below the limit prescribed.

    b. S. 80 overrides provisions of S. 76, S. 77, S. 78, and S. 79, which state that if the assessee proves that there is reasonable cause for failure, no penalty can be imposed. The provision does not state that even upon establishment of reasonable cause, reduced quantum of penalty is imposable.

On combined reading of S. 76 and S. 80, it appears that the penalty cannot be reduced below the limit prescribed.

    2. Classification of service:

Whether services provided by a consignment agent can be taxed as Clearing and Forwarding Agent’s service?

Commissioner of Service Tax, Bangalore v. Sangam Investments, 2010 (19) STR 650 (Kar.)

The Tribunal passed an order that services provided as a consignment agent were not covered under the category of C & F service based on Tribunal’s decision in Mahavir Generics case 2006 (3) STR 276 (Tri. -Del) which ultimately got reversed vide 2010 (17) STR 225 (Kar). In the Rev-enue’s appeal, the Court held that the definition of C & F agent includes consignment agent and therefore the assessee is liable for tax.

    3. Constitutional validity : Renting of immoveable property:

Whether service tax can be recovered in respect of renting of immovaeble property when the Constitutional validity is challenged in the High Court.

Infiniti Retail Ltd. v. Union of India, 2010 (19) STR 801 (Bom.)

The constitutional validity of levy of service tax on renting of immoveable property was stayed by the High Court. In this regard the Court held that the Department shall not take coercive steps for recovery of service tax in respect of renting of immovaeble property. However, since the constitutional validity of levying service tax on ‘any other service in relation to such renting’ was not challenged, the High Court held that the Department could recover service tax from the service provider.

    4. Import of service:

Whether foreign service provider liable to tax before introduction of Import Rules.

Commissioner of Service Tax, Bangalore v. Toyoda Iron Works Co. Ltd., 2010 (19) STR 802 (Kar.)

The respondent, a foreign company, entered into agreement with an Indian company for providing consultancy/technical assistance and transfer of technical know -how relating to the manufacture of automobile components to the Indian company. The Revenue taxed such services under the category of ‘Consulting Engineer Service’. The Commissioner (Appeals) held that the respondent was not liable to service tax. CESTAT dismissed the Departmental appeal.

The High Court held that the definition of ‘Consulting Engineer Service’ was amended w.e.f. 1-5-2006 and charge of service tax on service received from outside India (S. 66A) was amended w.e.f. 18-4-2006. Therefore, only from the date of aforesaid amendments, service receiver would be liable for tax and the foreign company being a service provider was not liable for service tax prior to the amendment i.e., for the period in question, 1-4-1999 till 31-3-2001.

    5. Relevant date for applying rate of tax:

Whether applicable rate will be the rate prevailing on the date of provision of service or one prevailing at the time of billing and/or receipt of payment?

Commissioner of C.Ex. & Cus. v. Reliance Industries Ltd., 2010 (19) STR 807 (Guj.)

The Tribunal had held that service tax shall be payable at the rate prevailing on the date of provision of service and not at the rate prevailing at the time of billing and receipt of payment. The Revenue challenged this order before the High Court. The Court held that the relevant date is the date of provision of service and not the date of billing. The appeal accordingly was dismissed.

    II. Tribunal:

    6. Construction Service:

Whether construction of road liable for service tax as commercial or industrial construction service?

Commissioner of Service Tax, Ahmedabad v. Shilpa Constructions Pvt. Ltd., 2010 (19) STR 830 (Tri. Ahmd.)

The respondent filed a refund claim with regard to service tax wrongly paid for the construction of road which was not included in the definition of ‘Commercial and Industrial Construction’. However, the Department rejected the refund claim which was allowed in the appeal. Therefore, the Department preferred an appeal before the CESTAT.

The respondent contended that the term ‘drive-way work’ used in the agreement was in relation to road work and the respondent was not en-gaged in any other work. In respect of construction of road, service tax is required to be paid only if it is covered under a single contract of construction of commercial complex in terms of Circular No. B1/6/2005-TRU, dated July 27, 2005. Since the respondent did not collect such service tax from client, the doctrine of unjust enrichment did not apply to it. Invoices and chartered accountant’s certificate were produced as proof.

According to the Department, the exclusion of roads from the definition of ‘Commercial or Industrial Construction Service’ was to facilitate general public in the public interest and ‘driveway work’ could not be equated with road and therefore the stated Circular was not applicable. The Tribunal held that road constructed for public utility or not, was not the determining factor and held that construction of ‘driveway work’ amounted to construction of road and therefore, not liable for service tax.

    7. CENVAT credit:

Whether CENVAT credit can be availed on garden maintenance service and repairs of deep freezer installed in canteen.

Reliance Industries Ltd. v. Commissioner of C.Ex., Pune-III 2010 (19) STR 823 (Tri.-Mumbai)

The appellants cited certain cases wherein it was held that the service provider is entitled to CENVAT credit on garden maintenance service which is used in or in relation to the manufacture of the final products or used in the business activity. In the present case, the appellants have used the garden maintenance service in relation to business activity.

The Revenue presented some contrary decisions and requested for referring the matter to a larger bench. The Tribunal observed that the cases referred by the Department were either not similar to the present case or were remanded back to the Tribunal by the High Court and therefore did not find it necessary to refer the matter to a larger bench. Following the Semco Electricals decision 2010 (18) STR 177 and I.S.M.T. Ltd.’s decision 2010 TIOL 27 CESTAT-MUM, the appeal was allowed.

    8. Penalty:

Whether penalty could be imposed in case there is ignorance for payment of tax.

J. K. Industries v. Commissioner of Service Tax, Ahmedabad 2010 (19) STR 653 (Tri.-Ahmd.)

The facts of the case were:

The appellant, a consignment agent obtained service tax registration in the year 1999 and did not pay service tax till March, 2004 as they could not collect it from the recipient. The premises of the appellant were searched and liability was envisaged. The appellant demanded the amount of service tax from the recipient, which they agreed to pay only after 4-1-2005 and not for earlier period.

The appellant paid service tax from its own pocket before passing of order of adjudication.

The Tribunal held that correspondence between the appellant and the principal supports the case that there was no intention to evade payment of tax. Moreover, the appellant paid tax before any order was passed by the authority. Therefore, the Tribunal ordered for waiver of penalty.

    9. Non-registration-Penalty:
Whether not taking registration amounts to suppression of facts attracting levying penalty.

Commissioner of Service Tax, Ahmedabad v. Pankaj Tyre Retreads, 2010 (19) STR 829 (Tri.-Ahmd.)

The respondent was in the business of tyre retreading which was considered by them as ‘Maintenance or Repair Services’ by reason of amendment with effect from June 16, 2005 and they held a bona fide belief that the threshold limit of Rs.4,00,000 was applicable only in relation to service element and the turnover of material used or sold while providing service was not required to be included for calculating such limit. The Department contended that the respondent did not take registration w.e.f. June 16, 2005 and the registration was taken only after search of premises by the Department and it amounted to suppression of facts attracting penalty. The Tribunal held that mere non- registration could not amount to suppression of facts and that there was a reasonable cause as depicted in S. 80 of the Finance Act, 1994 and accordingly the appeal was allowed.

The currency wars — Policy intervention cannot go against market logic

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19. The currency wars — Policy intervention cannot
go against market logic


When criticised about the US administration’s
exchange-rate policy vis-à-vis the yen, former US president George H. W. Bush
apparently retorted in a fit of pique, “Let the Japanese handle their exchange
rate and we will handle ours.” Unfortunately, this bit of curious Texan logic
doesn’t quite hold in the world of currencies. One currency’s gain is
tautologically another’s loss.

The US central bank, the Federal Reserve, seems
reconciled to another round of quantitative easing (economist-speak for printing
more greenbacks) and that could lead to a further fall for the dollar. The
problem is that these cheap dollars find their way into emerging markets like
China and India (whose asset markets offer better returns), causing their
currencies to appreciate and their export competitiveness to erode. The dollar
has thus become the principal ‘carry currency’ that investors borrow in (at
virtually zero cost) and fund investments in higher-yielding assets of the
emerging markets. Europe and Japan are caught in the middle — saddled with
sluggish economies but witnessing a rapid rise in their currencies against the
dollar. Japan has tried to thwart a steady appreciation of the yen by dropping its policy interest rate close to zero and
intervening in the currency market. This hasn’t quite paid off yet.

 

(Source : The Business Standard, dated 11-10-2010)

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Government of India signs revised Double Taxation Avoidance Agreement with Finland

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The Government of India and
Finland signed a revised Agreement and Protocol for Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with respect to Taxes on Income
(Agreement). As per the revised Agreement, withholding tax rates have been
reduced on dividends from 15 to 10% and on royalties and FTS from 15 or 10% to a
uniform rate of 10%. The intention of lowering the withholding tax is to promote
greater investments, flow of technology and technical services between India and
Finland. The revised Agreement also expands the ambit of the Article concerning
exchange of information to provide effective exchange of information in line
with current international standards. The Article inter alia provides that the
States shall not deny furnishing of the requested information solely on the
ground that it does not have any domestic interest in that information or such
information is held by a bank, etc. An Article for Limitation of Benefits to the
residents of the contracting countries has also been included to prevent misuse
of the Tax Treaty.


(Source :CBDT Press Release
No. 402/92/2006-MC

(03 of 2010), dated 15-1-2010)

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Switching off mains can reduce power bills by 30%

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78 Switching off mains
can reduce power bills by 30%

Be careful of
electronic devices such as mobile chargers that you think don’t consume too much
power.

Putting off your
television set with a remote control does not mean that it (along with a set-top
box) has stopped consuming electricity. Similarly, pulling the charger from your
mobile handset does not mean that power consumption stops.

Not putting off
the main switches of even the smallest electronic appliances reflects in your
monthly bill. Such negligence, say power experts, inflates power bills by
25-30%. This, says power expert Ashok Pendse, means extra consumption of 75-90
units for average monthly residential consumption of 300-350 units.

(Source : The Times of India, dated 9-7-2010)

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Rethinking the Games — Does India need mega sports events to encourage sports?

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22. Rethinking the Games — Does India need mega sports events
to encourage sports?


One positive outcome of all the negative media that the
Commonwealth Games (CWG) in New Delhi has got could well be an honest
re-examination of the relevance of such mega events for the promotion of sports
talent in India. India’s record in athletics and other sports, barring cricket
and tennis, is by and large abysmal. The country needs a wider and deeper base
of talent, and much better infrastructure as well as better professional
recognition of sporting talent before it takes on further obligations to host
such mega events. As in so many other sectors, the focus in India even in sports
has been on infrastructure rather than people. More money is spent on buildings
than on the talent that must inhabit them. This is as true for universities and
educational institutions as it is for sports facilities. While thousands of
crores are spent on roads, buildings and security, the investment in human
resources is always the last thing on the mind of those who craft budgets for
such events. It is not at all clear why the taxpayer should have forked out so
much money for a Games village or a sporting arena, or indeed for a fancy media
centre, when the benefits of such expenditure may never reach his/her ? Why
couldn’t a large campus of an existing institution, with hostel and other
facilities, have been taken over as the Games village ?

More than the Games themselves, it is the entertainment part
that seems to be sucking in dollops of money. Rs.40 crore spent on a hot air
balloon ! Rs.5 crore paid out for a theme song ! India’s political leadership
appear like later-day Mughals, throwing money at fancy stuff, without paying
attention to the basics. A more economical but efficient way of handling such
events must be thought of before more commitments are made to host such events
in the future. It is also worth pondering over why India put up a much better
show hosting the World Military Games in 2007 in Hyderabad, in which 5,000
athletes from 101 countries participated. The event covered 14 sports over a
week. Part of the reason why that event did not attract the kind of flak that
the CWG has may have to do with the fact that it was the armed forces that did
most of the organisational work, and with the event being in Hyderabad, the
Delhi-based and Delhi-centric media may not have paid much attention to all the
glitches. The other part of the reason could well be that the Military Games did
not spend such money on infrastructure as Delhi did on CWG. So, there is an
alternative Indian model of hosting a mega global event of this sort in a more
acceptable way. The bottom line about the Delhi CWG is that if some part of this
extravaganza was about building ‘brand India’, then the event has already
failed. India will have to recoup its lost shine and start all over again to get
the world to take it seriously as a modern, efficient economy.

(Source : Business Standard, dated 28-9-2010)

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Wealth distribution — Equality or fairness ?

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21. Wealth distribution — Equality or fairness ?


A list put out by Forbes India says that
India has 69 dollar-billionaires. That gives the country a near 7% share of the
world’s billionaires (said to total 1,011), whereas its share of world GDP is
just 2%, and of global poverty an embarrassing 30%. So many billionaires in the
midst of a sea of poor people is, of course, a sign of inequality, and some call
the contrast an obscenity. Comparisons are made between the wealth of a few ($
300 billion for our 69 billionaires) and the country’s GDP ($ 1,500 billion this
year); but this is like comparing apples and (say) rivers, because the first is
stock and the second is flow. If one must make comparisons, they have to be
between the stock of wealth owned by the super-rich, and the stock of wealth
that the rest of the country owns. Looked at this way, it would seem that the
billionaires own barely 3% of the total assets in the country, or less.

If that seems like an outrageous claim, start with
the value of the 280 million head of cattle that Indians own. Assuming just
`10,000 per head (most cross-bred cows go for more than `20,000), the value is
about $ 60 billion. But that is small beer when compared to the bank deposits
that people have; the total is about $ 750 billion, and a good proportion of
that belongs to individuals. But even that is small beer when you come to the
value of land, of which India has 140 million arable hectares. At the
acquisition price that Karnataka now has, of a mid-range of `25 lakh per hectare
for single-crop land, the total land value could be something like $ 7,500
billion. Add to that the value of all the houses (at least 100 million ‘pucca’
homes), and you get another large figure. And don’t forget that the billionaires
own only a fraction of the value of all listed companies (we don’t know about
the unlisted companies). Put all the numbers together, and it seems somewhat
obvious that the billionaires own only a tiny portion of the total wealth of the
country.

Still, the equality issue cannot be evaded. It used
to be said of Pakistan’s ‘22 families’ (actually about 43 families, before a
wave of nationalisations in the 1970s) that they owned nearly half of the
companies on the Karachi stock exchange. A quick study of India’s listed stock
suggests that the picture is not very different here, though you could argue
that there is greater depth. About 150 business families figure as owners among
the top 500 listed companies, and therefore have some prominence. But the top 20
own 32% of 1,800 listed companies, and the next 30 families own another 8%.

Ownership is, of course, only one of the issues.
You also have to look at market structures and, therefore, monopoly power, how
cleanly the money was made (a market economy needs entrepreneurs, after all, and
will anyone complain about N. R. Narayana Murthy becoming rich ?), whether much
of the wealth is inherited or self-created, and what connections there exist
between business and politics. You also have to look at tax issues, because the
argument is often made that India’s tax laws are kindest to the richest (no
long-term capital gains tax, no dividend tax on individuals though there is a
dividend distribution tax on companies, and so on). So, there is a fairness
agenda to be addressed, which is different from an equality agenda — and more
urgent.

(Source:Weekend Ruminations by T. N. Ninan in
Business Standard, dated 2-10-2010)

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Euro is in a mess — A new George Soros missive

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George Soros is one of the
world’s most talented currency speculators, the guy who earned a $ 1 billion
profit in 1992 when he made a huge leveraged bet that the British pound would
have to exit the European Exchange Rate Mechanism (ERM) and also the man
Malaysian Prime Minister Mahathir Mohamad had then accused of pulling down the
ringgit in 1997.

So when Soros writes in the
Financial Times that the euro may fall apart, it is but natural that people take
him seriously. The short-term movement of currencies can be a random walk amid a
lot of noise trading, but the trend over the longer term is less unpredictable.

The euro is in a mess, the
yen is the currency of a stagnant nation and the yuan is not convertible. It
seems the dollar will continue to be the preferred global currency.

(Source : Quick Edit-Mint Newspaper, dated 23-2-2010)

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Koda probe I-T Officer shunted

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Ujjawal Chaudhary, a senior
Income-tax Officer who led the probe into the multicrore Madhu Koda scam, may
have been on the verge of unravelling the link between politicians and hawala
traders when he was abruptly shifted this week.

Sources said the team led by
Chaudhary, who has been taken off the Koda probe and moved to the assessment
wing, had gathered strong evidence linking politicians and others to hawala
operators engaged in laundering black money abroad. Chaudhary was transferred
when raids were on at Chaibasa in Jharkhand.

Koda’s crores :

Raids on hawala traders
yield details of bank
accounts in Switzerland, which seem to belong to politicians I-T raids in
Jharkhand provide disclosures of hundreds of crores in concealed incomes of
bureaucrats and businessmen A Kolkata-based chartered accountant admits to
helping the scamsters fudge accounts payment of Rs.4.6 crore allegedly made by
cheque to functionaries of the Koda administration by an Andhra-based
construction firm. Koda case officer was not due for transfer.

(Source : The Times of India, dated 21-2-2010)

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Not with parents, say youngsters

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Are your children talking to
you ? It does not seem so. The survey, conducted by the International Institute
for Population Sciences and Population Council and endorsed by the Union Health
Ministry, covered nearly 51,000 married and unmarried young males and females
from six states — Maharashtra, Andhra Pradesh, Bihar, Jharkhand, Rajasthan and
Tamil Nadu. It found that school performance, a non-sensitive topic, was the
most common area of discussion between kids and parents. In contrast, more
touchy topics, such as romantic relationships and reproduction, were rarely
discussed with either parent (only 2% of young men and 6% of young women did
so). In fact, when it came to reproductive issues, children were equally
secretive with both their parents.

The findings also suggest
that parents controlled the social interactions of youngsters, particularly
those involving members of the opposite sex. For example, 69% of young men and
84% of young women expected parental disapproval if they brought home a friend
of the opposite sex.

Among young women, in
contrast, statewise differences were negligible — over 90% of young women in all
the states reported parental disapproval of love marriage. Almost all those who
were interviewed had an arranged marriage. This led to only 30% of young men and
22% of young women being aware of what to expect from their married life.

Friends rather than family
were found to be the major confidants for both young men and women. Only 1% men
were found to confide in their family members while 85% did so in their friends.
In case of women, 20% confided in family and 46% in friends.

(Source : The Times of India, dated 21-2-2010)

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India giving us stiff competition : Obama

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US President Barack Obama
has said the US is facing stiff competition from India and cannot succeed if the
country continues to produce more scientists and engineers than America.

“Why is it that every other
country was promoting its tourist industry and America was not doing enough for
its own ?” Obama asked. “That’s just one example of the competition that we’re
facing on everything,” he said. “If China’s producing 40 high-speed rail lines
and we’re producing one, we’re not going to have the infrastructure of the
future,” Obama said. “If India or South Korea are producing more scientists and
engineers than we are, we will not succeed,” said the US President in his Las
Vegas speech.

The President said there was
a need to bring people together and build consensus around reforms. “Because we
know that the country that out-educates us today is going to out-compete us
tomorrow. And we don’t want that future for our young people. We’re not going to
sentence them to a lifetime of lower wages and unfulfilled dreams.”

(Source : The Times of India, dated 21-2-2010)

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Currency futures in 3 more currencies

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SEBI has allowed exchanges
to introduce currency futures in three more currencies — euro, yen and pound.
The permitted contract sizes for euro-rupee, pound-rupee and yen-rupee are 1000
euros, 1000 pounds and 1,00,000 yen, respectively. The maximum maturity of the
contract would be 12 months. The contracts would be settled in cash in rupees.
The client-level position limit has been capped at 6% of the total open interest
position.


(Source : Business Standard, dated 20-1-2010)

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Consolidated FDI Rules

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The Government plans to
introduce a single Foreign Direct Investment (‘FDI’) document by the end of the
financial year. The consolidated FDI document would subsume all 177 press notes
issued so far. The Government also plans to review and update the document rules
every six months. The draft document was kept open for public comments till
January 31, 2009.


(Source : Business Standard, dated 12-1-2010)

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FDI — Reinvestment of internal accruals in down stream sectors

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The Government has decided
to allow Indian arms of foreign firms to use internal accruals for reinvestment
in downstream sectors, provided they are reckoned as debt and comply with
relevant external commercial borrowing (‘ECB’) norms. The new regime would let
these firms, owned or controlled by foreign companies, to bring in additional
capital without breaching the foreign direct investment (‘FDI’) caps, as the
reinvested funds are not treated as equity capital. The move would ease the cash
flow of foreign companies present in India and enable them to compete with local
firms on a level-playing field.



(Source : The Financial Express, dated 27-1-2010)

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CBDT’s Committee on Safe Harbour Rules

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The Central Board of Direct
Taxes (CBDT) has set up a committee to formulate rules for the safe harbour
provisions that would enable the Income-tax authorities to accept the transfer
pricing returns without scrutiny. The committee, which is chaired by Director
General of International Taxation, comprises senior tax officials and
representatives of trade and industry as well as Institute of Chartered
Accountants of India. Foremost among the com-mittee’s task is to set an
acceptable margin which would act as a benchmark for the industry and if the
transfer price declared by a company, engaged in that industry, is not less than
the benchmark, then the authorities would accept the return without scrutiny.
The rules, once introduced, will lend an investment-friendly image to India and
will also put an end to the requirement of collecting huge amount of data
regarding transfer pricing transactions, thereby saving time and energy.


(Source : The Economic Times, dated 11-1-2009)

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Tax assessments without meeting tax officers

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The CBDT is envisaging a
system in which taxpayers do not meet any tax official for routine assessments.
Assessments are proposed to be centralised at a place where a set of officers
would supervise the assessments. Each officer will be specialising in certain
segment of the assessment process, such as giving credit, refunds, etc. Four
such Central Processing Centers (‘CPC’) would be set up soon in four major
cities where the computerised assessment of the returns will take place. Once
the CPCs are in place, the taxpayer will have to meet the Department officials
only when the returns are selected for scrutiny.



(Source : The Economic Times, dated 14-1-2010)

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Now ITAT cases can be tracked online

New Page 3

Now ITAT case can also be
tracked online at following site http://itat.nic.in

Click on an option “ITAT
Online” and put the appeal nos.

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Defending idea of India & Democracy v. Organised violence

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Maharashtra Chief Minister
Ashok Chavan may well have decreed that Shiv Sena workers would not be allowed
to run riot at cinema halls showing Shahrukh Khan’s movie, My Name is Khan. He
must, however, be resolute and put down such strong-arm tactics with force. What
is under attack is not cinema but the idea of India as a composite democracy. To
allow the attackers any leeway is to fail to defend Indian democracy. After
seemingly endless buckling down to one form of chauvinism or another, at least
one major political leader has dared to call the Shiv Sena’s bluff. The Chief
Minister must deploy the entire might of the state to defend democracy against
chauvinism operating as organised thuggery. If necessary, he must raise the ante
and take the battle directly to the Sena leadership, rather than merely act
against its foot soldiers, who behave as if they have a birthright to run Mumbai
as they like.

The people and government
must collectively show that democracy will prevail over organised violence.

(Source : The Economic Times, dated 11-2-2010)

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CBDT-ICAI group : Convergence with IFRS — Addressing tax issues

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The Central Board of Direct
Taxes (CBDT) and accounting rule-maker Institute of Chartered Accountants of
India (ICAI) have jointly constituted a study group to identify and address
direct tax issues that will affect convergence of India’s accounting standards
with International Financial Reporting Standards (IFRS).

According to reports, the
Finance Ministry is looking to introduce the DTC in the forthcoming budget
session. Apart from many aspects that are being discussed, one aspect that will
particularly come as a hurdle for IFRS convergence is towards tax treatment of
mark-to market (MTM) provisioning on derivative transactions. MTM or fair value
accounting assigns a value to a position held in a financial instrument based on
the current fair market price for the financial instrument.

(Source : The Economic Times, dated 9-1-2010)

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U.S. Economy : From Goldilocks to Cinderella

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Advances in science and
engineering have spearheaded 50 to 80% of US GDP growth for many decades. The
lack of investment in R&D, education, higher overheads and labour costs are the
new realities with only about 4% of the US workforce consisting of scientists or
engineers. Everybody knows that 20 assembly workers in Vietnam equal the price
of one in the US or that Starbucks spends more on healthcare than on coffee or
General Motors spends more on healthcare than on steel.

A report titled America’s
Competitiveness was presented to the Democratic Steering and Policy Committee of
US House of Representatives last year. It stated that “The more our children are
exposed to our educational system, the worse they perform on international
tests.” The report also found that “The private sector has all but abandoned
basic research due to market pressures to produce next-quarter profits. The
federal government’s investment in the physical sciences has been stagnant for
over twenty years. Investment in the biosciences, after a five-year period of
significant growth, is again declining.”

Alan Greenspan had stated
“If you don’t solve (the K-12 education problem) nothing else is going to matter
all that much.” An exasperated Chairman and CEO of General Electric, Jeffery
Immelt, has said : “We had more sports exercise majors graduate than electrical
engineering grads last year. If you want to be the massage capital of the world,
you’re well on the way.” China’s President Hu Jintao, on the other hand, feels
“The worldwide competition of overall national strength is actually a
competition for talents, especially for innovative talents.”

The bank closures in the US,
unemployment, inability to honour credit card or mortgage payments have turned
Goldilocks into Cinderella. Around 78 million ‘baby boomers’, born in the US
between 1946 and 1964, acquired extravagant spending habits. This “Baby Boomer
Spending” constitutes between 25 and 50% of the consumption in the US, which is
driven by consumer spending. Their divorce rate and inadequate funding for
retirement benefits is going to severely curtail their future spending and,
therefore, US GDP growth. From 2008 onwards, 10,000 additional social security
seekers are being added everyday.

Greenspan and the then
comptroller general David M. Walker had warned before the recession that not
only will US be unable to fulfil promises to retirees but will have to double
federal taxes or cut federal spending by 50%. President George Bush had declared
that social security is “headed towards bankruptcy”. The budget deficits are
likely to increase as, according to pre-recession estimates, in terms of net
present value, medicare was running $ 63 trillion short and social security $ 8
trillion short, with expenditures surpassing payroll tax receipts from 2018
onwards. Ronald Dahl, children’s author, has pointed out that Goldilocks is a
‘brazen little crook’ stealing porridge, breaking chairs and living in a
borrowed home. Cinderella, let us remember, is a hardworking young lady. Her
virtues and hard work are rewarded, even after midnight. The global economy
needs the virtues of yesterday’s Cinderella economies like India — hard work, no
frills, no needless product obsolescence, value delivery at reasonable price,
and even commonsense ethics like truth, which are much needed in preparing
healthy balance sheets of companies and nations.

(Source : The Times of India, dated 15-2-2010)

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Outsourcers are tax-evaders : Obama

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American President Barack
Obama has once again targeted US companies having their operations in India to
save taxes back home and called such businesses tax-evaders.

Accusing US companies
outsourcing business to India of following unfair business practices, he said
his proposal to tax firms shipping jobs overseas was only intended to provide a
level-playing field.

“If you are a multinational
and you are investing in India, and your workforce is in India, and your plants
and equipment are in India, but your headquarters are here, you are taking
deductions on all the expenses in India, but you are keeping your profits
outside the US, that just doesn’t seem entirely fair,” Obama said. “The same is
true where you have
companies that have 90% of their sales in the US, but are posting 90% of their
profits overseas.” “You get a sense there that the accountants have been busy,”
he said, suggesting that these companies were taking unfair advantage of current
tax laws.

(Source : The Economic Times, dated 12-2-2010)

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I-T officers abandon ship as tide turns

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Recovery sees senior tax
personnel switch to lucrative private sector

Over the past two months, at
least a dozen senior officers of the Income-tax Department, belonging to the
elite Indian Revenue Service (IRS), have opted for voluntary retirement, a
government scheme that allows them to quit before the statutory retirement age.
These officers are likely to end up in the private sector, most likely as
consultants, to get around rules that prevent government employees from working
within a year of quitting.

The senior-most among these
officials is V. K. Mangotra, Chief Commissioner of Income-tax in Ahmedabad.
Before taking up his most recent post, Mr. Mangotra was the Director of the
Mumbai-based transfer pricing division of the Income-tax Department that
exclusively deals with the issue of taxing cross-border transactions involving
multinational companies.

Most officers from the
government’s tax-collecting arms, who have quit in the past, have ended up
consulting for global accounting firms.

Another officer dealing with
transfer pricing, Alpana Saxena, currently based in Mumbai, has also put in her
papers.

According to I-T officials,
the prospect of earning more by consulting for and later joining either
multinational companies or the Indian arms of global accounting firms is
tempting. S. P. Singh, who resigned in 2005 as the Director of International
Taxation, Mumbai, is now a partner with Deloitte India in New Delhi. He joined
the global accounting firm a year after his retirement, having practised as a
freelance consultant in the interim. Mr. Singh told ET, “There is not much
difference between what I was doing in the Department and what I am doing now,
which is to ensure the legal accuracy of the work put out by my team. While in
the Department, I had to work on maximising revenue realisation, in Deloitte, I
have to devise the best tax structure
for the client”.

An I-T Commissioner draws a
gross salary of Rs.80,000 a month, but this shrinks to a take-home of Rs.40,000
after paying tax and other statutory deductions. A Commissioner is entitled to a
chauffeur-driven car and a house in up-market locales like South Mumbai. On the
other hand, a private firm can pay anywhere between Rs.2.5 lakh and Rs.3.5 lakh
per month to an officer who holds the rank of Commissioner.

(Source : The Times of India, dated 11-2-2010)

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Confirming membership of a chartered accountant with the Institute of Chartered Accountants of India

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The Institute of Chartered
Accountants of India has informed that with a view to strengthening the process
of certification being issued by chartered accountants, they have hosted a link
http://220.227.161.82/locm.asp on ICAI website, to enable anyone to seek
confirmation to the effect that certificate received by him has been issued by a
member of the Institute holding full-time Certificate of Practice (i.e., a
member authorised to issue such a certificate). This will ensure that none of
the authorities act on the certificates issued either by non-members or members
not holding Certificate of Practice.


(Source : www.taxguru.in posted on 16-2-2010)

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Selection to SC should be more open : Delhi CJ

New Page 3A. P. Shah, Chief Justice of
the Delhi High Court who was surprisingly bypassed for appointment to the
Supreme Court, has suggested that when a senior HC judge is not elevated to the
SC, the


reason should be recorded by the collegium and conveyed to him.

On a day when he publicly
admitted he couldn’t “pretend not to be hurt” on not making it to the SC, the
widely acclaimed judge told TOI, “The systemic problem in the collegium is lack
of transparency. There is too much secrecy. No reasons are recorded for
rejecting any one. The only way the collegium system can be improved is by
making it more
transparent.”

Justice Shah is the author
of two landmark verdicts (on decriminalisation of consensual homosexuality
between adults and applicability of Right to Information Act on the Chief
Justice of India). The SC collegium ignored him for elevation despite his being
one of the senior-most judges in the country. The decision has drawn a lot of
criticism, including from top jurists like Fali S. Nariman and former Chief 
Justice J. S. Verma who described him as “one of the finest judges in the
country.”

(Source : The Times of India, dated 12-2-2010)

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US, UK move closer to losing AAA ratings : Moody’s

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The US and the UK have moved
‘substantially’ closer to losing their AAA credit ratings, as the cost of
servicing their debt rose, according to Moody’s Investors Service.

The governments of the two
economies must balance bringing down their debt burdens without damaging growth
by removing fiscal stimulus too quickly, Pierre Cailleteau, managing director of
sovereign risk at Moody’s in London, said in a interview.

Under the ratings company’s
so-called baseline scenario, the US will spend more on debt service, as a
percentage of revenue this year than any other top-rated country except the UK,
and will be the biggest spender from 2011 to 2013, Moody’s said in a report.

“We expect the situation to
further deteriorate in terms of the key ratings metrics before they start
stabilising,” Cailleteau said. “This story is not going to stop at the end of
the year. There is inertia in the deterioration of credit metrics.”

The US government will spend
about 7% of its revenue servicing debt in 2010 and almost 11% in 2013, according
to the baseline scenario of moderate economic recovery, fiscal adjustments in
line with government plans and a gradual increase in interest rates, Moody’s
said. Under its adverse scenario, which assumes 0.5% lower growth each year,
less fiscal adjustment and a stronger interest rate shock, the US will be paying
about 15% of revenue in interest payments, more than the 14% limit that would
lead to a downgrade to AA, Moody’s said. The UK is likely to spend 7% of revenue
servicing debt this year and 9% in 2013, rising to almost 12% under the adverse
scenario, Moody’s said. Financing costs above 10% put countries outside of the
AAA category into a so-called debt reversibility band, the size of which depends
on the ability and willingness of nations to reduce their debt burden by raising
taxes or reducing spending.

(Source : The Economic Times, dated 17-3-2010)

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Finmin awaits DIPP view on FDI Press Notes

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The Finance Ministry said it
is awaiting clarification from Department of Industrial Policy and Promotion (DIPP)
on the new foreign direct investment norms issued by it a year back, popularly
called the Press Notes 2 and 3.

“We are still in dialogue
with DIPP (on the issue). It is coming out with a comprehensive draft on the FDI
framework. Before that gets notified, we are hopeful these issues will get
clarified,” said Govind Mohan, Joint Secretary in the Finance Ministry, on
Monday at the inauguration of an e-filing facility for applications to the
Foreign Investment Promotion Board.

DIPP had last year issued
Press Notes 2 and 3 which replaced the earlier proportionate method of computing
foreign indirect equity by the parameter of beneficial ownership and control of
entities at each stage of investment.

It later also issued Press
Note 4 to clarify some of these issues. The Press Note 2 of 2009, issued on
February 13, redefined foreign ownership of Indian companies. An Indian company
means, in the context of Press Note 2, a company incorporated in India.

As per the new policy,
foreign investments of all types — FDI, portfolio or foreign institutional
investments, NRI investments, GDRs and ADRs, foreign currency convertible bonds
and preference shares —are taken into account while determining ownership of an
Indian company.

As per the new guidelines
the ownership of a number of banks such as ICICI Bank, HDFC Bank, Development
Credit Bank came under question, forcing the central bank and Finance Ministry
to seek a clarification. Not only this, there are concerns in various quarters
that the new norms may lead to breach of sectoral caps.

Under the current rules, as
long as an Indian promoter holds at least 51% stake in any operating-cum
investing company, the company would be considered an Indian entity and the
entire investment it makes in a subsidiary would be considered local investment.
This could allow such companies to invest in sectors in excess of sectoral FDI
caps or invest in sectors where foreign investment is not allowed. On the other
hand, the downstream investment of a company that has more than 51% foreign
stake will all be considered foreign investment.

The RBI had also raised the
issue of breach of sectoral FDI caps as foreign investors using a multilayered
structure can easily take their holding to much more than the sectoral cap if
their stake in the operating-cum-investing company is below 49%.

The Finance Ministry had in
December 2009 written to DIPP to clarify some of these contentious issues that
have also been raised by some other ministries. Recently, the Telecom Regulatory
Authority of India had put out a discussion paper on the impact of these new FDI
norms on the broadcasting sector. Puzzling Press Notes 2 & 3 raised questions
regarding the ownership of a number of banks such as ICICI Bank and HDFC Bank.
There are concerns in various quarters that the new norms may lead to breach of
sectoral caps.

(Source : The Economic Times, dated 17-3-2010)


 

 

 

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Charge maximum penal amount on TDS defaulters : CBDT

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The Central Board of Direct
Taxes (CBDT) today directed its field formation to levy the highest penal rate
of tax on TDS (tax deducted at source) defaulters. Following a sharp shortfall
in revenue from TDS collection, the Income-tax Department has launched a massive
drive across the country to detect and inquire into TDS payments of companies —
especially on payments made and salaries disbursed. Tax searches have revealed
that several small and medium-scale companies deducted tax on various payments,
but failed to deposit the amount with the Department. In such cases, it has been
decided by the Board that the departments can charge the highest level of penal
rate of tax — that is 300%. Besides, the Income-tax Department has disallowed
all expenses incurred by third-party administrator companies (TPAs) across the
board. The existing practice is to deduct the expenses from the total earnings
before arriving at the taxable income. Department officials said the decision to
disallow the expenses have been taken since they do not deduct tax while paying
premium to the insurance companies.

The Department has raised
around Rs.117 crore in TDS amount from six TPAs. The disallowance of expenses
comes u/s.40I(a)(i) of the Income-tax Act, 1961 that is invoked for non-payment
of TDS. Officials said a similar amount has been disallowed as deduction from
income.


(Source : Business Standard, dated 13-3-2010)

 

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FM asks IRS officers to collect taxes with human touch

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Finance Minister Pranab
Mukherjee has asked Indian Revenue Service officials to consider taxpayers as
important stakeholders in nation-building and to administer taxes with a human
approach. He was addressing the 63rd batch of IRS trainees last evening.

Mr. Mukherjee pointed out
that the shift in policy whereby taxpayers are not seen as adversaries has
resulted in a significant growth in tax collection during the past decade. He
asked the trainee officers to imbibe this approach in their daily working.

The Finance Minister said
that direct taxes collection has increased by ten times during the past decade.
He also pointed out that the share of direct taxes is now more than 55%.

The Finance Minister
reminded the officials that it was due to increased tax buoyancy and collection
efforts of Revenue departments that the government was able to waive off the
loans to farmers amounting to Rs.71,000 crores.

(Source : www.taxindiaonline.com dated 12-3-2010)

(Compiler’s Note :
Let us see how much impact this makes on the attitude of the Revenue officials)

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ORDERS OF CIC/SICs

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Part A : ORDERS OF CIC/SICs


 

 
S. 2(h) of the RTI Act — Public Authority :


Different High Courts in a number of cases have decided
whether a particular body or institution is a Public Authority or not u/s.2(h)
of the Act. Hereunder are listed some of the decisions :

l
Decision of the High Court of Karnataka :


Textile Co-operative Bank is provided aid or assistance by
the State Government for the benefit of the weavers, who may be members of the
Bank in respect of loans availed by them. On these facts, it could not be held
that the said aid or assistance is provided to the Bank. Accordingly, the Bank
is not a non-Government organisation substantially financed by the State
Government. Hence, it is not covered under clause (d)(ii) of S. 2(h), and is not
a Public Authority. [Textile Co-op. Bank Ltd. v. the Karnataka Information
Commission & Others,
W.P. No. 20004 of 2007 (GM-RES) and C.W.P. No. 18599 of 2007 (GM-RES) decided on
17-2-2010, (2010 (1) ID 521)]

l Single
Bench decision of Bombay High Court :


There is no direct or indirect control by the State
Government over the affairs of Dr. Panjabrao Deshmukh Urban Co-operative Bank
Ltd. The control was not deep or pervasive.

Hence the said Bank was not covered within the meaning of S.
2(h) of the RTI Act. [AIR 2009 Bombay 75, (2009 (2) ID 156)]

l
Division Bench decision of Punjab & Haryana High Court :


The Court held “A perusal of the definition of ‘public
authority’ shows that ‘public authority’ would mean any authority or body or
institution established or constituted apart from other things by the
Notification issued by an order made by the appropriate Government. It is to
include even any body owned, controlled or substantially financed or
non-Government Organisation substantially financed directly or indirectly by the
funds provided by the appropriate Government. It is undisputed that the
petitioners are receiving substantially grant-in-aid from the Chandigarh
Administration. Once a body is substantially financed by the Government, the
functions of such body partake the character of ‘public authority’. The
petitioner has claimed that they are getting only 45% grant-in-aid after
admitting that initially the grant-in-aid paid to them was to the extent of 95%.
If on account of policy of the Government the grant-in-aid to the extent of 95%
which was given initially allowing the petitioner to build up its own
infrastructure and reducing the grant-in-aid later would not result into an
argument that no substantial grant-in-aid is received and therefore it could not
be regarded as ‘public authority’. Therefore, the Court did not find any
substance in the stand taken by the petitioner that it is not a ‘public
authority’ “

[D.A.V. College Trust & Management Society & Ors. v.
Director of Public Instruction & Ors.,
AIR 2008 (Pb& Hry.) 117; (2008 (2) ID
382)]

l
Single Bench decision of High Court of Allahabad :

The question for consideration was whether the petitioner,
which is a Girls High School, recognised and receiving grant-in-aid from the
State Government, is a ‘public authority’ as defined u/s.2(h) of the RTI Act.

The Court held as follows : “In my opinion, whenever there is
even an iota of nexus regarding control and finance of public authority over the
activity of a private body or institution or an organisation, etc. the same
would fall under the provisions of S. 2(h) of the Act. The provisions of the Act
have to be read in consonance and in harmony with its objects and reasons given
in the Act which have to be given widest meaning in order to ensure that
unscrupulous persons do not get benefits of concealment of their illegal
activities or illegal acts by being exempted under the Act and are able to hide
everything from the public. The working of any such organisation or institution
of any such private body owned or under control of public authority shall be
amenable to the Right to Information Act. The petitioner being an institution
recognised under the provisions of the U.P. High School and Intermediate
Education Act, 1929 and receiving grant-in-aid from the State Government is
therefore, covered under the aforesaid Act.”

[Dhara Singh Girls High School Ghaziabad v. State of Utta
Pradesh & Ors.,
AIR 2008 Allahabad 92; (2008 (2) ID 179)]

l
The High Court of Orissa :


The Court was considering the case of Southern Electricity
Supply Company of Orissa Ltd. (the Company) which is a subsidiary of Grid
Organisation of Orissa Ltd. (GRIDCO) which is a wholly-owned Government Company.
Submission of the Company was that it is a public limited company and hence it
is not a ‘public authority’ as defined in S. 2(h) of the RTI Act. The Court held
that u/s.2(h) even non-Government organisation substantially financed directly
or indirectly by the funds provided by the appropriate Government would come
within the ambit of Public Authority. Admittedly the petitioner company is a
subsidiary of GRIDCO, wholly-owned Government Company, it is governed by the
different rules and regulations framed by the State Government, the rate of
tariff is regulated by the Orissa Electricity Reforms Act. Moreover, this
distribution company, and three similar other companies, are discharging
governmental function of distribution and supply of electricity to the people of
the State, which is an essential public duty.

All these go to show that the State Government has a deep and
pervasive control over the petitioner company and such control is not mere
regulatory. In view of the above, the Court came to the conclusion that the said
company falls within the definition of Public Authority as defined u/s. 2(h) of
the RTI Act. [Southern Electricity Supply Company of Orissa Ltd v. State of
Orissa and Others,
W.P.(C) No. 8698 of 2006 decided on 9-12-2009; (2010 (1)
ID 524)]

 
S. 2(f) — ‘Information’ :


The writ petitioners, The Institute of Chartered Accountants of India (ICAI), claim to be aggrieved by an order of the Central Information Commission (CIC), dated 23-12-2008 to the extent that the Commission directed disclosure of the applicant complainant’s answer sheet to the information applicant. The applicant had elicited various kinds of information, including a copy of the answer sheet of the examination attempted by him. The Assistant Solicitor General who appeared on behalf of ICAI contended that the question as to the right to information and the right of the class of individuals who attempt examinations to access their answer sheets is squarely covered by the rulings of the Supreme Court in Secretary, West Bengal Council for Higher Secondary Education v. Ayan Das, [2007 (8) SCC 242] and President, Board of Secondary Education, Orissa & Anr. v. D. Suvankar & Anr., [2007 (1) SCC 603].

The argument was that the interpretation placed by the Supreme Court unalterably fixed the character of the right, in the sense that the declarations exclude the right of a candidate participating in the examination process to access information about the examination process by demanding copies of answer sheets. The subsidiary argument made by the ASG was that the right to seek answer sheets, if at all, could be claimed as part of Article 19(1)(a) of the Constitution and since the Supreme Court excluded that possibility, having regard to the objects of the RTI Act, i.e., effectuation of provisions of the right to freedom of expression and information, the possibility of accessing such class of information stands excluded from the right to freedom of expression.

The Court stated that under the scheme of the enactment, all classes of information except those which are explicitly exempted from disclosure u/s.8 have to be revealed. The exemption regime is itself broad and covers various diverse matters, including commercial information, trade secrets and so on. The information authorities set up under the enactment are empowered by S. 10 to sever such information which should not be disclosed from such class of information. The Court then stated as under : “The argument of the petitioner that since the Supreme Court declared the law in such matters, and that candidates who seek copies of answer sheet cannot claim it as a matter of right, is unpersuasive.”

The Supreme Court’s decisions were similar in both the instances; in Ayan Das case and D. Suvankar case, the context was wide directions by the High Court, requiring revaluation/re-verification (in the Suvankar case) and direction to reassess through another examiner in Ayan Das’s case. There is no discussion or mention of the RTI Act. Concededly, the judgments were not examining information application under the RTI Act. Yet, a close scrutiny of the facts mentioned in both the judgments reveals that the claims were not premised on any of the provisions of the enactment. Apparently, they were in the context of writ petitions filed before the High Court. The judgments, therefore, have to be read in their terms, and in the contextual setting. There is no gain saying that the judgments of the Supreme Court on an issue constitute law declared under Article 141 of the Constitution. Yet, the judgments are in the context of what is declared and what is not declared.

The ‘unarticulated’ argument of no right under Article 19(1)(a) by the learned ASG cannot, therefore, be accepted. Doing so would mean that this Court would be reading into the two judgments on the intention to overbear the provisions of the RTI Act; a result too startling to accept. As regards the second contention that since the Supreme Court held that there is no right to claim disclosure of answer sheets or copies, and the same is not part of the Right to Freedom of Expression and, therefore, implicitly excluded from the RTI Act; this contention too cannot be accepted.

The mere fact that the statement of objects of, or the long title to the RTI Act mentions that it is a practical regime of the right to information for citizens, would not mean that a cribbed interpretation has to be placed on its provisions, on the same notion of implicit exclusion of that which would legitimately fall within Article 19(1)(a). No rule of interpretation or judgment of the Supreme Court was discussed or relied on the point that the ruling in Suvankar’s case excluded the right to access answer sheets, which would otherwise fall within the expression and, therefore, would fall within the purview of the RTI Act.

The interpretation canvassed would lead to startling consequences when in the absence of enacted law under Article 19(2), the Court would be legislating, as it were, without the possibility of such exclusion being tested in Courts. A salutary rule of interpreting the Constitution is that fundamental rights should be construed broadly, to enable citizens to enjoy them [Ahmedabad St. Xavier’s College Society v. State of Gujarat, (1974) (1) SCC 717]; Dr. Pradeep Jain v. Union of India, (1984) (3) SCC 654]. In any event, the Act confers positive rights which can be enforced through its mechanism.

This Court should be extremely slow in interpreting such rights, dealing with personal liberties and freedoms on the basis of some inarticulate premise of a judgment. For the above reasons the Delhi High Court dismissed the writ petition and held the same to be misconceived.

[ICAI v. Central Information Commission & Anr., W.P. (C) 8529/2009 decided on 30-4-2009; (2010 (1) ID 587)]

                                                         PART B : THE RTI ACT 2005

5th CIC Annual Convention, 2010:

Central Information Commission held a 5th Annual Convention, 2010 on 13th and 14th September 2010 at DRDO Bhavan, New Delhi. I was invited by the Commission to attend the same and have actively participated there. Sessions were very well conducted and provided a tlot of information on the development of RTI in India and the road ahead. Theme of the Convention was: ‘RTI: Challenges and Opportunities’. In coming few issues, I shall provide details thereof. To start with, I reproduce the keynote remarks of Shri Gopalkrishna Gandhi at the inaugural session, some being the highlight of the Convention:

After the IPC, the FIR and PIL, the best known three-letter acronym in Indian Governance is RTI. I think it has overtaken the others in frequency of use outside the agencies of law enforcement. And it engenders as much awe as IPC, FIR and PIL. It also generates, as PIL does, but even more so, two reactions : The first is admiration amongst its users or potential users. Ki aisaa ek baraa hathiyaar hamaare haathon mein aayaa hai.

The second is apprehension amongst those it targets or is likely to target. Ki humen dhake huaa pardaa ab khul gayaa hai. The first reaction, the reaction of admiration, is a good and wholesome reaction. Kyuunki qaanuun barhiyaa hai, bahaadur hai, har pradesh mein laguu ho gayaa hai.

RTI Act ab jan chukaa hai. Aaj uskii pehchaan hai, shaharon mein hi nahiin, chhote nagaron aur dehaat mein bhii. Haalaanki kuchh pradeshon mein vah mazbuti se aage barha hai aur kuchh aur pradeshon mein ab bhi ladkhadaate hue chaltaa hai.

Qaanuun-hukumat-awaam kaa is tarah ek honaa bahut achhi baat hai, which has to be admired. Lekin duusraa reaction jo hai, apprehension vaalaa, vah intahaa ghalat aur buraa hai. The Right to Information must never be allowed to degenerate into the Right to Bully, or into a form of vigilantism. Kyunki vah qanuun jo darr paidaa kartaa hai, vah iktarfaa hotaa hai, vah vishvaas, bharosaa, aitbaar nahiin barhaataa hai. Aur aaj humko vishvaas, aitbaar ki sakht zururat hai.

AAj RTI ko aaye paanch saal ho gaye hain. Humko aaj uske prabhaav oar, uske asar par, ghaur karnaa chaahiye. Kyaa hai uskaa asar ? RTI mein ek bare aandolan ki fateh hui hai. Aur uskaa shreyas sabse pahle jaataa hai Aruna Roy ko, jinhone Rajasthan mein RTI ki zaruurat mahsuus kari aur phir uske liye aandolan shuru kiyaa, aur uske liye logon kaa samarthan praapt kiyaa.

Andolanon ko logon kaa samarthan tab hi haasil hotaa hai jab logon ko us andolan mein tuk, tark, aur tathya dikhe. Varnaa nahin. Is qanuun ne hazaaron ke dil ujaagar kiye hain. Is qanuun ne kaiyon ko insaaf dilaayaa hai, kai ghaflaton, ghalatiyon, ghus aur ghor anyaayon ka is qanun ne muquabilaa kiyaa hai. Lekin phir bhii RTI ko aaj bhii ek smarthan kii, support aur backing ki zaruurat hai.

Aaj bhi RTI ke qaanuun banjaane ke baad bhi usko yah kyuun chaahiye ? Vajah yah hai : Yah qanuun kaiyon ke kaanon tak pahunchaa hai, kai hazaaron, lakhon kaanon tak pahunchaa hai, lekin phir bhi kai auron — karoron — ke kaanon ke upar se sarsaraataa huaa pravesh kar gayaa hai daftaron mein. Is baat mein vaise koi kharaabi nahiin. Daftaron ke binaa koi qanuun nahin chaltaa. Lekin daftaron kaa ek ajib tariqaa hotaa hai. Ve qanuunon ko apne kuuchon mein mehmaan banaa dete hain.

Daftaron ki koshish hoti hai ki qanuunon ko kam se kam taqliif ho, ziyaada se ziyaada aaraam miley. Lekin RTI aaraam ke liye nahiin banaa hai. Vah kaam ke liye banaa hai. Usko mehnat chaahiye, raahat nahiin. Daftaron ko RTI se darnaa nahin chaahiye, us se khisakne kii koshish nahiin karnii chaahiye. Mein sarkaari prabandhakon ko kahungaa ki RTI se ek ho jaayiye, usko apnaayiye, uski madad se haqiqat ko pahchaaniye, usko durust kariye. Jab bhii RTI ki tahat public se koi savaal aataa hai sarkaari daftaron ko uskaa svaagat karnaa chaahiye aur uskaa puraa, sahi, aur sachchaa javaab buland aavaaz mein denaa chaahiye.

It is not just RTI’s great good fortune, but India’s that a person of the veracity of Wajahat Habibullah has been India’s first Chief Information Commissioner. He has set RTI on track, set the RTI-Government equation on track. The Chief Information Commissioners in the States have also been working extremely hard, often with inadequate infrastructure, often as single Commissioners, and often without that continual backing from the State Administration that is required. I would like to congratulate all of them on this occasion for what they have achieved. They, with the Lok Ayuktas, and the State Commissions for Human Rights are Institutions of Conscience, They are, what may be called, the Zameer-e -Hind. Pradeshon mein jo commissioner aur PIOs bane hain, unko Rajya sarkaaron se saari suvidhayen aur sammaan milne chaahiye. RTI ki adhikaariyon ko iske liye intezaar karnaa pare yah sarkaari chhabi ke liye thiik nahiin.

RTI mein gopaniyataa kaa ek aham savaal hai. Is se sarkaaron ko kuchh bechainii hoti hai. RTI Act mein gopaniyataa kii surakshaa hui hai. Honi chahiye. Jaise hum hain, vaisa hi desh hai. Humen hum sab ko — kuchh maamlon mein gopaniyataa kii zuruurat hotii hai. Kuchh rishte aise hote hain, jahaan gopaniyataa zuruuri hoti hai. Sarkar aur desh ke rishton mein bhii kuchh aise lamhe aate hain, jahaan gopaniiyataa aavashyak ban jaatii hai. Vaisii gopaniyata kuchh nazaakaton kii hifaazat ke liye hotii hain. Khulepan— transparency — ka yah matlab nahiin ki hum aisii nazaakaton ko bhuul jaayen.

I would certainly include in these the confidential communications between a head of State and head of Government, both at the Centre and in the State. At the same time I would say that whenever an occasion arises when a head of State and head of Government share thoughts on matters of public importance, they must simultaneously take the public into confidence and place in the public domain, an operative summary of their discussions or correspondence to obviate speculation.

File notings kii baat aatii hai. Is par bhii bechainiyaan rahiin hain aur Chief Information Commissioner sahib kii is par aham ruling bhii aayii hai. Main sirf itnaa kah duun ki afsaron or saare note-writers ko notings likhte vaqt muddon par sochnaa chaahiye, haqiqat ko dhyaan mein rakhnaa chaahiye, qanuun ko dhyaan mein rakhnaa chahiye. Notes yah soch kar na likhiye ki ‘kahiin aage jaa kar RTI vaalii taqlioif na ho jaaye’. Aur na hi aisii notes likhne kii koshish kiijiye jis se ki RTI ke taramandal mein aap ek chamaktaa sitaaraa ban jaaen.

The RTI Act should not make note files monosyllabic or laconic, nor should it encourage prolixity in the hope of ‘RTI immortality’. Bureaucracy RTI ke maamle mein apne puraane mindset se abhi baahar aanaa siikh rahii hai. Sadiyon se afsaron ne thakur-suhaati sunii hai, maai-baapii, hukum-huzuurii dekhii hai. Unhe bataayaa gayaa hai ki savaal afsar baithe hue karegaa, javaab uske samne kharaa huaa insaan degaa. Aaj jab afsar RTI ke learner hai, aur RTI shikshak, to unko yah mat kahiye ‘chal utth, khare ho’. Yaa ‘chal utth, sar par khare ho’. Afsar aaj ek baraa pahluu siikh rahaa hai, vishvasaniya aur transparent RTI-compliant shaasan mein, siirshaasan mein nahiin. Gandhiji in Decemeber 30, 1926 ke din ‘Young India’ mein likhaa thaa: “Those who seek justice must come with clean hands”.

‘Clean hands’ means that those using the Act must use it responsibly. The architects and engineers and the persons running the Act should make users of the Act realise the difference between stressing and straining a point, between portraying and exaggerating a situation and between emphasising and magnifying a problem. RTI adherents and users should encourage serious questions and discourage frivolous or malicious ones. I have heard of persons who have been unsuccessful in interviews promptly doing an RTI to challenge the procedures of the appointing authorities, thereby paralysing the functioning of those bodies. A good instrument can be misused.

RTI’s protectors must not let that happen. The RTI Act is a potential remedy for discontent. It should not become a weapon in the hands of malcontents. Discontent in India is a reality. Malcontents in India are no less so. A strict and disciplinarian head-of-office can be bullied by RTI threats. This bullying can be lethal if it is based on deliberate distortions of facts and if it is based on half truths. Even a ‘truth’, a ‘fact’, can sometimes be misused. William Blake
famously said : ‘A truth told with bad intent beats all the lies you can invent’. RTI protectors and NGOs must be mindful of that. RTI should not be used to hurt anyone or anything, except opaqueness. RTI Act afsaron ko haqiqat kii dhuul se vaaqif karne ko hai, uski naak dhuul mein ragadne ke liye nahiin.

Today, RTI is facing probably its greatest challenge. So effective has it become, so rich in results, so amazingly potent that those with something to hide are afraid of it. Fear is a cousin of panic. And so we hear of those who have had the courage to use RTI against the powerful and the entrenched have had to pay dearly for their courage, even with their lives.

This is intolerable. If it is true that the unnatural death of persons who have filed RTI applications is connected with their RTI action, the law-enforcers have to visit the guilty with the speed of light and, under due process, bring the guilty demonstrably to account. And politics should be allowed to play no role in the proceedings. It is as imperative to keep politics out of RTI as it is to keep it out of the judiciary.

In fact, even more so because over the decades the judiciary has built up systems to safeguard its space; RTI establishments are yet to do so. Those who have died in the course of RTI work are martyrs to more than the Right to Information; they are martyrs to transparent and good governance and the rule of law. They are martyrs to the cause of a civilised and liberal rule of law. RTI Act ne logon ko aavaaz dilaayii hai, divaaron ko sunne par majbuur kiyaa hai. Surdas ke shabdon mein: Jaake kripa, Pangu giri langhai, Andhau ko sab kachhu darisaaii, Bahirau sune, guung puni bolai, Ranka chale sir chhatra dharaayii.
    
                                            

                                               PART C:  Informatton on & Around

    SIC’s validity under cloud:

S. 15 of the RTI Act provides that every State Government shall by Notification in the Official Gazette constitute a body to be known as State Information Commission to exercise powers conferred, etc. under the RTI Act. Even after 5 years since the RTI Act, 2005 came into existence, the Maharashtra State Government has not issued such Notification. Technically, all the orders by the Information Commission will be illegal and have no force of law. What a state of affairs !

    SRA biggest job attraction:

The Slum Rehabilitation Authority, building proposal, vigilance and development planning departments are the most lucrative, hence the most sought-after postings in the Brihanmumbai Municipal Corporation as revealed under the RTI application. According to the information sought by RTI activist Anil Galgali, BMC officials, chiefly engineers are asking for prime postings in these four departments of the Corporation. Further, in order to get postings in these departments, these officials have approached various politicians seeking letters of recommendation from them. According to the RTI reply, the officials seeking the postings have not only got recommendation from state politicians, but also Union Ministers. The SRA, building proposal, vigilance and development planning departments deal with builders who are ready to give big money so that their proposals are passed by the BMC. Further, many transactions take place under the table in these departments.

    SIC’s orders being challenged by the Government:

In a first case of its kind after the landmark Right to Information Act came into force five years ago, the Congress-led Democratic Front Government has refused to implement Chief Information Commissioner Suresh Joshi’s order to provide information to controversial bureaucrat V. M. Lal. Lal had filed an application under RTI before the GAD Public Information officer. He sought specific copies of the notings made by the concerned Department on the ongoing probe against him. A probe was conducted against him by veteran bureaucrat Asoke Basak. Lal’s contention was that Basak had given him a clean chit in all the eight charges. He alleged that on the basis of certain notings in his file, GAD did not agree with the findings of Basak and ultimately it recommended a punishment to him. In his application Lal had asked for all relevant notings and documents. The PIO took the view that since no final decision was taken the entire process remains incomplete. According to provisions of the RTI Act it was not binding on the PIO to provide the information sought. We have received CIC Suresh Joshi’s order to provide information to Lal. In our opinion the order is bad in law. If we implement the order, it will have an adverse impact on the administration. “As per the opinion expressed by the law and judiciary department, now we are moving the High Court against the CIC order,” said a senior official.

    Mhada’s duties:

The Maharashtra Housing and Area Development Authority (Mhada) is duty-bound under the law to give the owner of a repaired building an opportunity to claim a compensation if the value of the debris (mostly Burma teak) turns out to be more than the cost of repairs. RTI query revealed that the relevant rule providing for this point is mostly not observed. There are around 16,000 buildings in Ctentral Mumbai that are more than 70 years old and in dire need of repairs. However, landlords are generally not interested in spending any money on them. The tenants of such buildings pay Mhada a cess in lieu of which it undertakes repairs through its repairs board. Many of these buildings were built from stone/bricks and wood. The wood is largely in good condition and fetches a very high price in the market. Going by the law, the wood becomes the property of the repairs board. However, after repair it is supposed to give a formal notice to the landlord that he may submit a claim for compensation if he feels that the cost of the wood is more than the cost of repair. RTI activist Milind Mulay found out that though 1,740 buildings were repaired using the cess and MLA/MLC fund between April 1, 2006 and November 14, 2009, not a single landlord was given this notice. It is surprising how senior officers who sign the file before releasing payment to the contractor do not notice the violation of their own rule.

    `26 lakh vanished:

Nearly `26 lakh collected by the BEST to provide relief after 1971 Bangladesh war seems to have vanished into thin air. The BEST had collected the amount from bus commuters as the Bangladesh Refugee Relief Surcharge from 1971-73 and the Scarcity Relief Surcharge in 1973-74. However, neither the BEST nor the Transport Commissioner’s office where it claims to have deposited the money has any information on how the money was spent. This was revealed when RTI activist Manoranjan Roy filed an application asking the BEST how much money was collected as surcharge and where it wasspent. The BEST revealed that it had collected `13.85 lakh under the head of ‘Bangladesh Refugee Relief Surcharge’ from December 1971 to March 1973 and a sum of `12.94 lakh under the head of ‘Scarcity Relief Surcharge’ from April 1973 to March 1974. However, the BEST said that it had deposited the money with the transport department as the sum is collected on behalf of the Government of Maharashtra and was being remitted to the office of the Transport Commissioner every month. When Roy filed an RTI with the Transport Commis-sioner’s office, the department admitted that such surcharges imposed by the BEST were deposited with it, but said it had no record of the `26 lakh. Roy has now filed a PIL, demanding an inquiry into the management of funds by BEST.

    `45 crore vanished:

Bet you did not know this — every time you pay for your local train ticket fare you end up paying a fraction of the amount as ‘safety charges’. Central Railway (CR) collected `45 crore as safety charges during 2008-2009. However, they have no idea as to how this money has been utilised. The safety charge is collected to provide safety to passengers and other amenities. It includes construction of flyovers at unmanned railway crossings, boundary walls, purchasing safety devices for track maintenance, track replacements, putting posters on railway-crossing gate and signalling equipment. Kalbadevi-based social activist, Pravin Tripathi, had filed a Right to Information application seeking details about the safety charges collection of 2008-2009. CR replied to him saying: “The details of used-up money collected as safety charges `45,45,73,426 (for 2008-2009) is not available in this office, hence cannot be provided.” “Railways should have provided me details about the usage of safety charges collected but they failed to. I think it’s because the amount has not been used for passengers and they should, therefore, return this amount to passengers,” Tripathi told MID-DAY. “If a year’s collection works out to `45 crore, for 10 years it may add up to around `450 crore. The railways should furnish details about our money, there is no passenger safety at stations, no ambulance, no first-aid box at stations”, said Tripathi. Do you know that approximately 37 lakh people commute on the Central Railway every day?

    Private schools now fall within RTI Act ambit:

The CIC has ruled that private educational institutions— whether government-funded bodies, and issues related to their management and regulation come under the ambit of the Right to Information.

    File notings being shielded:

Bureaucrats manage to hide file notings on all files and petitions processed at Andhra Pradesh State Secretariat. They use stick-notes (post-its) on all files in the State Secretariat as these can be removed in case of an RTI query, leaving no trace of favoritism. There’s colour coding too. A particular colour means a particular minister is perusing the file (with a vested interest). Also, ink colour indicates the sign of approval or otherwise, etc. Any noting in black usually means negative, blue means neutral, green means clear and magenta means relaxation of rules!

Arbitration & Other Laws

Laws and Business

Introduction :

An arbitration is always a fall out of disputes. Disputes
occur for various reasons and under various laws. Hence, while dealing with an
arbitration, one needs to keep in mind the provisions of the other laws. They
more often than not, would have a bearing upon the arbitration proceedings or
the award or the validity of the same. One must always remember that an
arbitration is not an island by itself. It draws on and feeds on other laws.



2. Arbitration &
Company Law :


One of the foremost questions which arises is the necessity
for a company to have an arbitration clause in its memorandum of association. It
is not an object of a company to refer matters to Arbitration but it is a power.
Hence, it is not necessary for a company to have an arbitration clause in its
memorandum of association, but it is definitely advisable.

The next question which arises is who can refer a matter for
arbitration on behalf of a company. A variety of persons can refer a dispute to
arbitration :

  •       Board of Directors


  •      Managing Director


  •      Any Committee/Executive specifically authorised by the Board to do so


  •      Any Power of Attorney holder of the Company.





However, this would be subject to any express provisions on
this aspect in of memorandum and articles of association.

2.3 Disputes which are typical to a company and which can be
referred to ‘arbitration’ may include those arising on account of :

  •    Oppression & Mismanagement


  •  Shareholders’/Joint Venture Agreement


  •  Share Subscription Agreement


  •  Agreements with VCs/Private Equity

Oppression & Mismanagement :


S. 397 and S. 398 of the Companies Act provide for a petition to the Company
Law Board in all cases of oppression of minority by majority and mismanagement
of the affairs of the company by the majority. The question that arises, is can
the agreement between parties provide that the same would be referred to
arbitration ?

S. 8 and S. 45 of the Arbitration and Conciliation Act, 1996
provide that a judicial authority before which an action is brought in a matter
which is the subject of an arbitration agreement shall, if a party so applies
not later than when submitting his first statement on the substance of the
dispute, refer the parties to arbitration. Further, notwithstanding anything
contained in the Code of Civil Procedure, 1908, a judicial authority, when
seized of an action in a matter in respect of which the parties have made an
agreement, shall, at the request of one of the parties or any person claiming
through or under him, refer the parties to arbitration, unless it finds that the
said agreement is null and void, inoperative or incapable of being performed.
The CLB has exclusive jurisdiction for all matters u/s.397 and u/s.398 but that
does not preclude reference to arbitration. Thus, S. 8 and S. 45 are mandatory
provisions and if the petition matters are within the scope of the arbitration
agreement, then the CLB is bound to refer the issues to arbitration.

However, the CLB cannot order a reference to arbitration
unless a party to the proceedings applies for the same — EIH Ltd. v. Mashobra
Resort, 119 Comp. Cases 993 (CLB). If the oppression petition is contested by
the parties on merits without reference to arbitration, then the CLB would not
grant any stay against the petition — Suresh Jain v. Hindustan Ferro, 96 Comp.
Cases 507 (CLB).

The CLB will decide all matters of oppression and
mismanagement even which are outside the scope of the arbitration agreement —
Khandwala Securities Ltd. v. Kowa Spinning Ltd., 97 Comp. Cases 632 (CLB).

Joint venture/Shareholders’ agreement :


JV/shareholders’ agreements provide for the ‘Management and
Conduct of Business’ of a Company. A usual clause found in such agreements is
that all disputes would be referred to arbitration. A question which arises is
that can the company also be made a party to the arbitration along with the JV
partners/shareholders ?

Articles of association are the regulations which bind a
company and its shareholders. Only if the provisions of arbitration are
incorporated in the articles of association, can the company be made a party to
such proceedings :

  •  Shanti Prasad v. Kalinga Tubes, (1965) 35 Comp. Cases 351 (SC)


  •  V. B. Rangaraj v. V. B. Gopalkrishnan, (1992) 73 Comp. Cases 201 (SC)


  • B. K. Shah v. Magotteaux Int., 111 Comp. Cases 220 (CLB)







A transfer of shares pursuant to an arbitration award is not
a case of a transfer, but it is a transmission of shares by operation of law.
Thus, it falls under the second proviso to S. 108 of the Companies Act and does
not require a transfer form for the company to register the transfer of shares.
The transfer in such a case is not based upon the volition of the parties, but
by operation of law — Dinesh Nagindas Shah v. Pankaj Aluminium Industries P.
Ltd., 102 SCL 161 (Bom.).

A Single Judge of the Bombay High Court in the case of Western Maharashtra Development Corporation v. Bajaj Auto Ltd., reported in (2010) 154 Comp. Cases 593 (Bom.), had ruled that an Arbitration Tribunal had no jurisdiction to give an award on the basis of a Shareholders’ Agreement containing restrictive clauses in the SHA. This was because the SHA itself was invalid, since the articles of a public company could not contain clauses restricting the transfer of shares and it was contrary to S. 108 of the Companies Act, 1956. Hence, the arbitration agreement which was founded on the SHA was void. The Arbitrator had ignored the express provision of S. 108 and lost sight of the very concept of free transferability of shares of a public limited company. Hence, his award was set aside. Very recently, a two-Member Bench of the Bombay High Court, in the case of Messer Holdings Ltd. v. Shyam Ruia and Others, (Appeal No. 855 of 2003) has overruled this decision of the Single Judge of the Bombay High Court. Hence, as the position now stands, an arbitration award dealing with restrictive clauses in a public limited company would be valid. This is a very important judgment since almost all PE/VC/ JV agreements as well as shareholders’ agreements contain such clauses. Thus, if any dispute arises on these clauses, the parties can apply for arbitration.


Winding-up petitions :

Can a petition for winding-up of a company u/s.433 of the Companies Act be referred to arbitration? Various decisions have held that an arbitration clause does not oust jurisdiction of a Court for winding-up petitions. Only disputes are referable to arbitration. A petition for winding-up is not an ‘action’. The power to order a winding-up is only under the Companies Act and only with the High Court. The Supreme Court in the case of Haryana Telecom v. Sterlite Industries Ltd., 97 Comp. Cases 683 (SC), has held that a claim in a petition for winding-up is not for money. Hence, no reference to arbitration can be made for winding-up of a company. Further, arbitration proceedings are not a bar to winding-up petitions — ABG Heavy Ind. v. Hindustan Shipyard, (2001) 105 Comp. Cases 413 (Bom.).

In Hewlett Packard v. BPL Net Com, (2002) 110 Comp. Cases 575 (Kar.), the Court held that if there is an arbitration clause in an agreement, the Court can yet entertain a winding-up petition as per its discretion. There is no automatic stay on winding-up merely because the subject-matter of dispute carries an arbitration clause. An arbitration agreement is binding on a company even after a winding-up petition. The legal status of the company continues till the company is dissolved. The only change is that instead of the Board of Directors the Liquidator steps into its shoes :

  •     Goetze India v. Pure Drinks, (1999) 3 Comp. LJ. 68 & (1994) 80 Comp. Cases 363 (P&H)

  •     Maruti Ltd. v. B. G. Shirke & Co., (1981) 51 Comp. Cases 11 (P&H)

    446 of the Companies Act provides that once an order for winding-up is made, no suit/legal proceeding can be initiated against the company unless permission of Court is taken. Proceedings would also include ‘arbitration proceedings’. Thus, the leave of the Court would be required to commence arbitration proceedings against such a company — British India Corp. v. S.S. & T. Machinery, (2001) 106 Comp. Cases 467 (Kar.). The Court can declare an arbitration/ award to be null if done without its permission. Permission of the Court ordering winding-up is a must. Even a third party can plead that arbitration is null if no Court permission was obtained — Vasantha Ramanan v. Official Liquidator, (2003) 114 Comp. Cases 747 (Mad.).

VC/Private Equity Agreement :

These agreements always provide for a Deadlock Resolution between the Management Team and Venture Capital Funds. The usual clause provides that :

  •     The disputes would be first resolved through friendly consultations.

  •     If the disputes are yet not resolved, then arbitration would be the exclusive means of resolving any dispute.

Arbitration and HUF :

A question which arises is that who has power to refer to arbitration on behalf of an HUF? The father/ manager/karta has power to refer disputes relating to joint family property to arbitration, provided reference is for the benefit of the family — Shantilal v. Munshilal, (1932) 56 AIR 595 (Bom). Other members of the HUF are bound by the reference and the award made thereon — Balaji v. Nana, (1903) 27 Bom 287.

An agreement between HUF members to appoint arbitrators for partition amounts to a severance of the joint status of the HUF from the date of the agreement — Kashinathsa v. Narsingsa, AIR 1961 SC 1077.

An arbitration award is liable to ‘stamp duty’ of Rs.100 under the Bombay Stamp Act, 1958. An award is defined as a decision in writing of an Arbitrator/ Umpire made on reference for submitting differences, not being an award directing a partition.

However, if it is an instrument of partition, then the duty is different. An instrument of partition includes an award by an a arbitrator directing a partition. The duty on the same is levied @ 2% on the market value of the separated share of the property. Thus, the value on which stamp duty is levied is the total market value of the property less the largest share partitioned. If all shares are equal, then deduct any one share.

Arbitration and registration :

Earlier there was a controversy on whether an ‘arbitration award’ needed to be registered under the Registration Act, 1908. However, the Supreme Court’s decisions in Sardar Singh v. Smt. Krishna Devi, AIR 1955 SC 491, Kashinathsa v. Narsingsa, AIR 1961 SC 1077, M. Chelamayya v. M. Venkatratanam, AIR 1972 SC 1121 have clarified the position as follows :

    a) If the award creates right, title and interest in immovable property, then registration is compulsory.

    b) If it is a mere declaration of a pre-existing rights or reference to past partition and not creating right in praesenti — then ‘no registration’ is required.

    c) An ‘unregistered award’ which affects or purports to affect right, title or interest in any immovable property is inadmissible as evidence.

    d) However, an unregistered award is a valid award and not a waste paper. It creates rights and obligations between the parties.

In Akbarali v. Mumtaz Hussain, AIR 1987 Bom. 39 it was held that if a right is claimed under the award or is to be enforced by way of a suit, then registration of the award is a must. In Harendra Mehta v. Mukesh Mehta, (1999) 97 Comp. Case 265 (SC), it was held that foreign awards need not be registered.

In Satish Kumar v. Surinder Kaur, AIR 1970 SC 833, the Court held that if the award affects the partition of immovable property, then it requires registration.

Conclusion:

Whether a CA appears as a representative of one of the parties as an advisor, as an arbitrator, as a valuer or as an expert, he must always bear in mind the interplay of other laws on the award. A slip-up on any one law may render the award ineffective/ unenforceable. One is reminded of Humbert Wolfe’s golden quote :

“Making innumerable statutes, men
Merely confuse what God achieved in ten ! !”

PROBATES

Laws and Business

I.
Meaning :


Where
there is a Will, there is a Relative,

Where there is a Relative,
there is a Dispute,

And where there is a
Dispute, there is a Probate

The above quote is the
reality of several succession/inheritance cases. A probate means the copy of the
will certified by the seal of a Court. Probate of a will establishes the
authenticity and finality of a will and validates all the acts of the executors.
It conclusively proves the validity of the will and after a probate has been
granted, no claim can be raised about the genuineness or otherwise of the will.
A probate is different from a succession certificate. A succession certificate
is issued by a Court when a person dies intestate, i.e., without making a
will. Thus, a probate is granted by a Court only when a will is in place, while
a succession certificate is granted only if a will has not been made.

II.
Necessity :


According to the Indian
Succession Act, no right as an executor or a legatee can be established in any
Court unless a Court has granted a probate of the will under which the right is
claimed. This provision applies to all Christians and to those Hindus, Sikhs,
Jains and Buddhists who are/whose immovable properties are situated, within the
territory of West Bengal or the Presidency Towns of Madras and Bombay. Thus, for
Hindus, Sikhs, Jains and Buddhists who are/whose immovable properties are
situated outside the territories of West Bengal or the Presidency Towns of
Madras and Bombay, a probate is not required. It also applies to Parsis who
are/whose immovable properties are situated within limits of the High Courts of
Calcutta, Madras and Bombay. However, absence of a probate does not debar
the executor from dealing with the estate.

III.
Procedure :


3.1 To obtain a probate, an
application needs to be made to the relevant Court along with the will. The
executor has to disclose the names and addresses of the heirs of the deceased.
Once the Court receives the application for a probate, it would invite
objections, if any, from the relatives of the deceased.

3.2 The Court would also
place a public notice in a newspaper for public comments. The petitioner would
also have to satisfy the Court about the proof of death of the testator and the
proof of the will. Proof of death could be in the form of a death certificate.
However, in the case of a person who is missing or has disappeared, it may
become difficult to prove the death. U/s.108 of the Indian Evidence Act, 1872,
any person who is unheard of or missing for a period of seven years by those who
would have naturally heard of him if he had been alive, is presumed to be dead
unless otherwise proved.

3.3 On being satisfied that
the will is indeed genuine, the Court would grant a probate (a specimen of the
probate is given in the Act) under its seal. The probate would be granted in
favour of the executor/s named under the will. The Supreme Court has held in the
cases of Lalitaben Jayantilal Popat v. Pragnaben J. Kataria, (2008) 15
SCC 365 and Syed Askari Hadi Ali v. State, (2009) 5 SCC 528, that while
granting a probate, the Court must not only consider the genuineness of the
will, but also the explanation given by the parties to all suspicious
circumstances surrounding thereto along with proof in support of the same. The
onus of proving the will is on the propounder. The propounder has to prove the
legality of the execution and genuineness of the said will by proving absence of
suspicious circumstances surrounding the will and also by proving the
testamentary capacity and the signature of the testator. When there are
suspicious circumstances the onus is also on the propounder to explain them to
the Court’s satisfaction and only when such onus is discharged, would the Court
accept the will — K. Laxman v T. Padmini, (2009) 1 SCC 354.

It may be noted that a mere
fact that a nomination has been made would have no impact on the probate since
the nominee is only a stop-gap arrangement till such time as the actual legal
heir is given the estate of the deceased.

IV.
Opposition :


If any relative, heir of the
deceased or other person feels aggrieved by the grant of a probate, then he must
file a caveat before the Court opposing the will. Once a caveat has been filed,
the Courts would hear the aggrieved party and he would have to prove that he
would have a share in the estate of the testator if he had died intestate.

V.
Why does one need a probate ?


5.1 One of the
questions which almost always arises in the case of a will, is ‘why is the
probate required ?’ A probate is a certificate from the High Court certifying
the genuineness and finality of the will. It is the final word on whether the
will is genuine or it has been obtained by fraud, coercion, etc.

5.2 Some of the reasons why
a probate is required are as follows :

(a) It is necessary to
prove the legal right of a legatee under a will in a Court.

(b) Some listed/limited
companies insist on a probate for transmission of shares.

© Similarly, some
co-operative housing societies insist on a probate for transmission of a flat.

(d) The Registrar of
Sub-Assurances would insist on a probate usually for registration of immovable
properties.

However, it would not be correct to say that no transfer can take place without a probate. There are several companies, societies, etc., which do transfer shares, flats, etc., even in the absence of a probate. They may, as a precaution, insist upon a release deed from the other heirs in favour of the legatee who is the transferee. Sometimes, the company/society also asks for an indemnity from the legatee in its favour against any possible claims/law suits from the other heirs of the deceased.

VI. Special factors:

Some of the rules in respect of obtaining a probate are as under:

    a) For obtaining a probate, the applicable court fee stamp would be payable as per the rates prescribed in different states. For instance, for obtaining a probate in the city of Mumbai, the application has to be made to the Bombay High Court and the court fee rates prescribed under the Bombay Court-Fees Act, 1959 would apply which are as follows:

    b) A probate cannot be granted to a minor or a person of unsound mind.

    c) If there are more than one executors, then the probate can be granted to all of them simultaneously or at different times.

    d) If a will is lost since the testator’s death or it has been destroyed by accident and not due to any act of the testator and a copy of the will has been preserved, then a probate may be granted on the basis of such a copy until the original or an authenticated copy has been produced. If a copy of the will has not been made or a draft has not been preserved, then a probate can be granted of its contents or of its substance, if the same can be proved by evidence.

    e) A probate petition requires the following contents:

    i) A copy of the will or the contents of the will in case the will has been lost, mislaid, destroyed, etc.
    ii) The time of the testator’s death — a proof of death would be helpful.

    iii) A statement that the will is the last will and testament of the deceased and that it was duly executed.

    iv) The amount of assets which may come to the petitioner and the value for the purposes of computing the court fees.

    v) A statement that the petitioner is the executor of the will.

    vi) That the deceased had a fixed place of residence or some property within the jurisdiction of the judge where the application is moved.

    vii) It must be verified by at least one of the witnesses to the will. It must be signed and verified by the petitioner and his lawyer.

VII. Succession certificate:
A succession certificate is a certificate granted by a High Court in respect of any debt due to the deceased or securities owned by him. In case the deceased died living behind a will, which only empowered the beneficiaries to collect his debts and securities, then the courts would grant a succession certificate instead of a probate. It merely empowers the grantee to collect the debts owed to the deceased.

VIII. Chartered Accountant/Auditor’s Duty:

Normally, a CA in his capacity as an Auditor is not directly involved with wills and succession issues. Nevertheless, a CA can provide a lot of value added services to his clients if he is aware of the law in this respect. He can be of great assistance to his clients in cases of succession planning and estate planning. It is an area where he can assist his client and avoid unnecessary litigation amongst heirs. CAs in today’s environment, in addition to being business and financial consultants, are also family advisors.

Health check-up and treatment services

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Service TaxRenting of Immovable Property
Retrospective
Validation :

Background :


W.e.f 1-6-2007 the Central Government included within the
definition of taxable service a service provided or to be provided to any
person, by any other person in relation to renting of immovable property for use
in the course or furtherance of business or commerce
. Renting included
letting, leasing, licensing or other similar arrangement. The phrase ‘for use in
the course or furtherance of business or commerce’ was said to include use of
immovable property as factories, office buildings, warehouses, theatres,
exhibition halls and multiple-use building. Some residential and other
properties were excluded from the scope of this service.

The levy of service tax on renting of immovable property was
challenged through writ petitions before High Courts in different parts of the
country. Many property owners began paying self-assessed tax on the rent amount
and passed on the said liability to the tenants. At the same time, many property
owners did not charge service tax pending disposal of writ petitions.

Implications of the levy on renting of immovable property and
issues arising therefrom have been discussed in detail in the August 2007 and
September 2007 issues of BCAJ.

The Delhi High Court in Home Solution Retail India Ltd. v.
Union of India & Others,
(2009) 14 STR 433 (Del.) held that service tax is a
tax on value addition provided by a service provider. It is obvious that it must
have connection with a service and there must be some value addition by that
service. If there is no value addition, then there is no service. Applying the
same to renting of immovable property service, the High Court observed as
under :

“There is no dispute that any service connected with the
renting of such immovable property would fall within the ambit of S.
65(105)(zzzz) and would be exigible to service tax. The question is whether
renting of such immovable property by itself constitutes a service and,
thereby, a taxable service. Service tax is a value added tax. It is a tax
on the value addition provided by some service providers. Insofar as renting
of immovable property for use in the course or furtherance of business or
commerce is concerned, any value addition could not be discerned.
Consequently, the renting of immovable property for use in the course or
furtherance of business or commerce by itself does not entail any value
addition and, therefore, cannot be regarded as a service.

In arriving at the aforesaid finding, the Delhi High Court
relied on the decision of the Supreme Court in Tamil Nadu (T.N.) Kalyana
Mandapam Association v. UOI,
(2006) 3 STR 260 (SC) which, interestingly was
relied upon both by the appellants who had challenged the legality of the levy,
as well as by the respondents i.e., the Government of India. Based on a
detailed consideration of the aforesaid judgment, the Delhi High Court held that
the decision of the Supreme Court supported the argument of the appellants
before it and not the Government of India. With regard to the nature of the
service tax itself, the High Court held that it is a value added tax on value
addition done by the service provider and it must have a connection with the
service. Consequently, since mere renting of immovable property does not entail
any value addition, it could not be regarded as a service for that reason as
well.

The Delhi High Court observed in para 37 as :

. . . . We have not examined the alternative plea taken
by the petitioners with regard to legislative competence of the Parliament in
the context of Entry 49 of List II of the Constitution of India.



The Govt. filed an SLP against the said ruling which has been
admitted, but no stay has been granted against the Delhi HC Ruling. The same is
pending disposal.

Implications arising from the Delhi High Court Ruling have
been discussed in detail in the July 2009 issue of BCAJ.

Amendment by Finance Act, 2010 (‘Act’) :

Prior to the amendment, S. 65(105)(zzzz) of the Act defined
‘taxable service’ in the context of ‘renting of immovable property’ as under :

“(105) ‘taxable service’ means any service provided or to
be provided :

(a) to (zzzy) . . . . . .

(zzzz) to any person, by any other person in relation to
renting of immovable property for use in the course or furtherance of business
or commerce.

Explanation 1. . . . . . .

The Finance Act, 2010 has nullified the Delhi High Court
Ruling by redefining ‘taxable service’ with retrospective effect from 1-6-2007
as under :

“(105) ‘taxable service’ means any service provided or to
be provided :

(a) to (zzzy)

(zzzz) to any person, by any other person, by renting of
immovable property or any other service in relation to such renting for use in
the course or furtherance of business or commerce.

Thus, henceforth a service provided by renting of immovable
property or a service ‘in relation to’ such renting of immovable property, is
now covered in the definition of taxable service. TRU Circular No. 334/1/2010 —
TRU (Annexure B), dated 26-2-2-10 clarifies as under :


Para 9.2

“In order to clarify the legislative intent and also bring
in certainty in tax liability the relevant definition of taxable service is
being amended to clarify that the activity of renting of immovable property
per se
would also constitute a taxable service under the relevant clause.
This amendment is being given retrospective effect from 1-6-2007.

Thus, renting of immovable property by itself is now
considered to be a taxable service. In the Finance Act 2010, it has been
declared as under :

No act or omission on the part of any person shall be
punishable as an offence which would not have been so punishable had this
amendment not come into force.



Implications of the amendment :

The amendment in the definition of taxable services seeks to bring within the service tax net the activity or renting of immovable property per se nullifying the position held in the Home Solutions case. It further seeks to overturn the said position w.e.f. 1-6-2007. Therefore any levy, demand, recovery or action in relation thereto taken by the authorities will be validated and no action against the same will be maintainable in a Court of law. Further, all refunds made consequent to the Delhi High Court Ruling in Home Solutions case, are liable to be overturned by virtue of this amendment.

Legality and constitutional validity of the amendment:

An important issue that arises for consideration is whether the amendment will withstand the test of constitutionality. Though the answer can only come by way of a final decision by the Courts of law, it becomes important to prima facie examine the same.

In the light of the Delhi High Court ruling in Home Solutions case, the amended provisions will be subject to judicial scrutiny. Questions which arose before the Delhi High Court would once again arise. Is the bare renting of immovable property a taxable service? Is there a continuous flow of service between the property owner and the tenant in such a scenario? Is there any value addition involved?

In addition, constitutional validity was not examined by the Delhi High Court in Home Solutions case. Hence, there would be fresh round of litigations on this ground too.

According to one school of thought, the amended provisions can be challenged for transgression of the constitutional line of control which divides the powers of the Union and the State Governments. In terms of Article 246(3) of the Constitution, the Legislature of any State has the exclusive power to make laws with respect to matters listed in List II to the Seventh Schedule. Taxation on transactions relating to immovable property is not within the legislative competency of the Central Government inasmuch as these matters fall under Entry 49 of List II of the Seventh Schedule to the Constitution of India.

S. 66 of the Act, which is the charging section for the purpose of levy of service tax, provides, for the levy of tax on the taxable services covered by S. 65(105) thereof. From a reading of the charging section, it is clear that service tax is a charge of tax on taxable services. The Supreme Court in Laghu Udyog Bharati v. Union of India, (1999) 112 ELT 365 (SC) has also held that service tax is a tax on services and is leviable on the service provider. The levy of service tax on the leasing or letting or rent-ing of immovable property may be illegal and ultra vires Article 246 of the Constitution of India.

According to another school of thought, in terms of the Supreme Court Ruling in TN Kalyana Manda-pam (supra), levy of service tax on renting of immovable property is constitutionally valid.

In the light of the foregoing, a fresh round of litigations is likely as regards legality and Constitutional validity as well of the retrospective amendment made in regard to renting of immovable property.

Some issues:

Implications on property owners:

The retrospective amendment in renting of im-movable property has been challenged through writ petitions in various courts of the country and interim stay has been granted in some cases. The benefit of the same would be available to a property owner who is a petitioner/member of the petitioner association. However, it would be advisable for the petitioners, to make appropriate disclosures before service tax authorities by filing letters/through notes in service tax returns. In cases where, property owners charge service tax but the tenants refuse to pay, the detailed analysis and discussions in July, 2009 of BCAJ can be referred as to the various options that can be exercised by property owners and implications in regard to each option.

Interest implications:

In Pratibha Processors v. UOI, (1996) 88 ELT 12 (SC), it was observed by the Supreme Court as under:
“in fiscal statutes, the import of the words, — ‘tax’, ‘interest’, ‘penalty’, etc. are well known. They are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purpose, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of delay in paying the tax on due date. Essentially, it is compensatory and different from penalty — which is penal in character.” (p. 20).

Thus, interest is not a penalty, but is essentially compensatory in nature.

In the context of stay matters, it is a reasonably settled position to the effect that if a petitioner loses he would have to pay tax along with interest inasmuch as interest is compensatory as discussed above. However, in the context of retrospective amendment, whether this principle would apply is an issue.

In this connection, attention is invited to the Supreme Court Ruling in Star India Pvt. Ltd. v. CCE, (2006) 1 STR 73 (SC), wherein the following was observed in regard to liability to interest in cases of retrospective validation of levy on broadcasting services.

Para 7
“In any event, it is clear from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the Legislature to retrospectively legislate, such retrospective legislation is normally not per-missible to create an offence retrospectively.

There were clearly judgments, decrees or orders of Courts and Tribunals or other authorities, which were required to be neutralized by the validation clause. We can only assume that the judgments, decree or orders, etc. had, in fact, held that persons like the appellants were not liable as service providers. This is also clear from the Explanation to the validation Section, which says that no act or acts on the part of any person shall be punishable as an offence which would have been so punishable if the Section had not come into force.”

On the basis of Star India ruling, a view can be taken to the effect that there may be no interest liability for the past period. However, this view is likely to be disputed by the tax authorities, resulting in litigations.

Penalty implications:

It is a very well-settled position that in cases where matters involved are of controversial nature, no penalty can be imposed. Based on the same, it would appear that there may be no liability to penalties, provided appropriate disclosures are made before service tax authorities.

Vacant land leased for construction of building?: Under the unamended provisions, ‘vacant land’, whether or not having facilities clearly incidental to the use of such vacant land was excluded from the definition of ‘immovable property’. Thus, renting of such vacant land was not liable for service tax.

The Finance Act, 2010 has curtailed the above exclusion by bringing within the ambit of the immovable property ‘vacant land, given on lease or licence for construction of building or temporary structure at a later stage to be used for further-ance of business or commerce’. Thus, renting of vacant land on long-term lease for construction of commercial building or structure thereon in future would be liable for service tax.

Leases executed prior to the amendment:

An important issue that arises for consideration in case of leases executed prior to the amendment (in some cases such leases would have been ex-ecuted before the introduction of service tax).

It is pertinent to note that advances received in respect of all newly inserted taxable services (as well on those services the scope of which has been expanded) in the Finance Act, 2010, have been exempted by virtue of Notification No. 36/2010-ST, dated 28-6-2010. However, services falling under sub-clause (zzc) (Commercial Training or Coaching Service) and (zzzz) (Renting of Im-movable Property Service) of S. 65(105), [which have been given retrospective effect] have been kept out of this Notification.

No such retrospective effect has been given to renting of vacant land (on which some construction is to be made subsequently). Therefore, it would appear that advances received in respect of this renting of vacant land ought to be exempted on the same ground on which exemption to advances in respect of other newly inserted services and amended services has been given. The scope of Notification No. 36/2010-ST, dated 28-6-2010 needs to be clarified accordingly.

The issue involved has ramifications for a large number of assessees most of which are PSUs and local industrial corporations which are renting vacant land on a long-term lease with a explicit condition that the lessee would construct a factory or commercial building on such land.

This can also be seen from a perspective that the moment advance is received and lease agreement is signed, the taxable event of provision of service is completed. Thus, as per settled position, if the taxable event happened at the time when service tax was not leviable on that service, then service tax cannot be demanded later, on a pro rata basis or otherwise even if the service becomes taxable during the tenure of the lease. The Draft Point of Taxation Rules seems to support this position.

From the Service Tax Department’s perspective, they could argue that service is in the nature of continuous service. Hence, service tax needs to be discharged on a pro rata basis for the period post amendment.

In case of long -term leases, whether the same can be covered within the ambit of ‘renting’ at all, may have to be examined vis-à-vis provisions under principal laws governing transfer of property and related regulations.

Editor’s Note:

Recently, Hon. Punjab and Harayana High Court in the case of Shubh Timb Steels Ltd has upheld the consitutional validity of levy of service tax on renting of immovable property as also its retrospective application.

Tax Department slams BCCI, says its activities are commercial

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New Page 2

58
Tax Department slams BCCI, says its activities are commercial


The Board of Control for Cricket in India (BCCI) has become
totally commercial and all its activities are being carried on commercial lines.
Cricket is only incidental to its scheme of things. It is more into prize money
for every run or wicket, which is nothing short of a gimmick.

This is what the income-tax department has to say about the
BCCI in its assessment order dated December 30 last year, while disallowing tax
exemptions for the BCCI. The exemptions were earlier being granted on the
grounds that promoting cricket was a charitable activity.

The BCCI’s net income for 2006-07 was Rs 274.86 crores. The
I-T assessment order means that the body will have to pay Rs 120 crores as tax
plus the yet-to-be-quantified penalty amount.

The exemption for BCCI from being taxed was there till
2006-2007 and was withdrawn after the cricket body amended its memorandum and
rules twice. The added objectives included establishing coaching academies and
holding 20-over matches. Income-tax norms stipulate that the changed objectives
should be brought to its notice; this, say I-T officials, was not done by the
BCCI.

The order further says: The conduct of certain activities and
receipt of income from these activities clearly show that these activities are
totally commercial and there is no element of charity in the conduct of the BCCI.
It is evident that the major income arises not from the game of cricket but from
the business of cricket. The order adds: The characteristics of volume,
frequency and regularity of the activities accompanied by profit motive on the
part of the assessee have been held to indicate an intention to continue the
activity as business. The I-T order also says that BCCI’s rules are very
stringent and that it imposes a blanket ban on unapproved tournaments. The BCCI
is exercising complete control over the revenue of tournaments and is not
interested in the promotion of cricket, the order says. The money recovered by
way of media rights and sponsorship is not only to meet the expenses of
organising tournaments but is bound to create a huge surplus. And the surplus
generated by the BCCI is shared with players instead of being used for promoting
the game, the order says, adding that only 8% is spent on promotion of sports.
The BCCI has not developed any infrastructure nor has it built any stadium or
other amenities. Referring to the IPL, a BCCI wing that organises the hugely
popular T-20, the assessment order says: Acts indicate the intention.

Referring to an agreement between the BCCI and Nimbus
Communications for coverage of its events from March 1, 2006 to March 31, 2010,
where the BCCI intended to generate revenue through mobile rights, official film
rights, fixed media rights and public exhibition rights, the I-T department has
said: The very foundation of the agreement is based on commercial exploitation
and benefit which explains the colossal amount of media rights fees of Rs
2,724.2 crore paid by Nimbus. In its sponsorship agreement with Nike, the BCCI
was entitled to Rs 45 lakhs and Rs 58 lakhs as compensation for every
international one-day and test match respectively. Besides this, the BCCI was
paid minimum guarantee royalty of Rs 13.5 crores for 2007 and performance
bonuses which came to Rs 1 crore.

The investments of the BCCI (fixed deposits with banks) have
also witnessed a jump of 36.74% in the last two years (from Rs 545 crores to Rs
745 crores). In the same period, the fixed assets have seen a rise of 179 per
cent (from Rs 3.3 crores to Rs 9.4 crores). According to the income and
expenditure account for the year 2008-2009, BCCI’s income was Rs 726 crores,
down from Rs 1,000 crores in 2007-2008; but this will be audited only in
December 2010.

(Source: The Times of India, dated 14.01.2010)

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Govt Panel to Push Reforms in Foreign Investment Norms

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Govt Panel to Push Reforms in Foreign Investment Norms


The government is looking to rationalise existing norms of
foreign portfolio and NRI investment, a move that is to have a major impact on
the flow of venture capital and private equity money into the country. A working
group of industry experts has been formed which includes members of both the
government as also the industry, to consider reforms.

Among the top issues in the agenda for the working group will
be to review the existing policy on foreign inflows (other than Foreign Direct
Investments) and ways to attract more foreign investment and reduce policy
hurdles while maintaining the “Know Your Customer” (KYC) requirements.

The group will also identify challenges in meeting the
financing needs of the Indian economy through foreign investment. It would look
at various forms of foreign investment including investment in listed and
unlisted equity, derivatives and debt, including the markets for government
bonds, corporate bonds and external commercial borrowings.

The group will also re-examine the rationale of taxation of
transactions through the STT and stamp duty. Although the government has in the
past refrained from scrapping STT, despite demands from capital market
participants, any change in the policy related to STT will have a major impact
on the stock markets.

(Source: Internet & Media Reports, dated 14.01.2010)

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Accounting norms (AS-11) under Bombay HC scanner

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Accounting norms (AS-11) under Bombay HC scanner


The union government’s move to suspend Accounting Standards
11, allowing companies to show foreign currency liabilities as assets, has come
under the Bombay High Court’s scanner. The petition, filed by an organisation of
city-based legal experts, “Just Society”, has claimed that this permits firms
that might otherwise be sick to “paint a rosy picture”.

The government had introduced AS 11 in 2006, which required
companies to record foreign currency monetary assets and liabilities at the
exchange rate on the balance sheet date. Last year, in the midst of the global
recession and swings in the exchange rate, the Confederation of Indian Industry
and the Associated Chambers of Commerce and Industry of India made
representations to the government, according to the petitioner.

Subsequently, the National Advisory Committee on Accounting
Standards (NACAS), a government-appointed body, suspended the implementation of
AS 11.

(Source: The Times of India, dated 13.01.2010)

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Transfer Pricing – CBDT panel to formulate safe harbour provisions

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Transfer Pricing – CBDT panel to formulate safe harbour provisions


The Central Board of Direct Taxes (CBDT) has set up a
committee to formulate rules for the safe harbour provisions—a set of rules that
would enable the income tax (I-T) authorities to accept the transfer pricing
returns without scrutiny.

Foremost among the committee’s tasks is to set an acceptable
margin which would act as a benchmark for the industry. For example, if the safe
harbour rules stipulate that the margin in a particular industry is 20%, and if
the transfer price declared by a company engaged in that industry is not less
than the margin, the I-T authorities would accept the return without questions.

The rules, once introduced, will lend an investment friendly
image to India. It will also put an end to the requirement of collecting huge
amounts of data regarding transfer pricing transactions, thereby saving time and
energy.

(Source: The Economic Times, dated 11.01.2010)

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Tax records of politicians under scrutiny

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Tax records of politicians under scrutiny


The Finance Ministry and the Central Board of Direct Taxes (CBDT)
have initiated a process of verification of the income-tax returns of all MPs
whose records are not available with the income-tax department, and to help them
verify whether they have paid appropriate taxes or not.

The decision has been taken by the Finance Ministry after
they found that many of them have paid partly or no taxes at all; and many of
their PAN details are not available with the department. So, it becomes really
tough for the department to ascertain their actual income. Those who are found
to be purposely involved in tax evasion will invite a heavy penalty and
scrutiny.

(Source: Internet & Media Reports, dated 05.01.2010)

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Govt to match netas’ I-T returns

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Govt to match netas’ I-T returns


The finance ministry has quietly initiated a process of
opening up the income-tax files of politicians belonging to all parties and
tallying their income statements with the affidavits filed by them with the
Election Commission during the 2009 parliamentary polls.

Verification of the assets declared by the Lok Sabha
candidates, many of whom have now become MPs and even ministers, will help the
department to assess if they had paid appropriate taxes as declared in their
statements with the two different authorities.

The finance ministry initiated the exercise after it found
that many of the candidates had made astounding declarations in their affidavits
to the EC, while initial scrutiny revealed that some of them had paid paltry or
no taxes. However, as many as 50% of the candidates in the 2009 LS polls had not
furnished their Permanent Account Numbers, making it difficult for the
department to ascertain the actual income of these people.

The department will be scrutinizing the I-T returns of all
Lok Sabha candidates irrespective of whether they ended up winning or not. A
letter from the Central Board of Direct Taxes (CBDT) has been circulated to all
those MPs whose records are not available with the I-T department or whose PAN
have not matched with the department’s records.

The details sought pertain to assessment years 2006-07 and
2007-08. The letter said: A verification exercise is being carried out by the
I-T Department, Ministry of Finance, in respect of affidavits filled by you at
the time of filing nomination for the general elections 2009.

For fear of being disqualified if statements made in the
affidavits were found to be untrue when elected, candidates had made some
astounding declarations. One candidate declared assets worth more than Rs 600
crores, while those having assets between Rs 100 crores and Rs 200 crores were
found in dozens during the 2009 polls.

(Source: Internet & Media Reports, dated 04.01.2010)

(Note: One sincerely hopes that vested interests are
not successful in sabotaging the whole exercise.)

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Foreign arms of Indian cos under tax net likely – Introduction of CFC Rules

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Foreign arms of Indian cos under tax net likely – Introduction of CFC Rules


The forthcoming budget may contain provisions for taxing the
undistributed dividends of foreign corporations that are controlled or owned by
Indian companies. Controlled Foreign Corporations (CFCs) laws enable the
authorities to tax the income of a resident derived from a foreign corporation.
This is irrespective of whether the profit/dividend of the foreign entity is
transferred to India or not.

Countries adopt CFC laws mainly for checking the probable
loss of revenue arising from the transfer of profit of foreign corporations to
offshore havens, such as the Isle of Man and Cayman Islands.

CFC laws are in force in at least 25 countries with varying
rules and regulations. In the US, for instance, 50 per cent of the voting rights
or 50 per cent of the value of shares constitutes a CFC.

The Indian tax authorities think it is time India had a law
that will tax the profits of foreign corporations that are controlled by Indian
companies. Since cross-border acquisitions by Indian companies have been on the
rise in the recent past, the government may find it difficult to ignore the
demand of the tax authorities.

(Source: The Economic Times, dated 05.01.2010)

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Finmin opposes FDI maths, wants review

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Finmin opposes FDI maths, wants review


Under the new rules for indirect foreign investments, issued
through Press Notes 2 and 3 last year, all investments by an Indian-owned and
controlled company will be classified as domestic investments, even if the
company has significant foreign stakes. The earlier norms counted only the
proportionate amount as FDI in the downstream subsidiary.

For example, if a 51 per cent Indian-owned company floats a
subsidiary with a 50 per cent stake, and the balance 50 per cent is held by
foreign investors, its entire 50 per cent investment in the subsidiary would be
counted as local investment under the new norm. This will allow the company to
invest in any sector, even those closed to foreign investment.

In telecom, for instance, which has a foreign investment
limit of 74 per cent, companies can now get foreign investment above the allowed
cap through a multilayered subsidiary structure. The flip side for companies is
that the total investments of those with more than 50 per cent foreign holding
in a subsidiary would be counted as foreign investment.

Leading Indian banks such as ICICI Bank, HDFC Bank and
Development Credit Bank would be considered foreign for the same reason.
Investments of these banks in a subsidiary would also be classified foreign.
This is not only a check on their investments in sectors with limits on foreign
investments, but also branch expansion.

Though the finance ministry had written to the DIPP earlier,
the communications were largely centred around the impact of the new FDI norms
on the banking sector. The ministry’s missives came after the RBI highlighted
the implications of the new norms on the banking sector.

(Source: The Economic Times, dated 05.01.2010)

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Inquiries mount after PwC ‘failed to notice’ mistakes

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67 Inquiries mount after PwC ‘failed to notice’ mistakes

PricewaterhouseCoopers is facing an inquiry by accounting
regulators into its failure to notice that JP Morgan was paying up to £ 16
billion of clients’ money into the wrong bank accounts.

Last week the Financial Services Authority fined the
investment bank £ 33.3 million — the largest penalty that the City regulator has
imposed — for breaches of client money rules under which customers’ funds became
mixed with the bank’s own cash over a seven-year period.

PwC, JP Morgan’s auditor, is now likely to be drawn into
another inquiry by the two professional bodies that oversee accountants, the
Financial Reporting Council and the Institute of Chartered Accountants in
England and Wales.

In addition to serving as principal auditor, PwC was retained
by JP Morgan to produce an annual client asset returns report — a yearly
certification to prove that customers’ funds were being effectively ring-fenced
and therefore protected in the event of the bank’s collapse. But PwC signed off
the client report even though JP Morgan was in breach of the rules.

It is understood that the FSA plans to pass on the details of
its own investigation to both the FRC and ICAEW, which will then determine
whether any further action is necessary.

The money at risk in this case consisted of funds held by
customers of JP Morgan’s futures and options business — a sum that varied from
£1.3 billion

to £15.7 billion between 2002 and July 2009, when the breach
came to light. PwC did not comment.

(Source : The Times, UK, 7-6-2010)

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HC ruling on bounced cheques rattles traders

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66 HC ruling on bounced cheques rattles traders

The Bombay High Court judgment that the drawer of a bounced
cheque cannot be prosecuted if the instrument was issued only as a security has
thrown traders into a tizzy.

Suppliers who were used to granting credit for series of
transactions against a single cheque are now unsure of how good this security
is. Debtors on their part while issuing the cheque are making it in the covering
letter that the cheque is being issued as a security and not to meet any debt
obligation.

In the past, lenders have used this Act to initiate criminal
prosecution against borrowers who have found it difficult to pay their
instalments. Now debtors are taking shelter under the judgment on cheques issued
as security.

The Bombay High Court held that the debtor cannot be
prosecuted under the Negotiable Instruments Act if cheques, issued only as
collateral security for loan, bounces. According to news reports, the judgment
was issued by Justice P. R. Borkar on a petition filed by Ahmednagar-based
Ramkrishna Urban Co-operative Credit Society against a debtor.

(Source : The Economic Times, dated 13-3-2010)

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CAs, CSs told to report all suspicious fund transfers

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65 CAs, CSs told to report all suspicious fund transfers

The Government has asked chartered accountants, cost
accountants and company secretaries to directly report to the Home Ministry
cases of suspicious fund movements in and out of companies, as it looks to crack
down on money laundering and terror funding.

The Home Ministry, through the Ministry of Corporate Affairs,
has asked the Institute of Chartered Accountants of India (ICAI), Institute of
Company Secretaries of India (ICSI) and the Institute of Cost and Works
Accountants of India (ICWAI) to ensure that their members report any instances
of diversion of funds directly without any procedural formalities.

Incidences should be reported directly to a designated e-mail
as also be conveyed through fax to the Home Ministry. Such cases will be handled
by a senior Home Ministry official, whose telephone number has also been shared.

The move is aimed at sensitising professionals of their
responsibilities u/s.51A of the Unlawful Activities (Prevention) Act, which aims
at preventing routing of terror funds through domestic firms.

Suspicious activities include cases where a dubious
individual or entity approaching them for investing into financial instruments
or immovable property or arrange for incorporating a company as a director,
shareholder or partner.

(Source : The Economic Times, dated 24-4-2010)


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HC squashes ICAI verdict

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64 HC squashes ICAI verdict

The Delhi High Court has quashed the Institute of Chartered
Accountants of India (ICAI) decision against auditor P. Ramakrishna in the
Global Trust Bank (GTB) case. The decision comes as a relief for Mr. P.
Ramakrishna, who is a partner in Lovelock & Lewes, a network affiliate of
Price-Waterhouse. ICAI held Ramakrishna guilty of professional misconduct in the
Global Trust Bank probe.

Sources said ICAI proceeded under old disciplinary norms in
the case. The minutes of the case hearing by ICAI was not ready before the Delhi
High Court. Seth Dua & Associates represented P. Ramakrishna in this case. The
Delhi High Court said ICAI’s decision on P. Ramakrishna is not legally tenable.
It wants the case to be handled by Director (Discipline), ICAI.

The High Court wants ICAI to now proceed under amended S. 21
of the CA Act. ICAI had allegedly proceeded under the unamended CA Act. The
Court has asked ICAI to pay costs of Rs.10,000 to Ramakrishna within four weeks.

When contacted Amarjit Chopra, President, ICAI said they will
appeal against today’s decision in the High Court.

(Source : www.moneycontrol.com, dated 20-4-2010)

(Note : Does it tell a tale of the state of affairs in ICAI —
of lack of due diligence and application of mind by our elected representatives
in Central Council ?)

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CAs turn preferred financial whizkids

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63 CAs turn preferred financial whizkids


While MBAs are being hired for select functions, CAs are
being looked upon as decision-makers. Chartered Accountants, the nuts and bolts
professionals in the world of finance, are scoring brownie points over suave MBA
finance graduates as India Inc gets increasingly risk-averse in a post-slowdown
environment.

Companies are focussing more on risk-compliance than pursuing
ambitious targets as they recover from an 18-month economic downturn, paving the
way for recruitment of more CAs, perceived to have core competence in financial
matters.

Thus, CAs are currently being accepted as business leaders
who could take up roles beyond auditing and financial management. While MBAs are
being hired for purely sales, marketing or international trade functions, CAs
are increasingly being looked upon as decision-makers.

Due to complexities of accountings and prospective taxation
regime like GST and IFRS (International Financial Reporting Standards),
companies need CAs as MBAs don’t study these subjects. CAs are now assuming
advisory roles as well. If CAs have to take a decision about an M&A deal, their
skills are useful during the due diligence process. The CA curriculum too has
seen some specialisation over the past decade with the development of the
financial services sector. However, CAs need to acquire skills in management
planning and strategic thinking.

(Source : The Economic Times, dated 12-4-2010)

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On road to GST, states okay single truck permit

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62 On road to GST, states okay single truck permit

Transport Ministers agree to national permit of
Rs.15,000/annum per truck. Inter-State transport of goods is set to become
hassle-free and cheaper with the state governments agreeing to give up their
powers to issue separate transport permits.

Transporters would now have to pay an annual fee of Rs.15,000
per truck for moving across the country, according to the new rule agreed to by
the states’ transport ministers. The new national permit regime will strengthen
the efforts to obtain a national market for goods and services through the
proposed goods and services tax or GST that seeks to create a seamless pan-India
market.

(Source : The Economic Times, dated 17-4-2010)

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CBDT wants jail term for tax evaders

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61 CBDT wants jail term for tax evaders

Tax evasion could land you behind bars if the country’s
direct taxes authority has its way. The CBDT wants to prosecute tax evaders
under the tough anti-terror financing law, even as it looks to adopt a more
friendly approach towards honest taxpayers. It has proposed to the Department of
Revenue to bring offences such as concealment of income, not filing income-tax
returns, failure to deposit tax deducted at source and giving false evidence
under the ambit of the Prevention of Money Laundering Act or PMLA. If these
offences become scheduled offences under the anti-money laundering law, they
will invite rigorous imprisonment of three to seven years and a fine of up to
Rs.5 lakh. The trial will be faster in the case of offences under PMLA as these
are tried in special courts and the accused has to prove that he is not guilty.
“The Board has written to the Department of Revenue to include these as
predicate offence under the PMLA,” a Finance Ministry official said.

(Source : The Economic Times, dated 5-4-2010)

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Trip to tax havens in govt crosshairs

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60 Trip to tax havens in govt crosshairs

The Income-tax Department is keeping a tight vigil on
Indians, notably the ones suspected of owning bank accounts, visiting tax
paradises, such as Switzerland, Cayman Islands, Mauritius and the Bahamas, as it
amplifies efforts to trace tax evasion and slush funds tucked away abroad.

India is part of a long lineup of countries, including the
US, pursuing tax transparency across the globe. The Government is in talks with
20 tax havens including the Bahamas, Monaco, Panama, Seychelles, St. Kitts &
Nevis and the Maldives for new treaties that promise to exchange information
more openly.

The Government also recently posted two senior Indian Revenue
Service officers as first secretaries at its missions in Singapore and
Mauritius, which are hotbeds of investments into India.

Agents and officials of foreign banks that offer services and
facilitated the opening of bank accounts are also on the Government’s radar.

The Tax Department also plans to create divisions and post
officers at the Indian missions in the US, the UK, the Netherlands, Japan,
Cyprus, Germany, France and the UAE for raising the vigil on evaders and greater
exchange of information.

(Source : The Economic Times, dated 28-4-2010)

(Note : Those who hold black money abroad of such large
magnitude, are smarter than our Revenue officials. They also have friends in
high places who are hand in glove with such persons and accord them full
protection from any action ! ! !)

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